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8/2/2019 HUMAN RESOURCE Outsourcing the Strategy of the Future4
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Rohit Edara
HUMAN RESOURCE outsourcing the strategy of the future.
Preface
It gives me an enormous joy with the completion of my dissertation which remains
incomplete without thanking “invincible spirit” of my late Father, who gave me strength and
blessed me with good health throughout the study process in UK. I can‟t miss the opportunity
to thank my Mother who have always been to motivate and encourage me throughout this
course and otherwise also.
I would like to thank Prof. Neil Robinson for his immense help and guidance during this
dissertation phase. I had a great learning experience with him as he really supported me and
encouraged me each and every time. It is with his support I found this learning phase going
very smooth. I have never seen any professor calling his student desperately to help him as
Mr Robinson and this created strength to complete my Dissertation.
I would like to convey my great thanks to the Employees of IBM for giving me useful
information, which served as a Secondary data for my research. The Secondary data helped
me acquire more understanding about the company‟s Human Resource. Apart from that I
would like to sincerely thank the University for allowing me access into the library to borrow
books of my interest to complete this paper up to this stage.
The only limitation the author had was the Interview, which the author couldn‟t conduct face
to face as due to the geographical distance however author successfully finished it through
telephonic Interview and used the Electronic-Mail to send the interview questions to the IBM
managers
The author chose this topic because he was part of IBM India Private Limited for 8 months
and worked as Technical advisor in ITD-GD process, later he had Data warehouse training
and moved as a Data warehouse analyst. As he had to continue his higher education, he left
the work and came to United Kingdom to do his Masters.
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INDEX
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1. Abstract
1.1 Purpose: The Topic of Outsourcing Recruitment is of major interest in the management
literature as presently recruitment is mainly tied with Human Resource and always been a
hard issue in the organisations, especially in IT Industry. Recruiting quality employees for the
Industry has been important for the growth of the company. The purpose of this paper is to
contribute towards the development of management framework to recruit employees through
outsourcing in IT industry in India.
1.2 Methodology: This paper utilizes Interview Questions to identify the success factor to
outsource recruitment of employees. It also illustrates different view- point of manager‟s
when they want to shift the organization towards outsourcing. The most important
characteristics to be considered by any organization depends on the basic requirements,
reasons for outsourcing and the demands an organization will expect from the third party
organization to which the HR functions are to be outsourced. First literature review is
performed on the topic of HR outsourcing and then based on the interview results, the results
are analyzed in relation with the relevant literature resulting from literature review.
1.3 Findings: As an outcome of the analysis, it has been analysed that IT organisations are
having too many problems while recruitment and Outsourcing has been a solution for betterrecruitment. However there are some obstacles while outsourcing i.e. lack of communication
and relationship between the two firms can lead to disaster. Hence it is advised that the
Human Resource managers have to keep better relation and communication to obtain a better
result. It can also be noticed that instead of outsourcing all the HR functions, part of
outsourcing HR functions is more beneficial. Hence, managers have to consider all the
constraints in-terms of cost, time and the effect on efficiency of outsourcing while opting for
outsourcing. It is also preferable to design some basic requirements to be met by the third
party organization for which the particular organization wants to outsource the HR functions.
1.4 Research Limitations:
Though the Research was successfully accomplished, but there were many limitations in this
research like this research included interview techniques that have to be conducted in India as
the company located there, however due to geographical distance could not conduct face-to-
face interview and had to conduct telephonic interview. In the telephonic interview due to
bad signals had to face lot of obstacles and it‟s been dif ficult to ask the managers to repeat
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what they are saying and apologised each and every time. Some appointments got cancelled
due to the busy schedule of the managers. The research was time consuming and took plenty
time, and also due to the busy schedule of the managers, only some of the managers answered
to all the questions properly. Preparing an analysis report from the gathered research
information was quite difficult and took some extra time to generate the analysis report.
1.5 Structure of research:
Figure 1: structure of research
The structure of the research is followed in steps as illustrated in the above figure. The initial
step is giving an introduction to the topic of what actually HR means. The application of HR
functions is wide in which type of industry. The reason why organizations are shifting
towards outsourcing the HR functions rather than maintaining the HR functions in-house.The main aim for performing this research is stated and the objectives the research is
intended to meet are also mentioned. A literature review is performed to know the work
various authors have been contributed for the field of HR outsourcing. The benefits, pitfalls,
drawbacks identified by different authors are discussed in detail. Some of the suggestions
provided by them which are found to be important along with the empirical evidence of their
findings are considered and an empirical evidence for the idea of outsourcing whether
beneficial or not for the organization is determined. These results are analyzed and some of
Introduction about HR outsourcing
Identification of aims and objectives
Performing literature review
Performing interview based on research
questions
Analyzing the results
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the pre-requisites for the manager‟s moving towards outsourcing are proposed such that the
analysis would be better based on the suggestions.
In this chapter the author describes the main idea of the research, the purpose of carrying
out the research, the research methodology intended to follow. Using the research
methodology, how the topic is analyzed and what a gist of findings and discussion about the
topic HR outsourcing.
2. Introduction
Outsourcing refers to transferring the functionalities of a particular organization to a third
party vendor. Outsourcing helps the organization to reduce the effort involved in the in-house
and also some more benefits are resulted based on the context in which the organization opts
for outsourcing.
