The future of HR and IT will be off-shore

2008

As the downturn bites ever harder, HR may live to regret never managing to shake off its image as a somewhat out-of-touch, bread-and-butter function that simply doles out pay slips and employee contracts.

That's because, according to research by U.S consultancy Hackett, the economic slump is likely to lead to an acceleration of general and administrative (G&A) functions, such as HR, IT, procurement and even finance, being outsourced overseas.

Over the next two years large companies will almost double their offshoring of G&A processes, it predicted.

In fact, by 2010 a typical Global 1,000 company – or a firm with revenues of at least $5bn – will be saving more than $28m a year through the globalisation of these functions, it suggested.

In that time, the number of people employed full-time in offshore locations by such firms will have risen by nearly 360,000, it also forecast.

The findings add weight to predictions that, both economically and politically, we are beginning to see a seismic shift in the balance of power between developed, Western nations and emerging economies such as India and China.

Last month, the U.S National Intelligence Council published a sobering report forecasting an increasingly fragmented world political order with the United States by 2025 increasingly struggling to "call the shots" alone.

Economically, too, research by PricewaterhouseCoopers in October argued that the economies of India and China could surpass the ailing West in terms of share of world GDP within the next five years.

This in turn would lead to a gradual shifting of the global centre of gravity, at least in financial and trade terms, it forecast.

Of the extra 360,000 roles likely to be moved overseas, IT would bear the brunt, with the remainder coming from finance, HR and procurement, the Hackett poll of 200 firms forecast.

And some 15 per cent of transactional HR jobs at big firms would be offshored by 2010, up from about a tenth now.

But over the same time period, as many as a quarter of IT jobs could be moved offshore, rising longer term to as many as 60 per cent or even, in some firms, 80 per cent.

It also warned that companies which failed to embrace this new economic reality would simply get left behind.

"Companies that fail to push ahead with G&A globalisation initiatives risk being saddled with an operating model and cost structure that compromise their competitiveness," it said, starkly.

"Since competitiveness is ultimately the condition for survival in the ruthlessly Darwinistic global economy, the higher a company's competitiveness risk is perceived to be, the more it will tend to trump other globalisation risk considerations," it added.

What was more, in times of crisis, the risks associated with leaving cost saving opportunities untapped often increased exponentially.

For example, a two per cent to three per cent disadvantage in overall cost structure that would probably be manageable in normal times could, in a deep recession, bring a company to its knees.

"The majority of companies, despite the economic crisis, are aggressively continuing G&A process globalisation efforts," the report stated.

"For the minority that have not started down this path, it is urgent to begin planning for the journey, while those on their way should continue to focus on risk management and execution," it added.

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Older Comments

Quoting a study from Hackett, which has an agenda to outsource HR makes no sense. What parts of the people processes will you offshore that allow you to have knowledge workers give the answers needed for an organization to the key questions: why join?; why stay? ; why bother? The charcterization of HR is trite and outmoded; there is no more HR. There are processes that have as their output the best answers to those questions. The owners and the name of their department are immaterial issues.

Leo USA

This article seems absurd. HR is the 'people' part of the organization. They are the ones who should be most directly involved in recruitment, hiring, and employee morale and satisfaction. Offshoring this function to save costs is one of the most short-sighted things a company could do. By definition, this department will have no direct knowledge of the 'core' workers presumably still working here in the US. It would be a short time before all workers would be gone overseas. This type of thinking is just bringing the US economy down.

charles