HR Outsourcing - Emerging HR Trends - Part I

I would like to kick-start the series on Emerging Trends in Human Resources by touching upon the area which has got a renewed focus now i.e. HR Outsourcing.

HR Outsourcing is not a very new concept to Indian outsourcing market. It essentially means managing the human resource department of companies that are hard-pressed for time and expertise when it comes to taking care of their HR spectrum.

Research indicates that an HR department spends 80% of their time in managing tactical and transaction oriented HR operations. If these processes are outsourced then the trained HR staff could be re-deployed in the core process which will add substantial value to the organization.

Riding on the success of the BPO and IT industries, India has always been well positioned to be a leader in the HRO space. After a decade, the HRO industry continues to evolve in a rather mixed way—while many well known IT companies have joined the fray to give the necessary fillip and visibility to the sector, there are a few factors that continue to hold back.

Many large global HRO service providers have a presence in India and see the country as a key delivery location. In recent times, offshoring of HR outsourcing has been gaining ground. The HR directors in countries like US and UK are questioned by their CEOs and CFOs why their HR cost is high. That is why offshoring to a location like India makes sound business sense. These apart, presence of a few big Indian IT companies having entered the market have added to the success story.

Most of human resources outsourcing (HRO) contracts coming up for renewal are likely to witness a significant restructuring. This shift is likely to see more such work being offshored to India. Everest Group-global research firm, in a study ‘Human Resources Outsourcing (HRO): End-of-Term Market in HRO’ said the areas of restructuring range from modifying the number and type of in-scope processes, to enhancing delivery models through global sourcing, to introducing alternative pricing models.

According to the research firm, about 75-85 % of engagements will likely be extended while 15-25 % will be repatriated or transferred to new suppliers. More than 111 HRO contracts, with a combined total contract value of about $6 billion, are nearing their term end in 2010-12 . Everest analysts foresee scope for reduction with large market buyers, whereas mid market buyers will likely expand narrow scopes and leverage expanded supplier offerings that include talent management services.

While the global spend on BPO is estimated to be $234 billion, being a comparatively new phenomenon HRO is expected to reach $67 billion. As a matter of fact, HRO is projected as the fastest growing segment over the next three years. This projection can be further substantiated by the fact that large-scale HR off-shoring has already taken place and giant names such as Tata Consultancy Services, Wipro, Caliber Point (a subsidiary of Hexaware Technologies), and Infosys are some big Indian HRO suppliers. Hewitt, Mercer, Manpower, Adecco, Fidelity Investments, Convergys, Accenture, IBM, Exult Inc and Automatic Data Processing Inc. are global players.

HRO industry in India is still evolving. While the ability to deliver at a large global level with the offshore component has attracted buyers, the growth has been in select processes like payroll (few countries), benefits administration, recruitment, workforce administration etc., but not in other parts of HRO. The Indian service providers capable of delivering the end-to-end HRO services are just a handful at the moment while there is a large number of single/stand alone service providers. The domestic HRO is more established and growing with some players beginning to standout. With some exceptions, the captives in general do a lot more comprehensive HRO work than the typical third party BPO player. Over the years, the big change has been that the large multi process, multi country HRO deals are no longer being pursued by the large companies alone. Mid sized market has also opened up.

Typically, HR outsourcing can be classified into two broad categories such as transaction and administration outsourcing and HR consultancy. While transaction and administration outsourcing deals with the day-to-day and month-to-month activities like payroll management, employees benefits management, and pension management, HR consultancy is a much more complex process that constitutes management of strategy and policy functions of the organization. Transaction and administration outsourcing form the low-end of the value chain of an organization.

• Payroll
• Benefits
• Recruitment Process Outsourcing
• HR helpdesk
• Workforce administration
• Pension administration
• Learning and training
• Expatriation management

In my next post, I shall
touch upon on the drift in HR in the shifting business landscape.


  1. The cost/benefit of HR outsourcing is certainly compelling, but even at a shared services level it leads to a much lower quality of service. Yes, training and scope definition are key, but in practice I've never seen it done correctly. Attention to detail and non-standard requests are generally the key issues.
    Equally, whereas the strategic partnership roles most HR admit are both higher in value-add and desirability, lacking transactionnal effectiveness to start with is a hindrance from an employees perspective. It's also trying to run without having mastered how to walk when HR profesionnals haven't mastered those skills.
    If the cost/benefit at an increased employee disatisfaction is the choice that is made, then so be it. But HR, being one of the most internal customer-facing critical functions, cannot afford to leave an accumulation of small misses build up into large scale frustration that no amount of career planning can offset.

  2. Relevant area that you have touched upon. It goes with need of time. Can you touch upon performance management systems or talent management in detail?

  3. No doubt, with ever increasing costs, HR is posing a cost-effective threat to organizations. HR outsourcing will not only relieve the employer of his great head-aches, but also gives him relief from financial burden. At the same time, it also generates employment elsewhere where it proves to be a boon.

    The other side of the coin is, at the same time, that it proves to a bane for the originating country with unemployment and the resultant social evils.


  4. Hi Masroor, I would suggest that you refer to HR Value Chain Label - Employee Engagement Section + Organizational Development to get my thoughts on talent management. I would certainly touch upon in detail on Performance Management in particular in my future posts.

  5. Hi Baxter, I agree with your comments on HR transactional spectrum. I always recommends to all the folks aspiring to be HR Leaders to ensure that they get a chance to handle transactional productivity (HRSS) at least for a year or two so that they can see through the execution process once they reach at higher level and straegize programs, practices and rewards. Thanks and appreciate your comments.

  6. It was amazing to receive many useful tips in this review. To improve the business it suggested to use outsourcing software development services to appear on IT markets. Software development allows to automate business processes and earn more profits.

  7. Yes, HRO is gaining pace and so is RPO [I would like to term it as Recruitment Process Optimisation].RPO is not just for big volume employers but any orgn that has a consistent stream of hiring needs.When an orgn signs on an RPO, they shift some or all of their needs to the provider/outsourcer, pass along transactional activities and use their staff more strategically. The number of hires an outsourcer can make is actually less critical than the number of processes performed.Clients can choose from Sourcing, Screening, pre-employment testing, background checking and onboarding services.Projected cost savings come from paying a lesser fee than what you would be paying another vendor ona per hire basis. Organisations should use RPO to augment their internal teams.

  8. Outsourcing to India provides not merely benefits to an organization but to consumers too. It offers usage of some of the finest talent and experience within the subject at cost-effective costs.

  9. Very timely topic. I'd like to add the strategy and analytics too. It is common for these 2 areas to be project-oriented and not so much a perennial part of companies and hence very common to be outsourced.

  10. human resource is very huge working area. It includes staffing, payroll, HR helpdesk, workforce administration
    pension administration, learning and training, expatriation management. many corporate companies outsource small work so that internal hr leaders concentrate on organization development.

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  14. Great article. Thanks for sharing this informative post...For smaller companies, it is easy to think that very little can go wrong with regard to HR requirements. But managing benefits, salaries, pensions, payroll, employee contracts and policies, and ensuring that everything complies with the law at all times is a big job.

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