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Deccan Herald » DH Avenues » Detailed Story
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HR gains as outsourcing grows
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The growing trend of outsourcing has elevated the importance of HR activity in the country as companies are looking at definite strategies to manage people to fill up slots, says Ganesh Chella.
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So much is written everyday about the fact that HR outsourcing is hot. In fact even large traditional business consulting firms are now diversifying into HR outsourcing. We have seen several big acquisition deals among these firms recently.
HR outsourcing is considered a big business. The Conference Board report (which is based on a survey of over 120 companies on North America and Europe with over US $ one billion revenue) claim that over two-thirds of the respondents have outsourced at least one of their major HR functions and do not plan to take it back in-house.
The Gartner report predicts the global HR outsourcing revenues in 2005 to touch $58 billion! In fact HR is considered the most outsourced business process. We also understand that Chief Human Resource Officers who took recent outsourcing decisions received good pay increases!
So, is there a catch somewhere?
Yes there is. There are some serious paradoxes about HR outsourcing that we need to be aware of and that is indeed the purpose of the article.
HR outsourcing
The first paradox is about the very term HR outsourcing. Take a look at the most commonly outsourced “so called HR functions”: 401(k) program management, pension benefits management, health benefit management, stock options administration and payroll administration. (Obviously we are excluding here things that are done by captive facilities like SCOPE and Nipuna).
Are these HR processes? Will this construe HR outsourcing? Certainly not, by any stretch of imagination. These are really accounting functions. At best, what was in the good old factory days called “time office functions” or “personnel administration” functions or what in modern parlance is called HR operations.
I am also not sure if HR professionals in the real sense were engaged in activities of this nature. We might therefore reasonably conclude that what we are seeing is outsourcing of accounting transactions related to employees.
Let us now go one level deeper to understand if this trend holds greater implications than meets the eye, both globally and then in India.
Global trends
Most surveys clearly point out to two measures and reasons for this growing popularity of outsourcing: The hard measures: reduced costs, improved service and better expertise. The soft measures: do away with non-core work and free up time of HR to focus on more strategic issues.
Let’s examine the hard measures logic first: While many have hastened to report dollar savings (though contestable), I am yet to see any report about improved employee satisfaction on account of better service. On the contrary, I have only seen reports of dissatisfaction. The leaders have either been too busy outsourcing more that they have failed to poll employees on this or they already know what employees feel and do not want to take chances. As for expertise, I fail to understand how Indians far removed culturally and physically, with no in-depth familiarity with their policies, programs or problems and with no continuity (given the high attrition here) can be more competent to deal with employee problems. It makes no sense whatsoever.
In fact most recent US and Europe centric surveys by Gallup, by Steven Covey or by any of the large consulting companies suggest that significant number of employees are actively disengaged and there seems to be no respite at all. Outsourcing their HR processes certainly does not seem to have improved employee engagement!
Let’s now examine the soft measures: How logical is the argument that outsourcing will free up people to focus on core and strategic work?
Take a look at the list of tasks being outsourced. Ask yourself once again if outsourcing these tasks would actually lead to the people focusing on “strategic” HR tasks since they have more time on their hands!
This argument is valid only under two possible conditions:
Condition 1: There were highly competent HR professionals in the US and Europe who over the years had been forced to perform transactional HR tasks and enlightened management is now keen to liberate them from these task so that they can partner within them on strategic issues.
Condition 2: There were people with skills to perform transactional work and were doing it at a high cost. Their managements are now keen to move such work to low cost countries and then want to invest in retraining them so that they can start partnering with them to perform strategic HR work!
To me, both seem very ridiculous arguments, to say the least.
Transactional work has and can never be a reason for anyone not being able to engage in strategic HR work. I can say this even from my personal experience as HR professional.
In fact, I dare say that there are only two conditions under which HR professionals will fail to engage in strategic work: They do not have the competence and capabilities to engage in such work. Their business leaders do not want them to engage in such roles.
I personally believe that both the above conditions exist in equal measure!
We may therefore reasonably conclude that: What is currently being outsourced is not HR but HR related accounting work. There is little evidence to suggest that any of the overt reasons for this outsourcing (especially improved service, competence and freeing up time for strategic HR work) are justifiable.
If at all, this outsourcing trend will only aggravate the already existing low levels of employee engagement by giving employees the message that employee costs and employee related activities are expensive and non-core and need to be shipped out. Most importantly, outsourcing may not result in HR engaging with more strategic tasks.
Implications for India
Having looked at the global trends, let us now take a look at the impact of these trends on India. Implications for India need to be looked at in two parts — economic impact and HR impact.
The economic impact is positive, given that India is the beneficiary of the global outsourcing wave, at least for now. It is creating more jobs and increasing earnings for the country. This has been written about a lot and I will not labour on this point.
The second part of the India impact is from the HR point of view – will the global trend of outsourcing HR related activities be copied by Indian organisations. After all, can we refrain from practicing what we preach! What is quite obvious is the fact that cost arbitrage will not be the driver for this trend within India, if ever, even if a large organisation were to outsource to a small operator.
On the contrary, India must be the country hiring the most in the world. In fact, HR in India would rank as the most dynamic and turbulent in the whole world today. So many new jobs, so many to hire, so many to train, so many to retain and so many to keep happy! After many years of fighting for identity, HR in India has come of age. HR and organisation building issues are centre of the plate in any Indian CEOs agenda today. CEOs are willing to spend as much as it takes to manage their people and people processes well. It may never get any better for HR. Under such circumstances, cost arbitrage is the last thing on their mind.
What is on the minds of our CEOs is the competence gap. They are most worried about the acute shortage of HR talent and HR competence.
At a time when good HR support is needed the most, it is just not available in the measure they would like. The situation is compounded by the fact that there is virtually very little India centric thought leadership on HR issues.
While economic development in the US in the 1960s, 70s and 80s was supported by a significant number of organisation development and HR thought leaders and their research initiatives, we cannot say that of India. We continue to inappropriately apply ideas from the western world.
What India lacks is both original thought and strategic HR support. This is a gap that CEOs will not live with. They have already begun to access help from outside and if the growing number of boutique and large HR consulting firms are any evidence, real HR outsourcing is actually happening in India. There are of course a few important differences:
The focus will be on augmenting internal competence and not really on outsourcing the function. It will not be driven by cost.
Thankfully, this is will be supported by a growing awakening about the need to renew and strengthen the employee relations role and function.
So we might conclude that many business leaders in India (with the exception of the very large ones) will seek strategic and specialist HR support from outside in significant measure while they strengthen internal HR to play the equally important role of focusing on business partnering and employee relations.
The author is the founder and CEO of Totus Consulting, a strategic HR Consulting firm. E-mail: ganesh@totusconsulting.com
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Wednesday, April 20, 2005
