HR Outsourcing.

Will HR Department Last?

Table of Contents
 Ch No, Topic Page No.

- List of Tables / Charts 3

1 Abstract 4

2 Objectives of the study 5

3 Introduction to HR Outsourcing 6

4 A Brief on Accenture and Hewitt Studies on HRO 8

5 Response Analysis 9

(i) Sampling Design 9

(ii) Questionnaire Analysis & Findings 11

6 Conclusion 18

7 Scope and Limitations 20

8 Bibliography 21

- Appendix 22

I] Questionnaire used for Organisations 23

II] Questionnaire for HR Outsourcing firms 27
III] Accenture and Hewitt Studies on HRO 29
IV] Glossary A-4
V] Six Sigma Techniques for measuring effectiveness of HR A-5

List of Tables/ Charts

Fig No. Name of Table / Chart Page No.

1 List of 14 companies surveyed 10

2 List of 12 outsourcing firms surveyed 10

3 Turnover of companies surveyed 12

4 Staff Strength of companies surveyed 12

5 Industry specifications of samples 12

6 Percentage of respondents as per Hewitt report who believe that 13

HRO leads to Cost reduction

7 Reasons why companies outsource HR functions 14

8 Vendor performance criteria 14

9 Value Proposition provided by outsourcing firms 15

10 Re-integration of outsourced HR functions by organisations as per 16

Hewitt Survey

11 Intention of companies to re-integrate outsourced functions 16

12 Belief of companies that HR impacts bottom-line 18

13 Opinion of Outsourcing firms whether HRO will completely 19

replace HR functions

Ch 1: Abstract

This study looks at the potential of HR Outsourcing in India and the sustainability of the HR
department in an Indian organisation. The study is based on responses obtained from 14
Companies and 12 HR Outsourcing firms across India along with “The High Performance
Work Force study 2007” conducted by Accenture and Hewitt report on HR outsourcing.
Most of primary responses were from large cap companies having a workforce size of more
than 2000. The sampling methodology adopted was Convenience Sampling. Data
Collection Methods comprised of Questionnaires and Telephonic interviews. As per
findings, most companies outsource HR functions to acquire cost benefits and convert their
HR fixed costs into variable costs because outsourcing allows them to purchase only as
much as HR consultancy as they require. Current HR Outsourcing trend in India, as per
studies, pertains to a hand-in-glove relationship between HR firms taking care of strategic
HR decisions and HR Outsourcing firms taking care of operational activities like
recruitment and HR Admin.

Researchers feel HR is more important now than ever because of the competitive challenges
like globalization, profitability through growth (i.e. mergers and acquisitions, and
reorganizations), technology, intellectual capital, and the rapid state of change,
organizations need to meet. Hence, HR must become a strategic partner for the organization
and a true champion of the people if it hopes to survive. Organizations should look at HRO
not only as a cost cutting tool but also as a strategic tool. By aligning outsourcing not only
with the hr strategy but also with the organizations wider business strategy the advantages
attained from outsourcing will be far more significant and far reaching.

Ch 2: Objectives of the Study

➢ To understand whether the HR department in companies will sustain and survive

despite an increase in HR functions being outsourced.
➢ To determine if there are any other reasons apart from cost and time savings, behind
the slowly gaining popularity of HRO.

➢ To determine if there is a possibility of a symbiotic relationship between HR

departments of organizations and HR Outsourcing firms.

Ch 3: Introduction to HR Outsourcing

HR Outsourcing - Definition
HR Outsourcing is a process in which a company uses the services of a third party to take
care of its HR functions. A company may outsource a few or all of its HR related activities
to a single or combination of service providers. Any activity, in which a company lacks
internal expertise and confidentiality and requires an unbiased opinion on human resources,
can be outsourced.
Types of HR Outsourcing
• Transaction and administration outsourcing
• 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.
HR Consultancy comprises of activities such as gaining a thorough understanding of the
position requirements, designing the Organization based on business strategy & the key
business processes and implementing the same, redesigning the organization in response to
changing business and customer needs, establishing Bands & Grades of designations ,
redesigning jobs which meet business needs etc.
It is a fact that companies continue to manage the strategic and policy functions of their HR
departments in-house.
Outsourcing Providers
PEOs
A Professional Employer Organization (PEO) assumes full responsibility of your
company's human resources administration. It becomes a co-employer of your company's
workers by taking full legal responsibility of your employees, including having the final say
in hiring, firing, and the amount of money employees make. The PEO and business owner
become partners, essentially, with the PEO handling all the HR aspects and the business
handling all other aspects of the company.

BPOs
In HR, a BPO would make sure a company's HR system is supported by the latest
technologies, such as self-access and HR data warehousing.

ASPs
Application Service Providers host software on the Web and rent it to users—some ASPs
host HR software. Some are well-known packaged applications (People Soft) while others
are customized HR software developed by the vendor. These software programs can
manage payroll, benefits, and more.

E-Services
E-Services are those HR services that are Web-based. Both BPOs and ASPs are often
referred to as e-services.
Pros and Cons of HR Outsourcing
Pros
1. Cutting Cost
2. Saving Time
3. Increased Efficiency
4. Concentrating on Core Business
5. Access to improved HR IT systems
6. Access to HR experts not available internally.
Cons
1. Trust - The basic reasons hampering the growth of HR outsourcing in India are the
fear of losing jobs and losing control over confidential data, ethics and quality of
outsourcing vendors, security breaches and lack of overall confidence in the vendor.
2. Compromise on Functions - An in-house HR person interacts daily with the
employees and so they are more likely to have more of an interest in the employees. An
outsider lacks in that and somewhere company has to suffer.

3. Perks and Incentives - Where an in-house HR person handles perks that the
company can't necessarily count on an outsourcing service to carry out - like looking into
group offerings, building employee incentive programs, even taking care of recognition for
employees' birthday.

Ch 4: A Brief on Accenture and Hewitt Studies on HRO

The High Performance Work Force study 2007 – A report by Accenture
A study was conducted by interviewing 40 Indian CEO and Human Relation (HR )
department heads. The survey sought executive insights in three broad areas—

➢ Most important factors in achieving high performance and how their companies are
addressing these factors,

➢ The importance of various workforces to company’s success and their performances,

➢ The extent to which the HR function is supporting the company’s key workforces
and positioning them for success.

