Value Added Services---Trends of HR Outsourcing in the Information Technology Sector

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1 Value Added Services---Trends of HR Outsourcing in the Information Technology Sector School of Management CBIT,HYD-75 ABSTRACT Modern organizations strive for the number one position in the era of global hyper competition. For this, the organizations need to concentrate on their core competencies and strategic business rather on wasting the time on the routine, repetitive administrative burden hampering the productivity. The study attempts to find out the facet of various dimensions behind human resources outsourcing process. The present study takes into account intrinsic and extrinsic factors affecting the HR outsourcing parameters of the selected organizations. The study is needed to gain information as to the factors that affect HR outsourcing process in the selected organizations of Information technology industries. The study will add to the existing information to find out the gaps between existing and new trends with respect to HR outsourcing. Thus, the study will facilitate the HR outsourcing a considerable option by many organizations in the future. KEYWORDS:HR outsourcing, core competencies, Information technology industry INTRODUCTION Outsourcing is simply getting work from the external sources, which is done previously inside the organization. If external organizations or business entities have specialized in an activity which is not strategically important to business-and is able to do it cost effectively, it is recommended to get it done outside specialists. Organizations get benefitted from excellent quality, reliable supply and cost effectiveness. Organizations can focus exclusively on the core competencies which can enhance their competitive advantage. Sourcing is the procurement of resources whether from internal or external sources to accomplish business objectives. Sourcing purely from the external sources is known as Outsourcing. Outsourcing is synonymous to global sourcing. In addition, the functions that are performed by the third party can be performed on-site or off-site. The most common model of outsourcing that is in the news today refers to jobs that are being sent overseas to countries like India or China. This is more commonly called off shoring. Examples include telephone call centers, tech-support and computer programming. Outsourcing is the process by which a company contracts another company to provide particular services. These services or functions would be otherwise performed in-house, by the company s own employees. Outsourcing is becoming more and more popular in today s business environment, and most companies outsource some function or other. Human resources outsourcing: Human Resource Outsourcing (HRO) is the process of transferring functions of an organization s human resources management functions or activities to a service provider external to the organization. Many organizations outsource all or some HR activities because they cannot afford to employ talented part-time or full time employees across all areas of the organization s operations. Other human resources activities being commonly outsourced include recruitment and selection, remuneration, industrial relations (IR), and occupational health and safety. However, the decision whether to outsource the HR functions or retain depends on the benefits and costs of HR outsourcing and centers around HR needs versus creating internal strengths. There are both advantages and disadvantages of outsourcing HR activities. The concept of outsourcing HR has been increasing, with many organizations choosing to outsource some or all of their HR activities. Human Resource outsourcing functions are categorized into three aspects: 1. Professional Employers Organization (PEO) 2. Application Service Provider (ASP) 3. Business Process Outsourcing (BPO) 129

2 Professional Employers Organization (PEO S)have a responsibility of managing a company s human resources, take charge of employee s legal issues and undertake basic human Resource functions as recruitment and selection including performance appraisal. In most cases professional employers organization form partnership with other suppliers. They concentrate on the human resource aspect of the business, the company on the other hand handles the other aspect. Sometimes because of the nature of human resource, the company may decide to enter into strategic alliance or joint venture to have some level of control over the human resource management. Within the context of human resource outsourcing, organizations specific needs, requirements and processes differ. An organization's human resources department is responsible for a variety of functions such as policy development and implementation, recruitment and selection.hr department conducts background checks of the employees, Human resource departments monitor employee payroll and tax filing as well as employee benefit and health administration. Human resources also manage legal compliance, maintain files and records monitor performance management systems and oversee training and development. Human resources department also handles employee assistance and counseling process, employment relocation process, grievances handling and expatriate administration. The world is interconnected in all major respects. People, goods information and capital are exchanged around the globe at a rapid pace. The trade barriers among the nations have disappeared and the world has become a borderless market place because of the advent of multinational enterprises. Adapting to the requirements of global markets, the human resource managers in the organizations have more complicated roles to play that is, to align with changes in the domestic as well as global economies-keeping in track of the global changes and competition. In the era of hyper global competition the human resource managers of the organizations has to play key and challenging roles to create a competitive advantage for the organization through good HR practices. Research methodology: The research starts with four topics: Which objectives to be studied, what information is relevant, what type of data is to be collected and how to analyze the results. A diligent, systematic, patient study and meticulous research is done to establish the facts and to get the accurate findings. This research utilizes acceptable structured methodology to study the set objectives and gain new insights into various areas.scientific methods consists of systematic observation, classification and interpretation of data to find out cause and effect relations. The type of this research is initially descriptive in nature i.e. being focused on what is happening. Then it leads to exploratory type of research design which has its primary objective of provision of insights into and comprehension of the problem situation confronting the researcher. The research process is flexible and unstructured in order to deeply explore the research problem to its grass root level. This is also qualitative research, which is carried out in unstructured methodology based on small samples that provides insights and preliminary understanding of the problem setting. Formulating the research problem to find out that after a prolonged study observation, discussion and interaction with experts, the researcher has identified HR Outsourcing has become very important phenomenon in the corporate environment. Defining the problem is the consequence of the efforts of made by the researcher in a systematic manner? Further, the selection of the broader problem of the research problem is formulated into: IT Industry-IT HR managers and employees Pharma Industry-Pharma HR managers and Pharma employees. It makes the researcher more interested to find out that subjective factors of HR outsourcing in IT Companies and Pharma companies had the differential impact on the individual employees and the organizations. The effect of HR outsourcing functions in both the industries depends upon the nature of various affecting factors in both the industries. Finally, the research problem was formulated on the basis of practical observation of the contemporary issues in Pharma industry and the IT Industry because of their present relevance. 130

