Outsourcing Training and Development: Advantages and Risks - Essay Example

Introduction Human Resource Management has gone through a number of stages and towards the end of the last century its role became strategic, and the concept of strategic human resource management was born (Roos, Fernstrom, & Pike, 2004). According to Das (2001) there has been a shift in the management styles and administrative practices to survive and prosper against competition. A cohesive framework is essential to maximize organizational effectiveness. Vermeulen and Crous (2000) believe that the best way to institute quality into an organization, is to train the people to do their jobs better. Training and development includes skills which are job-related and also that are not related. This helps in motivating and enhancing self-esteem as the employees feel the organization cares for them. Motivation is essential for retention and succession planning in today’s scenario. Emphasis on cultural issues to encourage autonomy and devolve decision making, on personal/organizational development and learning and to be responsive to changing customer needs, has given rise to the concept of outsourcing the HR functions. The rise in outsourcing is confirmed by the Workplace Employee Relations survey that revealed that more than 90 per cent of all workplaces subcontracted one or more services (Walsh & Deery, 2006). Training and development is also an integral function of the HR department. There has been a noticeable surge of companies seeking to satisfy their learning needs through outsourcing. Outsourcing training allows the organization to focus on core competencies, avail of expertise, make the process cost-effective, benefit from tested programs and keep reduced staff. To what extent outsourcing training and development benefits the individual and what are the motives behind outsourcing training and development remains a debatable issue and is based on several factors. Rationale for outsourcing Outsourcing has a number of benefits to companies beyond cost savings. These include access to skilled personnel across the world, exploitation of follow-the-sun model to improve delivery schedules, and make up for the gaps in the internal capabilities of the firms (Rao, 2004). Outsourcing can free up assets and reduce costs in the immediate financial period and help firms focus on core activities (Harland, Knight, Lamming & Walker, 2006). Outsourcing allows organizations to separate the business units and departments and the barriers between them. It is particularly beneficial to larger organizations where their hierarchical structure makes them more agile. Sako and Tierney (2005) state that Business Transformation Outsourcing (BTO) is an emerging segment, which focuses on improving the effectiveness of an entire corporate function like the HR. 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 implies that all functions related to human resources should be dealt in-house. Research suggests that HR outsourcing is a fad and that would pass. Organizational culture is a major deterrent to outsourcing HR activities. The entire market is fragmented because the vendors lack the expertise to serve a function like HR. without a secure data protection system in place, sensitive employee information can be misused or misinterpreted. Organizations segregate non-core activities from core ones and thus activities that are not central and revenue producing are outsourced (Cardy, Gove, & DeMatteo, 2000) but Conklin (2005) contends that this core/non-core dichotomy is not sufficient. Outsourcing of certain HR activities has a positive impact on overall innovation within the company, hence uniqueness is another criteria on which the decision to outsource should be based. At the same time, distinctive or idiosyncratic practices requiring tacit knowledge may suffer if outsourced. Training is not considered to be revenue-producer and is mostly administrative (Tyler, 2004). Internal training budgets have been reduced in recent years which make it economical to outsource the content development. Most firms do not outsource the entire training function and as of 2002 only 2 percent of the firms outsourced the entire function compared to 55 percent that outsource part of their training functions. Even though the management and the HR professionals have welcomed outsourcing this function, its success depends upon the motivations of the company, the industry, the type of training it conducts, and how the process is managed. Importance of training The global economy has brought the realization that the only lasting competitive advantage is the organization’s ability to effectively exploit intellectual capital (O’Keeffe cited by Perkins, 2003). Thus if companies consider their employees merely as commodities and fail to invest in their training and development, they cannot be said to be practicing human resource management. Training is regarded as fundamental in transforming the workforce and brings about quality improvement across organizations. To effectively exploit intellectual assets, the focus on human development has been renewed (Donovan, Hannigan & Crowe, 2001). The