Outsourcing and its impact on HRP23rd February 2021
Human Resources is a strategic business function and is today perceived as a strategic business partner aligned with the organization’s vision and strategy. HR is the catalyst in helping an organization define its mission, vision, values, and goals.
Outsourcing is a force behind the virtual organization movement. Outsourcing is simply obtaining work previously done by employees inside the company from sources outside the company. If someone has specialized in an activity which is not strategically critical to our business and is able to do that cost effectively, it is better to get it from outside.
HR outsourcing is the process of in which certain human resources activities are outsourced to external partners which helps the organization get advantage of specialized skills, reduce cost and enable HR personnel to focus on strategic initiatives.
The organization gets benefitted in the form of excellent quality, reliable supply, and rock bottom price. It can also focus exclusively on doing what it is good at thereby enhancing its own competitive advantage.
Many organizations outsource administrative and transactional activities which are non-core, enabling HR Personnel focus on core activities. What activities an organization needs to outsource depends on the nature and size of the organization, internal skill sets, regulatory environment in which it operates, financial advantage, partner capabilities, key HR initiatives, culture.
HR functions which are generally outsourced are:
- Payroll and related compliances
- High volume recruitment
- Benefits administration
- Administration of employee lifecycle activities
- Labour law compliances
The following are some of the needs of HR Outsourcing:
- Enabling businesses to focus on core operations
- Delivering cost savings whether direct or indirect
- Helping to create a stable, cost-effective operating platform
- Transferring focus from internal processes to achievement of business goals
- Realizing investment in HR transformation and IT systems
- Ensuring compliance with legal, regulatory and best practice requirements, and
- Transferring risk and liability for people issues.
“HR Outsourcing Trends” by the Conference Board, the following are the most common internal barriers to outsourcing:
- Questionable cost/benefit justification;
- Inadequate readiness of people and systems;
- Organizational resistance from within HR; and
- Inability to manage relationships with outsourcers.
- When an organisation outsources an activity, it also gives up a considerable amount of authority. It does not have complete control over the outsourced activity.
- Outsourcing may turn out to be cheaper in the present context, but there is a risk involved because outsourcing costs may go up in the future.
- Outsourcing when associated with downsizing may tarnish a company’s image.
- Outsourcing may be a demotivating force for the existing employees of the company because of the fear of losing their job or loss of control.
Outsourcing and Technology:
Technology is one factor that has changed the HRM domain. Emerging technologies like HRIS (Human Resource Information System), application software (Oracle HRMS) and self-service human resource packages have changed the way HR-services were being administered. Organisations that were unable to keep up with technological changes decided to outsource their HR activities.
Managing the Outsourcing Relationship Restructuring and Outsourcing:
There is a need for specialists who are good at managing the outsourcing relationship. The specialist should strengthen and nurture the relationship over a period of time and this requires considerable experience and foresight on part of both the parties. The relationship should encourage a culture of knowledge sharing and mutual learning.
Monitoring and Evaluating Vendor Performance:
Before the HR activity is outsourced, the performance standards for the activity have to be conveyed to the vendor. External consultants can be consulted to develop performance standards. There is a need for frequent communication between the outsourcer and the vendor. In order to enhance performance, the organisation can also resort to schemes where it shares the amount saved due to reduction in compensation claims with the vendor.
Role of HR Manager:
HR managers today need to have multiple skills. They should be adept at solving business problems apart from managing human resources. They should play an active role in the formulation and implementation of business strategy. HR managers who are generalists and can fit into any role are in short supply. Because of the lack of availability of HR generalists, organisations may resort to HR outsourcing.