3 Sample size Employees and HR Managers of IT industries located in Hyderabad and Secunderabad are taken as sample size. SAMPLE DESCRIPTION Type Frequency Percent IT Employees IT HR Managers Sources of data:- Primary data was collected from IT employees and managers, through structured questionnaire method, followed by interviews and interactions with employees and HR Managers in both the selected industries. Complete information about the organizations is not furnished because of the confidentiality matters. Secondary data was collected from textbooks, journals, magazines, periodicals, and websites. Sampling technique: Simple Random Sample is the most effective method used to collect data from the respondents of the two select industries. Use of statistical tools: The nature of the study is descriptive where the universe and population is workforce of Pharma and IT industries from Hyderabad city. The samples are collected from both employees and human resources managers. The sampling technique used is convenient sampling. The instrument used for obtaining the data is a structured questionnaire. The sample size of employees for Pharma and IT are 170 and 150 respectively. The sample size of managers for Pharma and IT are 16 and 26 respectively. The scaling technique used for the sample variables is likert scale ranging from 1 to 5 points. Period of study is The statistical techniques and tool used in the study are KMO Bartlett test, Scale reliability testing, factor analysis, mean, standard deviation, correlation, t-test and ANOVA test and software used is IBM SPSSv 20. Research Objectives 1.To explore the possible benefits of HR outsourcing in the IT Industry. Ha : There are no possible benefits of HR outsourcing in the selected industries. H0 a : There are identified possible benefits of HR outsourcing in the selected industries. Scope of the study The scope of the study is confined to the IT industries in Hyderabad and Secunderabad. Limitations of the study: 1. The research is confined to Hyderabad and secunderabad only. 2. The sample size is 170 Employees (IT=170 ) Managers=16 3. Direct access with the respondents was restricted and possible Interview method was not possible. Access to the complete information was not possible because of the confidentiality maintained by the respondents in disclosing the information. Benefits of HR outsourcing to the employees: The opinion of the HR Managers in IT Industry revealed that there are more benefits derived from HR outsourcing from the employee perspective. 131

4 Benefits of HR outsourcing to the organization: There is no significant difference of opinion in terms of HR outsourcing in the select industry of IT. KMO and Bartlett's Test for IT industry Kaiser-Meyer-Olkin Measure of Sampling Adequacy..740 Bartlett's Test of Sphericity Approx. Chi-Square df 28 Sig..000 Source: Compiled questionnaire data using IBMSPSSv20 Benefits considered are :Cost effectiveness, improve HR effectiveness, increase profits, relieving administration burden, eliminating time consuming and routine functions and Increase employee productivity. Ho: There is no significant amount of benefits of HR outsourcing in IT industries with respect to cost effectiveness, improve HR effectiveness, increase profits, relieving administration burden, eliminating time consuming and routine functions and Increase employee productivity. Ha:There is a significant amount of benefits of HR outsourcing in IT industry with respect to cost effectiveness, Improve HR effectiveness, increase profits, relieving administration burden, eliminating time consuming and routine functions and increase employee productivity. To test the above hypotheses, the ANOVA-test is applied and the results were furnished in the. From the table it has been observed that the given f value and p-values for the above said eight areas of benefits in the overall organizational perspective are, 3.16 and 0.08, 2 and 0.16, 0.27 and 0.6, 0.69 and 0.41, 1.41 and 0.24 and 0.52 and Here the p-values for six variables are more than 0.05 which means that the null hypotheses have been accepted and alternate hypotheses is rejected. Therefore, it can be concluded that there is no significant amount of benefits out of HR outsourcing in IT industry. f and p-value of benefits of HR outsourcing inthe IT industry Sum of Squares df Mean Square F p-value Time Saving Cost effectiveness Minimize employment risks Improve effectiveness HR Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total

