Seminar Paper

On

Potentiality of HR Outsourcing: Benefits and Risks in Public Sector of

Bangladesh.

April 27, 2016

Md. Rezaul Maksud Jahedi Deputy Secretary

Ministry of Public Administration

Participant of 107th

ACAD

Submitted to: Dr. Rizwan Khair

Director (IP & PPR)

&

Module Director

Module 2: Seminar Paper

Seminar Paper Prepared as part of requirements for successful completion of the 107

th ACAD

Bangladesh Public Service Administration Training Centre, Savar, Dhaka.

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.

іі

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.

iii

Table of Contents

Chapter Title Page

Title Page і Acknowledgement іі

Executive Summary ііі Table of Contents іv

List of figures v

List of tables’ v

List of Acronyms vі Abstract vіі

1 Introduction

1.1 Background of the Study 01

1.2 Objectives of the study 03

1.3 Scope of the Study 03

1.4 Limitations of the Study

1.5 Time Reference & Outline of the Paper 04

2 Research Methodology

2.1 Methods 06

2.2 Data Collection Procedures 08

3 Literature Review

3.1 Current Research 07

3.2 Gap Analysis

4 An Overview of HR Functions Outsourcing in Bangladesh 07

4.1 An Overview of Outsourcing 16

4.2 Reasons of Outsourcing

4.2 Benefits of Outsourcing 17

4.3 Disadvantages of Outsourcing 18

5 Analytical Discussion: Survey Data and Discussion

5.1 Survey Data Analysis and Discussion 28

5.2 Observation and Perceptions of the Respondents 40

6 Recommendations & Conclusions 44

References 47

Appendix 50

іv

Lists of Figures

Figure Title page

5.1.1 Prevalence of Outsourcing in Public sector 12

5.2.1 HR functions that are Outsource Completely, partially 13

5.3.1 Reasons of Outsourcing 20

5.4.1 Obstacles Faced in Decision to Outsourcing HR Functions 21

5.5.1 Benefits of Outsourcing HR Functions 22

5.6.1 Negative Outcomes of HR Functions Outsourcing 23

5.7.1 Reasons Organizations have Chosen not to Outsourcing 23

5.8.1 Cost Implications In HR functions Outsourcing 24

5.9.1 Satisfaction with HR Outsourcing Services &

Relationships with Vendors 24

Lists of Tables

Table Title page

5.2.1 HR Functions that are Outsourced,

Completely and Partially 13

v

List of Acronyms

ACAD - Advanced Course on Administration and Development.

BCSIR -Bangladesh Council for Scientific and Industrial Research.

BOI - Board of Investment.

BPO -Business Process Outsourcing.

BRTA - Bangladesh Road Transport Authority

BRTC - Bangladesh Road Transport Corporation.

FD - Finance Division.

HRO - Human Resource Outsourcing.

HR - Human Resource.

KPO - Knowledge Process Outsourcing.

MOPA - Ministry of Public Administration.

SLA - Service Level Agreement.

SME - Small & Medium Enterprise.

WB - World Bank.

vі

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.

vii

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.

2.1 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

2.1 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.

2.2 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).

4.2 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.

4.3 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.

5.1 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

Outsourcing of HR functions plan to

outsourcing

15%Currently

Outsourcing

35%

Currently do not

Outsourcing

50%

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.

