Human resource challenges

In this chapter a detailed study of Human Resource Challenges and job security will be done according to the interpretation of different author given in the literature. This chapter will be discussed in various sub chapters discussing about the Human Resource challenges, Job security and employees job satisfaction and their engagement in the organisations.

Human Resource challenges in BPO organizations

Studies on human resource management have shown that the HR functions in Indian organizations are beginning to adopt a more strategic approach in the management of this critical resource (Budhwar and Sparrow, 1997). However, it has also been pointed out that these practices vary across sectors with marked differences between private and public sector organizations (Budhwar and Boyne, 2004). However, there is a lack of similar studies on outsourcing organizations.

Existing literature reveal that the basic cost-effective model of Indian outsourcing sector appears to be weakening as wages continue to rise annually at 10-20 percent, and in some cases average revenues are declining (Budhwar et al., 2006b) Analysts have started to question the sustainability of the rapid growth of the Indian outsourcing sector and fear it might burst like the dot.com bubble. A number of HR-related problems are now becoming prominent (Swami and Sekhar, 2005)

The research conducted by Budhwar et al., (2006a) predicts that by 2008 the sector will experience a shortage of around 262,000 employees. Further, the industry has a high turnover rate and employers find it difficult to retain talented employees. Despite the large number of students graduating every year, there is now an increasing scarcity of appropriate skills gained through the education system, which is low on quality and relevance (Taylor and Bain, 2005). Because of shortages, the hiring of the right candidates has become a critical problem, and employees in the sector are experiencing problems related to stress, careers, and dissatisfaction at work (Budhwar et al., 2006a).

To begin with, acquiring the right talent is going to be a critical task for most BPO organizations. Studies conducted by Swami and Sekhar (2005) observes that a combination of factors like competition for talent from the local call centre industry and the low employability of many members of the qualified labour pool would act as a constraint for many BPO organizations. The demand for Indian engineering professionals is already exceeding supply and is presenting a formidable challenge for HR managers to fill the rapidly increasing number of positions in the sector (Taylor and Bain, 1999).

Employee Management in BPO organizations

Employee management was initially designed to improve the process for recruiting and developing people with the required skills and aptitude to meet current organizational needs. The various aspects of employee management are recruitment, selection, on-boarding, mentoring, performance management, career development, leadership development, replacement planning, career planning, recognition and reward (Cartwright and Holmes, 2006). Competition and the lack of availability of highly talented and skilled employees make finding and retaining talented employee’s major priorities for organizations (Fegley, 2006). An organization must have a strong and positive employer brand in order to attract and retain the best talent anywhere in the world, (Brewster et al., 2005). Grounded within strategic the management of talent seems to be one of the key functions that HRM is playing strategically in organizations (Bhatnagar, 2004). Recent research indicates that the war for talent is intense due to labour market shortages yet very little research attention has been aimed at competitive employee management strategies (Branham, 2005).

Further, Cartwright and Holmes (2006) reflect that the typical HRM which looks at performance results as an opportunity for an assessment of ability leads to lower performance and unhappy staff who do not fulfil their potential and thus would reflect low talent engagement. Employee engagement as a key to the retention of talent is an area in which the lead has been taken by practitioners (Parsley, 2006). In fact, Fegley (2006) indicated that the Indian HR community needs to look into the trends of the Western world.

After liberalization of the Indian economy, the impact of restructuring, economic transition to an open market, and increased competition from internal and external sources has put pressure on all functions of organizations (Bhatnagar, 2004). There has been evidence of a general need among the managerial cadre to build capabilities, resources, competencies, strategies, and macro as well as micro HRM activities (Budhwar et al., 2006a). Some leading Indian organizations have brought out newer issues in the strategic management of their HR function.