5 Increase profits Relieving administration burdens Eliminating consuming functions Increase productivity time Routine employee Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total Benefits of HR outsourcing to the employees: The opinion of the HR Managers in IT Industry revealed that there are more benefits derived from HR outsourcing from the employee perspective. There is a significant difference of opinion of HR managers in terms of outsourcing benefits between two select industries with respect to cost effectiveness, minimize employment risks,improve HR efficiencies and relieving administrative burden. Findings and Recommendations The findings of the study can be discussed into two dimensions namely; employee perspective as well as managers perspective in the IT industry. The findings of each perspective could capture the current dynamic and project the future trends in the numerous facets of HR outsourcing of the select industries. These findings would remain as inputs and instrumental in formulating the future HR outsourcing policy and also in revising the existing HR outsourcing policy. From factor analysis it is found that variables considered like stream line HR functions, utilize precise HR functions, economical and reduce operating costs and avoids risk of major investments are mostly influencing the HR outsourcing of IT industry. Four variables like improve compliance, avoids legal risks, use vendor talent and expertise and focus on core competency are moderately influencing the HR outsourcing of IT industry. REVIEW OF LITERATURE David W. Conklin 14 (2005), have expressed varied of opinions about the risks and rewards of outsourcing companies' human resource activities, including the entire business process. This research paper takes into account very preliminary cases of human resources outsourcing. Human resources departments can always be the strategic influencer of change management in the organizations. The managers can always take into account the earlier lessons when outsourcing human resources functions. Jean M. Hiltrop Per V. Jenster, Herna Martens 15 (2001),in the twentieth century organizations grew rapidly which gave ample scope for career opportunities Advent of globalization made many organizations to go for cost cutting and outsourcing non core activities to the specialist vendors. Speed and flexibility dominate the organizational functioning. Organisations are reducing number of full time employees. As the markets are becoming supply driven, organizations are finding hard times in employing permanent and full time staff, they are more depending on contractual or the part time staff. Peter Brown 16 (2010) reveals how a business can create high performance workforce who become a competitive advantage and who can t be replaced. Research reveals that human resources is not too simple nor too complicated to outsource.human resource functions has to aligned with business strategy, to support 133

6 the achievement of goals with the available infrastructure. and costs have to be reduced. Outsourcing can play a strategic role to help the organization to achieve their goals. Dr. Bharat Vagadia 17 (2012) found out that outsourcing industry is relatively new, which made an impact on the world scene two decades ago, it has gone through a dramatic evolutionary changes..organizations have drifted from transactional outsourcing to strategic outsourcing to the stage of transformational outsourcing. and to the stage of innovative outsourcing. The research focuses on the revolutionary journey from one stage to another in the outsourcing scenario. It deals in various types of outsourcing like of travel and logistics outsourcing, Finance and accounting outsourcing, human Resource outsourcing and the recent emergence of knowledge process and legal outsourcing. Braun, Irene; Pull, Kerstin; Alewell, Dorothea; Störmer, Susi; Thommes, Kirsten 18.(2011) The study substantiated that human resources service quality is being generally higher when procured from an external service provider. Moreover, the relationship between human resources outsourcing and service quality is stronger if the provided services are complex and if the organization can t monitor the internal system properly. Andrew, Brian 19 (2012), studied on how human resources outsourcing allows human resources and payroll department to achieve cost savings. The research states that a public sector human resourcing solution reduces capital expenditures for state governments. It was observed that such approach also holds potential in improving manager-employee relationships. The study revealed that that human resources outsourcing can also provide better risk assessment and management. Reichel, Astrid; Lazarova, Mila 20 (2013) examines how outsourcing and devolvement of human resources activities influence the strategic position of human resources departments.their studies suggest that the strategic position of human resources departments is negatively influenced by devolvement to line management and positively influenced by outsourcing of noncore HR tasks. It was found that there was no significant effect of outsourcing on core HR activity. Ee, Elaine; Halim, Hasliza Abdul; Ramayah, Thurasamy 21 (2013), this research examines the relationship between partnership quality variables such as business understanding, trust, commitment, communication and the success of human resources outsourcing. The analyses also show that partnership quality variables such as trust, business understanding and communication have significant positive impact on human resources outsourcing. Therefore, by understanding the relationship with the service providers, the organizations are able to achieve outsourcing success by identifying areas of expected benefits and improvements. Rita Fontinha; Maria José Chambel;Nele De Cuyper 22 (2012) (IT)found out that workers establish two different employment relationships: one with the outsourcing company that hires them and another with the client organization where they work daily. The attitudes that an employee has towards both organisations may be influenced by the interpretations that employees make about the reasons behind the human resource (HR) management practices implemented by the outsourcing company. This study aims to propose that commitment-focused human resources attributions are positively and control-focused Human resources attributions are negatively related to the affective commitment to the client organization, The study also found that the relationship between human resources attributions and the commitment to the client organization is mediated by the commitment to the outsourcing company. Karthikeyan, Shobana; Bhagat, Manju; Kannan 23 (2012) studied on what to outsource and found out that the core activities have to be retained in house and non core activities has to be outsourced.their study also presents five decision criteria which helps organizations differentiate core processes from the non-core ones: 1. Tacit Knowledge 2. Core-related Specificity 3. Strategic Criticality 4.Social Complexity and 5.Causal. Delmotte, Jeroen; Sels, Luc 24 (2008), observed in their research that organizations with a strong focus on human resources cost-cutting do not outsource more than organizations with a weaker focus on human resources cost-cutting. The analyses show a positive relationship between a strong focus on strategic human resource management (SHRM)) and the level of human resources outsourcing. 134

