Excerpt from new book on HR outsourcing
The role of HR in a firm’s decision to outsource jobs overseas is tackled in a new book, Out of Site: An Inside Look at HR Outsourcing, edited by Karen Beaman and published by IHRIM Press. Below is an excerpt:
HR executives owe it to their companies and their employees to “step up” and manage how and when their corporation embraces offshoring. Rationally and emotionally they are most optimally positioned to help companies plan, source and execute a systematic and well-communicated offshoring program. The economics are so striking (at least on surface) that it is not a matter of “will our company offshore?” It is more a matter of “when and how will our company offshore?” HR must proactively lead the latter issue.
No plant manager would dare run operations without an MRP (materials requirements plan) with specifics on parts manufactured or externally procured. In contrast, it is surprising while companies talk about talent being their most important asset, few companies do a similar, detailed talent requirements plan (TRP). This is a role-level and volume-based analysis of skills needed. For example, in the next quarter, we will need 12 Java developers for various IT projects, four of those are already on our payroll, but two are already committed, so we need 10 more. Six of those will come from our project with our integration partner. The other four we will get from our contract staffing firms.
The HR executive needs to define specific roles across the enterprise and then work with executive peers to make these plans for a year, providing “refreshes” on a monthly basis, ideally, but at least quarterly. If this seems like a lot of work, bear in mind that some MRP schedules are re-run on a real-time basis.
The next step in developing a talent requirements plan is to cost out the various sources of talent — internal, employed staff versus individual contractors versus those provided by vendors on a project or outsourcing contract. To this mix, we now need to add the cost of an offshore resource.
Help with the offshore sourcing plan
Once the TRP is done, the HR executive needs to be involved in the sourcing decision. This sourcing process has four elements:
•perform a geographical analysis of where to offshore.
•conduct a build-versus-buy evaluation;
•if a build decision, decide how best to set up the offshore subsidiary; and
•if a buy decision, evaluate western vendors with offshore subsidiary/sub-contract arrangement; direct with offshore vendor; and more complex joint venture or build-operate-transfer arrangement.
The geographical decision is critical.…The talent quality, economics and availability should be the prime factors for deciding on an offshore destination. But other commercial interests (existing trade in that country, how much demand there is likely to be for our products there), political stability, business ethics, security, business continuity, intellectual property protection, infrastructure, and a whole lot of other considerations can complicate the decision.
The HR executive should help in such country analysis — evaluating likely talent capacity, educational institutions, HR and health and safety standards — and focus the sourcing team away from personal or political biases. Since many of the offshore locations are likely to be in the Third World, it is reasonable to expect a lot of fear, uncertainty and doubt. In general, a formal country analysis process should be a reasonably routine exercise for global companies that are used to evaluating new operations. However, for many mid-sized enterprises and even larger companies that only trade in the Western world, this can be a significant challenge.
Manage the communication process
HR executives need to be an integral part of the team to communicate to various stakeholders — management, internal staff, the press, etc. The discussions will likely be emotional as in “Why are we exporting jobs?” especially where staff layoffs are involved. They should also be prepared if contract staff, who can technically be terminated without cause, complain in the media about the unfairness of offshoring.
HR executives should also maintain regular communications with the offshore vendor. Sharing HR vision and best practices with suppliers is a healthy practice. In reverse, offshore vendors are innovating with their own HR practices that can be imported back to the West. As an example, offshore vendors have become very adept at mobilizing and moving large teams across borders. For years, there has been considerable interest in Japanese HR practices around consensus building and teamwork and whether their practices such as “nemawashi” (prior consultation) can be adapted to the West. Offshore vendors will similarly provide insight into other HR practices that can be similarly leveraged.
Evaluate offshore opportunities within the HR function
While the HR executive can help in IT, accounting or other offshoring, they also need to think about their own domain. HR has traditionally outsourced a number of activities from payroll to benefits processing. Gartner estimates that in 2004 HR BPO activities will total $50 billion US globally. HR executives should understand how western providers are leveraging lower offshore costs and also start to evaluate a new generation of offshore providers that are targeting HR functions.
Offshore outsourcing will increasingly require HR attention. The economics of offshoring will continue to be very attractive from a “rational” perspective. The spectre of exporting western jobs will make invariably the decisions “emotional.” HR executives are well suited to help their corporations make appropriate offshoring decisions on both planes.
For more on IHRIM Press titles contact the International Association of Human Resource Information Management at (800) 946-6363.
