Professional Documents
Culture Documents
(2011-2013)
SUBMITTED BY:
PRERNA SINHA
ROLL NO-107/MHR/111025
Indian Institute of Social
Welfare & Business
Management
Index
SL Content Page No
No
1 Student Declaration 03
2 Acknowledgement 05
3 Abstract 06
4 Introduction 07
5 Literature review 14
6 Objective of the study 26
7 Research Methodology 27
10 Data Analysis 28
11 Key findings 40
12 Conclusion 41
14 Annexure 43
15 Bibliography And References 50
2
STUDENT DECLARATION
I, further declare that the information presented in this project is true and
original to the best of my knowledge.
DATE:
PLACE:
3
CERTIFICATION BY GUIDE
This is certify that Prerna Sinha student of MHRM (2011-2013) has done the
dissertation entitled Analysis of HR Outsourcing on HR profession as
perceived by professionals under my supervision in partial fulfillment of the
award of Masters in Human Resource Management from Indian Institute of
Social Welfare and Business Management, Kolkata. This is the result of
original and independent HR job done by her.
This report has not been submitted to any other university for the award of
any degree or diploma.
Signature
Professor MHRM,
4
ACKNOWLEDGEMENT
The dissertation was done in partial fulfillment of the requirements for the
degree of MHRM.
5
ABSTRACT
There have been many issues surrounding outsourcing of Human Resource.
Its implications are wide and varied. Though there are many benefits, it is
faced with challenges as well. Companies who have managed their
challenges well have been successful. Others on the other hand have
redrawn from the process. The topic was chosen because is an issue being
discussed currently all over the globe.
6
INTRODUCTION
Outsourcing can be defined as the transferring of internal business function
or group of related activities and assets, to an external supplier or service
provider who is prepared to offer a defined service for a specific period of
time and at an agreed price.
1. Outsourcing
2. Human Resources (HR) Outsourcing
3. Human Resources Off shoring
Payroll
Background checks
7
Employee assistance programs (EAP)
Flexible spending account (FSA) administration
Consolidated Omnibus Budget Reconciliation Act (COBRA)
administration
Healthcare benefits administration
Pension benefits administration
Temporary staffing
Retirement benefits administration
Software services
Recruiting, staffing, and search
Employee relocation
Training and development
Incentives
HRIS/Web-based services
Reference checks
8
companies these percentages would typically be reversed.
9
2. Cost And Efficiency Savings
Back-office functions that are complicated in nature, but the size of your
company is preventing you from performing it at a consistent and
reasonable cost, is another advantage of outsourcing.
3. Reduced Overhead
Overhead costs of performing a particular back-office function are extremely
high. Consider outsourcing those functions which can be moved easily.
4. Operational Control
Operations whose costs are running out of control must be considered for
outsourcing. Departments that may have evolved over time into
uncontrolled and poorly managed areas are prime motivators for
outsourcing. In addition, an outsourcing company can bring better
management skills to your company than what would otherwise be available.
5. Staffing Flexibility
Outsourcing will allow operations that have seasonal or cyclical demands
to bring in additional resources when you need them and release them
when you're done.
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that drives your company. They will be driven to make a profit from the
services that they are providing to you and other businesses like yours.
2. Hidden Costs
You will sign a contract with the outsourcing company that will cover the
details of the service that they will be providing. Anything not covered in the
contract will be the basis for you to pay additional charges. Additionally, you
will experience legal fees to retain a lawyer to review the contacts you will
sign. Remember, this is the outsourcing company's business. They have
done this before and they are the ones that write the contract. Therefore,
you will be at a disadvantage when negotiations start.
4. Quality Problems
The outsourcing company will be motivated by profit. Since the contract will
fix the price, the only way for them to increase profit will be to decrease
expenses. As long as they meet the conditions of the contract, you will pay.
In addition, you will lose the ability to rapidly respond to changes in the
business environment. The contract will be very specific and you will pay
extra for changes.
