Potential of Human Resource Outsourcing. Benefits and Risks in the Public Sector of Bangladesh

Table of Contents

Lists of Figures

Lists of Tables

List of Acronyms

Chapter 1: Introduction
1.1 Background of the Study
1.2 Objectives
1.3 Scope of the paper:
1.4 Limitations
1.5 The time schedule and Outline of the Study

Chapter 2: Methodology
2.1 Research Methodology
2.2 Data Collection Procedures

Chapter 3: Literature Review
3.1 Current Research
3.2 Gap Analysis

Chapter 4: An overview of HR Outsourcing in Public Sector
4.1 Overview of Outsourcing:
4.2 Reasons for Human Resource Functions Outsourcing
4.3 Benefits of Outsourcing
4.4 Disadvantages of Outsourcing

Chapter 5: Analytical Discussion
5.1 Survey Data Analysis and Discussion
5.2 Prevalence of Outsourcing in HR Functions in Public sector
5.3 Commonly Outsourced HR Functions
5.4 Reasons for Outsourcing
5.5 Obstacles Faced in Decision to Outsource HR Functions
5.6 Benefits of Outsourcing HR Functions
5.7 Negative Outcomes of HR Functions Outsourcing
5.8 Reasons Organizations Have Chosen Not to Outsourcing HR Functions:
5.9 Cost Implications in HR Functions Outsourcing
5.10 Satisfaction with HR Outsourcing Services and Relationship with Vendors

Chapter 6: Recommendations & Conclusion
6.1 Recommendations
6.2 Conclusion

References

Appendix 1: Interview Questions

Lists of Figures

5.1.1 Prevalence of Outsourcing in Public sector

5.2.1 HR functions that are Outsource Completely, partially

5.3.1 Reasons of Outsourcing

5.4.1 Obstacles Faced in Decision to Outsourcing HR Functions

5.5.1 Benefits of Outsourcing HR Functions

5.6.1 Negative Outcomes of HR Functions Outsourcing

5.7.1 Reasons Organizations have Chosen not to Outsourcing

5.8.1 Cost Implications In HR functions Outsourcing

5.9.1 Satisfaction with HR Outsourcing Services & Relationships with Vendors

Lists of Tables

5.2.1 HR Functions that are Outsourced, Completely and Partiall

List of Acronyms

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Acknowledgement

I am very much indebted to Director Mr. Md. Shohel Imam Khan, Mentor of my research work for his continuous support and guidance. His valuable suggestions gave me the strength to complete my seminar paper. I owe my deepest gratitude to Module Director Dr. Rizwan Khair, Director (IP and PPR) for his all out supports for my work. I am also expressing my deepest sense of gratitude to the government of Bangladesh for selecting me for this course.

It is my privilege to acknowledge the patient guidance and fruitful advice of Mr. A.L.M. Abdur Rahman,ndc, honorable Rector and Mr. Banik Gour Sundar, Member Directing Staff and Course Advisor of 107th ACAD for completing this paper.

Heartfelt thanks are due to Course Coordinators of the 107th ACAD Dr. Anisur Rahman Khan, Assistant Director and Md. Tanjir Hasib Sarker, Evaluation Officer, BPATC for giving me invaluable advice and providing necessary support on time.

In carrying out the studies I was immensely benefited from the encouragement inputs of my fellow colleagues of 107th ACAD. I acknowledge their contributions gratefully.

Special thanks are due to the officials of Ministry of Finance, Road Transport and Highways Division, BRTC, BRTA, Department of Roads and Highways, BCSIR, Ministry of Fisheries and Livestock, MOPA, Ministry of Sports and Youth Development, Ministry of Local Government and Cooperatives etc those who are scarifying their time and adding their valuable comments for answering the research questions.

I took time away form my wife and members of my family depriving them of my company when they needed it. I am sure; they have forgiven me because the time has been used for a good cause: learning knowledge.

I thank all others who helped me to publish this paper, which I consider a great event. I am really grateful to the attendants of the 107th ACAD, computer operators, and library attendants for giving me time and invaluable information also.

