Outsourcing Case

Part A: e-HRM and Outsourcing in Large Organisations (1,500 words)

1. Introduction

In these modern times outsourcing different functions of companies has become very popular, and outsourcing HR functions is no exception. Outsourcing is not unique to this modern day and age. The Romans also outsourced some government functions such as tax collection. This trend has been happening in many sectors, but it is more prevalent in multinational companies. (Beregszaszi, Hack-Polay 2012)

Some elements of the HR function have always been outsourced, for example, certain legal matters, but it seems that the trend is growing, mainly due to companies seeking to lower costs. There are several drivers for this trend but it seems that lowering costs is the first motive. There are other drivers as well. For example, some companies cited that it was a way of bypassing company politics, and this would help the recruitment process to not be biased. Other reasons given for outsourcing HR have been that it helps to procure specialist services. Therefore, the reasons given are not just for cost saving only, but also as a strategic tool. (Seth and Sethi 2011)

Related to outsourcing HR functions is e-HRM, the process of automating certain aspects of HRM such as mundane tasks like filling out forms, and creating access to stored data for both employee training as well as manager research. ( Strohmeier 2007)

2. Discussion

Outsourcing HR is also part of globalisation. The market is very competitive and part of companies' strategies is to recruit the best talent possible. Multinational companies face the biggest challenge in managing talent due to global competition and mobility of talent. As companies expand internationally, acquiring talented senior staff has been difficult, and that is one reason they look to outsourcing as a solution. Also, as the multinationals expand in emerging markets finding skilled managers and professionals locally has been a challenge. (RS Schuler 2010)

By working with vendors it is possible to tap into an international data base of potential employees. In today's job market mobility is becoming more common. Therefore if the company cannot find the necessary talent in the local country through vendors it may have a greater chance of finding talent from other countries

There are certain drawbacks in outsourcing HR as well. Some common problems are costs were higher than first thought, vendors poor service, lack of cooperation between the companies's HR and the vendor, and vendors not having enough information on a potential recruit. Also, one very big concern has been sensitive information leaking through the vendor. Therefore in deciding to outsource or not, it is important for a company to decide on its core functions that should stay in house and those that are less sensitive and can be outsourced.( Kosnik 2006)

In making this decision, the biggest concern to consider is the leaking of sensitive information. Therefore it is important for a company to distinguish between

"core" and "noncore" activities. Core activities would include top-level strategy, HR policies, appraisal and discipline. Non core activities include specialist activities such as, recruitment and outplacement, routine personnel administration, and legal advice related to employment regulations. Some companies outsource training and development if the company lacks the talent within the HR department. (Seth and Sethi 2011)

Some other concerns are that outsourcing training can be seen by employees as a breach in the psychological contract that they have with the company, which may lead to low moral. If some activities are outsourced then the remaining employees may feel that they will have fewer opportunities to gain greater experience and that may limit their career goals.

In a specialized environment the employee's view of outsourcing is quite different. Because the firm is specialized they feel that in their area of expertise they will have more opportunity to develop their career. In a specialized firm, employees welcome outsourced training and non-core activities which free them to concentrate on their special field. (Roe, Smeelen, Hoefeld 2012)

Some HRM scholars view outsourcing as a value-creating activity, which can also bring cost savings and help operations to be more flexible. (Cooke, Shen, and McBride, 2005). However, some theorists believe that some training should not be outsourced because it may lead to lack of innovation. (Gainey & Klass, 2003). There is still a lack of research on this topic, which can cause management to be unsure of what training can be outsourced and what cannot.

There has also been a correlation between organizational commitment and how employees perceive training activities. In developing organizational commitment it is not merely based on economic contracts, but social and psychological contracts are also relevant. The vendor is a third party and the quality of training that the vendor supplies will affect the employees overall perception of the company. Some employees also may feel that the company is using vendors for training that is not that important and view it as unnecessary as opposed to in-house training. However, if the vendor can supply the latest updated material in their training then it will have a positive effect.

Outsourcing general-skills training has proven to have a positive impact on the commitment of employees. This helps the company to access training that perhaps is not available within the organisation. However, in specialised training there is the danger of it causing a decline in innovation. Also, specific company knowledge could be lost by relying too much on vendors. Therefore most companies are choosing to outsource general-skills training and the more specialised training is kept in-house. (Chauhhuri 2012)

Another trend related to outsourcing is e-HRM, which is largely a result of modern technology. The goals of e-HRM are similar to outsourcing. The main goals are cost-reduction, improved HR services, and improved strategic and global orientation. HR activities play an important part in assuring a company can both recruit and maintain superior talent. Therefore some see e-HRM as a tool that can help the HR department to achieve their goals in a more effective manner.

Many studies seem to confirm that e-HRM can help HR activities be more efficient by reducing costs and speeding up processes. Because e-HRM can perform many administrative tasks, this in turn lowers the need of staff. Also some advanced e-HRM systems offer both employee and manager self service where before staff was employed to do these tasks. Also, managers can access other parts of the company