CHAPTER - 1

^Outsourcing is one of the most important management ideas

to evolve in the last 75years

By Harvard Business Review

Chapter 1

Introduction Page No

11 Introduction - 01

111- Introduction to Human Resource Outsourcing - 01

112 - Definition of outsourcing - 08

113 - The trends of outsourcing - 10

114 - Outsourcing in North America and Europe - 13

115- Information systems outsourcing - 23

116 - Information technology enabled outsourcing - 27

12 - Need for the study - 29

121 - Indian research study - 29

122 - Research gap - 32

1221 - Statement of the problem - 32

123 - Research questions - 33

124 - Research objectives - 34

125 - Scope of the study - 34

126 - Hypotheses - 35

13 - Methodology - 36

131 - Research context - 36

132 - Research design - 37

133 - Data collection - 37

134-Sampling -38

1341-Sample size -38

1342 - Sampling technique - 39

135 - Statistical tools - 39

14 - Demographics of the respondents - 39

15 - Measures - 39

16 - Analyses and results - 40

161 - Instrument administration - 40

17 - Mail survey - 41

18 - Chapter scheme - 46

Chapter 1

Introduction

11 - Introduction

111 - Introduction to Human Resource Outsourcing

That was the 16^ day of the great kurukshetra war All heroes

retired for the night Late in the night Radheya went to Duryodhana s tent ami

said I am superior to Arjiina hut I have no good charioteer If I have Salya

as my charioteer I am sure to win the war But you have to coax Salya to offer

his services Embracing his friend Radheya Duryodhana said I will coax

Salya to do this go and rest in peace

On the ] day morning Duryodhana went to Salya and said I fall at

your feet and ask you to grant me a favor Today Radheya has to meet Arjuna

in the battle He can easily win if he has a charioteer like Krishna I ask you

most humbly to be the charioteer to my dearest friend Radheya

Salya the anointed kind was wild with Duryodhana and said You are

insulting me and tried to walk out of the assembly Duryodhana followed him

and stood in front of him with folded hands and with tears in his eyes entreated

him My lord in this entire world you are the one person who is far superior

to Krishna and hence I am asking you to hold the reins of Radheyas horses

After a lot of cajoling Salya acceded the proposal

Talent was in short supply even in those days And Duryodhana had

no option but to outsource it for the day (GRK Murty 2005)

Companies which wish to simultaneously grow and maintain their

competitive edge in todays global economy have to keep pace with evolving

management skills and practices In the 1990s a number of organizations are

considering outsourcing as one way to control resources provide quality

service and measure and manage its affairs in a businesslike manner (Axel

1994 Alexander 1996 Corbett 1994 Grupe 1997 Meyer 1994 Quinn

1994 Yeung 1994)

Outsourcing itself is not a new concept as organizations have for years

contracted with external suppliers to provide an array of services The practice

of outsourcing also known as farming out or contracting out has been around

for long time (Lacity and Hirschheim 1993 Leonard 1994 Quinn 1990 The

Economist 1991 Venkatesan 1992) In the 1950s Automatic Data Processing

Inc began taking over companies payroll functions Electronic Data Systems

Corp began handling computer and data management for clients in the 1960s

Aramark Corporation has been running cafeterias for companies colleges and

hospitals since the 1960s (Byrne 1996) The term outsourcing itself

however is very recent as it was coined in 1989 when Eastman Kodak Co

handed over its information technology department to outside providers (Wells

1996)

Since 1989 outsourcing of Information Technology (IT) and

Information Systems (IS) has occurred in a number of countries and a variety

of organizations For example in 1993 AMP Insurance Company (the largest

insurance company in Australia) British Aerospace and UK Inland Revenue

Service all outsourced substantial parts of their IT activities (Hubert 1993)

Today in Somers Y Pepsi Inc employees receive personal financial planning

from KPMG Peat Marwick Denvers TeleTech Holdings Inc is taking

customer-service calls from ATampT customers and booking seat reservations for

Continental Airlines and General Motors Corp is trying to farm out part of its

brake production (Byrne 1996)

While a great deal of mformation on the topic of outsourcing has been

published in both the popular press and the academic literature and there are a

number of recent books which discuss the issue of IS outsourcing (ie Lacity

amp Hirschheim 1993 1995 MinoU 1995 Rothery and Robertson 1995) it

should be noted that no definitive study has yet been completed that can tell us

exactly how much todays corporations are outsourcing Data from a number

of different studies would however suggest that the outsourcing market is large

and expected to grow (Dun amp Bradstreet Inc 1997 Grove 1993 The

Outsourcing Institute 1997)

Traditional areas of outsourcing include technical services (ie

Information Systems) operations (ie Facilities Management Cafeteria or

Security Services) or new regulations (ie Environmental Regulations Public

Safety Product Safety) Outsourcing practices have recently however been

3

extended to various areas of the organization such as marketing

manufacturing R amp D and Human Resources (HR) (Jones 1996 The

Economist 1994 Wells 1996)

Recently some studies have linked outsourcing to the Human Resource

department (ie Axel 1994 Benimadhu 1995 Dun amp Brandstreet Inc 1997

Harkins 1995 Hewitt Associates LLC 1997 Jones 1996 Stewart 1996 The

Outsourcing Institute 1997) These surveys most of which were conducted in

the United States and Europe show that many organizations are thinking about

outsourcing the HR services These studies also identify a number of HR

services that are already being outsourced in many companies including

payroll benefits administration temporary and executive search relocation

and traming (Benimadhu 1996 Hewitt Associates LLC 1997 Knight 1996

Laabs 1993 a) The studies also shed some light on why organizations might

chose to outsource HR It would appear that these decisions are based not

only on financial factors but also strategic considerations (Axel 1994

Corbett 1994 Csoka 1995 Harkins 1996 Hewitt Associates LLC 1997

The outsourcing Institute 1997)

While these studies provide some insights regarding the trend and

practice of HR outsourcing they do not explore HR outsourcing practices in

depth In addition most of the data (ie extent used functions outsourced

motivations) come from organizations in the United States There is little

research on HR outsourcing practices in Indian IT organizations and very little

is known about organizations experience with outsourcing HR in the state of

4

Kamataka Such an absence of hard data makes it difficult for organization

decision-makers to make informed decisions on whether to keep HR functions

in-house or to outsource them

The purpose of this thesis is to contribute to the knowledge of HR

outsourcing practices in large and medium sized IT companies located in

the state of Karnataka The following questions were identified through

the literature review

1 What HR functions large and medium sized IT organizations based in

Kamataka are outsourcing at the present time

2 What HR functions will be outsourced in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource HR

function(s)

5 What do decision makers observe as the major advantages of HR

outsourcing

6 What do decision makers find as the major limitation of HR

outsourcing

7 Does ones view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Chapter 1

Introduction Page No

11 Introduction - 01

111- Introduction to Human Resource Outsourcing - 01

112 - Definition of outsourcing - 08

113 - The trends of outsourcing - 10

114 - Outsourcing in North America and Europe - 13

115- Information systems outsourcing - 23

116 - Information technology enabled outsourcing - 27

12 - Need for the study - 29

121 - Indian research study - 29

122 - Research gap - 32

1221 - Statement of the problem - 32

123 - Research questions - 33

124 - Research objectives - 34

125 - Scope of the study - 34

126 - Hypotheses - 35

13 - Methodology - 36

131 - Research context - 36

132 - Research design - 37

133 - Data collection - 37

134-Sampling -38

1341-Sample size -38

1342 - Sampling technique - 39

135 - Statistical tools - 39

14 - Demographics of the respondents - 39

15 - Measures - 39

16 - Analyses and results - 40

161 - Instrument administration - 40

17 - Mail survey - 41

18 - Chapter scheme - 46

Chapter 1

Introduction

11 - Introduction

111 - Introduction to Human Resource Outsourcing

That was the 16^ day of the great kurukshetra war All heroes

retired for the night Late in the night Radheya went to Duryodhana s tent ami

said I am superior to Arjiina hut I have no good charioteer If I have Salya

as my charioteer I am sure to win the war But you have to coax Salya to offer

his services Embracing his friend Radheya Duryodhana said I will coax

Salya to do this go and rest in peace

On the ] day morning Duryodhana went to Salya and said I fall at

your feet and ask you to grant me a favor Today Radheya has to meet Arjuna

in the battle He can easily win if he has a charioteer like Krishna I ask you

most humbly to be the charioteer to my dearest friend Radheya

Salya the anointed kind was wild with Duryodhana and said You are

insulting me and tried to walk out of the assembly Duryodhana followed him

and stood in front of him with folded hands and with tears in his eyes entreated

him My lord in this entire world you are the one person who is far superior

to Krishna and hence I am asking you to hold the reins of Radheyas horses

After a lot of cajoling Salya acceded the proposal

Talent was in short supply even in those days And Duryodhana had

no option but to outsource it for the day (GRK Murty 2005)

Companies which wish to simultaneously grow and maintain their

competitive edge in todays global economy have to keep pace with evolving

management skills and practices In the 1990s a number of organizations are

considering outsourcing as one way to control resources provide quality

service and measure and manage its affairs in a businesslike manner (Axel

1994 Alexander 1996 Corbett 1994 Grupe 1997 Meyer 1994 Quinn

1994 Yeung 1994)

Outsourcing itself is not a new concept as organizations have for years

contracted with external suppliers to provide an array of services The practice

of outsourcing also known as farming out or contracting out has been around

for long time (Lacity and Hirschheim 1993 Leonard 1994 Quinn 1990 The

Economist 1991 Venkatesan 1992) In the 1950s Automatic Data Processing

Inc began taking over companies payroll functions Electronic Data Systems

Corp began handling computer and data management for clients in the 1960s

Aramark Corporation has been running cafeterias for companies colleges and

hospitals since the 1960s (Byrne 1996) The term outsourcing itself

however is very recent as it was coined in 1989 when Eastman Kodak Co

handed over its information technology department to outside providers (Wells

1996)

Since 1989 outsourcing of Information Technology (IT) and

Information Systems (IS) has occurred in a number of countries and a variety

of organizations For example in 1993 AMP Insurance Company (the largest

insurance company in Australia) British Aerospace and UK Inland Revenue

Service all outsourced substantial parts of their IT activities (Hubert 1993)

Today in Somers Y Pepsi Inc employees receive personal financial planning

from KPMG Peat Marwick Denvers TeleTech Holdings Inc is taking

customer-service calls from ATampT customers and booking seat reservations for

Continental Airlines and General Motors Corp is trying to farm out part of its

brake production (Byrne 1996)

While a great deal of mformation on the topic of outsourcing has been

published in both the popular press and the academic literature and there are a

number of recent books which discuss the issue of IS outsourcing (ie Lacity

amp Hirschheim 1993 1995 MinoU 1995 Rothery and Robertson 1995) it

should be noted that no definitive study has yet been completed that can tell us

exactly how much todays corporations are outsourcing Data from a number

of different studies would however suggest that the outsourcing market is large

and expected to grow (Dun amp Bradstreet Inc 1997 Grove 1993 The

Outsourcing Institute 1997)

Traditional areas of outsourcing include technical services (ie

Information Systems) operations (ie Facilities Management Cafeteria or

Security Services) or new regulations (ie Environmental Regulations Public

Safety Product Safety) Outsourcing practices have recently however been

3

extended to various areas of the organization such as marketing

manufacturing R amp D and Human Resources (HR) (Jones 1996 The

Economist 1994 Wells 1996)

Recently some studies have linked outsourcing to the Human Resource

department (ie Axel 1994 Benimadhu 1995 Dun amp Brandstreet Inc 1997

Harkins 1995 Hewitt Associates LLC 1997 Jones 1996 Stewart 1996 The

Outsourcing Institute 1997) These surveys most of which were conducted in

the United States and Europe show that many organizations are thinking about

outsourcing the HR services These studies also identify a number of HR

services that are already being outsourced in many companies including

payroll benefits administration temporary and executive search relocation

and traming (Benimadhu 1996 Hewitt Associates LLC 1997 Knight 1996

Laabs 1993 a) The studies also shed some light on why organizations might

chose to outsource HR It would appear that these decisions are based not

only on financial factors but also strategic considerations (Axel 1994

Corbett 1994 Csoka 1995 Harkins 1996 Hewitt Associates LLC 1997

The outsourcing Institute 1997)

While these studies provide some insights regarding the trend and

practice of HR outsourcing they do not explore HR outsourcing practices in

depth In addition most of the data (ie extent used functions outsourced

motivations) come from organizations in the United States There is little

research on HR outsourcing practices in Indian IT organizations and very little

is known about organizations experience with outsourcing HR in the state of

4

Kamataka Such an absence of hard data makes it difficult for organization

decision-makers to make informed decisions on whether to keep HR functions

in-house or to outsource them

The purpose of this thesis is to contribute to the knowledge of HR

outsourcing practices in large and medium sized IT companies located in

the state of Karnataka The following questions were identified through

the literature review

1 What HR functions large and medium sized IT organizations based in

Kamataka are outsourcing at the present time

2 What HR functions will be outsourced in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource HR

function(s)

