HRD challenges and

HR Outsourcing

Content of Presentation

What is HRD?HRD Mechanism or SubsystemsChallenges on HRDWhat is Outsourcing and HR

outsourcing ?Why Outsource? Pros and cons of HR OutsourcingStrategic Outsourcing

Human Resource Development

Job performance = f (ability X motivation X Organizational support)

For, Ability, Motivation and Organizational support: Emergence of HRD concept

What is HRD?• A set of systematic and planned

activities designed by an organization to provide its members with the necessary skills to meet current and future job demands.

• Development – preparing for future responsibilities, while increasing the capacity to perform at a current job– Management training– Supervisor development

HRD Mechanism or Subsystems• Performance Appraisal• Potential Appraisal• Career Planning• Training and Employee Development• Organization Development• Rewards• Employee Welfare and Quality of

Work life(QWL)

Challenges for HRD• Head hunting/ Job hopping• Changing workforce demographics• Competing in global economy• Eliminating the skills gap• Need for lifelong learning• Need for organizational learning• Difficult to determine the best tool

HR Outsourcing

“Main concept is Value Addition through Waste Minimization”

What is Outsourcing?Outsourcing is a strategic decision to give a

task or activity to an independent contractor who determines how best to do the task or activity.

The firm and the independent contractor become partners and may establish a long-term relationship.

Examples of outsourced activities: IT, HR, Legal services, Manufacturing, R & D.

Note: Outsourcing transactions are done in the market.

Other Definitions

In-sourcing ( creating new internal production facility)

Off-shoring ( producing company on host country)

Co-sourcing ( combining internal and external, for e.g. Auditing)

Geo-sourcing Outplacement

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 centreCost centre, not value adding profit centrePoor alignment of HR programs with

business needsNeed for strategic fit between business

strategy and HR strategy: the business of business is business: Therefore the business of HR also should be business!

Why Outsource? Allow HR to focus on core

competencies Creates strategic opportunities for

HR professionals Improve quality, efficiency, and

effectiveness Relief from administrative burdens Reduce operating costs

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

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)

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

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 costsAdd valueDo more with less

Upgrade, but not upsizeDownsize, but not downgrade

HR itself is becoming the target of belt tightening

Shed routine administrative tasks and focus on talent management

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)

Deciding Whether to outsource?

Primary ( Organization Side)Create a project teamAnalyze the current positionPay attention to people issuesBenchmarkCome to a decision

What is core to the business and the future of business?

What can bring competitive advantage?

Deciding whether to outsource

Decide what to outsourceTender the packageChoose a partnerIntroduce your staff to the agencyDraw up the contractTest the contract

Pros and cons of HR outsourcing

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

Which functions/sub-systems to outsource

Recruitment – preliminary screening and short listing

Training – Training 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

High

Low

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Low High

InterdependenceInterdependence

Insource

Outsource

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Contingentemployees

When and how to outsource activities(Baron & Kreps, 1999)

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

Dominant trends3 main HR outsourcing industry segments

ConsultantsAdministrative – service providersTechnology enablers

Customizing imported software products remains an issue: supply oriented rather than demand based customization

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?

Typical Problems Integration with over all strategy Fragmented and piecemeal approach – cleaning part

of the poolAbsence of formal outsourcing processLimited cost analysis Core business definition – Everything is core? Contract management how to ensure that we achieve

desired objectivesWork flow, supply chain and logistics management

critical to outsourcing process

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