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There are a number of issues that will influence the decision either
retain transactional and administrative activities in-house or to buy the
services externally. Orion Partners experience and research shows that
the following are the ten factors which are the key determinants to this
decision:
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Transition Skills
Outsourcing is however, based on outcomes. The client defines the outcomes and
the vendor supplies the means. Once trust is established, the total team can create
a true partnership to the betterment of all .As more and more Organizations move
to an Outsourced model, choices and Processes will improve and journey will
become easier.
13
LITERATURE REVIEW
The most important and cherished asset of any company is its Human
Resource the staff. Even with all the most current technology, personnel
are first because without manpower, nothing gets done. The success of
every organization depends on the quality of staff employed. On the other
hand it could be disastrous if the right decision is not taken in choosing the
right people with the right skills in the right position. The kind of skills
employed makes a vast difference between a business success and it failure.
In the business environment, some companies may employ solely skilled
personnel, others require both skilled and semi skilled personnel and others
unskilled labor force. In the retail sector for example, the nature of the work
demands both skilled and semi - skilled staff with the semi skilled
dominating. The skilled staffs basically are managers such as the marketing
and advertising managers, accounting managers, purchasing and supplier
managers and general overseers.
The challenge is how to get those people into the right places in order not to
under utilize or over utilize their services. For instance, it might not be
necessary to employ a professional who is to be paid as a sales assistant to
be serving customers, but rather have a responsibility of planning and
strategizing how to win customers and be ahead of its competitors. In order
to make the best decision, the manager would have to take up that task
upon himself or rather consider hiring an expert, who does nothing but
repeatedly seek the best person for the job. Arguments have therefore
developed in support of and against the process of outsourcing.
PART ONE:
Argument against outsourcing:
This debate was published in the Human Resource Management
International Digest in 2005. Gordon Croy, group supplier chain director of
NTL, in his argument believe that outsourcing recruitment is not a sensible
option. For him, there is one thing the recruitment agency lack, that is
having in-depth knowledge and understanding of the business culture and its
subtle modifications as the business managers will consider in its
recruitment selection. What the recruitment agencies focus on is matching
people to job descriptions. He again argued that managers could have gone
through much of the process of recruitment rather than spending that time
to brief a recruitment agency properly and feel confident that they have
grasped the culture to meet their requirement.
Another argument in support of in-house sourcing is the fact that the Human
Resource Manager stands the opportunity of knowing the potentials of the
applicant after going through the applicants Curriculum Vitae. Though the
applicant may not be a good match for the current vacancy, he/she might be
a perfect fit for another field of the business and such an opportunity might
not be skipped. If a recruitment agency is to do this, they might be ignored
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because they are working towards a specific job description and such a
potentially great employee may be lost.
From time management point of view, Gordon Croy further argued that the
reason for outsourcing as time management does not really hold in todays
world of business because online advertising and electronic mails saves a lot
of time involved with recruitment. Again, initial interview could also be done
on phone and would only have to spend time to meet face-to-face with the
selected few best applicants.
In the view of cost, Croy argues that recruitment companies cannot
guarantee an effective recruitment, yet it will definitely guarantee a sizable
cost. Since the recruitment agencies demand a percentage of fee upfront, as
well as money for advertising, these monies are not refundable and
therefore would not be able to meet the companys requirement. We should
remember that recruitment agencies are also in business to make profit.
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Outsourcing has been a controversy since, and both sides of the debate
mount convincing arguments. However Nicholas Pratt offers a real business
situation that in a way favors the argument in support of outsourcing. In the
area of Information Technology, employment of financial staff is very difficult
and that has been attributed to the issue of banks mishandling the
recruitment process. In recent times the banks have been noted for hiring
Information Technology staff in masses and at the same time firing staff in
masses as well. As a result, Information Technology specialists have lost
interest in the banking jobs due to lack of job security. Consequently, there
are only few Information Technology specialist left in the system. To this
regard, banks are now turning to the advice of the recruitment agencies to
rectify the situation of hiring reactively and not strategically. The problem
however has damaged a whole sector rather than just a company or one
position within it. Apparently the cost and time involved to clearing the
damage will far outweigh those involved in paying a recruitment agency
from the onset
PART TWO:
The literature has been categorized into three sections.
The reasons for Outsourcing
The benefits of Outsourcing and
The issue of control.
