Way forward for HR in recession

The old economic adage of ‘when the United States sneezes, the rest of the world gets a cold’ does not really apply to us in India. After all in the present world economic scenario, the United States has Pneumonia, but India has only a cold. Optimism is good, but at least in the HR field, we need to look at our options very, very, closely.

Expulsion from service

A recent example of a colleague of ours comes to mind. He was an excellent HR professional, reached the pinnacle of Head HR for a reputed multinational, and was suddenly laid off with minimum notice. In an economy where the example we have given is becoming more common, what is the solution to a situation like this? In our opinion, it is outsourcing. And just what is outsourcing?

 In simple terms we can define outsourcing as the delegation of one or more business processes to an external provider who is responsible for these outsourced processes and is judged on his performance on results and metrics.  Why outsource? But why outsource at all? It is likely that in today’s economic scenario senior HR Managers can secure their jobs and future by going the outsourcing route.

Although industry accepts the importance of HR as a function, it is still not a core function for most companies. As long as money was flowing into a companys’ coffers, it was acceptable to have complete HR departments with its requisite infrastructure.

Companies’ also turned a blind eye to expensive add-on’s like outside HR audits,  additional training programmes and Organisation Development activities. But in today’s mode of cost cutting, the very relevance of HR as an independent function is in doubt. For HR Managers to ensure that they are not replaced by juniors who will do a combination of HR, Administration and Finance, they have to look seriously as making the HR function under them as cost effective as possible.

The answer here is — outsourcing. Benefits of outsourcing:  Apart from securing one’s own job in the company, the benefits are numerous.

 The first of course is reduced cost as you do not have to invest in people, infrastructure or new systems.  The second is efficiency. The outsourced partner has to perform on metrics and on agreed parameters, or face termination.

This will ensure a higher level of efficiency. The third is IT systems, which will be improved without the company having to spend any extra money on the IT as this will have to be provided by the outsourced provider.

The fourth is access to HR expertise not available internally, as you can demand from the HR provider different skills which they have to provide.

The fifth is flexibility, as an organisation is able to address HR problems with a speed that cannot be done if the function was internally run. The sixth is reduction in risk as the senior HR managers can concentrate on core HR activity and ensure the company benefits from the HR function strategically. And, finally, the seventh, with an outsourced function, it is easier to scale up and scale down when the need arises.

Disadvantages: There are disadvantages in outsourcing. The major one is exposure of confidential data to outsiders. But this can be alleviated by ensuring that you choose a reputable vendor and that you have a rock solid NDA (non disclosure agreement) in place. Another major disadvantage is the resistance from within the company.

This is a problem that has to be addressed from the beginning. If the resistance is from senior management, then the only reply is the cost saving and cost effectiveness as well and improved strategy performance.

If the resistance is from middle management, then it should be made clear that outsourcing will give them the option to ensure better delivery and performance from the vendor.

Firm resistance

If the resistance is from junior management, then it is either because they are scared of their jobs, and in this case their resistance does not matter, or because they do not really understand Human Resource outsourcing and need clarifications which should be given to them.

The last major disadvantage is a mis-match with the outsourced vendor. In this case it means two things: either there are teething problems which can be sorted out, or, more importantly your choice of vendor was wrong, which brings us to the next point of how to choose the right vendor.

How to choose the right vendor? This was a million dollar question a few years ago, but outsourcing has evolved in the last decade and parameters are available to get a vendor who would fit in your organisation. The cardinal rule though: don’t outsource what you do not understand.

Outsourcing work

Make sure that you are very clear on what functions are ready to be outsourced and this will depend on the type of company you are working in, the length of time it has been in business and particularly on how well and cost effective the present process in Human Resource  is functioning.

It makes no sense in outsourcing a process in Human Resource  if you are doing it more cost effectively. But you should have the data to prove this. Once you are clear on these points, then you can look at outsourcing.

The most important factor to look in a vendor is the ‘fit’ with your organisation in terms of culture, reputation, track record and ability to deliver to the benchmarks you will set. It is also important to understand that outsourcing is not a one off process, but a long term relationship to which the company must be committed.

Otherwise, the vendor will not be able to give you what you want as if someone is to give you a cost saving, it will be because of long term gains. Technology should be an important part of the decision, as a vendor who is not able to offer the technology to go with the HR outsourced process will not be able to deliver in the long run.

Only vendors who use or develop HR technology will make the difference, as they have the domain knowledge and are metrics and performance driven and have a better chance of ensuring success.

External consultants

Conclusion: Outsourcing is the way for the future. Payroll is an established outsourced activity which gives companies cost savings of 10-25 per cent.  Recruitment is another one that is becoming increasingly outsourced, and Mindtree has gone on record in a recent article stating that it has made enormous savings in outsourcing its recruitment, especially using this concept of Unified Vendor Interface with a group of Recruitment Consultants called the Omega Group.

Training and development has always been an activity that has brought in external consultants. But technology, HR administration, appraisals, induction programmes, and exit procedures are areas which can be outsourced as well.

HR strategy

The only area which a company will find difficult to outsource is strategy, as this will require a buy in from senior management which is not given in most companies.

But some companies are outsourcing HR strategy as well. Unilever has outsourced its entire HR function to Accenture at a contract of $1billion. It looks likely that this is the direction corporates will go in future and the present economic recession worldwide will ensure that we will move in this direction faster than slower.

(The writers Joseph Rasquinha and Mohammed Zaheer Hussain are with Truemen Management Consultancy Services, Bangalore. )