pace of change requires continuous upgradation of skills. With organizational functions having become global in scope, training is deemed to be essential but measures of the outcome of the training efforts in recent years demonstrates that the traditional assumption does not hold any more. The primary goal of training function is demonstrating business impact, generating operational efficiencies, fostering innovation or aligning to strategic priorities but still research suggests that organizations do not make efforts to attain these goals (Cheese, 2006). Training and outsourcing has gained popularity among companies around the world. Those companies that outsource more of training activities experience positive results than those companies that outsource less. Training itself can be divided into various functions and companies out source at least of some of the activities. Firms prefer to keep the training administration and curriculum in-house while they prefer to outsource content development and training. Training in an organization must not be a forced or a compulsive organizational strategy but it must be seen to contribute positively and unambiguously to the organization. The training should be able anticipate trends and future changes and prepare people to meet them (Anderson, 1994). The training program should not just teach people what they do not know; it should also build on what is already known. This implies that the existing strengths are further developed and they are encouraged to improve the quality of their contribution to their organization as well as their life at work. The needs therefore have to be considered keeping in mind that just assisting them in their work and careers is not enough. The training must help them achieve greater future proficiency and satisfaction. There has to be an attitudinal shift to ensure that training is more than basic skilling. Training is one of the most important strategies for organizations to help employees gain proper knowledge and skills needed to meet the environmental challenges (Goldstein and Gilliam, 1990; Rosow and Zager, 1988, cited by Tsai & Tai, 2002). It is widely recognized that learning and development play a role in the success of a financial institution, and there is a definite link between business results like revenue growth and the commitment to learning and development (BAI, 2003). According to Porter and Parker (1993) four essential features have to be kept in mind while designing the training programs – training should necessarily be an ongoing process and people should receive appropriate training at the appropriate level; training should take into account the future needs of the organization and has to be organization specific (cited by Vermeulen & Crous).Training has to be well structured according to Vermeulen and Crous, and systematic to meet the continuous changes in technology. Quality training must be continuous which not only meets the changes in technology but also the changes that involve the environment in which the organization operates. It should involve the people who work for it (Vermeulen & Crous, (2000). The training structure should always be top-down, starting from the top team and flowing down the organization (Vermeulen & Crous). This should be conducted by in-house senior managers as communication must flow from the top to the bottom. Training should not be outsourced as the culture of the organization has to be kept in mind. The training should be two-days’ program involving interpersonal relations, supervision, effective mentoring of their subordinates, and empowering the subordinates. Motives for outsourcing training - advantages/disadvantages Outsourcing should be based on a well thought strategic plan. Organizations spend millions annually on training but the returns are not visible. According to Judith Hale outsourcing helps organizations to better manage their budgets, leverage technology-based training and demonstrate contribution to the organization’s goals (Thompson, 2006). Before outsourcing the organization needs to identify the outsourcing needs, assess the department’s strengths and weaknesses, select an appropriate outsourcing firm, establish a contract and manage the relationship. The motives to outsource training are the same as for other HR functions as far as the organizations are concerned but the benefit goes to the suppliers who can spread the fixed cost over multiple clients. Motorola benefited by partnering with ACS for training as it allowed shifting from rigid hours of classroom training to a flexible blended learning formula that includes an Individual Development Plan created for every employee (Harris, 2003). Advantages to the firm Businesses outsource training and development because they find they lack time, the resources, the expertise and even the internal ambiguity that allowed them to make up things as they went along. Today the catchword is, “outsource”. Tunheim of American Express Financial Advisors confirms they look outside for help when they do not have the capacity in terms of people, resources and time (Cothran, 1995). Firms also do not want to attempt to acquire