Executive Summary

This paper centers on human resource outsourcing in the Bangladeshi Public sector organizations as model of leveraging the potential benefits and prospects of outsourcing. The design of the seminar paper was a combination of the collation of secondary data and primary survey analysis. Crucial issues discussed include, the concept of human resource outsourcing, benefits of outsourcing, limitations of outsourcing, review of the human resource outsourcing efforts in the public enterprise, problems human resource outsourcing in the public sector enterprises in Bangladesh etc.

The findings include that the centralized human resource management & training structure of the public sector do not allow for flexibility and the tapping of the huge benefits and potentials of human resource outsourcing, inadequate finding strangles the use of competent and capable providers. About 62.5% respondents have expressed that training & development for executives did not outsource. Only temporary staffing, staff appointment for cleanliness functions partially outsourcing cited by 60% respondents. HR functions outsourcing for core activities are very limited because of bureaucratic and centralized ideas have prevailed in public sector. Minimal budget allocation, unavailability & lack of qualified vendors are a serious obstacles for HR functions outsourcing cited by 56% respondents.

On the other hand, the majority (75%) indicated that outsourcing allows improving the service quality, 69% opined that outsourcing helps increasing the institutional capacity, while 56% stated that it brings a better reputation among employees. The study observes that Upliftment of mental strength and more positive outlook have been perceived by employees in public sector through outsourcing of HR functions.

As a result, for reaping the benefits and potentially of HR outsourcing & reaching the objectives of this paper, the findings of the paper focus on formulation of user friendly policy & planning initiatives, adequate budget allocation , strengthening institutional capacity , and stressing on proactive mindset & attitude towards HR functions in government sector.

Abstract:

The present paper focuses on different types of HR functions outsourcing and the factors which need to be considered before public sector go for outsourcing of HR Functions. A review of available literature was done in order to understand the risk and benefits of outsourcing HR Functions that need to focus on their core business activities and still establish and maintain good HR policies and to explore the factors that affect the HR outsourcing decision with special emphasis on a proper cost benefit analysis of HR functions outsourcing. The findings of the paper implicitly point out that the decision of HR outsourcing is contingent upon factors like availability of adequate resources, flexibility, affordability and acceptability. The paper also suggests a systematic process & certain pre-requisite to successfully execute HR Functions outsourcing.

Keywords: Human Resource Functions, Outsourcing, Public sector, availability of adequate resources, flexibility, affordability and acceptability.

Chapter 1 Introduction

1.1 Background of the Study

Outsourcing has been defined as work done for a company by people other than the company’s full-time employees. It basically means asking a third-party vendor to work for organization on a contractual basis. Companies outsource primarily to cut costs. But today, it is not only about cutting cost but also about reaping the benefits of strategic outsourcing such as accessing skilled expertise, reducing overhead, flexible staffing, and increasing efficiency, reducing turnaround time and eventually generating more profit.

Human resource functions outsourcing comes a long way. The history depicts that through specialization contracting began to be more accepted, especially in the service industry. This was the beginning of the first wave of outsourcing in the time of the industrial uprising approaching the growth of services such as insurance services, architecture and engineering services. HR services are among the key elements in the enlarging outsourcing game in public sector also. Recognizing the fact that senior management needs to get out of mundane day-to-day processing work and focus on strategic planning, core competencies, customer satisfaction and decision making. Some of the functions most commonly handed over to outside providers include recruiting, training & selection procedures, temporary staffing, risk management, payroll, benefits administration, drug testing, etc.

In the modern setting, outsourcing turns out to be highly complex and organizations use outsourcing vendors for a variety of reasons. According to analysts, public sectors usually cite cost reduction as the most crucial reason for HR outsourcing. Human Resource Outsourcing can help cutting costs, concentrating on core business and most importantly in ensuring employee satisfaction. Public sector can concentrate on their core competencies which will save them their valuable time and resources.