Majority of the executives cited that HR is their most critical workforce & rated it among
the top 3 functions. (Globally, HR is ranked No 7 in the pecking order of importance).
However, there was deep dissatisfaction with HR’s performance. In an adequacy vs
expectations survey across different workforce like sales, manufacturing, R&D, HR , etc.
HR performed the worst. The CEOs believed that there is a huge gap between the potential
and actual achievement by their HR function.

===============================================================

Hewitt report on HR outsourcing

Hewitt associates is the world’s largest provider of multi service HR Business Process
Outsourcing and the only firm fully integrating HR Outsourcing and Consulting. It has over
2500 clients and more than half of the Fortune 500 companies consult them. The mission of
Hewitt is to make the world a better place to work.
Hewitt conducted a HR outsourcing survey in the year 2002. The study was conducted in
the Asia-Pacific region with 424 companies participating, 1/3rd from India. Almost 50% said
concentrating on their core competencies is the most important reason for HRO. Almost
30% said cost reduction was their primary aim.
On being asked for reasons for not outsourcing the main reasons were data security issues,
lack of knowledge of vendors. Some said that they felt HRO did not add any value.
Hewitt conducted another study in the year 2005. This time the companies were 129 large
companies chosen from all over the world. The main reasons for outsourcing were the same.
But in addition people said they didn’t mind paying for outside expertise to improve service
quality.
New concerns were losing control of key processes and fear of employee reactions to
outsourcing.
Cost saving was achieved more than 80% of the time. Almost 90% of the people were
satisfied with their HRO. Almost quarter of the respondents have bought back an
outsourced HR function back in house, mostly payroll, recruiting, learning and development
due to poor quality of service.
Further details on both reports can be obtained from Appendix [IV]

Ch 5: Response Analysis
(i) Sampling Design

Sampling Technique :

Convenience Sampling.

Questionnaires were sent to companies based on personal contacts.

The Local Telephone Assistance – “Just Dial Services” was also used to obtain contact
details of potential respondents.

Data Collection Method :

Modes of Data Collection were ( Appendix [ I ] )

1. Questionnaires
- Online version which can viewed on
Company Perspective :
http://www.esurveyspro.com/Survey.aspx?id=5aaf9df6-3130-4807-af4c-65a4106e7942

Outsourcing Firm Perspective

http://www.esurveyspro.com/Survey.aspx?id=be832c89-74e0-4a1a-bbc7-af35e70acc5c

- Paper Based
2. Telephonic Interviews

Sample Population :

14 Companies enlisted as follows :

S.No. Name of Company

1 Corus
2 Times of India
3 Cisco
4 M&M
5 Ernst & Young
6 Vodafone
7 ITC
8 Goldman Sachs
9 Manai
10 QP
11 Cherrytech
12 INC
13 D.Ravi Kumar
14 NS Associates

Fig 1 : List of 14 companies surveyed

12 Outsourcing Firms enlisted as follows :

S.No. Name of Company

1 PriceWaterCooperhouse
2 Acumen
 3 Job Offers India.com
4 V & V Bangalore
5 Trident
6 Matrix Placements
7 Head Hunters World
8 Stanley N Associates
9 Bharat B Shah
Associates
10 S Capital
11 V4U Technologies
12 Sanjog Associates

Fig 2 : List of 12 outsourcing firms surveyed

(ii) Questionnaire Analysis

Both the questionnaires were broadly classified into the following broad areas :

1. Introductory Questions
2. Status of HR Outsourcing in India
3. Intentions of Re-integration of Outsourced Activities
4. Impact of HR on Bottom-line and Measurement of effectiveness of HR.

Expectations were based on the secondary data obtained from Accenture and Hewitt studies
and primary data was compared with the same.

1. Introductory Questions

Objective: With a view to understanding the relation between the Size of Companies (in
terms of turnover and size of work-force) and their HR Outsourcing trends.

Questions asked:
Details of companies who outsource their HR activities, comprising of Name of Company,
Industry to which it belongs and Size of Company in terms of turnover and size of work-
force.

Expectations:
Based on Hewitt Report
Companies who outsourced at least one of their HR activities had the following profile:

Revenues of the organizations average 6 billion $ with a median of 2 billion $.

The employee population average roughly 15000 with a median of 7500.

Mostly mid-sized companies are the clients and in fact spend almost twice as much as
large companies in maintaining an HR head count.

Our Findings

11 out of 14 companies, who outsource their HR activities, had a turnover of more than
1000 crores. As per US standards, these numbers indicate mid and large sized companies in
terms of turnover.

Fig 3 : Turnover of companies surveyed

9 out of 14, had employee population of more than 2000.

Fig 4 : Staff Strength of companies surveyed

Fig 5: Industry specifications of samples

Inputs from companies Inputs from Outsourcing firms

Industry No. Industries to which No.
IT and ITES 2 majority of their
Manufacturing 6 clients belong
Media 2 IT and ITES 9
Petroleum 1
Management 1 Manufacturing 3
Consultancy
Telecom 1
TOTAL 12
Hospitality 1
TOTAL 14
Our Analysis
 Companies with greater turnover and staff generally outsource some of their HR activities.
They do this with a view to reducing the capital intensity of the business. This strategy has
gained popularity as companies aim to become more nimble and gain the speed and
flexibility necessary to compete in today's business environment.

Most of the companies who have begun outsourcing some of their HR activities belong to
IT/ITES and Manufacturing industries so that they are able to concentrate more on their
core competencies and leave the regular HR transactions to the Outsourcing firms.

2. Status of HR Outsourcing in India

Objective: To understand the status of development of HR Outsourcing Market in India.

Questions asked:
Reasons for outsourcing HR, HR activities outsourced and grounds on which Outsourcing
firms selected.