7 Caruth, Donald L.; Pane Haden, Stephanie S.; Caruth, Gail D. 25 (2013), identify some of the key elements necessary for successful outsourcing. For outsourcing of human resource management activities, companies must understand what can be outsourced as well as what cannot be outsourced. McCracken, Martin; McIvor, Ronan 26 (2013) reports on the experiences of a public sector organisation that established an outsourced human resources shared services arrangement. The outcome of the study revealed that the organization benefits from using external vendors to provide human resources shared services arrangements, to truly facilitate the achievement of a human resources function, which makes a strategic contribution to the organization. Fontinha, RitaChambel, Maria JoséDeCuyper, Nele 27 (2012) Outsourced information technology (IT) workers establish two different employment relationships: one with the outsourcing company that hires them and another with the client organization where they work daily.this research aims to prove that commitmentfocused HR attributions are positively and control-focused.human resources attributions are negatively related to the affective commitment to the client organization, through the affective commitment to the outsourcing. The study revealed that the relationship between HR attributions and the commitment to the client organization is influenced by the commitment to the outsourcing company. Falling in line with the global markets, the human resources managers in the organizations have more complicated roles to play that is, to align with changes in the domestic as well as global economies-keeping in track of the global changes and competition. In the era of hyper global competition the human resources managers of the organizations has to play challenging roles and create a competitive advantage for the organization through HR good practices. CONCLUSION With high degree of attrition rates in the the organizations, a vibrant human resources can be a key differentiator between underperforming and high performing organizations. The shifts in globalization and international business have been at an increasing pace after 1990 s.the external environment factors have been contributing significantly for the remarkable changes in the global business. Human resources outsourcing is changing the way human resources departments operate Technology makes it easy to outsource human resources activities to specialist service providers, by allowing the service providers real time internet based access to the employers human resource information database. Companies are outsourcing more human resources functions because the transactional functions could be handed over to an expert service provider This option is considered so that the company can concentrate on the strategic acquisition, motivation and retention of talent which is more required for business success. REFERENCES Dutta, S. (2005). HR outsourcing: The emerging trend. ICMR Case Studies and Management Resource. Retrieved December 1, 2007, from Edgell, J., Meister, G.E. & Stamp, N. (2008). Global sourcing trends in Strategic Outsourcing: an International Journal, 1(2), Elmuti, D. (2003). The Perceived impact of outsourcing on organisational performance. American Journal of Business, 18(2), Enlow, S. and Ertel, D. (2006). Achieving Outsourcing Success: Effective Relationship Management. Compensation Benefits Review, 38(3), Elmuti, D. (2003). The Perceived impact of outsourcing on organisational performance. American Journal of Business, 18(2), Fiorito, J., Bozeman, D.P., Young, A. and Meurs, J.A. (2007). Organisational Commitment, Human Resource Practices, and Organizational Characteristics. Journal of Management Issues, 19(2) Fitzpatrick.W.M. and Dilullo, S.A. (2007). Outsourcing and the personnel paradox. S.A.M. Advanced Management Journal, 72(3), Franceschini, F. Galetto, M., Pignatelli, A. and Varetto.M. (2003). Outsourcing: Guidelines for a structured approach. Benchmarking 10(3),

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