rp richa misra
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RESEARCH REPORT ON HR OUTSOURCING
A report submitted to Delhi Business School, New Delhi as a part fulfillment MBA and PGP
in entrepreneurship and business.
Punjab Technical University
( Session 2008-2010 )
SUBMITTED TO: SUBMITTED BY:
Mr. Senior Ramesh chandra Name : Richa Mishra
Roll no : DBS/08-10/S-16
Specialization : HR/MKT
B-11/58 M.C.I.E., Mathura Road, New Delhi
Website:www.dbs.edu.in
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DECLARATION
This is to certify that the Research Report entitled Human Resource
Outsourcing being submitted by fulfillment of the requirement MBA
course (2008-2010), I hereby declare that whatever information given by me in
this report is true to my knowledge.
NAME: RICHA MISHRA
ROLL NO: DBS/08-10/S-160
MBA 4th
SEM
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ACKNOWLEDGEMENT
Concentration, dedication, hard work and application are essential but not the
factors to achieve the desired goal. These must be supplemented by proper
guidance, assistance and co-operation of people to make it a success.
I express my heartiest gratitude to Mr. SeniorRamesh Chandra for his valuable
guidance and support at time by which research report has been successfully
completed at time.
Also extend my heartfelt thanks to many people who helped and supported me
during the writing of this Project.
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TABLE OF CONTENT
Chapter Title
I Introduction
II Objective of the Research
III Present scenario in India
IV Outsourcing In India- Emerging Trends, And Challenges
V Advantages & Disadvantages Of HR Outsourcing
VI Research Methodology
VII Data Interpretation
VIII Conclusion and Suggestions
Appendix
(i) Questionnaire
Bibliography
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CHAPTER I
INTRODUCTION
What Is Outsourcing?
In a nutshell, outsourcing is an accepted management tool for restructuring and
refocusing the way an organization does business. It challenges management to
build a more flexible organization centered on the core competencies of the
business. The organization is making a decision to send certain parts of the
business out to a provider whose "core competency" is that part of the business.
HR outsourcing (HRO) is the application of different business models and
techniques to new forms of activities - or processes and radically redesigning
them to create outputs of value for end users such as customer.
The outsourcing of HR processes emerged in the late 1990s, pioneered by firms
specializing primarily in IT outsourcing in the US such as ACS, EDS and
Accenture. Many transactional HR processes are outsourced and are increasingly
associated with electronic delivery - or 'e-HR'. Much day-to-day HR administration
can now be transferred to third party providers. Payroll and benefits is widely
outsourced with organizations benefiting from economies of scale and powerful
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Enterprise Resource Planning (ERP) solutions. Competition among HRO providers
has dramatically reduced prices.
Other advantages for clients include:
Cost Reductions
Service Improvements
Upgrading Technology
Being better able to respond to business change.
What is HR Outsourcing?
Human resources are the most critical assets of any
organization as the organization's success lies in
their hands. But in order to ensure that its
employees remain satisfied, company has to have a
specialized human resources department that most
of times proves to be a costly affair. That is why
most companies today; decide to outsource their
human resources management functions to offshore
destinations.
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HR outsourcing is a process in which a company uses the services of a third party
to take care of its HR functions. A company may outsource a few or all of its HR
related activities to a single or combination of service provides located in offshore
destinations like India, China, Philippines, etc.
In this sense the HR outsourcing service providing firms or hr outsourcing
company can be divided into four categories depending on the services they offer
as, PEOs (professional employer organization), BPOs (business process
organization), ASPs (application service providers), or e-services. In these
categories the PEOs are the ones that assume full responsibility of a company's hr
functions where as others such a BPOs, ASPs and e services provide web based hr
solutions like database maintenance, HR data warehousing, maintaining records,
developing and maintaining hr software's etc.
Types of HR Outsourcing
In the past, HR outsourcing was thought of as hiring a vendor to provide a service.
With the new focus on outsourcing, there is more of an opportunity to partner with
the vendor to provide the service on a longer term basis rather than just a one-time
vendor contract. HR outsourcing can include:
Discrete services: In this instance, one element of a business process or a single
set of high-volume repetitive functions is outsourced to a third-party administrator.
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Examples of discrete services could include the annual open enrolment process,
flexible spending accounts or employee background checks.
Multi-process services: The complete outsourcing of one or more functional
human resource processes would be an example of multi-process outsourcing (also
called blended services). As such, the outsourcing of either health and welfare
benefits administration or defined retirement plan and 401(k) plan administration
to a third-party administrator would be an example of multi-process or blended
services outsourcing.
Total HR outsourcing: Total HR outsourcing represents the transfer of the
majority of HR services to a third party, to include recruitment, payroll, HRIS,
benefits, compensation and communications, as well as the transition of HR
management and staff. However, HR executive management would normally
remain in place within the organization, along with strategic planning related to
people management and other key HR functions at the discretion of management.
Whatever the company's human resources requirements, there's an HR outsourcing
firm out there to meet those needs. Some HR outsourcing firms are generalists,
offering a wide variety of services, while others are specialists, focusing on
specific areas such as payroll or recruiting. Depending on the size of your business
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and how much control you want tomaintain over HR functions, you can either
outsource all your HR tasks or contract for services.
The basic services offered by HR outsourcing firms may include:
Overseeing organizational str9ucture and staffing requirements
Recruiting, training, and development
Tracking department objectives, goals, and strategies
Employee and manager training
Benefits administration
Employee orientation programs
Businesses that outsource HR are typically small-to-
midsize firms with between 25 and 1,500 employees.
