Outsourcing HR Functions - Essay Example

Introduction Corporate restructuring, downsizing and layoffs have led to fundamental changes at the work place on a global basis. Senior executivesand corporate leaders around the world agree that outsourcing is good for the world economy. Management of human resources is considered an activity which is carried out by all managers. Recently line managers have been extensively involved in the HR functions as they are supposed to have close interactions with the employees. It has also been observed that these two groups do not work in harmony with each other, which can negatively impact the organization. Under the circumstances outsourcing HR functions seems the way out of the dilemma. Many firms do outsource the routine HR functions while keeping the core issues in-house. The decision whether to outsource HR functions and which functions to outsource calls for a lot of deliberations. Based on the above, this research would attempt to find how justified it is to outsource HR functions. This would aim to find whether the claims of benefits of outsourcing bear significance in the light of the fact that devolution of responsibilities of HR functions to line managers can extensively be found. Besides, sophisticated software tools have also reduced the burden of routine tasks. Downsizing has reduced responsibilities. The objective of the research is as follows: 1. To assess the importance of outsourcing HR functions against keeping the services in-house as a result of increased involvement of line managers in HR functions. 2. To determine and present the circumstances under which outsourcing of HR functions can be undertaken or avoided. 3. To determine which functions can be outsourced 4. To assess the competency levels of the service providers. Literature Review Business Transformation Outsourcing (BTO) is an emerging segment, which focuses on improving the effectiveness of an entire corporate function like the HR, according to Sako and Tierney (2005). The rationale is to outsource administrative tasks leaving the personnel to focus on strategy formulation using their competencies (Sako & Tierney) and to experience greater flexibility in allocating resources, and greater cost efficiencies (Jones & Finlayson, 1999) but Khatri and Budhwar (2002) cite many scholars who argue that human resource can be a source of sustainable competitive advantage for an organization. This argument suggests that all functions related to human resources should be dealt in-house. The line managers have assumed key positions thereby demonstrating a shift in the roles and responsibilities. This has been caused due to downsizing and devolution of responsibilities. The line managers are hence in a position to influence both strategic and operational organizational priorities (MacNeil, 2003). Added to this are introduction of sophisticated software and the development of smart computer systems, which have further reduced the workload on the HR freeing the key personnel to concentrate on the change agent and strategic partner roles (Larsen & Brewster, 2003). The line managers are not competent in HR work and need to regularly reflect and be critical about their work. They attempt to increase the speed of decision making by wanting to by-pass procedures, which demonstrates that HR should not be outsourced but the HR functions should be expanded (Renwick, 2003). The barriers to outsourcing HR include the organizational culture. Training must involve the people, the environment and the structure of the organization. When managers train their own people, it is considered to be most effective as it also reinforces that they have understood the principles of TQM (Spenley, 1992, cited by Vermeulen & Crous). Under the circumstances, if training is outsourced it would leave a gap as the employees would not be interacting with the culture of the organization. At the same time it is argued that outsourcing selected business functions to external providers allows organizations to concentrate on their core business activities, utilizing external expertise and reducing costs (Jones & Finlayson, 1999). This changed role of the HR personnel would bring about innovation, quality enhancement and cost-reduction in the organization. As far as economies of scale are concerned, Bloch and Spang (2003) contend that offshore benefits like cheap labour and infrastructure can be reaped through captive shared-service centers or through join ventures and process expertise acquired through external help and consolidation. Those who support outsourcing HR functions advise that the HR department should be involved in the outsourcing process and they should also be sensitive to employees’ needs, skills and rights during transfers as according to Rubery, Carroll, Cooke, Grugulis, and Earnshaw (2004) within fragmented and decentralized organizations the effective management of human resources has been increasingly seen as dependent upon a strong organizational culture. Thus, before outsourcing HR functions, priority should be given to organizational culture along with strategic issues for sustained success (Ferreira de Sousa, 2003). The review of literature thus suggests that there are views both for and against