SHRM PROJECT

ON
FUTURE TRENDS IN HRM

A Study on Trends in HR Outsourcing in

Indian Context

Submitted to: By :
Dr Sujata Taru Taneja D-8
Disha Bhagat D-28

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Contents

1 Scope Of The Project

2 Introduction
3 Literature Review
4 Objectives Of The Project
5 Methodology
6 Data Collection
7 Analysis
8 Recommendation And Conclusion
9 Limitation

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Scope Of The Project

This project is aimed at analyzing the current state of the HR outsourcing market in India and the
trends that are prevalent in the same. Today, in this era of globalization there is high degree of
competition in all areas. One very important trend in the recent times has been the growth of
human resource outsourcing. Rapidly changing market dynamics and global competitive
pressures have caused organizations to spend more time focusing on their core business.
Organizations are fast realizing that they can't be all things to all people. So companies now, be it
a software company, a service provider or a manufacturing firm, decide what they are good at
and outsource everything else, i.e., focus on their core competency, and let someone else do the
rest in a more efficient and cost-effective manner.

As a result, human resources outsourcing is becoming increasingly prevalent. The number of

companies outsourcing HR activities continues to rise, and the scope of outsourced HR activities
continues to expand. HR outsourcing can happen in HR functions, like payroll administration
(producing checks, handling taxes, dealing with sick-time and vacations), employee benefits
(Health, Medical, Life insurance, Cafeteria, etc), human resource management (hiring and firing,
background interviews, exit interviews and wage reviews), risk management, etc. Outsourcing
has become a common response to manage people and technology resources strategically,
enhance services, and manage costs more effectively.

Outsourcing non-core activities allows HR professionals to move away from routine

administration to a more strategic role. The organization can focus on higher value added
activities while the outsourcing provider takes care of the day-to-day administration. Critical
internal resources, such as technology and talent, can be devoted to company's core business.
Outsourcing reduces the need for large capital expenditures in non-core functions. Thus,
outsourcing becomes a strategy for reducing the capital intensity of the business. This strategy
has gained popularity as companies aim to become more nimble and gain the speed and
flexibility necessary to compete in today's business environment. A growing number of
executives understand the benefits it can bring in terms of not only cost savings, but also
heightened strategic focus.

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 Many recognize outsourcing relationships as long-term partnerships created to further the
strategic goals of the organization.Companies to whom organizations outsource their Human
Resources function posses the knowledge and resources to expertly perform part or all of a
clients' human resources function, allowing the client to streamline their internal processes and
concentrate on generating profit in their core business. But still in India, people are not very clear
about what exactly is manpower outsourcing all about, and issues like quality and trust needs to
be addressed properly. Experts say the basic reasons hampering the growth of HR outsourcing in
India are confidentiality and cost factors.Moreover, the fear of losing jobs, losing control over
confidential data, ethics and quality of outsourcing vendors, security breaches and overall
confidence in the vendors deters many organizations. The biggest problem - and this is why the
HR outsourcing industry in India is on the back foot - is the government and the industry's
failure to tackle issues like data security and data privacy. This is where Indian HR outsourcing
companies face a major handicap. However, the future seems to be very promising. Estimates
show that the latent size of HR outsourcing in India is about $ 2 billion with a current market of
$ 27 million and it is growing at an alarming rate of about 50 per cent. India has immense
potential as more than 80% of fortune 1,000 companies are discussing HR outsourcing as a way
to cut costs and increase productivity.

As part of our project, we gathered information from a number of companies about HR

outsourcing and the reasons for which they outsource or don’t outsource. Also, we tried to
find out about the preferred models for outsourcing and perceived advantages and disadvantages.
Research Process adopted was as follows:
1. Defining the objective of the research and reviewing literature available on it
(Secondary Research)
2. Collecting data
3. Analyzing data
4. Preparation of report
5. Recommendations and conclusion

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Some of the companies included in the project were:
Aditya Birla Group
Birla Sunlife
Kotak Life Insurance
Aviva
Dalmia Cements

The research can be very useful to the HR professionals to understand the current trends in the
market with regards to outsourcing of HR services. It will give them a comparison of the firms
outsourcing HR services with those that have completely inhouse HR functions. They will get to
know about the perceived advantages and disadvantages of HR outsourcing and also the
important considerations to be kept in mind.Outsourcing Vendors can also find this research
useful in understanding the needs of their potential and existing clientele. The students can also
benefit from this research as they will become aware of the new trends in the field of HR and
will be better prepared for the challenges ahead of them when they join the industry as HR
professionals.

