Outsourcing HR, How Advisable Is this Move During a Recession - Dissertation Example

In running a business, it is often necessary to save on benefit costs and on the liabilities of having in-house employees to handle different aspects of the business. A trend that has been emerging in the last fifteen years is to outsource human resource activities to firms that specialize in that area of need. Various business research surveys have shown that as much as 70% of all human resources is now done through outside firms who function as specialists in the area to consolidate specialization over several firms, rather than each firm having in-house specialists in this area (Heneman 2002, p. 58). There are numerous benefits to hosting HR services through an outside source.

The nature of the savings involved can be seen through improved economies of scales, more flexibility, higher levels of expertise, and higher levels of performance within core competencies (Heneman 2002). However, on the converse side of the discourse on the topic, the de-personalization through standardization may create a lowered level of efficiency, thus decreasing overall firm performance. The reasons for outsourcing any part of a firm’s required resources are usually based on financial reasons.

The unfortunate problem with firms that exist in a shareholder model of governance is that the abstract, sometimes intangible costs of doing business from the perspective of an owner responsibility-based position end up costing the business more in the long run. Short-term goals are considered a higher priority than a long term in the shareholder model, thus using outsourced HR is a part of this framework. According to Armstrong (2009, p. 93), “Managements are facing Tom Peters’ (1988) challenge ‘prove it can’t be subcontracted’.

The formal policy of a major global manufacturer reads: ‘Manufacture only those items – internal source only those supportive services – that directly contribute to, or help to maintain, our competitive advantage “. This perspective suggests that all concerns that are not directly involved with making money should be outsourced.