5 What do decision makers observe as the major advantages of HR

outsourcing

6 What do decision makers find as the major limitation of HR

outsourcing

7 Does ones view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

14 - Demographics of the respondents - 39

15 - Measures - 39

16 - Analyses and results - 40

161 - Instrument administration - 40

17 - Mail survey - 41

18 - Chapter scheme - 46

Chapter 1

Introduction

11 - Introduction

111 - Introduction to Human Resource Outsourcing

That was the 16^ day of the great kurukshetra war All heroes

retired for the night Late in the night Radheya went to Duryodhana s tent ami

said I am superior to Arjiina hut I have no good charioteer If I have Salya

as my charioteer I am sure to win the war But you have to coax Salya to offer

his services Embracing his friend Radheya Duryodhana said I will coax

Salya to do this go and rest in peace

On the ] day morning Duryodhana went to Salya and said I fall at

your feet and ask you to grant me a favor Today Radheya has to meet Arjuna

in the battle He can easily win if he has a charioteer like Krishna I ask you

most humbly to be the charioteer to my dearest friend Radheya

Salya the anointed kind was wild with Duryodhana and said You are

insulting me and tried to walk out of the assembly Duryodhana followed him

and stood in front of him with folded hands and with tears in his eyes entreated

him My lord in this entire world you are the one person who is far superior

to Krishna and hence I am asking you to hold the reins of Radheyas horses

After a lot of cajoling Salya acceded the proposal

Talent was in short supply even in those days And Duryodhana had

no option but to outsource it for the day (GRK Murty 2005)

Companies which wish to simultaneously grow and maintain their

competitive edge in todays global economy have to keep pace with evolving

management skills and practices In the 1990s a number of organizations are

considering outsourcing as one way to control resources provide quality

service and measure and manage its affairs in a businesslike manner (Axel

1994 Alexander 1996 Corbett 1994 Grupe 1997 Meyer 1994 Quinn

1994 Yeung 1994)

Outsourcing itself is not a new concept as organizations have for years

contracted with external suppliers to provide an array of services The practice

of outsourcing also known as farming out or contracting out has been around

for long time (Lacity and Hirschheim 1993 Leonard 1994 Quinn 1990 The

Economist 1991 Venkatesan 1992) In the 1950s Automatic Data Processing

Inc began taking over companies payroll functions Electronic Data Systems

Corp began handling computer and data management for clients in the 1960s

Aramark Corporation has been running cafeterias for companies colleges and

hospitals since the 1960s (Byrne 1996) The term outsourcing itself

however is very recent as it was coined in 1989 when Eastman Kodak Co

handed over its information technology department to outside providers (Wells

1996)

Since 1989 outsourcing of Information Technology (IT) and

Information Systems (IS) has occurred in a number of countries and a variety

of organizations For example in 1993 AMP Insurance Company (the largest

insurance company in Australia) British Aerospace and UK Inland Revenue

Service all outsourced substantial parts of their IT activities (Hubert 1993)

Today in Somers Y Pepsi Inc employees receive personal financial planning

from KPMG Peat Marwick Denvers TeleTech Holdings Inc is taking

customer-service calls from ATampT customers and booking seat reservations for

Continental Airlines and General Motors Corp is trying to farm out part of its

brake production (Byrne 1996)

While a great deal of mformation on the topic of outsourcing has been

published in both the popular press and the academic literature and there are a

number of recent books which discuss the issue of IS outsourcing (ie Lacity

amp Hirschheim 1993 1995 MinoU 1995 Rothery and Robertson 1995) it

should be noted that no definitive study has yet been completed that can tell us

exactly how much todays corporations are outsourcing Data from a number

of different studies would however suggest that the outsourcing market is large

and expected to grow (Dun amp Bradstreet Inc 1997 Grove 1993 The

Outsourcing Institute 1997)

Traditional areas of outsourcing include technical services (ie

Information Systems) operations (ie Facilities Management Cafeteria or

Security Services) or new regulations (ie Environmental Regulations Public

Safety Product Safety) Outsourcing practices have recently however been

3

extended to various areas of the organization such as marketing

manufacturing R amp D and Human Resources (HR) (Jones 1996 The

Economist 1994 Wells 1996)

Recently some studies have linked outsourcing to the Human Resource

department (ie Axel 1994 Benimadhu 1995 Dun amp Brandstreet Inc 1997

Harkins 1995 Hewitt Associates LLC 1997 Jones 1996 Stewart 1996 The

Outsourcing Institute 1997) These surveys most of which were conducted in

the United States and Europe show that many organizations are thinking about

outsourcing the HR services These studies also identify a number of HR

services that are already being outsourced in many companies including

payroll benefits administration temporary and executive search relocation

and traming (Benimadhu 1996 Hewitt Associates LLC 1997 Knight 1996

Laabs 1993 a) The studies also shed some light on why organizations might

chose to outsource HR It would appear that these decisions are based not

only on financial factors but also strategic considerations (Axel 1994

Corbett 1994 Csoka 1995 Harkins 1996 Hewitt Associates LLC 1997

The outsourcing Institute 1997)

While these studies provide some insights regarding the trend and

practice of HR outsourcing they do not explore HR outsourcing practices in

depth In addition most of the data (ie extent used functions outsourced

motivations) come from organizations in the United States There is little

research on HR outsourcing practices in Indian IT organizations and very little

is known about organizations experience with outsourcing HR in the state of

4

Kamataka Such an absence of hard data makes it difficult for organization

decision-makers to make informed decisions on whether to keep HR functions

in-house or to outsource them

The purpose of this thesis is to contribute to the knowledge of HR

outsourcing practices in large and medium sized IT companies located in

the state of Karnataka The following questions were identified through

the literature review

1 What HR functions large and medium sized IT organizations based in

Kamataka are outsourcing at the present time

2 What HR functions will be outsourced in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource HR

function(s)

5 What do decision makers observe as the major advantages of HR

outsourcing

6 What do decision makers find as the major limitation of HR

outsourcing

7 Does ones view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Chapter 1

Introduction

11 - Introduction

111 - Introduction to Human Resource Outsourcing

That was the 16^ day of the great kurukshetra war All heroes

retired for the night Late in the night Radheya went to Duryodhana s tent ami

said I am superior to Arjiina hut I have no good charioteer If I have Salya

as my charioteer I am sure to win the war But you have to coax Salya to offer

his services Embracing his friend Radheya Duryodhana said I will coax

Salya to do this go and rest in peace

On the ] day morning Duryodhana went to Salya and said I fall at

your feet and ask you to grant me a favor Today Radheya has to meet Arjuna

in the battle He can easily win if he has a charioteer like Krishna I ask you

most humbly to be the charioteer to my dearest friend Radheya

Salya the anointed kind was wild with Duryodhana and said You are

insulting me and tried to walk out of the assembly Duryodhana followed him

and stood in front of him with folded hands and with tears in his eyes entreated

him My lord in this entire world you are the one person who is far superior

to Krishna and hence I am asking you to hold the reins of Radheyas horses

After a lot of cajoling Salya acceded the proposal

Talent was in short supply even in those days And Duryodhana had

no option but to outsource it for the day (GRK Murty 2005)

Companies which wish to simultaneously grow and maintain their

competitive edge in todays global economy have to keep pace with evolving

management skills and practices In the 1990s a number of organizations are

considering outsourcing as one way to control resources provide quality

service and measure and manage its affairs in a businesslike manner (Axel

1994 Alexander 1996 Corbett 1994 Grupe 1997 Meyer 1994 Quinn

1994 Yeung 1994)

Outsourcing itself is not a new concept as organizations have for years

contracted with external suppliers to provide an array of services The practice

of outsourcing also known as farming out or contracting out has been around

for long time (Lacity and Hirschheim 1993 Leonard 1994 Quinn 1990 The

Economist 1991 Venkatesan 1992) In the 1950s Automatic Data Processing

Inc began taking over companies payroll functions Electronic Data Systems

Corp began handling computer and data management for clients in the 1960s

Aramark Corporation has been running cafeterias for companies colleges and

hospitals since the 1960s (Byrne 1996) The term outsourcing itself

however is very recent as it was coined in 1989 when Eastman Kodak Co

handed over its information technology department to outside providers (Wells

1996)

Since 1989 outsourcing of Information Technology (IT) and

Information Systems (IS) has occurred in a number of countries and a variety

of organizations For example in 1993 AMP Insurance Company (the largest

insurance company in Australia) British Aerospace and UK Inland Revenue

Service all outsourced substantial parts of their IT activities (Hubert 1993)

Today in Somers Y Pepsi Inc employees receive personal financial planning

from KPMG Peat Marwick Denvers TeleTech Holdings Inc is taking

customer-service calls from ATampT customers and booking seat reservations for

Continental Airlines and General Motors Corp is trying to farm out part of its

brake production (Byrne 1996)

While a great deal of mformation on the topic of outsourcing has been

published in both the popular press and the academic literature and there are a

number of recent books which discuss the issue of IS outsourcing (ie Lacity

amp Hirschheim 1993 1995 MinoU 1995 Rothery and Robertson 1995) it

should be noted that no definitive study has yet been completed that can tell us

exactly how much todays corporations are outsourcing Data from a number

of different studies would however suggest that the outsourcing market is large

and expected to grow (Dun amp Bradstreet Inc 1997 Grove 1993 The

Outsourcing Institute 1997)

Traditional areas of outsourcing include technical services (ie

Information Systems) operations (ie Facilities Management Cafeteria or

Security Services) or new regulations (ie Environmental Regulations Public

Safety Product Safety) Outsourcing practices have recently however been

3

extended to various areas of the organization such as marketing

manufacturing R amp D and Human Resources (HR) (Jones 1996 The

Economist 1994 Wells 1996)

Recently some studies have linked outsourcing to the Human Resource

department (ie Axel 1994 Benimadhu 1995 Dun amp Brandstreet Inc 1997

Harkins 1995 Hewitt Associates LLC 1997 Jones 1996 Stewart 1996 The

Outsourcing Institute 1997) These surveys most of which were conducted in

the United States and Europe show that many organizations are thinking about

outsourcing the HR services These studies also identify a number of HR

services that are already being outsourced in many companies including

payroll benefits administration temporary and executive search relocation

and traming (Benimadhu 1996 Hewitt Associates LLC 1997 Knight 1996

Laabs 1993 a) The studies also shed some light on why organizations might

chose to outsource HR It would appear that these decisions are based not

only on financial factors but also strategic considerations (Axel 1994

Corbett 1994 Csoka 1995 Harkins 1996 Hewitt Associates LLC 1997

The outsourcing Institute 1997)

While these studies provide some insights regarding the trend and

practice of HR outsourcing they do not explore HR outsourcing practices in

depth In addition most of the data (ie extent used functions outsourced

motivations) come from organizations in the United States There is little

research on HR outsourcing practices in Indian IT organizations and very little

is known about organizations experience with outsourcing HR in the state of

4

Kamataka Such an absence of hard data makes it difficult for organization

decision-makers to make informed decisions on whether to keep HR functions

in-house or to outsource them

The purpose of this thesis is to contribute to the knowledge of HR

outsourcing practices in large and medium sized IT companies located in

the state of Karnataka The following questions were identified through

the literature review

1 What HR functions large and medium sized IT organizations based in

Kamataka are outsourcing at the present time

2 What HR functions will be outsourced in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource HR

function(s)

5 What do decision makers observe as the major advantages of HR

outsourcing

6 What do decision makers find as the major limitation of HR

outsourcing

7 Does ones view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Talent was in short supply even in those days And Duryodhana had

no option but to outsource it for the day (GRK Murty 2005)

Companies which wish to simultaneously grow and maintain their

competitive edge in todays global economy have to keep pace with evolving

management skills and practices In the 1990s a number of organizations are

considering outsourcing as one way to control resources provide quality

service and measure and manage its affairs in a businesslike manner (Axel

1994 Alexander 1996 Corbett 1994 Grupe 1997 Meyer 1994 Quinn

1994 Yeung 1994)

Outsourcing itself is not a new concept as organizations have for years

contracted with external suppliers to provide an array of services The practice

of outsourcing also known as farming out or contracting out has been around

for long time (Lacity and Hirschheim 1993 Leonard 1994 Quinn 1990 The

Economist 1991 Venkatesan 1992) In the 1950s Automatic Data Processing

Inc began taking over companies payroll functions Electronic Data Systems

Corp began handling computer and data management for clients in the 1960s

Aramark Corporation has been running cafeterias for companies colleges and

hospitals since the 1960s (Byrne 1996) The term outsourcing itself

however is very recent as it was coined in 1989 when Eastman Kodak Co

handed over its information technology department to outside providers (Wells

1996)