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Introduction

In a nutshell, outsourcing is an accepted management tool for restructuring and refocusing the
way an organization does business. It challenges management to build a more flexible
organization centred on the core competencies of the business. In making the determination that
a business has more to gain by having certain "noncore"aspects of the business outsourced to a
third-party service provider, the organization transfers responsibility for one or more activities or
functions that would normally be performed in-house to a qualified vendor, for a specified period
of time and at a negotiated fee, in accordance with terms stipulated in a service level agreement
(SLA). In essence, the organization is making a decision to send certain parts of the business out
to a provider whose "core competency" is that part of the business.HR outsourcing (HRO) is the
application of different business models and techniques to new forms of activities or processes
and radically redesigning them to create outputs of value for end users such as customers or
employees. HRO can be traced back to the definitive work of Michael Hammer and Jim Champy
in Re-engineering the Corporation. This spawned the business process re-engineering (BPR)
industry in the 1990s. Business process outsourcing (BPO) is based on the principles of
reengineering,but also combines them with the ownership and management of processes
on behalf of management by an outside vendor.BPO has been applied to many transactional
processes that can be easily defined or 'scaled' and transferred to third party ownership with
deeper expertise than themselves. The management of IT systems has been the major element of
the outsourcing market. An ongoing debate concerns which business processes are 'core'
to organisations - in the sense of core competencies that drive competitive advantage.
Any non-core - or peripheral - activities are outsourced and gives results like-

• Services are improved

• Overheads are reduced
• Many processes are automated - thus reducing people

The outsourcing of HR processes emerged in the late 1990s, pioneered by firms specialising
primarily in IT outsourcing - although not exclusively - in the US such as ACS, EDS and
Accenture. Many transactional HR processes are outsourced and are increasingly associated with

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electronic delivery - or 'e-HR'. Much day-to-day HR administration can now be transferred to
third party providers. Payroll and benefits is widely outsourced with organizations benefiting
from economies of scale and powerful Enterprise Resource Planning (ERP) solutions.
Competition among HRO providers has dramatically reduced prices. Other advantages for clients
include:
• cost reductions
• service improvements
• upgrading technology
• being better able to respond to business change.

The biggest problem - and this is why the HR outsourcing industry in India is on the back foot -
is the government and the industry's failure to tackle issues like data security and data privacy.
This is where Indian HR outsourcing companies face a major handicap. The Indian government
is still grappling with drafting a data protection law designed to quell growing privacy concerns
from their offshore clients.However, the future seems to be very promising. It's set to become a $
51 billion market worldwide in 2005, representing 39 per cent of the total business process
outsourcing revenue. Estimates show that the latent size of HR outsourcing in India is about $ 2
billion with a current market of $ 27 million and it is growing at an alarming rate of about 50 per
cent. India has immense potential as more than 80% of fortune 1,000 companies are discussing
HR outsourcing as a way to cut costs and increase productivity.

Right now, India is barely skimming the surface of the HR outsourcing market potential. Indian
life Hewitt (ILH), FIDELITY, EXULT and MAFOI are some of the prominent HR outsourcing
services providers in India and the clients include giants of manufacturing, software and service
industries like GE Capital, Ford Motors, Hyundai Motors, Satyam Group, Infosys, Enron, Haldia
Petrochemicals and HSBC, to name a few, but many more needs to be added to that list. HR
outsourcing has a huge potential for employment also. Nasscom numbers are a million software
jobs by 2005; HRO would be about a 25 per cent of that. Experts believe that in present times
HR outsourcing is undergoing a transition phase, it would still be sometime before we see
increased levels of HR activities being outsourced to India as lack of domain knowledge and
quality are some of the critical issues.

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Types Of HR Outsourcing
In the past, HR outsourcing was thought of as hiring a vendor to provide a service.With the new
focus on outsourcing, there is more of an opportunity to partner with the vendor to provide the
service on a longer term basis rather than just a one-time vendor contract. HR outsourcing can
include:
1.Discrete services
In this instance, one element of a business process or a single set of high-volume repetitive
functions is outsourced to a third-party administrator.
Examples of discrete services include the annual open enrolment process,flexible spending
accounts or employee background checks.

