Research Paper: Human Resource Outsourcing Trends Advantages and Disadvantages

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Human Resource Outsourcing Trends (Advantages and Disadvantages

Human Resource: Outsourcing Trends

Throughout the past decade, the societies have witnessed indubitable changes on all dimensions of life. Impressive technological advancements have been made and these have been included within daily activities to improve the quality of human life. At a social level, people are becoming better informed and as such more responsible consumers and more responsible members of the modern society by focusing on environmental stability and by reducing the consumerism levels.

A major sector revealing the importance and extent of the recent changes is the business community. Within this sector, the past decade has imposed a necessity for economic agents to readdress their business models in order to survive. Contemporaneous managers no longer perceive the employees as the force operating the machines, but hold them as the most valuable organizational asset. Additionally, the customers are no longer perceived as the force buying whatever items the company produced, but they are now the ones communicating the company what it should produce and sell. The communities then are no longer the simple witnesses to the organizational endeavors, but they represent a powerful stakeholder category which can influence organizational processes.

All the changes previously mentioned, and several others, have been exacerbated by the occurrence of globalization and market liberalization. The phenomenon is generally understood as the ability of economic, political, social or technological values to transcend boundaries and become imposed as values in other global regions. Globalization has primarily promoted the free circulation of resources, such as technologies, capitals, commodities, and even human resources.

The process of globalization has allowed for the implementation of David Ricardo's theory of the comparative advantage, through capitalization on the national strengths. A particularity of this phenomenon has materialized in the outsourcing processes, which have significantly increased in popularity throughout the past decade.

2. The evolution of human resource management, the path to outsourcing

As the first factories were opened during the Industrial Revolution, people would be hired to perform mechanic tasks. They worked 12-hour days, in low paid jobs and in unsanitary and unsafe conditions. They would be required to possess low skills and they would easily be replaceable. Henry Ford was often wondering why employees brought their heads to work, when the company only needed their hands and feet (Losey, 1998).

As events progressed, the workers began to militate for better working conditions and became organized in unions. By this time, it became harder for employers to retain the staff members. The governments stepped in and issued new legislation that protected the rights of the workers and forced employers to improve working conditions. By late 1800s, more and more factory owners recognized that the levels of productivity were directly pegged to the satisfaction of the employees. By 1900, the first efforts in support of employee satisfaction had been made. The lack of employee satisfaction, considered the primary cause of absenteeism and high employee turnover rates, was beginning to be addressed through the first personnel administration processes -- worker selection, training of the employees and compensation.

In 1929, in a sustained effort to increase organizational productivity, the leaders would offer more extensive personnel programs. The new worker compensation schemes included medical coverage, vaccines, housing as well as other benefits. The term of employee motivation contoured and emerged as a new and modern form of personnel management by the 1940s. By 1970s, a new set of managers had been formed. These new leaders were no longer focused exclusively on scientific management, but were emphasizing on an improved relationship between employee and employer. These leaders centered on communications, research and public relations. They strived to boost productivity through worker creativity, involvement and initiatives.

Contemporaneous human resource management is a complex set of endeavors, focused on creating employee satisfaction and turning it into high levels of productivity. The palette of operations used in this direction is vaster than ever, including processes such as the selection of the employees who are able to become integrated within the organizational culture or of the employees who are able to add new valued for the company; the training of the staff members, their extensive remuneration or their complementary motivation. "Today, the human resource professional is charged with optimizing employee skills, matching people to jobs and maximizing the potential of employees as valuable resources" (Losey).

Given such a context, a situation was created in which the companies no longer competed just for customers, but also for staff members. Modern organizations will go to wider lengths to ensure the adequate satisfaction of their staffing needs. Yet, all these intense efforts materialize in increased consumption of financial resources. And in a context in which the generation of profits remains the ultimate aim of any economic agent, today's companies strive to attain their financial objectives through cost efficiencies -- including even cost efficiencies in terms of personnel.

3. Outsourcing

In a setting of organizational pursuit of cost efficiencies, desired concomitantly with high personnel skills, globalization offered the perfect answer -- employers would be able to hire low cost workers in foreign countries -- generally less developed ones -- and ensure the adequate completion of the tasks with reduced consumption of financial resources. In a simplistic manner, the previous lines explain the process of outsourcing. Yet, to better understand it, it is necessary to look at some definitions as they are offered by the specialized literature.

Krawjewski and Ritzman (2002) define outsourcing as "allotting work to suppliers and distributors to provide needed services and materials and to perform those processes that the organization does not perform itself."

Kovacich and Halibozek (2003) emphasize on the fact that outsourcing is not a process to be implemented for all organizational processes and most importantly, not for the core processes. While some modern situations contradict this theory, the two authors insist that outsourcing represents "contracting for outside services that are a necessary part of doing business but are not core functions or core competencies. […] Outsourcing is a tool, not a cure-all. It allows [the company] to focus on its core functions and let other companies assist by providing the services they perform best." In other words, they argue that outsourcing helps the initial company focus more on customer satisfaction by transferring complementary non-core processes to other entities.

Hirschheim, Heinzl and Dibbern (2006) argue that outsourcing is most common with information system services, and in this context, they define the process as one of "obtaining IS services through external organizations that own some or all the necessary resources and where control and management of the resources and activities, reside." Claire-Lise Benaud and Sever Bordeianu (1998) simply argue that "outsourcing is the use of outside agency to manage a function formerly carried out inside a company."

Regardless of the standpoint taken by one in understanding outsourcing, fact remains that the phenomenon has been gaining increasing popularity. It is most commonly observed in the relationship between developed countries and emergent ones. Specifically, economic agents in highly developed states look to outsource their business operations to more cost effective regions. The companies in the emergent and less developed economies sign contracts with the foreign companies by which they oblige to deliver the desired items. Outsourcing operations are extremely common within the Information Technology field, as well as within the manufacturing sector. Nike is a representative outsourcing company, having only maintained its administrative and marketing operations within the United States, and outsourced all manufacturing operations to less developed nations.

Companies engaging in outsourcing actions forward a series of reasons in support of their outsourcing decisions. Marc J. Schniederjans, Ashlyn M. Schniederjans and Dara G. Schniederjans (2005) argue that the most important of these reasons are:

the search for cost efficiencies the desire to gain outside expertise the desire to improve the quality of the services the need to focus more extensively on core processes the necessity of gaining more access to technologies.

The general trend was that of outsourcing manufacturing operations and information technology services. In the United States for instance, the years between 1996 and 2003 have witnessed an astonishing increase in outsourced it services from $100 billion to nearly $600 billion, as revealed in the chart below:

Source: Marc J. Schniederjans, Ashlyn M. Schniederjans and Dara G. Schniederjans

In the more recent period however, a change has occurred in terms of the actual operations being outsourced. While it and manufacturing remain the most preponderant ones, increasing popularity is being gained by various staff functions, such as accounting, pension administration, tax and so on. Large size entities are currently outsourcing whole processes, rather than just isolated operations. And most importantly, more and more of the outsourced operations are closer to core operations. "The trend in large organizations is to outsource entire processes. This will be done with strategic relationships and the transfer of significant decision rights. The providers will have large, sophisticated operations providing value-added services at a level incomprehensible even fifteen years ago. […] the outsourcing begins with processes furthest from the core and then… [END OF PREVIEW]

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