Human resource: The next process of BPO

Human resource: The next process of BPO

The human resources (HR) department is critical for employee well-being in any business, no matter how small. Just as companies have realised the importance of customers and are taking proactive steps to ensure their satisfaction, they have also recognised the key role played by its employees in winning the battle of the marketplace. A motivated and innovative employee can work wonders for a company. Hence getting and retaining a motivated workforce has found its way on to the CEO’s agenda. Also, the slowing economy has forced the workforce to be productive; once employees become productive, companies want to retain them at any cost.

This has meant a shift in the focus of HR departments from routine activities to playing a more proactive role of constantly motivating and retaining employees. Usually, HR departments are inundated with work related to employees; some of these activities are routine, repairing little imagination and creativity. That is, most of the time the HR department does activities ‘of’ the employees and not ‘for’ the employees. Some such mundane HR responsibilities include payroll, benefits, hiring, firing, and keeping up-to-date with state and central tax laws. Companies the world over are spending resources and time on such critical activities (motivating and retaining the existing workforce) and hence prefer to outsource routine activities.

Historically, reducing operating costs has been the main reason for outsourcing. However, access to best practices, latest technology, and faster turnaround are some of the other benefits that outsourcing provides. Outsour-cing has now become an important element of business performance transformation, as this allows resources to be concentrated on core competencies. Outsourcing allows HR to make a stronger and formidable contribution to the growth and well-being of the company.

HR outsourcing is defined as “a process of outsourcing involving particular tasks like recruitment, making payroll, employee benefits administration, fixed assets administration, employee logistics management, training and development to a third party having expertise in these respective fields”.

The various HR functions in any organisation include:

· Payroll administration (producing cheques, handling taxes, dealing with sick time and vacations)
· Employee benefits (health, medical, life insurance, cafeteria, etc)
· Human resource management (workers’ compensation, dispute resolution, safety inspection, office policies and handbooks) and others.

Many of these functions are of an outsourceable nature. According to Hewitt Associates, over the past 20 years, the HR outsourcing marketplace has evolved beyond benefits administration. Companies are outsourcing more HR activities to achieve a fundamental shift from an administrative, tactical and compliance-driven function to a focus on the strategic acquisition, motivation and retention of talent. The transactional functions must be done right and can be handled with greater quality and efficiency by a provider who has the process and technology expertise.

The market is growing at an amazing pace. Estimates of industry growth vary from a compound annual rate (CAGR) of 8.6 percent (Gartner Dataquest) to 12 percent (Yankee Group) from 2001 through 2007. Which means that the worldwide HR outsourcing market is set to grow from $21.7 billion in 2000 to about $58.5 billion in 2005.

If forecasts are anything to go by, this is the fastest growing outsourcing segment.

Reasons for outsourcing HR

According to analysts, cost reduction is usually the most crucial reason for HR outsourcing as it can lead to savings of 30-40 percent for companies.

The other reasons are:

· Cost-effectiveness
· Reduced administrative costs
· Capitalising on technological advances/expertise
· Improved customer service
· Redirecting HR focus toward strategy/planning
· Focus on core business
· Reduced corporate overheads
· Provision of ‘seamless’ delivery of services
· Insufficient staff.

Process of outsourcing HR

The process of outsourcing begins with identifying core and non-core activities, i.e. activities the companies need to do in-house, as against outsourceable activities.

The next step is finding a suitable vendor who can carry out such activities on behalf of the company. HR outsourcing service providers can fall into one of four categories:

· Professional employer organisation (PEO)
· Business process outsourcing (BPO)
· Application service providers (ASP)
· e-services

A professional employer organisation (PEO) takes legal responsibility for the employees. The PEO and business owner are partners, with the PEO handling HR aspects and the business owner handling all other aspects. BPO is a generic term and could refer to all fields and activities, but as far as HR is concerned, a BPO ensures that a company has access to the latest technology. Application service providers (ASPs) host HR software on the Web and rent it to users, while e-services are those HR activities that are Web-based.

HR outsourcing, though a slow starter, is now one of the fastest growing BPO domains worldwide; in fact such HR activities such as payroll outsourcing were among the first to be outsourced. One of the reasons for the slow start could be the nature of responsibilities the HR department has. The HR department is critical for employee well-being in any business, no matter how small, and any mix-up here can cause major legal problems for the business, as well as major employee dissatisfaction.

HR BPO companies

HR BPO vendors add value to the company by either putting in new technology or applying existing technology in a new way to improve a process.

This is to make sure that a company’s HR system is supported by the latest technologies, such as self-access and HR data warehousing. Some HR BPOs offer all related services in the HR domain, i.e. they offer an end-to-end system to meet all the company’s HR needs.

Other HR BPO firms allow companies to choose from various offerings (a la carte); companies can pick and choose from the various services on offer.

Typical services include:

· Payroll administration: Producing cheques, handling taxes, and dealing with sick time.
· Employee benefits: Health, medical, life, 401(k) plans, cafeteria plans, etc.
· HR management: Workers’ compensation, dispute resolution, safety inspection, office policies and handbooks.

As mentioned above, HR outsourcing is the fastest growing outsourcing domain. Several major joint ventures have been inked between large corporations and service providers for end-to-end HR outsourcing.