The paper aims to find out the present scenario of HR functions outsourcing in Public sector in Bangladesh. The main goal of the study is to reveal the existing practices of outsourcing of human resources functions in public sector in Bangladesh. At the same time the study was conducted to find out the causes of outsourcing and the risks and benefits level of those who are outsourcing human resources functions

1.2 Objectives

- To examine how public sector are dealing with Human Resource Outsourcing and determines its impact on performance of the government sector.
- To explore the possible benefits and threats of HR Functions outsourcing in public sector.

1.3 Scope of the paper:

The scope demarcates the boundary of the paper. The paper mostly has discussed the possibility of the HR Functions outsourcing in Public sector of Government of Bangladesh. It gives a limited access to government sector only. Predominantly, it demarcates the area of what are the possibility of outsourcing in public sector, provides ideas about possible benefit and risks of HR outsourcing. The questionnaire survey is used only in public sector. Finally, the paper has tried to find the benefits, possible threats of HR outsourcing in Government sector through questionnaire survey within public sector and provided possible strategic recommendations how to improve this situation.

1.4 Limitations

For doing this study, the paper has encountered some limitations too. Limitations are as follows:

One of the major limitations of this study, practical field observation is partially done because of limited time. This is a short and small study and therefore it is difficult to select a large sample size for administering the questionnaire. Within this timeframe, it is impossible for the researcher to visit the maximum officials in government sector for collecting data. The small size of sample is the limitation of this study. No available research has been done in this sector. Limited secondary data have been perceived by the paper. The paper mostly depends on external resources rather than internal resources. Data from the BOI, Finance Division, and statistical department may not reflect and capture accurately the entire scenario of outsourcing in Bangladesh. These are other limitations of this study. For time limitation, the paper can not observe the situation of vendor’s perspectives.

1.5 The time schedule and Outline of the Study

The time schedule for preparing this seminar paper is from within March-April 2016.

The structure of the paper is as following features: Chapter 2 describes the method and materials how conducting this paper; Chapter 3 reviews the relevant literature; Chapter 4 provides a overview of outsourcing in public sector; Chapter 5 discusses about survey data and analytical discussion of data ; and Chapter 6 presents conclusion and commendations of the seminar paper as a whole.

Chapter 2 Methodology

2.1 Research Methodology

This study has applied phenomenological approach and qualitative research method. For answering the research questions, a vast quantity of related prevailing literature have reviewed for this study. To gather primary data about the perceptions and experiences of the target groups has been collected through a structured interview question (Appendix 1). A structured interview has been conducted on the purposefully selected policy makers, officials of public sector. For primary data, interview protocol is used for asking questions and recording answers during this research through face-to-face interview telephone dialogue, email and Skype.

The relevant secondary data are gathered from statistics department and research department of Bangladesh Bank, Board of investment, Bangladesh, Bangladesh Economic Review, Bangladesh Bank Bulletin, World Investment Report, and other national & international articles, and journals, etc.

2.2 Data Collection Procedures

The data collection steps include setting the boundaries for the study (Creswell, 2007).For answering the research questions; data has been collected through structured interview questions and from related documents. During the process of research, the investigator has collected qualitative documents, journals, articles, public documents or private documents. For primary data, interview protocol is used for asking questions and recording answers during this qualitative research through face-to-face interview telephone dialogue, and email.

Chapter 3 Literature Review

3.1 Current Research

Although there are lots of theoretical and empirical articles and on outsourcing organizational function such as information system and accounting, the academic literature on outsourcing the HR functions is almost non-existing. In the topic of human resource outsourcing, the top and most important argument that comes in discussion is the cost benefit analysis for firing out services which were performed internally (Anderson et al, 1986; Greer et al, 1999; Gupta et al, 1992; Kakabadse et al, 2002; Lever, 1997, and Vining & Globerman (1999) note that empirical data from government agencies outsourcing to private suppliers generated savings in the range of 20-30 % in production costs. Some factors include vendor customer satisfaction, employee satisfaction and expertise (Barthelemy, 2003) and loss of strategic advantage.