Since 1989 outsourcing of Information Technology (IT) and

Information Systems (IS) has occurred in a number of countries and a variety

of organizations For example in 1993 AMP Insurance Company (the largest

insurance company in Australia) British Aerospace and UK Inland Revenue

Service all outsourced substantial parts of their IT activities (Hubert 1993)

Today in Somers Y Pepsi Inc employees receive personal financial planning

from KPMG Peat Marwick Denvers TeleTech Holdings Inc is taking

customer-service calls from ATampT customers and booking seat reservations for

Continental Airlines and General Motors Corp is trying to farm out part of its

brake production (Byrne 1996)

While a great deal of mformation on the topic of outsourcing has been

published in both the popular press and the academic literature and there are a

number of recent books which discuss the issue of IS outsourcing (ie Lacity

amp Hirschheim 1993 1995 MinoU 1995 Rothery and Robertson 1995) it

should be noted that no definitive study has yet been completed that can tell us

exactly how much todays corporations are outsourcing Data from a number

of different studies would however suggest that the outsourcing market is large

and expected to grow (Dun amp Bradstreet Inc 1997 Grove 1993 The

Outsourcing Institute 1997)

Traditional areas of outsourcing include technical services (ie

Information Systems) operations (ie Facilities Management Cafeteria or

Security Services) or new regulations (ie Environmental Regulations Public

Safety Product Safety) Outsourcing practices have recently however been

3

extended to various areas of the organization such as marketing

manufacturing R amp D and Human Resources (HR) (Jones 1996 The

Economist 1994 Wells 1996)

Recently some studies have linked outsourcing to the Human Resource

department (ie Axel 1994 Benimadhu 1995 Dun amp Brandstreet Inc 1997

Harkins 1995 Hewitt Associates LLC 1997 Jones 1996 Stewart 1996 The

Outsourcing Institute 1997) These surveys most of which were conducted in

the United States and Europe show that many organizations are thinking about

outsourcing the HR services These studies also identify a number of HR

services that are already being outsourced in many companies including

payroll benefits administration temporary and executive search relocation

and traming (Benimadhu 1996 Hewitt Associates LLC 1997 Knight 1996

Laabs 1993 a) The studies also shed some light on why organizations might

chose to outsource HR It would appear that these decisions are based not

only on financial factors but also strategic considerations (Axel 1994

Corbett 1994 Csoka 1995 Harkins 1996 Hewitt Associates LLC 1997

The outsourcing Institute 1997)

While these studies provide some insights regarding the trend and

practice of HR outsourcing they do not explore HR outsourcing practices in

depth In addition most of the data (ie extent used functions outsourced

motivations) come from organizations in the United States There is little

research on HR outsourcing practices in Indian IT organizations and very little

is known about organizations experience with outsourcing HR in the state of

4

Kamataka Such an absence of hard data makes it difficult for organization

decision-makers to make informed decisions on whether to keep HR functions

in-house or to outsource them

The purpose of this thesis is to contribute to the knowledge of HR

outsourcing practices in large and medium sized IT companies located in

the state of Karnataka The following questions were identified through

the literature review

1 What HR functions large and medium sized IT organizations based in

Kamataka are outsourcing at the present time

2 What HR functions will be outsourced in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource HR

function(s)

5 What do decision makers observe as the major advantages of HR

outsourcing

6 What do decision makers find as the major limitation of HR

outsourcing

7 Does ones view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Since 1989 outsourcing of Information Technology (IT) and

Information Systems (IS) has occurred in a number of countries and a variety

of organizations For example in 1993 AMP Insurance Company (the largest

insurance company in Australia) British Aerospace and UK Inland Revenue

Service all outsourced substantial parts of their IT activities (Hubert 1993)

Today in Somers Y Pepsi Inc employees receive personal financial planning

from KPMG Peat Marwick Denvers TeleTech Holdings Inc is taking

customer-service calls from ATampT customers and booking seat reservations for

Continental Airlines and General Motors Corp is trying to farm out part of its

brake production (Byrne 1996)

While a great deal of mformation on the topic of outsourcing has been

published in both the popular press and the academic literature and there are a

number of recent books which discuss the issue of IS outsourcing (ie Lacity

amp Hirschheim 1993 1995 MinoU 1995 Rothery and Robertson 1995) it

should be noted that no definitive study has yet been completed that can tell us

exactly how much todays corporations are outsourcing Data from a number

of different studies would however suggest that the outsourcing market is large

and expected to grow (Dun amp Bradstreet Inc 1997 Grove 1993 The

Outsourcing Institute 1997)

Traditional areas of outsourcing include technical services (ie

Information Systems) operations (ie Facilities Management Cafeteria or

Security Services) or new regulations (ie Environmental Regulations Public

Safety Product Safety) Outsourcing practices have recently however been

3

extended to various areas of the organization such as marketing

manufacturing R amp D and Human Resources (HR) (Jones 1996 The

Economist 1994 Wells 1996)

Recently some studies have linked outsourcing to the Human Resource

department (ie Axel 1994 Benimadhu 1995 Dun amp Brandstreet Inc 1997

Harkins 1995 Hewitt Associates LLC 1997 Jones 1996 Stewart 1996 The

Outsourcing Institute 1997) These surveys most of which were conducted in

the United States and Europe show that many organizations are thinking about

outsourcing the HR services These studies also identify a number of HR

services that are already being outsourced in many companies including

payroll benefits administration temporary and executive search relocation

and traming (Benimadhu 1996 Hewitt Associates LLC 1997 Knight 1996

Laabs 1993 a) The studies also shed some light on why organizations might

chose to outsource HR It would appear that these decisions are based not

only on financial factors but also strategic considerations (Axel 1994

Corbett 1994 Csoka 1995 Harkins 1996 Hewitt Associates LLC 1997

The outsourcing Institute 1997)

While these studies provide some insights regarding the trend and

practice of HR outsourcing they do not explore HR outsourcing practices in

depth In addition most of the data (ie extent used functions outsourced

motivations) come from organizations in the United States There is little

research on HR outsourcing practices in Indian IT organizations and very little

is known about organizations experience with outsourcing HR in the state of

4

Kamataka Such an absence of hard data makes it difficult for organization

decision-makers to make informed decisions on whether to keep HR functions

in-house or to outsource them

The purpose of this thesis is to contribute to the knowledge of HR

outsourcing practices in large and medium sized IT companies located in

the state of Karnataka The following questions were identified through

the literature review

1 What HR functions large and medium sized IT organizations based in

Kamataka are outsourcing at the present time

2 What HR functions will be outsourced in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource HR

function(s)

5 What do decision makers observe as the major advantages of HR

outsourcing

6 What do decision makers find as the major limitation of HR

outsourcing

7 Does ones view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

extended to various areas of the organization such as marketing

manufacturing R amp D and Human Resources (HR) (Jones 1996 The

Economist 1994 Wells 1996)

Recently some studies have linked outsourcing to the Human Resource

department (ie Axel 1994 Benimadhu 1995 Dun amp Brandstreet Inc 1997

Harkins 1995 Hewitt Associates LLC 1997 Jones 1996 Stewart 1996 The

Outsourcing Institute 1997) These surveys most of which were conducted in

the United States and Europe show that many organizations are thinking about

outsourcing the HR services These studies also identify a number of HR

services that are already being outsourced in many companies including

payroll benefits administration temporary and executive search relocation

and traming (Benimadhu 1996 Hewitt Associates LLC 1997 Knight 1996

Laabs 1993 a) The studies also shed some light on why organizations might

chose to outsource HR It would appear that these decisions are based not

only on financial factors but also strategic considerations (Axel 1994

Corbett 1994 Csoka 1995 Harkins 1996 Hewitt Associates LLC 1997

The outsourcing Institute 1997)

While these studies provide some insights regarding the trend and

practice of HR outsourcing they do not explore HR outsourcing practices in

depth In addition most of the data (ie extent used functions outsourced

motivations) come from organizations in the United States There is little

research on HR outsourcing practices in Indian IT organizations and very little

is known about organizations experience with outsourcing HR in the state of

4

Kamataka Such an absence of hard data makes it difficult for organization

decision-makers to make informed decisions on whether to keep HR functions

in-house or to outsource them

The purpose of this thesis is to contribute to the knowledge of HR

outsourcing practices in large and medium sized IT companies located in

the state of Karnataka The following questions were identified through

the literature review

1 What HR functions large and medium sized IT organizations based in

Kamataka are outsourcing at the present time

2 What HR functions will be outsourced in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource HR

function(s)

5 What do decision makers observe as the major advantages of HR

outsourcing

6 What do decision makers find as the major limitation of HR

outsourcing

7 Does ones view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Kamataka Such an absence of hard data makes it difficult for organization

decision-makers to make informed decisions on whether to keep HR functions

in-house or to outsource them

The purpose of this thesis is to contribute to the knowledge of HR

outsourcing practices in large and medium sized IT companies located in

the state of Karnataka The following questions were identified through

the literature review

1 What HR functions large and medium sized IT organizations based in

Kamataka are outsourcing at the present time

2 What HR functions will be outsourced in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource HR

function(s)

5 What do decision makers observe as the major advantages of HR

outsourcing

6 What do decision makers find as the major limitation of HR

outsourcing

7 Does ones view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

bull The number of years organization is in existence

bull The size of the company (ie large or medium size)

An extensive review of the available literature indicates that a wide-

range of literature that bears on the topic of HR outsourcing (ie literature on

farming out and contracting out) has been published A relatively large

amount of empirical work has also been done in the area of ISIT outsourcing

which has some relevance to HR outsourcing Several authors have discussed

ISIT outsourcing experiences in the 1990s (Gupta 1992 Lacity amp

Hirschheim 1993 1995 Minoli 1995) Others have proposed models of

ISIT outsourcing decision-making (Grover 1993 Meyer 1994 Willcocks

1995) which may be applicable to HR outsourcing Finally empirical research

has attempted to identify those factors that contribute to the successful

implementation of ISIT outsourcing practices (Lacity amp Hirschheim 1993

1995 minoli 1995) which may also be partially applicable to the case of HR

outsourcing

Though these studies have identified the diverse factors associated

with successful outsourcing practices (Quiim 1990 rothery and

Robertson 1995 sunoo 1994 venkatesan 1992) it is only recently that

authors have turned their attention to the study of HR outsourcing practices

(Axel 1994 Benimadhu 1995 Harkins 1995 Harrison 1996 Stewart 1996)

A complete review of the outsourcing literature done in conjunction with this

thesis reveals that despite the empirical researchs attempt to identify those

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

factors that contribute to the successful implementation of HR outsourcing

practices (Harkins 1996 Laabs 1993) little is known about how decisions to

adopt HR outsourcing practices are made

The literature review also suggests there is a lack of academic research

on HR outsourcing that focuses on Indian Information Technology companies

This thesis addresses the above HR outsourcing issue in the Large and Medium

sized IT companies located in the state of Kamataka

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

112 - Definition of Outsourcing

Although the concept of outsourcing has been around for a long time

the term Outsourcing was first coined in 1989 when Eastman Kodak Co

handed its IT department to three outside providers (Wells 1996)

Kodak caught the eye of all of us says Perry Harris- director of

management strategies for the Yankee Group in Boston- Why manage

information technology in house when it can be done better and cheaper

outside And if Kodak can do it having overcome the attendant psychological

barriers - fear of loss of control concerns over quality - why cant we Hewitt

Associates defines HR outsourcing as the hiring of specialists to develop and

maintain knowledge processes and technology that are used to provide HR-

related services for a companys employees like many companies do for their

security or food service operations

Since 1989 many definitions of outsourcing have been used in the

popular press and the research literature The following are the most common

definitions of this term Gupta and Gupta (1992) refers to outsourcing as the

concept of hiring outside professional services to meet the in-house needs

of an organization or agency Breibart (1996) on the other hand states that

Outsourcing is the transfer of the management or administration of a

process or function from in-house staff to an outside service provider

Finally Harkins (1996) define outsourcing as Outsourcing means having

an external vendor to provide on a recurring basis a service that would

normally be performed within the organization

8

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

The term outsourcing as defined above does not differ from the

traditional terms of contracting out and farming out For this thesis

outsourcing is defined as the transfer of operational responsibilities for

ongoing services or functions to third parties This definition was derived

from combining relevant concepts from the other available definitions

Operational Definitions

Outsourcing For this thesis outsourcing is defined as the transfer of

operational responsibilities for ongoing services or functions to third

parties This definition was derived from combining relevant concepts from

other definitions in the literature

DeHnition of SMEs and Large Enterprises for the study

A well-debated issue the definition of small and medium enterprises in

India was very recently settled The Micro Small and Medium Enteiprises Act

2006 defines enterprises on the basis of investment in plant and machinery

According to the new Act the MSMEs are defined as follows

Chart 11

Category Investment (Plant amp Machinery) Service ()

