Mumbai, April 23: Krish Lakshmikanth is a very busy man these days.

With the first worrying signs of a slowdown in the economy — industrial growth tumbled in January to 5.3 per cent but then clawed back to 8.6 per cent in February, leaving everyone guessing about which month marked the blip. This might seem something of a paradox, but it isn’t.

Lakshmikanth heads an HR consultancy firm that has offices across India.

Business is booming for freebooters like Lakshmikanth as more and more solid, conservative old economy firms start farming out HR outsourcing contracts. The spry services outfits were doing this anyway.

As a result, most companies have started paring headcounts in their HR departments. “It’s turning into a flood of contracts. Most HR functions are now being outsourced,” says Lakshmikanth.

HR outsourcing is not a very new phenomenon; but what is surprising is the speed with which companies have bought into the idea which Unilever sparked two years ago when it awarded an outsourcing contract to Accenture to manage.

Under the contract with Accenture, Unilever had outsourced the transactional and administrative parts of the HR function globally. Basically, Accenture provided support for activities such as recruitment and resourcing, reward, training, and performance management. IDC, a leading market intelligence and research outfit, says revenues from HR outsourcing have swelled to $252 million in 2006-07 and are projected to touch $325 million in 2007-08.

Big scope

HR outsourcing covers all functions relating to recruitment, assessment of new candidates, sourcing candidates, background checks of candidates, and talent branding, which is a lot like media planning and deals with where to advertise for candidates and through which channels.

According to Mercer, a global consulting, outsourcing and investment services firm, human resource outsourcing (HRO) has come a long way since mere payroll administration or recruitment channel. It has moved up the value chain from tactical HR processes to managing business critical HR.

“Apart from these functions, payroll and benefit management and performance management, strategic functions and training also form part of HR outsourcing,” explains Rishi Das, CEO and co-founder of CareerNet Consulting, an integrated recruitment consulting firm. The company claims to have seen a 100 per cent jump in the number of proposals for outsourcing HR activities.

It isn’t the big boys alone who have turned to HR outsourcing. “Many of our clients are small firms with big ambitions, which do not have the capability to attract big talent. They outsource their functions to firms like ours,” adds Das.

Client base

There are basically three broad classes of companies that are looking at HR outsourcing. First, there are large companies such as TCS and Infosys which have an employee base of close to 1 lakh each. These companies are looking to outsource HR to save costs.

The second group comprises mid-size service as well as manufacturing companies with 2,000 to 5,000 people such as Microsoft India and Cisco. For such companies, it is a combination of a need to get the best talent and cost that is leading to the outsourcing of HR activities, says Das.

“Then there are the small companies who have ambition but simply do not have the strength or the expertise to hire big time. So they outsource their functions to companies like ours,” he adds.

Consultancy firms such as KPMG are also seeing a spurt in HR outsourcing contracts especially in the case of financial services.

“We have seen an increase in outsourcing activity from our end recently. Earlier, we were only outsourcing our payroll functions, but now we are doing a bit of learning and development function outsourcing as well,” says Sangeeta Singh, executive director (HR) at KPMG. “This is being done to mainly to tap specialised talent,” she explains.

Lean and trim

“Payroll outsourcing and recruitment process outsourcing has seen a big leap in the last six to eight months,” says K. Pandia Rajan, MD of Ma Foi Management Consultants Ltd.

“In the last six to eight months, we have received HR outsourcing contracts that will cover 1.38 lakh employees. Until a few months ago, we had contracts for just under 1 lakh employees. This indicates that more companies are now outsourcing HR functions,” he adds.

Companies are now left with just a basic strength HR department which takes strategic decisions.

“The in-house HR teams have shrunk by 30 to 50 per cent,” says Das. “Companies with large HR teams have asked quite a few people to leave as demand ebbs.”

“It’s true that the non-core HR functions are being outsourced. But the companies are retaining the core, strategic functions. In the past few months, we have seen a fairly comprehensive part of HR functions being outsourced,” adds Rajan.

Meanwhile, HR outsourcing firms are scouting for new areas of growth. Das says one of the hot areas for growth is application process management, which is business gobbledygook for obtaining CVs from various sources at a cost, adds Das.