An Evaluation of Human Resources Outsourcing - Term Paper Example

?Running head: Management HRM Outsourcing Insert Insert Grade Insert 09 June Introduction Outsourcing is a term used incorporate and business setups to mean seeking of services, goods, products, knowledge, expertise and skills from external sources rather than from within the organization. The essential reasoning behind human resource outsourcing is that the firm’s employees can focus on the core business while specific areas, which may be deemed non-core, are delegated to external experts and thus free up resources that may be directed to the main business of the firm. The question on what should be outsourced has always been a widely debated issue. This paper will explore the issues around human resource outsourcing, particularly those concerned with firm’s performance, strategic direction, ethics and corporate social responsibility. It will also evaluate these issues with regard to how they can be addressed and balanced to achieve the best performance, productivity, and efficiency. An Evaluation of HR Outsourcing One of the ultimate gains of outsourcing is the division of work and skill/expertise specialization, which results in a better outcome and performance. Business process outsourcing (BPO) including HR outsourcing is not only aimed at financial value; relevance of a strong relationship management is that it leads to value addition such as innovation and customer satisfaction (Enlow & Ertel, 2006). The importance of a healthy relationship management cannot be overlooked. According to McKinsey & Company, as quoted by Enlow and Ertel (2006), 50% of outsourced services fail to create the expected value. Firms find value when specialists, who can be more effective in providing services that were previously handled internally, are engaged because both the firm and the supplier can focus on what they do best to improve performance. HR outsourcing is beneficial to any firm and whatever the size of the organization, outsourcing must follow phases for it to succeed. According to Anonymous (2007, July), the use of outsourcing as a strategy proved beneficial in a large funeral and cemetery company, Service Corp. International. The company boasted of the workforce of 2,400 employees in 2,500 locations. The funeral company decided to outsource human resources services; through an advisory firm, various sources of outsourcing were used while focusing on the various phases of the outsourcing process. Because of the many administrative tasks of the company, HR outsourcing led to a reduction in costs. Outsourcing and shared services provide avenues for reducing cost while enhancing efficiency in organizations. Cost cutting associated with outsourcing occurs when staff is assigned with other tasks through involvement of experts or by saving money (Anonymous, 2007, April). While outsourced members focus on their areas of expertise, organization’s staff members focus on core responsibilities. Information Technology investments may not yield results for a long time. Thus, outsourced IT services help to avoid colossal capital investment costs. Equally, the use of shared services appears to be advantageous to organizations by reducing the need for maintaining a massive workforce leading to a reduction in costs through sharing of talents and resources and enhancing productivity (Anonymous, 2007, April). Ethical issues that have been associated with HR outsourcing have included loss of employment in the host country where firms are outsourcing human resource. The practice of getting expertise and staff from other places in order to save costs has been perceived negatively from a social point of view by the local communities from which the outsourcing firm hails, particularly when outsourcing involves expertise or skills that are also available locally. Cultural differences are another concern of outsourcing, which has been mentioned especially among multicultural environments where different skill sets are in existence (Adobor, 2012, p.245). For example, there exist immense cultural differences between the West and Asian countries, but which are addressed through understanding the different sensitivities that result from different cultures and how these affect relationships of outsourcing. The HR manager must ensure that there is adequate training on the different culture provisions to outsourced professionals to avert culture shocks under outsourcing relationships. The benefits of outsourcing are numerous; however, things do not always go as planned due to various challenges in outsourcing from outside the United States. According to McKinsey& Co, as quoted by Burman (2006), India has the potential of 2.5 million call center agents but only 0.7 million speak English. The language barrier is a significant impediment to outsourcing because clients refuse to engage in