OUTSOURCING HR AS A

COMPETITIVE STRATEGY? A
LITERATURE REVIEW AND AN
ASSESSMENT OF IMPLICATIONS

FANG LEE COOKE, JIE SHEN, AND ANNE MCBRIDE

HR outsourcing as an organizational strategy has increased substantially

over the last decade. However, this trend has attracted little academic atten-
tion regarding how outsourcing decisions are made, the manner in which
these decisions are implemented, how outsourcing effectiveness is meas-
ured, and its impact on organizational performance. In this article, we pro-
vide a critical review of the reasons for, the processes involved in, and the
perceived effectiveness of HR outsourcing. We investigate the implications of
HR outsourcing for the role of the HR function and for the various groups of
people affected by this strategy. We argue that organizations should apply
both the resource-based view and institutional theory when making out-
sourcing decisions. © 2005 Wiley Periodicals, Inc.

Introduction macy and status in cost-conscious times. The

HR function has been described as being
n recent years, there has been serious de- under siege from external consultants (Red-

I bate about HR’s contribution to organiza-

tional performance (Ulrich, 1998). In
part, this debate is due to the inability of
the HR function to demonstrate its tangi-
ble value and to account for its absence at the
strategic level. The practice of decentralizing
HR responsibility from corporate central de-
man & Wilkinson, 2001).
The popularity of outsourcing and of
e-HR also subjects personnel practitioners to
growing pressure to measure their perform-
ance. A number of firms outsource routine
administrative HR activities to release their
in-house HR team for a more strategic role.
partments to business unit–level departments However, a minority of others have opted to
(and further still to line management) has outsource the entire package, including the
created much streamlining of HR responsibil- design of HR systems that are likely to have
ities. These trends run parallel to more radical a fundamental impact on organizational
ones where traditional core personnel areas culture and performance (Klaas, McClen-
are outsourced to HR service providers. In don, & Gainey, 2001). This emerging trend
some accounts, these trends are perceived as raises a number of questions. For example,
part of a “crisis,” as HR struggles for legiti- what HR activities should be outsourced?

Correspondence to: Fang Lee Cooke, Professor of HRM and Chinese Studies, Manchester Business School, Uni-
versity of Manchester, Manchester M15 6PB, UK, Tel: 0044 161 306 8987, fang.L.cooke@manchester.ac.uk

Human Resource Management, Winter 2005, Vol. 44, No. 4, Pp. 413–432
© 2005 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hrm.20082
414 HUMAN RESOURCE MANAGEMENT, Winter 2005

How does HR outsourcing affect the role of We review existing literature, drawing
the in-house HR function and the rest of the from academic and practitioner publications
workforce? What are the pitfalls for the HR on HR outsourcing practices, and discuss im-
function? plications for the role of the HR function and
Evidence from professional and practi- different groups of the workforce who may
tioner publications indicates that HR out- be affected one way or another by the out-
sourcing has increased substantially over the sourcing decision. First, we outline various
last decade (Woodall, Gourlay, & Short, rationales for outsourcing in general. We
2000). However, few academic researchers then review HR outsourcing more specifi-
have investigated empirically how decisions cally in terms of the commonly perceived
of outsourcing are made, the manner in reasons for outsourcing, types of HR activi-
which these decisions are implemented, how ties to be outsourced, current trends of HR
the effectiveness of the outsourcing is meas- outsourcing, and the effectiveness of the out-
ured, and, most important, the sourcing activities.
implications of these outsourcing In the second part of the article, we criti-
decisions for the role of the HR cally analyze the implications of HR out-
Empirical evidence function and for different groups sourcing for the role of the HR function in an
in the workforce. This dearth of organization’s business strategy. We question
on the reasons for research is in sharp contrast to whether organizations looking to outsource
and effects of the burgeoning prescriptive liter- their HR functions do so as a strategic move,
ature on the financial and strate- or whether they are unwittingly letting go of
outsourcing HR gic reasons why firms should out- a high value-added professional activity that
source (Rubery, Earnshaw, is central to organizational success. We also
activities is both Marchington, Cooke, & Vincent, analyze the impact of HR outsourcing on the
2002) and how to go about it in-house HR staff, the line managers, the em-
fragmented and
(e.g., Cook, 1999; Rippin, 2001). ployees, and those HR staff who are trans-
inconclusive. As Purcell (1996, p. 22) noted, ferred from the client firm to the HR service
“We lack the research to make provider firm.
definite statements on the effect As mentioned previously, there has been
of outsourcing on employees.” What has little academic-oriented research on issues
been conspicuously missing in much of the related to HR outsourcing, in contrast to a
research “is the ‘insiders’’ perspective—the growing body of literature on outsourcing in
employees’ voice” on the impact of out- general. We have made use of available re-
sourcing on employment relations (Kessler, search to develop our argument. We rely
Coyle-Shapiro, & Purcell, 1999, p. 6). mainly on the academic literature, but also
As a result, empirical evidence on the rea- selectively draw on practitioner publications
sons for and effects of outsourcing HR activ- for statistical information and critical analy-
ities is both fragmented and inconclusive. sis. This article also is informed by our ongo-
Opinions are divided as to the potential ben- ing studies on interorganizational relation-
efits of HR outsourcing. For example, some ships, the outsourcing of skilled and
authors see HR outsourcing as beneficial in knowledge-intensive work, and the out-
terms of both service delivery and the en- sourcing of the HR function (Cooke, 2001;
hancement of the strategic position of HR Marchington, Cooke, & Hebson, 2003; Ru-
(Brenner, 1996; Laabs, 1993; Switser, 1997). bery, Cooke, Marchington, & Earnshaw,
Others consider HR outsourcing a concession 2003).
that the HR function no longer has any
strategic significance (Baker, 1996; Caldwell,
Theoretical Views on Outsourcing
1996). The strength of each argument is dif-
ficult to discern, since limited independent Outsourcing can take a number of different
empirical research exists in these two partic- forms. The specific activity of HR outsourc-
ular areas. ing is defined as placing responsibility for
 Outsourcing HR as a Competitive Strategy? 415