These businesses view HR outsourcing as a strategic tool
that relieves them of HR responsibilities and enables
them to focus on what they do best. In addition to
allowing you to concentrate on your core business activities, outsourcing provides
some key benefits, including:
Providing you with skilled professionals who are focused specifically on
HR
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human resource functions without having to resort to employing personnel for an
in-house HR staff.
There are a lot of benefits that businesses can gain from outsourcing HR tasks. One
of the most appealing benefits is the ability of a company to focus on their core
business activities while still having effective HR policies.
Is HR Outsourcing For Everybody
Given that HR outsourcing is beneficial, unfortunately it is not for everybody.
There are pros and cons in outsourcing and it all depends on the situation of a
company. To better assess whether HR outsourcing is right here is a guide:
1) Do you feel comfortable letting other people (outside of the company) take care
of the HR functions?
There are people who just cant trust outsiders to
handle any of the companys functions most often
because of trust issues. This kind of thinking however
is very much acceptable since it is possible that there
are firms that take advantage of their position.
2) Does the company have enough resources to take care of HR functions?
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If a company has the ability to handle their own HR functions, then there is no
need to outsource. This is most especially true in big companies. But if you lack
the resources and HR representatives to do the job effectively, then you may opt to
go for HR outsourcing.
3) Which is more costly?
It should be evaluated whether outsourcing is more cost-effective than having
your own staff for the HR functions. It is true that HR outsourcing usually costs
less but there are some situations wherein this is not the case.
How To Choose An HR Firm
When choosing an HR firm, you may want to consider these following criteria:
We need to know the firms offered services.
We need to know the level of expertise it has in terms of your line
of business.
We should assess the firms general HR experience.
There is a need to know there available resources
And last but not the least; we need to be informed how flexible the
contracts are.
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An HR firm whether outsourced or in-house is considered as an extension of the
company so you need to have one that fits your image. An HR firm specializing in
law firms and financial institutions may not match the new business. It is possible
that it will not be able to know and understand your needs.
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CHAPTER II
Objective of the research
The objective of this research is to formulate a picture of
current trends in outsourcing in HR services prevalent in
Indian firms. The research aims to discern common
factors.
promoting or inhibiting the growth of HR outsourcing industry in India.
Also, the data collected will help in finding parameters which are most common in
terms of HR outsourcing.
The study will throw light on the various aspects like the trends, challenges,
benefits and other issues like process and vendor selection criteria used related to
HR outsourcing in the context of the Indian industry.
Some other objectives are:
To have a clear vision of what outsourcing should achieve.
To understand the scope of the services to be outsourced.
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To determine the problems/issues faced by the organization and its
employees while implementing HR outsourcing.
To study the reasons why employees feel insecure with the concept of
outsourcing.
To identify the problem that why organizations are still not achieving the
full economies of scale that HRO is capable of delivering.
To analyze the current state of HR Outsourcing in Industries.
To study the trends of HR outsourcing prevailing in the Indian industry.
To find out the various benefits being derived out of HR outsourcing by the
Indian companies.
To study the impact of HR outsourcing on the internal customers in the
Indian companies.
To study the criterion used by the Indian companies in selecting the vendor
for outsourcing their HR processes.
To study the criterion used by the Indian companies in selection of the HR
process to be outsourced.
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CHAPTER III
Present scenario in India
With more and more companies looking to rationalise employees on their payroll,
manpower outsourcing is slowly becoming the new buzz in India too. And the
trend seems to have hit not just big multinational companies but the public sector
and government undertakings as well, though on a very low key yet in the latter.
Experts, however, say though foreign companies are outsourcing jobs to India,
putting the country in the middle of outsourcing boom, the Indian companies do
not seem to be enamored by the opportunity till now and are not adopting HR
outsourcing practices in a big way.
"HR outsourcing in India has not seen the required momentum and is limited to a
trickle effect, with companies outsourcing a few selected low-end HR processes,"
says Anil Mahajan, executive director, Talent Hunt Pvt Ltd, a leading HR firm in
New Delhi.
A recent survey 'Outsourcing in the Asia-Pacific', conducted by Hewitt Associates,
a global HR outsourcing and consulting firm, confirms the situation. The survey
showed that many companies in the region are either unfamiliar with the process
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and procedures of HR outsourcing, or are unaware of the players operating in the
area.
"Even though across the globe companies are realising that headcount is directly
related to the revenue and are outsourcing most of their transaction and
administration related work, the general opinion among the Indian companies is
that it is still economical to manage all their HR process internally. Here people are
also not very clear about what exactly is manpower outsourcing all about
The Head Hunter, a recruiting firm in Bangalore, says, "It is a process of
outsourcing involving particular tasks like recruitment, making payroll, training
and development to a third party who have expertise in these respective fields. HR
outsourcing can happen in areas such as payroll, employee benefits administration,
fixed assets administration, network, receivable and logistics management,
hardware maintenance, telemarketing, call centres and database management. In
India, the most common processes outsourced are related to training payroll
processing, surveys, benchmark studies and statutory compliance.
One very important trend in the recent times has been the growth of human
resource outsourcing. HR outsourcing is the outsourcing of peripheral but
necessary administrative tasks such as payroll, benefits, education/training,
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recruiting personnel, administration, to realize economies of scale and achieve
standardization of services.
Rapidly changing market dynamics and global competitive pressures have caused
organizations to spend more time focusing on their core business. Organizations
are fast realizing that they can't be all things to all people. So companies now, be it
a software company, a service provider or a manufacturing firm, decide what they
are good at and outsource everything else, i.e., focus on their core competency, and
let someone else do the rest in a more efficient and cost-effective manner.