expertise in every field and keep their areas of expertise limited to some field. Another organization Rockwell Automations Allen-Bradley Co has a staff of just five but have identified training needs in sales training, product training, professional training, management training, diversity training, engineering training, software training. They would like someone to develop their program and design the curriculum due to lack of time. Besides, they would be able to get the returns of their investment in developing the programs as the same training programs would be repeated. Outsourcing training also gives the firm a productive form of cross-fertilization. They feel they can add more value by bringing in people who have different perspectives on how to handle issues or simply do things differently. Expenditures on internally provided training have decreased but this is because the overall staff size within the training departments have fallen. This has consequently led to a decrease in the ratio of corporate employees to training staff. The increasing use of technology in delivery of training has driven these changes. Classroom training is now being replaced by other forms of training. In outsourcing, firms avoid duplication of efforts especially when the firm has a decentralized collection of companies following the same culture (Cothran). Instead of one or more companies spending resources in developing the training programs, they outsourced the activity to a supplier who could meet the needs of the entire corporate family. Thus, outsourcing benefits when corporate houses have diverse training needs. Firms also outsource training when they lack expertise especially in IT. Some firms look at training as a strategic decision where they consider people as the sustainable competitive advantage. Such people need development as training is an ongoing process. When training and development is not the firm’s core competency, they find a company whose core competency is training and development and outsource it (Cothran, 1995). The suppliers have worked with several corporate houses, have developed different perspectives and developed several core programs. A firm running its own programs would be looking at it from the same viewpoint and would not be able to bring in innovation. Outsourcing is not limited to training but stretches to leadership development programs as well. Developing new programs is expensive where as the suppliers have already developed and tried and tested with several companies, introducing changes at every stage. Alternative proposals should be taken from different suppliers and the proposals weighed before a supplier is selected. Outsourcing relationships have the potential to provide higher quality training at more affordable cost with accountability at every step. There has to be a certain amount of confidence in the capabilities and cultural compatibilities. Innovation is being introduced in training and every innovation has a cost attached to it. Evaluation of the outcomes of a training innovation is a shared concern among all the stakeholders (James & Roffe, 2000). The evaluator merely treats it as a means for developing his professional practice but the client wants a feedback on the innovation. The organization treats it as a means to gain information on the strategies, methods and particular innovation in a way that benefits them. Effects and events have to be monitored closely in the interest of the organization and not to suit individual stakeholder interest. The benefits of training should be compared to the objectives of training regularly (Vermeulen & Crous). The supplier reduces costs through consolidation of services, re-engineering of processes, automation of administration and delivery, leveraging economies of scale across multiple clients. Vendors claim to save 30 to 40 percent of the training costs for the clients (Tyler, 2004). The service providers employ cutting-edge technology as they constantly update their systems. Companies that outsource most their training include the food processing units and those manufacturing non-durable goods while the finance and insurance companies outsource the least. Highly cyclical companies outsource most of their training functions because it becomes difficult for them to remain abreast of technology. Workforce productivity, leadership development and succession planning are invaluable HR activities that get neglected in the day-to-day HR activities. British Telecom has reaped large benefits in outsourcing reports Hindle (2005). It has rationalized its training catalogue by 50 percent, reduced training waiting lists by 26 percent and saved $2.2 million in time and money lost due to sickness. Employee satisfaction ratings across training and counseling have increased. Companies should look for one mature vendor with expertise in the field. The change process has to be communicated to the entire workforce. Having the right governance structure in place is equally essential. Benefits/disadvantages to the employee The pace of change requires continuous upgradation of skills. Trainers are faced with challenges to fit the new paradigm and