Micro Enterprises Less than 25 lacs Less than 10 lacs

Small Enteiprises Less than 5 crores Less than 2 crores

Medium Enterprises Less than 10 crores Less than 5 crores

Large Enterprises More than 10 crore More than 5 crores

Source KD Rajii 2008

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

113 - The Trends of Outsourcing

A number of studies indicate outsourcing is growing with respect to

both the number of companies outsourcing and the number of functions

outsourced In this section relevant data from a number of different studies

which have been conducted since 1992 are summarized Topics covered

include a discussion of which organizations are adopting outsourcing which

functions are being outsourced m various industry sectors which organizations

are adopting HR outsourcing and which HR functions are being outsourced

In 1991 according to Input Corporation of Viueima Virgmia the

outsourcing market in the USA was expected to jump from USD 10 billion

that year to about USD 27 billion in 1997 (Grove 1993) The actual numbers

however went beyond that prediction This can be seen by the fact that in

1996 a G2 research study (KPMG) Peat Marwick LLP 1997) predicted that by

the year 2000 the outsourcing market in the USA would grow from its

current USD 100 billion per year to USD 282 billion per year with an annual

growth rate of 20 percent

In a conference on outsourcing vendors held in New York in June 1997

the Outsourcing Institute said that in 1996 in the USA USDIOO billion was

spent on outsourcing The outsourcing Institute expected this amount to grow

up to USD 318 billion by the year 2001 (Conference for Outsourcing Vendors

June 1997)

10

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

The outsourcing Institute and Frost amp Sullivan Market Intelligence in a

1992 survey (The Outsourcing Institute 1997) of 1200 companies in the

information technology industry found that 50 of all companies with UT

budgets in excess of USD 5 million are either outsourcing or are actively

considering it Similar data was obtained for the banking industry (ie 85 of

banking and finance companies with UT budgets in excess of USD 5 million

are either outsourcing some work or are actively considering it) Study went on

to predict that by the end of 1995 one in every USD 12 spent in corporate

America on UT will flow through an outsourcing contract and that by the end

of 1995 over USD 38 billion will be spent in corporate America on information

technology outsourcing

In 1994 Pitney Bowes Management Services conducted a survey of 100

of the FORTUNE 500 Corporations in the business service sector (The

Outsourcing Institute 1997) This study found that in the Business Services

industry 77 of the firms studied had efforts under way to outsource some

aspect of their business support services Of the firms studied 39 outsourced

some or all of their electronic imaging and another 12 expected to within one

to two years Of the firms studied 7 outsourced records management while

another 14 expected to within one to two years

A study of 309 of Fortune 1000 Corporations in the logistics sector

conducted in 1994 by KPMG-Peat Marwick (The Outsourcing Institute 1997)

found that of the companies surveyed 66 outsourced freight audit services

and 48 outsourced warehousing

11

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

In 1995 the Hospitals amp Health Network Annual Survey of companies

in the Health Care sector (The Outsourcing Institute 1997) reported that 67

of hospitals use outsourcing providers for at least one department within

their operations of those who outsource 90 of these hospitals use

outsourcing providers for support services 77 for clinical services and 51

for business services

The results of a survey of 303 multinational companies in North

America and Europe were discussed in a recent issue of Macleans Magazine

(Wells 1996) According to the data presented in this article 85 of these

companies presently contract out one or more function and 93 are likely

to do so within three years Table 11 presents the results of this survey It

describes the percentage of companies among the respondents that were

currently outsourcing It also identifies what aspects of their work were being

outsourced and whether or not they intended to increase what they outsource

within the next three years

12

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

114 - Outsourcing in North America and Europe

Table -11 Outsourcing in North America and Europe

Functions Outsourced Outsource Now Will Outsource

within 3 Years

Legal 59 65

ShippingTransportation 41 52

Information Systems 36 42

Financial functions 26 42

Employee Benefits 23 41

ProductionManufacturing 31 38

Warehousing 24 37

Marketing 14 25

Human Resources 10 25

Source Macleans Magazine Wells 1996

13

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Human Resource Outsourcing

In the preceding section of the study data was presented indicating that

more organizations are adopting outsourcing Data regarding the various

functions they outsource was also included This section presents more data

mostly from studies conducted in the USA in which different industries were

asked about their HR outsourcing practices (ie services and functions

outsourced benefits and risks of outsourcing)

Some studies suggest that within the last few years HR outsourcing

practices are gaining attention and becoming a common practice in HR

departments (Ashton 1995 Axel 1994 Harkins 1995 Hewitt Associates

LLC 1997) They also suggest that almost all of the different HR

functions have been outsourced in one company or another (Axel 1994

Benimadhu 1995 Harkins 1995 Hewitt Associates LLC 1997 The

Outsourcing Institute 1997)

There are many examples of companies that have automated routine HR

administrative tasks especially those in payroll and benefits admmistration

(Axel 1994 Bash 1994 Jones 1996 Lewis 1996 OConnell 1995 Rivers

1996) In a 1992 study conducted by Broderick and Boudreaux (Niehaus

1996) the authors found for example that the majority of the fortune 500

companies that were surveyed had invested in computer application to manage

basic human resource functions such as record keeping payroll and

compensations and benefits administration

14

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

u s Automobile companies are outsourcing all aspects of the employment

lifecycle from employee recruitment to leadership development and executive

coaching to retirement (Aon Consulting 2005)

In 1994 The Olsten Corporation conducted a study of 400 Corporations

in the United States (The Outsourcing Institute 1997) They surveyed financial

and Human Resource executives to better understand their current use of and

future plans for outsourcing of the respondents 45 stated that they outsource

payroll management 38 were outsourcing tax administration 35 were

outsourcing benefits management and 34 were outsourcing workers

compensation Olsten also reported that the number of HR executives in the

sample who used outsourcing as part of a flexible staffing strategy increased

from 18 to 30 in one year

According to a Hewitt Associates survey of US firms (Hewitt

Associates LLC 1997) on outsourcing of the human resources function 93

of large employers reported outsourcing at least some part of human resources

When asked about the amount of HR responsibilities outsourced 20 was the

amount most common cited by employers Only 12 of companies indicated

they are outsourcing more than 50 of the HR functions

The US Conference Board in a study of Human Resource Executives

from 60 firms in the manufacturing and service industry (Axel 1994) found

that 85 of executives surveyed had personal experience with leading an

outsourcing effort and 67 of the pension departments studied outsourced at

15

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

least one function In the same study it was found that the most common

functions outsourced are Savings Plan Administration (61)

EAPFitnessAVellness (60) and RelocationCareer Counseling (40)

followed by Benefits Administration (34) Management Development (22)

Skills Training (15) Payroll Administration (124) Diversity Programs

(12) Benefit Planning (10) Compensation (9) and Recruiting (9)

In the fall of 1995 Harkins (1995) conducted a national survey of

Human Resource Executives who represented 121 US organizations

representing different industries The objectives of the study were to get

answers to critical questions such as What is the reality of outsourcing HR

How pervasive is the practice of outsourcing in HR Who in the human

resource world is outsourcing How much are they outsourcing

What services and functions are they outsourcing Why are they

outsourcing And if they are outsourcing what problems and issues are they

encountering along the way In the final analysis the data reveals the

following broad yet critical factors about outsourcing HR

bull Most HR departments are outsourcing at least one service or function

bull Practically every HR service or function is being outsourced somewhere

or other

bull HR leaders are outsourcing services and functions for many different

reasons

16

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

The survey also identified the functions or services that HR department

outsource the most Outplacement (64) Training Delivery (46) Training

Development (40) Relocation services (31) and Compensation Plaiming

(31) followed by Pre-employment Testing (23) Benefits Administration

(21) Organization Development (19) Recruitment Employment amp

Staffing (15) Health Safety amp Security (12) HR Information Systems

(8) Training Evaluation (4) HR Administration (3) and Training

Administration (2)

The above studies present interesting information on the HR outsourcing

trend They show that a wide range of HR services have been outsourced The

data do not however address the situation in Indian IT organizations and

leave one wondering how Indian IT companies compare with the US

counterparts

Some surveys and publications went further with their research and

asked about the reason why the firms are outsourcing HR services and

functions Relevant findings are presented below In one survey conducted by

Hewitt Associates (Laabs 1993b) the reasons given for outsourcmg the

benefits function were to save time (37) to gain expertise (18) to save

costs (14) to reduce staffing requirements (14) to minimize hassles (13)

to avoid complexity (12) to improve service (11) and to concentrate on

core business (16)

17

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

In another survey of US companies also conducted by Hewitt Associates

(Hewitt Associates LLC 1997) it was found that the most popular reasons for

outsourcing HR are cost effectiveness (81) reduction of administrative costs

(79) capitalizing on technology and expertise (77) improving customer

service (75) focusing on core businesses (75) and redirection of HRs

focus (75)

The US Conference Board (Axel 1994) conducted a survey of Human

Resource Executives from 60 firms in the manufacturing and service industry

They reported that companies outsourced HR services for the following

reasons to transfer administration to specialists (63) to off load tasks which

were not core functions (61) to reduce non labor costs (60) to reduce HR

head count (55) to improve service consistency (49) to monitor use of

services (4) and other reasons (10)

In a 1995 survey of 121 US fums in various industries (Harkins 1996)

it was found that companies outsourced HR services for the following reasons

to access expertise (88) to save time (54) to save money (41) to save on

admmistrative costs (38) to focus on strategy (30) because function is not

part of Core Business (26) responsibilities have been increased (21) to

reduce staff (20) to cut budget (15) to reduce liability (7)

18

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

There is no comparable data at this date with respect to why companies

are outsourcing HR Those studies that are available (Axel 1994 Harkins

1996 Harrison 1996 Hewitt Associates LLC 1997) limit their findings to a

list of perceived benefits but present no evidence of realized benefits Benefits

of HR outsourcing presented in these studies included focus on core fiinctions

access to up-to-date technology improve quality of services improve speed of

response eliminate administrative overhead and reduce salary and occupancy

costs

As the economy climbs out of the recession market growth will be greatly

impacted over the next three years Everest (Research Firm) expects market

growth will be influenced by projections that include

bull Single-process HRO activity will increase in the near-term and put

downward pressure on the multi-process HRO deal adoption

bull Buyers will favor options that effectively combine platform-based pay-

as-you-go solutions that leverage global sourcing

bull First generation deals worth USD 12 billion are coming up for renewal

this year and up to 80 percent will be extended with the incumbent

supplier while the remainder will be repatriated or transferred to a new

supplier

bull Adoption resurgence will occur in the financial services sector (HR-

initiatives 2009)

19

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Outsourcing Insights

A cursory look at the Indian manufacturing sector presents a clear view

that the outsourcing was highly prevalent in the manufacturing sector too

Through the 1960s to 1990s when the Government policies had put lot

of restrictions on the capacity expansion on medium and the large scale

industries the only possible way was to outsource the capacity

Therefore large number of small scale units came in to existence These

small units acted as extended manufacturing activities for the mother unit The

term used for this practice was Sub-Contracting

The out sourcing in a way thus helped to bring about many small units

and setting up of industrial estate

The outsourcing practices were either the mother unit would sub

contract some components to the small units who would manufacture them

using their own material and supply the components in finished or semi finished

form The other practice was the mother unit would supply the material to the

small unit who would use their labour and carry out the needed process to take

the material to the next stage in semi finish finish form Such components

would get fitted to the main product and thus merge in the main product

The small unit would bill the mother unit for the components supplied or

the labour charges (called as job work)

20

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Sub contracting helped mother unit to overcome the legal restrictions on

capacity expansion Besides this main contribution the sub contracting also

helped mother unit in handling lot of labour union issues in those days of high

militancy of unions

As also the mother unit was saved of capital expenditure involved in the

capacity expansion as the manufacturing sector demands high amount of capital

investment in capacity expansion

Many times the unions fought with their management on the issues of

sub contracting as that threatened their role of safeguardmg the interest of their

worker brothers

In sum the sub contracting (out sourcing) helped

1) To overcome the legal restrictions on capacity expansion

2) To overcome the rush order execution

3) To save capital investment

4) To develop large number of small units around the mother unit

5) To generate employment

The high dependency of small units on the mother unit had its pitfalls too

The small units were highly susceptible to the sickness due to the small

changes in the policies of the mother unit

21

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Outsourcing and life of a conmion man

