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
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
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
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
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
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
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
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
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
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
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3 Axel H (1994) HR Executive Review Outsourcing HR services
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48
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llGrupe F (1997) Outsourcing the Help Desk Function Information
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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
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
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
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
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
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
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
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
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
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
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
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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
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
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
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
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
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
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
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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
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48
lOGrover V Cheon MJ amp Teng JTC (1996) The Effect of Service
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llGrupe F (1997) Outsourcing the Help Desk Function Information
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13Harkins P Brown S amp Sullivan R (1996) Outsourcing and Human
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14Harkins P Brown S amp Sullivan R (1995 December) Shining new
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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
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
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
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
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
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
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
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49
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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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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49
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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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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