Advantages and Disadvantages of Human Resource Outsourcing

Introduction

Several companies and organizations in the world have resorted to outsourcing for Human resources. This has drawn great interest in its effect on the productivity of the various companies. Of significance however is the fact that more companies are shifting to outsourcing, despite having various personnel to manages the human resource department. Interestingly, numerous vendors have since sprung up to offer Human resource outsourcing; this indicates that the shift is fast changing. This paper (1660 words) attempts to investigate the need for, or against human resource outsourcing as well as try to find out the activities that are likely to be outsourced by multinational companies.

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Human resource, management, and outsourcing

Human resource is used in organisations to refer to the function within an organisation that deals with the implementation of the policies, and approaches relating to the administration of individuals, it also refers to the overall workforce; the individuals that make up the workforce in an organisation (Grover, 2006, par.1). Human resources refer to the workforce potential of an organisation and give the capacity of the individuals.

Different organisations evaluate their human resource potential to improve productivity. Human resource management is defined as the function within an organisation responsible for recruitment and management of the individuals or workforce (McLean, 2006, par.3). It also deals with the development and training of the employees (Heathfield, 2010, par. 1). Outsourcing services involves contracting an organisation’s activities to another provider; Human resource outsourcing is always done by major companies especially when it involves offshore recruitment. These multinational companies consider the number of resources and time they can save by contracting (Overby, 2010, par.2).

Reasons for Human resource outsourcing

Many companies do human resource outsourcing for various reasons and this depends on the activities of the companies. However, in most cases, there is a common stand on some of these reasons. The reasons for Human resource outsourcing may include: to lower cost of hiring (Engardio, Arndt & Foust, 2006, par. 2 ); because of the complexities involved in the hiring of potential employees, economies of scale play a major part in this and outsourcing is vital to control the labour rates which relieves the company of the unnecessary costs that could be incurred in the process.

Inadequate in-house resources for conducting the hiring may also be a reason; for companies with complete specializations, they may not have the resources required to recruit; it, therefore, follows that outsourcing will be undertaken, outsourcing for human resources helps the companies control their budgets, and this is possible since they can predict the cost of outsourcing and plan for the future. Outsourcing also saves time, and this time can be put on productivity hence more returns. It lowers the amount of investment used for internal infrastructure; every company has different activities in its budget, these budgets are sometimes tedious and straining to accomplish, outsourcing human resources would help in efficiency since the activities left are manageable.

Human resource outsourcing helps the organisation involved to improve on their human resource management and development of skills; this is because, during the process of recruiting, the company can access skills and resources from the outsourcing company. Outsourced workforce tends to be more effective and efficient in their activities of production, this gives an edge to the company as higher quality production is achieved.

The integration of the modern world has forced businesses to locate globally; this has caused a stretch to the multinational firms, posing them complex challenges on how to embed the different skills, practices and cultures of their potential employees. It is only imperative that they outsource for them since the specialized employment agencies would have a better understanding when dealing with different groups of people (Lam, Gold & Moore, 2008, pp.1).

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The fact that the world is turning global to every multinational company with time due to the advancement in technology, communications and economies clearly explain the cross-boundary that takes place within the businesses, this has exposed diversity in skills required for each area thereby leading to complexities. It calls for an equally complex human resource management that can handle the variations, and can no longer be done fully without the help of the outsourcing agency; otherwise, it would be too involving and may not achieve the desired results (Brewster, Sparrow & Vernon, 2007, pp. 3).

Other reasons for outsourcing are: outsourcings has done for the company to focus on its core activities, to access intellectual gain from the outsourcing company, for contract purposes which are legally binding as opposed to the internal Human resource recruitment (Rothman, 2003, par. 2), an operational specialization which may not be in the organisation. Outsourcing exposes the team to a pool of potential employees (Manning et al. 2008, par. 1).

It also enhances the capacity of the company where they lack the adequate capacity for human resources (Lewin & Couto, 2006, par.4). It can be used as a channel for change since the outsourcing agency can be a sign of the change (Lewin & Couto, 2006, par. 1). The risk is transferred to the outsourcer and thus improves the capacity development of the organisation (Engardio & Kripalani, 2006, par. 3). These among others are clear advantages for Human resource outsourcing for the better management and enhancement of the workforce capacity (Couto et al. 2007pp. 35-37).

Reasons against Human resource outsourcing

As much as Human outsourcing may be relevant, various negative aspects would make it undesirable to organisations. It is outright that a company that relies on outsourcing will have little credit for Human resource management skills. Human resource managers who outsource would less likely get promoted compared to those with equal workforce capacity but does not outsource, this is because the former is never credited with the success but the outsourcing agency (Sullivan, 2003, par. 1).