Human Resources in outsourcing are increasing its importance in the current market. As there
will be a lot of effort involved in HR management, organizations are shifting towards HR
outsourcing. The number of companies outsourcing Human Resource activities continues to
rise, and the scope of outsourced Human Resource activities continues to expand. HumanResource outsourcing can occur or cause a change in Human Resource functions like
employee benefits (like Health, Life insurance, Cafeteria, Medical, etc), payroll
administration (like producing checks, dealing with sick-time, handling taxes and vacations),
risk management, Human Resource management (like background interviews, wage reviews,
hiring and firing, and exit interviews), etc. Outsourcing may involve some or all parts of HR
functions. Outsourcing has become a common response to manage people and technology
resources strategically, enhance services, and manage costs more effectively. Outsourcing
decisions also have a considerable impact on the strategic planning of the organization in
terms of current needs of the market.
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Figure 2: Different HR functions in IT industry
Outsourcing non-core activities allows Human Resource professionals to move away from
routine administration to a more strategic role. The organization mainly focuses on greater
value-added activities, where as outsourcing provider mainly concentrates on the day-to-day
administration. Value-added activities would be defined as the basic requirements for the
organization to outsource HR functions to a third-party organization. Critical internal
resources, such as technology and talent, can be devoted to company's core business. If these
resources are also outsourced, there is a chance of grater damages for the organization.
Hence, technology and talent are not outsourced by any kind of organization. Outsourcing
reduces the need for large capital expenditures in non-core functions, though some capital is
initially involved for making an agreement with the third-party organization for providing
services. Thus, outsourcing becomes a strategy for reducing the capital intensity of the
business. This strategy has gained popularity as companies aim to become more nimble and
gain the speed and flexibility necessary to compete in today's business environment. In
addition to the benefits gained in terms of capital, outsourcing HR functions will reduce the
effort of the organization to a considerable extent. An increasing number of executives
understand the benefits; the outsourcing strategy can obtain in terms both cost savings and
heightened strategic focus. Most of the people recognize outsourcing relationships to be long-
term partnerships created for the strategic goals of the organization. The partnership benefits
whether short-term or long-term mainly depends on the type of the industry and the type of
HR functions outsourced. If the manager doesn‟t take into account all these considerations
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during the agreement, there is a greater scope occurrence of negative effects for the
organization outsourcing its HR functions.
Organizations outsource their Human Resource functions to the companies to posses the
knowledge and resources. The knowledge and resources are used to perform a part or the
entire client‟s Human Resource function with some kind of expertness involved in them. As a
result the client is allowed to concentrate on generating profits for the core business and
streamline the internal process of that particular company. The client organization should be a
good company (high trust-worthy), as they are allowed to access the internal process of a
particular organization. There is a greater chance of misuse of the internal process
information in such a context.
The intend of this research paper is to critically examine and evaluate the viability and the
impact of the firms outsourcing their human resourcing (HR) functions in IBM India Private
Limited at Hyderabad.
The strategy of the firms to outsource the Human Resource operations and functions to a
third party is critical decision for any company. It is very important to understand why the
companies are increasingly outsourcing their Human Resource operations and whether this
strategy would become the standard practice for most of the organisations in the future, or isit just a current trend arising out of competition. Hence this research is not only important
from an academic point of view, but also from commercial outlook. To make the research
proceed to a commercial view-point, interviews are being conducted in reputed organization
like IBM. The results are thus analyzed to draw conclusions and test the concepts stated by
different authors, collected in literature review.
In this chapter, the author focuses on providing an introduction of what actually HR
outsourcing refers to, what are the various HR functions present in an IT industry. A brief
description of all HR functions and the main reason or motto based on which the
organizations are shifting towards HR outsourcing.
3. AIM:
The central aim or the main focus of the research is to:
A. To investigate the risks and benefits of outsourcing recruitment systems at IBM India
(Hyderabad).
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4. OBJECTIVES:
To facilitate the better understanding and the methodological evaluation of the research
objectives, the research paper would analyse the following topics.
To critically review the literature associated with Human Resource management, with
specific reference to recruitment.
To carry out primary research associated with outsourcing recruitment within, a
large multinational IT company.
To draw a conclusion and make recommendations in relation to the outsourcing of
recruitment systems as employed at IBM India (Hyderabad).
The analysis of the topics is mainly based on the research questions employed in
interview, to meet the above stated objectives.
4.1 Purpose of Study:
The purpose of study is to understand the outsourcing of Human Resource and to analyse the
benefits and the risk of Human Resource outsourcing and to know if outsourcing can be the
strategy of the future. This research includes a primary interview with the employees of IBM
PRIVATE LIMITED. The interview in this study is about to know what factors thatoutsource the Human Resource in their company.
This topic would evaluate the theoretical concept of the Human Resource outsourcing. It
would also examine the reasons why the company(IBM) decide to outsource some of the
Human Resource functions like payroll, legal and pensions also to understand the advantages
of Human Resource outsourcing to a third party which is cost reduction, increased efficiency,
external expertise, access to improved IT system. This would also evaluate the disadvantages
like exposure of sensitive information, loss of complete control, fragmentation of services.
Hence in order to accomplish this aim, the study focuses on Understanding the research
factors - HUMAN RESOURCE OUTSOURCING: STRATEGY OF THE FUTURE?
This chapter discussed about the Human Resource outsourcing, its work profile and also
clearly explained about the Human Resource Outsourcing, in which the research was
conducted. The aims and objectives of the research were given step by step which would be
dealt in the following chapters.
