posted by Deepak Sharma,Faculty-HR,INC-Allahabad

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Measuring the True Benefit of Human Resources Outsourcing

When Multi-national companies decided to outsource its Human Resources Operations, they had only one major goal in mind and that is cutting costs. They have decided to outsource end to end human resource operations to third party and today it has become the greatest of revelations.

One of the biggest airline companies in the world, which is the 3rd largest airlines in terms of U.S traffic has signed a deal with a company to outsource its human resource operations. The deal between the companies is valued at one hundered and twenty million dollars and the airline company is very confident of saving nearly 25% on its cost. That’s Human Resource Outsourcing today.

Like business processes being outsourced, Human Resources outsourcing has started to boom. The year 2005 saw many organizations outsource their human resource operations to a third party organization. Examples would be the soft drink giant, PepsiCo, which outsourced its operations to Hewitt Associates. They had signed a 10 year agreement with Hewitt for outsourcing their Human Resource Operations. Duke Energy also announced a 7.5 year contract with Hewitt to handle its payrolls and other administrative services. Human Resource outsourcing now is the fastest growing segment of the business process outsourcing sector.

Outsourcing operations happen for increasing the net profits of the companies as they find it cost effective very much in the long run by outsourcing their operations. However companies must look beyond initial cost saving and must analyze the impact of outsourcing on employee satisfaction and the overall organizational performance. Giants like PepsiCo and Duke Energy and other big companies have started outsourcing their Human Resource operations. This clearly shows the importance of firms understanding as to why the operations have been outsourced and matching metrics to those goals.

Generally Human Resource operations are outsourced to free an organizations HR personnel to concentrate on more important matters. The companies now concentrate more on strategies which link various inputs to outcomes which are far more critical to the business of the organization. There was a survey conducted by one of the leading research organization in the USA and it proved that the domestic market for Human Resource Outsourcing will reach nearly $42 billion by 2008. Such is the market for Human Resource Outsourcing and of course the firms outsourcing their operations are also able to focus more on their business and their strategies to increase their turnover by leaps and bounds.

By outsourcing, an organizations HR team can connect between recruitment sources and the performance of the recently hired employees. Trading investments and performance rankings can be connected. Employee exit data and their total reward programs can also be compared and connected. These things give an organization a better and an effective basis for evaluating its programs.

Finding baselines

Quantification of your current service levels and cost is very important before the company decides to seek bids. Employers have to know the standards they expect or the standards they want to set. Whether the expectations are too high or low or if outsourcing is the correct solution to cutting costs if they don’t realize their starting point.
When an outsourcing deal gives you disappointing results, it is mainly due to not setting the expectations level correctly. They instead are concentrating more on the service level agreements which governs the contracts of outsourcing. The deals companies enter into must be structured to match the company’s expectations. They must be setting upfront expectations and those expectations must be achievable.

If they lack in-house resources to determine baselines, they should consult an impartial third party. "One thing that should be done is to really take a hard and long look at company’s motivations for outsourcing and come up with metrics that govern the relationship around those. The last thing you want to do is abdicate the setting of metrics to your outsourcer. It would be like the fox guarding the hen house.

In the year 2002 a leading telecom and Internet Service provider in the united states signed an agreement with an organization to provide them with end to end human resource operations. A couple of years later the company that has outsourced agrees to the fact that the agreement has provided qualitative and quantitative service which has resulted in double digit savings which was the chief goal and the reason for this success is structuring the deal and expectations appropriately. Their expectations were modest. They were dealing with cost. They didn’t go in with the idea that we were going to change out a whole new generation of everything. From that point of view, they were very satisfied.

Though HR outsourcing vendors say savings can range from 15 percent to 25 percent, long-term data on net savings is scarce because of the infancy of the market. In 44 percent of the cases, net cost savings remain "undetermined," according to research by the Bureau of National Affairs. The prospect of cutting costs is often what motivates companies to consider outsourcing. Companies that use a mix of in-house resources and outsourcing appear to operate in a sweet spot.

Despite industry buzz, experience suggests that comprehensive outsourcing deals might not be the best route for everyone. They have relatively low budgets and have fewer HR staff members per full-time employee than their counterparts in firms that primarily handle human resources internally or primarily outsource. Another trend on the horizon: buyers wanting more per-unit pricing and cost data. Many of the pioneering comprehensive agreements guaranteed a certain percentage of savings compared with baseline costs.

