The Implications of Outsourcing practice in Organisations,HR proffessionals and HR Proffession at large.

By
Stoik Musah.
LBS,United Kingdom.







Human Resource Outsourcing from an organisational perspective is viewed as a form of predetermined external provision with another enterprise-mainly an outsourcing provider , for the delivery of human resource services that would previously have been offered inhouse(Elfing and Baven 1994,Finlay and King 1999).The fast changing market environment has forced organisation to redefine Human Resource department function to focus on truly strategic activities, if this unit truly desire to act in the capacity of always looking for better ways to do things.This essay will describe the reason organisations choose to take this path and also the various implications of outsoucing they face.

Outsourcing is a conscious business decision to move internal human resource work function to an external supplier. By this strategic move on the part of the organisation –it seek to rechannell human resource functions time and resources to help address the organisation top challenges. Since economically, it does not make sense for organisations to retain and develop in house capabilities to deliver human resource services that sometimes are non strategic, when outsourcing providers are in the same industry, that can provide this service more consistently and efficiently than themselves(The Organisation). Human resource services as employee services, pensions, international service personnel administration, recruitment and assessment, training administration, policy enquiries, resolutions and legal compliance, relocation services, benefit administration, payroll, forms submission, employee record keeping, HRIS, and benefit administration are human resource employment service and transactional service functions most organisations are moving out of the organisation to outsourcing providing institutions (Hesketh 2006).

This is aimed at relieving the organisation from the institutionalised inefficiency of the routine in house human resource process of these functions. Put differently, through the strategic use of an outsourcing provider, the organisation can dramatically reduce the task required to upgrade and maintained human resource systems (Handerer 2005). For example consider the benefits accrued to an organisation with access to an outsourcing providers automated technology on benefit administration as against the organisation highly administrative transactional human resource function of this service(Ashley 2006). Ashley(2006) major criticism of this traditional approach to benefit administration includes the fact that benefit enrolment cost per employee are high, this is because HR staffs are needed to process paper based enrolment documents. Besides the process requires a significant investment of time, and sometimes errors by employees in filling out forms and errors on the part of HR personnel’s. This error compromises the accuracy of this crucial data. These errors often passed to the insurers that administer these benefit plans. But an automated benefits technology solution from an independent outsourcer corrects most of these problems when they arise. Since user friendly web based forms replace multiple, difficult to use paper forms. The technology also allows the employees to enter their personal data information in one area, and all the related systems will automatically have this information. Safeguards and controls are also provided by the templates within the automated system to help prevent errors and reprocessing of enrolment. All these in built facilities help to increase the accuracy of the data, and save the HR department time and money at every step along the way. Through this process the HR department can reclaim more than half of the time that they previously devoted to these task (Ashley 2006).

Moreover, from the corporate governance perspective, another reason the organisation choose to outsource the HR function is that pressures from stakeholders, demands that management constantly streamline the way the business operates. This has forced management to reconsider how blending the services performed both inside and outside the organisation can help to contribute to the bottom line. In these evaluations, it can be argued that outsourcing has become one option on a larger menu of strategies for the search for efficiency, when you consider factors in organisational operating environments as corporate restructuring, downsizing and outsourcing (Laabs 1993).

Although the strategic literature on this subject suggest that the reason for outsourcing can be found primarily on cost disciplines (Quinn 1999).Outsourcing can provide companies with greater capacity for flexibility, core competence enhancement, and strategic repositioning especially in the purchase of rapid developing systems ( Carlson 1989; Harrison 1994).This is made possible by smaller specialised outsourcing providers who provide the organisations support, to adjust the scale and scope of their human resource service function capability upward or downward at a lower cost, to changing demand conditions and at a rapid rate(Armstrong 2006). Furthermore, Quinn and Hilmer (1994) posit that outsourcing can decrease the human resource service function design cycle time, if the client uses multiple best in class suppliers, who work simultaneously in individual components of the system. As each supplier can contribute greater depth and sophisticated knowledge in specialised areas –like in the area of complexities involve in the benefit administration process discussed previously- and thus offer higher quality inputs than any individual supplier or client .Perhaps, far greater than the above cited reasons why organisations choose the path of outsourcing will be the opportunity of full utilization of external suppliers investments, innovations, and specialised professional capabilities, which for any one organisation would require much time and effort to replicate(Currie and Willocks 1997).