2.Multi-process services
The complete outsourcing of one or more functional human resource processes would be an
example of multi-process outsourcing (also called blended services). As such, the outsourcing of
either health and welfare benefits administration or defined retirement plan and 401(k) plan
administration to a third party administrator would be an example of multi-process or blended
services outsourcing.

3.Total HR outsourcing
Total HR outsourcing represents the transfer of the majority of HR services to a third party, to
include recruitment, payroll, HRIS, benefits, compensation and communications, as well as the
transition of HR management and staff. However, HR executive management would normally
remain in place within the organization, along with strategic planning related to people
management and other key HR functions at the discretion of management.

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Literature Review
Global Scenario
SHRM Human Resource Outsourcing Survey Report
The 2004 survey report revealed that HR outsourcing was a practice used by almost six out of 10
organizations. However, one-third of organizations did not outsource any HR functions, and only
a few planned to outsource HR functions in the next three years. HR functions were usually
partially outsourced or completely outsourced. The difference is that when functions are partially
outsourced, the organization co-manages the function with the vendor; when they are completely
outsourced, the vendor takes full responsibility. More than one-half of HR professionals
indicated that their organizations partially outsourced an HR function. Administration of health
care benefits, pension benefits and payroll were examples of functions most commonly cited as
partially outsourced. The top three functions that were outsourced completely were background
checks, employee assistance programs and administration of flexible spending accounts. Some of
the most frequently named drivers for outsourcing were reducing operating costs and controlling
legal risk by improving compliance.However, large-staff-sized operations, compared with small
organizations, were twice as likely to indicate that their reason for outsourcing was an attempt to
free up the time of their HR staff to focus more on organizational strategy. When asked about the
future of outsourcing, about two-thirds of HR professionals predicted that their level of
outsourcing would remain the same over the next five years, and nearly one-third expected their
organizations to increase their level of HR outsourcing. Outsourcing seemed to be favored to a
greater extent in large-staff-sized organizations: almost twice as many HR professionals from
these organizations, compared with medium organizations, indicated that HR outsourcing was
likely to increase in the next five years. When asked about the benefits of outsourcing, the
majority of HR professionals indicated that outsourcing allowed HR professionals the chance to
concentrate their efforts on core business functions, such as organizational strategy development
and execution. Correspondingly, nearly three-quarters of HR professionals agreed that the role of
HR professionals became more strategic with the outsourcing of certain,specifically
transactional, HR functions.

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Present Scenario In India

With more and more companies looking to rationalise employees on their payroll,manpower
outsourcing is slowly becoming the new buzz in India too.And the trend seems to have hit not
just big multinational companies but the public sector and government undertakings as well,
though on a very low key yet in the latter.Estimates show that the latent size of HR outsourcing
in India is about $2 billion with a current market of $27 million and it is growing at a rate of
about 50 per cent.Experts, however, say though foreign companies are outsourcing jobs to India,
putting the country in the middle of outsourcing boom, the Indian companies do not seem to
be enamoured by the opportunity till now and are not adopting HR outsourcing practices in a big
way. "HR outsourcing in India has not seen the required momentum and is limited to a trickle
effect, with companies outsourcing a few selected low-end HR processes," says Anil Mahajan,
executive director, Talent Hunt Pvt Ltd, a leading HR firm in New Delhi.A recent survey
'Outsourcing in the Asia-Pacific', conducted by Hewitt Associates, a global HR outsourcing and
consulting firm, confirms the situation. The survey showed that many companies in the region
are either unfamiliar with the process and procedures of HR outsourcing, or are unaware of the
players operating in the area."Even though across the globe companies are realising that
headcount is directly related to the revenue and are outsourcing most of their transaction and
administrationrelated work, the general opinion among the Indian companies is that it is still
economical to manage all their HR process internally," Mahajan says, adding: "Here people are
also not very clear about what exactly is manpower outsourcing all about.”Explaining about the
concept of HR outsourcing, Kris Lakshmikanth, founder CEO & managing director of The Head
Hunter, a recruiting firm in Bangalore, says,"It is a process of outsourcing involving particular
tasks like recruitment, makingpayroll, training and development to a third party who have
expertise in these respective fields.""HR outsourcing can happen in areas such as payroll,
employee benefits administration, fixed assets administration, network, receivable and logistics
management, hardware maintenance, telemarketing, call centres and database management. In
India, the most common processes outsourced are related to training, payroll processing, surveys,
benchmark studies and statutory compliance," Mahajan adds.