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5. Research Methodology:
5.1 Research philosophy and approach:
Since the research involves working with observable reality of the effectiveness of the
Human Resource outsourcing, the research paper is influenced by the positivism philosophy
(Mark Saunders). Positivist approach would be used to evaluate the extent in which the
findings of this research can be generalised for other companies. However insight into finer
complexities is lost in creating law like generalisation, hence interpretive approach would
also be used to understand the social factors which cannot be quantified.
„Deductive theory represents the commonest view of the nature of the relationship between
theory and research‟(Alan Bryman 2007), hence deductive theory would be used. However,
the deductive approach has a rigid structure; hence to overcome this problem theory forming
approach i.e., inductive approach would be used along with deductive approach.
5.2 Research Method and Strategies:
The research involves the gathering and analysis of qualitative data in a enhanced manner,
This model approach would be suitable for this type of research because it uses qualitative
data. This approach also helps in triangulation of data which gives a more balanced and
exhaustive picture of the scenario (Altrichter 2006).
5.3 Data collection methods
5.3.1. Secondary data:
Secondary data will be sourced from newspapers, articles, and trade journals. Online
academic database like e-library (Salford University) will help in data mining. The
professional Human Resource specific magazines like Human Resource magazines from
Society for Human Resource management will aid in the research. The secondary research is
the technique of gathering information from the secondary sources like the literature reviews
and articles. The secondary research contains the views and opinions of different authors
about the Human Resource. Secondary research exists when there is need of summing up the
gathered information. It is something different from the primary research in which the
information is directly collected from the recipients, whereas, in the secondary research, the
sources are already in existence. These sources include the reports of the already done
researches, and also information from the newspapers, magazines and trade journals. Hence,
the secondary research is useful in the level of research
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5.3.2. Interviews:
Purposive sampling method will be used to conduct direct interview with 4 Human Resource
managers of IBM and pilot study will be done with the IBM employees before sending the
questions to the IBM managers as they are from highly professional background. . The
questions are being sent to the individual employees in the organisation via emails five day
before for the pilot study and one day before for IBM managers. The questions given to the
managers are regarding the employees work environment and reasons for outsourcing Human
Resource, Potential benefits to Employees, customers and the providers, their growth
opportunities, training, managers, what way the Outsourcing gets motivated in the company
and can withstand in the company for a long period Presently Author is in United Kingdom
so couldn‟t conduct the face to face Interview, however got an opportunity for telephonic
interviews from the IBM Managers.
5.4 Validity & Reliability:
The questionnaire collected and the interviews taken were genuine. There was no misuse of
data in this research. The author provided the relevant data provided by the employees and
had made this research more precise and accurate. Through questionnaires and interviews
from many employees represents
5.5 Benefits through the research:
It provides assistance in understanding the use of various resources and other information
resources. It allows in evaluating the literature critically, helps in the development of
extraordinary abilities and interests. It is used to develop a kind of consciousness regarding
the explicit requirements of the research procedure which is essential for the research.
Table 1: Research methods with motivation
Research method Motivation
Literature review To bridge a gap between the existing literatures regarding HR
outsourcing with the current research carried-out.
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Interviews To answer the research questions relating to the advantages,
pitfalls and pre-requisites if there exists any.
Data analysis To draw a conclusion based on the results obtained from
interviews by linking them with the available literature.
This chapter clearly explained about the design of the research, the types of questions used
and how much time was given to the employees of the organisation. The author got generous
answers from the employees and the author wrote the validity and reliability of the research.
6. Literature review:
The literature review for this research paper would be developed completely out of secondary
data. To undertake the literature review the main research question has been divided into
following sub topics
6.1. What is Human Resource outsourcing?
According to Cook (1999) Human Resource outsourcing refers to “Having third party serviceproviders or vendors furnish, on an ongoing basis, the administration of an Human Resource
activity that would be normally performed in-house”. Human Resource outsourcing do not
implies that the firm outsources the Human Resource operations to a third party, but the firm
can decide to do a selective outsourcing and outsource the functions like payroll
management, legal activities and pension functions and recruitment system.
Human Resource outsourcing is the application of different business models and techniques
to new forms of activities - or processes – and radically redesigning them to create outputs of
value for end users such as customers or employees. Business process outsourcing (BPO) is
based on the principles of re-engineering, but also combines them with the ownership and
management of processes on behalf of management by an outside vendor.
Business Process Outsourcing (BPO) has been applied to many transactional processes that
can be easily defined or 'scaled' and transferred to third party ownership with deeper expertise
than them. Until recent times, the management of IT systems has been the major element of
the outsourcing market. The current debate in business area has the main focus on business
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processes which are considered as „core‟ to the organizations, in terms of core competencies
that result or drive towards competitive advantage. Any non-core or peripheral activities are
outsourced such as the operations in the IBM Integrated Technology Delivery-Global
Delivery (ITD-GD) sector. Typically,
• Services are improved
• Overheads are reduced
• Many processes are automated - thus reducing people
6.2. The trend in Human Resource outsourcing practices
The companies tend to outsource only the administrative functions to the service providers,
whilst retaining the important functions like training, staffing and employee management.
According to Rothwell (2008) pay roll management, pensions and legal management are
some of the functions which the companies that prefer to outsource. The reason for
outsourcing is to reduce costs through suppliers volume purchasing, lower cost structure and
enhanced expertise. SLA (Service Level Agreements) provides measurable cost/benefit
analysis against pre defined productivity levels. Improves the cash flow as credit obtainedthrough costs being invoiced by provider also by which admin costs and head count can be
reduced. The main reason of this practice is that companies can focus on and exploit core
skills.
