Current Trend in HR Outsourcing

1

Current Trend in HR-Outsourcing of Human ResourcesCurrent Trend in HR-Outsourcing of Human Resources

Nadeem KazimNadeem Kazim

Director (HR & Personnel)Director (HR & Personnel)

Exide Industries LimitedExide Industries Limited

2

What has changed in HR?What has changed in HR?

3

HR RenamedHR Renamed

1.1. Labour OfficerLabour Officer

2.2. Welfare OfficerWelfare Officer

3.3. Personnel OfficerPersonnel Officer

4.4. HR OfficerHR Officer

5.5. People officerPeople officer

6.6. Employee Relations Employee Relations officersofficers

4

HR Aligned HR Aligned

WelfareWelfare AssetAsset

ImpersonalImpersonal

PersonnelPersonnel

LiabilityLiabilityFarewellFarewell

HRHR

Is HR aligned ?

5

Has HR Paced With Has HR Paced With Time :Time :

Indian Indian Organisation are Organisation are becoming global:becoming global:

HR HR struggling struggling To catch To catch up:up:

Global Global Organisation :Organisation :

6

Business process OutsourcingBusiness process Outsourcing

A Business A Business ImperativeImperative

7

Good companies knows Good companies knows what what TO DOTO DO

AndAnd

Great companies knows Great companies knows what what NOT TO DONOT TO DO

8

Leading companies have benefited significantly from outsourcing and the Leading companies have benefited significantly from outsourcing and the overall BPO market is expected to grow rapidly in the future overall BPO market is expected to grow rapidly in the future

82

26

76

47

12

38

3920

100

24231

17

119

050

100150200250300350400450500550

600

2005 2012

206206

544544

$ Bn$ Bn

The BPO market is The BPO market is expected to grow to expected to grow to

$544 Bn at a $544 Bn at a 21% CAGR 21% CAGR

HR – 28% HR – 28%

F&A – 26% F&A – 26% S&M – 24% S&M – 24%

MftgMftg DistbnDistbn HRHR Payment Payment ServicesServices

F&AF&A S&MS&M AdminAdmin

Growth in BPO Market: 2005 - 2012Growth in BPO Market: 2005 - 2012

Source: Gartner Dataquest, December 2005, A.T. Kearney Research

9

Value Proposition for the company from BPOValue Proposition for the company from BPO

Top 10 Top 10 reasons to reasons to outsourceoutsource

Share risksShare risks

Cost Reduction & Cost Reduction & ControlControl

Accelerate Downsizing/Accelerate Downsizing/Restructuring benefitsRestructuring benefits

Cash Flow/Cash Flow/Capital AssetsCapital Assets

Focus on Core Mission and CapabilitiesFocus on Core Mission and Capabilities

Difficult to manageDifficult to manageResources not available Resources not available

internallyinternally

Increased FlexibilityIncreased Flexibility

Free internal resourcesFree internal resources

World class capabilitiesWorld class capabilities

99

55

44

33

101022

88

7766

11

Improve company focusImprove company focus

10

The reasons for outsourcing have matured beyond just seeking cost The reasons for outsourcing have matured beyond just seeking cost advantages to focusing on core competencies to deliver shareholder value advantages to focusing on core competencies to deliver shareholder value

Source: Forrester Research study – BPO Drives Internal Improvement

Traditional Drivers of Traditional Drivers of OutsourcingOutsourcing

Cost savings Increased flexibility Improved quality &

efficiency

3%

3%

8%

13%

18%

37%

79%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Poor customerperformance

Standard industrypractice

Scalability

Expertise of serviceprovider

Limited internalresources

Lower costs

Shed or avoid buildingnon-core processes

Current drivers for Business Process OutsourcingCurrent drivers for Business Process Outsourcing

11

Second Phase of Second Phase of Outsourcing: Outsourcing: 1970s - 1980s1970s - 1980s