Expectations:
Based on Hewitt Report
11%

Cost Reduction
Others

Fig 6 : Percentage of respondents as per Hewitt report who believe that HRO leads to
Cost reduction
Almost 89% of the respondents believed that HRO helped in Cost Reduction more than
80% of the times. The real cost of providing HR services in participating organisations was
between 1.8 times and 2.8 times the employment cost of the HR staff, with the average
being around 2.6 times. Research has also shown that 87 per cent of the funds mid-sized
companies’ budget for HR goes towards routine processing transactions, rather than
strategies that could actually impact business, enabling it to gain efficiencies. Mid-sized
companies in fact spend almost twice as much as large companies in maintaining an HR
head count.
Payroll services contribute more to total revenue followed by training and recruitment
Our Findings

10 of 14 companies cited Cost Reduction as one of the main reasons why they choose to
outsource.

Fig 7 : Reasons why companies outsource HR functions

10 of 14 companies also rated Cost as the most important parameter on which they choose
and evaluate the Outsourcing Firm.

Fig 8 : Vendor performance criteria

7 of 12 outsourcing firms also believe that their clients first look at financial benefits while
selecting the outsourcing firms.

Fig 9 : Value Proposition provided by outsourcing firms

4 of 12 outsourcing firms believe that companies also look at the extent of security of
information the outsourcing firm can provide along with the speed of processing.

Activities Outsourced :

Company perspective: HR Admin, Recruitment, Employee Engagement Activities and

Surveys.
Outsourcing Firm Perspective: Hiring, Training and development

Our Analysis

HRO contributes to Cost Reduction by providing

 – economies of scale,
– efficient access to technology and
– shared risk.
These cost savings are likely to be especially significant in the delivery of administrative
and transactional activities.

In addition, by allowing the firm to purchase only the amount of consulting support needed,
outsourcing HR can enhance flexibility as well as improve cost efficiency by turning some
HR fixed costs into variable costs.

Most companies outsource regular HR routine tasks, ie: tasks which do not require
exceptional competencies and hence Cost is the factor they give highest importance while
evaluating the Outsourcing Firm’s perspective.

1. Intentions of Re-integration of Outsourced Activities

Objective: To determine if HRO is here to stay or is just a temporary practice followed by

firms in India.

Questions asked:
Intention of re-integrating outsourced HR activities.

Expectations:
Based on Hewitt Report
Almost quarter of the respondents have bought back an outsourced HR function back in
house, mostly payroll, recruiting, learning and development .

Fig 10 : Re-integration of outsourced HR functions by organisations as

per Hewitt Survey

Reason -> Due to poor quality of service.

Our Findings
4/14 companies have intentions of re-integrating outsourced HR activities.
 Fig 11 : Intention of companies to re-integrate outsourced functions
The notable reasons cited were:

1. Employees are more comfortable, sharing their HR related issued with in-
house HR department.

2. Once organization acquires the required competencies due to constant

interactions with the outsourcing firms and the HR department is able to
add the organizational flavour to the expertise.

3. HR activities outsourced only temporarily because of temporary

operational difficulties in the organisation. As soon as those as resolved,
HR functions will be re-integrated.

Outsourcing firms also believe that in certain respects they have an advantage over the in-
house HR department and hence re-integration may not be the future course of action for
companies. Some of the notable ones were :
- More qualified HR professional compared to the in-house department for|
every HR activity.
- Devoid of intra-organisation politics
- Elimination of personal bias.

Our Analysis
Companies that are interested in re-integrating are for now testing waters to check the
viability of HRO. Any change in organizational setup brings in discomfort and so reasons
such as employee compatibility issues have been cited.
Outsourcing provides cost advantage and is not a liability. This mind set will take time to
seep into the minds of those organisations who intend to outsource functions only
temporarily.

10 of 14 companies do not intend to re-integrate because they are satisfied with the cost
advantage that Outsourcing provides them.

1. Impact of HR on Bottom-line and Measurement of effectiveness of HR.

Objective: To determine whether organisations believe that HR impacts bottom-line and
the methods adopted by them to measure the effectiveness of HR.

Questions asked:
Opinions of companies pertaining to importance of HR and its impact on bottom-lines and
details of methods adopted by them to measure effectiveness of HR.

Expectations:
Based on Accenture Report
Bottom-line
The 40 Indian CEOs ranked HR functions as one the Top-3 functions in an organisation. On
the other hand Global Ranking given to HR by CEO’s from countries like US, UK,
Germany, Australia was 7.
Effectiveness of HR
CEOs clearly believe there is a big discrepancy between the potential and actual
achievement by their HR functions. Rewards, recognition and compensation was the area
with the greatest percentage of executives describing HR support as very effective, but that
figure was just 20 percent.

Our Findings
79% of the respondents feel that all HR functions will not be outsourced in the future this
can be attributed to the fact that 72% of the respondents feel that HR is an important
function and definitely adds to the bottom-line of the organization.

Fig 12 : Belief of companies that HR impacts bottom-line

When outsourcing firms were asked on their views about HRO completely replacing the HR
department, 9 of them responded that they were NOT of the same opinion. Among the 3
who thought otherwise, the most notable reason cited by them for the same was
“Companies would want to divert all their attention to core issues”.

Fig 13 : Opinion of Outsourcing firms whether HRO will completely replace HR

functions
Most of our respondents (almost 50%) did not have any formal measurement tools to
measure the effectiveness of HR. Among those who have, “feedback from employees” is
the most common means for measuring the effectiveness.

Our Analysis

India has begun to realize the significant contribution of HR on the bottom-line. But at the
same time, India has also realized that it could spend considerable resources in designing
and implementing new HR strategies rather than spend time and energy on regular
operational tasks. From our findings HR departments and HR Outsourcing Firms will work
hand-in-glove where:

HR departments will make significant contributions to the bottom line through

1. expense reduction, or revenue generation,
2. talent management(soft skills, leadership development n succession
planning – roles and jobs three years from now may not even exist
 today…so succession planning should be focused on competencies rather
than positions)
3. risk mitigation.

Outsourcing Firms will look more at

1. Recruitment
2. HR Admin
3. Employment Engagement Activities
4. Surveys

Although importance of HR has been realized, performance measurement techniques used

to measure effectiveness of HR is in a nascent stage.