choose from different types of training, including classroom training, technology based training, on-the-job-training, new employee orientation, apprenticeship, coaching, mentoring, and cross-training or job rotation. If training is outsourced, the suppliers would not be able to handle some of these types of training. Since teams work together on specific projects and since such teams are spread across the globe, cross training becomes essential. Cross-training is not possible when the training activity is outsourced. Nevertheless, outsourcing training does not ensure continuity of skills supply which can damage competitiveness. Training has to involve the environment, the people and the structure of the organization. The most effective method is when managers train their own people, which also reinforces that they understand the principles of TQM (Spenley, 1992, cited by Vermeulen & Crous). Outsourcing training would leave a gap as they do not interact with culture of the organization. Any training has to be in tandem with the culture of the organization. Cross training is one of the team training strategies in which team members rotate positions to develop an understanding of the basic knowledge necessary to perform the tasks of other team members (Cannon-Bowers & Salas, 1998). Cross training helps the team to understand how each member is important in the team. Job rotation or cross training helps the employees acquire wide-ranging job experience, which provides not only greater flexibility but also greater career opportunities (Gomez, Lorente & Cabrera, 2004). As a development tool cross training influences the level of motivation and commitment to the organization. A cohesive attitude develops between employees across different functions within the organization (Gomez, Lorente & Cabrera). Employees can see the firm from different perspectives. Cross training also enhances knowledge transfer and integration. Studies suggest positive significant relationship between ongoing training and learning capability. London Marriott found numerous benefits of the cross training program (Lowe, 2001). There is a reduction in staff turnover as well as labor costs due to associate flexibility and increased opportunity for departments to share associates. Cross training focuses on learning and development and is often used for new entrants to familiarize them with different functions within an organization (Bennett, 2003). This is beneficial when there are frequent changes in roles and responsibilities. In the financial and the banking sector ‘relationship’ is the key word. A ‘relationship manager’ is designated the responsibility to keep constant and close association with the customers and apprise them of the financial products, facilities that the bank grants. This benefits the bank in decision-making, in profitability and in assessing the requirements of the customers. Research reveals that a close relation between the service quality of the employees and the satisfaction and behavioral outcomes of the customers (Yavas et al. 2003). The older employees carry on with the habits that they have been following for years. Because it was a sellers’ market then, employees tend to be bureaucratic and arrogant with the customers in the dealings. This necessitates training in interpersonal skills. Training given to employees should focus on “learning how to learn” in a new banking environment where customer is the “king.” Training should be designed to bring about total change in the system, which includes unfreezing (motivation), changing (new attitudes and behaviors), and re-freezing (stabilizing the changes). This cannot be done if the training programs are outsourced because it requires the typical bank environment. According to Clinton et al., (1994), employees in the commercial banking industry require three basic areas of training and development in the TQM process – instruction in the philosophy and principles of TQM, specific skills training to learn the use of TQM tools, and interpersonal skills training to improve team and problem-solving abilities (cited by Vermeulen & Crous). There has to be an integrated approach to the instruction process. Again, this requires rigorous training and supervision. Research indicates that the responsibility for training should lie with one specific manager. Research also suggests that outside people do not experience the culture of the organization and are not involved in the day to day activities. As such, they should be engaged in training only a few people, who in turn should be responsible for the overall training of the people within the organization. Deutsche bank sees its employees as its greatest asset (Careers, 2005). Even the HR department in a bank has to be well equipped. They do not believe in providing just the initial training but a continuous approach that spans their career enabling them to make the most of their career and talents. They have designed a three weeks graduate training programs where people from all over the world meet. This itself is a great learning and motivational opportunity. Training helps them to develop focus on developing a global perspective