Value Chain Analysis - Human Resource Management

I would like to use the Value Chain Analysis to study the importance of the Human Resources function in the study of a firm's value chain. However, the latest trend has been the outsourcing of HR - especially the transactional roles in HR as they are seen as non-value adding and a non-differentiator in the value chain.

Some of the areas of HR that are in the process of being outsourced are Recruitment, Payroll processing, Training, Benefits Management, etc. These areas are seen as transactional in nature and firms are able to derive cost benefits by outsourcing these activities to companies that are able to leverage economies of scale and domain expertise to provide superior value and cost benefit to the parent firm.

Some of the core areas that are still seen as possible differentiators in HR are policy making, performance management, compensation management, etc. These are seen as functions that can add value to the entire firm and help it derive competitive advantage over other firms.

HR is responsible for the provision and management of one of the most critical factors of production - labor. It is in this role that HR can help bring in differentiation and help create greater value with the limited resources in hand.

However, this is not always the case. There are instances where some companies / industries are using the transactional functions to differentiate themselves. One example is the BPO / call center industry. The lack of retention and high levels of attrition are being countered by providing best-in-class transactional services. Companies in these industries provide excellent recruitment support, training opportunities, etc to ensure that the firm continues to lead its own value chain and also manages to be a significant part of the customers' value chain.

Going ahead, I see 2 particular divisions in the HR value chain - the separation of HR Consulting and HR Services. Both of these will feed in to the firm's HR and support its position in the value chain. However, HR Consulting will look at enhancing the core functions of firm's HR and HR Services will replace the transactional nature of the firm's HR.