5.2 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

Functions Outsource

Completely

Outsource

Partially

Do not

Outsource

1. Executive Training and Development 0% 37.5% 62.5%

2. Staff Training and Development 0% 50% 50%

3. Training and Development purpose for ICT 12.5% 56.25% 31.5%

4. Temporary Staffing 6.25% 56.25% 37.5%

5. Risk Management Activities 0% 25% 75%

6. Consultant Appointment for Policy Development

and Formulation

12.5% 25% 62.5%

7. Appointment for Office Security 0% 31.5% 68.75%

8. Appointment for Specialist Post 6.25% 56.25% 37.5%

9. Staff Appointment for Cleanliness 6.25% 75% 18.75%

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

Commonly Outsourced HR Functions

0% 0%

12.50%

6.25%

0%

12.50%

0%

6.25% 6.25%

37.50%

50%

56.25% 56.25%

25% 25%

31.50%

56.25%

75%

62.50%

50%

31.50%

37.50%

75%

62.50%

68.75%

37.50%

18.75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Execut ive Training

and Development

St af f Training and

Development

Training and

Development

purpose f or ICT

Temporary St af f ing Risk Management

Act ivit ies

Consult ant

Appoint ment f or

Policy

Development and

Formulat ion

Appoint ment f or

Of f ice Securit y

Appoint ment f or

Specialist Post

St af f Appoint ment

f or Cleanliness

Functions Outsource Completely

Outsource PartiallyDo not Outsource

Source: Primary Survey data (Made my Presenter.)

5.3: 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

Reasons for Outsourcing

87.5

62.5

50

37.5

37.5

25

6.25

0 20 40 60 80 100

To make up for a reduction in HR staffs

To provide qualified services

To save money/reduce operating costs

To make up for the lack of experienced officials

To gain access to outsourcing facilities

To improve performance development

Other

Percentage

Percentage of respondents

Source: Primary Survey data

Figure 5.3.1 examines the reasons that organizations have decided to outsource. For making up

for a reduction in HR staffs (87.5%) , providing qualified services (62.5%) ,saving money and

reducing operating costs (50%) and improving performance are the drivers cited most often.

5.4: Obstacles Faced in Decision to Outsource HR Functions

Outsourcing can be a very involved and complex process to carry out. There are many factors

to consider from finding a suitable vendor to assessing the impact of change on the

organization as a whole.

Figure 5.4.1: Obstacles Faced in Decision to Outsource HR Functions

Obstacles Faced in Decision to Outsource HR Functions

6.25

25

31.5

31.5

37.5

43.5

50

56.25

0 10 20 30 40 50 60

Resistance within senior management

Fears about loss of control

Resistance from employees in general

Fears about loss of jobs

Faced no obstacles

Lack of Prior outsourcing experience

Fears that services to our employees might be affected

Lack of qualified vendors

Percentage

Percentage of Respondents

Source: Primary Survey data

Figure 5.4.1 lists the obstacles faced by organizations when deciding whether to move forward

with outsourcing. Overall, 38% of organizations reported that they had not faced any obstacles,

compared with 62% of organization that did. Lack of qualified vendors is a serious obstacle

cited by 56% respondents, Fears that customer service to employees might be impacted are

cited by 50% of respondents. The study also has perceived obstacles for outsourcing such as

fears about loss of jobs (31.5%), resistance from employees in general (31.5%), 25% of

respondents feel the fears about loss of control of the organization, and only 6.25% consider

resistance within senior management .

5.5 Benefits of Outsourcing HR Functions

Benefits of outsourcing are manifold. It gets access to skilled expertise, focus on core

activities, better risk management, increase in-house efficiency, staffing flexibility, and

improve service and delight the customers. Figure 5.5.1 illustrates the perceptions of the

respondents how they have evaluated the benefits of outsourcing of their own organizations.

Figure 5.5.1: Benefits of Outsourcing HR Functions

Benefits of Outsourcing HR Functions

31.25

43.75

50

56.25

68.75

75

0 10 20 30 40 50 60 70 80

More Positive Outlook Created in senior Management

Mental Strenght of employees Upheld

It has a better reputation among employees

Quality of Training Improved

Institutional Capacity Increased

Quality of Services Improved

Percentage

Percentage of Respondents

Source: Primary Survey data

The majority (75%) indicated that outsourcing allows improving the service quality. Another

69% indicated that outsourcing allows increasing the institutional capacity, while 56% stated

that it brings a better reputation among employees. Upliftment of mental strength and more

positive outlook have been perceived by employees.