of the financial markets and products. They also have a mentoring program, which is designed to give exposure to the senior management and the opportunity to a confidential sounding board. They provide an excellent platform, to better understand the different businesses. Training in the banking and financial sector does not merely involve talent and skills enhancement. Societe Generale, the French corporate and investment bank, have invested time and in training their people in crisis management skills and readiness (Rhema, 2005). They have achieved this through a range of internal training workshops and exercises. Crisis management skills cannot be learnt when training and development activities are outsourced. Arthur Anderson and Anderson Consulting believe that staff can best be trained in-house. They recruit people from worldwide and then train them to be world leaders. They train them for a worldwide culture and teach consistent methodologies for approaching complex tasks, which is not possible if training is outsourced (Patricia, 1993). They have their own training sites and provide three weeks of intensive training to every new recruit. This allows them to monitor progress toward training objectives. They continuously evaluate their programs based on the Kirkpatrick evaluation model. Outsourcing has to be done with involvement of the firm’s representatives. It does not mean to shirk responsibility. On the contrary, the staff is involved throughout the design and development process and nothing is delivered until it meets the criteria set by the organization (Cothran, 1995). The relationship with the partners should be like an extension of their own staff. Learning should be seen as a collective accomplishment and hence outsourcing relationships can create partnerships between contractors and clients that may facilitate learning and cross fertilization between the two firms (Carroll, Cooke, Hassard, & Marchington, 2001). Downsizing has led to devolution of HRM responsibilities and the middle managers or the line managers have gained importance (MacNeil, 2003). The role of HRM in many organizations is more strategic in nature which is also responsible for devolution of responsibility for implementing HRP policies to line managers. Line managers also have an important role in the learning and development (L&D) within an organization. L&D is a critical part of HR because high rates of attrition are often associated with lack of proper training and development of skills (Gibb, 2003). The workplace now requires promotion of positive attitudes towards continuous and lifelong learning. Line managers thus become important here because the employees need their support and motivation to undertake the learning and development of skills. Line managers have also been found to be more effective than the personnel specialists in bridging the gap between the organizational performance needs and individual performance. Besides, as discussed above, line managers themselves undergo transformation while executing such responsibilities. All these are not possible when training and development is outsourced. Conclusion Thus, research suggests that while training and development is a core HR function, recently firms have been outsourcing this function. Then again, firms have not been outsourcing all the activities but partial functions like curriculum development or administration. The benefits to the company result mostly in cost savings and it allows them to concentrate on their core competencies. As training is not a core competency or the main business for most companies, they prefer to outsource it. Firms also benefit from the expertise of the suppliers who have tested the programs across different companies. Nevertheless, firms need to be a part of the training delivery and it is best done by the managers. This is because the managers know their subordinates well and would be able to make the training delivery personalized. It is felt that outsourcing does not ensure continuity of skills supply which can damage competitiveness. Companies have global teams working on projects and outsourcing does not allow for cross-training. The companies engaged in non-durable goods prefer outsourcing while very few function of training is outsourced by the banks and financial institutions. At the same time, business houses having several companies under one umbrella benefit from outsourcing as the same process need not be repeated. They derive economies of scale by outsourcing the training and development. Firms like British Telecom have benefited as the training wait time has been considerably reduced. With the involvement of the line managers in HR functions, they too have a responsibility and are better able to deliver training. The employees feel more comfortable with their own managers during training. Outsourcing does not allow firms to evaluate the training programs and the results. Overall, while the benefits are tangible in outsourcing, it would greatly depend upon the company size, the nature of work, the industry and the actual cost benefits derived. The training program ultimately has to be in tandem with the culture of