Similarly following the economic postulation of Richardo(1962) on the possible effect in the organisation on the efficiency of production and resource exchanges. Four broad categories of changes emerge in the organisation activities resulting from outsourcing practice in the area of (i)Specialization in a particular HR function(ii)Clarifying configurational arrangements (iii)Flexibility and (iv)Cost savings. With reference to the aforementioned possible organisational effects, it can be asserted that having other enterprises specialist in provision of HR function allows the host organisation to concentrate on those activities in which it can establish distinctive core competence (Hamel and Prahalad 1994).Focussing on core competence and leveraging against other sourced relationship allows for the production of human resource services more efficiently while improving quality through the application of specialist knowledge (Alexander and Young 1994). It is this achievement of quality improvement through core competence focus that promotes competitive advantage (Kakabadse and Kakabadse 1999). Yet by contrast other writers criticize the hollowing effect-this excessive contracting out can result to. Considering the reduction of HR overhead cost and company size- so that the host organisation becomes a fraction of its old former self (Lambooy 1986; Davidow and Marlone 1992). British Petroleum and Marks and Spencers has being substantially moving in this direction whereby the systems integrators in almost all the HR functions are contracted out to a collaborating network of companies .For this reason, certain writers predict that this trend will continue, as companies will, in the future outsource those activities that held a commodity status and keep those that make them unique (Corring 1999). Above all, by exposing the organisation to market transactions disciplines through outsourcing practice, it is postulated that the efficiency of the current configurationally arranged enterprises are highlighted .Thereby questioning the level of changes needed for the organisations fundamental structural parameters (Domberger 1998).For this reason exposing the organisation to market disciplines assist the management to focus on configuring the organisation in a manner that sustains their competitive position, by enhancing their capability to offer goods and services at prices attractive to purchasers, which inturn promote conditions for innovative HR work practice (Grant 1995). In the same way , plausible as this may seem, it can be argued that contracting out weakened the organisation innovative capacity to facilitate efficient HR work process. To strengthen this point, Domberger (1998) posit that this situation arises as the competitive pressure to innovate is transferred to the suppliers. The writer asserted that technical progress on the part of the organisation in the longrun can therefore be compromised.

In addition organisations that will survive in competitive markets need to display an ability to appropriately adjust their infrastructure scale and scope at low cost and at a rapid rate (Upton 1995). Outsourcing permits that competitive advantage through flexibility operates on the premise that networks of small enterprises aligned with their clients, underpinned by performance related contracts- are able to adjust more quickly to changing demand conditions than large integrated corporations (Child and Faulkner 1998). In contrast Korac- Kakabadse, Korac -Kakabadse etal (1998) are of the view that flexibility in work operations require a definition of organisational boundaries, which inturn induces possible further restructuring, and dislocation of resources .Thereby inducing a variety of costs, especially when associated with loss of employment, can result in the organisation losing its HR skills, competences and collective knowledge, and weakened commitment from retained employees after downsizing. For this reason numerous literature studies abound in organisational studies of outsourcing effect on employees like survival syndrome, erosion of the social contract, and disintegration of organisation culture etc. Furthermore other emerging practice in this subject by organisations has being the growth in relationship and strategic alliance that develop between organisations who engage in providing similar outsourcing services or product (Marcceau 1992).Despite the fact that some of these organisations may be competitors, horizontal interlinkages are becoming increasingly central to many firms competing success in outsourcing process(Child and Faulkner 1998).These alliances involves a number of often competing enterprises, corporating through a central basic source of activity which supports these prime relationships (Kakabadse and Kakabadse 1998). The key objective of such arrangement therefore is to achieve economies of scale through a beneficial local source delivery to its consortium members. For example a group of companies can create a joint venture company to carry out HR functions and services on behalf of all the individual companies –and any other firms in the market that are willing to utilize this service. The rationale behind this concept emphasised by Kakabadse and Kakabadse (2000) is that, although these HR services provided by the company are essential to all the individual organisation in the consortium- higher operational efficiency can be achieved through joint ventures economies of scale, at the same time making the individual companies concentrate on other essential task(Their core competences).
Alternatively some other organisation engage in inhouse insourcing practice to re-examine the firms service portfolio, to determine what is required to maintain economies of scale. In this practice all activities are essential rather than distinguishing between essential and non essential HR core competence. This idea is driven by management view as to the nature of the portfolio configuration that improves the organisations position in the value chain. For example the Engineering based group Vickers PLC took the strategic decision to sell off two of its profitable businesses Rolls-Royce Cars and Cosworth in other to generate the investment capital for acquisition and repositioning(TheWeek 1999). As a consequence, Vickers positioned themselves as a high quality marine engineering group ready to take advantage of Europe future marine transport requirements. Bearing in mind that sea transportation capacity will need to be enhanced due to the growing congestion of road and rail(The Week 1999).