As per the Hewitt Survey, only 9 percent of organizations measure vendor

performance with Six Sigma techniques. But this is where future of performance
measurement of HR lies.
Further details on Six Sigma techniques used to measure effectiveness of HR can be
obtained from Appendix [IV]

Ch 6: Conclusion
THE PRESENT STATE OF HR

The human-resources profession is in the fight of its life. A growing chorus of voices - both
inside and outside organizations, are questioning whether HR plays a principal role in
modern business. These attacks can be found in business-magazine editorials, marketing
literature of business-process-outsourcing and consulting companies, and in the private
conversations of business leaders. If HR professionals fail to defend against these assaults,
the profession will be in jeopardy.
These attacks are different from what HR has experienced in the past. Today's resource-
constrained corporations no longer have the means to support all HR activities. Global
competition and a cautious business environment have forced many to make hard choices
among their products, markets and operations. No unit wants to be excluded, so a conflict
has erupted to determine which will survive. It's a corporate civil war that pits every unit
against one another. The current attacks represent the opening shots in that struggle.

In many cases, they've begun to harm the profession's standing within organizations. A
2002 survey by the Discovery Group, a consulting firm based in Sharon, Mass., polled 425
HR professionals and found that just 48% believe their profession has the respect of
company leaders. In other words, fewer than one out of two organizations are led by those
who think HR has a place at the leadership table. Equally as bad, only 54% of the survey
respondents believe that HR has the decision-making authority it needs to do its job.

Sadly, there's considerable evidence that many organizations are on the verge of
diminishing the role of HR. During the 1990s, CEOs proclaimed the critical role of HR in
marshalling employees for success in the global marketplace. Human capital became the
mantra of the corner office, until the economy went south. Then the grandiose
pronouncements were dumped, and company after company reverted to a time-honored
distain for HR and a minimalist approach to supporting it.
Ironically, the verbal investments that CEOs had made in human capital never translated
into greater financial support for HR functions. According to the Bureau of National Affairs
Inc., a. publisher of general business-advisory information in Washington, D.C., HR-
department budgets represented less than 1% of total annual corporate operating costs
between 1997 and 2000. In 2003, they were still a paltry 0.9% of the total money companies
spent to operate their businesses. The perceived value of HR management at U.S.
companies never really rose. It was all talk; nothing more.

Many corporations now outsource HR activities that aren't deemed a "core competency" -
critical to creating and sustaining business success. Vendors typically promise cost savings
and improved customer service. It's an attractive combination: The company sheds an
operation it doesn't value while saving money.

THE FUTURE OF HR

Given the low esteem that corporate leaders have for HR, it should come as no surprise that
the function is increasingly viewed as a candidate for business-process outsourcing or BPO.

Although HR professionals can reassure themselves that this shift is beneficial because it
frees them up "to be more strategic" and "to become a business partner," the reality is
something else altogether. There's nothing wrong with outsourcing per se, but its use for
most or all of HR's key responsibilities begs the question: Why bother with HR at all? The
counter argument by outsourcing advocates -- that the HR department retains strategic
oversight of its work -- is self-serving and misguided. If HR is already weakened from
internal attacks and indifference, then outsourcing is more likely to be its death knell
than its song of liberation. In effect, such extensive outsourcing leaves the profession
with an imprecise mission -- or, more likely, without any mission whatsoever.
The traditional HR department is being threatened by outsourcing firms and a rapidly
growing field within business called organization development (OD). Organization
development is a field of business that is based on behavioral science and utilizes
organizational collaboration in order to increase the effectiveness and efficiency of a
company. In essence, OD has become a strategic partner to organizations. They help in
understanding business challenges that have surfaced in the organization, assist in defining
the organization's desired future state, and then aid in developing interventions in which to
make the future state a reality.
In his article, A New Mandate for Human Resources, David Ulrich, HR guru and Professor
of Business Administration at the University of Michigan, cites that for HR to survive, it
must incorporate a more OD approach to its work. He states that for HR to change, it must
follow a four-step process which includes defining an clarifying the culture change,
articulating the need for the culture change, assessing the current and future culture state,
and developing alternative approaches for creating the culture change.
David Ulrich maintains that for HR to survive within an organization, it will need to branch
out from its traditional functions of staffing and compensation. It must take a more strategic
approach and needs to support the changes happening within the organization. But that
means HR, in most organizations, will need to fundamentally change what it is doing. In
order for HR to make this change, it will need to transform into an innovative department
that will rival the most progressive thinking R&D department.
Times are changing for HR and it can no longer survive merely as the staffing and
compensation hub of an organization. HR is more important now than ever because of the
following competitive challenges organizations need to meet. They are globalization,
profitability through growth (i.e. mergers and acquisitions, and reorganizations),
technology, intellectual capital, and the rapid state of change. Because of these changes in
the marketplace, HR must become a strategic partner for the organization and a true
champion of the people if it hopes to survive. Therefore, HR should embrace OD practices
in order to become a strategic partner within the organization. Without this change, the
death knell of HR within the organization could be ringing very soon. The only way HR
will be able to become strategic is to develop into an innovative department through the
creativity of its people.
CONCLUSION
HR has to develop into an innovative department through the creativity of its people.

OD helps in understanding business challenges that have surfaced in the organization,

assists in defining the organization's desired future state, and then aids in developing
interventions in which to make the future state a reality.
If HR is to survive, it must incorporate a more OD approach to its work, for HR to change,
it must follow a four-step process which includes defining and clarifying the culture change,
articulating the need for the culture change, assessing the current and future culture state,
and developing alternative approaches for creating the culture change.
Organizations should look at HRO not only as a cost cutting tool but also as a strategic tool.
By aligning outsourcing not only with the hr strategy but also with the organizations wider
business strategy the advantages attained from outsourcing will be far more significant and
far reaching

Ch 7: Scope and Limitations of Study

1 Sample size is small

2 All sectors are not covered
3 Representation of small, mid and large-cap not comparable
4 Inexperience on the part of the researchers
5 Inadequate availability of literature.
 Ch 8: Bibliography

Saunders Mark et. al., Research Methods for Business Students, UK, Pearson Education,
Sep 2007, 4h ed.

The High-Performance Workforce Study 2006 conducted by Accenture

Hewitt report on HR outsourcing 2002 conducted by Hewitt Associates

Hewitt report on HR outsourcing 2005 conducted by Hewitt Associates

Ulrich Dave, A New Mandate for Human Resources, UK, Harvard Business School
Publishing, February 1998

www.esurveyspro.com
APPENDICES
 Appendix I

Questionnaire for Companies who outsource part of their HR activities

The objective of this questionnaire is to predict the future of HR Outsourcing and HR

functions in organisations.

