Outsourcing - a Growing Trend and a Preferred Means of Procuring Services for Organizations - Literature review Example

Name Course Lecturer Date Introduction This paper presents an annotation of research articles on Human Resource (HR) outsourcing. This refers to the activity and process of transferring an organization’s HR functions to external entities. It entails an organization making use of external support for internal HR management processes. It is a growing trend in management as one of the considerations organizations may have in the endeavour to manage human resource factor optimally. Essentially, organizational HR priorities and needs form the basis for HR outsourcing determination. In Jeroen and Luc, the article seeks to demonstrate whether HR outsourcing is for strategic HR management, or a cost cutting measure of both. It reports a positive relationship between HR management (HRM) and outsourcing citing that the latter is more a strategy than just cost cutting in organizations with a focus on HRM. HR devolution and outsourcing are reported as enabling the internal HR function to participate efficiently in strategic management. For strategic management, outsourcing has several implications. It is a way of empowering HR function for strategic contribution. It also presents an alternative mechanism of efficiently managing labour factor that managers have to weigh relative to others. Finally, the mechanism is among the plethora of many used to enhance management. The cost-cutting aspect is not an out-ruled benefit. It is among the benefits accrued. This article emphasizes that strategic management should be the main focus. To the growing literature on organization benefits from outsourcing, it is more emphatic on the strategic function than on the cost function. Irene et al focus on HR aspects of motivation and incentives in determining the relationship between outsourcing and service quality. Using a game-theoretic procurement model on German firms the quality of HR output is evaluated comparatively for insourcing and outsourcing mechanisms. Analyses results indicate that HR output is higher when outsourced than when insourced. By outsourcing from vertically integrated firms, there are implications of low integration which further implies that there is a higher incentive for the external provider to offer good HR quality. Firms are more concerned with quality when outsourcing than when they insource. The complexity of tasks is pertinent in this factor. In addition, there are positive effects on quality due to low monitoring potential for internal providers. As such, HR function has to consider this in make-or-buy decisions for labor. The complexity of services is also vital to consider. For knowledge development, the article suggests a shift to less utilitarian-based models to those focusing on quality and impacts on the strategic role of outsourcing. Organizational characteristics are impactful on HR outsourcing in the decision making and the quality delivered, as well. In (Brian, John and Thomas), the article explores the relationship between outsourcing decisions and organizational characteristics. It examines the determinants of outsourcing various HR functions. The functions evaluated were human capital, generalist activities, transactional and HR procurement. The article’s results point-out that organizational characteristics impact the organization’s make-or-buy decisions. The characteristics cited include having a strategic HR, emphasis on positive HR outcomes, idiosyncracy, promotion and motivation and level of pay. These characteristics were more impactful on decisions for outsourcing human capital services than other activities. Organizations emphatic on positive outcomes and promotions are less likely to rely on oursourcing for staffing, compared to those focused on with a strategic oriented HR, higher pay, and are bigger in size. The implications are on management to determine the extent of strategic-orientedness or of traditional HR. In addition, it is vital to match organizational characteristics with outsourcing relationship needs , the costs, and labor aspects such as demand uncertainty. The article focuses on outsourcing decision making delineating the determinants that HR executives should consider as appropriate in informing the decision. Linda and Deborah address what and when an organization can outsource. There are financial and non-financial determinants for this decision. With reference to what activities may not be outsourced an understanding of all organizational activities is vital for management to differentiate core from non-core activities. The article suggests that core activities are best in-sourced while the non-core can be outsourced. Outsourcing the non-core gives ample space to focus on the core. Determinant factors to be considered revolve around the effects of outsourcing on the organization. While outsourcing the general considerations cited are organizational culture, in-house expertise and organizational morale. While focusing on outsourcing