Outsourcing

A NOTE ON OUTSOURCING:

The term outsourcing is used extensively in the present business world. Since 1980s, there is a clear trend towards vertical disintegration in the USA and other countries. Such outsourcing is done on a large scale in the production as well as service sectors. Outsourcing is very common in the IT sector. Many Indian IT companies get the benefit, of such outsourcing from American and European companies. Similarly, many automobile companies get components manufactured by others. Thereafter, such components are assembled by the automobile company. Here, automotive manufacturers have outsourced component manufacturing that was previously conducted in house. Tata’s new car is manufactured in this manner only. Outsourcing is becoming popular in the present global business.

The term outsourcing has been defined in different ways as mentioned below:

(1)   “Reliance on external sources for manufacturing components and other value-adding activities.”

(2)   “Buy rather than make strategy or vertical disintegration.”

(3)   “Another firm’s employees carrying out tasks previously performed by one’s own employees.”

Make or buy practice is quite old in business. Make means doing things internally. Buy means getting things done externally. The latter aspect is becoming more common in the present large scale business in the form of outsourcing.

Outsourcing means sending work outside the organisation to be done by individuals not employed full time with the organisation. In various business activities, the practice of outsourcing is popular and used extensively. The concept of outsourcing has entered in a big way in HRM in overseas companies. This trend has now entered in the Indian business. Right from recruitment, training profiling, compensation management and pay roll outsourcing also form a part of HR outsourcing. ‘Outsourcing of HRM functions in India has big scope. HRM outsourcing at the global level was worth $ 46 billion in 2003.

It may be noted that all HRM functions cannot be outsourced as HR service outsourcing is not like the product outsourcing. This is because HRM functions require certain confidentiality. However, all HR functions are not of the same confidential nature. Those HR functions which are not confidential can be or may be outsourced. Similarly, functions with less criticality can also be outsourced.  In brief, confidentiality and criticality are two factors which need careful consideration before going for outsourcing. Every organisation has toy decide’ what to outsource and what not to outsource because all HRM functions cannot be outsourced safely. For example, preliminary work relating to recruitment and selection, administrative work relating to employee benefits, employee, welfare services, pay role and compensation management, staff training and the HRM functions which are not performed on regular basis such as human resource planning, preparation of appraisal forms, job design, job evaluation, installation, of safety measures, etc can be outsourced easily, economically and without any adverse effect on confidentiality.