The present study through focuses on outsourcing related to the business

setting but the out sourcing has not remained confined to the business setting

alone

It touches the common man day to day This is an unorganized case example of

outsourcing

Daily we out source following activities

a) Services of house maid

b) Services of washer man

c) Services of cook

d) Services of Pujari (to perform Puja)

e) Services of electrician plumbers security etc

The dependency of common man on the above and such activities services

is not always driven by non possession of skills with himher

22

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

115 - Information Systems Outsourcing

A lot of attention has been focused on outsourcing of ISIT in the 1990s

For the purpose of this thesis it is important to consider the ISIT outsourcing

literature because several authors have conducted in depth studies on how

managers decided to outsource ISIT (Grove 1993 Lacity 1993 Minoli

1995) This decision making process with regards to ISIT serves as a useful

first step for this research as no such study could be found with outsourcing

HR Models developed for outsourcing ISIT might also have direct relevance

on this research as information systems resources are becoming critical parts of

the HR departments Technology has changed the way many HR departments

operate and allowed managers to improve the quality of the services they

provide (Jones 1996 Niehaus 1996 OConnell 1995) In other words the

two departments are becoming more interdependent

This section presents information regarding what IS services have been

outsourced It also presents relevant conclusion from these studies on the

issues of benefits and risks of IS outsourcing

Research in this area (Grover 1993 Grover 1996 Minoli 1995)

determined that with respect to IS outsourcing the services outsourced

included human resources (ie managers programmers analysts technical

specialists) andor technological resources (ie data processing

telecommunications infrastructure software hardware)

23

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

According to several studies (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) managers considering IS outsourcing should base

their decisions on a careful examination of the companys needs and

circumstances as IS outsourcing has been associated with both benefits and

risks The benefits of IS outsourcing have been classified into three categories

(Grover 1996) Strategic benefits economic benefits and technological

benefits Relevant data on each of these types of benefits is given below

Strategic benefits of outsourcing include (1) allowing organizations to

focus on their core business (2) enabling organizations to outsource routine IT

activities of the IT department (ie systems maintenance systems operation) so

that they have more time to focus on strategic uses of IT and (3) enhancing IT

competence and expertise through contractual arrangements with an

outsourcer

This last benefit is seen as strategic because the staffing and training of

qualified IT personnel is critical for many firms (Grove 1996 Gupta 1992

Lacity 1993 Meyer 1994 Minoli 1995)

Economic benefits (Grove 1996 Gupta 1992 Lacity 1993 Meyer

1994 Minoli 1995) include

1 Increasing organizations ability to realize economies of scale in both

human and technological resources (ie the service provider should

have the ability to carry out a variety of IT tasks and have a variety of

expertise on hand) and

24

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

2 Increasing a firms ability to manage its costs structure through

unambiguous contractual arrangements (ie the costs should become

predictable for the firm who is receiving the services)

Technological benefits (Grove 1996 Gupta 1992 Lacity 1993

Meyer 1994 Minoli 1995) include the fact that firms that outsource are more

able

1 To gain access to leading-edge IT and

2 To avoid the risk of technological obsolescence that results from the

dynamic changes in IT

The literature also cautions potential outsourcers to fully explore the

risks of outsourcing and to imderstand the potential long-term strategic

implications of using IS outsourcing before they enter into such arrangements

In other words weigh the benefits against the risks

Several authors (Grove 1996 Gupta 1992 Lacity 1993 Meyer 1994

Minoli 1995) agree on what some of the risks associated with IS

outsourcing are

1 Loss of control (ie outsourcing reduces the amount of control the firm

has over the quality of the services outsourced)

2 Difficulty in reversing outsourcing decisions (ie long-term contracts

make it difficult to change arrangements)

3 Concerns regarding security of data

25

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

4 A decrease in the organizations flexibility and ability to respond to

environmental changes (ie removing certain services from the firms

premises might result in delays and reduced responsiveness to critical

organizational needs)

5 Conflicting objectives of the outsourcer vis-a-vis the vendor (ie both

the outsourcing vendor and the company wish to maximize their profit)

6 Outsourcers risks (financial strength lack of responsiveness poor

services etc)

7 An increase in transactional costs associated with negotiating and

monitoring the outsourcing contract and

8 The risk of technical obsolescence

26

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

116 - Information Technology enabled outsourcing

Within the last few years outsourcing has evolved from a tactical cost-

cutting maneuver for offloading routine tasks and acquning temporary

manpower to a strategic element BPO is now an important theme in IT

services and is now responsible for significant revenue growth for many

vendors (ebstrategy2007) IT-enabled BPO changes have come in waves that

slowly gather shape gaining energy and momentum These waves relevant to

the outsourcing industry over the past three decades include

1960s - Time-sharing

1970s - Data processing

1980s - Entire IT operations

1990s - Shared business services

2000s - Internet-enabled B2B alliancesconsortia

2000s - Internet-enabled process outsourcing

2000s - IT-enabled offshore services

27

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

Information Technology enabled outsourcing

Figure -11 Information Technology enabled outsourcing

h

f s h o r i n g A l l i a n c e s

^ r o c e s s O u t s o u bullf ddos uMHBHHIP^ S h a r e d O u s i n e s s S e r v i

bull IggOs E n t i r e I T O p e r a t i o n s [

[ T i m e S h a r i n g

Source ebstrategycom 2007

98

12 - Need for the Study

121 - Indian Research Study

S Sudarshan (2005) in a new study of Indian human resource managers

captures the changing nature of HR and the new imperatives There is greater

urge to outsource technical activities like compensation surveys psychometric

testing HR audit attitude surveys and standardized routine activities like

salary administration

Sixty senior HR professionals from across the coimtry responded to

understand the status of the HR function in corporate as the number of people

in HR is reducing it is better to outsource routine and specialized work

bull The top management increasingly expects the HR manager to take

decisions and functions in a way that will impact the bottom-line

bull Human resources in the future will have to move towards a more

strategic and facilitating role

New Priorities

The survey indicated that the new economy companies (in IT and ITES

sectors) with knowledge workers have introduced a host of new HR practices

to attract and retain knowledge workers

Amongst the areas that he focuses on more today performance

management systems talent acquisition measuring HR performance

leadership development potential assessment induction of new entrants

29

integrated human resource information systems retaining employees multi-

skilling and knowledge management On the other hand even in many

companies with a strong manufacturing and shop floor focus managing

industrial disputes disciplinary issues labour and legal issues collective

bargaining and union relations have taken a backseat

Top management expectations

HR programs should impact the bottom-line This essentially means

that the HR team becomes strategic partners in the business decision-making

process It would also mean aligning HR to the companys business context

while moving from a mere administrative HR to strategic HR HR activities

are also required to be bench-marked by enhancing value addition per

employee and by aligning individuals targets with business goals The

activities which can be outsourced as per HR professionals are Outbound

training Compensation surveys Salary administration Psychometric testing

HR audit Attitude surveys Assessment centers E-leaming Human Resource

accounting and Competency mapping

Outsourcing of HR is growing all over the world driven by the

philosophy that if you dont have the ability to offer a world class service then

the best option is to partner with someone who has that ability

While the above information clearly supports our contention that there

are different motivations for outsourcing various HR functions it is important

to note that no emphical evidence exists on what benefits have actually been

30

realized by outsourcing HR In other words the question of whether they

accomplished what they expected by outsourcing HR remains to be answered

While the above literature review would suggest that HR outsourcing is

becoming a more common practice it should be noted that virtually all of the

data which is currently available in this area is American What is the reality of

HR outsourcing in IT organizations especially in the state of Kamataka What

are the reasons why Kamataka based IT companies outsource HR functions

What is the decision making process with respect to vendor selection This

study aims to set objectives and answer these issues by examining the topic of

HR outsourcing in IT sector - A study of Kamataka state

The emergence of the knowledge worker in India in the form of

software professionals with a global linkages and global performance

requirements has changed the HR scenario in India in the software and

knowledge based industries

The literature survey indicates that several voices were raised calling for

a change in HRM practices especially with respect to the IT companies Many

researchers have expressed the need for change The studies more or less deal

with the concerns for change but do not provide any guidance on how one has

to go about dealing with them

In light of the above to bridge the research gap this study is

undertaken to find out the basis of HR Outsourcing in IT companies and which

are the core and non core HR activities

31

122 - Research Gap

The prospects of the two important areas covered in this study HRO and

IT sector are complimentary Growth in these two areas and adaptabiHty of

both for mutual benefit has raised many challenges In the present situation

this study will focus on analyzing

bull Emerging trends in HRO Management in IT sector

bull Priorities in identifying Core and Non-Core HR activities for HRO

bull HRO decisions in IT Industry

bull Need for developing new competencies and skills for in-house HR

professionals

1221 - Statement of the problem

In India especially in the state of Kamataka there is no significant

research in the area of HR Outsourcing practices in IT sector There is no

study detailing core and non-core HR activities to decide about HR

Outsourcing in IT sector It is clear that in spite of the needs expressed by

several authorities and researchers there is no empirical study covering the

decision making on HRO and different issues and considerations of HR

Outsourcing in IT organizations

The present research study is an effort to fill the above stated gap Hence

the research questions and objectives of the study are as follows

32

123 - Research questions

The above review of the Uterature generated the following set of

fiandamental research questions which will be addressed in this study within the

context of the Kamataka based large and medium sized IT organizations

1 What HR functions are Kamataka based large and medium sized IT

organizations are outsourcing at the present time

2 What HR functions will be outsourcing in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource

HR function(s)

5 What do decision makers see as the major advantages of HR

outsourcing

6 What do decision makers see as the major limitation of HR

outsourcing

7 Does one s view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The existence of organization for number of years

bull The size of the company (ie large and medium size)

33

124 - Research Objectives

1 To understand the decisions related to HR outsourcing and to assess the

effectiveness of HR outsourcing in Kamataka based large and medium

sized IT organizations

2 To study the reasons for which the IT Industries select HR Outsourcing

3 To understand whether the objectives of HR outsourcing are met in IT

sector

4 To identify core and non core HR activities in IT organizations

5 To study the HRO decisions with reference to selection of vendors

6 To examine the changing role of in-house HR executives with required

competencies and skills in future

125 - Scope of the study

Industry Scope

The scope of the study is limited to Large and Medium scale IT

companies (Software Companies) located in Kamataka State Since the capital

city Bangaluru known as IT capital (Silicon Valley) of India represents all the

major companies in IT sector this study can be compared with other states as

well

Geographical Scope

Geographic scope of the study is limited to the State of Kamataka

34

126 - Hypotheses drawn for the study

This study attempts to put the following hypotheses to test to understand

the aforesaid objectives more clearly After extensive review based on

literature the research gaps are identified and appropriate hypotheses are

designed for the study

Hypotheses drawn for the study

HI - Size of the organization significantly influences the HR outsourcing

decisions

H2 - There is a strong relationship between the age of the organization and HR

outsourcing decision

H3 - There exists strong relation between duration of HR outsourcing and the

effectiveness

H4 - Fmance and cost factors are the strong reasons for outsourcing HR

functions

H5 - HR outsourcing objectives are met in IT companies

H6 - There exist a strong relationship between the objectives of HRO met and

effectiveness of HRO

H7 - Quality of Service is the most influencing factor for selecting a vendor for

HR outsourcing

35

13 - Research Methodology

This section reviews the methodology that was used for this research

Section 13 deals with Research Design Statistical tools Research context

Data collection and Sampling Design Section 14 gives detaiis of

Demographics Section 15 deals with Measures Section 16 discusses research

analysis and Results Mail survey is detailed in section 17

131 - Research context

The current study has been carried out in the IT Companies in the State

of Kamataka

The initial chapters give greater insights of HRO m IT sector in which

the details about the IT companies and their performance contribution and

developments are described

Organization and Respondent Selection

The IT Organizations and the respondents were chosen based on the

following criteria

1 Large and Medium scale IT (Software development) companies

(excluding ITES Companies) in the state of Kamataka

2 Decision making key HR Professionals in the IT Companies

3 IT Companies located in the state of Kamataka

36

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

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Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

integrated human resource information systems retaining employees multi-

skilling and knowledge management On the other hand even in many

companies with a strong manufacturing and shop floor focus managing

industrial disputes disciplinary issues labour and legal issues collective

bargaining and union relations have taken a backseat

Top management expectations

HR programs should impact the bottom-line This essentially means

that the HR team becomes strategic partners in the business decision-making

process It would also mean aligning HR to the companys business context

while moving from a mere administrative HR to strategic HR HR activities

are also required to be bench-marked by enhancing value addition per

employee and by aligning individuals targets with business goals The

activities which can be outsourced as per HR professionals are Outbound

training Compensation surveys Salary administration Psychometric testing

HR audit Attitude surveys Assessment centers E-leaming Human Resource

accounting and Competency mapping

Outsourcing of HR is growing all over the world driven by the

philosophy that if you dont have the ability to offer a world class service then

the best option is to partner with someone who has that ability

While the above information clearly supports our contention that there

are different motivations for outsourcing various HR functions it is important

to note that no emphical evidence exists on what benefits have actually been

30

realized by outsourcing HR In other words the question of whether they

accomplished what they expected by outsourcing HR remains to be answered

While the above literature review would suggest that HR outsourcing is

becoming a more common practice it should be noted that virtually all of the

data which is currently available in this area is American What is the reality of