Traditionally Human Resource activities were performed in-house but now on
an increase, being outsourced. This is because it has proven to reduce cost
and provide economies of scale, gaining access to expertise, among others.
In other instances, as any other discipline, outsourcing among its benefits
also stands its limitation of inefficiency because of suppliers lack of firm-
specific knowledge and engages in opportunistic behavior (Ulrich 1996).
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organization, in that with the supply of more expertise probably from a
different environment with different skills and the know-how can turn the
whole organization around, hence achieving a competitive advantage over it
competitors. Managers therefore with this notion of gaining new experience
may decide to sort elsewhere. More research has proven the fact that
Human Resource is a collective system of activities and has a direct
correlation with firms performance.
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more time and increase flexibility on managers to manage the business
effectively. There is less distraction and more concentration on planning,
operating and growing the business. It also allows managers to focus on
best practice- what they are good at doing best. Staff recruitment is a
tedious job and very involving. It is not just about getting the employee to
the field but also concerns staff training, logistics and equipping the staff
with all the necessary tools needed to do the work effectively. When the
company decides to outsource all of its Human Resource, these would be
taken care of by the supplier leaving the outsourcer with little or no
workload.
The strategic literature has basically point out the cost effectiveness as
primary reason for outsourcing but has now shifted to other reasons of
strategic re-positioning, greater service integration, higher value creation
and core competence enhancement
(Quinn 1999)
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Some researches further argue in support of strategic outsourcing.
Outsourcing decision is taken to improve incentives within a firm. That is,
the intensity of managerial incentive is a primary motivator since managerial
efforts are focused on core competence
Another strong case for Human Resource outsourcing has been made by
Armstrong (2003). He claims that there has been a drastic shift from the
view of Human Resource services as a major responsibility of the
organization, to the stance that it can be contracted to an external body; the
excuse for resorting to this exercise is prove it cannot be
subcontracted.
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The point is that Human Resource managers can play more strategic roles
by contributing to strategizing the companys future direction rather than
spending time on staff payroll or checking on absence records.
Technology advancement:
Cost effective
Levels of expertise
Flexibility
b) BENEFITS:
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enterprise in breaking even in enjoying economies of scale whilst the large-
scale organizations have enjoyed already. Outsourcing predominately
increase assets and reduce cost in the immediate financial period. There has
been a significant savings on operational and capital costs by organizations
engaged in outsourcing parts of their in-house operations ( Rimmer, 1991).
21
smoothing production cycles and benefiting from specialization. (Raa et al,
2001) also found a positive association between the rate of outsourcing and
productivity growth in their study.
Another important suggestion about this theory is the fact that outsourcing
have also proven organizations have an advantage of exploiting more
advanced technologies from the suppliers as the supplies are significantly
more advanced and use the most effective technologies. Another fact is that
as suppliers continue doing their work over and over again, they become
more experienced and easily discover the most effective operations. Even
though other outcomes are less obvious, it has been claimed by Kerr and
Radford (1994) that the outsourcing process in a way has helped to
undermine the power of trade unions dominating the United Kingdom
workforce in public sectors.
Profitability:
Cost effectiveness:
Subsequently, Greaver (1999) classified an improvement in credibility and
organizational status as potential benefit of associating with famous
providers.
22
Other recognized benefits though difficult to measure, indicate that
outsourcing enhances organizational credibility greater workforce flexibility
and preventing being locked into specific assets and technologies.
The Boston consulting Group (1991) researched on over 100 key companies
that engages in an extensive outsourcing practice and found out most
western companies outsource mainly to save on overhead or induce short-
term cost savings.
Subsequent theory revealed, until the 90s, one of the major drivers for
outsourcing was its cost effectiveness. This is because, in a real economic
world, a common goal for many if not all businesses are on cost savings and
profit maximization. Every business is in for profit by cutting down cost,
choosing the cheapest cost of production which outsourcing is to solve.
Others are of the opinion that the growths in indirect overhead costs, which
represent non core competencies, are commonly being outsourced.
(Lewis et al, 1991) have also discovered another interesting issue; their
point is that the outsourcing is a trade-off between lower production cost,
i.e. if the supplier possesses lower cost technology and higher monitoring
costs.