Furthermore organisations also develop particular competencies through some activities that are supportive of its primary business purpose. The organisation may choose to further develop and exploit its in house nurtured expertise through spinning of such activities as a separate subsidiary organisation(Kakabadse and Kakabadse 2000).The logic is to provide the subsidiary organisation with the opportuinity for growth through full market exposure. This is done sometimes to exploit a new line of business. By separating its activities from its parent company. The newly formed company is free to maximize on its profit seeking intentions, through the application of its capabilities outside the existing structure. For example EDS currently one of the most powerful suppliers of IT services worldwide, began as GM spin off. Similarly the Gedes Group-specifically AudiVolkswagen GMBH, is a wholly owned subsidiary of Volkswagen AG, and is one of the leading system integrator in Europe(Venkatraman 1997).

Within the parameter of the above illustrations, outsourcing relationships are often described in terms of strategic alliances which implies a positive relationship, strategically forged between the contractual parties involved. Rubery, Machington etal (2003) argues that these positive connotations not only mask the true motive and nature of the contractual relationships, but also conceal the tension and conflicts in the process of managing these relationships- which are often a major source of pressure for the HR professional as well as the workforce who are responsible for service delivery. According to Wilmot (1997), the content and organisation of managerial work is shaped and reproduced by material subjects who are sometimes HR career professionals. For this reason, HR professionals as individualized sellers of wage labour and targets of control, are rendered anxious about their performance and career prospects.Willmot (1997) emphasise that, like other employees; they are discipline by a variety of audits and performance related pay schemes which are intended to secure their cooperation and trust(Willmot 1997). Invariably this inter-independence means that the HR professional tasks is closely linked to the organisational contexts and cannot be easily abstracted from it (Whitley 1989). As Whitley(1989) pointed out that the nature of any particular role and problem is dependent upon the context in which it occurs, such that if this changes- so too does the task. However studies in recent years on Human Resource Function has also pointed to the fact that career practice in this function has been intensified with reduced job security in a period of downsizing , delayering and outsourcing of organisational structure( Scarbrough and Burrel 1996).For this reason outsourcing relationship is seen as a dynamic platform on which the nature of work and career opportunities for HR professional managers take a different turn. As part of the HR professional work routine consideration emerge in managing the contractual relationship between the organisation and the outsourcing provider. The underpinning inter-organisational relationship is essentially a cost-profit relationship which is governed by a tight financial framework involving penalty for failing to meet performance criteria (Cook 2006).Similarly interpersonal contacts between the HR professional and the management of the outsourcing provider are identified as performing vital roles in problem solving, in exchanging social values and information, and in demonstrating commitment to credibility with the other party(Nooteboom 1999). For this reasons, the HR career professional is often put in place to manage the inter-organisational relationship. To oversee the business relationship, to trouble shoot operational problems and to win new business for the organisation. By this, the HR personnel may have no authority over controlling the contract existence between the two ends, but can flag up issues identified, were changes need to be made (Snow, Miles etal 1992).