5.6 Negative Outcomes of HR Functions Outsourcing

Despite the rising popularity of outsourcing organizational activities, the practice is not without

pitfalls. 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. The study has found that some of the negative

outcomes are experienced by organizations currently outsourcing HR functions.

Figure 5.6.1: Negative Outcomes of HR Functions Outsourcing

Negative Outcomes of HR Functions Outsourcing

0%

0%

6.25%

6.25%

12 .50%

43 .75%

62 .50%

0% 10% 20% 30% 40% 50% 60% 70%

A decrease in employee morale

Negative impact on customer service

A loss of in-house talent/expertise

Unable to achieve cost savings

Negative impact on office culture

Lack of face-to-face contact

No negative impacts at all

Respondents

Source: Primary Survey data

Figure 5.6.1 illustrates these data. Sixty two percent of organizations express that their

organizations have not experienced unfavorable outcomes as a result of outsourcing. Of the

44% that have experienced challenges, 42% indicated that lack of face-to-face contact with

employees was the downside of outsourcing, 12% perceived negative impact on office culture

and 6.25% said unable to achieve cost savings. It is not clear whether small organizations are

better able to buffer the unfavorable experiences of outsourcing or if they simply realize them

later than large organizations.

5.7 Reasons Organizations Have Chosen Not to Outsourcing HR Functions:

An organization’s decision on whether to outsource HR functions depends on several factors,

many of which center around the organization’s culture, staff size, leadership and overall

strategic business plan. The possible reasons why HR activities are not outsourced are self

sufficient HR departments, preferred to develop in–house capacity , not to loss control of own

HR Functions, unavailability of resources, impact of organization’s own merit , conflict with

internal practices, dissatisfaction with the quality of the service rendered by the HR

outsourcing companies, expense of the service and so forth. The paper has attempted to

discover the actual reasons that impede the firms from taking advantage of HR outsourcing.

Figure 5.7.1: Reasons Organization Have Chosen Not to Outsource HR Functions

Reasons Organization Have Chosen Not to Outsource HR Functions

0%

6.60%

6.60%

13.33%

20%

26.60%

33.33%

40%

66.66%

86.66%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100

%

Bad Experiences with Outsouring in the past

outsourcing policy is formulating

It would negatively impact the organization culture

Preferred to Invest in technology in-house

Impact of organization's own merit

Felt that it would be to expensive

No resources to manage the ourtsourcing process

Felt that it would hampered own service delivery

Do not want to lose control of own HR Functions

Preferred to develop own capacity for doing business

Percentage of Respondents

Source: Primary Survey data

Figure 5.7.1 shows the causes of not outsourcing. It describes the reasons provided by

organizations that have elected not to outsource any of their HR functions. The major cited

reasons preferred to develop own capacity for executing their jobs with employees (86.66%),

followed by not wanting to lose control over their HR functions (66.66%) and felt that it would

hampered own service delivery (40%). Also of interest is that 27% of respondents indicated a

deterrent to outsourcing was the concern that it would be too expensive. This is at odds with

what HR professionals from organizations that are currently outsourcing cited as the main

impetus to outsource—to save money and reduce operating costs. This might indicate that

uncertainty exists as to whether outsourcing saves organizations money and that there is not

enough favorable information for cost savings to convince organizations that have opted not to

outsource any of their HR functions

5.8 Cost Implications in HR Functions Outsourcing

Of the organizations currently outsourcing HR functions, have any experienced cost savings as

a direct result? The answer to this question is important because one of the top reasons cited

for outsourcing was financial. Thirty-one percent of HR professionals reported that their

organizations had achieved cost savings as a direct result of outsourcing. Another 13% stated

that costs remained about the same, and 6% of organizations experienced cost increases. These

data are illustrated in Figure 5.8.1.

Figure 5.8.1: Cost Implications in HR functions outsourcing

Cost Implications in HR Functions Outsourcing

Do Not Know;

0%

Incurred Cost

Increases; 6%

Acchieved

Cost Saving;

81%

Costs

Remained

Same; 13%

Source: Primary Data

These findings highlight the importance of having measurement processes in place that

evaluate the cost effectiveness of outsourcing. Many organizations believe that outsourcing

will improve the bottom line, it is essential that organizations conduct cost-benefit analyses to

monitor the actual return on investment.