various elements of the HR function with a nesses, and outsourcing HR is one of them.
third-party provider (Turnbull, 2002). Some As Bosch, Webster, and Weisbach (2000, p.
commentators have used the concepts of the 108) note, “some very radical decisions are
“core” and “periphery” to explain and ex- being made to outsource apparently central
plore the outsourcing of company functions core functions.”
(e.g., Atkinson, 1984; Pollert, 1987; Torring-
ton & Mackay, 1986). Broadly speaking, core
Arguments for Outsourcing
activities are those that the firm does best
and/or are crucial to the firm’s competitive In general, employers consider using out-
advantage and therefore must be kept inter- sourcing for a number of (overlapping) per-
nally. In contrast, “noncore” activities are ceived benefits (Shen, Cooke, & McBride,
considered to have a lower impact on the 2004; see Table I). First, it allows them to
overall performance of the organization and concentrate resources on their “core” busi-
can therefore be outsourced to external ness activities where they have
providers. expertise and are likely to do best.
The decision-making process as to Second, it enables firms to profit Outsourcing enables
whether to “make or buy” (goods) or “supply from the rising comparative ad-
firms to keep future
or buy” (services) has been conceptualized vantage of specialized service
by Williamson’s (1985) transaction-cost eco- providers who may have expert- costs down by
nomic model. According to this model, the ise in the areas concerned. Third,
decision to provide goods and services inter- it provides firms with greater flex- selecting the most
nally or to outsource rests upon the relative ibility and productivity by using
competitive tender
costs of production and transaction. That is, temporary subcontractors to
a comparison of the costs of coordinating cover fluctuating demands for for renewing the
and managing alternative models of gover- labor (Cooke, 2001). This “just-
nance related to either buying the in-time” deployment of human contract .
goods/services through market mechanisms resources also brings other advan-
(i.e., outsourcing) or supplying the tages of saving direct costs (e.g.,
goods/services through the internal, or “hi- reducing headcount and overtime working)
erarchy,” mechanism. and indirect costs (e.g., cutting administra-
In the context of accelerating global tion and backup costs, saving recruitment
competitive pressures, organizations are and training costs, saving absenteeism costs,
being advised to concentrate on their core and reduced industrial relations problems).
competencies and utilize outsourcing to cap- Fourth, outsourcing creates opportunities for
italize on others’ expertise (Domberger, firms to shift the burden of risk and uncer-
1998; Porter, 1990; Prahalad & Hamel, 1990). tainty associated with the business to some-
However, what constitutes core activities and one else (National Economic Development
competencies is not static. Organizations are Office [NEDO], 1986; Williamson, 1985). In
constantly reassessing what constitutes the addition, outsourcing enables firms to keep
core and noncore aspects of their business future costs down by selecting the most com-
and readjusting the way these activities can petitive tender for renewing the contract
be sourced, either in-house or externally (Domberger, 1998).
(Cooke, 2003). In turn, the nature of the ac- If the above reasons for outsourcing are
tivities themselves is changing. For example, predominantly concerned with cost reduc-
HR activities are becoming more complex, tion, then the final reason listed here is fo-
are more compartmentalized into relatively cused more on capacity building associated
self-contained areas (Tyson, 1987), and are with organizational learning. It has been ar-
more prone to being performed by expert gued that outsourcing relationships can cre-
consultants (Torrington, 1989). Specialist ate partnerships between contractors and
outsourcing supplier firms have emerged in clients that may facilitate learning and cross-
response to this growing market in busi- fertilization between the two firms (Child &
416 HUMAN RESOURCE MANAGEMENT, Winter 2005

Faulkner, 1998; Powell, Koput, & Smith- agement models. This perspective helps to
Doerr, 1996). Writers on organizational define both an organization’s “core” function
learning (e.g., Araujo, 1998; Boland & and the optimal HR policies that will elicit
Tenkasi, 1995; Brown & Duguid, 1991; Pent- the best performance outcome. The question
land, 1995) have argued that learning that remains is how to decide which func-
processes are collective accomplishments tions are not part of the core, and who are the
that reside in networks that do not respect noncore employees.
formal organizational boundaries. The im-
portance of networks and interorganiza-
Arguments Against Outsourcing
tional relationships (e.g., alliances, partner-
ships) is also recognized by writers from the As noted in Table I, despite the rising popu-
strategic perspective. According to Powell et larity of outsourcing organizational activi-
al. (1996, p. 120), a network “serves as a ties, the practice is not without pitfalls. One
locus of innovation because it provides of the most serious is maintaining the conti-
timely access to knowledge and resources nuity of skill supply and the retention of in-
that are otherwise unavailable, while also house knowledge and expertise. In many
testing internal expertise and learning capa- cases, firms seek outsourcing to save training
bilities.” costs, assuming that someone else will carry
Advocates of the resource-based view out the training to ensure the delivery of key
(RBV) of the firm (e.g., Barney, 1991; Ulrich, skills. Skill loss can have damaging effects on
1996) also believe that outsourcing can be competitiveness. As Prahalad and Hamel
productive to the development of the core (1990, p. 84) point out, “outsourcing can
competence of the organization—especially provide a shortcut to a more competitive
in relation to HR practices. The notion of the product, but it typically contributes little to
RBV was “rediscovered” by Wernerfelt (1984) building the people-embodied skills that are
and developed into a more robust theory by needed to sustain product leadership.”
Barney (1991, p. 99), who argued that organ- Another major concern with outsourc-
izations “obtain sustained competitive ad- ing, particularly for those firms that operate
vantage by implementing strategies that ex- in the upper end of the product market, is
ploit their internal strengths, through the loss of quality. Employees often judge
responding to environmental opportunities, service quality by comparing their expecta-
while neutralizing external threats and avoid- tion of the resulting service under the pro-
ing internal weaknesses.” The resource-based posed change with their view of what the
view of strategy is closely related to a growing services should be or with the services that
body of research on high-commitment man- they used to have. Switching the HR services

TABLE I Perceived Benefits and Potential Adverse Consequences of Outsourcing

Perceived Benefits Potential Adverse Consequences

Concentration on in-house expertise Discontinuity of skill supply

Specialist supplier’s economies of scale Loss of in-house knowledge and capacity
Numerical flexibility Reduction in quality
Shift burden of risk Higher total cost
Competitive tendering process Loss of employee morale
Organizational learning from specialist provider Loss of long-term competitiveness

Source: Adapted from Shen et al. (2004).