First Phase of First Phase of Outsourcing: Up Outsourcing: Up

to the 1970sto the 1970s

Third Phase of Third Phase of Outsourcing: Outsourcing: 1980s – 1990s1980s – 1990s

Energy/UtilitiesEnergy/Utilities

Information TechnologyInformation Technology

Outbound Outbound LogisticsLogisticsProductionProduction Sales & Sales &

MarketingMarketingInbound Inbound LogisticsLogisticsProcurementProcurement

Administration & Facilities ManagementAdministration & Facilities Management

LegalLegal

Human ResourcesHuman ResourcesFinance & AccountingFinance & Accounting

Globally companies started by non-core staff functions and have gradually Globally companies started by non-core staff functions and have gradually progressed to line functionsprogressed to line functions

Value ChainValue ChainIllustrativeIllustrative

12

Not only has the scope increased with time but has also penetrated deeper Not only has the scope increased with time but has also penetrated deeper into traditional segmentsinto traditional segments

BPO Trends in the last Two DecadesBPO Trends in the last Two Decades

OutsourcedOutsourced

Energy/UtilitiesEnergy/Utilities

Information TechnologyInformation Technology

Administration & Facilities ManagementAdministration & Facilities Management

LegalLegal

Human ResourcesHuman Resources

Finance & AccountingFinance & Accounting

ProductionProduction Outbound Outbound LogisticsLogistics

Sales & Sales & MarketingMarketing

Inbound Inbound LogisticsLogisticsProcurementProcurement

Salary & BenefitsSalary & Benefits

Training and Training and Development Development

RecruitingRecruiting

Records Records managementmanagement

Performance Performance ManagementManagement

Compensation Compensation designdesign

Industrial RelationsIndustrial Relations

Career Career managementmanagement

In-houseIn-house

Billing servicesBilling services

Financial AnalysisFinancial Analysis

Accounts Accounts PayablePayable

General General AccountingAccounting

Accounts Accounts ReceivablesReceivables

Financial reportingFinancial reporting

Financial Financial ManagementManagement

Tax complianceTax compliance

ExampleExample

HR PlanningHR Planning

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Determine optimum modelDetermine optimum model

Strategic ObjectivesStrategic Objectives Organisational ObjectivesOrganisational Objectives Financial ObjectivesFinancial Objectives

MakeMake BuyBuyControlControl

The outsourcing continuumThe outsourcing continuum

ServiceServicemanagementmanagementIn-houseIn-house OperationsOperations

ManagementManagementJoint Joint

VentureVenture100 %100 %Sell-offSell-off

OptionsOptions

In-sourceIn-source Co-sourceCo-source Out-sourceOut-source

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Outsource processes that are non-core to the organization with adequate Outsource processes that are non-core to the organization with adequate checks and balances to identify such non-core areaschecks and balances to identify such non-core areas

Notes 1) Ravi Venkatesan, “Strategic Sourcing- To make or not to make”, HBR Nov-Dec 19922) C.K..Prahalad & Gary Hamel, “The Core Competence of the Corporation”, HBR May-June 1990

Source: AT Kearney Analysis

• Does the process / activity provided a competitive advantage?

• Are the internal capabilities and competence comparable to the “best in class” supplier?

• Are investment in time and resources to close any gaps with the “best in class” justified?

Core v/s Non-coreCore v/s Non-core

ChecksChecks QuestionsQuestions

Market Market AccessAccess

Does the activity provide potential access to a Does the activity provide potential access to a variety of product/market segmentsvariety of product/market segments

Customer Customer BenefitsBenefits

Does the activity make a significant Does the activity make a significant contribution to the perceived customer contribution to the perceived customer benefits of the end product/service?benefits of the end product/service?

Non-Non-replicablereplicable

Is the activity difficult for competitor to Is the activity difficult for competitor to imitate?imitate?

Management Management AttentionAttention

Should management devote significant time Should management devote significant time and energy to this process?and energy to this process?

TalentTalentIs the organization putting out best people, Is the organization putting out best people, with the appropriate skill set, into these with the appropriate skill set, into these processes?processes?