5.9 Satisfaction with HR Outsourcing Services and Relationship with Vendors

The relative satisfaction level with the impact of outsourcing has on organizations and its

operations generally differ in terms of bringing about a qualitative change in organizations

activities to reduction in costs.

Figure 5.9.1: Satisfaction with HR Outsourcing Services and Relationship with Vendors

Satisfaction with HR Outsourcing Services and Relationship with Vendors

50%

12.50%

37.50%

0% 0% 0%

37.50%

18.75%

37.50%

6.25%

0.00% 0%

0%

10%

20%

30%

40%

50%

60%

Very Satisfied Satisfied Somewhat

Satisfied

Neutral Somewhat

Dissatisfied

very

Dissatisfied

Outsourcing Services Outsourcing Relationship

Source: Primary Survey data

Figure 5.9.1 shows the satisfaction levels of organizations with both their relationship with

vendors and the services provided by vendors. Overall, organizations are satisfied with their

vendors. More than ninety percent indicated that they are either “somewhat satisfied” or “very

satisfied” with the services provided by their outsourcing vendors. Organizations also report

high satisfaction levels with the relationship they have with their outsourcing vendors.

Overhauling the previous literature review, overview of outsourcing and collected data analysis

have perceived that public sector in Bangladesh has limited access to HR Functions

outsourcing. Various actors are playing as a negative role not to attract outsourcing in Public

sector. Current literature review has revealed that HR Functions outsourcing have a huge

potentiality in both public and private sectors. Adler (2003) has noted that 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 (1999) had shown 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. Greer et al. (1999) have argued that HR outsourcing is consistent with the business

partner role that the in-house HR department is attempting to assume. Outsourcing HR is also

seen as an effective way to bypass organizational politics and improve efficiency. As a result,

HR outsourcing can exert good outcomes in public sector of Bangladesh.

On the other hand, the study shows only 35% public sector organizations currently outsourcing

HR functions. For ensuring good governance, reducing cost and size of overhead bureaucracy,

outsourcing exerts a good result for people’s satisfaction of Bangladesh. The study also

revealed that institutional rigidity and long bureaucratic procedures increase the public

harassment.

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 funding 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 and scare 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 paper observes that Upliftment of mental strength and more positive

outlook have been perceived by employees in public sector

As a result, for complete reaping up the benefits and potentially of HR outsourcing, public

sector organizations needs a fair policy guideline, strengthens organizational capacity,

demands a negotiating skill , and more over proactive attitude are essential for achieving the

objectives of this study .

Chapter 6

Recommendations & Conclusion

6.1 Recommendations:

The main objective of this study was to find out how public sector dealing with HR Functions

outsourcing and determine it benefits & risks, and possible potentially in this sector at all. The

paper also has discussed about an overview of outsourcing in public sector. For this purpose, a

survey was conducted for understanding and perceptions on outsourcing in public sector and

current literature reviewed in this purpose. Outsourcing in public sector for HR functions must

be viewed as a business imperative, not a luxury. The approaches and applications must be

tailored to fit perfectly. The partnership must be nurtured and closely monitored.

On the basis of the above findings the following policy recommendations are made to achieve

success and sustain HR functions outsourcing effectively in Bangladesh:

1) Policy and Planning Initiatives: The first step is to announce initiative after the assessment

of risks. A proactive policy formulation is urgent in public sector to attract and handle HR

outsourcing.

2) Exploring Strategic Implications: The second step is to understand the organization’s

vision, core competencies, structure, transformation tools, value chain and strategies.

Thereafter decision rights, contract length and termination date need to be determined.