outsourcing HR functions. Competitiveness demands that routine functions be outsourced but functions like training should be in-house to integrate the employees with the organizational culture. There is diverse opinion even on the capabilities of the line managers whose responsibilities have increased and who are assuming the HR role. While benefits of outsourcing can be perceived, it demands a thorough research of the firms that have already outsourced functions as well as those that intend to do so. Keeping these factors in mind, the research would be designed. Research Methodology The existing literature gives diverse opinions of the issue of outsourcing HR functions and not much of literature is available taking into consideration the devolution of line managers taken on responsibility of HR functions. This research will be of great significance as it could put to rest certain apprehensions against outsourcing. Any decision is based on a body of knowledge. This body of knowledge is produced through research. By applying the appropriate methodologies and the research method, the body of knowledge can be established and advanced with confidence. The current research demands data collection across variables and to understand the outcome of the firms that have undertaken outsourcing. As such, quantitative data collection method is deemed appropriate. Quantitative investigations look for “distinguishing characteristics, elemental properties and empirical boundaries’ and tend to measure “how much” or “how often” (Nau, 1995 cited by Amaratunga et al.,). Quantitative research designs determine the truth value of propositions and allow flexibility in the treatment of data in terms of comparative analysis, statistical analysis and repeatability of data collection in order to verify reliability. Logical positivism employs the quantitative and experimental methods to test deductive generalizations (Amaratunga et al.,). This requires independence of the observer from the subject being observed. In this research the hypothesis has been formed in advance hence this research method is appropriate. In quantitative analysis data is collected through mail questionnaires, interviews and published statistics (Gable, 1994). Self-completion questionnaires would help to determine the individual’s view of outsourcing HR functions. This method of data collection allows the ability for unambiguous quantitative data to be collected (Redmond & Griffith, 2003). Database of the companies employing over 1000 people would be collected and then questionnaires would be emailed to at least 500 companies. Random sampling technique would be applied here once the database of the companies is available. The questionnaires would be simultaneously mailed to the HR department of the organization as well as the CEO as the opinions may differ. A few sample questions could include: 1. For how long have you been outsourcing the HR functions? 2. Do you perceive tangible benefits? 3. Which functions have been retained in-house? 4. Are the line managers/HR personnel involved while deciding the functions to be outsourced? 5. Does the involvement of line managers not reduce the load on the HR department? 6. If the answer to no 5 is yes, then why is outsourcing still considered necessary? 7. Is the service provider competent enough to handle the functions? Do they have expertise in HR functions? The most widely used data collection method is interviews as it is a highly flexible method, can be used almost anywhere and has the potential to produce data of great depth. To determine why outsourcing HR functions is deemed appropriate, quantitative data in the form of interviews would be helpful. Interviewing is a mode of inquiry aimed at understanding an experience and meaning that person make of that experience (Seidman, 1998 cited by Eggenberger & Nelms, 2006). Interviews are more than a data gathering technique. It is a social encounter where knowledge is constructed. The individual in-depth interview allows the interviewer to delve deeply into social and personal matters (DiCicco-Bloom & Crabtree, 2006) and it unveils a person’s emotions, beliefs, problems, experience and actions (Eggenberger & Nelms). This would particularly help with this research as the objective is to determine how employees react to the idea of outsourcing HR functions. Interviews can be close-ended or fixed-alternate answers, or open-ended interviews. For this research, the open-ended interviews would be conducted in which the prepared questions can be reformulated depending upon the responses received. Open-ended interviews tend to be more spontaneous, offering a two-way interaction not generally permitted by the standardized approach (Herod, 1993). Such interviews allow interviewees to introduce topics and speak in their own words rather than in categories dictated by the researcher. Face to face interviews of 50 people would be conducted selecting the people through the cluster sampling technique (ABS, 2004). First the industry wise segregation would be done from the database, then further selection would be done, this would also give insight into industry-wise practices and outcomes of outsourcing HR functions. The interview questions could include: 1. Have you personally been adversely affected by outsourcing of HR functions in your company? 