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Out sourcing HR Functions Boon or Bane
Dept. of Personnel Management
Presented By:
IndSearch Group
Introduction
History 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• Nike
Outsourcing 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 Outsourcing
Traditional Outsourcing • Different HR functions were outsourced to
different vendors.
company
Recruiting Payroll
BenefitAdmin
Training
Supplier3 Supplier
1Supplier
2
Supplier4
Outsourcing the whole process to a single vendor
Pay RollEducation &
Training
Com. Plan & Strat.
Benefit Admin
Org Dvpt.
RecruitingPersonnel
Admin
Cont. Workforce
Mgt.
Value Chain Integrator
Success rate of world wide spending on outsourcing services
45%85%
2006
2001 -2005
0
2
4
6
8
10
12
14
16
18
2002 2003 2004 2005
Pay RollBenefit AdminPerson. Admin
Outsourcing HR: Spending
Gartner Group, HR Outsourcing: Time to Deliver Results-2001
In Billion Dollars
(Years)
Drivers for HR Outsourcing
• Downsizing
• Rapid growth
• Globalization
• Increased competition
• Restructuring
Rationale for HR outsourcing
• Stage of evolution of the HR function
• Need for expertise
• Time pressure
• Cost reduction
Cost reduction main rational to outsource
0 20 40 60 80
Resourceavailability
Serviceimprovement
Cost reduction Top mgtLine mgt HR
Percentage of Respondents
Criteria for Outsourcing
Based on these theories:
• Transactional Cost theory
• Resource Based prospective
1. Model for Virtual HR
Framework to decide which function to Outsource
Idiosyncratic
HR Activities
Peripheral
HR Activities
Core
HR Activities
Traditional
HR Activities
Low High
High
Low
Value
Uniqueness
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
0 20 40 60
Other Benefit Mgt
Trng & Dvpt
Recruiting
HRIS
Pay Roll
FullyPartial
HR Executives views on HR Outsourcing
Employee Communication
Assessment
Recruiting
HRIS
HR Functions Views in %
YES NO
13% 87%
43% 57%
52% 48%
35% 65%
Case Study-1Bank Of America• Leading financial service organization• Approximately 1, 85, 000 employees.• 4200 banking centers
HR- 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-2
Sunoco 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 Statistics
Outsourcing Payroll Function• Outsourcing Payroll to third party vendor• Preparation for New Millennium• People Soft HRMS
• Dependence on Vendors
• High Costs
• Loss of Control
• Low morale among permanent employees
• New Risks
• Sub-standard Service
Bane or Disadvantages
Conclusion
1. 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.