6.3. The challenges in outsourcing the Human Resource functions
The Human Resource outsourcing decision has various different challenges which should be
considered before its implementation. Outsourcing the non-required functions is a key
challenge, the service providers have to be reimbursed for the services provided, and hence
the companies must be careful. The contract lengths are of higher period, the contracts must
be signed after evaluating the requirements of the company.
6.4.Impetus for Outsourcing
There are 3 major elements that have provided an impetus for outsourcing Human Resource,
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Cost
Competence
Capacity
i) Cost: As discussed earlier in the research, cost is one of the reasons for outsourcing the
Human Resource. There is a perception that financial saving are likely to be made because
vendors, who supply a training program to different customers could offer benefits due to
economies of scale(Walker and Weber, 1984). The technology is growing and getting
advance, some businesses are choosing to move their entire learning function to large
service-centre facilities, which influence high costs among many clients(Harris, 2003;
Beausang, 2004). IBM is one of the provider of Business Process Outsourcing(BPO)
service for firms. Gainey and Klaas (2002) suggests that saving money should only be
considered an secondary outcome of outsourcing in the training area, rather than as its
primary purpose.
ii) Competence: Organization‟s access will increase to a diverse range of specialists and experts with
the help of outsourcing (Csoko, 1995; Woodall et al., 2002). Majority of the organizations fail to
keep track of the rapid technological changes, legal changes and other changes due to lack of
internal resources (Hoskisson and Hitt, 1995). Use of trainers from other areas with less currencyrates ensures profits to the organization and can be considered as a good employment practise
(Buyens et al., 2001; Gainey and Klaas, 2002). This practise is very crucial for small and medium
sized enterprises (Tyler, 2004), as they are more likely to offer best practise solutions through
external training. The main driving force for which a particular organization chooses or opts for
outsourcing is the concentration of the organization on core competencies. Firms can focus only
on scarce resources during product development (Tyler, 2004; Woodall et al., 2002). The most
likely business areas are support functions, which are outsourced, necessary for operational
purposes, but may be of very little interest in terms of customer view-point (Hale, 2006)
iii) Capacity: More business case for outsourcing Human Resource is mainly seen in response
to a threat evaluation of demand uncertainty. If a company leans on an internal Human
Resource function, it will bear the cost related with upsizing or downsizing as demand
fluctuates (Tyler, 2004; Woodall et al., 2002). Outsourcing enables organisations to
respond more rapidly to changing market forces.
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6.5. Barriers in Outsourcing:
There are some key factors which act as a barrier for outsourcing Human Resource
operations, according to the Hewitt Associates survey (2009) the main barrier to outsourcing
is lack of funds, the service provider enter into a lengthy and expensive contract due to the
nature of the service which many organisations cannot afford. The company tends to lose a
degree of control over the Human Resource function outsourced, hence they are unwilling.
The employee‟s reaction to a third party handing the Human Resource functions is also a key
barrier.
In spite of the large amounts of benefits the organization may obtain with the process, there exist
certain shortcomings if not handled correctly.
i) Culture: Some of the organizations may be best suitable or comparatively better suitable for
outsourcing. The main factor that affects organization‟s culture for outsourcing is the culture
between the organization and the learner‟s. Industry-generic programmes are more suitable
compared to non-generic programmes, as they help the supplier‟s to understand the culture of the
organization easily as the learner‟s will adapt to similar culture (Klaas et al., 2001). Barney (1991)
suggests that the knowledge and experience of organization‟s members must be articulated so thatthey can be used effectively by other members entering the organization through outsourcing. Hence,
external training is less effective than retaining the HRD function in-house.
ii) Trust: Outsourcing agreement may create an opportunistic environment with external suppliers.
Gainey and Klaas (2002), warns that leaving suppliers on their own may create an unhealthy
environment of power and control within them. Ulrich (1996) identifies that outsourcing may limit
the firm endangered in the underdeveloped state of experience and knowledge. Instead of the over-
reliance of organizations over off-the-shelf training (Kaeter, 1995), courses should be tailored to
fulfil the learner‟s and the corresponding organization (Gainey and Klaas, 2005). Walton (1999),
states that the external developer will encounter problems without the help of internal support from
the organization. Hence, the thought of moving an organization entirely into Human Resource
functions could be hazardous.
6.6. Managing Outsourcing:
i) Prioritize: The strengths and weaknesses of the internal training department should first be
recognized to set up which parts of the function would gain from moving to a outside
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company, however in general leadership of the function should never be outsourced rather, as
Nilson (2003) suggested that an analysis of employee needs, and effective methods for
transferring their knowledge for the benefit of the company, should be undertaken in the first
instance.
ii) Select: Deterring which aspects of the Human Resource function has to be outsourced, the
organisation like IBM has to carefully select its providers. One of the best method is to utilize
a path of broker, who can introduce the outsourcing company to potential vendors however
there are some risk of this approach i.e. many training providers have dual role as broker and
provider, vested and conflicting interests could result. A formal Request for proposal(RFP)
document sent to potential vendors will may assist at this stage(Nilson, 2003). The benefit of
this move is to require greater quality concerning the needs of the host organisation. Hale
(2006) suggested that it is important to manage expectations and clearly outline aspects of the
working relationship from the beginning. A Service Level Agreement (SLA) should confirm
useful in this regards.
iii) Reliance: Once the vendor has been selected, it is necessary that the organisation manages
the bond in a manner that facilitates a close, trusting partnership. In a survey by Gainey and
Klaas(2002), respondents who indicated a high level of trust between themselves and their
training provides also reported high levels of performance and high level of overall fulfilment
in there bond. Gainey and Klaas(2005) also suggested that in the absence of the trusting
relationship the supplies might be more liable to engage in opportunistic behaviour that might
prove damage to the host organisation including disclosing private details to other clients.