Maximization of efficiency:
(Domberger, 1998) also gives another important suggestion about this
theory, in order to increase efficiency of organizations core value,
organizations tend to specialize in such fields and outsource their non core
values. An example is Unilever, the Anglo-Dutch group, with a portfolio of
1,600 food, toiletries and household products. September 1999 announced
that in order to enhance sales growth and profitability, it would focus on a
smaller number of power brands (core products) who have worldwide
reach, thereby reducing costs and exploiting new channels of distribution,
such as the internet as cited in journal of management development, vol.
19, No 8.
Flexibility:
Flexibility could be analyzed in terms of increase in demand and change in
demand. Organizations should have the capability of meeting customers
demand and also being able to satisfy customers preferences at any time.
Outsourcing enables organizations avoiding these two constraints. It
presents the opportunity for meeting changes in volume of production as
well as seasonal changes in response to market conditions of customers
demands. A situation of the fashion apparel retailing, where companies
respond rapidly to industries short life cycles and the quick changes in
fashion. This enables the company to achieve delivery of goods to its stores
within the shortest possible time of design conception.
(Carney, 1997) has identified the five Cs of Human Resource outsourcing
and its benefits. These are:
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COST: reduces service cost, internal fixed costs to a variable, which is more
transparent and easier to manage.
COMPETENCY: greater focus on core business and core competency
requirements.
CHANGE: a vehicle for rapid implementation of change, in terms of
technology, organization and culture.
CURE: a way to fix difficult problems or deficiencies in service levels.
CASH: improvement in balance sheet and cash flow eg transferred assets
exchange for lump sum payment though rare in Human Resource
outsourcing
c) CONTROL OVER THE PROCESS:
Despite all the arguments in support of outsourcing, which seems to be
winning, what still puts many companies off is the thought of not having
control over the process of recruitment. What make managers hesitant in
this circumstance are the facts that, taking someone on, especially in team
works without having any form of interaction to know the kind of personality
they will be dealing with. Knowing that, personal chemistry is as important
in team situations as having the right skills on paper. (Lawler et al, 2003)
findings in their study of 100 companies revealed the most common
problems of Human Resource outsourcing. One meager services end up
being more expensive than promised, contractors lack of information about
the client and unanticipated resources refined to enhance the relationship.
Suppliers should not take for granted the fact that one successful
outsourcing should work for all. It should be noted that the various firms
operates differently with varying needs and may absolutely have nothing in
common, hence may require different procedures from their suppliers. It
should be best for the suppliers to assess carefully their clients individual
operations and treat them as such. Outsourcers are liable for suppliers
actions though the outsourcers have little or no control whatsoever.
Others are compliance violations, contractors not being able to meet the
task as expected, loss of positive repute, loss of internal expertise and
technical skills.
(Roberts, 2001) explains some risks of outsourcing as organizations are
afraid of losing some control over the delivery of, outsourced services and
finding themselves overly dependent on the supplier or liable for the
suppliers action. Outsourcing sensitive information, particularly confidential
information, somehow cannot be avoided since it might form part of the
client companys briefing to the supplier. Moreover supplier has inherent
liability if information security is breached.
(Shelgren, 2001) in his recent survey, showed that 90% of companies with
50000 or more employees outsourced some part of their Human Resource
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activities. In this way, some sensitive confidential information could be kept
away from the supplier.
Furthermore one important issue organizations turn to consider one way or
the other is the people who matter most, that is, the customers. Many
customers value the personal touch and the kind of treatment offered them.
When this factor is missing, customers end up getting upset. If the
outsourcing processes affect customers directly, then it becomes a problem
in that it would be difficult for organizations to have a say since the function
has been transferred elsewhere, and cannot directly and immediately be
controlled.
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OBJECTIVE OF THE STUDY
26
RESEARCH METHODOLOGY
Data collection
Primary as well as secondary data collection tools have been used for the research
study.
