What is HR Outsourcing?

Any activity, in which a company lacks internal expertise and confidentiality and requires an unbiased opinion on human resources, can be outsourced. An important reason why various businesses turn to outsource HR services is that they do not have the time or expertise to deal with the situation.HR outsourcing can be segregated into two broad categories: Transaction and administration outsourcing and HR consultancy. Transactional outsourcing is more of day-to-day or month-to-month requirements, and constitutes services like payroll and benefits. This kind of service is more prevalent in the Indian market. In the value chain, it falls at the lower-end compared to HR consultancy, although it happens to be an essential function. It is a fact that companies continue to manage the strategic and policy functions of their HR departments in-house. HR outsourcing can happen in various areas such as payroll, employee benefits administration, fixed assets administration, network management, receivables management, 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.

Outsourcing of human resource functions in Asia Pacific grew 17.52 per cent annually between 1999 and 2004 and will touch $2.56 billion by the end of this year, according to a study. In 1999 the HR outsourcing market was $1.14 billion. "The biggest component of HR services that are outsourced are payroll services. Its share in the overall market will be $761.20 million in 2004, followed by education and training at $555.99 million and benefits administration at $535.65 million," the study by global HR consultancy firm Hewitt Associates said.

Hewitt conducted the HR Outsourcing Study in the fall of 2003 and the survey of 524 companies reporting on 697 offices in Asia-Pacific region revealed that 39 per cent of the offices had already outsourced their HR processes.

The study said that outsourcing of HR processes is still relatively new concept to many companies in the region. Many countries like India, Malaysia, Philippines and Australia are proactive in offering themselves to US and European organisations as outsourcing centres. Overall, companies operating in Asia expressed their intent to outsource more than two services over a period of time. Benefits administration was expressed as a preference with training, medical claims processing, payroll and recruitment also being consideredIn India the HR outsourcing market is USD 2 Billion with current market size of USD 27 Million


Overall, companies tend to outsource to alleviate administrative burdens and focus on strategic areas

Source: HR Magazine (April 1995)

The above figure shows how an enterprise can be transformed and how the management focus shifts from administrative to strategic functions after outsourcing of the routine activities.

INDIAN EXPERIENCES

	Bharti cellular services-north central
	Employee loans, medical insurance, health checkups, selection based on competencies, 360 feedback has been outsourced. VP-HR says that time must be invested in building trust and confidence level with vendor. Employees opinion is must. Core functions will be internally driven. Number of people in HR will reduce but their value will go up considerably.
	SPECTRAMIND
	Benefits management, PF, Superannuation, gratuity, entry level recruitment, training, welfare, transportation, cafeteria, housekeeping, security, nursing assistance, basic health services have been outsourced. VP-HR says that outsourcing initiative is training for pre-hiring skills. Success rate of selection defines the success rate of trainer and his fees.
	GLAXO SMITHKLINE CONSUMER HEALTHCARE
	Director-HR and Administration says that mechanisation of HR is better choice. What works in one organization does not work in another. Outsourcing is not the panacea for all the troubles, only routine administrative function should be outsourced. Core OD interventions must be managed internally. The above experiences can be best summarised as- Outsourcing for HR function must be viewed as a business imperative, not a luxury. The approaches and applications must be tailored to fit perfectly. The partnership must be nurtured and closely monitored. Also there is critical HR issue of potential loss of expertise in certain areas, which may be difficult to recover-a danger of hollowing out of organization. Outsourcing is not a complete bed of roses. The stakes are high but so are the payoffs. But then YOU WIN SOME YOU, LOSE SOME.