Reliance can be build by frequent communication between the organisation results in a clear
understanding of each other needs and capabilities as well as a greater sense of loyalty and
this will lead to a strong trust between the two firms.
iv) Monitor: In terms of evaluation, corning sought critical reports on the outsourced Human
Resource outsourcing function from a number of departments in the company (Heraty and
Morley 2000). It uses various critical measures to check that the outsourcing Human
Resource function was performing successfully. These includes flat budget, development of
new courses; a low rate of course cancellations from beginning to end and on time course
evaluations (Wang and Spitzer, 2005). A better procedure must be implemented to enable
management to monitor and to evaluate obedience to the outsourcing contract, which reduces
the error in the future.
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v) Quality Level of service: Develop a clear understanding and quantification of the type and
the level of service being given with the current provider, then come to a clear understanding
of the type and the level of service that will be acceptable in the future.
vi) Quantify the outsourcing goals: It is important to define goals explicitly. Without
measurable goals, it will be impossible to quantify current results, or to define the level of
service required in the future.
vii) Look at long and short terms: Costs and other factors vary in importance, depending on
the time period involved. Start-up costs, flexibility, reversibility and termination fees will
vary greatly, according to the terms of the contract.
6.7. Future of the Human Resource outsourcing practice:
Kostova and Roth (2002), study shows that at present only the bigger firms and multinational
corporations have adopted the practice of outsourcing their Human Resource functions, it is
yet to gain acceptance from the medium and smaller sized firms. However according to the
Survey conducted by Hewitt Associates (2009), at present about 58 percent of the
organisations believe that reducing the Human Resource operating costs is the top most
priority for the company and 44 percent believe that reducing the costs would be the 2nd
most
important function of the Human Resource in future. Outsourcing the Human Resource
functions is the only effective way to reduce the Human Resource operating costs; hence the
outsourcing practice would be employed by more companies in future.
6.8. Intangible costs
A number of large and medium-sized organizations have started outsourcing the HR routines
over the past decade. Organizations found HR outsourcing as a way of releasing in-house HR
to function more strategically, and reduction in amount of capital involved for HR.
In HR outsourcing, only few HR functions are outsourced, while the others remain in-house.
There may be dangers involved in this kind of situation as the management of all the HR
functions will become complicated because of the irregular distribution of the HR functions.
Some of them are listed below:
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1. Organizational change
2. Good recruitment practice
3. Transactional aspects
1.Organizational change: The main problem involved with outsourcing is organizational
change. The HR functions are outsourced to another organization, where the organizational
policies and the structure of work may vary. If a part of HR function is outsourced, it would
be difficult to achieve organizational change, as the HR function must fit into the
organization within a small portion, where the HR function is being carried out. HR‟s
relationship with workforce is mainly based on the trust gained through constant
communication and interaction. In outsourcing, most of the trust building activities such as
recruitment and selection, training and development, pays and benefits are involved which
are considered to be transactional tasks within the organization. When the connections are
lost, it would be difficult to make the workforce accept the major organizational change.
Moreover, there is a chance that the contracted people involved in HR outsourcing may
standardize all or some parts of its services to achieve a considerable profit over the scale of
clients linked with the company. If this occurs, there is a chance that the client‟s unique
organizational characteristics may not exist as such. Hence, the organizational change related
to a particular organizational may be in danger if the organization wants to implement HR
outsourcing.
2.Good recruitment practice: A good recruitment practice involves the intended employees to
know about both the positive and negative aspects about the job in advance. When the
recruitment is outsourced, there is a chance that the persons involved in this recruitment
process may be an outsider, not an employee of the client company for which the recruitment
is being made. The person‟s responsible for conducting recruitment need to educate the
intended employees about the nature of the job. If the outsiders conducting recruitment are
unaware of the details about the client company, they may provide the intended employees
with inaccurate information. If the employees join the organization with the information
based on inaccurate information, there is more chance for them leave the organization as their
needs are not met. In such situation, it becomes expensive for the client organization to
undergo a second round of recruitment. Hence, good recruitment practice is one of the major
factors affecting the process of HR outsourcing.
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3.Transactional aspects: Outsourcing the transactional aspects of HR emits the opportunity
for the HR personnel to get trained in the area of outsourcing. This results in a case where the
HR professionals lack sufficient knowledge to handle the entire HR management of the
organization. When the HR staff progresses to managerial level with this insufficient
knowledge, they will not have appropriate familiarity with the HR functions being outsourced
by the organization and the track of the records. Hence, the person at the managerial level
needs to take personal interest to know about the HR functions outsourced, and the way they
are handled in the outsourcing company, to manage them appropriately.
