Outsourcing has been defined as work done for a company by people other than the company’s full-time employees. In the modern setting, outsourcing turns out to be highly complex and organizations use outsourcing vendors for a variety of reasons. According to analysts, companies usually cite cost reduction as the most crucial reason for HR outsourcing. As companies were discussing how to cut costs in the face of… an economic downturn, many look at outsourcing for some of their HR processes. As the Managing Director of Capita HR Solutions, Wayne Story, rightly puts it, “HR outsourcing is on every HR director’s list of things to do. It has to be driven by the business case though – the right partner at the right time, for the right reasons.” However, some analysts argue that by outsourcing major HR activities, the number of HR jobs is decreasing, others feel that on the contrary by outsourcing these kinds of repetitive and administrative jobs, higher-level HR professionals get the time they need to tackle strategic workforce challenges. With more and more companies looking to rationalize employees on their payroll, manpower outsourcing is slowly becoming the new buzz in many countries. And the trend seems to have hit not just big multinational companies but the public sector and government undertakings as well, though on a very low key yet in the latter. HR services are among the key elements in the enlarging outsourcing game. Recognizing the fact that senior management needs to get out of mundane day-to-day processing work and focus instead on strategic planning, core competencies, customer satisfaction and decision making, a number of large companies, across globe have begun opting for outsourcing of their HR services. Such as playing casino games online through US casino sites. Some of the functions most commonly handed over to outside providers include payroll, benefits administration, background checks, drug testing, recruiting and training. Even small companies that might not get noticed much in big studies of outsourcing trends, turn to outside services to help with such chores. There are a number of issues related to HR Outsourcing. Some of these issues include:

  • The future purpose and contribution of HR because of possibilities of functions being transformed, or partially outsourced, through HRO deals.
  • The strategic and management complexities of HRO deals.
  • Deciding what is “core” and “non-core” in HR.
  • The difficulty that HR has in assuming more strategic or value-adding roles after implementing HRO.
  • The position of off shoring, including job losses and redeployment.

Some organizations believe the HR function is an integral business success factor, but others view HR as over-resourced, inefficient and thus vulnerable to the cost reduction possibilities of HRO.

There are a number of reasons, at both the strategic and operational level, why firms want to outsource HR activities. Many share similarities with the outsourcing of other organizational functions. In particular, demands for increased productivity, profitability, and growth have forced organizations to examine their internal HR processes,HR outsourcing decisions are frequently a response to an overwhelming demand for reduced costs for HR services. Downsizing and tougher competition mean that the HR functions is under increasing pressure to demonstrate value, both in terms of efficiency and effectiveness (Roberts, 2001). Although some elements of the HR functions may have always been performed by external service providers, Brewster observes that a new dimension “is this finance-driven forex brokers idea connecting outsourcing to human resource management – the idea that you can save a lot of money by outsourcing” (quoted in Turnbull, 2002, p. 10). In addition, outsourcing is seen as a way of liberating HR professionals within the client organization to perform the more consultative and strategic role of designing and implementing programs aimed at retaining the workforce and enhancing its performance. Outsourcing HR is also seen as an effective way to bypass organizational politics and improve efficiency. For example, according to the sales and training manager of United Kitchen, a company that has outsourced all personnel and training, the company’s aim was to buy an expert who could maintain an objective view, would not get embroiled in office politics, and yet could call on the support of a wide range of other experts in their own organization (Pickard, 1998). In short, the main reasons for outsourcing HR appear to be fairly consistent (Sisson & Storey, 2000). Typical reasons include seeking specialist services and expertise, cost reduction, and enabling HR specialists to take on a more strategic role. In general, most commentators are convinced that outsourcing is seen not only as a cost-cutting exercise but also as a strategic tool. As Oates (1998) suggests, the outsourcing decision is a strategic one and is generally taken at a senior level.The growing choice to outsource, especially HR services, means that you may soon be in the position of choosing a vendor, or helping to do so. This choice requires great care, as the vendor must be held accountable. If you outsource HR correctly, it can improve service quality, save money and time, and free HR time for core functions.

In general, employers consider using outsourcing for a number of (overlapping) perceived benefits (Shen, Cooke, & McBride, 2004). First, it allows them to concentrate resources on their “core” business activities where they have expertise and are likely to do best. Second, it enables firms to profit from the rising comparative advantage of specialized service providers who may have expertise in the areas concerned. Third, it provides firms with greater flexibility and productivity by using temporary subcontractors to cover fluctuating demands for labor.

This “just-in-time” deployment of human resources also brings other advantages of saving direct costs (e.g., reducing headcount and overtime working) and indirect costs (e.g., cutting administration and backup costs, saving recruitment and training costs, saving absenteeism costs, and reduced industrial relations problems). Fourth, outsourcing creates opportunities for firms to shift the burden of risk and uncertainty associated with the business to someone else

In addition, outsourcing enables firms to keep future costs down by selecting the most competitive tender for renewing the contract.  If the above reasons for outsourcing are predominantly concerned with cost reduction, then the final reason listed here is focused more on capacity building associated with organizational learning. It has been argued that outsourcing relationships can create partnerships between contractors and clients that may facilitate learning and cross-fertilization between the two firms. Writers on organizational learning have argued that learning processes are collective accomplishments that reside in networks that do not respect formal organizational boundaries. The importance of networks and inter-organizational relationships (e.g., alliances, partnerships) is also recognized from the strategic perspective. According to Powell et al. (1996, p. 120), a network “serves as a locus of innovation because it provides timely access to knowledge and resources that are otherwise unavailable, while also testing internal expertise and learning capabilities.” Advocates of the resource-based view (RBV) of the firm (e.g., Barney, 1991; Ulrich, 1996) also believe that outsourcing can be productive to the development of the core competence of the organization – especially in relation to HR practices. The notion of the RBV was “rediscovered” by Wernerfelt (1984) and developed into a more robust theory by Barney (1991, p. 99), who argued that organizations “obtain sustained competitive advantage by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralizing external threats and avoiding internal weaknesses.” As Prahalad and Hamel (1990, p. 84) point out, “outsourcing can provide a shortcut to a more competitive product.