Human Resource Outsourcing - Assignment Example

? OUTSOURCING and number submitted Introduction Outsourcing is a phenomenon that focuses on a strategy where some functions of an organisation are performed by an outside organisation purposely to shorten workloads and lower management and operational costs. Most multinational companies outsource their production and manufacturing activities, but these organisations are under constant pressure to control costs. They have to outsource non-core but essential services. The question of time also demands outsourcing since products have to get to the market as quickly as possible. Outsourcing has revolutionized processes in the workplace, provided tools and valuable data and information, and has done many things of great importance to businesses and organisations. Literature Review This essay will focus on human resource outsourcing (HRO) which is becoming a trend particularly in the public sector. Human resource outsourcing affects performance of the staff. Human resource functions that are handled by an outsourcer provider are functions that some employees are used to performing. Businesses find outsourcing as an easy way to produce their products at low cost. Functions that can be outsourced include human resources, financial transaction processing (for accounts payable), procurement, distribution and logistics, and clinical data management. One of the drawbacks for outsourcing is that it can reduce product quality. This usually happens if a company outsources without careful study and planning. It can also reduce innovation. Firms must select areas in which they can concentrate their resources. Reduced innovation means lost creativity. Firms that outsource core competencies do not see the importance of focusing on employees’ capability and knowledge considering that there is a relation between contented employees and contented customers. Satisfied employees not just turn their attention on their organisation out of gratitude but provide good and faithful service to customers as payback to their organisation. (Cooke et al., 2005) Organisations should not rush into outsourcing. The firm must first analyse the business situation and conduct feasibility analysis, define the parameters of the contract, and build a strong relationship with the outsourcing company. There are several steps to be undertaken before deciding to make outsourcing a part of the company’s functions. It is like initiating an intensive project management. There are four screens to follow in conducting the feasibility: core competency screen, cost of control screen, goals screen, and scope screen. The feasibility study should clearly define the core competency screen, i.e. what are core competencies and what are critical in the organisation? Core activities refer to what a firm can do best and are crucial to the firm’s advantage while noncore activities refer to those which have lower impact on the firm. A detailed analysis of the requirements has to be done. When the costs exceed the benefits, outsourcing should not push through. Planning can proceed if the screens are beneficial to the organization. In the evaluation, the executive team should be identified. The team will include those who will handle the analysis, the leader and the decision-maker. The outsourcing team should be composed of technical and managerial people, and representatives from user areas whose services will be directly affected by the outsourcing. The people who will be responsible for oversight and management of the outsourcing arrangement and vendor (supplier) relations must be properly identified and involved in drafting the contract. Technical and management issues must be properly stipulated in the contract. (Cooke et al., 2005) The supplier and buyer should have close coordination and communication, and a team must monitor the progress of the relationship. The monitoring team will conclude if the provisions of the contract are being followed. This has to be evaluated time and again to see if the outsourcing is successful. It must be noted that outsourcing can affect the entire operations of an organization. Outsourcing is common in knowledge-intensive business services (KIBS) organisations. According to Grimshaw and Miozzo (2009), there are three themes found in the understanding of KIBS organisations. The first theme is that organisations shape how workers are arranged in an organisation depending on their unique skills and strategic value. The second theme refers to the awareness that clients, partners and suppliers influence management practices. The third theme is about the challenges for HRM in managing the changes of skills and knowledge, especially in organizations with highly-skilled workers. The three themes suggest that there is no common approach to HRM. In this context, an approach to HRM necessitates an understanding of KIBS organisations’ characteristics like internal and external employment segmentation, the different organizational functions and the strategic value of knowledge management. Grimshaw and Miozzo’s article focuses HR practices in managing IT workers in large-scale outsourcing contracts. The research interviewed managers from IBM and EDS in four countries and the results of the survey were compared with the data from organisations with outsourced staff. The study of Grimshaw and Miozzo (2009) is important to the study of HRM. What is involved here is the outsourcing of IT staff and their service to a specialist IT firm, which is itself an external segmentation. There is a relationship between the client organisation and the IT firm through the services of the staff on a long-term basis. The client and the IT firm have challenges pertaining to the skills and knowledge transfer. The client has to recoup the investment on the accumulated knowledge, and the IT firm has to explore the new knowledge flows. Grimshaw and Miozzo (2009) provided a detailed analysis of recruitment, skill development and job security at IBM and EDS in four countries. The IT outsourcing market involves the transfer of a big number of highly skilled IT workers from one organization to the IT firm. IT outsourcing market also involves big contracts with a diverse clients and multinational supplier companies. These firms witnessed the boom and growth of the IT sector starting from the mid-1990s to the present. IBM alone signed contracts reaching $53 billion. And for EDS, it had an average annual value of combined contract signings of $19.1 billion during the period 2002-2006. A difficult challenge is ‘maintaining the continuity of skill supply and the retention of in-house knowledge and expertise’ (Cooke et al., 2005). One of the aims is to save training costs but this is assuming that somebody from the outsource company will continue the training to ensure that skills are attained by the personnel. The loss of knowledge or skills can backfire on the firm. Loss of skill and loss of quality are some of the concerns in outsourcing. The staff can also improve their efficiency as organisational politics are bypassed. Outsourcing requires company restructuring on handling of employees. If an entire department or business function is outsourced, there could be a problem of reallocation of jobs. Employees have to be reoriented, at the same time steps have to be taken to prevent employees from resigning