If a company wants to outsource HR function completely, it means it will be losing its strategic advantage in the long run - Madhavan Gopalachary.
The concept of business process outsourcing is fairly new, around a decade old. Large global corporations in view of high costs outsource many of their functions to external specialists. Initially, the outsourcing was mainly in non strategic and support areas. It was in ITES sector and CRM. HRO is also gaining a large momentum. However, more and more strategic functions are being outsourced of late. The question before most corporations is what to do themselves and what to outsource. Apart from that, they should also ensure that they retain their competitive advantage and market leadership. It is not an easy decision because one has to choose the right service provider.
The advantage of outsourcing is that the large corporations need not invest in the infrastructure. The second important factor is that high quality manpower is available at low costs in countries like India, Philippines etc., In the beginning stages of evolution of HRO, it was confined to pay roll processing and such clerical work. However, the entire HRD functions are being outsourced now. I am giving the following HRO deals as examples:
BoA signing a contract with Exult in October 2000 for a 10 year contract at $ 1 billion
Nortel Networks signing a deal with Pricewaterhouse Coopers in April 2000 and transferring its 1000 employees to PWC.
BP Amoco signing a deal with PWC for a 10 year contract valued at $ 1.1. billion for 10 years and transferring 1200 employees.
There are many more such deals of smaller values but very lucrative from the point of view of the service provider.
What are the advantages of outsourcing ?
It enables companies to access top level capabilities of specialists in the field.
It frees up in house resources for more strategic issues.
Eliminates building of expensive infrastructure to provide support.
Improves company focus on core issues facing it.
It reduces operating costs. If it doesn't, then it is not worth it at all. This is a fundamental premise for outsourcing.
It frees up financial resources.
Reduces risk.
What are the disadvantages of Outsourcing ?
Coordination becomes difficult as compared to in house control. A wrong selection could lead to disaster. Our research revels that this has led to major problems for most large corporations and some of them are ruing their decisions to outsource.
Quality and Service issues invariably arise. This is proven from our experience. This is more pronounced in areas where quality and service levels cannot be measured. What cannot be measured, cannot be evaluated.
Good Service providers may have a bargaining advantage and tie a company down to a long term contract and making exit difficult with a very high severance clause.
Costs of monitoring is high. Most corporations do not take this into account carefully and get their knickers in a twist.
Loss of control over key employees.
I would like to add here that it all depends on which way a company looks at HRM. Does the company look at it as a strategic function or a support function ?
The bottom-line is according to me HRM is a strategic function. Mr. Lee Iacocca said that people, products and profits are very important. However, he also said without people, the other two are of no use. If a company wants to outsource HR function completely, it means it will be losing its strategic advantage in the long run.
© Copyright, Jul 28-08 . Without prejudice. All rights reserved
Human Resources Outsourcing HRO - To learn more about this author, visit Madhavan T Gopalachary's Website.
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Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name
/mtg.html;
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
.
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