Human Resource Management and Outsourcing: The Impact of Using Consultants

By Sheehan, Cathy; Nelson, Lindsay et al. | International Journal of Employment Studies, April 2002 | Go to article overview

Human Resource Management and Outsourcing: The Impact of Using Consultants


Sheehan, Cathy, Nelson, Lindsay, Holland, Peter, International Journal of Employment Studies


Whilst the increasing use of human resource (HR) consultants can be interpreted as organisations taking advantage of external expertise, such practice could become a threat to the viability, synergy and strategic coherence of HR departments.

From an original survey of all members of the Australian Human Resources Institute (AHRI), senior HR managers report substantial use of outsourced HR consultants. To more fully investigate the extent and significance of this trend, extended interviews were conducted with twelve leading organisations. These were identified by their previous involvement in a continuous improvement program known in Australia as the Australian Best Practice Program, promoted by the Australian government through the Department of Industrial Relations.

Analysis of this qualitative-based research suggests that, in order to maintain a competitive advantage, "Best Practice" organisations are rethinking the efficacy of using external consultants. The reasons why some organisations felt compelled to use consultants in the first place and for the practice appearing to be in decline are explored in this article.

INTRODUCTION

The trend towards the use of external human resource (HR) advice continues to grow with the global consultancy market worth more than $40 billion and management consultants' fee income estimated to be doubling every three years (Caulkin, 1997; Jeffay et al., 1997). In Australia the recruitment industry is experiencing rapid growth and it is predicted that by 2008, staff contracting alone could be worth $75 billion (Tebbel, 1999: 19). There are, however, some signs that perhaps there may be some slackening in growth, according to Pickard (2000) who reported on a study by the Cranfield School of Management in the United Kingdom. This meteoric rise in the use of consultants demands some explanation and, within an environment that honours competitive advantage, some careful monitoring.

The use of specialist HR advisors is part of a larger move to outsource HR activities. The rationale is that such outsourcing, specifically associated with routine administrative tasks, allows those involved in the HR function to focus on core processes and capabilities, freeing internal HR staff from time consuming tasks that do not necessarily add to the bottom line (Davidson, 1998; Carney, 1997; Switser, 1997; Cline, 1997). Wood in 1985 had asked senior executives in fourteen well-established consultancies to rank reasons for their use. The primary reason for the use of consultancy assistance was seen to be the provision of specialist expertise that was not available within the client organisation. This may still be a primary reason for the use of consultants in HR as increasing regulation, tighter legal compliance and new technology place increasing burdens on the human resource function (Martin, 1997). The use of outsourced HR specialists is actively promoted by the industry, for example Cook (1999), who argues that external consultants provide enhanced HR services at lower cost.

Despite this support there remains some concern about the degree of fit between the organisation and the outsouce vendor (Tebbel, 1999). Outsourcing is occurring at a time when the role of the HR department is under review and it is becoming clear that HR is redefining itself as a strategic business partner rather than an operational function committed to efficient administration (Tyson and Fell, 1986; Legge, 1995; Wright and McMahan, 1992; Buller and Napier, 1993; Purcell and Ahlstrand, 1995; Lawler, 1995; Torrington and Hall, 1998). The outsourcing of selected tasks supports this transition and appears to be a logical component in the move to integrate HR more fully into central decision making processes.

If the trend to seek external advice and operational support for HR activities continues, however, companies must give a great deal of thought to exactly what is being outsourced and carefully monitor the process. …

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