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Elaborating about the benefits of manpower outsourcing, Lakshmikanth says,"Today, every
organisation is aiming at achieving productivity by enhancing return on investments and
achieving the economies of scale. In this context, it makes sense to focus only on the
organisation's core competencies and outsource non-critical business activities. Therefore,
routine administrative work, although important, can be outsourced to third party vendors."
Experts say the basic reasons hampering the growth of HR outsourcing in India are
confidentiality and cost factors. Besides the fear of losing jobs, losing control over confidential
data, ethics and quality of outsourcingvendors, security breaches and overall confidence in the
vendors deters many organisations. Quality at times forms another roadblock. According to
Mahajan, “most companies are not sure about the end result, which they will receive from the
vendor. Also currently there are no standard benchmarks available so pricing varies a lot from
vendor to vendor for similar services. This gives the customer the feeling that they are not
getting best value for their money,” he adds.But, as the Hewitt survey puts it ‘with economic
slump showing signs of improvement, many HR outsourcing vendors are optimistic that things
will look up inthe near future.Experts also believe that in present times HR outsourcing is
undergoing a transitionphase. "There has also been a transition on its user acceptance, where it is
moving from a corporate domain to public sector undertakings and the government sector.
However, it would still be sometime before we see increased levels of HR activitiesbeing
outsourced," they say.

HR Outsourcing

Human resources are the most critical assets of any organization as the organization's success lies
in their hands. But in order to ensure that its employees remain satisfied, the company has to
have a specialized human resources department that most of times proves to be a costly affaire.
That is why most companies today; decide to outsource their human resources management
functions to offshore destinations.

What is HR Outsourcing?

HR outsourcing is a process in which a company uses the services of a third party to take care of
its HR functions. A company may outsource a few or all of its HR related activities to a single or
combination of service provides located in offshore destinations like India, China, Philippines,

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In this sense the HR outsourcing service providing firms or hr outsourcing company can be
divided into four categories depending on the services they offer as, PEOs (professional
employer organization), BPOs (business process organization), ASPs (application service
providers), or e-services. In these categories the PEOs are the ones that assume full responsibility
of a company's hr functions where as others such a BPOs, ASPs and e services provide web
based hr solutions like database maintenance, HR data warehousing, maintaining records,
developing and maintaining hr software's etc.

Advantages of HR Outsourcing

HR outsourcing including personal outsourcing case studies have indicated that managing human
resources involves specialized activities such as training, payroll administration, employee
database management, employee retention, employee benefits and a lot more that many
companies either don't have the proper resources or time to manage on their own. By outsourcing
their HR functions companies can save huge amounts of money and be free of complications that
are otherwise involved in maintaining an internal HR department. By doing so, companies can
concentrate on their core competencies saving their valuable time and resources.

To sum it up, human resources outsourcing that includes hr recruiting outsourcing helps cut
costs, helps concentrate on core business and most importantly helps in ensuring employee
satisfaction.

Whatever your company's human resources requirements, there's an HR outsourcing firm out
there to meet those needs. Some HR outsourcing firms are generalists, offering a wide variety of
services, while others are specialists, focusing on specific areas such as payroll or recruiting.
Depending on the size of your business and how much control you want to maintain over HR
functions, you can either outsource all your HR tasks or contract for services a la carte.

The basic services offered by HR outsourcing firms may include:

• Overseeing organizational structure and staffing requirements

• Recruiting, training, and development
• Tracking department objectives, goals, and strategies
• Employee and manager training

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 • Benefits administration
• Employee orientation programs

Businesses that outsource HR are typically small-to-midsize firms with between 25 and 1,500
employees. These businesses view HR outsourcing as a strategic tool that relieves them of HR
responsibilities and enables them to focus on what they do best. In addition to allowing you to
concentrate on your core business activities, outsourcing provides some key benefits, including:

• Providing you with skilled professionals who are focused specifically on HR

• Helping you reduce and manage operating costs
• Improving employee relations

If you need to hand off the entire HR function, consider a professional employer organization
(PEO). A PEO becomes the employer of record, handling employee relations, payroll, benefits,
workers' compensation, and all the other areas that fall under the HR umbrella, while you
manage the employee's everyday business responsibilities. For a step-by-step guide to using and
hiring a PEO, check out our Buyer's Guide on Outsource Your HR Using a PEO.

