The Official Blog of Benifys HR Solutions

By outsourcing HR functions, a company can unleash its energy for its core areas of function

GOOGLE as a search engine provides an excellent common platform for personalised consumer experience, as individual users decide how to use it to suit their particular needs. Giving other similar examples, the top ranked thought leader in the world, CK Prahalad explains in his book The New Age of Innovation that unique personal experiences are permeating industries as diverse as toys, financial services, travel, hospitality, retailing and entertainment. He further says that no company has all the resources to create unique personalised experiences and flexible systems are a prerequisite and must be developed to access talent, components, products and services from the best source. In this context, he mentions outsourcing as one way to access low cost, high quality talent and explains that it should not be seen only as a means to reduce cost but also give personalised service.


In the book, the head of ICICI human resources function describes his job thus, “ICICI now faces a challenge in our aggressive growth and HR emerges as a strategic function in this increasingly competitive battle for talent. We run HR operations and recruitment as a production factory. We scan more than 3,50,000 applicants annually. We hold monthly recruitment planning meetings that resemble demand forecasting meetings by a manufacturer.” Considering the complexities involved, one wonders whether it is possible for all companies to manage HR operations of this magnitude in house. In a world where business suddenly grows astoundingly, not only recruitment but training and development of the staff along with compensation and performance management also have to be handled aptly. As people are supposed to be the most important resource and management of people involves a lot of subjectivity, any inefficiency in this area can prove to be disastrous. Can it not be done by outsourcing HR services?


Normally when one thinks of outsourcing, the BPO industry comes to mind. Apart from call centers, there are many companies which outsource financial accounting and legal services as well. HR outsourcing is relatively rare but has been taking fervent steps in recent times. One of the best companies to emerge in recent times is Benifys, which claims its mission to be “to provide value-based outsourced HR solutions, enabling client organisations to optimally deploy their people and fiscal resources by leveraging simplified, quality HR practices cost effectively.” The basic idea is that organisations should be able to outsource their activities to HR companies to enable them to focus their attention on their core competency and develop variable capacity or increased flexibility to meet changing business demands.


Bill Gates had said in an interview to Time magazine, “As a business manager, you need to take a hard look at your core competencies. Revisit the areas of your company that aren’t directly involved in those competencies, and consider whether web technologies can enable you to spin off those tasks. Let another company take over the management responsibilities for that work, and use modern communication technology to work closely with the people — now partners instead of employees are doing the work. In the web work style, employees can push the freedom the web provides to its limits.” Though this was said in the context of IT, it can be true for HR as well if the work is outsourced.


According to Benifys, the existing team in the client company might be working out fine, but there are no comparators to their performance, they operate on benchmarks that have been internally set, based on the limited knowledge of the HR function that most line managers possess. To enable dramatic growth for any organisation, and to have access to specialised expertise in each of the HR domains, a much larger team is required, which can work on a need basis, rather than add to the salary bill that’s probably already a large part of the client’s total expenses. The most important thing is that with outsourcing HR becomes a variable and not a fixed cost, which can impact profitability considerably, especially in adverse situations. For any client, costs are linked to their capability to pay. If the client company is growing, the probability is they are now able to allocate a larger portion to support services like HR. If they are shrinking, they would like the support services costs to come down as well. For recruitment, HR companies can help negotiate better rates, and put in place a vendor management practice that one might otherwise not have access to. They also have a pool of recruitment partners, and will be able to obtain better terms for recruitment requirements.
Where training and development is concerned, the expert trainers and content developers in an HRO company will understand the particular need for the client organisation and design customised training programmes to address the training requirements. Benifys has different methodologies for all scales of operations — start-ups, middle and large. For better effectiveness and efficiency there are many benefits like leveraging shared services, access to innovation and thought leadership, tighter control of budget through predictable costs, accurate and secure data flow etc.


In the words of the Benifys CEO, Ajay Chowdhury, “HRO need not remain restricted to transactional activities, even though that is already an established market in India, but needs to move into an end-to-end solution space, where the executive management of an organisation, specially in the SME space, can sit back and concentrate on what they do best — develop strong go-to-market and strengthen business processes. For larger organisations, there is obviously a need to outsource the transactional HR activities, and bank upon people like us to implement specialised projects, or customised L&D initiatives. Having successfully gone through the proof-of-concept stage, we’re on the verge of a big leap forward.”