Source of data:
Secondary Data
This consists of the information that already exists somewhere. Sources for
secondary data are:
E-books
Internet: Google, rtindia.org
Text books
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DATA ANALYSIS
48%
36%
16%
28
2. Which HR function(s) does your organization partially or completely
outsource? (Check all that apply)
Recruitment/staffin Executive
g of executives only development
9% and coaching
10%
Recruitment/staffin
Human Resource g of employees
Information (nonexecutives)
Systems (HRIS) Payroll 13%
development administration
6% 12%
Training and
development
programs
12%
Pension benefits
administration
10%
Figure 2: The above percentages predict the percentage rate for outsourcing the most
common HR functions by the organizations. As it can be seen that the most widely
outsourced functions are Recruitment/ Staffing of Non-executives, training and
development, Payroll administration and pension benefits administration.
Note: in the above question the graph shows the percentages as a ratio out of a total of
100%. However, as it was a multiple choice question with the options of checking one or
more functions for any organization. Whereas while totaling the sum of each functions it
was seen that the percentages vary predicting the actual percentages of the functions as:
29
Pension benefits administration 32%
Payroll administration 36%
Human Resource Information Systems (HRIS) development 18%
Recruitment/staffing of executives only 29%
Retirement benefits administration 21%
Policy development and/or implementation 24%
Note: percentages do not total 100% as respondents were asked to indicate multiple selections.
Figure 3 examines the reasons that organizations have decided to outsource. Saving money
and reducing operating costs (66%) and companies focusing on its core business and were the
drivers cited most often. Almost one-half of HR professionals indicated that allowing HR to
30
focus more on strategy were the impetus. Although some sources indicate that outsourcing
does not drastically contain costs, it still seems to be a major factor in the decision to
outsource. With corporate litigation on the rise, companies perhaps believe that outsourcing
serves as a protective factor which is equally as important as the rationale for cost savings. It
may be that as human resource outsourcing becomes even more prevalent in organizations, it
will be justified less as a cost-saving measure and more as a way to improve the overall
functioning of the organization. Also of interest is that 52% of HR professionals stated that
their organizations elected to outsource as a way to reduce the number of HR staff and related
staff expenses
4. What were the obstacles that your organization faced when it decided to
outsource its 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 4 lists the obstacles faced by organizations when deciding
whether to move forward with outsourcing.
31
5. 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?
37%
31%
23%
9%
32
6. What are the main factors to consider when selecting an HR outsourcing
vendor? (Check all that apply.)
33
What are some of the negative outcomes experienced by organizations currently outsourcing
HR functions? Figure 7 illustrates these data. 20% of HR professionals expressed that their
organizations had not experienced unfavorable outcomes as a result of outsourcing. 32%
indicated that they were not sure of any negative outcome.
8. Overall, to what extent has outsourcing HR functions met the expectations of the
organization?
Usefulness of outsourcing
42% 43%
9%
To a large 6% 1%
To some
extent
extent Neither to a To a small
large extent To no
extent
nor to a extent at all
small extent
Fig 8. Depicts the percentage extent to which HR Outsourcing has met the
expectations of the organization. About 42% of them said to a large extent it has
met expectations. 43% answered to some extent, only 9% had a mixed view about
it whereas 6% had said its impact its up to a small extent and only 1% said no
extent all giving a good sign of favorable outcomes.
About 40% has indicated that organizations requirements will increase in the next
five years, 55% said the requirements will not change and only about 5% seemed
to have a notion that it will decrease.
34
10. Has the size of your organizations HR department increased, stayed the same
or decreased overall in the past five years?
32% 34%
28%
These responses indicate that the size of the HR department in organizations have
increased by 32% for some organizations for 28% have stayed the same and about
34% have said it has decrease.
13. Why has your organization chosen NOT to outsource its HR functions? (Check all
that apply
35
face-to-face contact with employees (61%), followed by preferring to develop expertise in
house (46%). Also of interest is that 30% of respondents indicated a deterrent to
outsourcing was the concern that it would be too expensive.
36
Human Resource Outsourcing Survey R
14. What are the benefits of outsourcing HR functions for HR professionals? (Check
all that apply.)
