STRATEGIC HUMAN RESOURCE PLANNING

Chapter 14 OUTSOURCING

OUTSOURCING DEFINITION
Outsourcing

occurs when an organization contracts with another organization to provide services or products of a major function or activity Or when work that is usually performed internally is shifted to an external provider

OUTSOURCING HR FUNCTIONS
Surveys

have shown that nearly all organization have outsources part of their HR functions (eg. Talent Search) HR function most likely to be outsourced are ; temporary staffing, payroll, training, recruiting and benefits administration. Outsourcing is also a response to the demand from executives that HR reduce cost of its services

OUTSOURCING IN LARGE ORGANIZATION

While

small firms might outsource all HR functions, most large firms retain critical components. The reason might be: HR function if so critical to the culture and strategic objectives of an organization Situation arise that are impossible to predict (eg. industrial relation dispute) Lack of providers of total HRM services

RATIONALE FOR OUTSOURCING

There

are six major reasons that organizations use to justify outsourcing: Financial Strategic Focus Technical Improved Service Specialized Expertise Organization Politics

 Financial

Specialized vendors are more efficient because they can spread the costs of training personnel and undertaking research and development across more users Company users of service may be more cautious when the contractor charges them for each service as opposed to the free in-house service.

Strategic

Focus

Most employers recognize that they cannot pursue excellence in all areas so they decide to focus on their core competence (eg. Customer service or innovation).

They decide to move secondary functions (eg. Benefits administration) to firms in which these function are a core competence. By outsourcing non-core activities managers hope to be able to focus on value-added roles.
Many functions are outsourced because organizations want to improve technical services or they cannot find technical talent or they need quick and reliable access to new technologies Technology also enables a company to reduce transaction time .

Technical

 Improved

Service

Managers can choose the best-of-breed vendors that have outstanding track records and more flexibility. When using a service provider whose focus is service, clients of HR see a marked improvement in flexibility, response and performance. Confidentiality is also a good reason to outsource.

Organizational

Politics

The decision to outsource might be to get rid of a troublesome department Outsourcing also reduces the headcount. Headcount is specially important in the public sectors

RISKS AND LIMITATIONS OF OURSOURCING

The

decision to outsource carries risks and has limitations, the following should be considered before deciding to outsource: Projected Benefits vs. Actual Benefits Service Risks Employee Morale Reduced Value

PROJECT BENEFIT VS. ACTUAL BENEFIT

There

are hints from organization with experience in outsourcing that the process is not as cost-effective and problem free as expected The reason for the cost overrides include; system incompatibilities and client demands outside the standard vendor package. Outsourcing compares poorly to other processes designed to save cost (eg. Reengineering)

SERVICE RISKS
Because

the vendor will provide services as specified in the contract, flexibility is reduced when needs of the user organization changes. It is also possible that the vendor may enter the market and become a competitor These service risks can be minimized by erecting strategic blocks (terms in the contracts that limit the replication of certain competitive advantages) Risk can also be minimized by spreading the outsourcing among many vendors

EMPLOYEE MORALE
Outsourcing is a form of restructuring that always results in displaced employees. When the sense of identification and feeling of security of employees to their organizations is disrupted, they tend to get resentful and retaliatory. Outsourcing can lead to the disintegration of an organizations culture Managers will have to deal with the reactions of displaced employees and survivors and allow for a period of mourning.

REDUCED VALUE
There

might be incidents where the vendor sell the acquired know-how and company secrets to a competitor Organizations can find that outsourcing employees skills limits the organizations ability to learn and exploit changes. When HR functions are outsourced, the internal image of HR may deteriorate as there is less interaction with internal customers

MANAGEMENT OF OURSOURCING
Managing

an outsourcing well is critical. The following should closely be examined: Selecting the Vendor Negotiating the Contract Monitor the Arrangement

SELECTING THE VENDOR

The following steps are followed when selecting a vendor:

Inform the staff of the affected function Prepare a request for proposal Invite internal and external bids Establish a team to evaluate these bids

The best practice is to compare vendor bids against bids submitted by in-house functional experts. The process should be as obsessive and detailed as the due diligence undertaken with mergers and acquisitions.

NEGOTIATING THE CONTRACT

Experts

advise organizations looking t outsource to not work with the contract that the vendor will offer An essential first step that the user organization must undertake is the establishment of benchmark levels with current services. Performance standards should be stipulated in the contract and failure to meet these standards must result in penalties and if service is superior incentives should be built into the contract.

MONITOR THE ARRANGEMENT

A

person or a team of people (depending on the complexity of arrangement) should be assigned to monitor that results are as expected. The outsourced project or function must be clearly defined. References should be checked The user organization must demand frequent and accurate reporting,

THANK YOU