As a result, human resources outsourcing is becoming increasingly prevalent. The
number of companies outsourcing HR activities continues to rise, and the scope of
outsourced HR activities continues to expand. HR outsourcing can happen in HR
functions, like payroll administration (producing checks, handling taxes, dealing
with sick-time and vacations), employee benefits (Health, Medical, Life insurance,
Cafeteria, etc), human resource management (hiring and firing, background
interviews, exit interviews and wage reviews), risk management, etc. Outsourcing
has become a common response to manage people and technology resources
strategically, enhance services, and manage costs more effectively.
Outsourcing noncore activities allows HR professionals to move away from
routine administration to a more strategic role. The organization can focus on
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higher value-added activities while the outsourcing provider takes care of the day-
to-day administration. Critical internal resources, such as technology and talent,
can be devoted to company's core business.
Outsourcing reduces the need for large capital expenditures in noncore functions.
Thus, outsourcing becomes a strategy for reducing the capital intensity of the
business. This strategy has gained popularity as companies aim to become more
nimble and gain the speed and flexibility necessary to compete in today's business
environment. A growing number of executives understand the benefits it can bring
in terms of not only cost savings, but also heightened strategic focus. Many
recognize outsourcing relationships as long-term partnerships created to further the
strategic goals of the organization.
The HR outsourcing business opportunity is large and India is likely to garner a
larger and larger piece of this pie in the future. India, with its intrinsic advantages
such as low cost, ready pool of English speaking manpower and geographic
positioning, is emerging as a viable destination for HR outsourcing companies to
set up their businesses.
But still here people are not very clear about what exactly is manpower
outsourcing all about, and issues like quality and trust needs to be addressed
properly.
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Organizations are still not achieving the full economies of scale that HRO is
capable of delivering. The promise of outsourcing has always been the ability to
spread processing costs, as well as the cost of service and HR technology
improvements, across multiple clients. But the inability (or unwillingness) of
companies to agree upon common standards has kept vendors from achieving
service improvements and cost savings to the detriment of their clients and
themselves.
Companies can experience disappointment with system capabilities and
performance after HRO deals is implemented- Dissatisfaction with vendor
performance usually results from vendors overpromising what they can deliver or
stretching their resources across competing projects. Before committing to an
outsourcing agreement, an organization should assess a vendor's capabilities
against its own business objectives. Vendors, too, need to be more realistic about
what they can deliver. If both sides aren't realistic about what can be achieved,
outsourcing providers will continually struggle to meet their clients' needs and
organizations will be continually frustrated with outcomes
. Experts say the basic reasons hampering the growth of HR outsourcing in India
are confidentiality and cost factors. Moreover, the fear of losing jobs, losing
control over confidential data, ethics and quality of outsourcing vendors, security
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breaches and overall confidence in the vendors deters many organizations. Quality
at times forms another roadblock.
The biggest problem - and this is why the HR outsourcing industry in India is on
the back foot - is the government and the industry's failure to tackle issues like data
security and data privacy. This is where Indian HR outsourcing companies face a
major handicap. The Indian government is still grappling with drafting a data
protection law designed to quell growing privacy concerns from their offshore
clients.
Right now, India is barely skimming the surface of the HR outsourcing market
potential. Indian life Hewitt (ILH), FIDELITY, EXULT and MAFOI are some of
the prominent HR outsourcing services providers in India and the clients include
giants of manufacturing, software and service industries like GE Capital, Ford
Motors, Hyundai Motors, Satyam Group, Infosys, Enron, Haldia Petrochemicals
and HSBC, to name a few, but many more needs to be added to that list. HR
outsourcing has a huge potential for employment also.
One very important trend in the recent times has been the growth of human
resource outsourcing. HR outsourcing is the outsourcing of peripheral but
necessary administrative tasks such as payroll, benefits, education/training,
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recruiting personnel, administration, to realize economies of scale and achieve
standardization of services.
Rapidly changing market dynamics and global competitive pressures have caused
organizations to spend more time focusing on their core business. Organizations
are fast realizing that they can't be all things to all people. So companies now, be it
a software company, a service provider or a manufacturing firm, decide what they
are good at and outsource everything else, i.e., focus on their core competency, and
let someone else do the rest in a more efficient and cost-effective manner.
As a result, human resources outsourcing is becoming increasingly prevalent. The
number of companies outsourcing HR activities continues to rise, and the scope of
outsourced HR activities continues to expand. HR outsourcing can happen in HR
functions, like payroll administration (producing checks, handling taxes, dealing
with sick-time and vacations), employee benefits (Health, Medical, Life insurance,
Cafeteria, etc), human resource management (hiring and firing, background
interviews, exit interviews and wage reviews), risk management, etc. Outsourcing
has become a common response to manage people and technology resources
strategically, enhance services, and manage costs more effectively.
Outsourcing noncore activities allows HR professionals to move away from
routine administration to a more strategic role. The organization can focus on
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higher value-added activities while the outsourcing provider takes care of the day-
to-day administration. Critical internal resources, such as technology and talent,
can be devoted to company's core business. Outsourcing reduces the need for large
capital expenditures in noncore functions.
The HR outsourcing business opportunity is large and India is likely to garner a
larger and larger piece of this pie in the future. India, with its intrinsic advantages
such as low cost, ready pool of English speaking manpower and geographic
positioning, is emerging as a viable destination for HR outsourcing companies to
set up their businesses.
