Pot of gold

HR outsourcing service providers need an in-depth knowledge of HR concepts to
tap this big opportunity

One of the most rapidly growing BPO practices is human resources. By some
estimates, it is the largest, and by others, the second largest, behind
healthcare. Gartner estimates the size of this business at the global level to
be about $58 bn-something like 25 per-cent of the global spend of about $240
bn on business process outsourcing.

The global business scena-rio is dominated today by rapidly changing
technology, dearth of technical people, and complex business/pricing models.
Lower costs and bet-ter expertise therefore bec-ome the dominant decision
variables. At least one study suggests that in HR outsour-cing cost is not the
dominant variable. The Bureau of Natio-nal Affairs in its 2004 annual survey of
900 HR executives found that the top of the list reasons for outsourcing were
greater expertise (69 percent) and service quality (44 per-cent)-only 28
percent cited low cost as the main reason for outsourcing. We know that what is
answered in surveys is often a desirable state, rather than the real state. But
these are interesting numbers even after making allowances for that. They do
suggest that HR BPO is an attractive business proposition from both value and
volume angles.

There are big deals happen-ing across the globe. Delta Airlines signed a $120
mn deal with Affiliated Computer ser-vice (ACS) to outsource its HR functions.
Marriott Internatio-nal signed a seven-year deal with Hewitt Associates. The
dominant trend continues to be the outsourcing of payroll management, travel and
expenses management, and other transaction-oriented jobs that are more of accoun-ting
functions rather than HR functions. HR is meant to make the whole work
experie-nce more comfortable for the employee and more beneficial for the
company. It does invo-lve a large quantum of transa-ction processing. But that
by itself is not HR. There is much more that needs to be done for enhancing
recruitment processes, programs for employee motivation, training &
development, and other such areas. Stuff that develops people-not just process
their transactions. To offer these services, the skill require-ments are very
different. Ser-vice providers have to have in-depth knowledge of HR conce-pts;
understand strategic implications of outsourcing; possess global business
know-ledge to source and deliver optimum solutions; and have an understanding of
the social and cultural issues involved in the customer set up.

Without these the pot of gold can remain distant.

A corollary of the HR BPO growth also needs to be applied domestically. After
all, many Indian companies in the IT arena are growing at pheno-menal rates. And
revenue increase for them is direct function of people employed. We are looking
at 50,000-plus employee companies in this area very soon. And these would have
to remain compe-titive. So, why should they not apply what they sell to their
customers? Don't they need HR outsourcing as much as or even more than
international companies? Estimates of this market in the domestic sector go up
to $2 bn, or approxi-mately Rs 9,000 crores! This means a few BPO companies
working exclusively for the domestic market! The present market estimates of
market size are more sedate at about $25 mn. Without joining issue over the size
of the estimates, it is relevant to recognize this smaller pot of gold that
hides behind the big pot.

Shyam Malhotra is the
Editor-in-Chief of Cyber Media publications (with inputs from Saswati Sinha)