Study: HR needs larger role in 'offshoring'

HR professionals can help reduce costs and improve results for companies considering sending jobs overseas--the controversial practice known as "offshoring," according to a new study from Hewitt Associates.

Almost half (45 percent) of the more than 500 senior finance and HR leaders surveyed said their firms are offshoring or are considering offshoring within the next three years. Cost reduction was the primary motivator for almost all of the companies (92 percent) and the method the companies overwhelmingly used to gauge success (95 percent).

More than half (54 percent) of respondents saw their global sourcing efforts as somewhat successful, but only 8 percent saw those efforts as completely successful, according to the report.

Most companies (88 percent) evaluated labor costs and analyzed potential return on investment (79 percent). However, fewer than four in 10 analyzed the local economic and political climate, and only one-third routinely examined the impact of global sourcing initiatives on the community or other stakeholders (34 percent), said the study. Fewer still looked at the impact of employee and union representation considerations at home or in the location to which they will be moving operations.

Companies often underestimate HR-related organizational impact and costs when making global sourcing decisions, the study asserted. The most frequent hidden or unexpected costs for HR were related to training and to cultural and communication differences. Almost two-thirds (64 percent) of HR professionals cited maintaining corporate culture and values as their top offshoring challenge. Following were talent management (57 percent) and legal and regulatory challenges (56 percent).

"Companies can minimize hidden costs and maximize return by enabling HR to have a seat at the table early so they can carefully address issues such as skill and language requirements, labor costs by market, alternative talent pools, workforce training, retention and change management at both ends of the global sourcing spectrum--those being displaced and those receiving the work," said Mark Arian, corporate restructuring and change practice leader for Hewitt Associates.

While more companies are adding offshoring to their business strategy, most are assessing costs related to talent inaccurately, said Arian. Failing to address such issues will result in decreased value and return on investment, he said.

"Executives at the senior leadership level are not realizing that human capital has the greatest possible return when it comes to maximizing production and reducing costs when they consider global sourcing," said Tina Kao, senior consultant for talent and organization at Hewitt. "Because of that, human capital also poses the greatest challenges and risks, especially when it comes to training, employee communication and talent attrition."

"Global sourcing decisions are made primarily by finance and the C-suite, with HR usually being brought in after the fact," noted Arian.

Because offshoring is usually a cost-driven decision, the "numbers crunchers" are usually the cornerstone of the decision-making process, said Kao. Companies must change their attitude and view of off-shoring, she said. "Global sourcing is about rethinking the broader picture in terms of redesigning how work is done and integrating that with a long-term strategy about how an organization will source its work. This is where HR plays a critical role."

"In the long run, HR leaders will be held accountable for hidden human capital costs and constraints that limit profitability and growth, so it's important that they be more aggressive in pushing for greater influence in the decision-making process," said Arian.

COPYRIGHT 2004 Society for Human Resource Management
COPYRIGHT 2004 Gale Group