the organization. This requires that the HR personnel are involved in the designing of the training programs along with the suppliers. People are valuable assets or sustainable competitive advantage and have to be trained and developed to derive the maximum from their expertise. Hence, it is essential that all training programs are designed keeping the individual needs in mind and evaluating it from time to time to determine its efficacy. Training and development is an ongoing process and needs constant monitoring. References: Anderson, G., (1994), A Proactive Model for Training Needs Analysis, Journal of European Industrial Training, Vol. 18 No. 3, 1994, pp. 23-28 Bennett, B., (2003), Job Rotation, Development and Learning in Organizations Volume 17 Number 4 2003 pp. 7-9 Cannon-Bowers, J. A., & Salas, E., (1998), Team performance and training in Complex Environments: Recent findings from Applied Research, American Psychological Society, Vol. 7 No. 3 Cardy, R. L., Gove, S., & DeMatteo, J., (2000), Dymanic and customer-oriented workplaces Implications for HRM, Journal of Quality Management, 5 (2000) 159-186 Careers, Deutsche Bank, Human Resources, 07 Jan 2008 Carroll, M., Cooke, F. L., Hassard, J., & Marchington, L., (2001), The Strategic Management of Outsourcing in the UK Ceramics Industry, Working Paper No. 17. 08 Jan 2008 Cheese, P., (2006), The High-Performance Workforce Study 2006, ACCENTURE, 07 Jan 2008 Conklin, D. W., (2005), Risks and Rewards in HR Business Process Outsourcing, Long Range Planning 38 (2005) 579-598 Cothran, T., (1995), "Outsourcing on the inside track. (includes related articles)(Improved Performance Through Learning)." Training 32.n5 (May 1995): S31(6). British Council Journals Database. Gale. 7 Jan. 2008 Das T K (2001), Journal of Management Development, Vol. 20 No. 7, 2001, pp. 579-603 Donovan, P., Hannigan, K., & Crowe, D., (2001), The learning transfer system approach to estimating the benefits of training: empirical evidence, Journal of European Industrial Training 25/2/3/4 [2001] 221-228 Gibb, S (2003), Line manager involvement in learning and development, Employee Relations Vol. 25 No. 3, 2003 pp. 281-293 Gomez, P. L., Lorente, J. J., C., & Cabrera, R. V., (2004), Training practices and organizational learning capability, Journal of European Industrial Training Vol. 28 No. 2/3/4, 2004 pp. 234-256 James, C., & Roffe, I., (2001), The evaluation of goal and goal-free training innovation, Journal of European Industrial Training 24/1 [2000] 12-20 Jones, G., & Finlayson, K., (1999), ‘Buy or Lease’? ‘Outsourcing’ as a Strategic Decision in Human Resource Management in Tertiary, 08 Jan 2008 Harland, C., Knight, L., Lamming, R., & Walker, H., (2006), Outsourcing: assessing the risks and benefits for organisations, sectors and nations, International Journal of Operations & Production Management Vol. 25 No. 9, 2005 pp. 831-850 Harris, P., (2003), Outsourced Learning: A New Market Emerges, 14 Jan 2007 Hindle, J., (2005), HR outsourcing in operation: critical success factors, Human Resource Management International Digest, VOL. 13 NO. 3 2005, pp. 39-41 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 Lowe, C., (2001), Marriotts Cross Training, Leisure Hospitality Business, Nov 2001 Galagan, P. A., (1993), "Training keeps the cutting edge sharp for the Andersen companies." Training & Development 47.n1 (Jan 1993): 30(6). British Council Journals Database. Gale. 7 Jan. 2008 Perkins, S. J., (2003), Globalization and IHRM: partners in comparative perspective? Journal Of European Industrial Training, 27/9 [2003] 461-472 Rao, M. T., (2004), Key Issues for Global IT Sourcing: country and individual factors, IS Sourcing, Information Systems Management, www.ism-journal.com, Summer 2004 Rhema (2006), Crisis Management Training in leading financial sector company rapidly proves its worth, 07 Jan 2008 Roos, G., Fernstrom, L., & Pike, S., (2004), Human Resource Management and business performance management, Measuring Business Intelligence, Vol. 8 No. 1 pp. 28-37 Sako, M., & Tierney, A., (2005), Sustainability of Business Service Outsourcing: the Case of Human Resource Outsourcing (HRO), 08 Jan 2008 Thompson, M. F. (2006), "Outsourcing Training and Development: Factors for Success.(Book review)." Training 43.7 (July 2006): 51(1). British Council Journals Database. Gale. 7 Jan. 2008 Tsai W & Tai W (2002), Perceived importance as a mediator of the relationship between training assignment and training motivation, Personnel Review, Vol. 32 No. 2, pp.151-163 Tyler, K., (2004), Carve out training? Outsourcing the entire training function is a huge change that—when handled properly—can yield improved services and decreased costs, 07 Jan 2008 Vermeulen W & Crous M J (2000), Training and education for TQM in the commercial banking industry, Managing Service Quality, Vol 10, No. 1, 2000 pp. 61-67 Walsh, J., & Deery, S., (2006), Refashioning Organizational Boundaries: Outsourcing Customer Service Work, Journal of Management Studies 43:3 May 2006 Yavas et al., (2003), Relationships between service quality and behavioral outcomes, The International Journal of Bank Marketing, Vol. 22 No. 2. pp. 144-157 Read More