 Outsourcing HR as a Competitive Strategy? 417

from in-house to an external provider in- lier, may have always been performed by ex-
evitably causes disruption to the continuity ternal service providers, Brewster observes
of the services, often for a prolonged period that a new dimension “is this finance-driven
of time and with unpredicted problems. In- idea connecting outsourcing to human re-
deed, there have been reports in the media source management—the idea that you can
and in practitioner journals on the failures of save a lot of money by outsourcing” (quoted
outsourcing resulting from unfulfilled prom- in Turnbull, 2002, p. 10).
ises and/or expectations. These perceived In addition, outsourcing is seen as a way
benefits and disadvantages must be consid- of liberating HR professionals within the
ered when firms make strategic decisions on client organization to perform the more con-
whether or not to outsource functional HR sultative and strategic role of designing and
activities. implementing programs aimed at retaining
the workforce and enhancing its perform-
HR Outsourcing ance. This rationale is in line with
Ulrich’s (1998) influential thesis
The above overview of the perceived benefits of the four roles of HR, in which Outsourcing HR also
and potential adverse consequences of out- he proposed that HR should be a
is seen as an
sourcing provides the backdrop against strategic partner, an administra-
which to discuss the outsourcing specifically tive expert, an employee cham- effective way to
of the human resource functions. In this sec- pion, and a change agent. In a
tion, we review the operational and strategic similar vein, Greer et al. (1999) bypass
rationales for outsourcing HR and establish argue that HR outsourcing is con-
the scope and extent of HR outsourcing prac- organizational
sistent with the business partner
tices. It must be noted that much of the evi- role that the in-house HR depart- politics and improve
dence that exists is drawn from practitioner ment is attempting to assume.
experiences contained in case studies and These roles arguably are where efficiency.
large-scale surveys discussed in practitioner HR can add the greatest value to
journals, rather than rigorous independent the organization, but they are dif-
research published in academic journals. ficult to measure quantitatively.
Outsourcing HR also is seen as an effec-
tive way to bypass organizational politics
Reasons for HR Outsourcing
and improve efficiency. For example, accord-
There are a number of reasons, at both the ing to the sales and training manager of
strategic and operational level, why firms United Kitchen, a company that has out-
want to outsource HR activities. Many share sourced all personnel and training, the com-
similarities with the outsourcing of other or- pany’s aim was to buy an expert who could
ganizational functions. In particular, de- maintain an objective view, would not get
mands for increased productivity, profitabil- embroiled in office politics, and yet could
ity, and growth have forced organizations to call on the support of a wide range of other
examine their internal HR processes, result- experts in their own organization (Pickard,
ing in a move toward strategic outsourcing 1998).
services and away from discrete services. As In short, the main reasons for outsourc-
Greer, Youngblood, and Gray (1999) observe, ing HR appear to be fairly consistent (Sisson
HR outsourcing decisions are frequently a re- & Storey, 2000). Typical reasons include
sponse to an overwhelming demand for re- seeking specialist services and expertise, cost
duced costs for HR services. Downsizing and reduction, and enabling HR specialists to
tougher competition mean that the HR func- take on a more strategic role. In general,
tion is under increasing pressure to demon- most commentators are convinced that out-
strate value, both in terms of efficiency and sourcing is seen not only as a cost-cutting ex-
effectiveness (Roberts, 2001). Although some ercise but also as a strategic tool. As Oates
elements of the HR functions, as noted ear- (1998) suggests, the outsourcing decision is a
418 HUMAN RESOURCE MANAGEMENT, Winter 2005

strategic one and is generally taken at a sen- from organizations’ HR outsourcing activi-
ior level. ties? Hall and Torrington (1998) found that
training and management development, re-
cruitment and selection, outplacement,
Types of HR Activities to Be Outsourced
health and safety, quality initiatives, job
As with the outsourcing of other organiza- evaluation, and reward strategies and sys-
tional functions, one major issue in out- tems were the likely HR activities to be out-
sourcing HR is to decide what types of HR ac- sourced, either because they were considered
tivities should be outsourced. In making this noncore or because the organization lacked
decision, organizations need to consider the the expertise to handle them internally. Hall
likely impact of outsourcing these activities and Torrington’s findings are supported by
on the organization’s performance. To do so, Shaw and Fairhurst (1997), who found that
they may need to distinguish between “core” training and development along with facili-
and “noncore” activities. Finn (1999) sug- ties management were the most likely areas
gests that a basic distinction can be made be- to be outsourced, while industrial relations
tween HR “core” and “noncore” activities. expertise was the least likely area.
The former include top-level strategy, HR A recent large-scale survey (Vernon,
policies, and line management responsibili- Philips, Brewster, & Ommeren, 2000), the
ties (e.g., appraisal and discipline), while the Cranet Survey, provides further evidence to
latter include specialist activities (e.g., re- support these earlier findings. The survey
cruitment and outplacement), routine per- was carried out in 1999 on 3,964 organiza-
sonnel administration (e.g., payroll and pen- tions, each with more than 200 employees in
sion), and professional HR advice (e.g., legal European countries. It focused on four differ-
advice related to employment regulations). ent areas of HR outsourcing: training and de-
Ulrich (1998) goes one step further by sug- velopment, recruitment and selection, pay
gesting that core activities are transforma- and benefits, and workplace outplacement/
tional work that creates unique value for em- reduction. The survey found that some 97%
ployees, customers, and investors. Noncore of the organizations in the survey used ex-
activities would be transactional work that is ternal providers in HR to cover at least one of
routine and standard and can be easily du- the main service areas (see Table II). The re-
plicated and replicated. sults showed that training and development
While writers of strategic management activities were the most common “bought-in
warn of the danger of outsourcing core ac- service.” One-third of organizations sur-
tivities, are firms really following this advice veyed used external providers in at least
in making their decisions about which HR three of the areas identified. While 50% of
activities are to be sourced from external the surveyed organizations remained con-
service providers? Do any clear patterns arise stant in the use of external providers, 40%

TABLE II The Incidence of HR Outsourcing

External Provider Type Percentage of Respondents Using

Training and development 77%

Recruitment and selection 59%
Pay and benefits 30%
Workforce outplacement / reduction 29%

Source: Vernon et al. (2000, p. 7).

 Outsourcing HR as a Competitive Strategy? 419

reported an increase in their use. In particu- number of commentators believe that HR

