Re-Outsourcing of SAP HR/HCM Administration and Application Management for multinational companies (MNC) in recession


 


Introduction


Human Resources (HR) or Human Capital Management (HCM) administration prescribes structures, policies and processes rather than outputs or outcomes. The fundamentals of HR/HCM administration center the core functions that include recruiting/hiring, time management, benefits and payroll administration and laws/policies compliances. In MNCs these HR/HCM Business Functions can only be carried out due to the amount of Data, by using ERP Software such as SAP on a single system, known as a single global instance.


Application Management deals with the on-going and continuous adaptation and modification of such global system, mainly for Payroll but also for other SAP HR components, be it due to constant legal changes in the countries of operation, mainly in Social Insurance and Tax and due to company driven modifications, for example for increased reporting and company policies.


Background of the Study


In the past MNCs used to have the tendencies to outsource these business functions either within the company to Offshore Shared Service Centers or to third party providers with different contractual models dependent on the specification of the service provided. The business cases were mainly driven by cost cutting philosophy which should have caused greater corporate profitability but also to add direct or indirect value to the firm that could probably result in superior individual and organizational performance.


Multinational organizations used to jump into the bandwagon of HR offshoring, but this business model becomes in the light of a longer recession phase in Europe and the USA more and more questionable, as salaries and wages in the headquarter countries as well as in other countries which used to have a higher salary and wage level are stagnating and on the other side are increasing in the off-shore countries. In case of outsourcing to a vendor, a recalculation of the business cases could also prove that re-outsourcing could result in higher profitability, as this is shown that many multinationals are constantly trying to reduce the contractual rates of the service provided when the contract is due.


The former trend to outsource or to establish on-site outsourcing, non-core HR activities, mostly HR functions, to vendors or service providers which are either generalists or specialists deems to be not more beneficial to MNCs instead insourcing or re-outsourcing can be the better solution.


Problem Statement


In gaining the speed and flexibility needed to compete in the global business environment, MNCs are obliged to reduce large capital expenditures on non-core functions not leaving them to vendors or integrate in corporate shared Service Centers. As such, the companies need not to invest capital in maintaining and upgrading their HR administration systems and infrastructure. Re-outsourcing core HR functions also enables to keep the knowledge in the country and can lead to higher attrition of employees and HR Personnel and finally leading to higher quality of the Service. In this proposal, there are two interrelated problems that should be considered:


·         Why re-outsource?


·         How to facilitate the human resource outsourcing towards the success of MNCs?


Answers to these questions will generally direct to analyze the underlying business model with regard to KPIs and business figures while still maintaining the competitive advantage and not losing business knowledge of the in-country HR Functions.


Research Aim and Objectives


The main aim of the study is to investigate the factors that might influence the implementation of HRO in the organization and application management for the MNCs. In order to administer the collection of necessary information, there are three objectives that should be considered. First is to determine the strategies in implementing the human resource outsourcing. Second is to determine the perceptions of the organizational leaders and human resource manager in adopting the HRO. Third is to recognize the benefits and drawbacks of HRO in the organization.


Literature Review


The pressure to reduce HR costs through outsourcing fits wonderfully well with the drive of HR to become more strategic: Move out transactional work–backroom work, if you will–to allow more attention and time to be devoted to front office work (addressing issues that have greater long-term influence on business performance) (Hussin, et al., 2006). Outsourcing firms have multiplied to absorb the transferred work and to make a business of it. HR outsourcing is a big business, in the -to- billion per year range. Despite the occasional horror story that causes a company to “back-source,” there are no indications that this is a fad that will pass (Stopper, 2005). In fact, what began as a large-company phenomenon is now becoming more commonplace among mid-size and smaller companies as they see less risk in the experience of the early adopters. HR outsourcing is having a number of positive effects. As companies enter outsourcing negotiations, they come with a greater understanding of the mission of the firm and its core business. They also come with greater clarity around the true and total costs of HR and what priorities to assign various HR activities. Once under contract, there is much more emphasis on measuring results, on doing work that needs to be done versus work that is nice to do, on doing work right the first time without the fits and starts, the fuzzy requirements that are often the bane of an HR professional’s life. Within the outsourcing firm, functional areas of HR become revenue and profit-producing activities rather than overhead costs. The backroom becomes a business with real customers and incentives to grow. Those who have transferred to outsourcing firms report their satisfaction with having responsibility for client relationships, with the fast pace, with being paid on results, as well as in application manager (Kim & Kim, 2008). They like dealing with multiple customers. As internal HR professionals, they knew a lot about one company, not much about the market. In the outsourcing firm, they know more about the market although not as much about a given company (Khanna & Randolph, 2005).


Methodology


The applied method in the study is the combination of qualitative and quantitative methods. The primary information can be taken from survey and interview. And the secondary information is used to gather the information needed in the study to support the findings of the primary research. Through the use of the academic contexts or books, journals, investigative reports, and other industry reports pertaining in the application of HRO; the study can deliver the literature gaps and might identify the factors that influence in the implementation of HRO. On the other hand, the survey is used to demonstrate the perception of the manager and business leaders in the application of HRO towards the achievement of organizational objectives. 


References:


Hussin, H., Ismail, Z., Suhaimi, M.A., & Karim, N.A.,(2006) Examining Factors Influencing IT Outsourcing Success in Malaysian Organizations, 17th Australasian Conference on Information Systems IT Outsourcing in Malaysia [Online] Available at: <http://eprints.utm.my/5544/1/zurainismail06_EFIOS.pdf> [Accessed 11 August 2011].


Khanna, S., & Randolph, J., (2005) An HR Planning Model for Outsourcing, Human Resource Planning, 28(4):37+


Kim, G-M., Kim, E.S., (2008) An Exploratory Study of Factors Influencing ASP (Application Service Provider) Success, The Journal of Computer Information Systems


Stopper, W.G., (2005) Outsourcing’s Effect on HR Leadership Development, Human Resource Planning, 28(4): 11+


 



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