HR outsourcing in IT organizations especially in the state of Kamataka What

are the reasons why Kamataka based IT companies outsource HR functions

What is the decision making process with respect to vendor selection This

study aims to set objectives and answer these issues by examining the topic of

HR outsourcing in IT sector - A study of Kamataka state

The emergence of the knowledge worker in India in the form of

software professionals with a global linkages and global performance

requirements has changed the HR scenario in India in the software and

knowledge based industries

The literature survey indicates that several voices were raised calling for

a change in HRM practices especially with respect to the IT companies Many

researchers have expressed the need for change The studies more or less deal

with the concerns for change but do not provide any guidance on how one has

to go about dealing with them

In light of the above to bridge the research gap this study is

undertaken to find out the basis of HR Outsourcing in IT companies and which

are the core and non core HR activities

31

122 - Research Gap

The prospects of the two important areas covered in this study HRO and

IT sector are complimentary Growth in these two areas and adaptabiHty of

both for mutual benefit has raised many challenges In the present situation

this study will focus on analyzing

bull Emerging trends in HRO Management in IT sector

bull Priorities in identifying Core and Non-Core HR activities for HRO

bull HRO decisions in IT Industry

bull Need for developing new competencies and skills for in-house HR

professionals

1221 - Statement of the problem

In India especially in the state of Kamataka there is no significant

research in the area of HR Outsourcing practices in IT sector There is no

study detailing core and non-core HR activities to decide about HR

Outsourcing in IT sector It is clear that in spite of the needs expressed by

several authorities and researchers there is no empirical study covering the

decision making on HRO and different issues and considerations of HR

Outsourcing in IT organizations

The present research study is an effort to fill the above stated gap Hence

the research questions and objectives of the study are as follows

32

123 - Research questions

The above review of the Uterature generated the following set of

fiandamental research questions which will be addressed in this study within the

context of the Kamataka based large and medium sized IT organizations

1 What HR functions are Kamataka based large and medium sized IT

organizations are outsourcing at the present time

2 What HR functions will be outsourcing in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource

HR function(s)

5 What do decision makers see as the major advantages of HR

outsourcing

6 What do decision makers see as the major limitation of HR

outsourcing

7 Does one s view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The existence of organization for number of years

bull The size of the company (ie large and medium size)

33

124 - Research Objectives

1 To understand the decisions related to HR outsourcing and to assess the

effectiveness of HR outsourcing in Kamataka based large and medium

sized IT organizations

2 To study the reasons for which the IT Industries select HR Outsourcing

3 To understand whether the objectives of HR outsourcing are met in IT

sector

4 To identify core and non core HR activities in IT organizations

5 To study the HRO decisions with reference to selection of vendors

6 To examine the changing role of in-house HR executives with required

competencies and skills in future

125 - Scope of the study

Industry Scope

The scope of the study is limited to Large and Medium scale IT

companies (Software Companies) located in Kamataka State Since the capital

city Bangaluru known as IT capital (Silicon Valley) of India represents all the

major companies in IT sector this study can be compared with other states as

well

Geographical Scope

Geographic scope of the study is limited to the State of Kamataka

34

126 - Hypotheses drawn for the study

This study attempts to put the following hypotheses to test to understand

the aforesaid objectives more clearly After extensive review based on

literature the research gaps are identified and appropriate hypotheses are

designed for the study

Hypotheses drawn for the study

HI - Size of the organization significantly influences the HR outsourcing

decisions

H2 - There is a strong relationship between the age of the organization and HR

outsourcing decision

H3 - There exists strong relation between duration of HR outsourcing and the

effectiveness

H4 - Fmance and cost factors are the strong reasons for outsourcing HR

functions

H5 - HR outsourcing objectives are met in IT companies

H6 - There exist a strong relationship between the objectives of HRO met and

effectiveness of HRO

H7 - Quality of Service is the most influencing factor for selecting a vendor for

HR outsourcing

35

13 - Research Methodology

This section reviews the methodology that was used for this research

Section 13 deals with Research Design Statistical tools Research context

Data collection and Sampling Design Section 14 gives detaiis of

Demographics Section 15 deals with Measures Section 16 discusses research

analysis and Results Mail survey is detailed in section 17

131 - Research context

The current study has been carried out in the IT Companies in the State

of Kamataka

The initial chapters give greater insights of HRO m IT sector in which

the details about the IT companies and their performance contribution and

developments are described

Organization and Respondent Selection

The IT Organizations and the respondents were chosen based on the

following criteria

1 Large and Medium scale IT (Software development) companies

(excluding ITES Companies) in the state of Kamataka

2 Decision making key HR Professionals in the IT Companies

3 IT Companies located in the state of Kamataka

36

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

realized by outsourcing HR In other words the question of whether they

accomplished what they expected by outsourcing HR remains to be answered

While the above literature review would suggest that HR outsourcing is

becoming a more common practice it should be noted that virtually all of the

data which is currently available in this area is American What is the reality of

HR outsourcing in IT organizations especially in the state of Kamataka What

are the reasons why Kamataka based IT companies outsource HR functions

What is the decision making process with respect to vendor selection This

study aims to set objectives and answer these issues by examining the topic of

HR outsourcing in IT sector - A study of Kamataka state

The emergence of the knowledge worker in India in the form of

software professionals with a global linkages and global performance

requirements has changed the HR scenario in India in the software and

knowledge based industries

The literature survey indicates that several voices were raised calling for

a change in HRM practices especially with respect to the IT companies Many

researchers have expressed the need for change The studies more or less deal

with the concerns for change but do not provide any guidance on how one has

to go about dealing with them

In light of the above to bridge the research gap this study is

undertaken to find out the basis of HR Outsourcing in IT companies and which

are the core and non core HR activities

31

122 - Research Gap

The prospects of the two important areas covered in this study HRO and

IT sector are complimentary Growth in these two areas and adaptabiHty of

both for mutual benefit has raised many challenges In the present situation

this study will focus on analyzing

bull Emerging trends in HRO Management in IT sector

bull Priorities in identifying Core and Non-Core HR activities for HRO

bull HRO decisions in IT Industry

bull Need for developing new competencies and skills for in-house HR

professionals

1221 - Statement of the problem

In India especially in the state of Kamataka there is no significant

research in the area of HR Outsourcing practices in IT sector There is no

study detailing core and non-core HR activities to decide about HR

Outsourcing in IT sector It is clear that in spite of the needs expressed by

several authorities and researchers there is no empirical study covering the

decision making on HRO and different issues and considerations of HR

Outsourcing in IT organizations

The present research study is an effort to fill the above stated gap Hence

the research questions and objectives of the study are as follows

32

123 - Research questions

The above review of the Uterature generated the following set of

fiandamental research questions which will be addressed in this study within the

context of the Kamataka based large and medium sized IT organizations

1 What HR functions are Kamataka based large and medium sized IT

organizations are outsourcing at the present time

2 What HR functions will be outsourcing in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource

HR function(s)

5 What do decision makers see as the major advantages of HR

outsourcing

6 What do decision makers see as the major limitation of HR

outsourcing

7 Does one s view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The existence of organization for number of years

bull The size of the company (ie large and medium size)

33

124 - Research Objectives

1 To understand the decisions related to HR outsourcing and to assess the

effectiveness of HR outsourcing in Kamataka based large and medium

sized IT organizations

2 To study the reasons for which the IT Industries select HR Outsourcing

3 To understand whether the objectives of HR outsourcing are met in IT

sector

4 To identify core and non core HR activities in IT organizations

5 To study the HRO decisions with reference to selection of vendors

6 To examine the changing role of in-house HR executives with required

competencies and skills in future

125 - Scope of the study

Industry Scope

The scope of the study is limited to Large and Medium scale IT

companies (Software Companies) located in Kamataka State Since the capital

city Bangaluru known as IT capital (Silicon Valley) of India represents all the

major companies in IT sector this study can be compared with other states as

well

Geographical Scope

Geographic scope of the study is limited to the State of Kamataka

34

126 - Hypotheses drawn for the study

This study attempts to put the following hypotheses to test to understand

the aforesaid objectives more clearly After extensive review based on

literature the research gaps are identified and appropriate hypotheses are

designed for the study

Hypotheses drawn for the study

HI - Size of the organization significantly influences the HR outsourcing

decisions

H2 - There is a strong relationship between the age of the organization and HR

outsourcing decision

H3 - There exists strong relation between duration of HR outsourcing and the

effectiveness

H4 - Fmance and cost factors are the strong reasons for outsourcing HR

functions

H5 - HR outsourcing objectives are met in IT companies

H6 - There exist a strong relationship between the objectives of HRO met and

effectiveness of HRO

H7 - Quality of Service is the most influencing factor for selecting a vendor for

HR outsourcing

35

13 - Research Methodology

This section reviews the methodology that was used for this research

Section 13 deals with Research Design Statistical tools Research context

Data collection and Sampling Design Section 14 gives detaiis of

Demographics Section 15 deals with Measures Section 16 discusses research

analysis and Results Mail survey is detailed in section 17

131 - Research context

The current study has been carried out in the IT Companies in the State

of Kamataka

The initial chapters give greater insights of HRO m IT sector in which

the details about the IT companies and their performance contribution and

developments are described

Organization and Respondent Selection

The IT Organizations and the respondents were chosen based on the

following criteria

1 Large and Medium scale IT (Software development) companies

(excluding ITES Companies) in the state of Kamataka

2 Decision making key HR Professionals in the IT Companies

3 IT Companies located in the state of Kamataka

36

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

122 - Research Gap

The prospects of the two important areas covered in this study HRO and

IT sector are complimentary Growth in these two areas and adaptabiHty of

both for mutual benefit has raised many challenges In the present situation

this study will focus on analyzing

bull Emerging trends in HRO Management in IT sector

bull Priorities in identifying Core and Non-Core HR activities for HRO

bull HRO decisions in IT Industry

bull Need for developing new competencies and skills for in-house HR

professionals

1221 - Statement of the problem

In India especially in the state of Kamataka there is no significant

research in the area of HR Outsourcing practices in IT sector There is no

study detailing core and non-core HR activities to decide about HR

Outsourcing in IT sector It is clear that in spite of the needs expressed by

several authorities and researchers there is no empirical study covering the

decision making on HRO and different issues and considerations of HR

Outsourcing in IT organizations

The present research study is an effort to fill the above stated gap Hence

the research questions and objectives of the study are as follows

32

123 - Research questions

The above review of the Uterature generated the following set of

fiandamental research questions which will be addressed in this study within the

context of the Kamataka based large and medium sized IT organizations

1 What HR functions are Kamataka based large and medium sized IT

organizations are outsourcing at the present time

2 What HR functions will be outsourcing in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource

HR function(s)

5 What do decision makers see as the major advantages of HR

outsourcing

6 What do decision makers see as the major limitation of HR

outsourcing

7 Does one s view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The existence of organization for number of years

bull The size of the company (ie large and medium size)

33

124 - Research Objectives

1 To understand the decisions related to HR outsourcing and to assess the

effectiveness of HR outsourcing in Kamataka based large and medium

sized IT organizations

2 To study the reasons for which the IT Industries select HR Outsourcing

3 To understand whether the objectives of HR outsourcing are met in IT

sector

4 To identify core and non core HR activities in IT organizations

5 To study the HRO decisions with reference to selection of vendors

6 To examine the changing role of in-house HR executives with required

competencies and skills in future

125 - Scope of the study

Industry Scope

The scope of the study is limited to Large and Medium scale IT

companies (Software Companies) located in Kamataka State Since the capital

city Bangaluru known as IT capital (Silicon Valley) of India represents all the

major companies in IT sector this study can be compared with other states as

well

Geographical Scope

Geographic scope of the study is limited to the State of Kamataka

34

126 - Hypotheses drawn for the study

This study attempts to put the following hypotheses to test to understand

the aforesaid objectives more clearly After extensive review based on

literature the research gaps are identified and appropriate hypotheses are

designed for the study

Hypotheses drawn for the study

HI - Size of the organization significantly influences the HR outsourcing

decisions

H2 - There is a strong relationship between the age of the organization and HR

outsourcing decision

H3 - There exists strong relation between duration of HR outsourcing and the

effectiveness

H4 - Fmance and cost factors are the strong reasons for outsourcing HR

functions

H5 - HR outsourcing objectives are met in IT companies

H6 - There exist a strong relationship between the objectives of HRO met and

effectiveness of HRO

H7 - Quality of Service is the most influencing factor for selecting a vendor for

