Strategic Perspectives of Outsourcing and HR Outsourcing - Essay Example

Introduction 2 Definitional Parameters 3 Confronting and Overcoming Challenges: Outsourcing Costs and Benefits 7 Theoretical Justification and Management Paradigms 9 HR Outsourcing: Off-Shore Call Centres 11 Recommendations 14 Future Growth Expectations 17 Conclusion 19 20 References 20 Introduction Numerous corporations, among which we may mention global giants such as Microsoft, HSBC and GE, have fully embraced the outsourcing phenomenon. Even while conceding to the fact that the outsourcing of some customer service functions may be a very difficult and challenging undertaking, these corporations, and many others, have determinedly embrace HR outsourcing because of its highly cost-effective nature. HR outsourcing primarily assumes the form of call centres. As the function of a call centre ranges from the provision of equipment operation guidelines and purchasing advice, among others, customer call centres may be identified as playing a seminal role in the determination of the nature of the relationship between the corporation in question and its customer base. It is, therefore, imperative that call centre employees be exceedingly well-trained in order to ensure, not just the provision of quality service but that the call centre communicate a positive image of the corporation itself. Upon consideration of the importance of call centres, the decision to outsource appears quite monumental as, indeed, it is. Cost considerations, however, firmly establish it as a practical decision. Therefore, prior to outsourcing its call centre operations to India, ABC Incorporated need have a thorough understanding of HR outsourcing, its associate management models, be cognizant of the advantages and disadvantages of such a step and realise the cross-national and cross-cultural challenges which confront such a step in order to best manage them. This report will do just that. Definitional Parameters The report will commence with an overview of the definition of both outsourcing and HRO. Both these definitions are important for two reasons. In the first place, they give us a solid understanding of the advantages of outsourcing specified HR functions. In the second place, they give us an insight into the ways and means by which the disadvantages associate with HRO may best be managed and contained. Outsourcing: A New Definition for a Historic Phenomenon While popularly perceived of as a new phenomenon for which globalisation is held responsible, Domberger (2005) contends that outsourcing, as contracting, is a historical practice, solidly grounded in economic imperative and principle. As defined by Domberger (2005), outsourcing is best understood as a form of extra-contracting whereby, to reduce overall operational and manufacturing costs and maximise efficiency, firms and manufacturers have, traditionally and historically, contracting out specific steps in the work process. Referring to Adam Smith as the first to theorise this phenomenon, Domberger (2005) borrows the British economist's famous rural-urban example. Instead of rural areas embarking on activities which were not supported by heir environment, such as manufacturing, they focus on the agricultural activities supported by their environ; urban areas, instead of seeking to grow the raw material required for the manufacture of finished products, purchased the aforementioned from the rural areas. Rural and urban areas, thus, entered into an economically co-dependant and cooperative relationship, based on specialisation (Domberger, 2005). Specialisation, insofar as it involved the exploitation of labour talent and competencies from without the immediate geographic area, is the basis upon which outsourcing is founded. Domberger (2005) as may be deduced from the above, defines outsourcing as contracting based on specialisation and motivated by such economic imperatives as the exigencies of reducing cost and improving quality in order to remain competitive. Within the context of this definition, outsourcing is hardly a new phenomenon, but a historical one which, consequent to the forces of globalisation has extended beyond the earlier rural-urban confines to embrace nation-nation contracting. Largely concurring with the above articulated definition, Sako (2005) maintains that outsourcing is the redesign of relationships within product manufacturing and organisational operation architecture. The components and principles of the aforementioned architecture have remained, despite technological evolution and innovation, the same but, the relationship between them has changed. Hence, while manufacturing is still dependant upon the execution of a specified number of steps, it is no longer necessary for those steps to be executing within the confines of the plant. Manufacturing architecture, or organisational models have changed t the extent that some of the steps or processes involved may be outsourced, as in contracted to another organisation or off-shored to an independent or affiliate outfit (Sako, 2005). In other words, and as defined by