Why HR outsourcing has few takers

Punita Jasrotia/New Delhi

A much-debated subject in the last couple of years, HR outsourcing in India has not seen the required momentum and action, vis à vis the global scenario. It is limited to a trickle effect, with companies outsourcing a few selected low-end HR processes. A recent survey conducted by Hewitt Associates on “Outsourcing in the Asia-Pacific” confirms this situation. The survey showed that many companies in the region are either unfamiliar with the processes and procedures of HR outsourcing, or are unaware of the players operating in this area. However, with the economic slump showing signs of improvement, many HR outsourcing vendors are optimistic that things will look up in the next couple of months.

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. Deepak Puggal, a consultant with Hewitt Associates, says that 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. Ajay Oberoi, vice president and head of human resources and administration at Aptech, however feels that there is ample scope available in HR outsourcing, which companies can explore. Agrees Vikram Bhardwaj, a consultant with Stanton Chase: “There are 18 processes in HR that can be outsourced. Worldwide, only Exult has the know-how and ability to outsource more than five processes. I believe that Indian vendors still do not have the background and expertise in outsourcing services in the HR vertical, probably with the exceptions of India Life Hewitt and Crossdomain Solutions.”

Present scenario

The general opinion among Indian companies is that it is economical to manage all their HR processes internally. Consequently, there is not much emphasis on outsourcing. Typically, very small companies (which do not have the competency to staff a full-fledged HR department) and very large companies (who wish to outsource all routine HR processes so that they can concentrate on core issues), are the ones that use HR outsourcing in a significant way. Besides, many multinational companies are fast adopting these practices.

Sateesh R Kurugod, head of marketing and alliances, Crossdomain Solutions says that now CXO’s realise that HR teams typically spends over 80 percent of its time in managing tactical and transaction oriented HR operations. “If these tactical processes are outsourced, the company could re-deploy their trained HR resources to core processes,” he adds. Pramode Sadarjoshi, the director and head of Human Resources of Cognizant Technologies 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 business sense to focus only on the organisation’s core competencies and outsource non-critical business activities. Therefore, routine administrative tasks, although important, can be outsourced to third party vendors.”

Growing importance

Things are however expected to change with many mid-sized companies looking at HR outsourcing. Research proves that the market for HR outsourcing in the APAC region could grow from $1.14 billion in 1999 to $2.56 billion in 2004. Although it is not a very huge growth, it has still shown an upward trend.

Some of the key companies which have gone ahead for manpower hiring outsourcing practices are Cisco, GE, Honeywell, Sun, i2, LG Soft India, Escosoft and Legato Systems. While LG Soft India has outsourced its PF management, Escosoft has outsourced payroll processing, execution of training programmes and survey conduction. According to Shubho Kundu-senior general manager HR of LG Soft India, the company has been able to save a lot in terms of reducing paperwork and interaction with government agencies. Besides, there are other companies like Xansa India, which is planning to take a plunge in HR outsourcing business and offer services to its parent organisation. Binnoo Wadhwa, the head of HR for Xansa India, says that the move showcases the robustness of the HR department to handle such critical applications.

There are many others who do not believe that HR outsourcing is necessary. Take the case of Aptech, which has not considered HR outsourcing as the company feels that HRD is strategically linked to its business. “In my view any job or function, which is of strategic importance to the organisation should not be left for outsiders or the so-called outsourcing partners,” he says.

The deterrents

The basic reasons hampering the growth of HR outsourcing in India are confidentiality and cost factors. Many companies outsource only a bit of their requirements because of the above two factors. Besides, the fear of losing jobs, losing control over confidential data, ethics and quality of outsourcing vendors, security breaches and overall confidence in the vendor deters many organisations. Says V. Kartikeyan, the director-human resources of Texas Instruments India, “Some companies can also be reluctant because they may not have an adequate grip over the cost-benefit equation of outsourcing. Companies need to be convinced before they can outsource select HR activities.”

Adding to this are issues like cultural mindset and psychological acceptance. An in-house HR person handles certain situations that an outsourcing agency cannot handle well (things like building employee incentive programmes, taking care of recognition for employees). At times, many employees would want someone in-house to resolve their work-related problems or disputes. All this is only possible if there is an in-house HR team, which interacts with the employees on a daily basis. Vinod Malhotra, head of human resource, Escosoft Technologies, points out that most Indian companies have not psychologically reached the stage of “fully” outsourcing the HR processes. “I think the industry is focused on outsourcing back office processing (BOP) and not business processes (BPO),” he adds.

Quality at times forms another roadblock. According to Sadarjoshi, most companies are not sure about the end result, which they will receive from their vendors. Then there are also issues in terms of pricing of outsourcing HR services. Says PK Gupta, director of strategic development-intercontinental operations, Legato Systems, “There are no standard benchmarks available so pricing varies a lot from vendor to vendor for similar services. Doing reference check helps a lot in this case. What customers feel is that they are not getting value for their money.”

Experts believe that in present times HR outsourcing is undergoing a transition phase. It is moving out from the realm of bigger companies to small and mid-sized organisations. There has also been a transition in its user acceptance, where it is moving from a corporate domain to PSUs and the Government sector. All this reflects on the growth of this sector. However, it would still be some time before we see increased levels of HR activities being outsourced.