37
15. Which industry best describes your locations main business? (Check only one.)
Industry
Newspaper Publishing/Broadcasting 2%
Wholesale/Retail Trade 7%
Insurance 7%
Utilities 3%
High-tech 3%
Transportation 2%
Health 7%
Telecommunications 2%
Government 6%
Finance 7%
Services (Nonprofit) 6%
Educational Services 2%
In this Report it has been found that the most prevalent industry where HR Outsourcing is/
are common are service sector and also manufacturing sector. With the least ratio in
newspaper publishing /broadcasting and education industry.
38
16. Does your organization belong from Public Sector or Private Sector?
21%
79%
Among the executives which answered about their organization maximum of them
belonged Private Organizations as compared to Govt. Organizations.
Employee size
0-1000 1000-3000 3000-5000 5000 & above
16%
25%
19%
40%
Among the executives which answered about their organization maximum of them
belonged to medium sized organization.
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KEY FINDINGS
The findings of this report are as follows:
Some of the most frequently named drivers for outsourcing were reducing
operating costs and controlling core business and were the reasons cited for
companies for companies to outsource.
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SCOPE AND LIMITATIONS
41
CONCLUSION
HR departments today are faced with dual roles the first involves being a
business partner focusing on core functions. Second, HR professionals are
critical in ensuring that the day-to-day needs of employees are addressed.
These two roles afford that HR professionals have the foresight to manage the
organizations strategic approaches while also handling its most immediate
and relevant concerns. As a way to juggle these responsibilities, Outsourcing
seems to be a viable option that organizations are embracing.
While most of the discussion about HR outsourcing tends to center on the cost
savings, the advantages and the disadvantages, the real focus may need to
be on preparing for the inevitable impact on the profession itself.
As, most Human Resource Outsourcing market analysts believe the market
for HR outsourcing will continue to grow over the coming years. This
prediction seems to be supported by this reports findings that show that
almost one-third of HR professionals said their companies planned to increase
the use of outsourcing.
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ANNEXURE
Questionnaire used:
HR Outsourcing
Dear Sir/ Maam, I am doing a dissertation on HR Outsourcing and its impact on
HR Profession. I request you to kindly help me by filling up this form. It contains a
set of general questions and the responses will be combined, analyzed and
reported in an aggregate form.
_________________________________________________________________________
No, but my organization plans to outsource one or more of its HR functions in the next
three years
Payroll administration
Performance management
43
Recruitment/staffing of employees (nonexecutives)
Other:
3. What were your organizations reasons for outsourcing its HR functions? (Check
all that apply.)
To streamline HR functions
Other:
4. What were the obstacles that your organization faced when it decided to
outsource its HR functions?
44
Fears about loss of control
Resistance within HR
Other:
Do not know
45
Physical location of vendor
Other:
Other:
To a large extent
To some extent
To a small extent
To no extent at all
Increase
46
Decrease
10. Has the size of your organizations HR department increased, stayed the same
or decreased overall in the past five years?
Increased
Decreased
Yes
No
12. Do you believe that your organization will outsource its entire HR function in
the next five years?
Yes
No
13. Why has your organization chosen NOT to outsource its HR functions? (Check
all that apply.)
47
Other:
It improves HR metrics/measurement
Other:
15. Which industry best describes your locations main business? (Check only
one.)
Educational Services
Services (Nonprofit)
Finance
Services (Profit)
Government
Telecommunications
Health
Transportation
High-tech
Utilities
Insurance
Wholesale/Retail Trade
Newspaper Publishing/Broadcasting
48
Manufacturing (Durable Goods)
Other:
Public/government sector
Private sector
0-1000 (small/growing)
1000-5000 (medium)
49
REFERENCES AND BIBLIOGRAPHY
BOOK:
HUNTERS AND SAUNDERS, I.J. TRANSFORMING HR.2009.Thorogood publishing
WEBSITES :
www.ukessays.com
www.wikipedia.org
www.timesofindia.com
www.visionrelcation.com
www.itmindia.edu
www.masterthesiswriting.com
www.induction.to/outsourcing
www.hroutsourcingforum.com
www.shrm.org
www.hroutsourcingorganization.com
www.citehr.com
www.ngrhr.com
www.hrtoday.com
www.slideshare.com
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