Sako (2005) outsourcing is the reworking of linear relationships within a manufacturing or organisational architectural model, primarily guided by the imperatives of reducing costs and maintaining quality. As may be deduced from the foregoing, and as emphasised by MacPherson (1997) outsourcing is based upon the principle of labour specialisation and aims towards enhanced organisational performance and maximisation of profit through the minimisation of costs without the former implying the reduction in output quality. In direct relation to ABC Incorporated, one would be hard put to make a case for labour specialisation as the motivator of the movement of its call centre to India. The function in question does not require specialisation nor, indeed, any unique skill sets as which cannot be taught within a relatively short period of time. The outsourcing of its call centres is, therefore, motivated by the imperatives of reducing operational costs even while maintaining, possibly enhancing quality of services. HR As HRO Human Resource, referring to an organisation or firm's work force, talents and competencies, is best defined as an organisation's core component, its most valued asset and the key to its success or failure ((Brandel 2005; Youndt et al., 1996; Becker and Gerhart, 1996). From the extra-organisational perspective HR functions to determine external environmental perceptions of the organisation and the relationship between the two (Youndt et al., 1996; Becker and Gerhart, 1996). HR is, in brief, an organisation's most valued asset, whether perceived from the external or the internal perspective. Having defined HR in the above terms, the phenomenon of HR outsourcing [HRO] raises several questions. Given the value of HR, is the practice of HRO consistent with organisational strategies pertaining to the fulfilment of articulated objectives Can ABC Incorporated risk the decentralisation of its HRM, and the fragmentation of its HR Is it possible for ABC Incorporated to maintain quality HR services within a decentralised and fragmented, outsourcing context These questions immediately emanate from HR definitions which have focused on HR's centrality to efficient organisational operation and constructive intra- and extra-organisational relations (Schick, 2004; Jeffay, Bohannon, Laspisa, 1997; Ward, 2004). Importantly, they are expressive of the concerns which many HRM scholars have betrayed towards the phenomenon of HRO. If some HRM scholars have expressed their concern over the potential impact of HRO on organisational operations, others have dismissed these concerns as invalid. It is an invalid concern because HRO is founded upon the discriminatory categorisation of HR functions as core and non-core, maintaining that only those which fall under the latter category may be outsourced. HRO, in other words, is limited to the outsourcing of non core HR functions, as would neither significantly affect nor threaten extra and intra-organisational relations and operations but which would significantly reduce operational costs (Davidson, 1998). Within the context of the stated, therefore, HRO may be defined as an organisational strategy which seeks to reduce costs through the outsourcing of non core HR functions and tasks. While not dismissing the centrality of call centre operations to the determination of extra-environmental perceptions of an organisation or the role it plays in shaping the relationship between an organisation and its consumer, it remains a non-core HR function. It des not require any particular skill set and, indeed, with some basic training levels, ABC can offshore this operation to India without impacting quality of service. More importantly, a review of the cost versus the benefits, the advantages versus disadvantages of outsourcing, is clearly skewed in favour of outsourcing. Confronting and Overcoming Challenges: Outsourcing Costs and Benefits Even though outsourcing fundamentally draws from economic principles relating to labour specialisation, efficiency and the exploitation of comparative advantage, the practice is not without its problems (Jeffay, Bohannon and Lapisa, 1997). ABC should know that outsourcing is beset with numerous challenges and obstacles, sometimes culminating in firms having to terminate their outsourcing relationship due to managerial and quality control issues. As argued in the Economist (2005), the inability of UK firms to manage their outsourced workforce to the same levels of productivity as their domestic workforce, or to ensure the provision of a comparable quality of service, functions as evidences the inherently flawed basis of the practice and fortifies arguments pertaining to its termination (Time,' 2005). There is no doubt that many UK firms have confronted tremendous challenges in their bid towards the efficient management of their outsourced relationships but the challenges are neither insurmountable nor do they evidence the practice's flawed foundational logic. Instead, the challenges confronted and identified simply fortify the arguments which emphasise the imperatives of HR and market