Out sourcing HR Functions Boon or BaneDept. of Personnel Management Presented By: IndSearch Group
IntroductionHistory of Outsourcing• Barter system- First instance of outsourcing• Idea was rooted in 1776 in “competitive advantage theory” propagated by Adam Smith.• Early examples of outsourcing- -England Textile Industries in 1830 -Making of American wagon covers :A job outsourced to Scotland.
More Recent examples:-• Eastman Kodak• NikeOutsourcing is defined as :- Delegation of task to an outside entity. Functions outsourced to a third party under contract. Buying goods or services instead of producing them in house.• Outsourcing includes:-- Offshoring- Nearshoring
Changing Trends in HR OutsourcingTraditional Outsourcing• Different HR functions were outsourced to different vendors. Recruiting Payroll company Benefit Training Admin Supplier Supplier 3 4 Supplier Supplier 1 2
Outsourcing the whole process to a single vendor Benefit Admin Com. Plan & Strat. Pay Roll Education & Training Value Chain Cont. Integrator Workforce Mgt. Org Dvpt. Personnel Admin Recruiting
Success rate of world wide spending on outsourcing services 85% 45% 2001 -2005 2006
Rationale for HR outsourcing• Stage of evolution of the HR function• Need for expertise• Time pressure• Cost reduction
Cost reduction main rational to outsource Cost reduction Top mgt Line mgt Service HR improvement Resource availability 0 20 40 60 80 Percentage of Respondents
Criteria for Outsourcing1. Model for Virtual HR Based on these theories: • Transactional Cost theory • Resource Based prospective
Framework to decide which function to Outsource High Idiosyncratic Core HR Activities HR ActivitiesUniqueness Peripheral Traditional Low HR Activities HR Activities Low High Value
2. Alan Speaker’s Theory Classification of HR Activities:- • Type of Activity • Strategic value of Activity
HR Functions Outsourced in Practice• Frequently outsourced functions: Fully or Partially Pay Roll HRIS Fully Recruiting Partial Trng & Dvpt Other Benefit Mgt 0 20 40 60
HR Executives views on HR Outsourcing HR Functions Views in % YES NO Employee Communication 13% 87% Assessment 43% 57% Recruiting 52% 48% HRIS 35% 65%
Case Study-1Bank Of America• Leading financial service organization• Approximately 1, 85, 000 employees.• 4200 banking centersHR- Department• 1300 employees in HR• Have outsourced many of their HR activities to Exult like, - International relocation -administration , regional staffing,”life event coordination”(Leave and Retirement) policy and general benefits etc.
Motives for outsourcing• Reduce Costs• Focus resources on core activities and core competencies• Expand and improve services.• Benefits from Vendor’s investments and innovation• Improve career opportunities for staff.• Increases Flexibility
Results from outsourcing• Activities like Payroll,benefits, administration were completed within 7 months.• Cost reduction goal of 12 per-cent annually was achieved.• Could focus on more strategic tasks like process design and development.• Increase in Percentage of internal recruitment from 16% to 35%.
Case Study-2Sunoco Inc Headquartered in Philadelphia Leading Manufacturer and Marketer of Petroleum and Petrochemicals. Approximately 14000 Employees 5 Different Business Units 45 Employees in Central HR Department
HR Functions Outsourced at Sunoco Drug Screening Central advertising for new employees Posting of Employment Advertisement online Executive Search Salary Surveys and StatisticsOutsourcing Payroll Function• Outsourcing Payroll to third party vendor• Preparation for New Millennium• People Soft HRMS
Bane or Disadvantages• Dependence on Vendors• High Costs• Loss of Control• Low morale among permanent employees• New Risks• Sub-standard Service
Conclusion1. Human Resource Outsourcing is still in developmental stage.2. Issue like Data security needs attention.3. Its neither a Boon nor a Bane, and depends on organization and situation.