Employee Engagement

The issue of engaging employees within an organization provides a competitive advantage to organizations, and hence there is a need to continuously engage employees. Joo and Mclean (2006) note that the resource-based view posits that human and organizational resources, more than physical, technical or financial resources, can provide a firm with sustained competitive advantage because they are particularly difficult to emulate. This view points out that firms can develop sustained competitive advantage only by creating value in a way that is rare and difficult for competitors to imitate (Foss, 1997).

Moreover, this approach requires that a firm be seen not through its activities in the product market, but as a unique bundle of resources that are complex, intangible and dynamic (Martel, 2003). In a related development, Joo and Mclean (2006) state that engaged employees are strong organizational assets for sustained competitive advantage and a strategic asset. In defining what a strategic asset is Amit and Shoemaker (1993) describes it as the set of difficult-to-trade-and-imitate, scarce, appropriable and specialized resources and capabilities that bestow a firm's competitive advantage. These engaged employees are difficult to imitate and are unique to an organization, thus lending credence to the resource-based perspective of the firm.

On the other hand, Schaufeli and Bakker (2004) define engagement as a positive, fulfilling, work-related state of mind that is characterized by vigour, dedication, and absorption. Yet engagement is different from satisfaction as Gubman (2004) states that engagement means a heightened emotional connection to a job and organization that goes beyond satisfaction that enables people to perform well, and makes want to stay with their employers and say good things about them. Engagement is the state of emotional and intellectual commitment to an organization or group. An engaged employee is a person who is fully involved in, and enthusiastic about their work (Falcone, 2006).

Job Security

From the perspective of job security, there is a key concern as to whether employers face a higher risk of redundancy and unemployment, or that there more instability occurring in specific labour markets. An underlying assumption of this view is that job security equates with length of time employees remain in their jobs, those with longer tenure are perceived to possess a lower risk of unemployment (Green et al 2000). Bordia et al., (2004) suggest that job security needs to be considered in terms of the tenure of the nature of the employment contract and the degree of protection an employee has from arbitrary dismissal by their employer.

De Witte (1999) notes that the objective condition promoting job security includes economic recession, organizational restructures, mergers, new technologies and increased externalization of the workforce. Yet objective stressors may only lead to the potential of a stress reaction, leaving perceptions of objective situations to be more predictive of stress outcomes than the objective situation (Blau et al., 2004). Indeed job insecurity feelings rather than the situation of the organization are known to impact on employees’ health, attitudes, and behaviour (De Witte, 1999). In this line it is suffice to suggest that these existing literatures provides compelling evidence that employees vary in their assessment of job threats and thus it is job insecurity perceptions, even in the absence of an overt job threat.

Even though employees finding their job security needs unmet might be expected to leave their jobs for ones that seems to offer greater security. In this line, the severity of threats to job security varies between the various business environments. The risk of job loss in times of high unemployment is more threatening than in times of low unemployment (De Witte, and Naswall, 2003). Perceived ease of movement for a worker depends on the availability of jobs for which they are qualified, and willing to accept. For a job-threatened employee, the greater the number of perceived work alternatives the greater the perceived ease of movement (Mohr, 2000). Thus there is a belief that alternative job opportunities abound is likely to minimize the severity of threats to job security. In this regard, it is suggested that an individuals’ perception of job security might be influenced by their perceived capacity to find alternate employment (Westman et al., 2001).

Studies of Blau et al (2004) propose that if individuals believe that they can find another equally good job then they are more likely to be relaxed about their job security than those with fewer job alternatives. In the same way, Green et al (2000) argue that the extent of one’s marketable skills, one’s occupational mobility, and one’s assessment of economic instability in the job market have influence on one’s perceived intensity of a job threat. Thus the risk of job loss is believed to be more threatening where the jobholder feels less able to find a comparable job (De Witte, 1999).

Further, De Witte and Naswall (2003) suggest that employees who believe that they have a strong position in the labour market feel more secure about their jobs than do employees who feel more vulnerable. Even the potential to improve one’s chances in the labour market can influence the perception of job insecurity. In as long as employees see their job insecurity as related to individual characteristics they believe are controllable, they can feel there is a way out (Mohr, 2000).