Questionnaire :

Instructions for filling the questionnaire:

1. Please fill in the questionnaire if your company out sources part or all its HR
functions
2. More than one option may be selected for each question
3. Bold option may be selected for choosing an option

Name of company :
Industry :
Size of Company : (Please select one of the following options )
(in terms of market capital)
Small Cap (<500 crore)
Mid Cap (500 – 1000 crore)
Large Cap (>1000 crore)

Questionnaire for Companies who outsource some of their HR activities

1. Why do you outsource HR Functions?

a. Lack of time (for short term projects)
b. Lack of expertise
c. Economical
d. If others please specify
____________________________________________________________

1. What is your current staff strength?

a. < 500
b. Between 500 and 2000
c. 2000

1. Are you satisfied with the Quality of Outsourced HR Functions?

a. Yes
b. No

2. If yes, is Outsourcing Adding Value to your Company?

a. Yes
b. No
If No State Reason:
3. Which of the following HR activities do you outsource?

• Please write short-term / mid-term / long-term in the cells as applicable

• Duration: <2 years (short term)
2-5 years (mid-term)
>5 years (Long term)

Functions Outsourced Outsourced

Partly Fully
HR Admin

Payroll

Recruitment

Training &
Development

Employee
Engagement
Activities

Surveys

Statutory
Compliance

Tax
Consulting

Human
Resource
Information
Systems
(HRIS)

Any Other
Activity
(Please
specify)

1. Which of the following qualities do you look for, while selecting an

outsourcing firm?
a.. Brand
b. Past performance
c. Recommendations from top management
d. Culture and Value Compatibility
e. Others _____________________________(Please specify)

2. Does your organization outsource some of its work to free lancers (individuals) as
and when required?
 a. Yes
a. No
If yes, please specify portion of total funds allotted to free lancers (in terms of %)

__________________________________________________________________

1. On which parameters do you evaluate the vendor’s performance?

a. Cost
b. Satisfaction of employees
c. Timeliness
d. Any Other (Please specify)__________________________

1. In case employees have issues with regard to the outsourced HR functions, do they
have to deal with the outsourcing company directly or does the HR department resolve it for
them?

a. They have to communicate directly with the outsourcing agency

b. The HR department takes care of the issue

1. How many HR change projects are currently on the go?

a. < 5
b. 5 – 10
c. > 10

1. How much independence does your organisation provide to the outsourcing firms
wrt to the outsourced activities?

a. Low - Every new activity proposed or initiated by the outsourcing firm must
have the approval of the in-house HR department.

b. Medium – Interaction and approvals depend on overall impact of suggestions

and proposals.
c. High - We give the outsourcing firm total freedom as long as we are getting
positive results.

1. Do you feel that all HR functions will be outsourced in the future?

a. Yes
b. No
If No State Reason:

_____________________________________________________________

_____________________________________________________________

_____________________________________________________________

2. Do you believe that HR is the only function which does not add directly to the bottom line
of the organization? If Yes, how can the performance of HR be measured?
 _____________________________________________________________

3. In future would you like to integrate the functions you have currently outsourced back into
your organization?

a. Yes
b. No

If yes, please mention reason.

Your inputs are extremely valuable for our research. Thank you!

Appendix II

Questionnaire for Outsourcing firms

The objective of this questionnaire is to predict the future of HR Outsourcing and HR
functions in organisations.

Questionnaire :
Instructions for filling the questionnaire:
1. Please fill in the questionnaire if your company out sources part or all its HR
functions
2. More than one option may be selected for each question
3. Bold option may be selected for choosing an option

Name of company : _____________________________________________

Questionnaire for HR Consultancies

1. Do you think HR Outsourcing will completely replace HR

departments of organisations in due course?
a. Yes
b. No

1. If yes, please select one of the following reasons for the same :
a. Companies would want to divert all attention to Core issues
b. Any other reason? ( Please specify) __________________________

1. Which one of the following criteria do you first look at while

choosing a client
company?
a. Size of the company
b. Culture Compatibility
c. Existing in-house HR department
d. Competency in Industry to which client company belongs
e. Any other (please specify) _______________________

1. What Value Proposition do you provide to your Clients?

a. Cost Reduction
b. Better Re-engineering and Innovation
c. Faster Processing
d. Secrecy of Information
e. All of the above

1. What steps do you take to understand your client's business and

culture comprehensively?

_____________________________________________________________

6. Rate the Functions according to their share in the total revenues? ( Rank 1 to be
given to highest contributor to revenues and so on. Also sate approx. Percentage
to total revenues if possible)

a. Recruiting : ____________
b. Payroll : ____________
c. Training and Development : ____________
d. Performance Appraisal : ____________
e. If others Please Specify : ____________
 6. In terms of size of workforce, which types of companies usually outsourcing
their HR?
a. Small ( Workforce < 500 )
b. Mid ( 500 < Workforce < 2000 )
c. Large ( Workforce > 2000 )

6. Most of the client companies who outsource belong to which industry?

a. IT and ITES
b. Manufacturing
c. Others. Please specify __________________________

6. Which of the following HR activities do companies generally outsource?

a. HR Admin
b. Payroll
c. Hiring
d. Training & Development
e. Employee Engagement Activities
f. Surveys
g. Statutory Compliance
h. Any other Activity (Please specify) ______________________

6. In a study conducted by Accenture - CEOs believed that there is a huge gap between the
potential and actual achievement by their HR function. As a service provider what do you
think are the main reasons for this gap and what business opportunity do you see arising
from it?
_____________________________________________________________

_____________________________________________________________

7. Since In-house HR interacts daily with the employees; they are likely to have greater
compatibility with and interest in the employees. As a Service Provider do you agree to this
statement
Please Comment

_____________________________________________________________

_____________________________________________________________

12. Are you equipped with the systems and tools to support future needs?

a. Yes
b. No
Your inputs are extremely valuable for our research. Thank you
Appendix III

Accenture and Hewitt Studies on HRO

The High-Performance Workforce Study 2007

The Accenture High-Performance Workforce Study has played an instrumental role in

ongoing research by Accenture into the characteristics of high-performance businesses
around the globe. In the 2007 installment of the study, Accenture explored a number of
critical human resource and training challenges, as well as the keys to building and
sustaining a workforce that delivers a positive, measurable impact on an organization’s
bottom line—thus enabling the enterprise as a whole to achieve high performance. The
study was based in large part on a survey of 251 executives—including chief executive,
financial, operating and information officers, as well as heads of human resources and
training—in six countries spanning five major industry segments.

