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 107th 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.

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
Acknowledgement
Executive Summary
Table of Contents
List of figures
List of tables
List of Acronyms
Abstract

v
v
v
v
v

Introduction
1.1 Background of the Study
1.2 Objectives of the study
1.3 Scope of the Study
1.4 Limitations of the Study
1.5 Time Reference & Outline of the Paper

01
03
03
04

Research Methodology
2.1 Methods
2.2 Data Collection Procedures

06
08

Literature Review
3.1 Current Research
3.2 Gap Analysis

07

An Overview of HR Functions Outsourcing in Bangladesh

4.1 An Overview of Outsourcing
4.2 Reasons of Outsourcing
4.2 Benefits of Outsourcing
4.3 Disadvantages of Outsourcing

07
16
17
18

Analytical Discussion: Survey Data and Discussion

5.1 Survey Data Analysis and Discussion
5.2 Observation and Perceptions of the Respondents

28
40

Recommendations & Conclusions

44

References

47

Appendix

50

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

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.

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 companys
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-today 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 vendors 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 Ulrichs (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 governments
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 organizations learning capability by depleting its skill base
Impair the Organizations ability to integrate processes
Compromise the organizations 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 Organizations
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 sectors 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

plan to
outsourcing
15%

Outsourcing of HR functions
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 functionthus, the HR departments 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
1. Executive Training and Development
2. Staff Training and Development
3. Training and Development purpose for ICT
4. Temporary Staffing
5. Risk Management Activities
6. Consultant Appointment for Policy Development
and Formulation
7. Appointment for Office Security
8. Appointment for Specialist Post
9. Staff Appointment for Cleanliness

Outsource
Completely
0%
0%
12.5%
6.25%
0%
12.5%

Outsource
Partially
37.5%
50%
56.25%
56.25%
25%
25%

Do not
Outsource
62.5%
50%
31.5%
37.5%
75%
62.5%

0%
6.25%
6.25%

31.5%
56.25%
75%

68.75%
37.5%
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

80%

75%

75%
68.75%

70%
62.50%

62.50%

60%

56.25%

56.25%

56.25%

50%50%

50%
40%

37.50%

37.50%

37.50%

31.50%

31.50%

30%

25%

25%
18.75%

20%
12.50%

12.50%

10%

6.25%
0%

0%

6.25%
0%

6.25%

0%

0%
Execut ive Training

St af f Training and

Training and

and Development

Development

Development

Temporary St af f ing Risk Management

Act ivit ies

purpose f or ICT

Consult ant

Appoint ment f or

Appoint ment f or

St af f Appoint ment

Appoint ment f or

Of f ice Securit y

Specialist Post

f or Cleanliness

Policy
Development and
Formulat ion

Functions

Source: Primary Survey data (Made my Presenter.)

Outsource Completely
Outsource Partially
Do not Outsource

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
Percentage of respondents
6.25

Other
To improve performance development

25

To gain access to outsourcing facilities

37.5

To make up for the lack of experienced officials

37.5
50

To save money/reduce operating costs

62.5

To provide qualified services

87.5

To make up for a reduction in HR staffs

0

20

40

60

80

100

Percentage

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
Lack of qualified vendors

56.25

Fears that services to our employees might be affected

50

Lack of Prior outsourcing experience

43.5

Faced no obstacles

37.5

Fears about loss of jobs

31.5

Resistance from employees in general

31.5

Fears about loss of control

25

Resistance within senior management

6.25

10

20

30

40

50

60

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

75

Quality of Services Improved

Institutional Capacity Increased

68.75
56.25

Quality of Training Improved

50

It has a better reputation among employees

M ental Strenght of employees Upheld

43.75

M ore Positive Outlook Created in senior M anagement

31.25
0

10

20

30

40

50

60

70

80

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

No negative impacts at all

6 2 .50 %

Lack of face-to-face contact

4 3 .75%

Negative impact on office culture

12 .50 %

Unable to achieve cost savings

6 .2 5%

A loss of in-house talent/expertise

6 .2 5%

Negative impact on customer service

0%

A decrease in employee morale

0%

0%

10%

20%

30%

40%

50%

60%

70%

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 organizations decision on whether to outsource HR functions depends on several factors,
many of which center around the organizations 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 inhouse capacity , not to loss control of own
HR Functions, unavailability of resources, impact of organizations 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

Preferred to develop own capacity for doing business

86.66%

Do not want to lose control of own HR Functions

66.66%

Felt that it would hampered own service delivery

40%

No resources to manage the ourtsourcing process

33.33%

Felt that it would be to expensive

26.60%

Impact of organization's own merit

20%

Preferred to Invest in technology in-house

13.33%

It would negatively impact the organization culture

6.60%

outsourcing policy is formulating

Bad Experiences with Outsouring in the past

6.60%
0%

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

Costs
Remained
Same; 13%

Incurred Cost
Increases; 6%

Do Not Know;
0%

Acchieved
Cost Saving;
81%

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

60%
50%

50%
40%

37.50%

37.50%37.50%

30%
18.75%

20%

12.50%

10%

6.25%
0%

0% 0.00%

0%

0%

0%

Very Satisfied

Satisfied

Somewhat
Satisfied

Outsourcing Services

Neutral

Somewhat
Dissatisfied

very
Dissatisfied

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 peoples 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 organizations
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 organizations 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 organizations 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 office culture
Unable to effectively manage the relationship with vendor
Not applicable: there have been no negative outcomes

Negative impact on employee customer service

Unable to achieve cost savings
Not sure of negative outcomes at this time
Other (please specify): ________________

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

Very
Somewhat Neither satisfied
Satisfied
satisfied
nor dissatisfied
The services provided by your
outsourcing company(s)?

The relationship with your

outsourcing company(s)?

Somewhat
dissatisfied

Very
dissatisfied

10. Overall, to what extent has outsourcing HR functions met the expectations of the organization?
To a large extent
Neither to a large extent nor to a small extent
To no extent at all

To some extent
To a small extent
Do not know

11. Has the size of your organizations 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