Businesses face a choice in the way they structure and pursue HRO strategies: shallow or deep. Shallow Human Resource Outsourcing only addresses direct administrative spending. Deep Human Resource Outsourcing increases productivity from workforce investments, which dramatically improves strategic and sustainable competitive advantage, and allows employers to closely manage HR-related costs outside the boundaries of the HR department. It’s always advisable to transform your HR department from a cost center to a strategic resource. Use the tools and expertise that help remove the burden of managing back-office functions, such as payroll, benefits, administration, recruiting and training, so that HR executives can focus on leveraging employee performance and supporting strategic initiatives.

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Renewed focus on corporate training

With organisations realising the utility of specialised corporate training, this segment is set to grow in India

Upcoming technologies are aimed at making organisational processes more efficient, but this effort is incomplete without proficient employees who are in touch with forthcoming innovations in their companies. Today, human capital has replaced physical capital as a source of competitive advantage for all organisations, big and small, hence there is a renewed focus on corporate training to create a better, faster and smarter workforce that will impact business results.

The training industry in India has evolved as a business effectiveness tool. The arena of training has moved on from employee retention programmes to issues like sales training, leadership, relationship building and increasing production. Says Sanjeev Duggal, CEO & MD, NIS Sparta, “Training has become a critical business enabler and is being linked to business outcome. Due to ever-changing market scenarios and stiff competition, every organisation wants to make optimum use of the most critical resource—people—efficiently and effectively to impact business results.”

Adds Uday Kulkarni, Senior Vice-president, Aptech, “There is an increased awareness relating to the need for corporate training in India. A certain shift is taking place from a generic to a specific and focussed training approach. As a result, there is a lot more planning and analysis going into evolving a training strategy. Human capital is recognised as the most important resource, and companies are therefore making efforts to hone it through training.”

On the other hand, Jitendra Nair, Vice-president, Karrox Technologies, believes that corporate IT training has still not been imbibed as a culture in most organisations. According to him, it is more need-based rather than a planned activity. The intensity in the approach is now changing with good companies dedicating IT training budgets for their IT and end-user staff. In India, corporate training markets are largely active in the re-skilling space. This is the area where participants are trained on newer technologies in order to enhance their productivity.”

Nasscom figures indicate that the IT corporate training market is expected to touch Rs 600 crore by 2010 from the current Rs 210 crore. Internationally, 80 percent of a training company’s revenue comes from corporate training. However, in the Indian market, the revenue figure could be 50 percent from retail training and the rest from the corporate segment.

He adds, “The prevailing thrust on public domain/retail training is primarily due to the disconnect in our academic approach where the latest technologies are not offered, thus making it necessary for job aspirants to get trained on their own in order to be job-worthy. Due to high competition in the job market space and high aspiration factors, our students generally have the culture of learning before they apply for jobs.”

Specialisation in training

Training in India is imparted at all levels—frontline, middle or senior management—of the organisation, but the emphasis is on the frontline staff and the senior management. Duggal states, “The training imparted to the frontline staff is skill-based. But the acute shortage of quality people at the senior level—the people who actually build and manage companies—has made investment in training and development an important tool for the management of the organisation.”

Nair is of the view that corporate training is largely happening on the software development, networking and IT security space at different levels. Specialisation training is gaining momentum, and hence delivery is task-oriented rather than theory and science-based, as was in the past. Rajeev Katyal, Senior Vice-president, Enterprise Learning Solutions, NIIT, believes that with the increased utilisation of IT in all sectors, intensive training has become essential. Both the government and private sectors are relying heavily on the training of their employees.

In-house vs. outsource

The kind of training requirement an organisation has determines whether the training is conducted in-house or is outsourced to a third party. Notes Duggal, “Training programmes that involve volume and are done on a consistent basis (like the voice-and-accent training imparted at BPOs) is generally done in-house. But an organisation usually involves a third party when there is need for a specialised training programme like a management development programme, role-based skill development programme or outbound programme.”

Corporate preference is generally towards organisations that have good experience in training corporate personnel. Training students and training professionals are different in terms of approach, methodology and delivery. Trainers have to be highly experienced with a track record of successful delivery.

Nair explains, “Training programmes are usually in-house where the client utilises his own environment and facilities, thereby giving him travelling and economic benefits. But some organisations outsource their entire training programmes to qualified and reputed training organisations after due diligence on their credentials, faculties, client references and experience in the business.”