Job satisfaction

The issue of job satisfaction is often a direct consequence of a positive organisational climate. In this connection, Varma et al., (2006) has defined job satisfaction as a pleasurable or positive emotional state resulting from the appraisal of one's job or job experience. Mosadeghrad, (2003a) defines job satisfaction as an employee's affective reaction to a job, based on a comparison between actual outcomes and desired outcomes. Furthermore, job satisfaction can be functioning in various manners, which represent its different dimensions that is, extrinsic satisfaction, social satisfaction, and intrinsic satisfaction (Pattnaik and Biswas, 2005). In effect, the dimensions of job satisfaction cover the cognitive and affective responses of individuals to their workplace needs and necessities. Indeed, the literature suggests that job satisfaction is an attitudinal variable, and so, like other attitudinal variables, such as job involvement and organizational commitment, it can also be hypothesized as a consequence of job satisfaction (Parker et al., 2003). In this connection, Montes et al. (2003) have argued that climate, which is the manner in which individuals perceive their workplace practices and procedures, has an important bearing on the level of satisfaction derived from the work.

It is important to note that there is a clear distinction in the way that organizational culture, which is the long-term shared beliefs of a majority of the organizational members, and organizational environment, which is the interpretation of day-to-day work environment by individual employees, affects employees' performance (Deckop et al., 1999). While culture may affect individual behaviour through macro-level mediating variables, constructs like job satisfaction affect individual performance through individual attitudinal variables (Brown and Leigh, 1996).

Job satisfaction is critical to retaining and attracting well-qualified personnel. In this line, McBride, (2002) suggest that employee job satisfaction is an attitude that people have about their jobs and the organizations in which they perform these jobs. Job satisfaction is generally recognized as a multifaceted construct that includes employee feelings about a variety of both intrinsic and extrinsic job elements. It encompasses specific aspects of satisfaction related to pay, benefits, promotion, work conditions, supervision, organizational practices and relationships with co-workers (Misener et al., 1996).

Employee training

In an era of continuous change and increased environmental uncertainty and complexity, both management and employees understand their limited capacity to deal with future demands made on them. Studies show the emergence of two trends, increasingly troubling corporate management, the increasing age of the workforce and the fast-paced evolution of new technologies (Tai, 2006). It is suggested that businesses increase their training budgets, in order to remain competitive and maintain an adaptable and flexible workforce.

The study of Chiaburu and Tekleab (2005) describes training as the planned intervention that is designed to enhance the determinants of individual job performance. Training offered to employees, may help them reduce their anxiety or frustration, brought on by work demands, that they are not familiar with, and they are lacking the skills to handle effectively (Chen et al., 2004). Thus it is suggested that training is related to the skills deemed necessary by the management of an organization, which must be acquired by the members of that organization, in order to improve the probability of achievement of its goals.

Furthermore, Chen et al., (2004) suggest that employees feeling less than competent to do a task, are more likely to leave the field or if they choose to stay, their productivity would be suboptimal. The larger the gap between the skills required and those possessed by the employees, the greater the lack of job satisfaction of the employees and the turnover intentions (Rowden, 2002). Although there has been no direct link in the literature between training and job satisfaction, Rowden and Conine (2005), propose that training may be used as a tool to increase job satisfaction, arguing that trained employees will better satisfy the needs of their customers. Tsai et al. (2007) found that employees committed to learning showed a higher level of job satisfaction with a positive effect on their performance.

Employee development

It is evident to say that Human resource development (HRD) is a process of developing and unleashing expertise through organization development and personnel training and development for the purpose of improving performance (Swanson, 2001). HRD is based on the beliefs that organizations are human-made entities that rely on human expertise in order to establish and achieve their goals and that HRD professionals are advocates of individual and group, work processes and organizational integrity (Currie, 1998). Models of HRD specify a range of practices which, if pursued, are likely to contribute to human capital accumulation on which organization may build its competitive advantages (Willis, 1997). These models basically advocate that investment in HRD by organizations contribute to organizational and individual performances such as high performance (Sandberg, 2000), high quality of individual and organizational problem solving, higher organizational commitment, and enhanced organizational retention.