2. In your opinion, is the recipient firm capable of handling the functions? 3. Do you think the company could have exercised better options? 4. Does it give you insecurity? 5. Do you think the organization would renew its contract for another term for outsourcing? Data Analysis To be useful, primary data needs to be analysed (Saunders, 2003, p.327). Sphinx software which is a personal computer based analysis software will be useful to establish relationship between variables. Apart from this, data thus collected from different forms of interviews and questionnaires would be analysed by the use of scales like Likert scales and Semantic Differential scales. These will permit to measure the attitude of people towards outsourcing. Time scales Collection of database 15 days Preparation of the questionnaires 15 days Sending email to 500 people 07 days Time for responses to start coming in 21 days Data collection, compiling, review 21 days Interviews – two interviews per day 25 days Data entry 07 days Analysis and interpretation 21 days This denotes a total of 132 days but a few functions can be done simultaneously and hence 100 days should be kept as the minimum time required to conduct this research. Validity, reliability, limitations The social interaction between the interviewer and the interviewee would be kept at minimum. It is important for the researcher to maintain the necessary social distance so that she does not bias the outcome of the interview by injecting personal opinion or values. This method ensures objectivity, detachment and hierarchy which are more important than individualized concerns. There is no unique research method and each method has its own difficulties. The categories listed for research may not be comprehensive or may require further sub-categories. Besides, it is difficult to predict how many participants would be willing to respond in the first place, and then how many would register true opinions. Attempts have been made to ensure the reliability and validity of the data collected. There is no unique research method and each method has its own difficulties. The categories listed for research may not be comprehensive or may require further sub-categories. Besides, it is difficult to predict how many participants would be willing to respond in the first place, and then how many would register true opinions. Attempts have been made to ensure the reliability and validity of the data collected. It is expected that that data analyzed and the outcome would contribute to the decision-making process help the organizations in future to take the right decision in outsourcing HR functions. References: ABS (2004), Sampling Methods, 13 Nov 2007 Amaratunga, D., Baldry, D., Sarshar, M., & Newton, R., (2002), Quantitative and Qualitative Research in the built environment: application of mixed research approach, Work Study, Vol. 15 No. 1 2002, pp. 17-31 Bloch, M., & Spang, S., (2003), Reaping the benefits of business-process outsourcing, 13 Nov 2007 DiCicco-Bloom, B., & Crabtree, B. F., (2006), The qualitative research interview, Medical Education 2006; 40: 314–321 doi:10.1111/j.1365-2929.2006.02418.x EGGENBERGER S.K. & NELMS T.P. (2007) Family interviews as a method for family research, Journal of Advanced Nursing 58(3), 282–292 doi: 10.1111/j.1365-2648.2007.04238.x Ferreira de Sousa, J. O., (2003), The Human Side of Business Process Outsourcing, 13 Nov 2007 Gable, G. G., (1994) Integrating case study and survey research methods: an example in information systems. European Journal of Information Systems 3(2):pp. 112-126. Heord, A., (1993), Gender Issues in the Use of Interviewing as a Research Method, Professional Geographer, 45(3) 1993, pages 305-3 17 Jones, G., & Finlayson, K., (1999), ‘Buy or Lease’? ‘Outsourcing’ as a Strategic Decision in Human Resource Management in Tertiary, 13 Nov 2007 Khatri, N. & Budhwar, P. S., (2002), A Study of Strategic HR issues in the Asian context, Personnel Review, Vol. 31 No. 2 2002 pp. 166-188 Larsen, H. H., & Brewster, C., (2003), Line management responsibility for HRM: what is happening in Europe? Employee Relations Vol. 25 No. 3, 2003 pp. 228-244 MacNeil, C. M., (2003), Line managers: facilitators of knowledge sharing in teams, Employee Relations Vol. 25 No. 3, 2003 pp. 294-307 Renwick, D., (2003), Line manager involvement in HRM: an inside view, Employee Relations Vol. 25 No. 3, 2003 pp. 262-280 Redmond, E. C., & Griffith, C. J., (2003), A comparison and evaluation of research methods used in consumer food safety studies, International Journal of Consumer Studies, 27, 1, January 2003, pp17–33 Rubery, J., Carroll, M., Cooke, F. L., Grugulis, I., & Earnshaw, J., (2004), Human Resource Management and the Permeable Organization: The Case of the Multi-Client Call Centre, Journal of Management Studies 41:7 November 2004 Sako, M., & Tierney, A., (2005), Sustainability of Business Service Outsourcing: the Case of Human Resource Outsourcing (HRO), 13 Nov 2007 Saunders, M., Lewis, P., Thorhill, A. (3rd Eds.) (2003) Research Methods for Business Students, Prentice Hall Vermeulen W & Crous M J (2000), Managing Service Quality, Vol 10, No. 1, 2000 pp. 61-67 Read More