CapitalCapital Can the capital used in this function be better Can the capital used in this function be better applied elsewhere within the corporation?applied elsewhere within the corporation?

Track Track RecordRecord

Does the activity have a track record for Does the activity have a track record for meeting or beating its commitment?meeting or beating its commitment?

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Outsourcing Process:Outsourcing Process:

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‘‘Long list’ of Long list’ of outsourcing outsourcing

opportunitiesopportunities

The identified set of opportunities is screened to The identified set of opportunities is screened to Decide opportunity for Decide opportunity for outsourcing outsourcing using a six-step methodologyusing a six-step methodology

1

Filter I

Vendor Vendor AvailabilityAvailability

Annual SpendAnnual Spend

Shortlist of Shortlist of outsourcing outsourcing

opportunitiesopportunities

2

Filter II

Ease of Ease of ImplementationImplementation

Potential BenefitsPotential BenefitsShortlist of Shortlist of outsourcing outsourcing

opportunities opportunities for further for further

analysisanalysis

3

Is the supply market suitable Is the supply market suitable for outsourcingfor outsourcing

Detailed Supply Detailed Supply Market Market

AttractivenessAttractiveness

4

Decide Decide opportunity opportunity

for for outsourcingoutsourcing

What are the relative benefits What are the relative benefits & risks of outsourcing?& risks of outsourcing?

EVA PotentialEVA Potential

Detailed Risks & Detailed Risks & Challenges Challenges

5

6

17

‘‘Filter One’ evaluates Filter One’ evaluates significance of spendsignificance of spend and and vendor availabilityvendor availability to arrive at the first shortlist to arrive at the first shortlist

Less Less Attractive Attractive

LowLow

High High

Ann

ual S

pend

Ann

ual S

pend

• Annual rupee spend on each opportunity

• Number of established vendors in India

Annual SpendAnnual Spend

Vendor AvailabilityVendor Availability

MaintainMaintain

PurchasePurchaseImproveImprove

ExploitExploit

Highly Highly AttractiveAttractiveVendor AvailabilityVendor Availability

CollaCollate te

‘long ‘long list’ list’ of of

oppoopportunitrtunit

iesies

1

Yes

Filter I

SupplSupply Mkty Mkt

SizeSize 2ShortShort

list list 10-10-12 12

prioriprioritised tised oppoopportunitrtunit

iesies

Yes

Ease of Ease of ImplementatiImplementati

onon

BenefitsBenefits3

ShortShortlist 5-list 5-

6 6 oppoopportunitrtunities ies

Yes

• Ideal candidates: High spend and large number of vendors providing services

• High benefit is generally associated with high risk therefore,

•Take mix of small and large opportunities

•Focus on activities with large number of vendors to ensure progress and success

Selection ProcessSelection Process

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‘‘Filter Two’ maps Filter Two’ maps Benefits of Outsourcing Benefits of Outsourcing vs vs Ease of Ease of Implementation Implementation to arrive at the top opportunity set to arrive at the top opportunity set

Outsource

High

HighLow

Low

Benefits of Outsourcing

Include in outsourcing

packageAdminister in-

house

Conditional Outsourcing

Ease of Implementation

Final SelectionFinal Selection

Yes

Filter I

Supply Supply MktMkt

SizeSize

Collate Collate ‘long ‘long list’ of list’ of

opportuopportunitiesnities

1 2

Shortlist Shortlist 10-12 10-12

prioritisprioritised ed

opportuopportunitiesnities

Yes

Ease of Ease of ImplementationImplementation

BenefitsBenefits3

Shortlist Shortlist 5-6 5-6

opportuopportunities nities

Yes

• Savings potential

• Quality improvement

potential

• Time to realize savings

Benefits PotentialBenefits Potential

• Risks • Transitional Challenges

Ease of ImplementationEase of Implementation

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Validation of the supply market:Validation of the supply market:

Analysis

Analysis Framework

Framework

Outsourcing OpportunityOutsourcing Opportunity

1. 2. 3. 4. 5.