3) Analyzing Costs, adequate budget allocation and Performance measurement:

Public sector organizations must have robust performance measurement systems in place to

evaluate and manage outsourcing effectively. Organizations have to measure activity and costs

estimation properly. Existing and future performance is then to be measured along with the

estimation of the cost of poor performance. If an organization outsources its business processes

without developing effective performance measures, it cannot judge how well service

providers are performing.

4) Selecting Providers: The next crucial step is to select providers. For this purpose, the

organizations need to first set qualifications and evaluation criteria. Providers are then

identified and screened.

5) Build up institutional capacity to negotiate with outsourcing firms:

Care should be taken when developing the service level agreement (SLA) so that it can be used

as a practical day to day tool to measure performance efficiently and exploit more benefit from

the contract . The emphasis should be on meeting strategic objectives rather than imposing

penalties on the supplier. The contract then need to be negotiated based on the scope,

performance standards, pricing schedules, and terms and conditions; and the relationship be

announced. An institutional capacity is urgent in public sector to reaping benefits of

outsourcing.

6) Managing Relationships: Organizations need to understand clearly the relationship and

interdependencies between business processes prior to outsourcing. Failure to understand such

interdependencies can make supplier performance assessment very difficult. The organization

shall have to keep an eye on improving healthy relationship with its client.

6.2 Conclusion

HR functions Outsourcing process which are the way for public sector organizations to gain

access to resourcing expertise and realize the objective of effective talent hunt and retention.

It enables organization to flex up and down to meet resourcing demands. Raising demand,

technologies changes, competitive and market favor HRO, KPO, TPO etc resulting in reduced

overhead costs and restructuring, and the delivery of greater levels of efficiency and adding

services. Organizations should explore alternative resourcing and outsource models to help

meet the changing organizational needs, and the dynamic of business environment, in line with

best practices. Human resource outsourcing should be adopted for cost saving and restructuring

measures leveraging the benefits (and advantages) of effective human resources management.

Public sector organizations in Bangladesh should evolve explicit strategies for human

resources development, institution building and outsourcing strategies to fast-track corporate

effectiveness and professionalism in public service. The sustainable wealth of any organization

starts with the growth and development of proactive human resources and outsourcing

strategies that will grow corporate human resource flexibilities and competitiveness.

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Appendix 1: Interview Questions Seminar paper title: Potentiality of Outsourcing: the benefit and threat. A case study of Road Transport and

Highways Division.

Field of Area: Human Resource Management, BPATC, Savar, Dhaka.

(Please read and complete the following questions as you think. Your participation is very helpful for this

research to improve the governance quality of Bangladesh and is highly appreciated. )

Place: Date: Organization:

(The following questions are open-ended, the testee is requested to leave the comments according to his/her

personal observations and experiences also)

1. Does your organization currently outsource one or more of its HR functions?

❏ Yes, my organization currently outsources one or more of its HR functions (go to 7, 9).

❏ No, but my organization plans to outsource one or more of its HR functions

❏ No, and my organization has no plans to outsource its HR functions (go to 14)

4. Which HR function(s) does your organization no, partially or completely outsource? (Check all that apply.)

Outsource partially Outsource Completely

No

Executive training and development ❏ ❏

Staff training and development ❏ ❏

Human Resource Information Systems (HRIS) development ❏ ❏

Government Performance management ❏ ❏

Policy development and/or implementation ❏ ❏

Recruitment/staffing of employees (nonexecutives) ❏ ❏

Recruitment/staffing of executives only ❏ ❏

Risk management ❏ ❏

Temporary staffing ❏ ❏

Other (please specify): ❏ ❏

5. What are your organization’s reasons for outsourcing its HR functions? (Check all that apply.)

❏ To provide consistent/improved service delivery ❏ To make up for a reduction in HR staff

❏ To save money/reduce operating costs

❏ To reduce the number of HR staff and related staff expenses ❏ To gain access to outsourcing talent/expertise

❏ To gain access to outsourcing technology

❏ To make up for the lack of in-house talent/expertise ❏ To improve performance

❏ Other (please specify): ______________________

6. What are the obstacles that your organization faces when it decides to outsource its HR functions? (Check all

that apply.)