research and the development of HRM paradigms for the efficient management of the off-shored jobs (Yallof and Morgan, 2003; Jenster and Pedersen, 1999; Weidenbaum, 2004; Jeffay, Bohannon and Lapisa, 1997). Outsourcing is a business venture similar to most any other and identical to organisational contracting practices. Therefore, it should be informed by the same models and strategies used for contracting in an effort to minimise risks and maximise benefits (Kobayashi-Hillary, 2004). Hence, prior to making an outsourcing decision, firms should study the jobs which exist within it as means of determining which, if any, withstand outsourcing. Following that, firms need study the countries which it can outsource the selected jobs to and make their final selection on the basis of a country's economic environment and available human resources, specifically from the perspective of whether or not they have the requisite qualifications for executing the selected jobs. It is because many firms have made their decisions according to the articulated guidelines that India, for example, has emerged "the most popular offshore outsourcing destination" (Kobayashi-Hillary 2004). Insofar as ABC Incorporated is concerned, the implications of the above argued are clear. The company must not make its outsourcing decision simply because it is the direction in which many UK firms are going but because available empirical data and theory evidences the fact that the outsourcing of call centres to India constructively contributes to the reduction of operation running costs and, hence positively reflects upon a firm's financial performance indicators. ABC should, therefore, outsource its call centres because it is the economically-wise choice and because the associated challenges are not insurmountable. Theoretical Justification and Management Paradigms As briefly alluded to in the above, not only is outsourcing theoretically justifiable but, its positive exploitation of theoretical models and management paradigms can determine its success. A consideration of the theoretical framework of outsourcing, as discussed below, further supports the advice offered to ABC Incorporated regarding the benefits and advantages of outsourcing its call centres to India. Conceptual Framework The labour market is, and always has been, comprised of skill categories and specialisations, with operational efficiency dependant upon creating a perfect match between labour skill categories and job tasks while taking the cost of the latter into consideration. Outsourcing, whether defined as off-shoring or contracting, is the internationalisation of the labour specialisation principle (Ward, 2004). HR outsourcing is, thus, based on the principle of labour specialisation. In addition to the above-defined principle, outsourcing further draws from the theory of comparative advantage (Jeffay, Bohannon and Lapisa, 1997). Liberal economist and free trade advocates maintain that each economy has a definitive and clear advantage over others in a specified area. Should economies focus on activities that are directly related to their area of competency/advantage, they will experience greater growth rates as their resources will be much more efficiently and constructively exploited. Outsourcing is an extension of this principle insofar as it is based o the rationale that those economies which do not have an existing pool of unskilled labour, ideally suited for the execution of mechanistic tasks at low wages, should outsource those function to other economies while concentrating, itself, on the constructive exploitation of its skilled labour (Jeffay, Bohannon and Lapisa, 1997; Domberger, 2005; Teece, 2005). From this perspective, outsourcing emerges as the transference of the principle of comparative advantage to the labour market. Outsourcing is, as may have been determined from the above, consistent with economic theory pertaining to efficient allocation and exploitation of existent resources (Yallof and Morgan, 2003; Jenster and Pedersen, 1999; Weidenbaum, 2004; Jeffay, Bohannon and Lapisa, 1997). It is, in other words, a theoretically valid practice which ABC Incorporated should implement. However, in order to realise the benefits of call centre outsourcing, it is imperative that ABC Incorporated implement it from within the framework of a valid and appropriate HRM paradigm. HRM Models HR outsourcing decision can be a positive and profitable one of it is managed from within the organisation and in accordance with established HRM principles. HR outsourcing does not imply farming out non-core jobs to overseas centres and resigning management responsibilities to those off-shore centres. Instead, successful HR outsourcing implies that, even as jobs are outsourced to off-shores centres, their management remains in-house and the responsibilities of the outsourcing organisation's HR department (Zimmerman, 2001). The success of an HR outsourcing relationship is ultimately dependant upon HR strategic planning. In other words, it is the responsibility of ABC Incorporated's HR department to identify those non core HR