Ven

dors

V

endo

rs

SizeSize

• Indicates vendor's ability to ramp-up

• Indicates long-term viability of the vendor

Geographic CoverageGeographic Coverage

• Degree of national coverage• Ability to serve in location of

organisation interest

Maturity of BPOMaturity of BPO

Service CoverageService Coverage

• Ability to outsource the entire business process

Process ExpertiseProcess Expertise

• Business process improvement potential

• IT adaptability• Proprietary technology/ Other

resources

Customer ReferencesCustomer References

• Top customers served• Presence of large corporates -

confidence

• Level of maturity of Business Process Outsourcing in the area

Listing of top 4-5 vendors to be considered

Detailed supply market assessment frameworkDetailed supply market assessment framework

DetaDetailed iled

SuppSupply ly

MarMarketket

4

OOonone e OOpp pp

EVA EVA PotentiaPotentia

ll

DetaileDetailed Risksd Risks

5

6

20

Detailed Supply Market Assessment - SecurityDetailed Supply Market Assessment - Security

SecuritySecurity1. Group 4 2. TOPS3. Sentinel4. Colonel Security5. Premier SecurityV

endo

rs

Ven

dors

33

Size Size 33• Group 4 has over 41,000 people on its

roles• TOPS has over 10,000 people on its

roles• Other players are not significant in size

Geographic Coverage Geographic Coverage 55• National coverage including remote

locations

Maturity of BPO Maturity of BPO 44• Large industries have moved to

outsourced security services over the past five years, before which, the security BPO market remained small for a long time

Service Coverage Service Coverage 44• End-to-end services will be provided

by Group 4• Other vendors may not have direct

access and capabilities to provide the necessary technology solutions

Process Expertise Process Expertise 44• Significant technology usage will

reduce manpower requirements

Customer References Customer References 55• Bombay House• TELCO• Tata Power• Jindal Strips• ABB• BPL Group• Citibank

1 – 5Low – High

Source: A.T. Kearney analysis

Sample Analysis

Sample Analysis

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Detailed Risks & Challenges - SecurityDetailed Risks & Challenges - Security

SecuritySecurity

Loss of Control Loss of Control 33• Ethical issues related to the

vendor and the vendor’s manpower

• Supervision of the vendor’s manpower

Process Specific Issues Process Specific Issues 33• Employee separation & potential

transfer to outsourcers• Co-ordination between the core

group of in-house officers and the outsourced officers

• Need to define standard operating procedures

• Need to retain control of critical installations

• Need to co-ordinate with police/ local authorities

Contractual/Legal issues Contractual/Legal issues 11• Potential legal roadblocks• Sub-contracting by the vendor

Service Debasement Service Debasement 33• Plant & material security and

business continuity risks can arise due to service debasement

• Safety implications of oversight in critical installations

Hidden Costs Hidden Costs 11• Service tax

1 – 5Low – High

Strategic/Organisational Strategic/Organisational Challenges Challenges 44

Source: A.T. Kearney analysis

Sample Analysis

Sample Analysis

22

Final Prioritisation is based on a long-term/strategic Risks and Final Prioritisation is based on a long-term/strategic Risks and Challenges assessment vs. potential to create EVA Challenges assessment vs. potential to create EVA

Illustrative

Illustrative

Strategic/Organisational Strategic/Organisational ChallengesChallengesLoss of ControlLoss of Control

• Direct linkage with core processes Outsource with a Human

Face• Union issues • Legacy issues/ commitments• Resistance to change• Ethical issues

Process Specific IssuesProcess Specific Issues• Interlinkages with other

processes ….

