Monday, June 15, 2009

Is the independent workforce strategy a viable option? Implications on HRM

Globalization and cost pressures have seen many firms the world over trying to convert their fixed costs into variable amounts by using an independent workforce strategy of outsourcing, offshoring and contract hiring.


Offshoring simply means that a firm hires local employees abroad to do jobs previously done by the company’s in-house domestic employees. Here the role of the HR department in identifying high quality, low cost talent abroad and to provide the necessary background data on things like wage rates, working conditions and productivity becomes pivotal. The HR manager also needs to make sure that there is an effective supervisory and management structure in place to manage the offshore workers. Recruitment, retention, compensation, T&D and appraisal – jobs traditionally done by the HR department hence will have to grow to compensate for the increased distances involved with offshoring.


Simply put, outsourcing is the contracting of a third party to manage a business process more effectively and efficiently than can be done in-house. The key idea behind this is that organizations can free-up resources involved in support functions so as to improve the performance of core functions. The improved performance resulting from this is also expected to outweigh the loss of control associated with outsourcing.

Outsourcing tends to be a uniquely HR-dependent activity as now instead of the HRM domain being restricted to a given company , the HR manager have to deal with a host of companies each having their own and generally unique culture and environment. Thus in such a scenario, the HRM function of people management is now becoming that of vendor management and change management for the outsourcing company while the vendor’s HRM would add client management to the already long list of HRM tasks namely recruitment, training and development, retention,…

Change management
Change management would involve generating organizational readiness to receive and sustain the change associated with outsourcing. This involves
1. Identifying appropriate leadership to oversee and mange the outsourcing effort
2. Creating a transition management plan that identifies activities to be transferred to the vendor
3. Developing a conflict resolution structure to take care of client-vendor and internal employee conflicts.
4. Having appropriate matrices and reporting framework in place to measure effectiveness of the outsourcing arrangement.

Shift from transactional and traditional HRM activities to transformational
India today has virtually become the back office of the world with a large number of companies outsourcing their non-core functions to India. These non-core functions include transactional activities such as benefits administration, record keeping and employee services and traditional activities such as Recruitment and selection, training, compensation and employee relations. This shift has lead to a company’s HRM department looking at the transformational part that is cultural change and strategic redirection and renewal even more than in the past.

Focus on Output
Any SHRM initiative always focuses on directing the individual, behaviors, culture, subsystem and environment blocks towards achieving a desired output (goal, mission, vision) .Outsourcing also focuses on the output of the process without the additional burden of the remaining five blocks which get outsourced to the service provider.

Implications on organizations
The impacts of outsourcing are not limited to the economic domain. There are also organizational implications, such as loss of control over how an outsourced activity is carried out or a service is delivered. The organization may become dependent on the external service provider and thereby lose strategic flexibility which in turn may harm its long term goals.

Another major area which is hit is the organizations culture. Partial outsourcing will result in the employees retained within the firm having fewer opportunities to gain broad experience and have less career chances (Greer et al., 1999) . This means that motivation levels would reduce. Thus HRM would have to be present to reduce attrition.

Knowledge process outsourcing (KPO) even though currently in its nascent stage is the path that most experts predict the Indian BPO industry will move in the future. This will result in highly specialized knowledge based organizations specializing in one or more fields such as finance, training, etc. Thus the organization will move from a cost center to a profit center with each individual KPO employee contributing towards revenue generation giving the individual a clear sense of the value they provide.

Technology and HR
Technology and the internet have enabled the outsourcing of HR activities such as pay slip generation, retirement planning, etc. This is only possible because specialist service providers can now have real time, internet based access to their employer’s database. Technology also brings with it the demons of hacking, cracking and leakage of information as has been seen via various scandals in the BPO industry. This means that the company’s culture and subsystem will have to be tailored to meet these challenges.

Virtual team
Outsourcing also means that the lead time for training and development of new employees is extremely low as the service provider already has trained professionals and support infrastructure in place. Thus virtual teams can be easily setup whose lifespan is as long as the contract exists between the outsourcer and the BPO. This in turn would mean a cultural disconnect would exist the minds of the workers.

Contract hiring

As the environment becomes more competitive for a company, the resulting cost pressures normally lead to an increased tendency of the firm to hire and fire workers as per the market demand. This just-in-time contract hiring policy has many problems associated with it.

Loss of security
A major problem is the loss of security which a company offers to its workers in the form of health, legal rights and retirement benefits. Independent workers face lower earnings, fewer benefits and legal rights, truncated career paths, and dimmer prospects for retirement income security.
A company is less likely to send/impart training at its own cost to temporary workers. Thus they will not receive expensive training which is needed by them to keep abreast of technological developments so as to enable them to secure good jobs in the future. Instead they would have to spend from their own pockets to gain access to newer training and skill development. Thus HRM training function may shift from the company to the independent workforce.

Training becomes even more relevant when newer technologies get introduced within the company. Since the independent worker can simply be replaced by a more competent independent worker.

So Will SHRM continue in an independent workforce environment?

Strategic HRM refers to the overall direction the organization wishes to pursue in order to achieve its goals through people. A company’s intellectual capital such as experience and technical know how is a major source of its competitive advantage. It is also the employees of the company who implement the strategic plan of the company.

Thus it can be argued that if people get outsourced there is every chance that strategic HRM may itself get outsourced out of the company. However the points explained above clearly show that despite people moving out of the organization, HRM will continue to remain an integral part of an organizations structure.

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