But still here people are not very clear about what exactly is manpower
outsourcing all about, and issues like quality and trust needs to be addressed
properly. Experts say the basic reasons hampering the growth of HR outsourcing in
India are confidentiality and cost factors. Moreover, the fear of losing jobs, losing
control over confidential data, ethics and quality of outsourcing vendors, security
breaches and overall confidence in the vendors deters many organizations. The
biggest problem - and this is why the HR outsourcing industry in India is on the
back foot - is the government and the industry's failure to tackle issues like data
security and data privacy. This is where Indian HR outsourcing companies face a
major handicap. The Indian government is still grappling with drafting a data
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protection law designed to quell growing privacy concerns from their offshore
clients.
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CHAPTER IV
Outsourcing In India- Emerging Trends, And Challenges
Outsourcing is nothing, but purchasing service from an outside vendor rather
than using internal resources. The beginning of new millennium is witnessing
info-tech revolution called IT enabled services. They are business process and
services delivered over networks or the Internet to a wide range of business areas
and verticals. The technology is used as a tool to provide these services, of which
most of the functions are human intensive. Due to the human intensive nature these
processes and services are outsourced in order to derive cost and advantage
without sacrificing quality and efficiency.
In recent years, businesses have outsourced their data centers, application
management activities and, finally, non-core, transactional processes to reduce
costs and improve their ability to focus on more strategic issues. Today, companies
are recognizing that they need to take advantage of low cost sourcing options
wherever they may be in the world. Many are flocking to foreign shores for high-
quality, cost-effective outsourcing services. While India is the reigning offshore
capital for technology capabilities, any country with the right conditions, including
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but not limited to a large population of skilled workers with the requisite language
skills, is a potential sourcing option.
Now, thanks in part to the economic benefits of offshore sourcing options, the field
of business process outsourcing (BPO) has emerged, allowing a company to
outsource an entire process or business functionsuch as Human Resources,
Training, Call Centers and Finance & Accountingto a third-party service
provider. Utilizing global sourcing, companies can outsource many business
processes for a fraction of the cost of running the same functions in their home
countries. In addition to cost savings, companies can benefit from efficient, high-
quality and repeatable processes that generate business performance
improvements.
India is a country, of which, the BPO is making waves in the Industrial landscape.
It is one of the most upcoming sectors after the IT boom. Now the country
gradually turned itself into a hub center of IT and ITES. However each and every
country desires to outsource from India. The BPO sector contributed in the overall
growth of export, employment generation, transport, catering, training, which in
turn are generating substantial tax revenue.
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OUTSOURCING - RECENT TRENDS AND OPPORTUNITIES
Outsourcing is the delegation of tasks or jobs from internal production to external
entity (such as a subcontractor). Most recently, it has come to mean to avoid of
native staff to staff overseas, where expenses are markedly lower. This is despite
the fact that the majority of outsourcing that occurs today still occurs within
country boundaries, especially in North America. It has become a popular
buzzword in business and management in the 1990s.
Where functions previously performed by an organization are supplied under
contract from a third party.
The concept of taking internal company functions and paying an outside
firm to handle them. Outsourcing is done to save money, improve quality, or
free company resources for other activities. Outsourcing was first done in
the data- processing industry and has spread to areas, including tele
messaging and call centers.
A Long term, results-oriented relationship with an external service provider
for activities traditionally performed within the company. Outsourcing
usually applies to a complete business process. It implies a degree of
management control and risk on the part of the provider.
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Why are companies outsourcing?
One of the big advantages to outsourcing is flexibility- it can be a lot easier to cut
back on a vendor than an employee. (Think
of how you would feel if you had to sell an
employee who is dependent on their job that
you only need them half- time now).
Another advantage is that you dont have to
become an expert in every particular area.
You can depend on the outsourced company
to be the expert.
Perhaps the most positive thing about outsourcing is its ability to save money. This
will, of course, depend on the size of your company and what specific tasks you
outsource, but in general, in terms of money saving.
For example: A company outsource the IT services (help desk, computer support
and maintenance), and it pay significantly less than it pay for a full time IT person
to give the same level of support. It also outsource bookkeeping and office
administration, with similar savings. As it grow, itll continue to reevaluate these
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decisions- it may be that the business case for the IT outsourcing remained good as
it grow but that it might eventually hire someone to offload other work from the
current people and since we would be paying them anyway, it could get them to
the bookkeeping as well.
There are some definite advantages to outsourcing. Contract work is often cheaper-
especially if you opt for offshore development. You hire people only for specific
tasks. You can keep adjusting the size of your team to fit your current needs and
budget.
Outsourcing creates shareholder value by reducing commitments to fixed and
working capital. Secondly, outsourcing helps a company focuses on its core
business, creating a competitive advantage within its industry. Other advantages
include gaining access to best-of-class capital accelerating the benefits of re-
engineering.
When to outsource?
When you are too busy handling operations and are losing focus on your
core business.
When you are facing a time, money and human resource crunch.
When you have a mission-critical project that needs all your time and
energy, plus specialized skills, which arent readily available.
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When you have got to the first into the market to gain the edge.
As part of the outsourcing, many companies are debating when to outsource their
management support tools as well. This is a complex question the must consider
the competitive advantage which a tool may provide. The company must also
account for how ready the market is to support such a tool in an outsourcing
model. The final direction should not solely be question of cost saving, but must
consider the benefits and the strategic position of the company in the marketplace.
When you need to smooth peaks, troughs and staff shortages. (Outsourcing
peak demand allows right sizing of information centers).
When you need to have access to specialist skills and knowledge. (Local
international knowledge or specific industries saves information center time
and makes them more efficient).