HR outsourcing

35

13 - Research Methodology

This section reviews the methodology that was used for this research

Section 13 deals with Research Design Statistical tools Research context

Data collection and Sampling Design Section 14 gives detaiis of

Demographics Section 15 deals with Measures Section 16 discusses research

analysis and Results Mail survey is detailed in section 17

131 - Research context

The current study has been carried out in the IT Companies in the State

of Kamataka

The initial chapters give greater insights of HRO m IT sector in which

the details about the IT companies and their performance contribution and

developments are described

Organization and Respondent Selection

The IT Organizations and the respondents were chosen based on the

following criteria

1 Large and Medium scale IT (Software development) companies

(excluding ITES Companies) in the state of Kamataka

2 Decision making key HR Professionals in the IT Companies

3 IT Companies located in the state of Kamataka

36

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

123 - Research questions

The above review of the Uterature generated the following set of

fiandamental research questions which will be addressed in this study within the

context of the Kamataka based large and medium sized IT organizations

1 What HR functions are Kamataka based large and medium sized IT

organizations are outsourcing at the present time

2 What HR functions will be outsourcing in the near future

3 What functions are associated with the decision to outsource HR

function(s)

4 What functions are associated with the decision to not to outsource

HR function(s)

5 What do decision makers see as the major advantages of HR

outsourcing

6 What do decision makers see as the major limitation of HR

outsourcing

7 Does one s view of the above issues vary depending upon

bull Ones previous experiences with outsourcing

bull The existence of organization for number of years

bull The size of the company (ie large and medium size)

33

124 - Research Objectives

1 To understand the decisions related to HR outsourcing and to assess the

effectiveness of HR outsourcing in Kamataka based large and medium

sized IT organizations

2 To study the reasons for which the IT Industries select HR Outsourcing

3 To understand whether the objectives of HR outsourcing are met in IT

sector

4 To identify core and non core HR activities in IT organizations

5 To study the HRO decisions with reference to selection of vendors

6 To examine the changing role of in-house HR executives with required

competencies and skills in future

125 - Scope of the study

Industry Scope

The scope of the study is limited to Large and Medium scale IT

companies (Software Companies) located in Kamataka State Since the capital

city Bangaluru known as IT capital (Silicon Valley) of India represents all the

major companies in IT sector this study can be compared with other states as

well

Geographical Scope

Geographic scope of the study is limited to the State of Kamataka

34

126 - Hypotheses drawn for the study

This study attempts to put the following hypotheses to test to understand

the aforesaid objectives more clearly After extensive review based on

literature the research gaps are identified and appropriate hypotheses are

designed for the study

Hypotheses drawn for the study

HI - Size of the organization significantly influences the HR outsourcing

decisions

H2 - There is a strong relationship between the age of the organization and HR

outsourcing decision

H3 - There exists strong relation between duration of HR outsourcing and the

effectiveness

H4 - Fmance and cost factors are the strong reasons for outsourcing HR

functions

H5 - HR outsourcing objectives are met in IT companies

H6 - There exist a strong relationship between the objectives of HRO met and

effectiveness of HRO

H7 - Quality of Service is the most influencing factor for selecting a vendor for

HR outsourcing

35

13 - Research Methodology

This section reviews the methodology that was used for this research

Section 13 deals with Research Design Statistical tools Research context

Data collection and Sampling Design Section 14 gives detaiis of

Demographics Section 15 deals with Measures Section 16 discusses research

analysis and Results Mail survey is detailed in section 17

131 - Research context

The current study has been carried out in the IT Companies in the State

of Kamataka

The initial chapters give greater insights of HRO m IT sector in which

the details about the IT companies and their performance contribution and

developments are described

Organization and Respondent Selection

The IT Organizations and the respondents were chosen based on the

following criteria

1 Large and Medium scale IT (Software development) companies

(excluding ITES Companies) in the state of Kamataka

2 Decision making key HR Professionals in the IT Companies

3 IT Companies located in the state of Kamataka

36

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

124 - Research Objectives

1 To understand the decisions related to HR outsourcing and to assess the

effectiveness of HR outsourcing in Kamataka based large and medium

sized IT organizations

2 To study the reasons for which the IT Industries select HR Outsourcing

3 To understand whether the objectives of HR outsourcing are met in IT

sector

4 To identify core and non core HR activities in IT organizations

5 To study the HRO decisions with reference to selection of vendors

6 To examine the changing role of in-house HR executives with required

competencies and skills in future

125 - Scope of the study

Industry Scope

The scope of the study is limited to Large and Medium scale IT

companies (Software Companies) located in Kamataka State Since the capital

city Bangaluru known as IT capital (Silicon Valley) of India represents all the

major companies in IT sector this study can be compared with other states as

well

Geographical Scope

Geographic scope of the study is limited to the State of Kamataka

34

126 - Hypotheses drawn for the study

This study attempts to put the following hypotheses to test to understand

the aforesaid objectives more clearly After extensive review based on

literature the research gaps are identified and appropriate hypotheses are

designed for the study

Hypotheses drawn for the study

HI - Size of the organization significantly influences the HR outsourcing

decisions

H2 - There is a strong relationship between the age of the organization and HR

outsourcing decision

H3 - There exists strong relation between duration of HR outsourcing and the

effectiveness

H4 - Fmance and cost factors are the strong reasons for outsourcing HR

functions

H5 - HR outsourcing objectives are met in IT companies

H6 - There exist a strong relationship between the objectives of HRO met and

effectiveness of HRO

H7 - Quality of Service is the most influencing factor for selecting a vendor for

HR outsourcing

35

13 - Research Methodology

This section reviews the methodology that was used for this research

Section 13 deals with Research Design Statistical tools Research context

Data collection and Sampling Design Section 14 gives detaiis of

Demographics Section 15 deals with Measures Section 16 discusses research

analysis and Results Mail survey is detailed in section 17

131 - Research context

The current study has been carried out in the IT Companies in the State

of Kamataka

The initial chapters give greater insights of HRO m IT sector in which

the details about the IT companies and their performance contribution and

developments are described

Organization and Respondent Selection

The IT Organizations and the respondents were chosen based on the

following criteria

1 Large and Medium scale IT (Software development) companies

(excluding ITES Companies) in the state of Kamataka

2 Decision making key HR Professionals in the IT Companies

3 IT Companies located in the state of Kamataka

36

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

126 - Hypotheses drawn for the study

This study attempts to put the following hypotheses to test to understand

the aforesaid objectives more clearly After extensive review based on

literature the research gaps are identified and appropriate hypotheses are

designed for the study

Hypotheses drawn for the study

HI - Size of the organization significantly influences the HR outsourcing

decisions

H2 - There is a strong relationship between the age of the organization and HR

outsourcing decision

H3 - There exists strong relation between duration of HR outsourcing and the

effectiveness

H4 - Fmance and cost factors are the strong reasons for outsourcing HR

functions

H5 - HR outsourcing objectives are met in IT companies

H6 - There exist a strong relationship between the objectives of HRO met and

effectiveness of HRO

H7 - Quality of Service is the most influencing factor for selecting a vendor for

HR outsourcing

35

13 - Research Methodology

This section reviews the methodology that was used for this research

Section 13 deals with Research Design Statistical tools Research context

Data collection and Sampling Design Section 14 gives detaiis of

Demographics Section 15 deals with Measures Section 16 discusses research

analysis and Results Mail survey is detailed in section 17

131 - Research context

The current study has been carried out in the IT Companies in the State

of Kamataka

The initial chapters give greater insights of HRO m IT sector in which

the details about the IT companies and their performance contribution and

developments are described

Organization and Respondent Selection

The IT Organizations and the respondents were chosen based on the

following criteria

1 Large and Medium scale IT (Software development) companies

(excluding ITES Companies) in the state of Kamataka

2 Decision making key HR Professionals in the IT Companies

3 IT Companies located in the state of Kamataka

36

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

13 - Research Methodology

This section reviews the methodology that was used for this research

Section 13 deals with Research Design Statistical tools Research context

Data collection and Sampling Design Section 14 gives detaiis of

Demographics Section 15 deals with Measures Section 16 discusses research

analysis and Results Mail survey is detailed in section 17

131 - Research context

The current study has been carried out in the IT Companies in the State

of Kamataka

The initial chapters give greater insights of HRO m IT sector in which

the details about the IT companies and their performance contribution and

developments are described

Organization and Respondent Selection

The IT Organizations and the respondents were chosen based on the

following criteria

1 Large and Medium scale IT (Software development) companies

(excluding ITES Companies) in the state of Kamataka

2 Decision making key HR Professionals in the IT Companies

3 IT Companies located in the state of Kamataka

36

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

132 - Research Design

This is a descriptive research The researcher seeks to portray the state

of HR Outsourcing that exists in the large and medium sized IT companies

located in the state of Kamataka

The method used is field research The data collection is done

primarily using questionnaire

133 - Data Collection

A structured questionnaire was used as an instrument to reach the IT

companies The questionnaires were mailed to the Organizations by post

courier and emails to ensure the convenience of the respondents

Source of Data

The data for the study was obtained from primary and secondary

sources

Primary Data

The primary data was obtained by a questionnaire sent to IT companies

Secondary Data

The secondary data was obtained from books journals and websites

37

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

134 - Sampling

1341 - Sample size

The population for this study included 114 senior-level HR

professionals representing large and medium sized IT companies located in the

state of Kamataka These executives were deemed to be the most suitable

group to survey as they are assumed to be in the best position to have a holistic

view of all HR fiinctions and their ability to decide about outsourcing

The study unit of analysis was the IT companies Reasons for focusing

the study on IT companies located in the state of Kamataka are as follows

First Indian economy has changed in the last fifteen years due to the

speed of technological progress IT sector plays a crucial role in the

developments and especially in service sector which has contributed to the

GDP of India in a large way Second the IT sector is a high-growth sector with

respect to export markets Finally it was felt appropriate to limit the focus on

IT companies in the state of Kamataka as it is considered as the IT capital of

India

As such it is likely that results obtained from companies in this study

can be generalized to IT companies located in other parts of India

Considering the population a sample of total 175 respondents were

chosen for the research study The questionnaires with missing data and partial

data were not included since the impact of the missing data is sensitive and

38

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

impactful These 61 respondents were not considered for analysis and were

rejected The study includes 114 respondents for the analysis

1342 - Sampling Technique

The NASSCOM Reports IT Database CD and Internet were the sources

of information for the list of IT companies Using the data efforts were made

to collect the proportionate responses from the total population

135 - Statistical Tools

For the purpose of analyzing the data being collected through

questionnaire a few statistical tools like rating ranking percentage mean SD

CV Pearson chi square Spearman Rank Correlation test are employed

14 - Demographics of the respondents

All the- respondents were Professionals in Human Resource Department

of IT companies and hold key positions The respondents are the decision

makers in their organizations on strategic issues relating to the department of

HR Demographic and job related information like age years of experience

designation etc were collected for analysis

15 - Measures

A pilot survey of 35 Executives was conducted The respondents for the

survey were Executives from the leading IT companies participatmg in MDP

The pilot study to establish the face validity of the survey instrument was

carried out

39

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

16 - Analysis and Results

161 - Instrument Administration

Data was collected from HR top executives surveyed in the whole

population of large and medium sized IT companies located in the state of

Kamataka

To maximize the response rate of the mail survey the steps suggested by

researchers (Dillman 1978 Emory 1985) were followed These included

careful design and pilot testing of the instrument careful wording of the cover

letter following up on undelivered questionnaires follow up mailing and

reminder letter

To gather the information for this study a paper and pencil survey

instrument was developed to collect quantitative data The survey

questionnaire was designed

(1) To investigate how organizational decision makers view outsourcing of HR

(2) To determine their previous experiences with outsourcing (if any)

(3) To identify which HR functions are most likely to be outsourced in near

future

(4) To identify the factors those influence the decision to outsource or not to

outsource HR functions

40

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

17 - Mail Survey

This section describes the specific items that are included in the

questionnaire an explanation as to why each item is included and an outline of

what types of information are desired from the respondents Questionnaire was

mailed to the HR managers A copy of questionnaire and the reminder letter are

given in Appendix 1

The questionnaire contained 4 sections and was designed as follows

Section I amp II- Background Information of the Respondent and Organization

Section II- Organizational Information and Experiences with HR outsourcing

Section III- Factors Influencing the Vendor selection and management

Section IV- HR study of the Organization

The instrument was pre tested to verify completeness and to make sure

it could be understood by respondents Pre-tests also indicated that it took

approximately 15 minutes to complete this survey Details on each section of

the questioimaire are given below

41

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

Section I Information of the organizations

Information related to the respondents was collected in this section like

Designation Membership of professional bodies and age group

Section II Organizational Information and experience with outsourcing

The information gathered in this section relates to the organization and

their Experience with Outsourcing in General Information on the company

Size of organization number of employees working in the organization

Industry years in operation

Questions were designed to give us information on the respondents

present experiences with outsourcing in general (ie outsourcing functions in

HR) Respondents were asked to list the functions they had outsourced the

length of time that company had outsourced (ie years) Respondents were

asked to use a Likert scale to rate what are the reasons behind Outsourcing HR

What HR functions if any is the company currently outsourcing which if

any of these HR functions is the company considering to outsource in future

A table was designed to gather this information (Appendix 2) Included in this

table was a complete set of HR functions identified from the literature

42

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

The respondents were to identify any one of the two choices given A or B

A- Indicating the HR activities which are strategic amp core activities for

the organization

B- Indicating the HR activities which are non-core in nature for the

organization

Respondents were given choice to mark any one of C or D

C- Indicating the HR activities which cannot be outsourced

D- Indicating the HR activities which can be outsourced

The choice was given to the respondents to mark E or F

E- Indicating the HR activities which will never be outsourced in future

and

F- Indicating the HR activities which may be outsourced in the future

Each choice has been assessed separately and the analysis is presented

Section III Factors Influencing the Vendor selection and management

The questions were designed to gather information in this section

related to the vendor What is the normal tenure of the contract with the

vendor Whether the company has changed terminated the vendor If yes

what are the reasons behind changing the vendor How frequently do you

evaluate the performance of the vendor Are they satisfied with the vendor

services How much time is saved because of outsourcing routine HR

43

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

activities Respondents were asked to use a Likert scale to rate the basis of

vendor selection The concept of satisfaction was used in this survey because it

is often perceived to be the best surrogate measure for capturing both cognitive

and affective components of human actions (Grove 1996)

