Effective Human Resource Management: A Global Analysis

By Edward E. Lawler III; John W. Boudreau | Go to book overview

CHAPTER 11
Outsourcing

Outsourcing is a possible way to improve the effectiveness of an HR function and make it more strategic. Outsourcing transactional work can reduce the work load of HR organizations, increase quality, and reduce costs (Lawler, Ulrich, Fitz-enz, and Madden 2004). In the bestcase scenario, transaction outsourcing companies can provide better and cheaper services because they are focused on a particular process or area of expertise that is their core competency. In addition, when they provide transaction services, they can capture economies of scale by servicing multiple organizations. They also can improve the processes of organizations because of the knowledge they have.

At the very least, outsourcing can reduce the number of employees who are on the HR department payroll and can create a flexible cost structure when services are needed occasionally or for short periods of time. They also can allow companies to relatively easily increase or decrease the number of people who are working on their HR programs.

By outsourcing professional and knowledge work, organizations can acquire expertise and strategic information that may not be available internally. Here the hoped-for advantages are not as much related to scale as they are expertise in areas like HR strategy, organization development, and training. Particularly in the case of the large consulting firms, they are able to provide a depth of expertise in their areas of specialization that most companies cannot hope to achieve.


Use of Outsourcing

Table 11.1 shows the degree to which eighteen HR activities are currently being outsourced in the U.S. Activities are grouped by the three factors that our statistical analysis produced; ten items did not group. In 1995, 1998, 2001, 2004, 2007, and 2010 the use of outsourcing varied widely among the activities, but in no case were any of these activities even close to being completely outsourced by a majority of the companies.

At one extreme in 2010, over 90 percent of the companies did not outsource HC forecasting, career planning, and organization design, all areas in which HR can add considerable strategic value and act as a strategic partner. However, as was noted in Chapter 5, they are not all areas where HR is particularly active (strategic planning and organization design). They represent areas of opportunity for HR given their importance.

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