HR services, the considerations are specific to various HR activities such as procurement, training and development and generalist services. As such, it implies that management is charged with the challenge of differentiating core and non-core functions, identify the implications on an organisation as a whole and for specific functions and the appropriate time to outsource, as well as prioritize organizational culture. Based on the tenets of the importance of knowledge management (KM) and adaptability in organizational success, Schlosser et al explores how outsourcing affects learning capital. It contributes to how managers can ensure that strategic HR is maintained even with outsourcing and offshoring. It is identified that outsourcing negatively impacts organizational learning and identity due to changes in the psychological contract. HR function is thus tasked to ensure that HRM strategies drive outsourcing in a way there are not only cost-related benefits, but also enhance learning and KM. Outsourcing is described as a yoke that can enhance or impede organizational learning growth. HRM can strengthen this by strategies that enhance individual learning and simultaneously decrease outsourcing-related deterioration. Essentially, such strategies revolve around the strategic use of the psychological contract based on the employee-organization promise-obligation relationship. The contracts may be either relational or long-term, or transactional or short-term. The strategies also entail internal marketing in which knowledge sharing is promoted by a culture where permanent employees develop a relational contact with the outsourced ones. Jean et al explores and examines outsourcing decisions for organizations, with the purpose of identifying the determinants influencing the decisions for in both small and big organizations in the UK. The results of the study report that perceptions of HR professional are pertinent in the decisions and that there is pragmatism attached to the decisions. This is due to pressures in HRM practices trends elsewhere. Essentially, the concern for cost was a major determinant. This is unlike other literature reviewed in this paper citing strategic need of the HR function. However, as large organizations sought cost-oriented benefits, the hidden outsourcing costs surfaced with reference to establishing workable relational contracts between insiders and outsiders. Organizational context and history are also determinants. It is vital that HRM defines the impacts of outsourcing not only on the entire organization but also on the HR function. With outsourcing, the article reports potential impacts on the roles of HR such strategic management, change management, HR welfare and administration. From futuristic view, the article reports increasing costs of HR function as it becomes costly to reassign new roles for HRM and staff as a result of increased outsourcing. In outsourcing decisions, one of the key determinants is the impact on employees, both the outsourced and those internal. Ian et al delineates employees’ responses to the subject as influenced by contingent factors. The factors presented include employee perceptions of outsourcing with respect to their treatment. They were analyzed focusing on the employment relationship major areas such as expectations, HR practices and attitudinal outcomes. Results indicated that previous employment relationship influenced disposition to outsourcing and that the dispositions were complex and multifaceted. Implications for academics are the need to develop studies that build on this complexity and multifacetedness. For the manager and policy makers it is vital to establish a process that enables shaping of employee perceptions with respect to outsourcing. For new employees outsourced, it is vital to adopt approaches that appreciate new-comers past experiences. This article by the Institute of Management Services presents the growing and diversifying nature of business process outsourcing (BPO). In IT and services sector, outsourcing is a key growth area. More specifically, BPO is the fastest growing segment of outsourcing. BPO is cited as having began only for cost-saving, but has grown into strategic outsourcing, known as transformational outsourcing. This means that there is engineering of business process with the intention of changing the basis of service provision. It is a way of driving change in business operations. Through BPO, there are change-oriened activities such as a re-engineering, service relocation and new technology. The focus is on building competitive advantage. Implications for organizational policy makes include the need to seek ways that are change oriented to enhance business processes. Transformational outsourcing offers such an opportunity and is a growing trend especially with regard to corporate planning. Lankford and Parsa discuss outsourcing subject with regard to what it implies in meaning and practice, determinant factor, benefits and disadvantages and factors necessary for success in outsourcing. In