HR BPO, the next wave

HR outsourcing could well be the next big thing in India's BPO space.

Globally a $40-$60 billion industry, the HR BPO segment is still a fledgling in the Indian BPO industry. Yet to take off in a big way, it is however poised to be the next big thing in the BPO space. The opportunities are undoubtedly immense, with the global market growing at 14 percent per annum. The HR BPO industry could be divided into two categories—large multinational players such as Hewitt with an outsourcing centre in India, and secondly the pool of small outsourcers that cater to the local market (engaged in payroll processing). Midway are the few established third-party outsourcers who serve international clients.

The history of HR outsourcing (HRO) industry can be traced back to more than five decades, when ADP (Automatic Data Processing) set up its payroll processing services in the US. Today, the company has annual revenues of $7 billion and 40,000 associates. Global HR BPO players like Hewitt and Fidelity have set up operations in India. Chennai-based Secova eServices is the first third-party Indian HR BPO organisation in the country. V Chandrasekaran, Co-Founder and Chief Technology Officer, Secova eServices says, “At present the Indian share of the pie is a mere $43 million, according to Nasscom, which is insignificant compared to the overall opportunity.”


The Indian share of the pie is a mere $43 millionwhich is insignificant compared to the overall opportunity

Slow start

Despite its high potential, the HR BPO industry in India has not witnessed growth patterns that other BPO segments have achieved. The reason is obvious: It is a complicated process which requires strong domain knowledge. And this is not easy considering that fact that the US has 50 states with different taxation laws, federal laws, etc. “Lack of knowledge about taxation is the key factor, apart from understanding the culture, staffing, training, compensation and leave administration procedures,” says Rajiv Srivastava, Senior Vice President, Business Development, Dimensions BPO India. This HR BPO organisation has centres in Mumbai and Kochi catering to US-based clients. The company has tie-ups with many HR outsourcers for which it does backoffice work (mostly payroll processing).

Besides the fact that one has to know how to deduct the tax—based on state, marital status (single/divorce), work timings, etc—the cost of maintaining and constantly updating the system is very high. Dimensions BPO has a proprietary HRIS (Human Resources Information Sys-tem) that reduces the cost for its clients by almost 40 percent.

Services offered

Every HR BPO company offers payroll services, and later graduates to services like benefits; education/training; recruiting/staffing; and oth-ers. “At the higher end of the market you have large players such as Hewitt, offering a wide spectrum of services across all the segments. Outside of the top-tier vendors, the market is dispersed with a number of small organisations offering a limited range of services and serving limited geographies. Analysts have pointed out that there is a huge opportunity for a services provider catering to the mid-market. This is the space that Secova is targeting. We believe that we are pioneers in the mid-market HRO segment and leverage the ‘best-shore’ strategy,”. Secova eServices’ initial focus will be on health and welfare benefits administration, payroll and HRIS services for the mid-market that accounts for $13.2 billion of the HR BPO pie.

Like most HR outsourcing organisations in the US, Dimensions is in the process of starting self-services (like helpdesk). For instance if there is $2 less in somebody’s paycheque, the individual can call back for clarification and further action.

Future prospects

HR BPO is the least serviced segment of the BPO space, though the potential is enormous. Gartner has forecasted HR BPO to reach $51 billion to represent 39 percent of all BPO revenue by the end of this year. “Other analysts such as Bernstein and Everest Consulting have said that HRO is in the ‘cradle of opportunity’ and appears to be the best among various BPO opportunities for growth. In our specific market space, we see a $13.2 billion market of which $1.3 billion could be serviced offshore in the next three years,”.

Career options

The skills needed for HR BPO are more complicated than the simple customer care skills of language and accent. Domain expertise and knowledge of specific processes are must. “What is imperative in this space is domain expertise coupled with knowledge about specific legal, regulatory and compliance structures in the markets we service. For employees, this provides a learning opportunity and scope to build a fulfilling and long-lasting career,”.

Being an early player in this industry segment, it was not possible for the company to get trained people for the job. eSecova takes people with basic skills to handle voice and data services and trains them in the HR domain in addition to client-specific training. The company usually targets talent with experience in related fields such as healthcare and insurance.

Dimensions BPO hires graduates with commerce background for basic payroll work. They should of course have a good knowledge of accounting. For self-services the need is for graduates who can provide the relevant information to the callers.

“A career in HR BPO pays well as recruits tend to have a strong domain knowledge,” acknowledges Srivastava. As far as attracting talent is concerned, he concedes that there is no dearth of BCom graduates, but the problem is that they have to be clear that they want to be in the HR outsourcing industry, “They jump to other fields and the training is a waste. Retaining them is a tough task.”

Training focus

It is a formidable task for HR BPO companies to train their staff to be HR specialists, experts on US taxation laws, statutory compliances in the country, etc. At Secova, personnel get trained to be benefits counsellors and many of them get certified by professional bodies. Some payroll staff are certified by the American Payroll Association. The company provides the necessary training for certification over and above maintaining a learning environment.

Similarly, Dimensions BPO has a five-week long training by experts, mostly on payroll process (taxation laws, etc).

HR outsourcing is considered as the next big wave in India’s BPO scene. What is needed is concerted domain knowledge to get a larger share of the global HR BPO pie.