The survey’s findings painted an interesting—and, at times, concerning—picture of the

state of talent management in organizations around the world. In particular, the survey
revealed how a number of shortcomings in the HR and learning functions may be
preventing companies from creating and sustaining stronger overall workforces that are key
to competitive advantage. But the survey also showed that a number of companies—which
we called “human performance leaders”—reported far better results in many important
areas, including the performance of their most critical workforces and the effectiveness of
their HR and training organizations.

Workforce-related Factors Are Key to Influencing High Performance

Executives today face an imposing challenge: how to identify and successfully address
those factors that have the biggest impact on an organization’s ability to capitalize on
growth opportunities. In other words, as the economic environment has become more
conducive to generating robust financials, raising the level of business performance has
become increasingly important.

In polling executives on what they thought were the most significant factors influencing
high performance, we found that people and workforce-related factors play a major
role. In fact, respondents cited three such factors among their top five:

• Attracting and retaining skilled staff (third)

• Having a performance-oriented mindset in the workforce (fourth)
• Finding and developing talented leaders (fifth)—which finished behind the top factors of
building strong customer loyalty (first) and acquiring new customers and increasing market
share (second)

Yet when we asked participants how well they thought they were addressing these factors
(using a scale of 1=not well at all to 5=very well), we found that only a small percentage
believed they were performing “very well” on any of them (Figure 1).
 34

Additional data from our survey show that many companies are facing serious
challenges in managing their workforces —challenges that could be hindering
companies in their pursuit of high performance. One area of concern, for instance,
is the performance of companies’ most important workforces.

We asked survey participants to identify the three most important workforces in

their company (Figure 2). The top three workforces, in order, were:

• Sales (cited by 62 percent)

• Customer service and support (identified by 43 percent)
• Finance and strategic planning (each named by
23 percent of respondents)

When we asked participants to describe how well they thought each of these
workforces performed (using a scale of 1=low to 5=high), we found that none of
the principal workforces in a majority of respondents’ organizations is performing
at a high level—even those that respondents considered most critical (Figure 3).

We further found that most companies still struggle to build industry-leading

workforce skills; ensure that their employees understand the company’s overall
strategy and what it takes to excel in the organization’s chosen markets; and retain
employees in their top three workforces.

HR and Training Shortcomings Are Likely Behind Workforce Challenges

In analyzing our survey data more deeply—and drawing on our own insights from
the work Accenture has done for hundreds of companies around the world in the
past few years—we discovered that the lack of high performance among
companies’ most critical workforces stems in large part from shortcomings in
human resource and training support.

For example, we asked respondents to rate the effectiveness of the HR and training
support given to the top three work- forces in their organization, using a scale of 1=not
at all effective to 5=very effective. In a majority of participating companies, support of
the top three workforces was reported to be average to ineffective in a number of key
areas of talent management. Looking at the data another way, no more than 19 percent
of respondents said their support of their top three workforces in any of the areas of
talent management covered by our study was highly effective (Figure 4).

Given this data, the natural next question is why are the HR and training organizations
failing to do a better job of providing talent management support, especially to the
company’s most critical functions? Our survey respondents provided insights into
potential answers.

Lack of Connection to the Business

 34

Only 36 percent of respondents said their companies tailor their HR and training
support to each workforce’s needs and contributions to the organization, and just
between one-fourth and 40 percent of respondents said the heads of key functional
areas across the company are highly involved in initiatives to develop their people.

Inadequate Business Metrics

Nearly 40 percent of respondents said they had no formal measures to gauge the
impact of their HR and training efforts on the performance of their top three
workforces, and 39 percent said they have such measures but only for some HR and
training initiatives. Furthermore, only slightly more than half of participating
companies consider business-oriented metrics such as margin/profitability and
revenue/sales pipeline as key measures of HR and training performance.

Talent Pool Dynamics

Environmental influences are changing the dynamics of the available talent pool and,
consequently, affecting how organizations recruit.

One such influence is the aging and shrinking workforce, the impact of which is
already being felt by nearly 30 percent of our survey respondents (and expected to be
felt within five years by an additional 32 percent)
 34

Lack of Knowledge Capture and Sharing

Forty-two percent of respondents described knowledge capture and sharing as a
challenge or severe challenge for their company, attributing the problem primarily to
lack of
a common business culture across different locations, no knowledge support
infrastructure with dedicated people, and the fact that knowledge sharing typically is
not rewarded in the organization.

Training Lost in the Shuffle of HR Activities

In 61 percent of companies in our survey, the head of training and head of human
resources are one and the same person, while in fully half of the companies in the
survey, training administration, development and delivery are part of the overall focus
of the HR function. In only
12 percent of companies is training administration, development and delivery
managed as a separate function reporting to the company’s senior executives.

High Satisfaction, Performance and Status Are Elusive

Companies’ HR and training shortcomings have not escaped the notice of executives.
For example, survey participants’ satisfaction with both functions is not as high as it
could be: Only 11 percent of respondents said they are very satisfied with the
performance of their HR function, and just 10 percent said they are very satisfied with
the performance of their training function.

Furthermore, the two functions are not viewed by many executives as particularly
important, relative to other corporate workforces. Human resources and training were
ranked seventh and 11th (out of 12 functions), respectively, in terms of their
importance to the overall organization—with just 19 percent and 9 percent of
respondents, respectively, citing human resources and training as one of their three
most critical workforces.
 34

Finally, regardless of whether the primary goal of their training function is

demonstrating business impact, gener- ating operational efficiencies, fostering
innovation or aligning to strategic priorities, less than 10 percent of respondents said
their training organization is making exceptional progress toward meeting those
objectives.

