Outsourcing
Determining future HR requirements Determining future HR availabilities
Determining gaps
Developing action plans
Overview of the HR Planning Process (Noe, 2020)
Outsourcing
Contractual relationship for the provision of business services by an
external provider
An organization contracts with another organization to provide services or
products of a major function or activity
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Offshoring, Nearshoring, Homeshoring
(Snell, 2020)
Offshoring
“global outsourcing”
The business practice of sending jobs to other countries
Nearshoring
moving jobs nearer to one’s home country
Homeshoring
Outsourcing work to domestic independent contractors who work out of their
homes
Business Process Outsourcing
the practice of contracting a specific work process or processes to an
external service provider
Types based on provider location:
Offshore
Nearshore
Onshore
https://www.smartsheet.com/everything-you-need-know-about-business-process-outsourcing
Outsourced HR Functions
HR functions most likely to be outsourced:
Compensation
Training
Recruiting and selection
Health and safety
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Outsourced HR Functions
Compensation: Recruitment and Selection:
Payroll Advertisements
Benefits Screening of applications
Compensation administration Testing
Pension Reference checking
Preliminary interviews
Executive salary negotiations
Exit interviews
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Outsourced HR Functions
Training: Health and Safety:
Program delivery Employee assistance programs
Program design and development Wellness programs
Training consulting
Training needs analysis
Program evaluation
Strategic planning
Administration
Training policies
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The Reasons for Outsourcing
Financial savings
Strategic focus
Access to advanced technology
Improved service
Specialized expertise
Organizational politics
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Financial Savings
Cost reduction averages to 15%
Offshore salaries are lower
Economies of scale can be achieved with specialized vendors
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Strategic Focus
Outsource transactions and insource transformations
Focus on core functions including orientation, leadership development,
employee relations, final selection, performance management, succession
management
Outsource non-core work
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Strategic Focus
Core competencies
Four core competencies activities are:
Traditionally performed internally
Critical to business success – core work contributes directly to the bottom line; non-core
work does not
Creating current or potential competitive advantage
Will influence future growth or rejuvenation
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Advanced Technology
Organizations want to improve technical service
Technology enables a company to reduce transaction time
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Improved Service
Quality improvement
Write quality standards in contract
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Specialized Expertise
Experts understand the complex laws and regulations required in HR
Use of experts reduces the risks and liabilities for organizations
Access to best practices
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Organizational Politics
Outsourced function is not as visible as an in-house department performing
the same tasks
Outsource to get rid of a troublesome department with employees who
are underperforming
Outsourcing reduces headcount
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Risks and Limitations of Outsourcing
Projected benefits versus actual benefits
Service risks
Employee morale
Security risks
Reduced value
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Projected Benefits Versus Actual Benefits
50% found that it was more expensive to outsource
Incompatible systems and client demands are the reason for excessive
costs
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Service Risks
Contractual arrangements dictate which services will be provided
Flexibility is limited to add new features or change service levels
25% reported a decrease in customer service compared with the
in-house service and a less personal relationship with its own
employees
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Employee Morale
Primary risk in outsourcing is the effect on employee morale and
performance
Employees can feel displaced, resentful, alienated, and anxious
Disintegration of an organization’s culture
Organizations that outsource face a backlash
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Employee Morale
One of the primary risks in outsourcing is the effect on employee morale and
performance (Elmuti & Kathawala, 2000 as cited in Belcourt, 2006).
Outsourcing is a form of restructuring that always results in displaced
employees. Organizations provide employees with a sense of identification
and feelings of security and belonging. When these are disrupted,
employees, as stakeholders, may feel resentful and retaliatory.
• About one-third of HRM professionals resist outsourcing because they risk
losing their jobs, may be forced to work for a vendor, and fear that
management believes that outsiders are more competent (Babcock, 2004
as cited in Belcourt, 2006).
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Employee Morale
Outsourcing can lead to the disintegration of an organization's culture.
Instead of empowering and valuing employees, an outsourcing decision
alienates and “deskills” employees. The transferred employees will experience
emotional loss and a change in culture.
Organizations that attempt to outsource face a backlash.
• Example: The City of Toronto endured a three-week strike by garbage
workers over the issue of outsourcing.
• Once rumours of outsourcing arrangements are started, HR managers can
expect talented employees to start job searches and all employees to suffer
anxiety resulting in lost production.
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Security Risks
Information leaks
Important for software development with intellectual property concerns
Loss of employee confidential data
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Reduced Value
Extreme levels of outsourcing hollow out a company
An organization experiences a reduced capacity to generate profits or
innovate
Vendor may sell the acquired know-how and company secrets to a
competitor
Outsourcing routine low-value tasks did not result in the remaining HR staff
becoming focused on more strategic high-value work
Up to 20% of outsourced HR functions are brought back in-house
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Management of Outsourcing
Selecting the vendor
Negotiating the contract
Monitoring the arrangement
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Selecting the Vendor
Once outsourcing has been selected, the organization needs to do the
following:
Inform the staff of the affected function
Prepare a request for proposal (RFP)
Invite internal and external bids
Establish a team to evaluate these bids
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their proposal for carrying out the job. Education
Negotiating the Contract
Customize and negotiate the outsourcing contract
Set performance standards or penalty clauses for the outsourcing
company
Establish benchmarks for service expectations
Response time
Response cost
Customer satisfaction ratings
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Issues Companies Face with Outsourcing
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Summary
Outsourcing is the contractual arrangement wherein one organization
provides services or products to another
There is a growing trend to outsource HR functions
There are numerous advantages and disadvantages of outsourcing
Managing the contractual arrangement with the service provider is the
key to optimizing the benefits and minimizing the risks
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