HR Outsourcing - The Emerging Trends
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Authors
Authors: Sanjib Dutta
Senior Faculty Member
ICMR (IBS Center for Management Research).
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Why the Outsourcing Rush?
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What are the reasons for the growth in HR outsourcing? How do companies gain by outsourcing their HR activities? HR outsourcing is considered a viable option, if a company lacks internal expertise and confidentiality and requires unbiased opinion on human resources. Outsourcing is also gaining importance as most companies do not have the time or the expertise to deal with situations. Outsourcing has become popular because companies are finding that external vendors--through technology and economies of scale--can provide more efficient and cost-effective HR services than in-house departments. The best example of a firm that has reaped early benefits from outsourcing is BP. In 1999, it outsourced its activities to Exult in the USA and UK for services like payroll, recruiting, expatriation, records management, vendor management and relocation services for 63, 000 employees.
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Payroll processing became more timely and accurate. Employees got their benefits questions answered sooner. HR processes have been standardized across the company. And for the first time, BP has measurable data on which HR activities are effective. As a result, its core HR staff has been slashed by 65 percent--from 100 to 35 people. Such success stories have propelled companies like Sony, AT&T and American Express to outsource HR activities. One of the main reasons for HR outsourcing that most companies quote is that such outsourcing helps them to get rid of routine transactional HR work. Some of the companies which have gone ahead with even manpower hiring outsourcing practices are Cisco, GE, Honeywell, Sun, i2.
Benefits of Outsourcing
When a number of companies are outsourcing their HR activities, there must be certain benefits associated with it. The major advantage is the cost and the time factor. According to India Life Hewitt, Vice-President, Leo Fernandes, "For large organizations to service their mammoth payroll by themselves is a huge drain on their resources. Outsourcing this one activity alone is huge direct cost saving for large legacy companies which could be in the range of 20 to 40 per cent."2 The major benefits of HR outsourcing are as follows:
* Fosters Innovation
* Increased speed to market
* Improved quality
* Focus on core competence
* Cost reduction
* Reduced administrative costs
* Improved customer service
* Insufficient staff
* Conserve Capital
2] In an interview to Deccan Herald, "Changing facet of HR in outsourcing," December 25, 2002.