Generally, outsourcing can hurt the competitive advantage and productivity level of an organisation, because outsourcing depends on outsourcers who in turn depend on vendors. The economic model of corporate businesses is aimed at becoming the best firm with more superior employees than its competitors; this value is undone by outsourcing since the economic model of the vendors allows them to directly provide similar services to other competitors. Others may even develop solutions at the company’s expense then sell them to its competitors, this makes outsourcing unreliable in providing a competitive advantage to the firm.

Human resource also limits the development of the human resource department of the company; the department should be let to develop its staff as this improves the capacity. There is a general thought that outsourcing is cost-effective, but this is rarely realized, and on very few occasions are proofs given for the amount saved, besides the vendors must make profit out of the service, this beats the logic of cost-effectiveness, Outsourcing may then be even more expensive to handle.

Company secrets are vital for its continued success; when outsourcing, company secrets may be compromised and this may negate the company’s image or provide a competitive advantage to its competitors. Other reasons against outsourcing are unstable pricing by the vendors, it eliminates the internal staff and leaves the business at the mercy of the vendor. The company culture may also be too complex for the vendors to understand (Sullivan, 2003, par. 2-17).

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Activities to outsource

Activities in Human resource management are numerous, they include, Staffing, rewards, employee development, employee maintenance, and employee relations. Given the size of the business, it would be advisable for the team of a multinational company to outsource the following activities: staffing; during the initial recruitment, the company would rather outsource as there would be access to a large pool of employees to select. Also, they would most likely be from different parts of the world and would be easier to access than in their respective company centres (McNamara, 2010, par. 1). Another activity that may be outsourced are the rewards, this would be good for the external evaluators and will be more impartial in their decisions as they have no direct contact with the employees (Bratton & Gold,1999, pp.14-15).

In dealing with Human resource outsourcing, the organisation must consider, it’s, size which must be big, to have the financial advantage on outsourcing, the kind of business is also very important; very complex companies would be difficult for the vendors to understand, it is, therefore, wise to outsource those activities that are manageable to achieve the expected outcomes. It is better to use the best of breed approach which involves outsourcing from different vendors, this helps in improving the quality of service as the vendors compete to improve on their services. For better outcomes, the company must also make an informed choice of the vendors by researching them. At this point, the company must prioritise its needs to find the best vendor that fits its requirements.

Summary

Human resource outsourcing is vital for multinational companies to embed the different cultural, cross-national, expertise and access the best of the best in a large pool of employees. Time is saved for the company and it can focus on its other responsibilities to improve its productivity. On the other hand, outsourcing is very complex, it is workable but has its limits, Credit is most likely taken by the vendors and the internal human resource management is limited, this also affects the growth and expansion of the department. Vendors may also cut costs when they start services to lure the company but later revise their prices upwards, causing instability to the company’s financial base.

Conclusion

Human resource management is highly applicable for multinational companies. It is difficult in complex businesses where the vendors may not understand the risks involved. An efficiently managed Human resource outsourcing gives the company a competitive advantage hence maximized returns. However, caution should be when outsourcing to mitigate overuse.

Reference List

Bratton J., Gold J. 1999. Human Resource Management: Theory and Practice. Web.

Brewster C., Sparrow P., Vernon G. 2007. International Human Resource Management. CIPD. Web.

Couto V. et al. 2007. Offshoring 2.0:Contracting Knowledge and Innovation to Expand Global Capabilities. Offshoring Research Network. Service provider Report. Web.

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Engardio P. & Arndt M. & Foust D. 2006.The Future Outsourcing. Business Week. Web.

Engardio P. & Kripalani M. 2006. The Rise of India. Business Week. Web.

Grover,L.,L.. 2006. Advances in Developing Human Resources.Vol. 8, No. 3. Web.

Heathfield,S, M. 2010. What Is Human Resource Management? About. Guide. Web.

Lam A., Gold M., Moore F. 2008. Mn327 International human resource management 2008/09. Web.

Lewin A. Y. & Couto V. 2006. Next Generation Offshoring: The Globalization of Innovation. Survey Report. Offshoring Research Network. Web.

Manning et al. 2008. A Dynamic Perspective on Next-Generation Offshoring: The Global Sourcing of Science and Engineering Talent. Academy of Management Perspectives. Web.

McLean G. N. 2006. National Human Resource Development of HRD: A focused Study in Transitioning Societies in the Developing World. Web.

McNamara C. 2010. Human Resource Management. Authenticity Consulting,LLC. Web.

Overby S. 2010. Outsourcing Definition and Solutions. CXO Media Inc. Web.

Rothman J. 2003. 11 Steps to Successful Outsourcing: A Contrarian’s View. Computer world. Web.

Sullivan J. 2003. The Case Against Outsourcing Human Resource. Dr. John Sullivan’s. Web.

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