Implementation of HR outsourcing can cause more rigidity in practice. For example,
when payroll function related to HR is outsourced to a company, payment for the services to
be carried out by the outsourced company may be on a pre-transactional basis. Any special
request or customization may involve extra charge or subjected to extra charges for this extra
service. For example, if an organization needs to have an additional pay cycle for a month,
and did not have the chance of writing it in the contract at the time of outsourcing, as this
would take place once in a year or so and the exact month cannot be pre-determined. It could
be considered as an additional request and the outsourcing company may pose extra charges
for carrying out this task. If the payroll function is not outsourced, it will be an in-house
operation. It would be easier for the organization to handle the task compared to handling thepayroll function when it is outsourced.
Having in-house payroll functions in an organization can suit operational needs. Some
of the organizations reshuffle the employees frequently. This is highly probable in
manufacturing, where the variations in product need to be handled at short notice to meet the
customer demands. Redeployment and rescheduling of shift patterns of the organization at
various locations will have a major impact on the payroll management of that organization. In
such situations, handling the payroll in-house would be beneficial as it would be complicated
for the outsourced company to explain and send a list of all the changes taking place within
the organization. As the management of the organization will keep track of all these changes,
it would be easier for the in-house HR team to handle such type of situation. Moreover, if
there occurs any mistake in keeping track of these changes by the outsourcing company and
wrong payroll is given to the employees, it would become a major problem. For example, if
an employee fails to receive the extra amount for which he is eligible for working extra large
hours, it may lead to problems such as high level of employee dissatisfaction etc. It may also
lead to lower productivity, greater frustration which in-turn affects the work performed by the
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employee; leads to less turn-over and decrease in efficiency for the organization. The
employees may also leave the organization due to dissatisfaction, which results in greater loss
for the organization.
HR can be better delivered with its roles such as policy executor, change agent
guardian of good employee-employer relation, and developer of organizational culture, when
it is integrated completely. Synchronized and integrated HR functions results in getting
maximum from the employees working with that organization. The connections within the
HR functions make everything possible like downsizing or change management. As HR
functions are interdependent (or highly integrated) on each other, failure in any one of the HR
activity leads to reduction in the subsequent HR activities.
Organizations should take more care at the time of decision-making whether to
outsource the entire HR functions or few parts of them, as they will have a major impact on
the organization‟s success. A shared service could be a better option in some cases, as the HR
functions will be in-house and simultaneous cost saving can be achieved by incorporating
transaction-based activities at one place within the organization.
The important driving force for any organization in increasingly competitive world is
the reduction of costs for gaining higher profits. The main reason for the companies to opt forHR outsourcing is cost-saving. The intangible implications of outsourcing some or all HR
functions can be hard to understand and even hard to quantify.
This step in the research is carried out to meet the objective of critically reviewing the
existing literature specific to HR recruitment outsourcing. The main HR function considered,
based on which the research is being carried out is the HR learning and recruiting function.
Although all the HR functions are mentioned in the literature review, because of the time
constraints involved for carrying out the research, it is restricted to only one HR function
from the four HR functions stated.
In this chapter, the author discussed about the different kinds of benefits/loses that an
organisation can face by outsourcing the Human Resource and the reasons outsource
Human Resource in a step by step manner and also about the importance of Human
Resource. Apart from these gave a brief description on major things involved in Human
Resource outsourcing.
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7. Findings and Discussions:
The findings of the research would be based on the primary data obtained though the semi-
structured questionnaires used in the interviews. Secondary data would also be used for the
analysis of the findings; usage of this methods would help in getting unbiased perspective on
the topic, as this program has different statistical functions which aid in inferential and
detailed analysis of the data. To infer the data obtained though focus discussions and
interviews, WEFT QDA would be used as the program allows free range coding and is much
more convenient to use as compared to other programs which follow structured coding.
7.1 Questionnaire:
The following common questionnaire is prepared for the interviews. As a part of it, 4managers are being interviewed; hence the analysis of all the questions are mentioned in the
form of replies for research questions 1,2,3,4,5. The managers are represented by M1, M2,
M3, and M4.
Q1. What are the reasons to outsource Human Resource, learning and recruiting IBM
employees?
When this question was asked all the managers perception were positive on outsourcing
Human resources (HR), M1,M2 suggested that learning and recruiting outsourcing can help
IBM to address HR learning and recruiting challenges, including mounting costs,
overwhelming administrative workloads and increased complexity. M1 and M2 are totally
related to the literature review. M3 and M2 mentioned that outsourcer is integrating
experienced HR recruiting and learning specialists with proven processes and technology for
the organization. Their services are designed to deliver a high-quality employee and manager
experience based on IBM policies in conjunction with their extensive knowledge base.
M4 was totally agreed with the outsourcing of Human Resource, learning and recruiting, M4
said that while outsourcing a part of IBM HR Recruiting and Learning process, Human
Resource team can focus on strategic initiatives while the outsourcer focus on improving
efficiency and productivity to help manage costs, increase accuracy and efficiency and
support IBM need for speed and flexibility.
M1 said that outsourcing to the third party could transform the recruitment outsourcing
services that enable IBM to be focus for acquiring quality talent before IBM competitors can
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Q4. How does IBM maintain the relation with the third party?
This question was asked because relation has an important part in outsourcing and it can
create obstacles between the two firms. When this question was asked to M1 his response
was good relation between the two firms is very important, IBM believes in long term
relations and during that time the attitude, behaviour, communications and expectations of
both the company and the provider will have huge impact on the success of the whole project.
It could be any relations not only Human resource and keep this relation the Human
Resource outsource provider need to show commitment- in time, resource and consistent
effort- to keep it on track and to allow it to flourish. M2 mentioned that relationship between
two firms is by far the most common cause.