functions which withstand outsourcing and which, if outsourced will reduce operational costs without resulting in the deterioration of the quality of service offered (Davidson, 1998; Caudron, 2003; Grimshaw and Rubery, 2005). This it has already done through the identification as call-centres as an HR function which withstands outsourcing. Having made this identification, ABC's HR department, as several HR scholars advise, is subsequently responsible for the articulation of a management paradigm which would ensure that the off-shored HR jobs will b executed according to the organisation's established standards (Caudron, 2003). Off-shoring, in other words, should only proceed following the design of an HRM paradigm which would maintain the organisation's control of the outsourced functions and establish a communication strategy between the outsourcee and the outsourcer as would keep outsourcee management within the organisation, irrespective of the actual outsourcee's geographic locale (Jenster and Pedersen, 1999). In other words, the success of ABC's call centre outsourcing decision is largely predicated on the implementation of a management model as would allow the home office to maintain control over the operative, irrespective of geographic distance. HR Outsourcing: Off-Shore Call Centres One of the UK's fastest growing business sectors is the service industry. From 1984 to 2001, the business services industry accounted for 50% of all employment growth in the United Kingdom and analysis of demand indicates that further growth is expected (Abromovsky, Grifith and Sako, 2004). The referenced growth, however, is not confined to the domestic job market since a sizeable percentage of the aforementioned growth has been off-shored. As explicated by Abromovsky, Grifith and Sako (2004), the growth in the business services industry led to the provision of two types of jobs: jobs which could be off-shored and jobs which could not. Consequently, while the business services industry accounts for a significant percentage of domestic employment opportunity growth, together with the information and communication service industry, it accounts for the majority of the United Kingdom's off-shored jobs. Within the business service sector, off-shoring has primarily been confined to secondary, or non-core HR tasks, as could be executed by unskilled, or non-professional personnel, requiring only minimal training. Economic rationale frames the outsourcing decision and guides UK corporations to the realisation that they can significantly cut down non-core HR labour costs were they to export these jobs, operate in off-shore facilities with off-shore/foreign labour/service personnel (Bhowmik, 2004). Since cost reduction estimates range around the 50% mark, the non-core HR outsourcing decision is inarguably predetermined by economic and business imperatives. Therefore, the primary drivers for outsourcing non-core HR functions are financial and managerial (Andrews and Foley, 2004). The financial or economic driver is self-explanatory but the managerial driver is much less so. The management of non-core HR functions, such as customer service call centres and the personnel within, has recently been categorised as an inefficient use of an organisation's available resources and HR managerial talents (Andrews and Foley, 2004; Davidson, 1998; Adler, 2003; Heckley, 2005). To preserve the aforementioned resources and allocate them in a much more efficient manner, non-core HR outsourcee UK corporations have not simply confined themselves to the outsourcing of specified HR functions but have contracted those functions out. As explained by Heckley (2005), non-core HR outsourcing, especially as pertains to customer service call centres, has proceeded with a business-to-business framework. UK firms contract an off-shore HR centre, or possibly an existing customer service call centre, to assume the responsibility for this particular HR function, thereby conserving both organisational managerial and financial resources (Heckley, 2005). Within the larger context of HR, UK firm have primarily confined themselves to the outsourcing of specified jobs, with the predominant criteria for selection being that they not be core HR functions. On the basis of the aforementioned condition for selection, UK firms have engaged in the outsourcing of their customer service call centres (Heckley, 2005). As articulated in the above, this customarily means that UK firms contract an off-shore centre to handle their customer service calls, with the management of those centres unfolding from without the organisational structure (Heckley, 2005). In other words, the outsourcee organisation defines its call centre functions, responsibilities, objectives and requirements and contracts an offshore business to execute the defined responsibilities within the parameters of the outsourcee's articulated objectives and requirements and, in doing so, effectively conserves both managerial and financial resources. The operation of off-shore call centres has been relatively unproblematic. As reported in available