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Can HR Outsourcing Benefit an Organization?

 


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This is a question that many organizations undergoing structural changes attempt to answer in the present business environment. Outsourcing functions such as production and developing software are perceived as “must-haves" for fast paced business plans. But HR, which has always been the heart of an establishment, is gradually opening up to outsourcing. "The HRO [Human Resources Outsourcing] market is set to grow to $3 trillion over the next five years, and just over a third of HRO potential has been currently delivered, " reported Dr. Anthony Hesketh, CRF (Corporate Research Forum) Project Researcher.

The phenomenal growth of the outsourcing industry in the current business environment is an outcome of the breakneck speed of competition among organizations. Most companies believe that an absolute focus on its core functions and goals could leverage its overall performance. Of course, this is possible only when outsourcing partners can satisfactorily deliver routine and affiliate tasks and processes. Earlier, with the expansion of the industrial sector, several businesses commissioned ‘job work’ to local, smaller outfits especially where logistics and manufacturing were concerned. However, when it came to HR functions, it was by and large left to the administrative department. On the other hand, big multinationals and diversified firms which had to manage a large number of employees at multiple locations and different levels in the hierarchy needed to set up a separate HR department. With the emergence of the internet and better communication technologies, the business environment underwent rapid changes. Today, offshore service providers find it worth their while to upgrade skills and move up the value chain to be able to deliver specialized services requiring managerial capabilities. Ongoing surveys reveal a major paradigm shift towards outsourcing strategic functions. Since the beginning of this century, Human Resource Management, perceived as an integral part of an organizations strategic profile, has attracted many outsourcing partners.

At present, pension/benefits, stock options, health benefits, and payroll are among the most popular HR programs being outsourced partially or completely. According to a survey by The Conference Board and sponsored by Accenture, more than three-fourths of executives in large North-American and European firms currently outsource more than one HR function.
The explosive industrial growth witnessed all over the world was also responsible for the evolution of ‘out of the box’ thinking in management practices. Across business schools and boardrooms, the Human Resource function is recognized as a component that can yield competitive advantages, especially in information and knowledge sectors. It is seen as a tool to attract and retain talent, build workforce capabilities, encourage leadership, develop successive management pipelines as well as handle grievances. With high attrition rates plaguing most people-intensive industries, an active and vibrant HR can catapult its organization into the “most coveted organization to work with" ambit.

From the organizational point of view, outsourcing this complex and specialized function needs to be handled carefully. Experts believe that HR functions need to be broken down and classified into those which can be outsourced and those which cannot. For example, placement firms play a vital role in attracting talent, but final selection and induction of a candidate cannot be outsourced since it involves direct and complete involvement of the core team to be able to work together. However, other functions like payroll management, training and skill development, and even conducting performance appraisals in coordination with the organization can lessen the workload considerably.

However, some espouse a contrary view. Unilever, an Indian company that broke out from the standard mold, decided in 2006 to outsource most of its HR functions to Accenture. Viewed by many skeptics as a foolhardy decision, its full impact is yet to be seen. One factor that may affect companies adversely were such a move popularized, is the loss of HR practices as a key differentiator. It may even affect employee morale and commitment as the sense of belonging in being associated with a particular brand or company may be lost. In the long run, in spite of savings in HR budgets, outsourcing this very integral function may not be received very well by the very workforce for whom it exists. For many, an absolute solution for this dilemma is yet to be found. Until then, the debate goes on.

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