When you need to have access to specialize content. (Access to specialist
databases and content through specialist information consultancies).
When you need to reduce content cost. (Some information consultancies
have economies of scale and buying power for content therefore access
content at lower cost).
When you need to reduce research cost. (Some information consultancies
have lower resources costs due to use of students, overseas researchers, and
telecom staff or staff in low cost offices).
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When you need to reduce overheads. (By outsourcing staff count can be
reduced and expensive office space is released).
When you need to undertake confidential research. (The use of an
information consultancy can provide anonymity).
Who is outsourcing?
Customer care: includes database marketing, customer analytics,
telesales/telemarketing, inbound call centers, web sales and marketing
and administration.
Finance: includes billing services, accounting transactions, tax
consulting and compliance, risk management, financial reporting,
financial analysis etc.
Human resources: includes benefits administration, education and
training, recruiting and staffing, pay roll services, hiring administration
and transaction processing.
Payment services: credits/debit card services, cheque processing and
transaction processing.
Administration: including tax processing, claim processing, asset
management, document management, transcription and translation.
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Content development: including engineering, design, network
consultancy and animation, biotech research.
There is a difference among outsourcing, off shoring, and near-shore outsourcing.
No commonly accepted definition of off shoring exists, and the term has been used
to include various international trade and foreign investment activities. Services
that U.S.A. based organizations purchase from abroad are considered imports.
They may also be linked to US firms investments overseas.
In recent years, services off shoring has been affiliated by factors, such as the
Internet, infrastructure growth in developing countries, and decreasing data
transmission costs. Organizations decisions to offshore services are influenced by
Potential benefits such as the availability of cheaper skilled labor and
access to foreign markets and
By risks, such as geographical issues and infrastructure instability in
countries that supply the services.
Offshoring of services generally refers to an organizations purchase from other
countries of services that it previously produced or purchased domestically; such as
software programming or telephone call centers.
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Near shore outsourcing, a form of offshoring is the term used to refer to the
practice of getting work done or services performed by people in neighboring
countries (e.g. Canada, Mexico) rather than in your own country
Person-to-person outsourcing:
PPO means person-to-person outsourcing. PPO services follow two business
models:
The direct interaction model where the individual client signs a
contract directly with a vendor in a low-wage country, whose
employees (tutors, admin etc) work on a full-time or a part-time
basis, or as sub-contractors.
The online marketplace model where the vendors providing PPO
services enroll in an online marketplace by paying a monthly
subscription fee plus a fixed percentage of the revenue if they win
the project through this marketplace. So, when an individual client
posts requirements for a new project to be conducted on the online
marketplace, the marketplace communicates these opportunities to
the selected vendors and freelancers and requests proposals to be
delivered to the client.
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Outsourcing- an HR perspective:
There is an increasing trend for outsourcing HR functions and this trend will
continue. Many software companies are tending to outsource HR activities in large
numbers to expert external consultants. The prime focus of HR outsourcing
includes:
Sourcing the right people from the best talent pool quickly and cost-
effectively.
Picking a right mix of the competencies, experiences and behaviors
from this talented pool.
Converting potential applicants to competent employees swiftly,
competitively, and equitably.
Outsourcing anything to everything is therefore, in HR is possible and that would
depend on the outsourcing needs.
ASSESSING OUTSOURCING NEEDS:
Organizations that do outsource must make a proper assessment as to what HR
functions or activities to outsource and why? Organization has to systematically
carry out outsourcing needs assessment (ONA), in order to get effective results
from HR outsourcing activities.
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Organization can assess outsourcing needs by answering some important
questions such as:
What are the organizational objectives, goals, and strategies to
become a leader?
What HR functions are routine and voluminous in nature, for which
internal HR personnel are rather expensive?
What problems are encountered in smoothly carrying out HR
activities internally?
What are the costs and benefits of outsourcing an activity vis--vis
carrying it out internally?
What are organizations internal deficiencies in carrying out some or
more HR functions to manage people effectively?
Through this assessment, it is evaluated that which HR systems and processes are
required, whether these systems and processes are available, and if yes, do they
possess adequate capabilities, and what will it cost, if hired. Therefore, it must be
thoroughly studied before outsourcing the activities.
HOW OUTSOURCING WORKS: The process of outsourcing HR activities
involves the following consecutive stages and each stage has its unique function to
start, run and finish the same to jump the next stage.
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Project Initiation: At the first stage the need for outsourcing HR
activities has been identified, specific area of HR activity that need to
outsourced, and proper plan and time duration of its completion has
been set.
Strategic consideration: After the successful completion of the first
stage, second stage is started where cost-benefit analysis is done to
assess the risk associate with each HR activity, which is considered
for outsourcing.
Vendor evaluation: At this stage, external service providers
proposal is analyzed to identify the gap between the HR requirement
and the vendor service responses.
Corporate communication: Here, right message is delivered to the
right audience, at the right time across the entire organization and
through sharing expectations employees fear is reduced.
Contract management: at the last stage, a contract on business
principles of flexibility and cooperative decision making is made that
makes way for realistic expectations of achieving cost service
benefits. Another plan is
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also made in order to review the relationship of on-going outsourcing
plans.
THE CHALLENGES BEING FACED:
India is making progress by leap and bound on one hand, and on the other hand,
there are several important challenges are being faced by the industry. These
challenges are:
Managing the high attrition rate of 30-to40%: - Sometimes the
prospect of earning could trigger the young employees to switch over
to a rival firm.
Offering high incomes: - To retain employees is a problem since this
is a low margin industry with billing rates varying between $6 per
hour to $20 per hour based on the nature of work.