literature, from the intra-organisational perspective there have been few discernible problems with off-shore call centres and hardly any concrete complaints (Heckley, 2005; Bhowmik, 2004; Jenster and Pedersen, 1999; Abromovsky, Grifith and Sako, 2004). Certainly, the pre-off-shoring process confronts countless challenges, from the selection of where to outsource, which HR service provider to outsource to and in the articulation of the guidelines by which the call centre must operate by. However, if the pre-outsourcing phase is well-planned, the post-outsourcing operation is both efficient and unproblematic (Adler, 2003). Despite the fact that few problems have arisen consequent to the outsourcing of customer service call centres, especially in the outsourcing proceeds according to a well-formulated strategic plan, HRM professionals recommend that management of the off-shore call centres remain within the organisation's immediate managerial control (Adler, 2003; Yallof and Morgan, 2003; Jenster and Pedersen, 1999; Weidenbaum, 2004; Jeffay, Bohannon and Lapisa, 1997). This argument is predicated on the centrality of HR to efficient and effective organisational operation and the role that HR plays in the attainment of the organisation's articulated strategic goals. On the basis of the stated, some HR and OD scholars have expressed concern over the effective resignation of direct organisational responsibility for the management and operation of call centres. Recommendations As supported through the research presented throughout the report, ABC Incorporated should move its call centre to India. Certainly there are some disadvantages to doing so and there may be a number of logistical problems. The disadvantages and logistical problems primarily arise from the distance separating the UK from India, on the one hand, and from the fracturing of HRM, on the other. While conceding to the fact that the named problems are significant, it is imperative that ABC Incorporated base its decision on three incontrovertible realities. The first is that it is an economically sound, and business-wise decision. The second is that the challenges/problems noted can be overcome. The third is that the outsourcing of its call centre, an essentially non-core HR function, is highly cost-effective. Granted that numerous organisations have confronted difficulties with the call centres outsourced to India but, a review of these difficulties allows one to conclude that they are resolvable. As Dyson (2006) reports, a significant percentage of HSBC, BT, BSkyB and Norwich Union, to name but a few, customers have launched serious complaints against the named organisations' call centres in India. Among the more critical of these complaints were the operators' ignorance regarding British geography (a significant concern when one considers that complaints could be location-specific) and variances in English accent. As reported, the operators had difficulty understanding the various British accents just as the customers had serious difficulties in comprehending the heavily accented English spoken by the Indian operators (Dyson, 2006). Noting that these concerns and complaints mean that customers are not receiving the support they demand, and rightly expect, of their service providers, the risk of customer loss is high. While the above cited problems and concerns appear to be an argument against ABC's movement of its call centre to India, it is not. Instead, the identification of potential problems and the design of solutions is an imperative first step to the stated movement and a guarantee of subsequent success. There is no doubt that the complaints cited in the above are genuine and can work against the organisation in question, insofar as they comprise predicators of customer dissatisfaction, eventually culminating in significant customer-loss. Oshima, Kao and Tower (2005), while conceding to the significance of such problems, insist that they are a consequence of poor planning and lack of employee preparation and not an inherent outcome of the movement of call centres to India. To overcome the stated problems, it is imperative that the recruitment process by a highly stringent one, wherein certain standards for language proficiency must be held. Following from that, the newly employed operators must sit for training courses wherein they are required to familiarise themselves with common complaints and their solutions, on the one hand, and UK geography and accents, on the other (Oshima, Kao and Tower, 2005). Employee/operator training, in other words, is the penultimate predicator of the success of ABC's off-shore, outsourcing of its call centres. The problems listed do not, in other words present an insurmountable challenge as they can be overcome through employee training. Employee training, while an incontrovertible predicator of success, cannot, in itself and by itself, ensure the success of ABC's outsourcing of its call centres to India. Besides employee training, Pisson and Tower (2005)advice that in the initial stages, call centre management and supervisors should all be from the