Q5. How does IBM choose their outsourcing third party company?
This question was asked because author is planning to start a logistic company and was keen
to know how the third party is selected and not only for the author but also for any company
this question arises first. M1 answered it beautifully by saying if big and established firm,
they many not give attention to every minute details of business that require and if we choose
a newly startup advisors, they may not have in-depth experience or expertise to offer best
advices for the company benefits and said the good outsourcers are those who do not only
takes your side but also be the guardians of your firm.
Bigger outsourcing firms does not always solve the purpose and there are plenty of
outsourcing firms that can help the business and they are available in all sizes, from a
relatively bigger firms charges a large amount of fee to the independent individuals. M1
suggested that “ when you have a deal with the third party, you should get for what you
pay”.M2 and M4 said that in there observation firms usually get great service from smaller
but not from and popular firms not said not to make decisions from there names. M3 said that
it is not always right that only the firms charging high from you will offer you great services.
M3 also said it is important for you to double check the previous clients of your prospective
sourcing firm who have hired services for negotiated outsourcing deals for some continuous
duration. You can rely on those references to know whether the advisor's service was worth
taking or not. And you can trust what is said by the people whom you have known.
M2 said that you should know that your outsourcing firm should take interest in your affairs
and think about your benefit largely, not theirs and you have to investigate their past
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relationships with vendors to ensure yourself that you are going to receive an independent
service, a service that is fair and trust worthy.
M1 said that to take a closer look at third party methodologies, which means closely observe
the processes and strategies adapted by the advisors. The advisors maintain their record of all
approaches they have made towards enterprises throughout the outsourcing life cycle. The
better the advisor's tools, the better and more expeditious the sourcing process will be.
Important thing to remember, one size doesn't fit all.
When this question was asked, M1 was very impressed by the author and said he will help the
author in the future for any of his business projects.
A brief summary of various characteristics based on which the HR outsourcing decision is
made are summarized in the below table.
Table 2: Characteristics affecting decision making in HR outsourcing
Characteristics Maximum number of common results
from managers M1, M2, M3, M4
reasons To handle HR learning and recruiting
challenges including mounting costs,overwhelming administrative workloads and
increased complexity.
demands Delivery a quality employee, manager and
HR professional experience, whether through
the web, voice, chat or email able to handle
any kind of complex situations faced by the
organization.
Outsourcing for future Positive impact on the organization provided
the third-party organization is selected based
on pre-requisites.
Factors affecting the relationship Attitude, behaviour, communication,
commitment-in-time and effort, resources are
the major factors considered to maintain a
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good relationship between both the firms.
Important factors for choosing third party A lot of conflicting opinions are observed in
this case. It may be based on size and
reputation of the organization or based on the
previous records of the organization
providing outsourcing in similar field.
From the above table, it is clearly evident that it is a difficult task to generalize the factors
based on which the third-party organization is to be selected, instead some of the suggestions
can be made which may be useful for the manager to consider while performing outsourcing.
Some of the factors like reasons, demands and factors affecting the relationship between the
firms can be set as pre-requisites, but it is difficult to know the exact basis on which the
decision is to be made for which third-party organization is to be selected for HR
outsourcing.
The below diagram summarizes the managers opinion in relation with the literature review.
Figure 3: Managers opinion on different questions
7.2 Discussions:
HR learning and recruiting challenges are the main reasons for the organization to opt for HR
outsourcing. From the interview conducted in IBM with various managers as subjects, it is
Managers Opinion found in
Literature review
Managers opinion not found in
Literature Review
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2. Adapting to industrial needs i.e., to a variable model as proposed by the organization.
3. Knowledge of the latest technologies currently used in the market.
4. Usage of advanced analysts to make better business decisions.
In outsourcing, culture is also considered as one of the barriers. The outsourcing organization
must be flexible to adapt the organizational culture of the main organization that is
outsourcing its HR functions. If the organizational culture is not flexible, the outsourcing
organization will not be able to keep track of the changes taking place in the organization and
the process of HR learning will remain incomplete. Hence, while selecting the outsourcing
organization, the manger must consider the demands involved to overcome the culture barrier
of the organization.
The impact of near future of the organization on the basis of moving towards outsourcing is
determined before-hand. If there is a positive impact for the organization on choosing the HR
outsourcing in-terms of cost, effort or efficiency, then the managers will opt for HR
outsourcing. The manager also expects active participation of the experts involved in
outsourcing by the third-party organization in business strategy planning. As experts or
professionals with maximum knowledge in the field are to be involved by the third-party
organization based on the demands of the organization, this would be beneficial for
organization in decreasing the complexity involved, decrease in cost involved and availability
of experts in strategic planning, which will have a greater influence on the success
functioning of the organization.
If outsourcing is prevailing in the organizations and growing at a rapid rate in current market,
there is a possibility of occurrence of both positive and negative effects for the organization
based on the context. If proper care is not taken in the selection of third party organization,
there is a greater chance of occurrence of disaster which may have its impact on entire
organization. The effect may be in-terms of decrease of cost, efficiency, labor etc. If the
selection of third party organization is done in a correct manner, it leads to positive results
and the process of outsourcing will be beneficial for the organization implementing it
(outsourcing).