If you don't need the comprehensive services of a PEO, you can contract specific projects
through an HR outsourcing firm to help you:

• Implement a human resource information system (HRIS)

• Create or update employee handbooks and policy manuals
• Develop and implement a compensation program
• Create or review a performance appraisal system
• Write and update affirmative action plans
• Provide sexual harassment training

Referrals, the Yellow Pages, and the Web are the best resources for finding an HR outsourcing
provider. You have the option of working with an international, national, or regional provider.
Any one of those may be able to meet your HR needs.

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Many organisations are considering Human Resources Outsourcing as a method of:

• Enhancing effectiveness by focusing on what you do best

• Increasing flexibility to meet changing business conditions, demand for products and
services and technologies
• Transforming the organization
• Increasing product and service value, customer satisfaction, and share-holder value

However, the exercise itself can be extremely complex and testing. Like other forms of
outsourcing it must be meticulously managed from concept to implementation. To assist in this
respect it is now common to employ a series of templates and management guides.

Four Trends That are Changing Human Resources Outsourcing

Renewals are the big news in human resources outsourcing. Mohammed Haque, Vice President
& Head of Enterprise Solutions Service practice at Genpact, estimates about $40 billion in
contracts will come up for renewal from 2010-2012. How buyers go about renewals is about to
change.

Buyers are becoming “much more aggressive in going out and getting a look at what’s going on
in the landscape,” says Rohail Khan, Executive Managing Director for ACS Total Benefits
Outsourcing. He predicts the automatic sole-source renewal without a market check “is going the
way of the dodo bird because organizations want more visibility to the bottom line. They want to
know the value of the supplier’s contribution.”

In the past, he says renewals were typically sole source. Buyers are also hiring more third-party
advisors to help them out with their renewals, he adds. “Buyers are no longer willing to assume
their suppliers are providing value.”

The current economy accelerated this trend, he reports. “Buyers want to know if they are getting
the right value for their money,” he explains. “Then the question becomes: ‘Are we with a
partner that’s investing and innovative?’ Because today it’s not just about cost effectiveness.”
Buyers, he says, want to be sure their suppliers “will be able to serve them as they move
forward.”

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Shifting adoption patterns: taking a more focused approach

With buyers more critically evaluating the benefits they stand to achieve from HR outsourcing,
more are considering phased approaches that focus on one defined area at a time, according to
Katrina Menzigian, Vice President, BPO Research, Everest Group. “These areas may be along
individual process areas such as multi-country payroll, benefits, or recruitment or along
categories of HR processes, transactional versus talent management,” states Menzigian.

Several factors are driving this tighter focus, including the desire to match up-front investment
with pay-back benefits, the need to feel confident in supplier capabilities, and the realities of a
shifting supplier landscape. In the near future, it’s conceivable that some clients will have to
balance a mix of suppliers until more suppliers are able to demonstrate a broader set of
compelling capabilities, she says.

The importance of global capabilities

Don Schulman, General Manager, Finance and Administration for IBM, adds that buyers facing
renewal are also now asking whether they want their work “split across multiple outsourcers” or
instead “want to consolidate it all together within a partnership that enables standardization
across multiple locations, processes, and clients — one that has a flexible model that’s global in
nature.”

Abid Ali, Head of BPO at Tata Consultancy Services, agrees global capabilities will become
even more important in supplier selection. “While India has a significant advantage in delivering
BPO services, customers are working with providers that have a global delivery footprint.” He
says they are looking for “existing suppliers that can deliver in new markets for them rather than
looking for new suppliers in those areas.”

Sue Marks, CEO of Pinstripe, says buyers with operations in 50 countries, for example, will
want to select a supplier with proven capabilities in all those regions. “It is extremely important
to understand the local nuances, “she explains.