The Human Performance Leaders

Despite the challenges and struggles that many companies in our survey face,
average or below-average performance is not universal. In fact, 9 percent of
participating companies emerged as what we call “human performance leaders.”
These are organizations whose top three workforces are performing at the highest
levels—i.e., those whose perfor- mance was rated a 5 on the 1=low to 5=high scale.
These leaders enjoy more effective HR and training support and, consequently, are
more likely to be successful in addressing the factors that contribute to high
performance.

To more fully illustrate these leaders’ accomplishments, we compared their responses

and experiences with those of respondents from “laggard” companies, which account
for 54 percent of our overall survey sample. We defined laggards as those companies
in which none of the three top work-forces is performing at the highest level (i.e.,
received a performance rating of 5). In comparing the two groups, we looked at
responses from two perspectives: one that helped us understand the differences in
results that both groups achieve; and one that sheds light on the actions that both
groups take—actions that appear to play a major role in
the achievement of those results.

Differences in the results leaders get

The message in our survey data is clear: Leaders are making significant strides
toward high performance, while laggards appear to be simply muddling along. This is
especially evident in how leaders view their HR and training functions and in leaders’
reported organization and workforce performance:

1. Leaders are more likely to rate all organizational factors surveyed as very important
to high performance.
2. Leaders are more likely to say they perform very well in addressing all of these
critical factors.

3. Leaders are more likely to rate their workforces more highly on skill level and
understanding of strategy. And leaders report lower levels of turnover in their most
important workforces (Figure 6).
4. Leaders are more likely to have favorable views of their HR and training functions.
34
 34

Differences in leaders’ actions that lead to better results

As discussed earlier, many companies’ struggles to achieve high performance are due
to a number of shortcomings in human resources and training. Leaders in our study
differ from laggards in how—and how effectively—their HR and training functions
operate and, thus, are more apt to experience superior workforce performance.

1. Leaders are more likely to have and use appropriate metrics to tie HR, training and
overall workforce performance to financial performance.
2. Leaders are more likely to more closely tie their
HR service delivery and support to the business.
3. Leaders are more likely to have the heads of their top workforces deeply engaged
in HR issues and people management.
4. Leaders are more likely to provide highly effective talent management support to
their top workforces (Figure 7).
5. Leaders tend to have a successful, more strategic learning function.

Attention to People Is More Critical Than Ever

In the past two decades, a company’s workforce has become increasingly important to
business success—so much so that most senior executives now view people and
workforce issues as a critical competitive differentiator and one of their top agenda
items. This is especially true as the economic doldrums of the past few years have
receded and companies once again have set their sights on growth objectives. A
superior workforce—supported by highly effective, flexible and business-oriented HR
and learning organizations—will be essential to achieving these objectives and taking
greater strides toward high performance.
HEWITT RESEARCH 2002
For companies throughout the Asia-Pacific, the decision to outsource the human
resources function is tied largely to the benefits of cost reduction and for an
opportunity to focus more on core competencies.
Of those companies that do take the leap of faith in the near future, the two most
commonly outsourced functions are expected to be payroll processing, and training
and development.
Hewitt Surveyed 424 companies from across the Asia-Pacific. Majority of responses
originated from India (33.3 per cent or 141 companies), followed by Greater China
with 30.2 per cent, Southeast Asian countries with 22.4 per cent, Australia/ New
Zealand 7.5 per cent, and Japan/ Korea 6.6 per cent.
Out of these, 50.5 per cent of respondents said concentrating on core competencies is
the largest single reason for outsourcing the HR function.
Cost reduction was cited by 28.3 per cent of respondents as the primary reason for
such outsourcing.
Among HR functions, the survey shows that payroll processing is what, 20.3 per cent
of companies would like to outsource in the next 12 months, closely followed by
training and development (18.9 per cent), benefits administration (15.6 per cent)
medical claims processing (10.8 per cent), and recruitment (10.1 per cent).
 34

While a good reputation and proven outsourcing expertise are valuable assets, HR
outsourcing vendors are likely to find that educating clients on the outsourcing
process as well as the vendor's specific capabilities will be the key to gaining an edge
in the Asia-Pacific market.
Although other surveys have indicated that HR outsourcing represents an area of
great future potential, almost a quarter of Hewitt's regional survey respondents (24.8
per cent) said that they had not yet considered outsourcing any of their HR functions.
The reasons given for not yet outsourcing HR functions varied. Nearly one-fifth of
the respondents (19.1 per cent) doubted that it would be of value to their companies.
Almost as many 17.9 per cent cited the lack of suitable vendors, while 14.4 per cent
claimed that suitable electronic systems already existed within the company. The
remaining 23.3 per cent of participants cited other, non-specified reasons.
Respondents in Greater China and India attributed their noncommittal attitude toward
HR outsourcing to a perceived lack of suitable vendors-a sentiment shared by 20.3
per cent and 19.9 per cent of respondents, respectively.
More than half (53.3 per cent) of the companies surveyed said they are concerned
about the quality of outsourcing vendors.
Second in importance are security issues at 15.6 per cent, followed by 7.5 per cent
who said they are apprehensive due to a lack of knowledge of the procedure.
When asked to name the most important qualities sought in an outsourcing vendor, 37
per cent of companies cited an assurance in meeting service standards, while 29.2 per
cent want a vendor that specialises in the relevant function.
It is estimated that outsourcing services in the Asia-Pacific would achieve compound
annual growth of 17.52 per cent between 1999 and 2004. This represents a growth
from $1.14 billion in 1999 to $2.56 billion in 2004.
HEWITT RESEARCH 2005
This study was conducted in the fourth quarter of 2004 and the first quarter of 2005.
A total of 129 employers responded to the survey out of which 121 outsource at least
one HR function. The employee populations average roughly 15000 with a median of
7500. Revenues of the organizations average 6 billion $ with a median of 2 billion $.
The findings are as follows
By 2008 study participants expect the outsourcing to expand across the board with
significant increases in leave management, learning and development, payroll,
recruiting, health and welfare, defined benefits plan and global mobility.
The most commonly cited reasons are
• Gaining access to outside expertise

• Improving service quality

• Desire to focus on core competencies

• Cost cutting

The most common concerns are

• Losing control of key processes
 34

• Employee reactions

Almost 89% of the participants indicated that they are very satisfied with their current
outsourcing arrangement. Some of the benefits realized are
Cost saving was achieved more than 80 % of the time
One fifth of the companies realized process efficiency, greater discipline in cost
control and planning, and greater employee awareness.
Approximately one fifth of the respondents experienced significant problems during
the process like poor execution, over promising and under delivering.
Most participants have roughly 3-5 different vendors, but believe fewer vendors
would result in less employee confusion, better integration of service, better
coordination and better vendor management.