HRD managers are expected to be involved with the creation of learning environment through HRD tools (Rao, 2000). In that sense they are concerned with development rather than traditional personnel functions. Ahmad and Raida (2003) emphasis that globalization and technological advancement are compelling organizations to evolve new strategic directions. Employees are thus required to be ready for accepting new roles and must think of employability over job security. There are increasing research-based evidence to suggest that employees, particularly the knowledge workers, do not consider money as the only important reason to work for a company (Neal, 1999). On the contrary they now expect more enriching organizational environment and an alignment of their individual values with organizational values (Finegan, 2000). When employees recognize disparity between the ideal and operational organizational values and if the gap is too wide it erodes their trust and commitment, particularly the affective commitment (Rao, 2000).

Organizational values

Huang and Dastmalchian, (2006) describes values as fundamental beliefs and assumptions that guide individual behaviour and judgments across situations. Thus in the perspective of an organization, values seems to be indicative of the most defining characteristics of an institution. These are the beliefs and attitude that goes deep inside and constitute a collective understanding regarding norms and standards of behaviour acceptable in the organization (Hatch, 1993). In that sense values are considered as the essential component of organizational culture. According to Sinha (1995) corporate values are collective beliefs about what the entire enterprise stands for, takes pride in and holds of intrinsic worth. Organizational values sets the tone of the environment, bonds people together, facilitates work behaviour and achievement of shared goals. It also represent the ambitions that people hold for the organization as a living system because values define who and what each person has to offer as a human being to the overall enterprise (Mirabile, 1996).

There is enough evidence to suggest that organizations need to promote such values as openness, trust, initiative, team work and collaboration, humane treatment of worker, creativity, quality, empowerment, and delegation for better results (Becker et al., 2001). The study of Dearlove and Coomber (1999), found that organizations experienced significantly lower employee turnover when they valued respect and teamwork.

Organizational performance

It is argued that there is a strong linkage between HRM practices and organizational performance. However, Purcell et al., (2003) note that to isolate and test the impact of a sole human resource practice and its implications on organizational performance is not an easy task to deal with, since there is little evidence in the field. Guest (1997) recognized training and development, as a unique practice which affects the quality of the HR outcome of skills and ability.

Cheramie et al. (2007), suggests that individual job performance is also influenced by the organizational culture and structure, by the job design, the reward systems used to motivate employees and the power and politics that exist in the organization and the group processes. Individuals may not achieve their goals and thus not perform well, due to problems associated with these reasons and not necessarily due to lack of skills (Purcell et al., 2003). Wright and Geroy (2001) argued that in order for training to be effective, certain issues such as management style may need to change and training also has to fit with the culture of the organization. However it must noted that some companies may offer training programs that, the organization itself is not prepared to accept the subsequent changes (Swart et al. 2005). Besides, Eisenberger et al. (1986) proposed that employees are more likely to become committed to an organization, if they believe that the organization is committed to them and management should make efforts to create a positive work environment. Managers, also have the responsibility, to ascertain which factors inhibit effectiveness and make the appropriate decisions, to ameliorate the situation (Swart et al., 2005).

Although in theory training seems to increase organizational performance, in actuality the evidence for such a claim is scant. Bartel (1994), in a survey conducted in the manufacturing sector, found that there is a positive relationship between implementing formal employee training programs and labor productivity, both at individual and organizational level. In addition, Ahmad and Bakar (2003), in their effort to test the relationship between implementing training and organizational commitment, came across various findings concerning all three aspects of commitment, affective, normative and continuance. They did not receive support for their hypothesis, which was stating that training has an impact on commitment but they found that various dimensions of training are related with all three aspects of commitment, which is consistent to a large extent with the findings of Kim (2006).