for feeling that their jobs are at risk. There are times that those who are most needed in the job are the ones who first take their leave because of insecurity. A changing environment affects an outsourcing contract, even if this contract has been in existence for several years. This usually happens with outsourcing contracts involving public and private companies. Changes usually occur in an outsourcing environment involving a government outsourcing contract with a private company. After several years, there are modifications and providers have to adopt. The problem here is that additional new measures or criteria would imply costs. During a long contract, there are environmental, social, and security aspects that may occur. Some of the original contract obligations will be rendered incomplete. Outsourcing processes fail due to the fact that employees are sometimes neglected. The ‘maturity’ stage, i.e. when the contract is already in effect, will lead to problems as the outsourcing organisation shows complacency and neglect for its employees. The employees can feel settled on their job only when the outsourcing contract is rightly managed and the employees do not feel insecure and neglected in their job. There are other reasons for this failure, such as misunderstanding and miscommunication between the outsourcing organization and the provider. The question on the employees’ feeling and perception should first be addressed. An important content of Grimshaw and Miozzo’s (2009) article is on recruitment. The HRM approach to recruitment is guided by the need for quality and number of employees. There should be careful planning and selection methods in screening job applicants. Staff transfer tends to limit in-scope workers’ choice of who to work for. In this situation, there is a feeling of uncertainty among the new workers which can lead to industrial relations conflict. This led researchers to study the impact of transfer on employees’ attitudes. A study by Logan et al. (as cited in Grimshaw & Miozzo, 2009) found that employees deeply involved and satisfied with their former employees had the greatest difficulties adjusting to their new environment. Another important aspect is on skill development for employees to be responsive to new influences. An example of an influence is the agreement between client and IT firm on the duration and performance monitoring which influences the skill development of employees. Studies found that in outsourcing, job tasks have to be codified so that the client organization can monitor and evaluate the performance of the employees. Another article related to this subject matter is that of Ulrike Muehlberger (2007) which has the title, Hierarchical forms of outsourcing and the creating of dependency. The author deals with a form of outsourcing where contracting worker or workers are self-employed but work like they are ordinary employees of an organization. The point of this article is that firms are able to establish governance structures even if the workers are outsourced and work for another firm. In this structure, the outsourced workers do not have employment contracts but work on the arrangement as self-employed worker. Muehlberger (2007) termed this as ‘hierarchical forms of outsourcing’ because of the manner in which the outsourcing firm uses control on the outsourced worker. This kind of arrangement uses unwritten codes or informal agreement while formal contracts do not have much of a force. There is lack of sociological and economic research on the subject of hierarchical forms of outsourcing, but Muehlberger’s (2007) study would like to fill the gap. In this kind of outsourcing, organizational boundaries and those of employment and self-employment are not so clear, resulting in a need to study more on labour and social security law. There are many self-employed persons now working for contractors. These people are working on a risk but they also have entrepreneurial benefits. Muehlberg (2007) focused on self-employed workers who are economically dependent on a specific firm (or principal). These workers are not the ordinary employed persons but are ‘dependent on a principal’ and must have the same benefits and social rights as the other workers for that specific firm (Supiot as cited in Muehlberg, 2007, p. 710). The OECD (as cited in Muehlberg, 2007) has cited an increase on this form of outsourcing and a type of workers who are between the ‘wage and salary employment and self-employment’ (p. 710). The question is that why do some firms want to externalize production or sales process on a hierarchical basis. The answer is that it transforms fixed costs into variable ones, allowing the outsourcing firm to be flexible financially. Another purpose for this ‘is to circumvent labour and social security laws’ since employment protection laws do not apply to this kind of work relationships. (Muehlberg, 2007, p. 711) This system of work also relationship creates economic and personal dependence. Economic dependence means that the worker has a part in the so-called entrepreneurial risk. The workers work for one contractor to whom they acquire income and have a work relationship. Here the quantity of business transactions would depend on the outsourcing firm’s economic situation and thus the workers take the entrepreneurial risk. If the outsourcing scenario involves a third-party, the worker is dependent on the outsourcing firm. Burchell et al. (as cited in Muehlberg, 2007) have found that in the UK only 5% of employed individuals provide personal services to a firm or employer without a contract, but these individuals are dependent to their employer’s business. Conclusion In this essay, we have stated the importance and impact of outsourcing in businesses and organisations. Outsourcing has truly revolutionized the processes in the workplace and the different functions of organisations. We have provided an analysis of some outsourcing examples, like human resource outsourcing. The study of Grimshaw and Miozzo (2009) focused knowledge-intensive business services (KIBS) and the important aspects of recruitment, selection and training of employees. Knowledge based economies and organizations are common in the age of globalization. This sector employs highly-skilled employees. Another important part of this paper is Muehlberg’s (2007) which discussed on a different kind of outsourcing – ‘the hierarchical forms of outsourcing’. It focused on self-employed workers who are economically dependent on a specific firm but are not formally employed workers with a contract. Muehlberg (2007) said that this creates an entrepreneurial risk on the part of the workers. The firm benefits in the process because it creates financial flexibility. Reference Cooke, F., Shen, J., & McBride, A. (2005). Outsourcing HR as a competitive strategy? A literature review and an assessment of implications. Human Resource Management, Winter 2005, Vol. 44, No. 4, pp. 413-432. doi:10.1002/HRM.20082 Grimshaw, D. & Miozzo, M. (2009). New human resource management practices in knowledge-intensive business services firms: The case of outsourcing with staff transfer. Human Relations 2009, 62, 1521. doi: 10.1177/0018726709336498 Muehlberger, U. (2007). Hierarchical forms of outsourcing and the creating of dependency. Organization Studies 2007; 28; 709. doi: 10.1177/0170840607078119 Read More