Service DebasementService Debasement• Inability to measure

• Statutory liability• Opportunistic re-pricing …

Contractual/Legal issuesContractual/Legal issues

DetaDetailed iled

SuppSupply ly

MarMarketket

4

OOonone e OOpp pp

EVA EVA PotentiaPotentia

ll

DetaileDetailed Risksd Risks

5

6

Hidden CostsHidden Costs• Transition cost • Service cost …

Framework for assessing the ‘Ease of implementation’Framework for assessing the ‘Ease of implementation’

Low Low LowLow

High High

EVA PotentialEVA PotentialE

ase

of

Eas

e of

Im

plem

enta

tion

Impl

emen

tatio

n High High

Candidate for Candidate for outsourcingoutsourcing

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HR OutsourcingHR Outsourcing

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A Broad HR Outsourcing Delivers Top and Bottom-line Value

Major value driver for HR BPO is freeing HR professionals to strategically Major value driver for HR BPO is freeing HR professionals to strategically influence human capitalinfluence human capital

Current HR focus is on managing the ‘Day to day’ transactional activities rather than focus on enriching human capital

Reasons for Reasons for OutsourcingOutsourcing Value from HR BPOValue from HR BPOImproving Improving ProcessesProcesses

Reduced costs (e.g., labor, overhead, distribution, systems, travel)

HR Time Spent on HR Time Spent on More Important More Important Strategic AreasStrategic Areas

Utility frees HR to focus on being a strategic partner and on core HR planning

HR strategic focus can improve employee productivity and market value

Utility’s statistical reporting provides insight to improve decision making (e.g., forecasting)

Providing Better Providing Better Customer ServiceCustomer Service

Improved employee satisfaction (e.g., better access to information and response time for payroll, benefits, training, recruitment, HRIS inquiries)

30

50

70

50Transactional

Strategic

% Time % Time spent spent

on activitieson activities

Pre BPOPre BPO Post BPOPost BPO

25

•Organization mgt.

•Budgeting•Diversity mgt •Salary/ Grade mgt

•Gov’t Relations•Temp labor mgt.• Job profile development

•Succession planning

• Interviewer coordination

• Screening/ testing

• Applicant Management and communication

• Analysis and reporting

• Offer/ Negotiations

• .Final Selection

• Payroll system mgt. (reconciliation, journalize, distribute)

• Calculate payments/ deductions

• Government reporting

• Tax administration

• Time and attendance tracking

• Statistical analysis and reporting

•Employee data capture incl:

- resumes - skills - training - development profiles - performance

evaluation.•Database mgmt incl. changes

•Statistical reporting

•Notifications•Link to payroll, benefits, training

•Employee file mgt.

•Comp System Mgt

•3rd Party Admin.•Benefits designation

•Benefits delivery (claims processing)

•Benefits tracking•Benefits communication

•Pension Admin.

•Outplacement•Alumni mgt. •Retirement Plan Mgt

Note: (1) Processes chosen are transaction-oriented (rather than strategic), and represent a significant portion of HR spend

Shading indicates processes for HR Outsourcing

•Course listings•Registration•Delivery•Pre and post testing

•Tracking•Customized training

• Career mgt.• Perf. Review• Perf. improvement

• Labor relations• Wellness mgt.• Training (non-web enabled)

• Internal Staffing

Retirement&

Outplacement

ExecutiveManagement& Planning

Recruiting &Hiring

PayrollServices

BenefitsAdministration

HRISManagement

Training(web delivery)

EmployeeManagement

Organisation Restructuring

• Organisational development

• Support Business process improvement

• HR Planning• Change management

Focus of the HR outsourcing has been on the transactional activities .Focus of the HR outsourcing has been on the transactional activities .