In general, it can be argued that the effect of training on employee outcomes such as motivation, job satisfaction and commitment has not received as much attention as it deserves (Cheramie et al. 2007). However, few studies have been carried out that test the possibility that firms can affect their employees' attitudes by implementing training interventions. In this line Lang (1992) argued that training should be designed to achieve increased organizational commitment. Another survey, conducted by Gaertner and Nollen (1989) in manufacturing firms, revealed that employees' commitment was associated with the actual and perceived HRM practices. These practices were internal promotion, employment security and training opportunities. In addition, Meyer and Smith (2000), examining the relationship between Human Resource Management practices and organizational commitment, found that although the HRM practices are very valuable means in order to obtain employee commitment, their effects are not direct.

Organizational commitment

Organizational commitment reflects the extent to which an individual identifies with an organization and committed to its organizational goals. Organizational commitment is defined as the relative strength of an individual's identification and involvement is a particular organization (Bates and Khasawneh 2005). The impact of organizational commitment has grown significantly in the field of management development. This concept receives a great deal of empirical study both as a consequence or antecedent as a work-related variable (Parry and Proctor-Thompson 2003). As a consequence, organizational commitment is critical among employees in creating a business environment that promotes motivation and job satisfaction at the workplace. It links the individual to the organization (Meyer et al., 2004). Organizational commitment reflects the extent to which an individual identifies with an organization and committed to its organizational goals (Lok and Crawford, 2003). Work attitude is important because committed employees are expected to exemplify a willingness to work harder to achieve organizational goals (Ingersoll et. al., 2000). Employees demonstrating this commitment have a greater desire to remain employed with that organization. Studies conducted by Meyer et al., (2004) indicates that organizational commitment is a viable predictor of many behaviors, including absenteeism, turnover job satisfaction, and work motivation Organizational commitment is attitudinal behavior. Conceptually, organizational commitment is characterized by a the strong belief and acceptance of the organization's goals and values (Riketta, 2002).Additionally, commitment impacts the employees’ behaviour within an organization as well as producing a strong desire to maintain membership in the organization (Meyer et al., 2004).

Employee mobility

Because of downsizing and hiring contingent employee long-term organizational commitments are largely disappearing and high employee turnover has become common (Rousseau, 2004). Under these circumstances, employees' mobility decisions become a critical issue for the labour market. However employee mobility plays an important role in improving the match between an employee and a given employer over time (Eisenberger et al., 2002). It also forces both employees and employers to remain aware of the larger marketplace and to continuously examine one another's needs. In this way, mobility actually performs a socially useful role by matching employees with those employers who will most value their skills (Mitchell et al., 2001).

Studies of Schnake and Dumler, (2000) indicate that education is related to turnover in that it impacts the number of job openings available to a worker, and the turnover cost they are able to bear. If a worker's education tends to be less firm-specific, job opportunities will be relatively large and job transfer cost, as part of transaction cost, will be relatively low (Trevor, 2001). This is the case for many job seekers with higher educations; thus, it should be easier for them to find another job than those with lower educations. Therefore, education may affect decisions about whether or not to keep a job with the current firm (Steel et al., 2002) Also, education, serves as a sorting device with which firms in the job market can determine which workers might be the most productive on the job (Lazear 1999). Additionally, there is a theoretical suggestion that turnover differences between men and women can be explained by differences in education, and that more highly educated people will remain longer in a given firm (Trevor, 2001).

The Attrition Problem

In spite of the tremendous growth potential of the sector, attrition rate and the manpower crisis is dampening the growth of the sector. The human resource professionals of the BPO industry are facing various challenges like the attrition rates and its implications, skill shortages, retaining the employees etc. The sources of recruitment used by the BPO companies are advertisements, employee referrals, outsourcing and walk-ins. The Indian BPO industry, which established itself as the low-cost destination for business process outsourcing in just a couple of years, is losing its position as the low-cost destination because of the rising people costs. According to the NASSCOM reports- The IT-ITeS industries are struggling with the critical issue of acquiring and sustaining manpower in the industry. The BPO industry – one of the most rapidly growing sectors in the Indian industry- is grappling with the issues of skill shortages, high attrition rates, and performance management along the confidentiality and security concerns. All these issues are having a negative impact on the BPO industry.