Mushrooming of small players: - Attractive growth rate of the BPO-
ITES industry has resulted in many reckless starts-ups. Several
companies from unrelated sectors without the required expertise
entered the industry lured by the healthy potential of the industry.
These small companies are now finding difficult to survive in this
capital-intensive industry.
Language problems: - Insufficient proficiency in English language is
a major hurdle for the country.
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Shortage of training programme: - Though educated youngsters are
available in plenty, training a large number of them in the needed
skills for quick ramp up of numbers is difficult due shortage of
trainers.
Night shifts:Because of night shifts the employees become impatient
and even angry; they also suffer from high stress level, fatigue and ill
health.
Outsourcing is countered by some other important challenges:
1. Selection of ideal outsourcing partner
Price
Expertise in a particular industry
Integration capabilities
Training and qualifications
Overall customer service strategy
Company information privacy
Knowledge in latest technology
2. Dynamic challenges
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Management challenges
Cultural/language communication risks
Security risks
Legal concerns
Time zone challenges
Knowledge transfer challenges
Legal issues
3. Outsourcing in-house problems
Sign up for projects without enough preparation
Striking big deals for the wrong reasons
Lack of legal and regulatory expertise
Appropriate recruitment
Shortage of technical expertise
Up-front investment
OUTSOURCING TRENDS:
Outsourcing, going to be more and more of a mainstream phenomenon, is now a
business essential. The next wave in globalization is focused on the transplantation
of entire IT departments offshore. Recent trends suggest that the outsourcing
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market will continue to grow. Contracts are awarded incessantly and study
indicates that companies are expanding the range of IT services they outsource.
RECENT TRENDS :
Offshore outsourcing is increasingly being accomplished as global
sourcing or global delivery.
Cannibalization of work: Earlier work was outsourced to a supplier who
stayed at home, but today outsourcing is more prevalent.
The growth of the captives, organizations owned and operated in a
foreign country by a parent firm. Here the offshore workforces are
employees of the parent company, not an outsourcing supplier.
Outsourced e-commerce: Sending e-commerce out of house is an
increasingly popular choice for businesses.
GLOBAL OUTSOURCING :
Creates and expands new markets
Effectively and efficiently promotes global citizenship
Recognizes the benefits of a global economy
Enhances technological creativity and diversity
Makes good social, financial, and economic sense
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TREND SETTING FACTORS :
Conservative companies to experiment with going offshore to withstand
competition.
Broadening of the IT services offered by the experienced vendors.
The launching of captive offshore centers by user companies for business
process outsourcing (BPO).
Onshore IT technology and services vendors setting up shop in locations
like India and China to widen their services. The main three facets;
i. Availability of aptly skilled resources
ii. Lower costs of manpower
iii. Ability to create better quality of work, more efficiently.
DETTERANTS OF HR OUTSOURCING:
There exists a set of basic reasons hampering the growth of HR outsourcing. Many
companies outsource only a bit of their requirements. Various reasons that deter
many organizations are:
Fear of loosing jobs
Loss of sensitive information to public/ competition.
Ethics and quality of outsourcing vendors.
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Possibility of security breaches.
Cost- benefit equation not clear.
Lack of psychological acceptance.
Outsourcing may not be appropriate when:
The task is a core activity critical to strategy or technology.
Task is highly interdependent with core activity due to technology or
work design.
Task requires great deal of firm specific human capital or access to
proprietary information.
Tasks where the employees work in close proximity to regular, core
employees and are similar socially to them.
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CHAPTER V
Advantages & Disadvantages Of Outsourcing
Human resources are the most critical assets of any organization as the
organization's success lies in their hands. But in order to ensure that its
employees remain satisfied, the company has to have a specialized human
resources department that most of times proves to be a costly affair. That is why
most companies today; decide to outsource their human resources management
functions to offshore destinations.
HR outsourcing is a process in which a company uses the services of a third
party to take care of its HR functions. A company may outsource a few or all of
its HR related activities to a single or combination of service provides located in
offshore destinations like India, China, Philippines, etc.
HR outsourcing including personal outsourcing case studies have indicated that
managing human resources involves specialized activities such as training,
payroll administration, employee database management, employee retention,
employee benefits and a lot more that many companies either don't have the
proper resources or time to manage on their own. By outsourcing their HR
functions companies can save huge amounts of money and be free of
complications that are otherwise involved in maintaining an internal HR
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department. By doing so, companies can concentrate on their core competencies
saving their valuable time and resources. By Outsourcing to third world
developing nations such as India, China, Philippines, Mexico, Ireland etc
companies can exploit the cheap labour and infrastructure facilities available in
those lands and in turn cut down on man power costs, reduce operational costs
and capital expenditure.
ADVANTAGES OF HR OUTSOURCING:
Concentrate on Core Business -Back office operations of a company
are highly tedious and need specialized attention. Most of them are
critical for the company's progress. By outsourcing their back office
operations businesses can concentrate on their core competencies while
their back office operations are being managed smoothly by a specialized
third party company.
Skilled manpower at lower rates -Outsourcing gives an organization
the chance to get access to skilled and trained man power at extremely
lower rates that will lead to an increase in productivity and save costs in a
major way.
Advanced technologies at lower rates- There are many technologically
developed offshore destinations that can give the companies access to
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high tech newly developed technologies at very affordable rates. This in
turn can help them progress at a rapid pace.
Tax benefits- By selecting the right BPO destination companies can
save up on taxes in turn cutting their costs.
Increased productivity- By employing skilled manpower in more
numbers at lower costs companies can highly boost up their productivity
in turn resulting into better customer satisfaction and increased
profitability.