business deals where agents have strong Indian accents. The potential benefits of outsourcing are less due to the working conditions. In addition, the time difference between the two countries means that work is carried on at night in India. The benefits of outsourcing can be eroded when dealing with workers in a different time zone, who converse in different languages (Blynth, 2006). Legal ramifications for outsourcing can also yield to minimal or no cost savings. The difference in labor laws means that benefits of outsourcing in certain countries may not be fully enjoyed. To work around the issue of restrictive labor laws, two entrepreneurs invited foreign technology specialists in a cruise ship near the Californian coast. The main aim was to avoid legal barriers to foreign residents while enjoying benefits of outsourcing (Blynth, 2006). As a corporate CSR1 initiative, a firm may wish to employ expertise or employees from its local social environment, but the skills set may not meet its specific requirements and hence may be forced to outsource. This becomes a CSR issue that the firm must address and balance to safeguard its image and relationship with the people around it. Outsourcing may also have consequences such as layoffs that may not go down well with the local people, especially where the laid off staff is among some of their own. HRO is beneficial to business operations. However, there is a mixed picture with potential benefits failing to be achieved. The challenges facing organizations include inadequate preparation, ineffective relationship management, rigidity in making deals and failure by providers or organizations in responding to their duties (Smith, 2006). To avoid inadequate preparation, HR functions need to be clearly organized and a study is to be conducted on the potential benefits and costs of outsourcing. Outsourcing creates a relationship between an organization and provider(s), which may extend for years. Nurturing this relationship and mutual respect should take place to avoid miscommunication. The business world is a fast changing environment. Consequently, to minimize failure of HRO, companies should be quick to adapt to changes like contract terms and new business models. Companies should also adapt to changes in market conditions or strategy. Lastly, both the providers and companies should perform their roles and responsibilities. Companies need to involve staff besides HR practitioners to avoid resistance to change by employees; responsibilities of the company should be well understood before outsourcing to avoid ambiguity in the future. Conclusion HR outsourcing is the practice of an organization to engage external human resources having exceptional knowledge, skills and expertise that internal staff may not have, in order to achieve improved efficiency and productivity as a result of specialization. Through HR outsourcing, firms are able to manage increasingly a larger number of processes with increasing speed, accuracy, and cost reduction to enhance their competitive advantage in a fast dynamic global business environment. To overcome HRO hurdles and create business value, companies need to prepare adequately and be flexible in the ever-changing business world. Effective relationship management influences the success or failure of outsourcing due to the long-term nature of these relationships. Proper relationship management has a positive effect on value while poor relationship management leads to inefficiencies. Lastly, companies need to consider the differences in labor and culture laws to avoid miscommunication with HRO providers. References Adobor, H. (2012). Ethical issues in outsourcing: The case of contract medical research and the global pharmaceutical industry. Journal of Business Ethics, 105(2), 239-255. Anonymous (2007, July). How outsourcing & shared services can help you now. HR Focus, 84(7), 1, 13-15.  Retrieved March 1, 2012, from ProQuest. (Document ID: 1299085581). Anonymous (2007, April). Outsourcing and shared services star in cost savings, expertise, and more time for strategic HR. HR Focus, 84(4), S1, S3-S4. Retrieved March 1, 2012, from ProQuest. (Document ID: 1248853381). Blyth, A. (2006, May). A sea change for outsourcing. Director, 59(10), 39, 41. Retrieved March 1, 2012, from ProQuest. (Document ID: 1042683751). Burman, R. (2006, July). Thinking of outsourcing to India? Think Again. Workspan, 42-44.  Retrieved March 1, 2012, from ProQuest. (Document ID: 1123436641). Enlow, S, & Ertel, D. (2006, May). Achieving outsourcing success: Effective relationship management. Compensation and Benefits Review, 38(3), 50-55, 5.  Retrieved March 1, 2012, from ProQuest. (Document ID: 1045888971). Smith, A. (2006, May). Overcoming four HR outsourcing obstacles. Strategic HR Review, 5(4), 28-31.  Retrieved March 1, 2012, from ProQuest. (Document ID: 1041152151).   Read More