lar, 32% of U.K. organizations made use of outsourcing will continue to grow rapidly.
external providers for pay and benefits. Among 314 delegates of the HR Forum 2000,
While this empirical evidence provides 62% reported that they already were out-
some useful insights into the types of HR ac- sourcing some of their HR activities (Pickard,
tivities that firms are sourcing from external 2000d). A few large organizations such as
providers, it provides only a partial and su- British Telecoms (BT) have also turned their
perficial picture due to the quantitative na- HR function from a cost center into a sepa-
ture and the scale of the studies. What re- rate revenue-generating business to capital-
mains unclear is how firms reach the ize on the growing outsourcing market for
decision on why these particular HR activi- HR services (Hammond, 2001). Moreover, ac-
ties are to be outsourced and whether they cording to an article in People Management,
truly constitute the noncore activities of the the transfer of HR services to overseas loca-
firm. It is equally unclear as to whether and tions is about to see a phenomenal increase,
how the effectiveness of these outsourcing although it is noted that legal and cultural
activities is evaluated and how outsourcing differences may inhibit the transfer of advi-
provider and client firms coordinate their in- sory roles (Crabb, 2003).
house and outsourced HR activities to create There is reason to remain more conserva-
a coherent HR function. One way to under- tive about the growth of HR outsourcing. For
stand these relationships is to examine the example, as reported by Pickard (2000c), the
recent trends in HR outsourcing. HR consultancy firm William M. Mercer ar-
gues that HR outsourcing is evolution, not
revolution. Companies with a clear policy of
Trends in HR Outsourcing
applying outsourcing across their business
Over a decade ago, Adams (1991) argued: were still in a minority. Indeed, Pickard’s re-
search leads her to question whether reports
Personnel as a function is subject to in- of a boom in outsourcing HR services may be
creasing encroachment from external more hype than reality. According to the
consultancies which are “poaching” Cranet Survey (Vernon et al., 2000), 40% of
their day-to-day activities . . . [but] the surveyed companies failed to report any
there is no evidence that externaliza- increase in the use of external providers for
tion is the overwhelming trend even HR over the past three years. Figure 1 below
for particular activities of personnel indicates that U.K. organizations use HR out-
functions such as graduate recruitment, sourcing to a lesser extent than Belgium, The
training and development, or counsel- Netherlands, and France.
ing. (p. 40) Since 2000, the HR outsourcing news in
the United Kingdom has been dominated by
Evidence now exists to suggest that HR high-profile HR outsourcing decisions from a
outsourcing has increased substantially over few super-large blue chip organizations.
the last decade (Andersen, 1996; Harkins,
Brown, & Sullivan, 1995). Qualitative and
quantitative reports from a range of sources
such as People Management (various issues)
and the Cranet Survey (Vernon et al., 2000)
provide further evidence of this growth (also
see Maurer & Mobley, 1998; Mobley, 2000;
PricewaterhouseCoopers, 2002).
Although evidence points to the contin-
uing growth of HR outsourcing, the antici-
pated speed of its continuing growth is open
to considerable debate. On the one hand, a FIGURE 1. The Trends in HR Outsourcing
420 HUMAN RESOURCE MANAGEMENT, Winter 2005

These include the BP Amoco deal with Exult outsourcing is not as widespread as had been
in 2000 (“Huge Outsourcing Hits HR Jobs,” predicted, and there is no way to judge
2000), BAE Systems and Xchanging’s part- whether the next few years will see a surge in
nership in their new company “Together activity or a slow growth from a steady state
HR” in 2001 (Hammond, 2001), Prudential (Vernon et al., 2000). In addition, the Cranet
Financial’s HR outsourcing deal with Exult in Survey “[did] not yield conclusive evidence
2002 (Higginbottom, 2002), and telecoms of major trends or key drivers that influence
giant Cable & Wireless’s HR outsourcing organizations to utilise external providers in
arrangement with e-peopleserve (Wuster- resourcing their HR functions” (Vernon et
mann, 2002). To a large extent, the success al., 2000, p. 16). This conclusion also reflects
or lack thereof of these outsourcing deals the findings from a study by Greer et al.
serves as a barometer for the HR outsourcing (1999) showing that rationales for, and the
market. Indeed, there is evidence to suggest extent of, HR outsourcing appear to be very
that many organizations remain complex and without any distinct patterns.
prudent in their perception about Overall, considerable variations exist
the success of outsourcing. While among organizations in their use of HR out-
It appears that the HR outsourcing has become a sourcing. More important, these variations
trend, it has yet to prove a success seems to bear little relationship to the size,
overriding trend is (Hammond, 2001). cost, or productivity of the function (Greer et
for companies to The UK outsourcing firm al., 1999; Vernon et al., 2000), although
Northgate Information Solutions Klaas et al. (2001) found that idiosyncratic
outsource only part commissioned a study in which HR practices, firm size, and cost pressures af-
interviews were conducted with fected both the degree of outsourcing and
of their HR functions 100 senior managers from U.K. the perceived benefits.
companies employing between
to a third party.
400 and 10,000 people. The re-
Effectiveness of HR Outsourcing?
sults indicate that many compa-
nies are mistrustful of outsourc- The effectiveness of HR outsourcing as a
ing HR. Despite recognizing the benefits of management strategy has rarely been ex-
removing administrative work from staff plored, especially with work that involves in-
(cited in Hammond, 2002), managers in the depth, firm-specific knowledge and great au-
study expressed a reluctance to outsource, tonomy. Outsourcing in general may lead to
particularly following the limited success of a reduction in the quality of products, or per-
high-profile deals such as that between BP haps more so, of the services provided
and Exult. Half of the larger companies and (Cooke, 2001; Marchington et al., 2003). In
three-quarters of the smaller companies sur- certain organizational activities, such as HR
veyed reported spending more than 40% of activities, it is often difficult to specify the re-
their time on HR administration. The inter- quirement in a manner that leads to observ-
view survey also found that a significant able and verifiable outcomes (Domberger,
number of companies (42% of large firms 1998). Effective monitoring and measuring
and 14% of small firms) had outsourced of these activities requires enormous re-
some services, most notably recruitment. sources and expertise from an in-house mon-
However, plans to take it further were lim- itoring team.
ited, with 75% of larger companies and 88% One danger with outsourcing HR is that
of smaller ones having no plans to out- the service provider may have a vested inter-
source HR in the next two years. est in standardizing all parts of its service in
It appears that the overriding trend is for order to achieve economies of scale across
companies to outsource only part of their HR clients. Standardization may lead to a detri-
functions to a third party, rather than hand- mental loss of the client company’s unique
ing over control of the entire department. As organizational characteristics. In addition,
the Cranet Survey suggests, the growth of HR many problems may arise from a mismatch
 Outsourcing HR as a Competitive Strategy? 421