Khan points out multinational companies are now asking for global benefits administration
solutions. He says ACS is developing technology so that these companies can “tackle the big

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unknown chunk of spending they’re not aware of. We can help them understand their overall
global spend.”

Process convergence

Process convergence is another trend. In the past, HR organizations viewed employee retirement
and health/welfare selection decisions as separate transactions. “There weren’t a lot of connect
points,” Khan points out. Today he says progressive HR managers are asking how they can make
health and welfare decisions converge. He says both buyers and suppliers are trying to figure out
how this will impact HR decisions going forward.

Changes in benefits administration

A fourth trend is the integration of what Khan calls “the natural adjacencies of benefits
administration.” They are things like wellness, voluntary benefits, absence management, and on-
and off-boarding. All have advantages for HR buyers. For example, a more efficient off-boarding
process can ensure an organization doesn’t pay people longer than it should. And enterprises can
minimize their healthcare costs with a wellness program to change behavior.

“Buyers want to extend the definition of HR outsourcing” to include these things, he says. In this
economy, employers will not be able to give employees as many benefits as they historically
have offered. “Finding ways to help employees derive benefits will absolutely be part of the
HRO requirement,” Khan continues.

In addition, the current economic situation is forcing CEOs to have laser vision on their costs.
HR spend is part of the selling, general, and administrative (SG&A) expenses. “Organizations
are understanding the value of a wellness program. They can understand where absenteeism,
which is a direct hit to their bottom line, is showing up. They will be forced to focus on solving
these kinds of problems,” the ACS executive continues.

Khan posits these types of buyer challenges “will force providers to focus on innovation and
investment to expand the notion of benefits administration to the natural adjacencies.”

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The new preference for platforms

Marks points out early HRO buyers outsourced “bits and pieces” of the process. Now, “buyers
are looking for the complete end-to-end solution where the supplier can provide the process
services as well as the platform.” Adds Khan, “It’s not going to be good enough just to be an
administrator and a manager of transactions.”

Haque says buyers want to outsource the complete HRO services package, which includes talent
management, recruitment, learning, and development as long as the supplier has developed the
core HR services like payroll, time and attendance, and workflow administration. “In the past,
people outsourced the process or the platform. Now they want to outsource them together and
have the supplier charge them on a per-employee per-year basis.”

Khan predicts this convergence will force providers “to be clearer and more explicit about their
investment strategies and how they translate innovation into real capabilities that help buyers
solve problems.” One thing is sure: “Providers can no longer milk their 15-year-old platforms.”
Instead, they will have to “constantly reinvent their offer because that’s what buyers will
demand.” He says this is both “a dramatic change and challenge;” suppliers not willing to invest
will lose market share “because there are too many suppliers that will invest.”

Marks believes “the only way to adjust is to leverage technology to improve your efficiency and
make your workload manageable.” She says the demand is greater than ever before and the
technology has evolved, “so there are no more excuses.”

In her opinion, HR leaders need to step up and support their teams with “technology that
addresses their need to manage the swelling pipeline of passive and active candidates and deliver
the best possible candidates to those companies who are relying on them now, more than ever,
for their survival.” Cloud-based services and SaaS applications can evolve the way suppliers
design traditional HR services. “They can accelerate change in shared services initiatives and not
just transform but revolutionize the organization when combined with HRO and RPO,” she says.

In sum, Marks says “the economic turbulence is a tremendous opportunity for HR leaders to
come back in a new, more focused, and more impactful way.” She says, going forward, HR
leaders will have to help their buyer organizations “garner the capability to drive the right

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business outcomes.” Economic modeling, corporate governance, strategic marketing — all will
become part of the new HR professionals’ tool kit. “HR will become less about administration
and compliance and more about executing on strategy and capability,” believes the Pinstripe
CEO.

Hopefully these changes will help corporations become more profitable and employees become
healthier, wealthier, and more productive.

HR Outsourcing: Not Just for Small Companies

Small businesses have long been singing the praises of HR outsourcing — and for good reason.
By allowing companies to rely on external experts to manage HR functions such
as payroll and benefits, HR outsourcing can cut in-house staffing costs, improve services and
grant growing companies access to enterprise-class benefits packages.