One of the most well known corporate figures in recent times, former CEO of General Electric, Jack Welch had adopted a philosophy of getting out of all the businesses except those areas where the company could be first and second. Outsourcing to my mind is extending the same philosophy internally — get out of all the areas except where you are best, your core competency. Welch had a 70:70:70 rule. He has decided that 70 per cent of GE’s work will be outsourced. Out of this, 70 per cent will be done from offshore development centers. And out of this, about 70 per cent will have to be done here in India. One of the reasons of his stupendous success could have been his efficient outsourcing. Peter Drucker’s book Innovation and Entrepreneurship describes how the great Henri Ford’s empire began to crumble after James J Couzens, the man who used to look after all other management functions to enable Ford to focus on his engineering core competence, left the company. In his book The High Performance Entrepreneur, Subroto Bagchi, vice-chairman, MindTree Ltd, says, “Many times a startup fails when it tries to be too big too soon and does things which are not its core competence.” Bagchi is right. Outsourcing is actually in-resourcing; whether it is a start-up or otherwise, the shift in focus to core competence can unleash forces that can be one of the factors which can actually make the entire company a high performance entrepreneur.

This article is written by Hiren Shah and was published in the October issue of Management Compass.

EDT
April 29, 2009

With recession hitting the market, companies need to be more practical and strategic in their business process. Of late, companies have started realizing that HR recruitment, selection, retention etc., is quite a cumbersome process calling for high amount of time and resources and inflicting cost. Thus, they are warming up to the idea of outsourcing HR function to offshore firms. Multinational companies are saving millions of dollars by outsourcing HR. All cultural differences are addressed while streamlining the work.
Advantages associated with outsourcing the HR departments include:

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Great Reduction in Costs

HR outsourcing (HRO) converts fixed cost to variable cost and can produce quality performance in low cost. Companies have started realizing that offshoring HR department to low-cost areas will help in reducing cost while maintaining the quality of performance. Gradually, offshore outsourcing firm becomes an inbuilt function of the organization and the combined effect of their partnership further strengthens the process of the company.

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Simple Global Models

Outsourcing takes HR functions to a global scale. With entrance of global service providers in the market competition has become tough; however the service delivery model has become mature and highly satisfactory for global clients. Outsourcing helps in moving HR executives from local role to global. Few advantages of global engagements for HR are:

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• Expertise: HR Managers of varied expertise from all over the globe improves the recruitment process.
• Cost Effective: As stated earlier, hiring HR personnel from low-cost countries helps in providing same or better service at lower price.
• Workplace diversity: Globally functioning HR brings employees from across the globe and makes the work environment culturally more diverse.

In a tough competitive global market, the benefits of global HR model are too valuable for a company to miss.

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Best of Breed Solutions

With outsourcing talent hunt has become broad spectrum. Now finding the desired candidate satisfying all selection criteria is not the main area of focus, instead, best-of-bread approach is taken to find the leaders in the field.

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Risk Mitigation

Many a times companies faces crisis due to sudden loss of the key HR person. A tight labor market delays finding a suitable replacement. Hiring and training a new person for knowledge transfer becomes difficult and costly in recession. An outsourced HR engagement helps to almost terminate these problems. In HRO, hiring new replacements and training them are the responsibilities of the service provider, thus, ensuring a continued hassle-free service.

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Value Addition

Generally, in-house HR functions are primarily visualized as cost-centre; whereas, HRO models chiefly focus on strategies which would improve business and reduce cost. Unlike in-house HR personnel, outsourced HR team does not get caught up in internal issues and thus can concentrate on cost-reduction, talent acquisition, training and retention. This results in the following benefits:

• Increases process efficiency by concentrating on important issues.
• Increases flexibility of business and makes it more dynamic.
• Increases employee satisfaction and productivity.
• Increases the business network and help gain market access.
• Increases sales and business during recession.

In the current volatile market the need to focus on core business activities has become an absolute necessity. To cater to core activities, companies are opting to outsource non-core process like Human Resource management.
Like every process, outsourcing too has its own pros and cons. Few disadvantages of HR outsourcing are:

• It requires lots of coordination with the service provider.
• It reduces the scope of learning for an organization.
• It reduces the control over the support function thus affecting the integrity of the company.

To minimize these disadvantages organizations has to understand their ultimate motive of outsourcing. A clear vision of goal and transferring only the functions and not responsibilities will certainly prove to be fruitful in smooth outsourcing of HR functions. This is no cakewalk and requires a great deal of knowledge, planning, skill and commitment.