in culture between the host operation and dentiality and an appropriate amount of
the supplier (Pickard, 1998, p. 23). When the control are important considerations, partic-
quality of services provided by an HR out- ularly for activities involving sensitive infor-
sourcing service is deemed unsatisfactory, mation (Greer et al., 1999).
the cost of an alternative solution (such as HR is a service that is coproduced with
switching suppliers, obtaining a long-term line managers and employees. HR profes-
contract with the new supplier, or bringing sionals are being asked to help provide busi-
the service back in-house) may increase con- ness solutions for employee problems. They
siderably, and any immediate improvements are being challenged to develop core compe-
may be difficult to materialize (Caulkin, tencies to help formulate and deliver these
2002). business solutions. HR departments are
From a strategic point of view, most com- being challenged to change their
mentators would agree that outsourcing ad- bureaucratic culture, to be more
ministrative HR activities is plausible. Ulrich customer-focused, and to deliver HR departments are
(1998) argues that outsourcing transactional value-added services. Outsourc-
HR activities that are heavily reliant on ex- ing should, therefore, be used in being challenged to
pensive IT systems frees internal HR profes- conjunction with an internal HR
change their
sionals to engage in strategic decision mak- team that focuses on core compe-
ing. However, this result cannot be easily tencies to produce these solutions bureaucratic
achieved. As Liff (1997) noted, any attempt in partnership with an external
to develop an HR information system would HR service provider. culture, to be more
face many operational problems. However, outsourcing is only
customer-focused,
Angela Baron, a Chartered Institute of one component of the strategic
Personnel and Development (CIPD) Adviser, transformation process. As one and to deliver value-
pointed out that the boundaries between HR senior vice president for HR
activities and policy making may be blurred. pointed out in Greer et al.’s study added services.
What appears to be routine may turn out to (1999, p. 90), It is difficult to
be a key function that should stay in-house change your role to strategic by
(cited in Pickard, 2000a). Baron’s view is dumping activities via outsourcing. It is eas-
shared by Bob Hill, manager of personnel ier if you are already in the strategic role.”
servicing at Imperial Chemical Industries The same study further reveals that the role
(ICI), who believed, “If HR needs to be close of HR outsourcing depends on how senior
to the business and adding value, this be- HR executives view the role of the HR func-
comes more difficult if it’s outsourced” tion (Greer et al., 1999).
(quoted in Pickard, 1998, p. 23). Similarly, Vernon et al.’s (2000) study
In a similar vein, Simon Drysdale, an HR found that the formal position and the in-
manager at BP Amoco, the first UK-based pri- fluence of the HR function have not changed
vate multinational to outsource its entire in the past decade. The study further reveals
personnel administrative function, has pub- that outsourcing is often a business decision
licly warned that outsourcing HR strategy made by senior management and occurs out-
would be going a step too far (Taylor, 2001). side the control of the impacted function.
Many interviewees in Greer et al.’s (1999) Where top management actively evaluates
study likewise cautioned against outsourcing the performance of the HR function, out-
activities that could remove or distance the sourcing appears to be more common (Ver-
HR function from the employees. The gen- non et al., 2000).
eral consensus appears to be that with ex- In general, the more centralized the or-
treme outsourcing, HR departments run the ganization and HR function, the more HR
risk of losing their identities and control. outsourcing is likely to be deployed as a re-
Therefore, a mixture of outsourcing and in- source tool. Vernon et al. (2000, p. 14) writes,
house activities appears optimal under many ”When decisions are taken at headquarters,
circumstances. The need to preserve confi- more than 40 per cent of organizations used
422 HUMAN RESOURCE MANAGEMENT, Winter 2005

external providers for pay and benefits, ized and self-contained units, both internal
whereas when they are taken on a devolved and external to the organization? In a nut-
basis, less than 30 per cent use external shell, how should the two-way relationships
providers.” More significantly still, they find indicated in Figure 2, between the role of out-
that there is scant relationship between the sourcing HR, in-house HR, line management,
size or nature of the HR function and the use HR strategy, and the business strategy, be de-
it makes of external providers. This finding veloped and maintained? Given the fact that
suggests that the function makes ad hoc re- most outsourcing relationships incur more
sourcing decisions, disregarding efficiencies problems than anticipated, some with serious
and functional good practice. Additionally, implications, how can the in-house HR team
what occurs is “an organization specific re- disassociate itself from these operational prob-
sponse rather than any real professional lems and diffuse discontent from its “clients”
good practice or shared learning. It is this on the one hand, and try to enhance its
factor that provides an interesting challenge strategic importance on the other?
for the HR function” (Vernon et al., 2000, p. Given that HR outsourcing has impor-
17). In other words, outsourcing HR to en- tant consequences for the quality and cost of
able an in-house HR department to take on a HR, the HR profession (Ulrich, 1996), and
more strategic role remains largely an aspira- the strategic position of the in-house HR
tion rather than a reality. function, it is important that we assess the
Even if the in-house HR department takes implication of HR outsourcing for the role of
on a more strategic role, a number of issues the HR function and the people concerned.
will be raised as to how it can develop and It is to this issue that this article now turns.
manage the complex relationships with the
outsourcing service provider and the rest of
Implications of HR Outsourcing for
the organization (see Figure 2). In particular,
the People Affected
how will the in-house HR department man-
age its multisourced HR functions? What con- Outsourcing HR may have serious implica-
trol mechanisms are in place to operate such tions for different groups of employees in the
a system successfully? How can they make organization, both in terms of their (chang-
sure HR input reaches the strategic level when ing) roles and their experience of the HR
the HR functions are delivered by a poten- services as a result of outsourcing. The most
tially large and growing collection of special- obvious groups of people likely to be affected

FIGURE 2. Relationships Between the Role of Outsourcing HR, In-house HR, Line
Management, HR Strategy, and the Business Strategy
 Outsourcing HR as a Competitive Strategy? 423

are HR professionals, line managers, employ- these HR professionals, as their colleagues

ees who receive the services, and outsourced may still be relying on them to provide the
HR staff who provide the services. service because they may be used to it and
unfamiliar with the new system.
For example, Shen et al.’s study (2004)
In-house HR Professionals
found that the outsourcing of the estate
Outsourcing HR may impact in-house HR maintenance function of a National Health
professionals in a number of ways—most no- Services (NHS) trust hospital in the United
tably, in terms of the nature of their work Kingdom under a Private Finance Initiative
and their career patterns (see Table I), al- (PFI) agreement has led to severe work inten-
though detailed studies on these aspects re- sification and radical change in the job con-
main scarce. According to Ulrich’s proposal tent for the NHS maintenance manager. It is
(1998) of HR’s four new roles, the HR work not difficult to imagine that similar things
will be shared in varying proportions with can happen to the HR managers where out-
line management, employees, external con- sourcing HR takes place, since both func-
sultants, and other groups. However, Ulrich tions require intimate knowledge of the or-
does not really discuss the process of interac- ganization and a relatively high level of
tion by which this distribution of work is de- relationship management.
termined (Procter & Currie, 1999). Nor have HR outsourcing further raises issues con-
the implications for their career prospects cerning the career prospects of the HR staff.
been contemplated. When HR activities are outsourced, fewer ca-
Outsourcing HR not only leads to job reer development opportunities are available
losses (Pickard, 2000b), but also creates a for the in-house HR staff, especially those
need for monitoring and evaluating the serv- with specialist instead of generalist skills. In
ice provider’s performance and inevitably re- the meantime, where only a limited number
quires work reorganization for the in-house of activities are performed in-house, broad or
HR staff. For example, Greer et al.’s (1999) general HR experience will be more difficult
study suggests that where HR activities are to obtain. Furthermore, the practice of in-
outsourced, it is important that the user creasing specialization apparent in many
company deploy in-house HR generalists outsourcing firms raises important questions
who know the business. These generalists about how HR professionals are to be
can manage the outsourcing relationships trained. It is arguable that existing training
because they enhance the perception and re- for the HR profession is generalist-oriented.
ality of HR as a true business partner. For This notion runs parallel to an increasing de-
these generalists, knowing where to get a mand for specialists in a wide range of dif-
problem solved is more important than hav- ferent functional areas, from recruitment to
ing specialized HR knowledge. However, pay, and from training and development to
there is a danger of work intensification for outplacement.