But small startups aren’t the only ones benefiting from HR outsourcing arrangements. Large
enterprises also have something to gain from turning to providers such as ExcellerateHRO
Corp., Accenture, Hewitt Associates LLC and Ceridian Corp. “HR outsourcing makes complete
sense for a large organization,” said Jennifer Perrier-Knox, a senior research analyst at Info-Tech
Research Group. Here are some reasons why:

Shift Focus

Keeping tabs on a large enterprise’s HR functions, from recruiting fresh talent to overseeing
payroll, is a burdensome and time-consuming activity. However, by handing over these activities
to a third-party provider, a company’s in-house HR team can shift its focus from mundane
administrative tasks to “competitive differentiators,” according to Perrier-Knox. Policy
enforcement, strategic planning, human capital management, increased productivity and
organizational restructuring are business-critical undertakings far more likely to improve a
company’s bottom line and increase employee satisfaction.

Cut Costs

While small companies often lack the in-house expertise needed to manage HR functions
effectively, that’s simply not the case for large enterprises. Rather, HRoutsourcing’s main

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attraction for large corporations is its ability to cut costs. Said Perrier-Knox, “Where large
companies can really benefit from HR outsourcing is in the area of cost reduction.”

According to a recent Watson Wyatt Worldwide report, the average operating expense for HR
functions for each full-time HR employee is $284,982. Granted, an HR outsourcing arrangement
can cost anywhere from $200,000 to millions of dollars. But when you factor in costs associated
with the ongoing training and recruitment of in-house HR personnel, many corporations are
better off financially going with an HR outsourcing provider.

Achieve Compliance

These days, one of the most heavily outsourced areas of HR is regulatory compliance. In fact, a
study released by Everest Research Institute reveals that more than half of all HR outsourcing
transactions involve regulatory and compliance services. That’s no surprise given the enormous
pressure on HR professionals to stay abreast of the latest legislative changes pertaining to
benefits regulations, corporate governance and claims management. What’s worse, failure to
meet these regulatory requirements can result in devalued stock prices, angry shareholders,
disgruntled employees and a tarnished reputation. As a result, Perrier-Knox said, large
corporations would be wise to turn to an HRO (HR outsourcer) for “deeper knowledge and
expertise [of the most recent regulatory compliance issues].”

Simplify Your IT Environment

As a company grows and changes, so too must its in-house HR systems. However, making
modifications and adding new modules to an enterprise-wide HR management system can be a
costly and complex endeavor. Fortunately, “from a cost-reduction perspective,” said Perrier-
Knox, “HR outsourcing can reduce operating costs and eliminate the need to buy new in-house
IT systems.”

Seamlessly Relocate Employees

So much for sitting tight. “Given the economy the way it is, there is going to be a lot of
organizational restructuring that may require the movement of employees from location to
location,” warned Perrier-Knox. An HR outsourcing provider can help transferred employees
find the right home, day and senior care; recreational opportunities; and spousal employment.

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What’s more, vendors such as ExcellerateHRO offer services that address any cross-cultural and
cost-of-living issues that may arise in each transferred employee’s new location.

Negotiate Discounts

For small businesses, an HR outsourcing arrangement grants immediate access to enterprise-

class benefits packages. That’s not to suggest, however, that HR outsourcing fails to provide
large corporations with any benefits-related perks. Rather, sizable companies have the luxury of
being able to negotiate factors such as volume-type discounts on group benefits packages.

While it’s obvious you don’t have to be a mom-and-pop shop to benefit from an HR outsourcing
arrangement, there are limitations to consider. Warned Perrier-Knox, “One thing you cannot
outsource at all is your basic HR leadership. Big companies should always retain somebody in-
house, from a strategic perspective, in order to oversee corporate policy, decision-making and to
manage the relationship with an HRoutsourcer .” In a small company, that point person may be
the CEO. However, Perrier-Knox said that large corporations need to appoint a dedicated HR
professional to ensure that benefits such as reduced costs and regulatory compliance are
managed.

Key Points we noted:

• HRO market is still in transition
• Vast difference exists between the state of HRO market in India and the global scenario
• People not yet clear about HRO in India
• Public Sector hasn’t yet taken to outsourcing
• Cost/benefits and confidentiality are most important considerations in HRO
• More freelancers exist in the market than organized players
• Size of companies is also an important factor in HRO
• HRO is expected to gain momentum in the coming years

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Objectives
1) The objective of this project is to formulate a picture of current trends in outsourcing in HR
services prevalent in Indian firms.

