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
Str
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Str
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Low High
InterdependenceInterdependence
Insource
Outsource
???
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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