|
By Pavan K Bangalore, January 5, 2000 Organisations across the world are increasingly turning to outsourcing as one of the tools to focus on their core competencies and get rid of non-core activities. However each organisation needs to evaluate the exact reasons for which it is turning to outsourcing as a tool so that the outsourcing initiative becomes successful and delivers value to the organisation. Generally, outsourcing decisions are based on a variety of reasons both at the strategic as well operational levels of the organisation. At the strategic level, outsourcing decisions are based on parameters such as providing a strategic focus/direction to HR, reduction of bureaucracy and ease of culture change, headcount reduction as well as Management & organisational development in terms of latest concepts/thinking/tools etc. At the operational level, the decision to outsource HR activities depends on factors such as the size/stage of the organisation, need for specialised expertise, IT resources, time pressures, vendor efficiencies and service levels, risk management etc. A successfully executed outsourcing arrangement will reduce costs, save time, improve service levels and help the organisation to focus on its core activities. However, outsourcing to deliver the benefits that is attributed to it should be based on a careful consideration of all relevant factors. Organisations need to clearly understand the nature and extent of activities that can be outsourced and also the pitfalls involved in the process. As to what activities can be outsourced, most of the HR activities/functions can be easily outsourced. However, core HR activities like labour relations, employee relations and performance appraisal/management functions or any other HR activity which is of a proprietary nature to the organisation should not be outsourced. These core activities typically require a complete understanding of the organisational culture and understanding of employee/labour relationships as well as control of confidential information. As a first step in the process of outsourcing, its impact on the HR department & staff should be evaluated, as there could be potential resistance within due to reasons such as job security, perceived prospects for upward mobility and individual growth etc. Once the activities that can be outsourced are identified by the organisation, adequate consideration should be paid to the nature and extent of confidential information that can be shared with the service provider. When confidentiality/security of the data is of paramount importance (take for example defense personnel), then the related activity should not be outsourced even if it results in tangible benefits to the organisation. The success of the outsourcing initiative depends to a large extent on the selection of the right vendor. The vendor should be selected after performing a due diligence exercise. As far as possible, vendor with the industry knowledge and expertise related to the organisation should be selected. Factors that may be considered to evaluate the vendor may include vendor expertise, vendor knowledge of the organisation, client satisfaction, flexibility and availability of the vendor on demand etc. Once a vendor is selected, his deliverables should be clearly defined and communicated to him so that the vendor can meet the expectations placed on him. Often, outsourcing does not achieve the benefits that are attributed to it because performance and service quality of the service provider are often overlooked in favour of cost reduction/reduction of cycle time. If there are issues related to service quality and performance of the vendor, then outsourcing will only serve to increase costs as well as time. Organisations should not compromise on performance and service quality of the vendor to achieve short-term savings in cost/resources. Organisations planning to outsource HR activities should be aware of the risks involved in the process. Organisations should not depend excessively on any single source and the same holds good for outsourcing arrangements also. HR managers should exercise adequate caution by not overly depending on a single vendor who cannot be replaced easily as this would open the organisation to lot of risks especially if the competitor also has access to the same vendor. HR managers should always build a back-up strategy in cases where the number of vendors providing the service is limited and competitors also have access to the same vendors. One more area of outsourcing, which is often overlooked, is the possibility of knowledge and learning accruing to the vendor at the cost of the organisation. HR managers should put in adequate procedures in place so that there is a transfer of knowledge and learning to the organisation at predetermined intervals of time. Once a vendor who meets all the specifications of the organisation is identified, it is critical to build a relationship with him on a long-term basis, as there are high switching costs from one vendor to another. Organisations should treat the vendor as a important business partner and they should invest in the relationship in terms of time, knowledge sharing, continuous feedback & assessment. The performance of the vendor should be clearly assessed based on predefined quality/service levels and the results should be communicated to the vendor. To sum up, outsourcing just as any
other business decision needs to be evaluated not only from a cost/benefit
perspective but also from the perspective of its impact on the organisation
as a whole. Unless, the holistic effects of ousourcing on the organisation
are evaluated, outsourcing is likely to end up as a short-term fix to the
problems without adding any value to the organisation.
Do tell us what you think of this feature |