How HR staff were affected by BP Amoco’s outsourcing of its HR function

When BP Amoco outsourced its HR function, nearly half of its HR staff were affected. While Exult
would need to employ up to 350 existing staff members, BP Amoco admitted that many of its em-
ployees would not want to transfer to Exult’s two headquarters, which would be based in the United
Kingdom and the United States. Job losses were expected. In addition, many of those who retained
their jobs within BP Amoco would have different roles. According to a senior figure of the giant cor-
poration, “Clearly, a computer can’t help if an employee needs to talk to someone. We expect the HR
staff who remain with us to be able to focus on that, and on the strategic and policy aspects of the
job” (“Huge Outsourcing Hits HR Jobs,” 2000, p. 13).
424 HUMAN RESOURCE MANAGEMENT, Winter 2005

Therefore, outsourcing HR may affect the HR personnel can facilitate the line man-
in-house HR staff in ways such as job inten- agers in issues related to HR. This subject will
sification, change in job content, reduction not, therefore, be expanded upon here.
of career development opportunity, and in- What needs to be highlighted is that out-
creased levels of stress, especially when the sourcing HR activities may bring inconven-
relationship with the service provider is ience and work intensification to the line
strained and the quality of services unsatis- managers in ways similar to those of the in-
factory. More broadly, the role that HR pro- house HR managers.
fessionals play will be dependent upon their Instead of having their HR colleagues at
interaction with other groups both within hand to call for help, HR outsourcing
and outside the organization (Procter & Cur- providers are likely to be located in a different
rie, 1999). Communication can be more dif- place. They may not have sufficient under-
ficult, especially when there is geographical, standing of the line managers’ local needs or
as well as organizational, separa- they may have never met with each other
tion. But if the onward march of and established a working relationship. In
HR outsourcing is a given, then theory, the HR outsourcing provider is there
If the onward march the HR professionals will need to to provide the service, but in reality, some of
learn how to play the game (Turn- the jobs may be difficult to explain via elec-
of HR outsourcing is bull, 2002). tronic devices, and it would be more efficient
a given, then the HR for the line managers to just do it themselves.
In addition, the need to raise work requests
Line Managers
professionals will for even the smallest job as a result of the out-
A key driver in the development sourcing agreement inevitably creates extra
need to learn how to of HR policies in recent years has workload for the line managers. As previous
been HR’s objective to increase research shows, outsourcing of service provi-
play the game.
line management involvement in sions tends to create new rigidity and bu-
and ownership of HR decisions. reaucracy in the way work is organized and
For example, Vernon et al. (2000) monitored (Cooke, Earnshaw, Marchington,
found that the most common pattern of pol- & Rubery, 2004; Marchington et al., 2003).
icy decision making in Europe involved shar-
ing responsibilities between the HR special-
Employees Receiving HR Services
ists and the line management: “About a third
of senior HR specialists reported an increase Outsourcing the HR function may have a sig-
in line management responsibility for HR is- nificant impact on the workforce, on both
sues over the last three years” (Vernon et al., in-house employees who receive the HR serv-
2000, p. 7). The role of line managers in im- ices and those who provide the services. Out-
plementing HR policies and shaping HR sourcing the HR function is in many ways
practices has long been recognized (e.g., Cur- different from the outsourcing of other busi-
rie & Procter, 2001; Marchington & Parker, ness processes in that the organization is
1990; McConville & Holden, 1999; Procter & arming an external service provider with its
Currie, 1999). employees’ personal information that may
In other words, line managers do not be of a sensitive and confidential nature.
merely implement decisions or changes for- Outsourcing these tasks may seem unsettling
mulated by the HR function. Knowledge of to employees.
the operational context gives line managers Outsourcing HR may also require em-
a particularly significant influence in the im- ployees to adopt different ways of obtaining
plementation of changes in the area of HR assistance and information. One of the
human resources and the role the HR func- key features of HR outsourcing services is the
tion may adopt. Marchington and Wilkinson adoption of a self-help, online HR informa-
(2002) provide an overview of the role of the tion system (HRIS) for employees of the
line managers in the HR function and how client firm to input and update their per-
 Outsourcing HR as a Competitive Strategy? 425