According to NASSCOM data, the attrition rate for voice-based BPO’s is around 55-60 per cent and 15-20 per cent for the non-voice based processes. The attrition rates and the retention have become the major threat and the biggest challenge for the human resource professionals of the sector. In fact, the outsourcing industry is expected to face a shortage of 2,62,000 professionals by 2012. The human resource professionals of the BPO sector are focusing their strategies on tackling the disruption caused due to the shortage of the skilled manpower as well as the unplanned or the desired exists.

The top reasons for employees to leave a BPO company are:

Monotonous work (repetitive nature of work and the average number of calls)
Physical strains because of long and odd working hours
No growth opportunity/lack of promotion
For higher Salary
For Higher education
No personal life
Problems with peers and managers
Policies and procedures
Conducive work culture or environment
Handling abusive calls

The high attrition costs increases the costs to the organization considerably. They have to combat the amount of disruption due to unplanned exits. The more the people leave an organization, the more it is a drain on the company’s resources like recruitment expenses, training and orientation resources and the time. The high attrition rate also affects the productivity of the organization. The attrition cost has been estimated to be as high as 76 per cent of the annual salary costs for the low-end BPOs. The voice-based processes, which are facing an attrition rate of 60 per cent, are incurring the attrition costs of 27 per cent of the total operating costs.

The high attrition costs the BPO industry a huge amount of loss in terms of the expenses and the losses incurred on recruitment process, the training and development of the hired. In the year 2004-05, such expenses amounted to a loss of Rs. 300 crore and a total loss of 25 % of the annual revenue to the Indian BPO industry. Also, the retention strategies like providing higher education opportunities to the employees, creating growth opportunities for employees add to the burden of costs to the company.

Another problem being faced by the BPO industry is “Poaching”. Poaching refers to taking away the experienced professionals by competitors by offering them better salary, benefits than the competitor. With the already saturated market for the talented professionals, poaching is becoming a common practice by the organizations. All these people costs are weakening the position of India as the low-cost destination in the worldwide BPO industry.

Another point of view explaining the high attrition rates in the BPO industry comes from the psychologists who argue that physical strains like sleep disorders, depression, odd working shifts, learning foreign accents, constantly handling abusive calls and high stress levels are also the major reasons of the high attrition rates in the BPO industry. There are also pressures from the society for not allowing the youngsters to work in night shifts. This also discourages the youngsters from joining the BPO industry.

Employee reactions to HRM practices and policies

Studies on HRM in general, and on the link between HRM and organizational performance in particular neglect the reaction of workers to HRM (Guest, 2002). How HRM policies and practices are carried out in a given organizations, can be more highlighted by exploring how workers respond to it HRM. The option of exploring the experience of HRM systems from the point of view of employees on the receiving end seems to provide broader way of evaluating HRM (Gibb, 2001). This is consistent with Woods (1999) suggesting that it helps in the contribution of HRM to the overall firm performance and sheds light on evaluation of HRM practices as experienced by employees.

Furthermore, Budhwar and Debrah (2004), describe that in recent years there has been a remarkable development in HRM throughout the world, however, the majority of the research has focused on HRM in advanced industrial countries. There is further argument by Kamoche et al., (2004) that although plenty of information is available regarding HRM in the developed countries, little has been written about HRM in developing nations. That is, there is a lack of information regarding the dynamics of HRM in developing countries. Relatively little is written about the unique human and organizational problems of firms in developing countries (Anakwe, 2002). However, since people are the most important assets of organizations, Guest (2002) suggest that the employee attitude survey is an invaluable tool in the analysis of HRM problems, and when used properly provides a wealth of useful information to improve HRM.