26

Note: (1) Listed processes are part of the utility’s service offering. The dollar value for recruiting and staffing processes has been adjusted to reflect the capabilities of the utility

Source: Dataquest: Demand Analysis of Integrated, Multiprocess HR Outsourcing

Benefits administration and payroll services constitute more than half of Benefits administration and payroll services constitute more than half of the total spending on human resources BPOthe total spending on human resources BPO

Human Resources Outsourcing Spending by Process(1) — 2005–2009($ Millions)

Benefits AdministrationPayroll ServicesEducation and TrainingRecruiting and StaffingHiring AdministrationRecords ManagementOther

20092008200720062005

12,000

10,000

8,000

6,000

4,000

2,000

0

27

Notes: (1) Transactional functions are functions that require processing of information. Example: employee address change, payroll processes

(2) Strategic functions are activities that directly influence corporate goals, planning, and employee productivity. Example: performance reviews, employee compensation planning

On average, companies have saved $49–98/employee per year in HR costs On average, companies have saved $49–98/employee per year in HR costs through HR outsourcingthrough HR outsourcing

Transactional(1) Strategic(2)Average Total HR Spend =$1,639/Employee(3)

Current Spend on HR Transactional Functions

Average = $492/Employee(4)

F500 Total = $5.8–11.6 Billion

OutsourcedHR Spend(5)

Average: $393–442/EmployeeF500 Total = $4.6–9.3 Billion

Savings Due to Outsourcing

Adjusted Savings Due to Outsourcing(7)

• Savings Range = $49–98/Employee(6)

• F500 Total Savings= $1.2–2.3 Billion

• F500 Total Savings = $0.93–1.8 Billion

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Changing roles of HRChanging roles of HR

OutsourcedOutsourced

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Administration outsourcing:Administration outsourcing:Outsourcing Opportunities Processes

Cafeteria Plant and office canteens, Tea/Coffee

Facilities Maintenance Electrical, Carpentry, Plumbing, Pest Control, Gardening, Maintenance of Lifts & ACs

Medical Asset Ownership & Management/Facility management, Food, Pharmacy, Diagnostic labs, IT, Ambulance, Security, Nursing

Fleet Management Procurement, Leasing, Maintenance & Service, Insurance other related services

Guest House Management Complete management/House keeping, Laundry, Building maintenance, Food, Security

Housekeeping Cleaning office and plant area, Garbage disposal

Security Security guards and security systems

Town Management Township Planning (cleaning, roads, street lights, gardens and parks, markets)

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HR outsourcingHR outsourcing (cont’d)(cont’d)

Outsourcing Opportunities Processes

Payroll & Benefits Administration Time Office, Payroll and Benefits Admin, PF admin, T&E reimbursements

Recruitment Short listing candidates, verification check, Recruitment

T&D Training & Development

Development centre Assessment center, development plan

HR Due Diligence HR due Diligence

31

HR service provider for outsourced service:HR service provider for outsourced service:

HR Service HR Service ProvidersProviders

Source: Company websites, A.T. Kearney research

32

Conclude:Conclude:

Strategic outsourcing has come to stay in Human Resources:Strategic outsourcing has come to stay in Human Resources:

Low end and non core process in HR will get outsourcedLow end and non core process in HR will get outsourced

HR expertise area will be outsourced for some more time till org. HR expertise area will be outsourced for some more time till org. build capabilitybuild capability

Employee relation and strategic HR will remain in-houseEmployee relation and strategic HR will remain in-house

Challenge will be of matured long term business partner for Challenge will be of matured long term business partner for outsourcingoutsourcing

33

Thank YouThank You

34

WHY OUTSOURCEWHY OUTSOURCE

Business Process OutsourcingBusiness Process Outsourcing

Outsource to:

• Focus on core competencies• Increase efficiencies• Increase productivity• Bring in the best practiceBring in the best practice• Introduce business transformation • Reduce costs Reduce costs and, • Improve shareholder value

35Source: A.T. Kearney, International Data Corporation Shared Services Study

4

4

4

4

4

4

6

8

8

8

9

11

17

A/R

Statutory Reporting

Billing

Manual Data-Entry

Travel

Mail Services

Real Estate

Logistics

Help Desk/Call Center

Emp. Benefits

A/P

IT Support

Payroll

Most Frequently Outsourced Processes

At an activity level Payroll, IT Support and A/P are most frequently At an activity level Payroll, IT Support and A/P are most frequently outsourced outsourced

(in percentage of companies surveyed)(in percentage of companies surveyed)