sonal data on the system. As noted above, work processes. Indeed, lack of critical ex-
the implementation of an HRIS often in- pertise and a customer service focus, or fail-
volves unpredicted operational problems for ure to take the interests of their client into
various reasons, including the incompatibil- account when delivering their HR services,
ity of IT systems between and within the two have been found to be some of the main rea-
organizations, lack of in-house expertise to sons for the failure of the HR outsourcing re-
maintain the system, lack of clear ownership lationships (Greer et al., 1999).
of problems, and lack of willingness of em- Additional complications in the employ-
ployees to use the system. All these changes ment relationships may occur where the HR
may cause some fear and resistance among outsourcing decision involves the transfer of
the workforce. BP Amoco’s outsourcing of existing HR staff to the external service
HR is a case in point (see Higginbottom, provider (see Table 1). For the employees
2001). As a result, it may actually be more concerned, the transferred HR staff are likely
costly for the organization to acquire the HR to be protected, at least in princi-
services from the external provider when all ple, by some sort of employment
the indirect costs (both financial and emo- regulation of the specific country Work intensification
tional) that may incur in-house are calcu- (e.g., the Transfer of Undertaking
and increased
lated. This is especially true for large organi- Protection of Employment
zations in which employees are highly [TUPE] regulations in the United performance
professional and highly paid. Kingdom). In theory, the employ-
ment contract of the transferred monitoring are
workers is preserved intact under
Outsourced HR Staff common features of
TUPE regulations. In reality, how-
Traditionally, skilled and knowledge-inten- ever, their terms and conditions post-transfer
sive work such as HR activities has been pro- and other experience of work
vided by workers of “status.” Employers tend may change significantly, albeit working life.
to have an employment relationship with incrementally (Cooke et al.,
these employees that is characterized by rel- 2004), since the impact of TUPE
atively high levels of trust in order to elicit has proven to be only marginal to date
greater commitment and effort from the (Colling, 1999; Wenlock & Purcell, 1990). As
workers (Streeck, 1987). It has been argued Domberger pointed out, “the principal effect
that the tacit knowledge possessed by these of TUPE is to ensure minimum standards are
workers is vital for the organizational com- maintained in negotiated transfers. The leg-
petitiveness (Cooke, 2002; Manwaring, 1984; islation is designed merely to assure the con-
Pavitt, 1991; Polanyi, 1966; Willman, 1997). tinuity of employment” (Domberger, 1998,
Outsourcing of this type of work replaces the p. 143).
status approach by a (short-term) contractual For example, Cooke et al.’s (2004) study
relationship of tight specifications of all as- of outsourcing in the public sector reveals
pects as a predominant mechanism of con- that work intensification and increased per-
trol. This mode of employment relationship formance monitoring are common features
does not encourage workers to provide of post-transfer working life. Outsourcing of-
“extra-functional” contribution to enhance fers the new employers opportunities to im-
the firm’s competitiveness (Fox, 1974). In prove organizational performance by creat-
fact, the potential problem of gaining com- ing change through reducing staff numbers;
mitment from the nonemployee workers is introducing new skills and working prac-
well recognized by organizations and aca- tices; and by modifying individual incen-
demics (Cooke, Hebson, & Carroll, 2005). tives, employment terms and conditions,
For the employees of the service provider, and attitudes to the workplace (Domberger,
job security may be low and firm-specific 1998). None of these changes can be pre-
knowledge may be lacking as a result of mul- vented effectively by TUPE, although not all
ticlient services and the standardization of of these changes necessarily point to a wors-
426 HUMAN RESOURCE MANAGEMENT, Winter 2005

ening scenario to the disadvantage of the legal advice), areas in which they lack in-
workers (Cooke et al., 2004). house expertise and that are deemed non-
However, this raises a question as to the cost-effective to develop and maintain in-
extent to which the client organization can house. Existing evidence suggests that HR
expect their ex-employees to (continue to) outsourcing has increased substantially over
demonstrate loyalty and commitment in the last decade, although some authors re-
providing their services. These employees main cautious about the future growth of HR
may be resentful that they are being outsourcing. Training and payroll appear to
“dumped” by their former employer and/or be the favorite aspects of HR outsourcing. In
may have taken on their new employer’s or- addition, recruitment, taxation, and legal
ganizational values that are not necessarily compliance are often outsourced. However,
in line with those of their former employer. employee relations, HR planning, career
These issues may be exacerbated if the management, and performance appraisal are
new employer has also taken on less likely to be outsourced, as they are more
staff from other client organiza- likely to be seen as core competencies or ac-
It is difficult to draw tions, thus creating a work envi- tivities. Even so, there are no clear patterns
ronment with multiple cultures, of the types of HR activities that are out-
clear conclusions multiple identities, and compet- sourced.
ing demands for preferential treat- Existing evidence also suggests that the
on the types of HR ment from client organizations primary motives for HR outsourcing are to
(Rubery et al., 2003). These issues reduce cost, to gain external expertise, to en-
activities that
also present a serious challenge hance strategic focus of the in-house HR
should be for the new employer. The out- function, and to improve service quality.
sourcing firm has to manage a Cost reduction and “sell-out strategy” are
outsourced and the fragmented workforce, one where also important factors for making decisions.
employees have different employ- While the overwhelming objective for out-
effectiveness of HR
ment packages. At the same time, sourcing appears to be cost reduction, both
outsourcing. the outsourcing firm is trying to the transaction-cost economics model
implement a coherent HR strategy (Williamson, 1985) and the resource-based
and a consistent organizational view of the firm (Barney, 1991) seem to in-
culture while delivering customized HR serv- fluence firms’ HR outsourcing decisions. The
ices to its client organizations. diverse evidence as to whether the HR out-
sourcing trend is set to grow or not and/or at
what rate implies pragmatic decision making
Conclusions
by firms when considering whether to out-
The aim of this article has been to provide an source HR activities.
overview of the various aspects of HR out- Due to the limited number of empirical
sourcing with a combination of empirical ev- studies on various aspects of HR outsourcing
idence and academic debate. The intention and the fragmented and inconclusive evi-
has been to provide a critical review of the dence they have yielded, it is difficult to
state of affairs in the practice of HR out- draw clear conclusions on the types of HR ac-
sourcing and to raise issues that require fur- tivities that should be outsourced and the ef-
ther academic research and attention from fectiveness of HR outsourcing. In fact, evi-
organizations interested in HR outsourcing. dence seems to suggest that organizations’
Existing literature on HR outsourcing ap- decisions in outsourcing are not always ra-
pears to be rather limited in general. This is tional (Vernon et al., 2000), nor is their
perhaps due to both research and practice in process successful or the outcome effective.
HR outsourcing being in its early stages of It is possible, however, to identify a number
development. There is a longer tradition of of research issues and practical implications
firms outsourcing discretional aspects of HR that require further attention from academ-
(e.g., payroll, training, health and safety, ics and practitioners (in addition to a num-
 Outsourcing HR as a Competitive Strategy? 427