2) The project aims to discern common factors promoting or inhibiting the growth of HR
outsourcing industry in India.

3) The data collected will help in finding parameters which are most common in terms of HR
outsourcing.

4) The research tries to determine patterns while comparing organizations involved in HR

outsourcing against those which are not.

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Methodology
Two methodologies were adopted while undertaking the research:

1.Secondary data collection

large amount of secondary data is available in the forms of articles, journals, and previously
conducted researches on the similar topics. This data was collected and studied to determine
some of the broad trends prevalent in HR outsourcing across the world and the presence of HR
outsourcing industry in India.

2.Primary data collection

Primary data was collected through the means of a interview and corporate literature. For this
purpose, executives in various organizations were contacted through telephone and e- mails and
their responses were recorded The data collected was then analyzed.
Following questions were asked to the employees/ respondents

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Analysis

1)Do you outsource any of your HR services?

Aditya Birla Group yes

Birla Sunlife yes
Kotak Life Insurance yes
Aviva yes
Dalmia Cements yes

All the 5 companies outsource their HR services

2).Which of these HRM services are outsourced by your organization?

Providing Temporary staff 0

Recruitment & selection 2
Training & development 2
Managing Payroll syatems 1
Managing benefits 0
Conducting Employee surveys 0
Complete HR function 0

2 out of 5 companies outsource recruitment and selection

2 out of 5 outsource training and development
1 out of 5 outsource payroll systems

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3.)Which of these factors are major reasons for outsourcing HR services?

Cost savings 3
Increased capacity 0
Lack of internal staff / capabilities 1
Access to better systems and technology 1
Other factors 0

3 out of 5 companies think that cost saving are the major reasons for outsourcing HR
services

1 out of 5 companies think that access to better systems and technology is the major reason
for outsourcing

1 out of 5 companies think tht lack of internal staff is the major reason of outsourcing

4)Which of these are major risks associated with outsourcing HR services?

Mismatch of cultures 0
Security of Database 1
Financial stability of chosen vendor 2
Justification of cost-benefit calculations 2
Other factors 0

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2 out of 5 companies think that major risks associated with outsourcing HR services is
Financial stability of chosen vendor
2 out of 5 companies think that major risks associated with outsourcing HR services is
Justification of cost-benefit calculations
1 out of 5 companies think that major risks associated with outsourcing HR services
is Security of Database

5).While outsourcing more than one HR services, which of the following approach do you
utilize?

Consolidating all HR services under one vendor 3

Employing different vendors for different HR services 2

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3 out of 5 companies While outsourcing more than one HR services approach utilized is
Consolidating all HR services under one vendor
2 out of 5 companies While outsourcing more than one HR services approach utilized
is Employing different vendors for different HR services

6)While outsourcing HR services, which of these parameters are most important

parameters for vendor selection.

Cost 3
Brand Name of Service Provider 1
Range of Services being offered 1
Flexible Contract Options 0
Other factors 0

3 0ut of 5 companies think that while outsourcing cost is the most important parameters
for vendor selection.
2 0ut of 5 companies think that while outsourcing Brand Name of Service Provider
is the most important parameters for vendor selection.
2 0ut of 5 companies think that while outsourcing that range of services being
offered is the most important parameters for vendor selection

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7)Do you think that outsourcing HR services has achieved its purpose for your
organization?

4 out of 5 companies think that outsourcing outsourcing HR services has achieved its
purpose for your organization

8)Which metric do you use for measuring the effectiveness of outsourcing HR services?

Cost saved due to outsourcing 2

Service level improvement 1
Increase in employee satisfaction 2
Other factors 0

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2 out of 5 companies use cost saved due to outsourcing as a metric for measuring
effectiveness of outsourcing HR services
2 out of 5 companies use Service level improvement as a metric for measuring
effectiveness of outsourcing HR services
2 out of 5 companies use Increase in employee satisfaction as a metric for
measuring effectiveness of outsourcing HR services

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Recommendations

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Conclusion

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Limitations

1)We could not include the HRO vendors in our research to gain their perspective

2)Our respondents were from specific areas and did not cover the whole of India

3)We missed out on some sectors in our research

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