While selecting an HR vendor the qualities they look out for are
• Demonstrated HR process expertise

• Prior experience and track record

• Service level agreements

Almost quarter of the respondents have bought back an outsourced HR function back
in house, mostly payroll, recruiting, learning and development due to poor quality of
service.
 34

Appendix IV

Measurement of Effectiveness of HR using Six Sigma Techniques

How to Apply Six Sigma in Human Resources?

Six Sigma has been well applied in manufacturing through improving processes that
use the DMAIC methodology.

The DMAIC Methodology has been defined as follows :

Define: In this step, it is important to define specific goals in achieving outcomes
that are consistent with both, the customer's demands and one’s own business's
strategy. In essence, a road map is laid down for accomplishment.
Measure: In order to determine whether or not defects have been reduced, a base
measurement is needed. In this step, accurate measurements must be made and
relevant data must be collected so that future comparisons can be measured to
determine whether or not defects have been reduced.
Analyze: Analysis is extremely important to determine relationships and the factors
of causality. While trying to understand how to fix a problem, cause and effect is
extremely necessary and must be considered.
Improve: Making improvements or optimizing processes based on measurements
and analysis can ensure that defects are lowered and processes are streamlined.
Control: This is the last step in the DMAIC methodology. Control ensures that any
variances stand out and are corrected before they can influence a process negatively
causing defects. Controls can be in the form of pilot runs to determine if the processes
are capable and then once data is collected, a process can transition into standard
production. However, continued measurement and analysis must ensue to keep
processes on track and free of defects below the Six Sigma limit.
Some larger corporations have integrated Six Sigma so well into the corporate culture
that it can be considered the DNA of the company.
However, even in such companies, the human resources department has been
practically untouched by Six Sigma. In a recent conference of the human resources
professionals in Chicago, it was clear that HR people are now looking to benefit from
Six Sigma initiatives. Two of the questions that have been asked are, “How does HR
implement Six Sigma?,” and “What can HR do to help Six Sigma initiatives in an
organization?”
 34

Businesses develop strategies for profit and growth. The strategy is driven down
through action plans for execution. Most strategies fail to get down to the floor level
and get lost in the middle layers of management, but HR can help execute the profit
and growth
strategy through the use of Six Sigma. Figure 1 shows the important role of HR in
driving business strategy through Six Sigma and in creating the Six Sigma culture.
The HR department interacts with and influences every employee; therefore, it’s the
department best suited to facilitate management change. The figure shows that an
organization needs HR to integrate Six Sigma methodology and a business scorecard
to achieve growth and profitability.

When Motorola first successfully implemented Six Sigma from 1987 to 1992, its
management program of setting goals, sharing savings, risk-taking and linking
personal goals to corporate goals all played important roles. As a result, the company
grew, made
lots of money and rewarded its employees with bonuses. The ch allenge in
implementing Six Sigma in HR includes questions such as, “What should I do?,”
“What should I measure?,” “How would I improve the HR process?” and “How can
HR be at 3.4 parts per million as it doesn’t deal with a million people?”

It must be understood that HR isn’t a huge part of any business, but it has a huge
effect on every business. Human resources should be considered as human capital.
HR must ensure that there’s good return on investment in human capital. Typical HR
functions
include benefits management, compensation, recruitment and skills development.
Innovation and change management must also become key functions in the HR
department. In addition to managing these functions well, managing idea to
innovation, improving HR functions, and accountability of employees and executives
must also be implemented.

One must create a process map for HR department to clearly understand HR functions
and prepare for implementing Six Sigma. For the critical steps in the HR functions,
one can answer the following questions to identify opportunities for improvement
that can be exploited by applying the Six Sigma methodology:
 34

Fig. Six Sigma and Human Resources

• What is the purpose the HR function or sub-function?

• What are the expected deliverables (people, skills, services, value, reports, etc.)?

• What are the measures of goodness of key-deliverables?

• What are the error opportunities for key-deliverables?

• What improvement activities are carried out in the HR function?

Answering the above questions, one can identify output (unit), measures of reliability,
and items and elements that can go wrong (opportunities for error). Having identified
‘what’ to measure, one can establish a baseline for key performance indicators, which
may include one or more of the following:

• HR Responsiveness

• Employee involvement

• Idea and innovation for improvement

• HR effectiveness in fulfilling its intended functions

 34

Implementing Six Sigma in HR is no different than applying it in other functions. The

key is recognizing gaps or opportunities for improvement by breaking down
processes in manageable chunks. The HR function can take the following steps to
implement Six Sigma in HR or to facilitate implementation of Six Sigma in the
organization:

• Establish a clear and significant role of HR for institutionalizing Six Sigma

• Establish Six Sigma objectives and role in HR

• Seek customer feedback and identify opportunities for Improvement

• Establish Six Sigma goals for HR function

• Formulate, prioritize projects and form teams

• Provide Six Sigma Green Belt training

• Implement DMAIC for breakthrough solution.

Examples of Six Sigma projects that companies’ HR departments have completed

include reduction in overtime, reduction in time and cost to hire an employee,
reduction in employee retention or turnover, reduction in safety violations, reduction
in cost of employee separation, and HR response to internal inquiries for benefits,
payroll, promotion and fairness.
Six Sigma implies dramatic improvement through reengineering or innovation of the
HR function. HR involvement in achieving corporate growth and profitability must be
defined. The HR role must support leadership and departmental activities, provide
feedback, and intellectually engage employees in achieving their personal and
corporate objectives. Customers expect better, faster and cost-effective solutions.
Unless every department performs better, faster and cheaper, the company will be
unable to meet customer expectations. HR is no exception to this expectation. It must
be set to perform better, faster and more cost-effectively by creating value rather than
just rote support of management or training. Creating value could be accomplished
through innovative solutions and employee innovation. This is a low-hanging fruit for
HR.