definition, it implies organizations procuring services or products that are external to it. In contemporary business processes, outsourcing has been integrated in corporate strategy. Essentially, non-core functions are better outsourced than those that are core. The decision is founded on satisfying that certain functions will be have better, faster, cheaper and more efficient outcomes if outsourced than otherwise. Outsourcing decisions should also be based on organizational information and processes. The article suggests that outsourcing is more positively impactful when it is preceded by business processes re-engineering initiatives. As such, re-engineering should determine the need. Apart from cost benefits, outsourcing enables strategic resource refocusing to core business and needs. However, organizations have challenges determining what to outsource or not and the ability of the outsourcers to deliver competitively. Management should also factor the net cost, impact on culture and response of core competences. This is an information-based decision that requires to be complemented by effective management of relationships and efficient response to outsourcing-related opportunities and threats. This has been demonstated by Toyota Motor Corporation, the largest automaker in the world. With subsidiary firms across the globe, Toyota outsources over 70% of manufacturing functions for their vehicles. In this strategy, it outsources using arm’s-length and partner designs (Kotabe et al.). Arm’s-length strategies are used to outsource vital but non-strategic motor inputs. The partner model is used for procuring high value inputs. For Toyota, the outsourcing strategy is vital for competitive advantage. The combination of both the arm’s-length and partner strategies positions the company in control of the outsourcing relationship especially in quality intensive inputs. As such, there are economies of scale and quality assurance benefits. In addition, Toyota has both internal and external outsourcing. Internally, there are relations amongst subsidiary firms which outsource from each other thus ensuring optimal standardization e.g Southeast Asia companies. Conclusions Outsourcing is a growing trend and a preferred means of procuring services for organizations. HR outsourcing refers to procuring HR functions and services from external entities. Essentially, the greatest hurdle in the outsourcing decision is differentiating between core and non-core functions of organizations. Core HR activities of organizations are best reserved for in-sourcing. Non-core functions may be outsourced leaving the organization with an opportunity to focus on the core competencies. Outsourcing has both financial and non-financial benefits, both in the short-term and long-term. However, reviewed literature indicate a need to have an outsourcing strategy that is information-based, oriented to overall corporate planning and to organizational culture. The HR executives must also focus on managing outsourcing relationships so that the impact of the interaction with organizational characteristics is beneficial. This review proposes that future areas of research should address the efficacy of various outsourcing models in contemporary globalized business processes. Different organizations have used different models and there is need for empirical explorations with the view of proposing standardization of the models. Managers of today also need to know what alternatives are available. Works Cited Brian, K., John, M., and Thomas G., "Outsourcing HR: The impact of organizational characteristics ." Human Resource Management, Vol. 40, No.2 (2001): 125-138. Ian, K., Jackie, C., and John P., "Outsourcing and the employee perspective." Human resource management journal, vol.9, no. 2 (1999): 5-20. Institute of Management Services. Business process outsourcing. United Kingdom: Institute of Management Services , 2003. Irene, B., et al. "HR Outsourcing and service quality: theoretical framework and empirical evidence ." Personnel Review, Vol. 40, No. 3 (2011): 364-382. Jean, W., et al. "Making the decision to outsource human resources." Personnel Review, vol. 38, no. 3 (2009): 236-252. Jeroen, D., and Luc, J., "HR Outsourcing: threat or opportunity." Personnel Review, Vol 37, No. 4 (2008): 543-563. Kotabe, M, M Mol and J Murray. "Outsourcing, Performance, and the Role of E-Commerce: A Dynamic Perspective." Industrial marketing management, vol.37, no.1 (2007): 37-45. Availabe at http://wrap.warwick.ac.uk/4410/1/WRAP_MOL_imm-outsourcing_performance_and_the_role_of_e-commerce_-_final_2007.pdf Lankford, W., and Parsa F., "Outsourcing: a primer." Management Decision, Vol.37, no.4 (1999): 310-316. Linda, S., and Deborah, T., "Outsourcing HR Functions: When-and when not-to go outside." Journal of leadership & organizational studies, vol. 10, no. 1 (2003): 1-11. Schlosser, F., Templer, A., and Ghanam D., "How human resource oursourcing affects organizational learning in the knowledge economy." Journal of Labor Research, vol. 27, no. (2006): 291-303. Read More