ber of empirical and research questions that tor until the contractor acquires the tacit
we have already raised throughout the re- knowledge.
view). As HR outsourcing is an issue that In addition, firms need to look beyond
would benefit considerably from academic- the resource-based view that helps them
led empirical research, we address these is- identify their core competence, and there-
sues and implications to both academics and fore competitive advantage, when they make
practitioners together, but where appropri- outsourcing decisions. An organization’s HR
ate, we differentiate the two types of readers. strategy may be profoundly influenced by a
First, management should make an in- complex institutional context of resource de-
formed judgment as to whether and why cisions and not just by strategic factors such
they need to outsource, and what kind of as the nature of the product market. This in-
role the in-house HR team should play in the stitutional context includes decision makers’
outsourcing process. A related question is de- norms and values, corporate history, organi-
ciding what activities to be outsourced. It zational culture and politics, pub-
must be noted that there is no “best prac- lic and regulatory pressures, and
tice.” What differentiates “core” from “non- industrywide norms (Oliver,
core” is a highly subjective and contentious 1997). In other words, an organi- An organization’s HR
issue (Legge, 1995; Purcell & Purcell, 1999). zation’s HR strategy may be
What are deemed noncore activities may shaped by the social as well as strategy may be
turn out to be central to the effective opera- economic context of the firm. shaped by the
tion of an organization. What is a noncore We therefore need academic
activity for one firm may prove to be a core research to provide evidence on social as well as
activity for another due to their different or- the following topics: the most
ganizational histories and operating envi- common reasons for outsourcing economic context of
ronments. For example, a large call center HR activities, the scope of out-
the firm.
with a high volume of staff turnover may sourcing, who within the organi-
find it more cost-effective to outsource their zation makes outsourcing deci-
recruitment and training processes, whereas sions, the implications that the
an organization operating in a knowledge- changed role of HR will have on the business
intensive market with a high-road HRM and the workforce, and whether there are
model (e.g., consultancy firm) may wish to any industrial and national differences in
keep these functions in-house, as they are these choices and outcomes. Such empirical
often seen as important mechanisms for research is necessary if HR outsourcing is to
shaping the organizational culture. be presented as a strategic option instead of
Klaas et al. (2001) argue that tacit knowl- a capricious whim, especially for multina-
edge is one of the crucial factors that war- tional corporations operating in a diverse in-
rants consideration when deciding to use HR stitutional environment.
outsourcing. HR processes cannot always be Second, in terms of the outsourcing
codified for transactional purposes, but are process, it is necessary for management to clar-
often based on tacit knowledge that reflects ify their specific organizational needs, choose
the organization’s unique culture. Tacit the right suppliers, manage the change effec-
knowledge is the result of an accumulation tively, maintain control of the outsourcing re-
of experiences that may be difficult to com- lationship, and at the same time develop an
municate to those without equivalent expe- ongoing partnership with the supplier. Firms
rience (Barney, 1991). Since contractors con- that outsource their HR activities also need to
trol work processes, unless they share the develop a comprehensive model with which
required tacit knowledge, they may choose to evaluate the effectiveness of the outsourc-
suboptimal processes (Conner & Prahalad, ing, incorporating both financial and nonfi-
1996). Addressing this limitation may re- nancial indicators and direct and indirect costs
quire intense day-to-day involvement by or- in both the short term and long term. In par-
ganizational managers with the HR contrac- ticular, an HR outsourcing provider worthy of
428 HUMAN RESOURCE MANAGEMENT, Winter 2005

assuming responsibility for the new work must mined. In other words, “if HR managers
be flexible and skilled enough to provide in- want to become strategic change-makers,
novative and customized approaches to prob- they need to understand both where and
lem solving. Any external input needs to be how they can do so” (Procter & Currie, 1999,
managed and monitored. Managing this rela- p. 1089).
tionship requires management time, sound Ideally, existing literature should be able
judgment, and considerable interorganiza- to provide evidence in and advice on the
tional management expertise. No external most appropriate HR activities to be out-
supplier can make strategic decisions about sourced and how the relationship between
what is needed and what can be afforded (Hall HR outsourcing and the in-house HR func-
& Torrington, 1998), and decisions like these tion should be managed. However, there is a
must remain firmly in-house. paucity of rigorous empirical research in this
Moreover, firms need to manage the po- area, which leaves a number of unanswered
tential tension between the differ- questions. Rigorous empirical research is
ent objectives within the HR strat- therefore required to identify how in-house
Firms need to egy of the organization. We have HR teams manage their multisourced HR
already highlighted the consider- functions and the control mechanisms that
manage the able impact that HR outsourcing need to be in place to operate such a system
has on HR personnel, line man- successfully. In addition, it is necessary to un-
potential tension agers, employees, and outsourced derstand how HR input can reach the strate-
HR staff. If HR outsourcing is not gic level when the HR functions are delivered
between the
implemented in a way that takes by a potentially large and growing collection
different objectives due consideration of the issues in- of specialized and self-contained units, both
dicated above, there could be an internal and external to the organization.
within the HR adverse effect on the psychological The debate over HR’s contribution to or-
contract of employees, therefore ganizational performance, along with the de-
strategy of the
creating a negative impact on orga- cision by some companies to outsource rou-
organization. nizational performance. tine administrative activities in order to give
Third, in terms of the implica- their in-house HR team a more strategic role,
tions of outsourcing HR and the raises a number of questions that this article
role of the HR function, there has tried to address. Although theoretically,
may be a danger of “hollowing out” the in- outsourcing HR could be a competitive strat-
house HR function through streamlining to egy, there is insufficient empirical evidence
line management and outsourcing. As Hall to know whether it actually is in practice.
and Torrington (1998) argue, the outsourc- These questions raise a considerable research
ing of HR activities presents a potential prob- agenda for academics and provide a caution
lem of throwing out the baby with the bath- to practitioners to carefully consider all of
water. Even if the in-house HR team is to take the implications of outsourcing HR.
on a more strategic role following the out-
sourcing, this raises a number of issues as to
Acknowledgments
how it can develop, manage, and maintain
the internal and external relationships that We would like to thank the three anonymous re-
relate to its different roles: monitoring out- viewers and the associate editor Professor Scott
sourced HR activities; providing an amount Snell for their constructive comments to the first
of in-house HR activities; being an HR strate- version of this article. We would also like to thank
gist; and being a strategic partner to the busi- Rizwana Zafar for her assistance with the elec-
ness. In addition to considering the variety tronic literature searches. The work underpinning
or the portfolio of roles the HR function this article was conducted as part of a larger proj-
might adopt, from both the academic and ect funded by the Department of Health (DoH) of
practitioner point of view, we need to under- Britain. The views expressed are those of the au-
stand the processes by which these are deter- thors and do not necessarily reflect those of DoH.
 Outsourcing HR as a Competitive Strategy? 429

FANG LEE COOKE is a professor of HRM and Chinese studies at the Manchester Busi-
ness School at the University of Manchester. She has written and published widely on
issues related to human resource management, business, and employment, particularly
in China. She also has a strong interest in researching outward Chinese investment and
the employment of migrant Chinese in developed countries. Dr. Cooke is the author of
HRM, Work and Employment in China (Routledge, 2005).

JIE SHEN, PhD, is a lecturer in HRM at the School of Management, University of South
Australia. His main research interest is international human resource management,
HRM, and industrial relations in China.

Dr. ANNE MCBRIDE is a senior lecturer in employment studies and a member of the
HRM, Employment Relations, and Law group of the Manchester Business School, Uni-
versity of Manchester. Dr. McBride’s main research interests are health services man-
agement, gender relations at work, and public-sector industrial relations. She is cur-
rently leading a major U.K. Department of Health–funded research project exploring
issues of skills development and organizational learning. She has also written on work-
force modernization and working-time issues in the NHS and is also the author of Gen-
der Democracy in Trade Unions (Ashgate, 2001).

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