Adler (2003) notes that a review by the Granter group listed six factors that are important in outsourcing decisions: dependency risk, spillover risk, trust, relative proficiency, strategic capabilities, and flexibility. The first four of these factors are short term factors, whereas the last two are considered more long term or strategic. However, no clear formula exists that identifies when outsourcing is most efficient and effective. There are a number of reasons, at both the strategic and operational level, why public sector organizations want to outsource HR activities. In particular, demands for increased productivity, profitability, and growth have forced organizations to examine their internal HR processes, resulting in a move toward strategic outsourcing services and away from discrete services.

Khair, R. (1999) conducted an important study entitled “Contracting Out in the Public Sector: Concepts and Issue”. It is a fundamental research in the field of Contracting. This empirical study has revealed that governments across the globe are searching for ways for improvements in the public sector. As such, greater use of markets is creating competitive pressures and offering more alternatives to public provision for users seeking quality or lower cost. The World Development Report (1994:42) identifies ‘Service Contracts’ that involve transfer to private providers the responsibility for delivering specific services at lower cost or obtaining specific skills or expertise lacking in the public sector.

As Greer, Youngblood, and Gray (1999) observe, HR outsourcing decisions are frequently a response to an overwhelming demand for reduced costs for HR services. Downsizing and tougher competition mean that the HR functions is under increasing pressure to demonstrate value, both in terms of efficiency and effectiveness (Roberts, 2001). Although some elements of the HR functions may have always been performed by external service providers,

Brewster observes that a new dimension “is this finance-driven idea connecting outsourcing to human resource management – the idea that organization can save a lot of money by outsourcing” (quoted in Turnbull, 2002, p. 10). In addition, outsourcing is seen as a way of liberating HR professionals within the client organization to perform the more consultative and strategic role of designing and implementing programs aimed at retaining the workforce and enhancing its performance. This rationale is in line with Ulrich’s (1998) influential thesis of the four roles of HR, in which he proposed that HR should be a strategic partner, an administrative expert, an employee champion, and a change agent.

In a similar vein, Greer et al. (1999) argue that HR outsourcing is consistent with the business partner role that the in-house HR department is attempting to assume. These roles arguably are where HR can add the greatest value to the organization, but they are difficult to measure quantitatively. Outsourcing HR is also seen as an effective way to bypass organizational politics and improve efficiency.

In short, the main reasons for outsourcing HR appear to be fairly consistent (Sisson & Storey, 2000). Typical reasons include seeking specialist services and expertise, cost reduction, and enabling HR specialists to take on a more strategic role. In general, most commentators are convinced that outsourcing is seen not only as a cost-cutting exercise but also as a strategic tool. As Oates (1998) suggests, the outsourcing decision is a strategic one and is generally taken at a senior level.

Klaas (2003) develop a framework that helps analyze HR outsourcing factors in small and medium sized enterprise (SMEs) by explicating on the relationship between SMEs and the professional employer organization and Gainey and klaas (2003) analyze HR function specifically in the context of training and development these studies are expectation rather than the rule. This fact is surprising given that many HR function such as pay role, benefits, training, and recruiting are often outsourced by organization(Gilley et al, 2004).

The growing choice to outsource, especially HR services, means that public sector may soon be in the position of choosing a vendor, or helping to do so. This choice requires great care, as the vendor must be held accountable. If public sector outsources HR correctly, it can improve service quality, save money and time, and free HR time for core functions, noted Geoffrey Dubiski, director of operations at Yoh HR Solutions (Philadelphia), an HR outsource vendor.

Poor outsourcing, however, could bring lower service quality and the employee complaints that lower quality can spawn. “Most HR outsourcers provide satisfactory levels of service, but none of them provide exceptional service,” claims Michael Cornetto, a senior consultant at Watson Wyatt Worldwide (Washington, D.C.).

A notable recent trend has been the increased use of contingent and temporary workers, or the outright outsourcing of Human Resource functions (Harkins et al, 1995). A 1996 survey by the American management Association found that 77% of their respondents outsourced some functions, up from 60% in 1994. Other HR departments, under budgetary and managerial pressure, are simply eliminating certain services previously provided by HR staff (AMA, 1996). .