home country and, only very gradually removed, a few years into the operation. In relation to ABC Incorporated, this means that as it moves its call centre to India, it should ensure that all supervisors and managers are, not only British but, have working experience with the company's call centre operation in the UK. They would be able to supervise and manage the call centre in accordance with the UK standards and ensure that customer do not experience a deterioration of service alongside the move. Given the seemingly problematic nature of the implications of outsourcing its call centre to India, ABC Incorporated's management may very well question the soundness of the advice offered in this report. The fact is that this advice is sound because it is extremely cost-effective and will significantly contribute to the reduction of the organisation's running costs and overheads. In other words, a basic cost and benefit perspective lends to the conclusion that the outsourcing decision is a valid and viable one and that problems can be overcome before they arise consequent to employee training and the presence of British managers and supervisors in the Indian centres. Future Growth Expectations As it considers the advice presented, ABC Incorporated should know that the outsourcing of call centres is only expected to grow in the future. Outsourced HR functions currently comprise 8% of the UK's HR employment sector and, as management paradigms which guide the outsourcing relationship towards success and profitability, develop, it is expected that the mentioned percentage will increase (Adler, 2003). At present, organisations, it can be said, are test-driving HR outsourcing, trying to identify those HR tasks which can be successful outsourced, formulate the criteria for the outsourcing decision and design the management model which most ideally addresses the challenges confronting outsourced HRM (Adler, 2003). As they progress in the articulation of the pre- and post-outsourcing decision-making and management paradigms, firms are discovering that the outsourcing relationship is, indeed, a profitable one which need not carry risk (Adler, 2003), HR outsourcing, insofar as it is implement subsequent to market research and the articulation of an outsourcing process strategy, has not only proven its merits but has validated the economic principles upon which it is founded (Andrews and Foley, 2004; Pisson and Tower, 2005; Oshima, Kao and Tower, 2005). In other words, successful HR outsourcing relationships have proven that the economic principles of comparative advantage, labour specialisation, and economic co-dependency are not only applicable within the limited national context, but withstand globalised application. As outsourcing proves its merits and testifies to the validity and integrity of the economic principles upon which it is founded, it is expected that UK firms will expand the volume of HR outsourcing, especially call centres, in an effort to decrease operational costs without compromising quality of service. However, if firms are to continue to exploit the benefits of outsourcing without experiencing its drawbacks, it is imperative that, within the context of the short to medium term time-frame, they do not outsource core organisational HR tasks but confine themselves to the non-core. Given that an organisation's success is inextricably linked to its HR, the outsourcing of key HR functions and positions should not be considered. Hence, while the volume of HR outsourcing is expected to grow, the range of outsourced HR tasks is not expected to expand. Conclusion When considering whether or not to outsource its call centres to India, ABC Incorporated needs to critically consider the associated advantages and disadvantages. While the move will significantly reduce operational costs and, in so doing, contribute to the development of a more price-competitive organisation, it has its disadvantages. Among these are all of job losses in the home market, foreign-sounding operator accents as may limit comprehensibility, and time zone differences. All of the stated function as obstacles to the effective and efficient operation of outsourced call centres but, they are not insurmountable obstacles and may, indeed, be overcome through the implementation of a well-designed HRO management model. Therefore, and as highlighted throughout this report, while the outsourcing of non-core HR functions by UK organisations, such as customer service call centres, faces some challenges, these challenges are not insurmountable (Shelgren, 2004). References Abramovsky, L., R. Grifith, and M. Sako, 2004, Offshoring of business services and its impact on the UK economy,' Advanced Institute of Management Research, [Online]. Adler, P.S., [2003] Making the HR outsourcing decision,' MIT Sloan Management Review, [Online] vol. 45, no. 1. Available from: ProQuest. [9 February 2007]. Andrews, N. and J. Foley, 2004, Step by step to successful HR outsourcing,' Human Resource Management International Digest, [Online], vol. 12, no. 7. 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