Beat Competition- In a fast paced economy a company needs to provide
the best service to its customers in order to retain them and do all this by
keeping the rates low. Outsourcing in this case can help the company
maintain lower rates with better service thereby helping them to stay
abreast of the competition. These outsourcing advantages are well an
indication that the outsourcing market has a great future.
To sum it up, human resources outsourcing that includes hr recruiting outsourcing
helps cut costs, helps concentrate on core business and most importantly helps in
ensuring employee satisfaction.
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Benefits of HR Outsourcing
Focus on core / strategic issues
Release burden administration
Costs
Costs reduction
Transparency
Economies of Scale
Access to Expertise
Improving Efficiency
Improving Quality
Better service
Flexibility
Transform fixed costs to variable costs
Reduction of Liability and Risk
Shift risks and uncertainty to a third party to reduce personal risk by
sourcing troublesome activities.
Internal Politics
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NEGATIVE EFFECTS OF OUTSOURCING:
Over the past 20 years outsourcing as a phenomena has developed at a very fast
pace. The growth of IT, aiding globalization and thereby generating multinational
societies has given rise to situations where cut throat competition tends to take the
better of us. One face of this competition is the frenzy of research and
development, to cut costs and provide better services, which has manipulated itself
into outsourcing. The situation seems more threatening every added day as more
companies follow suite to the actions of their rivals.
IMPACT OF OFFSHORING JOBS : With outsourcing the jobs are sure to go.
The third world countries do get benefited because of this, but what about the
Makes the new HR function (generalist) more important
Reduction Bureaucracy
Reduce Internal Headcounts
Benefits of an Agent in Negotiations
Vendor is the bad guy
Time pressures
Lack of capacity and resources to be responsive
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people in the first world nations. They do feel unrest and no assurances are going
to keep them from frowning about their precious job that was taken away. Here
again the policies are to blame. Offshore outsourcing backlash on communities
was bound to happen not because the jobs are getting outsourced, but because the
way the jobs are being outsourced offshore today. People are not able to grasp the
implications with a pinch of salt that is way too salty.
OTHER DRAWBACKS OF OUTSOURCING :
Firstly there is a situation today where employees have started fearing
job losses. This gives rise to lower motivation and thereby decline in
services. After all who would like to serve an organization that he
feels is going to sack him for all his services. An employee can give
the company 100% if and only if he feels that he is an integral part of
the organization and not some dummy to be sacked when ever the
company feels like. One more point here is that a sacked employee
could even join hands with competitors and bring to light the
weaknesses of the company.
Outsourcing can also lead to the alterations of well established job
processes that can lead to unnecessary delays and conflicts. Lack of
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coordination between people having different cultural backgrounds
and different time zones can also can lead to time losses.
Looking at all these drawbacks, outsourcing really does not seem to be the
magic answer for cutting costs. On the contrary outsourcing is way more
complicated and can lead to drastic situational developments in the afterward.
The governments of first world nations at this point need to analyze this
situation and help develop a fair playing ground for organizations taking into
consideration the negative effects of outsourcing offshore.
RISKS IN OUTSOURCING :
Although the outsourcing statistics provide us with a positive picture there are
certain problems associated with outsourcing. The major ones can be classified as
follows:-
Geographical problems- Offshore outsourcing can lead to many
problems that are associated with the geographical location of the
offshore destination. Some of these problems can be language
problems, accent problems, political instability, change in laws and
regulations, labour laws, cultural issues and so on.
Infrastructure and operational problems- Infrastructural and
operational problems can be in the form of improper communication
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infrastructure, improper disaster recovery capacity of the country,
power generation capacity, non renewable resources availability and
so on. So before selecting an offshore destination, it becomes
inevitable for anyone to check out on all these statistics for offshore
outsourcing and factors for the success of an outsourcing project.
Risks -Companies have to consider well what the legislative and
procedural ramifications might be before making the decision to
outsource. Some companies outsource because its popular or to get
out of being responsible for many of the regulations and legalities
associated with HR. Other outsourcing decisions are driven by cost
considerations without an eye toward broader strategic issues. The
focus is often short-term because many possibilities are recognized to
cut overhead costs and purchase skills or services. However, costs
often increase because the outsourcing is under-managed and poorly
monitored. Table 2 sums up the risks involved in HR outsourcing.
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Risks of HR Outsourcing
Dependency Risks
Spillover Risks
Loss of Quality
Scope of outsourcing
Undervalued costs
High investments
High costs for custom-tailored services
Loss of Knowledge
Loss of in-house knowledge
Insufficient knowledge of suppliers
Supplier Management
Lock-up in contracts
Ability to monitor suppliers
Loss of cultural insight and linkage to line management
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DRIVERS OF SUCCESSFUL HR OUTSOURCING
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CHAPTER VI
Research Methodology
Two methodologies were adopted while undertaking the research:
Primary data collection: Primary data was collected through the means of a
sample survey. For this purpose, a questionnaire was mailed to some of the HR
managers and executives in various organizations .The data collected through this
survey was then analyzed to determine patterns.
A questionnaire was developed and administered via email to the respondents. The
questionnaire was accompanied by an introductory letter stating the purpose of the
research and promising confidentiality. Responses were then collected and
analyzed to arrive at certain conclusions.
Secondary data collection: large amount of secondary data is available in the
forms of articles, journals, and previously conducted researches on the similar
topics. This data was collected and studied to determine some of the broad trends
prevalent in HR outsourcing across the world and the presence of HR outsourcing
industry in India.