❏ Fears about loss of control ❏ Fears that services to our employees might be affected

❏ Fears about loss of HR jobs/staff ❏ Fears that outsourcing might impact company culture

❏ Lack of qualified vendors ❏ Lack of prior outsourcing experience in general

❏ Resistance within senior management ❏ Resistance from employees in general

❏ Not applicable: did not face any obstacles ❏ Other (please specify): ______________________

7. As a direct result of outsourcing its HR functions, did your organization achieve cost savings, incur cost

increases, or did costs remain about the same?

❏ Achieved cost savings ❏ Incurred cost increases ❏ Costs remained about the same ❏ Do not know

8. What have been, if any, the negative outcomes/threats of outsourcing your organization’s HR functions?

(Check all that apply.)

❏ A decrease in employee morale ❏ A loss of in-house talent/expertise

❏ Lack of face-to-face contact with employees’ ❏ Negative impact on employee customer service

❏ Negative impact on office culture ❏ Unable to achieve cost savings

❏ Unable to effectively manage the relationship with vendor ❏ Not sure of negative outcomes at this time

❏ Not applicable: there have been no negative outcomes ❏ Other (please specify): ________________

9. Overall, how satisfied or dissatisfied is your organization with:

Very Somewhat Neither satisfied Somewhat Very

Satisfied satisfied nor dissatisfied dissatisfied dissatisfied

The services provided by your

outsourcing company(s)? ❏ ❏ ❏ ❏ ❏

The relationship with your

outsourcing company(s)? ❏ ❏ ❏ ❏ ❏

10. Overall, to what extent has outsourcing HR functions met the expectations of the organization?

❏ To a large extent ❏ To some extent

❏ Neither to a large extent nor to a small extent ❏ To a small extent

❏ To no extent at all ❏ Do not know

11. Has the size of your organization’s HR department increased, stayed the same or decreased overall in

the past five years?

❏ Increased ❏ Stayed the same ❏ Decreased

12. Is this a direct result of outsourcing or plans to outsource?

❏ Yes ❏ No

13. Do you believe that your organization will outsource its entire HR function in the next five years?

❏ Yes (skip to question 15) ❏ No (skip to question 15)

14. Why has your organization chosen NOT to outsource its HR functions? (Check all that apply.)

❏ We do not have the resources to manage the outsourcing process

❏ We felt it would negatively impact the organization culture

❏ We felt that it would be too expensive

❏ We felt it would negatively impact customer service to our employees

❏ We have had a bad experience with outsourcing in the past

❏ We preferred to develop expertise in-house

❏ We preferred to invest in technology in-house

❏ We do not want to lose control of our HR functions

❏ Other (please specify): ______________________

16. In general, how concerned are HR professionals at your organization that outsourcing leads to reductions in

HR staff?

❏ Very concerned ❏ Somewhat concerned ❏ Not at all concerned

17. In the past, have you lost your job as a direct result of HR outsourcing?

❏ Yes ❏ No

18. In general, do you agree or disagree that the role of HR professionals can become more strategic with the

outsourcing of transactional HR functions (i.e., training, retirement and pension benefits administration, payroll,

etc.)?

❏ Strongly agree ❏ Somewhat agree ❏ Neither agree nor disagree ❏ Somewhat disagree

❏ Strongly disagree

19. What are the benefits of outsourcing HR functions for HR professionals? (Check all that apply.)

❏ HR has a better reputation among employees ❏ HR has a better reputation among senior management

❏ HR is able to focus on core business functions ❏ It allows HR to be perceived as strategic business

partners

❏ It allows HR to spend more time on strategy development and execution

❏ It improves HR metrics/measurement

❏ Other (please specify): ______________________

20. How do you think that human resource outsourcing will change the HR profession?

The functions in order of importance are as follows:

Recruiting and Selection

Appraisal

Training and Development

Job Design

Compensation and Reward

Employee Benefits

Strategic HR planning

Employee Assistance /Counseling

Temporary Staffing