In contrast despite the significant role these HR professional play within this tight line, Cook(2006) argues that their employment may be insecured than other employees for many reasons. Their employment contract may be tied to the length of the specific business contract and my not be taken on by the new employer who takes over the business .Their career progression maybe highly dependent upon the success of the contractual relationship with the outsourcing provider. Cook(2006) noted that they(HR professionals) need to bridge the differences between the two parties especially at hard times, for which they may receive no support from other managers as they may be accused for not being on their companys side. Also if they fail to develop a workable relationship, they tend to be replace by someone else. In some cases they may be sacrificed, not necessarily through their own fault, but in other for the firm to maintain and improve relationship. Infact even when the business relationship appears to be smoothly managed at the operational level, top management may still decide to terminate the contractual agreement as part of a wider strategic move(Marchington,Grimshaw etal 2004).Other authors like Bidges(1995) and Handy(1995) celebrate the coming of the boundaryless career era in which the lucky few are well equipped to span the organisational boundaries for their successful career. The reality may not be depicted as prescribed even for those who possess tradable skills. This is because organisational forms dictates how careers are managed(Miles and Snow 1996).While the career prospects of the outsourcing provider is precariously tied to the length and nature of the business relationship, the HR career professional tend to experience significant changes in their skill profiles and career prospects as direct consequences of the emergence of the business relationship(Mulholland 1998).In the same way, the sporadic creation of new division s and diverse business nature, render career progression of HR professionals less predictable. As Miles and Snow (1996) noted that competition for promotion may come from within as well as outside the firm, as organisations are increasingly looking for the required mix of skills to manage complex transition outsourcing process. Therefore the organisations form further influence the structure of the skill portfolio of the HR professional. To revisit the argument highlighted here- it can be further emphasize that, as each organisational forms increased in complexity, the required mix of technical, commercial and governance competencies change. This new skills requirement has brought changes in the work of the HR professional. Consequently the need for control, monitoring and accountability becomes more pressing (Buchanan and McCalman 1998).For this reason ,these managers not only have to report to a vertical hierachical structure within their organisation but also have to answer to a horizontal and diagonal monitoring structure consisting of monitoring cross functional teams (Buchana and McCalman 1998).

Furthermore financial awareness, customer focus and management innovations appear to be the major changes for the HR professional work function, and as such the organisation engage them in reskilling training programme to embrace the new company management style(Du Gay 1996). In the course of work process, the HR professionals have to make sure that performance targets are meet in order to avoid penalty and where necessary, make new claims for extra work. Similarly, they have to learn to manage their unit budget and to put a cost to every item that is purchased and every task carried out (Cook 2006). The recognition for data express the trend for the HR function to be strategic. By this the HR professional needs data to show when and where it can intervene in the matter of talent (Hesketh 2006).Prior to this era, the CIPD has largely overlooked this important distinction, focussing more on trends rather than results- on what HR does, rather than what HR delivers, and how this deliveries are interpreted in datas to support HR opinions at the board. Convincingly this in most cases influences consideration for business decisions. This is one area the CIPD should immerse its members and students on financial studies training- for this will lead to a more informed grasp of the resources required to deliver impressive change result, and value proposition in relation to the business model, during outsourcing partnership. The most recent development is that the CIPD has recognized a number of postgraduate qualification in some academic institution that closely match this requirement. The institute now devolve responsibilities to this institutions to function as training centres and empowered them to award graduate membership to successful students.

With regard to the aforementioned issue of training, Sisson(2006) posit that there is a strong case for an overhaul of the CIPD training and development syllabus. This is to enable the training and course content reflect the need of HR managers, to see the skills that they need to carry out changing HR function delivery proposition. Notably in (i)Business Skills-in the area of understanding realworld political business practices, commercial awareness, management data/analytic planning, mapping and prioritising project management.(ii) Reflective Service Specific Skills-This is where the social architecture or collective ways in which people work together are critically reflected on, to know how well processes are working in relationship with resources as technology, behavioural models and budget instruments(Hesketh 2000).



For this reason a thorough examination of the corporate landscape and academic literature cannot help but reveal the increase attention paid to this new breed of organisational practice- outsourcing. The majority of the studies here have focus on cost (Quinn 1999), efficiency ( Currie and Willocks 1997), quality and value creation (Hamel and Prahalad 1994), flexibility (Child and Faulkner 1998), and how organisation react to the call of outsourcing (Korac-Kakabadse 1998). The essay discussed the economic justification of HR function outsourcing and why organisation opt for this path. It highlighted the common HR function outsourced with specific reference to benefit administration .The essay discussed the implication and effect of this decisions on the organisation. Its framework covers the emerging application of strategic alliance by organisation who engage in similar outsourcing practice. Moreover the tension and conflicts in the process of managing the contractual relationship between the organisation and the outsourcing provider as seen from the human resource function was explored. Consequently the essay has demonstrated how the required mix of skills to manage this emerging relationship, question the training and development syllabus of the Chartered Institute of Personnel Management CIPD to improve the HR professional metrics ability. Although the critical analysis in this essay must be considered in the light of the limitation of study; as word count. For this reason brief discussions have been made to many important themes and conceptualizations i.e survival syndrome, erosion of the social contract, disintegration of organisational culture etc. However the essay has great potential for providing understanding on human resource function outsourcing, its implication on the organisation and the HR profession at large.


























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Stoik Musah writes from LBS. Leicester.United Kingdom. email:Stoik_joy@yahoo.com