Another important factor to be considered while selecting the third-party organization for HR
outsourcing is the way in which the organization wants to maintain relationship with the firm
for which HR outsourcing is made. There are some factors or characteristics that may affect
the relationship between both the firms involved in outsourcing i.e., the organization intended
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to perform outsourcing and the client or third-party organization. The factors and a brief
description of each factor are mentioned below.
Attitude: Attitude of both the organizations in recruiting and providing training to the
employees should be almost similar.
Behaviour: The behaviour of both the organizations towards handling a particular
problem should be similar. As this is not practically possible, it is advised to involve
managers of the organization to tackle such situations and maintain a co-ordination
between both the firms.
Communication: There should be both synchronous and asynchronous
communication maintained between both the organizations. Some situations need
face-to-face communication such as handling major problems occurring during the
learning of organizational process. Changes made in organization can be reported to
the third-party through e-mail as it consists of experts or professionals who can easily
understand the changes. In such situations, asynchronous communication is
recommended. Hence, a good communication is to be maintained between both the
firms whether synchronous or asynchronous communication, based on the context.
Commitment-in-time: The third party should deliver its services to the organization in
the time set by the organization. If there will be a lot of misses for the time-lines set
by the organization, it may lead to negative impact on the third-party organization.
Thus, the relationship between both the firms may not last for long.
Commitment-in-effort: There will be a change in the effort involved for handling HR
outsourcing by the third-party organization. Sometimes the effort involved will be less
as there will be no change in the organizational structure. At times, when the
organizational structure changes, there will be extra amount of effort required, as first
the organizational change is to be studied by the experts and then it is to be explained
to the employees involved in HR learning process.
Resources: If the third-party organization is a small-sized industry, there may be a
possibility there will be lack of resources because of which a problem may occur for
both the firms. Hence, all the resources requested by the organization have to be
provided by the third-party organization to maintain a good relationship with the
organization.
The general or overall basis of initial selection of third-party organization for outsourcing is
different for different managers. The size and the number of years from which the third-party
organization is established plays an important role in the selection of organization out-
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sourcing, as it can be considered as a factor affecting the trust of the organization. If the
organization is well-established, there is a greater scope for trust factor in this case for the
selection of third-party organization for HR outsourcing.
Another basis could be the amount of services and the efficiency with which the organization
can perform or handle HR learning and recruiting challenges. The manager expects best
results for the amount he is been paying for the third-party organization for outsourcing the
HR function.
Another important factor that can be considered under the category of initial selection of
third-party is based on the success criteria of that particular organization in handling HR
functions. If the organization did not handle any HR outsourcing for other organizations
previously, in such a condition, it is preferable to check the in-house management of HR
functions for the third-party organization. In this particular context, the statistics of the
organization in managing HR functions for its organization are considered. The main factors
for which these statistics are verified are the efficiency, cost, problem handling skills during
organizational changes etc.
It is clearly evident from the findings that the major characteristics based on which the
decision-making is made for the selection of third-party organization are the reasons,
demands, impact in near future, factors effecting the relationship between firms and the basic
factors involved in the selection criteria.
From the literature review and findings from interview, it is evident that outsourcing a part of
HR functions could be more beneficial for the organization rather than outsourcing entire HR
functions. The organizations adapting outsourcing some HR functions are benefitted in terms
of cost, capacity and competence. The organization may pose some demands on the
outsourcing organization to obtain the desired benefits from the outsourcing organization.
Posing certain demands may also help the organizations to overcome barriers such as culture
and trust.
The summary of the discussions is represented in a diagrammatic format for easier analysis
and better understanding of various characteristics that effect the functioning of the
organizations (especially in IT industry). Figure 4 illustrates that HR learning and recruitment
is a sub-category of HR management function which is one type of HR functions existing in
any IT organization.
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to all market size. Competition is a good obsession; it can help to drive down costs while also
offering choices for businesses that will enable all segments of the market to select providers
that meets the company need. Outsourcing is a firm tool that can grow the firm business and
even can loose the business; it‟s a business tool like all tools that must be used properly to get
the best results and to achieve success in outsourcing. There are two main areas that have to
be addressed when outsourcing one is communication during the outsourcing process and the
outcome of outsourcing.
In this chapter Discussions & Findings, the author discusses about the questionnaire and
about the results by showing the percentage of answers on graphs and will comment on each
and every question. This chapter also discusses about Demands of client and suggests the
ways and shows the present situations of the Human Resource Outsourcing by the
Questionnaires and Answers. This chapter provides a brief discussion based on findings in
relation with the literature review based on HR outsourcing. It also summarizes some
important lessons to be considered while performing HR outsourcing by the manger.
9. Future Work:
This chapter gives a brief description on the various directions in which the proposed
research can be continued, some ways in which the research can be performed and some
better ways in which the research can be carried out by other researchers contribution for
the field of HR outsourcing.
In the research mentioned above, all the HR functions benefits, and pitfalls are not discussed.
Only one HR function i.e., HR learning and recruiting is validated in industry. There is a
possibility that all the HR functions can be validated with respect to a single organization or
more organization in-order to draw common conclusions on the effect of HR outsourcing. It
is also possible to validate the results of IT industry, whether applicable to other industries
such as telecom or gaming industry. If the results differ, what are the main constraints that
effect or deviate them from that of IT industry? If dynamic validation i.e., conducting an
interview is not possible, static validation can be provided by conducting surveys to support
your suggestions. Performing case-studies depicting various conditions and constraints to
demonstrate the benefits of HR outsourcing would be preferable and more suitable for
providing the dynamic validation about the described proposals. This will help the managers
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