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CHAPTERVII
Data Interpretation
HR outsourcing is at a nascent stage in India.
The study proved that HR outsourcing is still as a nascent stage in India.
Only 44% of the respondents replied that their company has outsourced
some of their HR processes.
HR outsourcing is not widely followed by Indian companies due to
various reasons like lack of quality, security breaches, cost, lack of data
privacy, lack of reliability, lack of understanding of the company culture
by the vendor and immature HR outsourcing market etc.
YES44%
NO56%
HR OUTSOURCING
YES
NO
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HR outsourcing is expected to grow at a rapid pace in the Indian industry.
6
2
4
2
1
0
1
2
3
4
5
6
7
RECRUIT
MENT
PAYR
OLL
PROCE
SSING
TRA
INING
DEL
IVERY
COMPENS
ATION
SURVE
YS
STATUO
TARY
COMPL
IANCE
HR PROCESSES OUTSOURCED BY COMPANIES
Series2
12
5
7
4
1
9
5
COST
DATA PRIVACY
LACK OF RELIABILITY
COMPANY CULTURE
MARKET NOT MATURE
SECURITY BREACHES
LACK OF QUALITY
REASONS FOR NOT OUTSOURCING
Series1
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Indian companies derive lot of benefits out of HR outsourcing.
Various benefits are derived by Indian companies from HR outsourcing
like more focus on core activities, time saving, cost saving, expertise and
removal of unnecessary manpower. Focus on core activities, time saving
and expertise of the vendor were the major benefits found out the survey
as maximum respondents listed these benefits.
Internal customers of the company are satisfied with the decision of the
company to outsource their HR processes.
Cost is the not the main criteria for vendor selection for HR outsourcing
by Indian companies
0
2
4
6
8
10
12
PASTRECORDS
COST
COMPE
TENCE
EXPER
IENCE
RECOMMEND
ATION
S
CRITERION FOR VENDOR SELECTION
Series1
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The employees of the companies which outsource their HR processes
are usually satisfied by the outsourcing done.
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Chapter VIII
Conclusion & Suggestion
The scope of outsourcing has expanded dramatically in recent years. So, too, have
the benefits of outsourcingfrom simple IT cost reductions to dramatic
improvements in efficiency and productivity.
Many European and US companies have realized that they should focus on their
main business and outsource their Human Resource Department, accounting
department etc.
Companies are increasingly outsourcing business processes due to changing and
challenging business environment and technological and legislative changes. There
is a good opportunity for Indian BPO vendors around the world. BPO vendors will
need to have good domain knowledge, process know-how and competence with
technological solutions to cater to these Manage Care Companies.
As the evolution continues, several trends are emerging and building upon one
another in a way that will fundamentally alter the role of outsourcings
contribution to improving overall business performance.
Common Mistakes in Human Resources Outsourcing (HRO)
HRO is not a decision that can be made quickly or carelessly. Organizations
must take care to thoroughly research the market, the process, and their own
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company culture to maximize their chances of success. Part of the
preparation process is ensuring that stakeholders and employees have a clear
understanding of the goals and objectives for the outsourcing arrangement.
Some companies make the mistake of thinking that once its HR services are
outsourced, they are free of responsibility for those functions. Nothing could
be further from the truth. Invariably, outsourcing requires vigilance on the
part of the purchaser of the services, reports the HR administrator of a mid-
size firm.
To overcome these obstacles, organizations considering outsourcing must
appreciate the complexity of the decision and should commit sufficient resources
to the project from the beginning of the process to ensure its success
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Appendix
Questionnaire
Survey on current trends in HR Outsourcing
Name of Organization:
Location:
1)Which sector your organization belongs to?
a) Manufacturing Sector b) IT Sector
c) ITES / BPO Sector d) Retail Sector
e) FMCG Sector f) Government Organization
g) Any other, Please mention
2) For how long has your organization been in service?
a) < 3 years b) 3 years5 years
c) > 5 years
3)Do you outsource any of your HR services?
a) Yes b) No
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If the answer to above question is No, skip next question
4)Which of these HRM services are outsourced by your organization (Select
all services being outsourced)?
a) Providing Temporary staff b) Recruitment & selection
c) Training & Development d) Managing Payroll systems
e) Managing benefits f) Conducting Employee surveys
g) Complete HR function
h) Any other service being outsourced, please mention ______________
5)Which of these factors are major reasons for outsourcing HR services?
(Please rank them from 1 onwards in order of decreasing importance.)
a) Cost savings b) Increased capacity
c) Lack of internal staff / capabilities
d) Access to better systems and technology
e) Other factors (Please mention)
6)Which of these are major risks associated with outsourcing HR services?
(Please rank them from 1 onwards in order of decreasing importance.)
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a) Mismatch of cultures b) Security of Database
c) Financial stability of chosen vendor
d) Justification of cost-benefit calculations
e) Other factors (Please mention)
7)While outsourcing HR services, which of these parameters are most
important parameters for vendor selection. (Please rank them from 1
onwards in order of decreasing importance.)
a) Cost
b) Brand Name of Service Provider (Proven Track Record)
c) Range of Services being offered Flexible Contract Options
d) Other factors (Please mention)
8)Do you think that outsourcing HR services has achieved its purpose for your
organization? (Organizations which dont outsource HR services skip this
question.)
a) Yes b) No
9)Which metric do you use for measuring the effectiveness of outsourcing HR
services? (Please select all the measures being used.)
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a) None b) Cost saved due to outsourcing
c) Service level improvement d) Increase in employee
satisfaction
d) Other factors (Please mention)
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