The document discusses HR outsourcing, including what functions are most suitable for outsourcing and the risks and challenges involved. It notes that about 1/3 of HR functions are being automated, 1/3 outsourced to focus on more strategic activities, and 1/3 are moving back to the business lines. Transactional and repetitive tasks like recruitment, training administration, and payroll are good candidates for outsourcing. However, strategic decision making should be kept in-house. Effective outsourcing requires careful planning, cost analysis, contract management and attention to potential impacts on employees.

1. HR OUTSOURCING

2. What is HR doing?
• Too much of HR into administration and too less
into people orientation: Disproportionate time
spent on routine administration
• Power centre, not service centre
• Cost centre, not value adding profit centre
• Poor alignment of HR programs with business
needs
• Need for strategic fit between business strategy
and HR strategy: the business of business is
business: Therefore the business of HR also
should be business!

3. What is happening to HR?
• 1/3 is going back to Line (employee champion roles)
• 1/3 is getting automated (routine and repetitive information
processing tasks)
• 1/3 can be outsourced (repetitive non value adding services)
• What is left of HR in HR?
• Specialist consultancy roles?
• Change agent role

4. What to outsource in HR?
• Three things that managers do (Henry Mintzberg’s Nature of
Manager’s Job)
• Interaction (outsource)
• Information gathering/processing (outsource)
• Decision-making and problem solving (do not outsource)

5. The decision to outsource
Transaction cost analysis
• TCA combines economic theory with
management theory to determine the best type
of relationship a firm should develop in the
market place.
• The properties of the transaction determine the
governance structure.
• High asset specificity and uncertainty lead to
transactional difficulties, with transaction held
internally within the firm – vertical integration
• Medium asset specificity – leads to bilateral relations
in the form of cooperative alliances between the
organisations
• Low : transactions frequent and governed by market

6. Core and peripheral in
banking
• In the core banking activity the decision to
outsource takes place within the regulatory
framework dictated by the RBI
• Typical problems
• No formal processes/supply chain issues
• Limited cost analysis
• Core business definition
• Consider the problems with DSAs in credit card
business – internal checks and balances: in one
bank approval rate is high in the other low.

7. Why outsource HR
REDUCE COST OF HR AND CONTINUE TO PROVIDE VALUE
• Tightening labour markets and competitive
product markets – pressure to reduce head
count
• Cut costs
• Add value
• Do more with less
• Upgrade, but not upsize
• Downsize, but not downgrade
• HR itself is becoming the target of belt tightening
• Shed routine administrative tasks and focus on
talent management

8. Strategic outsourcing
• Beyond cost control
• Specialization and expertise that goes with it for
which there is no need on a regular full time
basis
• Focus on quality, technology and service delivery
• Outsourcing to best of class, best of industry
• Problems with technology – address need for
customization (which presently means largely
adjusting to supply side than demand side)

9. Deciding Whether to
outsource?
• Create a project team
• Analyse the current position
• Pay attention to people issues
• Benchmark
• Come to a decision
• What is core to the business and the future of business?
• What can bring competitive advantage?

10. Deciding whether to
outsource
• Decide what to outsource
• Tender the package
• Choose a partner
• Introduce your staff to the agency
• Draw up the contract
• Test the contract

11. Pros and cons
• Pros
• Cost and savings
• Financial and operational
flexibility
• Need to focus on few
things
• Access to quality,
expertise and better
management skills
• Staffing flexibility
• Cons
• Need greater
coordination flow with
agencies
• Reduces organizational
learning by depleting its
skill base
• Loss of control
• Adverse affects on
morale and motivation
• Job insecurity

12. Which functions/sub-systems
to outsource
• Recruitment – preliminary screening and short listing
• Training – Trg. Needs identification, content
development, delivery, logistics, third party evaluation
• Performance management - on line – automation
• Compensation – pay roll and compensation surveys
• Safety -- inspections
• welfare – transport, security, catering
• Labour contract – contract employees doing the job
which was earlier done by regular employees
• Which function not to outsource
• Decision making in each of the sub functions
• Leading change and transforming the organization

13. Implications – Need for
caution
• What is formerly inside is going outside and what is
formerly outside is coming inside
• Formerly strong relations are becoming weak and
formerly weak relations are becoming strong
• Huge disparity in profile, pay and working conditions:
casual, contract, contingent employees are less
educated, less trained, over worked under usually less
safe conditions, underpaid and enjoy little or no social
security/protection
• Pay attention to outsourced employees the same way as
you do with regular employees in terms of how they are
recruited, trained, paid and motivated

14. Dominant trends
3 main HR outsourcing industry segments
• Consultants
• Administrative – service providers
• Technology enablers
• Customizing imported software products remains an issue:
supply oriented rather than demand based customization

15. Typical Problems
• Integration with over all strategy
• Fragmented and piecemeal approach – cleaning
part of the pool
• Absence of formal outsourcing process
• Limited cost analysis
• Core business definition – Everything is core?
• Contract management how to ensure that we
achieve desired objectives
• Work flow, supply chain and logistics
management critical to outsourcing process

16. Risks of HR outsourcing
• Trust
• Confidentiality
• Dependency
• Spillover risks
• Relative proficiency
• Strategic capability
• Commitment
• Flexibility

17. Managing people issues
• What happens to people?
• When to communicate?
• Who to communicate with?
• Those whose jobs are outsourced and those whose
jobs are not outsourced
• How do you deal in the transition phase?
• What about HR staff?
• Who will survive who has to leave?
• How will the HR department look like, post
outsourcing?

18. websites
• Websites of all leading HR consulting firms