OUTSOURCING HR WORK

Increasingly, HR services, which would previously have been regarded as a business’s own responsibility to manage, are now routinely being purchased from external suppliers. Managements are facing Tom Peters’ (1988) challenge: ‘Prove it can’t be subcontracted.’ The formal policy of a major global corporation reads: ‘Manufacture only those items – and internally source only those support services – that directly contribute to, or help to maintain, our competitive advantage.’ The IPD (1998a) states that ‘the biggest single cause in the increase of outsourcing has been the concept of the core organization which focuses its in-house expertise on its primary function and purchases any necessary support from a range of sources in its periphery’.

The HR function is well positioned to outsource some of its activities to management consultancies and other agencies or firms that act as service providers in such fields as training, recruitment, executive search, occupational health and safety services, employee welfare and counselling activities, childcare, payroll administration and legal advisory services. HR functions, which have been given responsibility for other miscellaneous activities such as catering, car, fleet management, facilities management and security (because there is nowhere else to put them), may gladly outsource them to specialist firms.

The case for outsourcing

There are three reasons for outsourcing:

1. Cost saving – HR costs are reduced because the services are cheaper and the size of the function can be cut back. 

2. Concentration of HR effort– members of the function are not diverted from the key tasks that add value. 

3. Obtaining expertise – know-how and experience that are unavailable in the organization can be purchased.

Problems with outsourcing 

The advantages of outsourcing seem to be high, but there are problems. Some firms have unthinkingly outsourced core activities on an ad hoc basis to gain short-term advantage, while others found that they were being leveraged by their suppliers to pay higher rates. Firms may focus on a definition of the core activities and those that can be outsourced that may be justified at the time but do not take account of the future. Additionally, a seemingly random policy of outsourcing can lead to lower employee morale and to a ‘who next’ atmosphere.