Author Vinnie Mirchandani has more than two decades’ experience as a technology entrepreneur, operational executive, industry analyst and implementation consultant. He can be reached at [email protected].
HR executives owe it to their companies and their employees to “step up” and manage how and when their corporation embraces offshoring. Rationally and emotionally they are most optimally positioned to help companies plan, source and execute a systematic and well-communicated offshoring program. The economics are so striking (at least on surface) that it is not a matter of “will our company offshore?” It is more a matter of “when and how will our company offshore?” HR must proactively lead the latter issue.
No plant manager would dare run operations without an MRP (materials requirements plan) with specifics on parts manufactured or externally procured. In contrast, it is surprising while companies talk about talent being their most important asset, few companies do a similar, detailed talent requirements plan (TRP). This is a role-level and volume-based analysis of skills needed. For example, in the next quarter, we will need 12 Java developers for various IT projects, four of those are already on our payroll, but two are already committed, so we need 10 more. Six of those will come from our project with our integration partner. The other four we will get from our contract staffing firms.
The HR executive needs to define specific roles across the enterprise and then work with executive peers to make these plans for a year, providing “refreshes” on a monthly basis, ideally, but at least quarterly. If this seems like a lot of work, bear in mind that some MRP schedules are re-run on a real-time basis.
The next step in developing a talent requirements plan is to cost out the various sources of talent — internal, employed staff versus individual contractors versus those provided by vendors on a project or outsourcing contract. To this mix, we now need to add the cost of an offshore resource.
Help with the offshore sourcing plan
Once the TRP is done, the HR executive needs to be involved in the sourcing decision. This sourcing process has four elements:
•perform a geographical analysis of where to offshore.
•conduct a build-versus-buy evaluation;
•if a build decision, decide how best to set up the offshore subsidiary; and
•if a buy decision, evaluate western vendors with offshore subsidiary/sub-contract arrangement; direct with offshore vendor; and more complex joint venture or build-operate-transfer arrangement.
The geographical decision is critical.…The talent quality, economics and availability should be the prime factors for deciding on an offshore destination. But other commercial interests (existing trade in that country, how much demand there is likely to be for our products there), political stability, business ethics, security, business continuity, intellectual property protection, infrastructure, and a whole lot of other considerations can complicate the decision.
The HR executive should help in such country analysis — evaluating likely talent capacity, educational institutions, HR and health and safety standards — and focus the sourcing team away from personal or political biases. Since many of the offshore locations are likely to be in the Third World, it is reasonable to expect a lot of fear, uncertainty and doubt. In general, a formal country analysis process should be a reasonably routine exercise for global companies that are used to evaluating new operations. However, for many mid-sized enterprises and even larger companies that only trade in the Western world, this can be a significant challenge.
Manage the communication process
HR executives need to be an integral part of the team to communicate to various stakeholders — management, internal staff, the press, etc. The discussions will likely be emotional as in “Why are we exporting jobs?” especially where staff layoffs are involved. They should also be prepared if contract staff, who can technically be terminated without cause, complain in the media about the unfairness of offshoring.
HR executives should also maintain regular communications with the offshore vendor. Sharing HR vision and best practices with suppliers is a healthy practice. In reverse, offshore vendors are innovating with their own HR practices that can be imported back to the West. As an example, offshore vendors have become very adept at mobilizing and moving large teams across borders. For years, there has been considerable interest in Japanese HR practices around consensus building and teamwork and whether their practices such as “nemawashi” (prior consultation) can be adapted to the West. Offshore vendors will similarly provide insight into other HR practices that can be similarly leveraged.
Evaluate offshore opportunities within the HR function
While the HR executive can help in IT, accounting or other offshoring, they also need to think about their own domain. HR has traditionally outsourced a number of activities from payroll to benefits processing. Gartner estimates that in 2004 HR BPO activities will total $50 billion US globally. HR executives should understand how western providers are leveraging lower offshore costs and also start to evaluate a new generation of offshore providers that are targeting HR functions.
Offshore outsourcing will increasingly require HR attention. The economics of offshoring will continue to be very attractive from a “rational” perspective. The spectre of exporting western jobs will make invariably the decisions “emotional.” HR executives are well suited to help their corporations make appropriate offshoring decisions on both planes.
For more on IHRIM Press titles contact the International Association of Human Resource Information Management at (800) 946-6363.
Author Vinnie Mirchandani has more than two decades’ experience as a technology entrepreneur, operational executive, industry analyst and implementation consultant. He can be reached at [email protected].