Section IV HR study of the Organization

This section gathers information about the HR activities in the

organization The respondents were asked to mention the percentage of time

HR manager spends in the various HR activities Whether the company should

recruit trained HR Chief Outsourcing Officer Decision to outsource HR soft

skills Whether the selective HR activities like number of people in HR Dept

Overall budget for HR Pay package and compensation for HR Designations in

HR Dept and Role of line managers in HR activity have changed in last 5

years Respondents were asked to use a Likert scale to rate what are the

Limitations problems in outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in the

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

44

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

Section wise Objectives

Data drawn from section II of the survey questionnaire was used in response to

Objective 1 - To understand the decisions related to HR outsourcing and to

assess the effectiveness of HR outsourcing in Kamataka based large and

medium sized IT organizations

Objective 2 - To study the reasons for which the IT Industries select HR

Outsourcing

Objective 3 - To understand whether the objectives of HR outsourcing are met

in IT sector

Objective 4 - To identify core and non core HR activities in IT organizations

Data drawn from section III of the survey questionnaire was used in

response to

Objective 5 - To study the HRO decisions with reference to selection of

vendors

Data drawn from section FV of the survey questionnaire was used in

response to

Objective 6 - To examine the changing role of in-house HR executives with

required competencies and skills in future

45

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

What Percentage of time HR manager spends in the various HR activities

Whether the company should recruit trained HR Chief Outsourcing Officer

Whether to outsource HR soft skills Whether the selective HR activities like

number of people in HR Dept Overall budget for HR Pay package and

compensation for HR Designations in HR Dept Role of line managers in HR

activity have changed in last 5 years What are the limitations problems in

outsourcing HR activities

Open-ended questions were used in this section to reduce the length of

the questionnaire The following three open-ended questions were used to

gather more details regarding the new skills and competencies required in

future for in house HR managers if routine activities are outsourced Also

opinion about future trends skills competencies and priorities of HR

professions in IT sector

18 - Chapter Scheme

The present study has been organized into seven chapters

Chapter - I Introduction covers the HR Outsourcing scenario at the

International level the Scene in USA Europe and Asia The Problem

Objectives Hypotheses and Research Methodology are dealt with

Chapter - II Summarizes NASSCOM Report 2009 HR in Indian IT

industries Issues Challenges amp Strategies and State of Human Resources in

Indian Software Industry are discussed The related literature to HRO

46

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

Conceptual model of HRO process and Outsourcing trends in HR are

explained

In Chapter - III the profile of organizations and the details of respondents

is dealt with ie size years of operations man power core and non core HR

activities reasons behind outsourcing

Chapter - IV deals with the HRO experiences of IT organizations surveyed

in the study The experiences with HRO include the Objectives met

effectiveness Time saved Vendor Services contracting performance

evaluation and Satisfaction with the vendor are discussed

Chapter - V discusses the HR trends in the IT organizations which include

time spent by HR professionals problems and limitations of HRO and the

changes taken place in HR departments in last five years The chapter also

deals with HR trends and new skills and competencies identified for HR

professionals

Chapter - VI is the last chapter dealing with the summary Findings

Suggestions Managerial Implications and Directions for future Research

and Concluding remarks

47

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

Reference

1 Alexander M amp Young D (1996) Strategic Outsourcing Long Range

Planning 29(1) 116-119

2 Ashton F (1995 November 16) Whats behind the decision to hke

external expertise People Management p 47

3 Axel H (1994) HR Executive Review Outsourcing HR services

New York NY The Conference Board Inc

4 Benimadhu P (1996) Getting The Most Your Training Dollar

Ottawa ON The Conference Board of Canada Inc

5 Breibart G (1996 October 17) Focusing on Outsourcing Part of a

Series on Rethinking HR Automated-Restructure-Redesign-Outsource

The HR Planning Newsletter pp 1-4

6 Byrne John (1996 April 1) Has Outsourcing Gone Too Far Business

Week pp 26

7 Corbett M (1994) Outsourcing as a Strategic Tool Canadian

Business Review pp 14-16

8 GRK Murthy (2005) Outsourcing A Challenge to HRM HR

Outsourcing pp3-4

9 Grover V amp Teng JTC (1993 November) The decision to

Outsource Information System Functions Journal of Systems

Management pp 34-39

48

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service

Quality and Partnership on the Outsourcing of Information Systems

Functions Journal of Management Information Systems 12(4) 89-116

llGrupe F (1997) Outsourcing the Help Desk Function Information

Systems Management pp 15-22

12 Gupta U amp Gupta A (1992) Outsourcing The IS Function Is it

necessary for your Organization Information Systems Management

pp 44 -50

13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human

Resources - Trends Models and Guidelines Lexington ME LER

Press

14Harkins P Brown S amp Sullivan R (1995 December) Shining new

light on a growing Trend HR Magazine 40(12) 75-79

15 Harrison S (1996) Outsourcing and the New Human Resource

Management Industrial Relations Center Queens University IRC

Press Current Issues Series

16 Jones M (1996 July) Four trends to Reckon with HR Focus 22-23

17 KD Raju 2008 Small and Medium Enterprises (SMEs) Past Present

and Future in India httpssmcomabstract June 2009

18 Knight C (1996 May 20) Firms outsource training to focus on

strategy Canadian HR Reporter pp 12

19Laabs Jennifer J (1993a) Why HR Is Turning to Outsourcing

Personnel Journal 72(9) 92-101

49

20Laabs Jennifer J (1993b) Successful Outsourcing depends on Critical

factors Personnel Journal 72 (10 51-60

21Lacity MC amp Hirschheim R (1995) Beyond the information

Systems Outsourcing Bandwagon Baffins Lane Chichester England

John Wiley amp Sons Ltd

22Lacity MC amp Hirschheim R (1993) Information Systems

Outsourcing Metaphors and Realitites Baffins Lane Chichester

England John Wiley amp Sons Ltd

23Leonard B (1994 December) Outsourcing Relocation Services - Are

HR Managers Cutting their Own Throats HR Magazine pp 57-58

24 Lewis J (1996 May 20) Expertise technology drive benefits

Outsourcing Canadian HR Reporter p 3

25 Meyer Dean ( 1994 Fall) Outsourcing A Sensible Approach to

Outsourcing Information Systems Management pp 23-27

26Minoli Daniel (1995) Analyzing Outsourcing Reengineering

Information and Coimnunication Systems New York McGraw-Hill

Inc

27Niehaus R DBA amp Swiercz (1996) Research Update Do HR

Systems Affect the Bottom Line We have the Answer Human

Resource Planning 19(4) 61-63

280Coimell Sandra (1995 February) Outsourcing A Technology-based

Decision HR Magazine pp 35-39

50

29Qumn J B Doorley TL amp Paquette PC (1990 March-April)

Beyond Products Services-Based Strategy Harvard Business

Review pp 58-60

30 Rivers G (1996 October) Weighing The Options What are the pros

and the cons of Outsourcing your pension plan administrationBenefits

Canada pp 27-28

SlRothery Brian and Robertson Ian (1995) The truth about Outsourcing

Hamsphere England Gower Publishing Limited

32 S Sudarshan (2005) Time for a wakeup call Indian Management The

journal of all Inaia Management Association Oct2005 pp28-32

33 Stewart T (1996 January 15) Taking on the Last Bureaucracy Fortune

Magazine pp 46-61

34Sunoo PB amp Laabs J (1994 March) Winnmg Strategies for

Outsourcing Contracts Personnel Journal pp 69-78

35 The Ins and Outs of Outing (1991 August 31) The Economist pp 54

55

36 The Outing of Outsourcing (1995 November 25) The Economist pp

5758

37 The Outsourcing Institute Outsourcing Did you Know

38 The Outsourcing Institute Selected Industry Studies [Online] Available

39 Venkatesan R (1992 November-December) Strategic Sourcing To

Make or Not to Make Hanard Business Review pp 98-107

51

40 Wells Jennifer (1996 September 30) Is your job safe Macleans

llagaine pp 46-49

41Willcocks L amp Feeny D (1995) Outsourcing IT The Strategic

Implications Long Range Planning 28 95) 59-70

42Yeung A amp Brockbank D (1994) Lower Cost Higher Value

Human Resource Function in Transformation Human Resource

Plannmg 17(3) 1-17

Websites

1 Dun amp Brandstreet DampBs outsoucing analysis key findings

2 KPMG Peat Marwick LLP Why are Companies Outsourcing

3 Hewitt Associates LLC Trends in Outsourcing of Human Resources

4 httpwwwhewittassoccom80press_reU 199610-12-96prs

5 Hewitt 2005 Hewitt Associates LLC wwwhewittcom

6 httpwwwhr-initiativescom what is HR 2009 (Available Now)

7 httpwwwamrresearchcomoutsourcing 2009 (Available Now)

52

29Qumn J B Doorley TL amp Paquette PC (1990 March-April)

Beyond Products Services-Based Strategy Harvard Business

Review pp 58-60

30 Rivers G (1996 October) Weighing The Options What are the pros

and the cons of Outsourcing your pension plan administrationBenefits

Canada pp 27-28

SlRothery Brian and Robertson Ian (1995) The truth about Outsourcing

Hamsphere England Gower Publishing Limited

32 S Sudarshan (2005) Time for a wakeup call Indian Management The

journal of all Inaia Management Association Oct2005 pp28-32

33 Stewart T (1996 January 15) Taking on the Last Bureaucracy Fortune

Magazine pp 46-61

34Sunoo PB amp Laabs J (1994 March) Winnmg Strategies for

Outsourcing Contracts Personnel Journal pp 69-78

35 The Ins and Outs of Outing (1991 August 31) The Economist pp 54

55

36 The Outing of Outsourcing (1995 November 25) The Economist pp

5758

37 The Outsourcing Institute Outsourcing Did you Know

38 The Outsourcing Institute Selected Industry Studies [Online] Available

39 Venkatesan R (1992 November-December) Strategic Sourcing To

Make or Not to Make Hanard Business Review pp 98-107

51

40 Wells Jennifer (1996 September 30) Is your job safe Macleans

llagaine pp 46-49

41Willcocks L amp Feeny D (1995) Outsourcing IT The Strategic

Implications Long Range Planning 28 95) 59-70

42Yeung A amp Brockbank D (1994) Lower Cost Higher Value

Human Resource Function in Transformation Human Resource

Plannmg 17(3) 1-17

Websites

1 Dun amp Brandstreet DampBs outsoucing analysis key findings

2 KPMG Peat Marwick LLP Why are Companies Outsourcing

3 Hewitt Associates LLC Trends in Outsourcing of Human Resources

4 httpwwwhewittassoccom80press_reU 199610-12-96prs

5 Hewitt 2005 Hewitt Associates LLC wwwhewittcom

6 httpwwwhr-initiativescom what is HR 2009 (Available Now)

7 httpwwwamrresearchcomoutsourcing 2009 (Available Now)

52

40 Wells Jennifer (1996 September 30) Is your job safe Macleans

llagaine pp 46-49

41Willcocks L amp Feeny D (1995) Outsourcing IT The Strategic

Implications Long Range Planning 28 95) 59-70

42Yeung A amp Brockbank D (1994) Lower Cost Higher Value

Human Resource Function in Transformation Human Resource

Plannmg 17(3) 1-17

Websites

1 Dun amp Brandstreet DampBs outsoucing analysis key findings

2 KPMG Peat Marwick LLP Why are Companies Outsourcing

3 Hewitt Associates LLC Trends in Outsourcing of Human Resources

4 httpwwwhewittassoccom80press_reU 199610-12-96prs

5 Hewitt 2005 Hewitt Associates LLC wwwhewittcom

6 httpwwwhr-initiativescom what is HR 2009 (Available Now)

7 httpwwwamrresearchcomoutsourcing 2009 (Available Now)

52