According to Katyal, the choice between outsourcing and in-house training depends on the nature and need of the organisation. IT and BPO companies undertake a lot of in-house training, and depending on the kind of specialised training required, they outsource. Government sector companies mostly choose to outsource. Outsourcing offers the advantage of sourcing scarce talent and the ability to ramp up quickly, whereas in-house training offers greater control.

Formidable task

“The biggest challenge in corporate training is that it is never as per the books. Software training programmes are project-based, while networking or security training programmes are infrastructure-based. For this reason, customisation of content to suit their own infrastructure/project is highly challenging. The training delivery is customised using relevant in-house requirements as examples, and the training programme is ultimately a simulated environment of their business and infrastructure,” says Nair.

One of the other challenges is to find the best trainer for the module. Generally, corporate trainers are different from retail trainers in terms of experience, exposure, maturity, confidence and passion. Matching schedules and providing customised courseware for customised content is another operational challenge in this segment.

Katyal points out that the challenges which companies face while undertaking training programmes includes finding locations for training in remote areas and an experienced faculty.

Multiple gains

Training makes an organisation well-equipped to keep pace with the changing dynamics of business. Employees frequently develop a greater sense of self-worth, dignity and well-being as they become more valuable to the firm and to society. Generally, they receive a greater share of the material gains due to their increased productivity. These factors give them a sense of satisfaction through the achievement of personal and company goals.

Nair points out that IT-based training programmes enable participants to use software to its fullest potential, thereby cutting down time requirements and getting the best RoI on the company’s technology deployments. “Training as a culture also helps corporate HR retain their people. On the technology side, participants aspire for knowledge initiatives. Constant updation on technologies are at most times a good reason for people to stay longer in an organisation.”

He adds, “From a training company perspective, it’s a relationship-based marketing model and leads to a constant revenue model. It’s an effective B2B model for mature IT training companies, and in the process adds value to their clients and their own business. Even for their technical staff, it’s a new scale that they always aspire to reach as a technocrat.”

Who’s training whom
Company	Corporate Training Clients
NIS Sparta	Coca-Cola, IBM, Maruti, American Express, Thermax, Mahindra Finance, Accenture, APAC, Pantaloon, Godrej & Boyce
Aptech Training Solutions	Maruti Udyog, Electrolux Kelvinator, Dabur, Valvoline Cummins, Perfetti van Melle India, National Thermal Power Corporation, Gas Authority Of India, Delhi Police, Standard Chartered Bank, Indian Oil, Motorola India, ICICI, Bayer, Mahindra & Mahindra, Blue Star, HP, Onida
Karrox	Godrej Infotech, Times of India, Reliance Infocomm, Reliance Industries, Wipro Infotech, ABN Amro, Tata Consultancy Services, Seimens, Union Bank of India, Infosys, Cap Gemini, Global Telesystems, South Eastern Coal Fields, Persistent Technologies, State Bank of India, HCL, Indian Navy.

Varied approaches

The approach taken for any training programme depends on the client requirement based on the changing market scenario. It could be specific training enhancing one particular skill or it could be a holistic approach facilitating organisational development taken up to address needs in a competitive market scenario.

Katyal discusses, “The current requirement for corporate training is mostly related to IT. However, management training, especially at the supervisory level, is also seeing rising demand these days. One of the areas for consideration while designing training programmes is incorporating a session on soft skills. (For IT skills, there is enough material available.) The approach is need-based. This is followed by the appropriate mix of curriculum, faculty skills and infrastructure planning. Usage of right training methodology is essential.”

Nair adds that the current method being practised is to conduct a training-need analysis, and identify the people needing training in a variety of products. On such identification, the technical coordinator will finalise things like indicative schedules along with the proposed venue. Once the administrative aspects are completed, the technology implementation, that is, the delivery of training starts. In the case of a need-based approach, i.e. an urgent project deployment requiring some training, it’s always a holistic approach and is not process-oriented.

An evolving trend

The trend for corporate training is currently evolving in the country, and more and more organisations are opting for it. Katyal details, “The current scenario of corporate training looks promising in almost all sectors. With the government sector going in for capacity building, the rise in recruitment in the IT/BPO sector, and companies investing in IT, the need for corporate training is on the rise.”

Nair explains, “In the globalised environment where new products are hitting the market with great frequency and new technology deployments have become a business compulsion in order to enhance productivity and better turnaround time, training has become a crucial part of the technology deployment cycle.”

Concludes Kulkarni, “Corporates today have realised that self-development among employees lead to better RoI for the organisation. Training is essential to keep an organisation’s human capital fit and fine to enable it take on the best in the world—and then sculpt a world-class organisation