A number of competitive forces have been identified as drivers of the trend to outsourcing (Greer et al, 1999).These include: downsizing of internal staff, rapid growth or decline, increased competition, and restructuring. The push to reduce costs drives many outsourcing decisions. A number of other reasons for outsourcing have been identified as well. (Cook, 1999; Greaver, 1999; Greer et al., 1999; Milgate, 2001).

Outsourcing human resource activities in our country is nothing new at all. Government has been outsourcing, specially, in construction sector since long. Farmers in villages do outsource during the time of harvesting crop. In domestic level, people outsource carpenters, masons and other kind of activities. And so forth. Recently, private sector employers are more interested in outsourcing different activities apart from their line of business. RMG manufacturers, construction firms, Banks, telecom operators are frequently outsourcing their different need of human resource. But HR functions outsourcing in public sector is a very new and growing sector in Bangladesh which needs an extra care for evolving this sector for reducing cost, bureaucratic dilemma, political interference in HR functions.

3.2 Gap Analysis

To sum up, the literature review suggests that HR Functions outsourcing is an important tool and is also seen as an effective way to bypass organizational politics and improve efficiency in public sector. Currently, there is a vast amount of literature pertinent to HR outsourcing in private sectors in Bangladesh, but very few focus on benefits, possible risks, strategies and approaches and how to boost up HR functions Outsourcing in public sector of Bangladesh.

This paper fills in the current academic gap by examining issues (i.e., the role of government’s attitude and the outcome of new strategies) raised in this paper. An overview of human resource functions outsourcing in public sector has been discussed for contributing to deeper understanding of creating a conducive environment for attracting outsourcing in public sector. Ultimately, through gap analysis between current literature reviews, present scenario of outsourcing position, and primary survey analysis, the paper makes strategic recommendations for reaching the objectives of HR functions outsourcing in public sector in Bangladesh.

Chapter 4 An overview of HR Outsourcing in Public Sector

4.1 Overview of Outsourcing:

Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers. Outsourcing is an increasingly popular method of achieving performance improvement. However, the results have been mixed. Some organizations have not achieved the desired benefits associated with outsourcing and experienced outsourcing failure instead. Public sector in Bangladesh has a limited access to HR functions outsourcing.

4.2 Reasons for Human Resource Functions Outsourcing

Human Resource outsourcing in public sector organizations is still evolving (less common than in the private sector). However, the rationale for outsourcing is essentially the same in both public and private sectors. Common financial drivers of human resource outsourcing include;

(i) To save money (ongoing expenditures)
(ii) To avoid huge capital outlay
(iii) To turn a fixed cost into a variable one (reducing the workforce reduces, human resource costs proportionally), (Leslie, 2010), (Rothman, 2003).

4.3 Benefits of Outsourcing

The outsourcing of HR functions has several potential benefits stemmed from literature review:

- It frees the internal HR staff to focus on strategic activities that add more values than transactional, administrative tasks
- It enables decentralized structures that support higher rates of innovation and flexibility
- It alleviates the bureaucratic burden of centralized HR administration
- It enables the HR department to play its part in overall corporate downsizing efforts
- It facilitates access to new ideas and approaches outside the organization.

Furthermore it has the following advantages as follows:

- Get access to skilled expertise
- Focus on core activities
- Better Risk Management
- Increasing in-house efficiency
- Staffing Flexibility
- Improve service and delight the customer
- Cut costs and save BIG!
- Give business a competitive edge

Outsourcing shows an increase in productivity, customer loyalty. Level of quality, business value, profits, and much more.

4.4 Disadvantages of Outsourcing

There are risks and hurdles like that of higher cost and low quality and fear of loosing control. Other most common problems of HR outsourcing were poor services, costs higher than promised, contractors with insufficient knowledge about the client and unanticipated resources required to manage the relationship. These pros and cons play out differently for firms of various sizes with respect to different HR processes.

