Feature

Evolution of the HRO sector

Human Resource Outsourcing is finally coming of age in India, despite the many challenges, writes Sudipta Dev

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.

The HRO industry can be broadly classified into two segments—the enterprise HRO (for multiple HR functions) and single process outsourcing. India has witnessed more of single process outsourcing, particularly in payroll space and benefits outsourcing. RPO (recruitment process outsourcing) and learning/training are the other emerging functions. “The complexity in single process is lesser than in enterprise segment and has witnessed maximum maturity in India. Payroll processing is in fact the most matured practice in India as there are some decent service providers in this space,” stated Rajesh Ranjan, Research Director, Everest Group. A global consulting and research firm, the Everest Group conducts worldwide studies on the HRO industry. From maturity prospect, the enterprise HRO in India is still at a nascent stage though certain suppliers in India are interested in building capability in this space.

Destination India

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,” stated Ranjan. This apart, presence of a few big Indian IT companies having entered the market have added to the success story.

R. U. Srinivas, Chief Executive Officer, Caliber Point, the wholly owned subsidiary of Hexaware Technologies, acknowledged that the 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 some of the 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 are a large number of single/stand alone service providers,” said Srinivas. He pointed out that 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.

“India has emerged as an ideal location for the HRO sector, along with many other Asian countries, which have positioned themselves uniquely,” agreed Anshuk Talwar, Senior Consultant, CTT, Hewitt Associates.

Hewitt Associates is the world’s leading provider of HRO and consulting services. According to Talwar, while selecting a location for setting up an HRO center, companies usually consider the following:

• Talent—availability, cost and quality of talent
• Infrastructure—telecom, power and real estate
• Incumbents—prevalence of other players in the sector
• Environment—business and political
• Clusters—supporting services such as recruitment, training firms

While India fares at the top when it comes to talent, apart from English language there are no facilities for other Asian languages, as demanded by many APAC multinationals. “They are therefore looking at vendors which can provide both transaction and customer services in the local Asian languages. With this trend, alternate locations like Malaysia and China are becoming more feasible,” pointed out Talwar. Not surprisingly, infrastructure is yet another major issue. Talwar cites the example of a large HRO client which refused to setup a center in a tier-II Indian city as the infrastructure of the city was below international standards, especially the airport, which due to construction and defense reasons was open for only a few hours causing a major bottleneck for people arriving from the corporate headquarters.

Key strengths and problem areas

The maturity of the IT industry and delivering consistent results in various industries/functions has been the key strength for India. “Ability to excel in all the three major components of HR outsourcing i.e., process, quality of data and the right technology has been a winning proposition for Indian service providers,” added Srinivas. The handicapping factor at times, he feels, is the multi-language requirement to be serviced from offshore is a challenge. The other challenge is the lack of standardization in HR practices between countries and within companies, the legal issues surrounding employee taxation, retirement benefits, etc.

The skills sets, the BPO environment, kind of Quality (Six Sigma/CMM model, etc.), are the strengths that the HRO industry depends upon in India. “This apart, the suppliers are biggest and show results in terms of delivery, cost advantage, technology expertise (this plays a big role as buyers often do not have advanced technology so an HR BPO enables access to that technology),” said Ranjan. The problem areas are also not few—lack of domain knowledge (have to be aware of changes in the US, particularly in case of payroll processing), benefits outsourcing in the US is complex (one has to understand it to deliver the services). Then there is the language issue—with HR helpdesk being a part of the function. The accent angle plays a much more important role here than a call center because it is a cultural factor and the employee feels a disconnect.

Manpower focus

The interesting thing about HRO is that it requires a number of very different skill sets—not just HR alone. Srinivas reminded that apart from the technology requirements, and the obvious HR skill sets, this also needs relationship skills, accounting skills for a number of processes, legal awareness depending on the process, language skill sets, etc. “It also requires a very global mindset to service global customers,” asserted Srinivas.

For long the manpower focus of this industry has been to recruit and train entry level staff in large numbers. “However, with this industry maturing, an increasing focus is now being laid on grooming high performing employees for leadership roles. This has becoming increasingly visible when the entire top management team from one BPO moves to setup or manage operations of another BPO,” averred Talwar. Therefore, a number of BPOs now identify high performing individuals for leadership roles and groom them with rotational assignments in India and abroad and across different functions.

The second wave

While payroll, benefits, pension administration and workforce administration have been traditionally outsourced, the second wave is seeing the emergence of RPO, learning and development and expatriate management. “Companies in this downturn are looking at their entire HR function, identifying the administrative and transactional functions and seeking vendors who can help in saving cost and increasing efficiency,” stated Talwar. For example, in the case of learning & development, companies expect the outsourcing provider to manage all transaction activities, including organizing training venues, printing training content, food and drinks at the venues, ensuring trainers (outsiders) are available, collecting training feedback and providing analysis.

It is critical to remove apprehensions regarding outsourcing of HR functions to India. It is also important to make probable clients aware of the work being delivered from India and showcasing the success stories.

sudipta.dev@expressindia.com