Why are Indian SMEs slow in adopting HRSS business services model?
According to a 2021 Deloitte Global Shared Services & Outsourcing Survey report (read the report here), India is the most preferred location across industries. Functionally Finance, HR & IT are the top three functions that are rapidly adopting shared services in their ways of working. Since India is the largest shared services market in the world today, one would imagine that Indian companies would be early adopters to this trend, and especially innovate to adopt this business services model into the Indian SME sector. Shared services have inherent advantages as it brings benefits of scalability and reuse of resources to drive down costs and improving end-user experience, apart from bringing domain expertise to businesses. However, adoption of shared services by Indian companies, excepting leading Indian organizations, has been disappointing.
So, what are the possible reasons for shared services, especially HR shared services (HRSS Business) still not being popular amongst the Indian SMEs?
- Lack of awareness – Most SMEs are not aware of the concept of shared services. Some confuse it with manpower outsourcing or HR automation while others think it as a payroll service provider solution. The concept of a bundled business services solution that owns outcomes by front-ending with end customers, i.e., employees, directly by fielding their queries and acting on it for solutioning is new. This raises more questions than answers in their minds and they end up not taking any decisions. There aren’t many used cases in media either which the SME decision makers can refer to and understand the utility of such a business services model.
- Lack of availability of shared service providers – While India has a large number of global shared services companies like TCS, Wipro, HCL, Infosys, etc., these companies are mostly in the IT and Financial services space with few now venturing into the HRSS Business space as well. Unlike other markets, India still does not have enough number of shared service providers catering to smaller organizations. Some service providers start off with an HRSS concept but give into market pressures by resorting to piece meal services like payroll, recruitments and onboarding. Such an approach defeats the purpose of shared services as the service provider does not get ownership & maintenance rights of employee dBase and hence is unable to satisfactorily act as a single point of contact for end-user, i.e., employee HR support. This model also costs higher for the customers as they continue to staff their HR teams with operational headcount in order to support employees.
- Internal Resistance – Any new and seemingly disruptive business model is bound to evince apprehensions and resistance in target functions and HR is no exception. Internal HR teams in Indian SMEs, while unaware of HRSS concept themselves, actively work to kill any idea of HRSS adoption for fear of losing their jobs or their spheres of influence. The fact that HRSS is complimentary to their functional and personal development, by refocusing on tactical, developmental and strategic work areas, does little to assuage such apprehensions.
- Traditional Mindset – Indian SMEs were smart in adopting HR technology and adapting to remote working setups during the pandemic but still prefer their HR teams on-site. Little thought is given to the actual utility of this setup, with less than 5% of employees actually approaching HR for any f2f query handling. In fact, the importance of on-site HR in facilitating and supporting line managers on people topics are completely neglected as HR teams continue to be busy with their excel sheets and HR tools.
- Lack of awareness of HR Costs – Overwhelming majority of Indian SMEs are unaware of how HR efficiencies are calculated or benchmarked using direct and indirect cost measurements. HRSS service providers find it increasingly difficult when they show the cost-benefit analysis in absence of customer awareness. The fact that on an average, an Indian SME spends annually a minimum of INR 10K per employee on direct HR costs is not clearly known to most CEOs. HRSS Business service provider models have capabilities to reduce these costs from 10% to upto 60% is news for these SME CEOs.
It is only a matter of time before Indian SMEs adopt this business services model, not just in HR but in all central functions like Finance, IT, procurement, marketing, contract management and legal services. India currently enjoys a price advantage over global markets and hence can afford to not look closely at hyper competitive cost rationalizations. With increasing number of SMEs partnering as vendors with global organizations, such business services adoption would become an imperative. Business and CEO associations too should prioritize focus on popularization of shared services concept thus helping their member SMEs to become more competitive, cost effective and professional in their organizational setup.