Possible Disadvantages are diagnosed from existing literature review:

HR Outsourcing can

- Reduce corporate robustness by changing support functions
- Require considerable care in coordinating information flow with the agency
- Reduce the organization’s learning capability by depleting its skill base
- Impair the Organization’s ability to integrate processes
- Compromise the organization’s control over the functions that are outsourced
- Damage morale and motivation as jobs appear to be lost
- Increase employees' insecurity, whether staff remain in the Organization or are hired by the Agency.

Chapter 5 Analytical Discussion

5.1 Survey Data Analysis and Discussion

The main objective of this study is to find out and examine public sector are dealing with HR Functions outsourcing and determines its impact on organizational performance of the government sector. The paper also has discussed about the advantages and disadvantages for attracting Outsourcing in Public sector. The instrument of this paper is the structured questionnaire (Appendix 1). The general goal of the paper is to investigate the way in which organizations manage the risks and the benefits both expected and attained in the process of outsourcing.

For this purpose, a survey of 31 different government officials is conducted for understanding and find out the underlying causes of these objectives. The survey was purposefully concentrated on the different government sector officials. Structured research interview questions have been supplied to the testee through face-to –face interview.

The data gathered were categorized under specific themes: 1. Prevalence of Outsourcing; 2. HR Functions that are outsourced completely, partially or Not at all; 3. Reasons of Outsourcing; 4. Obstacles Faced in Decision to Outsourcing HR Functions; 5. Benefits of Outsourcing HR Functions; 6. Negative Outcomes of Outsourcing; 7. Reasons Organization’s have chosen not to outsourcing; 8. Cost Implications in HR Functions Outsourcing, and 9. Satisfaction with HR Outsourcing Services and Relationship with Vendors.

These themes /categories have been applied to answer and find out the public sector’s attitude towards outsourcing. The following specific themes have been operationalized to review the gap areas between the existing outsourcing literatures and present findings of the paper.

5.2 Prevalence of Outsourcing in HR Functions in Public sector

The study has found the prevalence of outsourcing in public sector through conducting survey in various ministries/divisions/departments.

Figure 5.1.1: Prevalence of Outsourcing

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Source: Survey Data collected by Presenter

Figure 5.1.1 depicts the percentage of organizations that currently outsourcing one or more of their HR functions. While 35% of the organizations currently outsourcing HR functions, another 26% reported not outsourcing and having no plans to outsource. It is generally recognized that large organizations outsource HR functions more often and have been outsourcing for longer periods of time compared with smaller organizations.

5.3 Commonly Outsourced HR Functions

The study has revealed that the tendency of outsourcing in public sector is not so robust. The factors which act as motivators for outsourcing are not so active. HR functions may be partially outsourced or completely outsourced. The distinction between the two is that in the former, the organization retains some control over the outsourced functions and may share access to information with the vendor. In the latter, the organization relies upon the vendor to carry out the entire function—thus, the HR department’s role with regard to the outsourced function is minimal and may be limited only to managing the relationship with the vendor.

Table 5.2.1: HR Functions that are outsourced completely, partially or Not at all

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Table-5.2.1 comprises a list of 09 human resource functions that were either partially or completely outsourced by organizations that currently outsource at least one HR function. Overall, figure-5.2.1 shows, more than one-half (56%) of organizations partially outsourced at least one HR function, while 6.25% completely outsourced at least one HR function. Temporary staffing, staff appointment for cleanliness, training and development purpose for ICT, staff training and development , and appointment for specialist post are most favored HR functions for partially outsourced by different organizations. More than 50% organizations do not prefer to outsource. .

Figure 5.2.1: HR Functions that are outsourced completely, partially or Not at all

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Source: Primary Survey data (Made my Presenter.)

5.4 Reasons for Outsourcing

The reasons for outsourcing can be anything between desires to save money to compensate for lack of experience in handling HR related affairs. The most prominent of the reasons include desire to make up for a reduction for a HR staffs, improvements in quality, save time, save money, and lack of experience and improve competence etc. Besides, there was also an attempt to see whether these motives that usually prompt people to outsource vary according to different functions of an organization.

Figure 5.3.1: Reasons for Outsourcing

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Source: Primary Survey data

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