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Deciding whether and what to outsource is not as patently obvious as some managers might think. This paper examines issues HR executives should consider before outsourcing HR activities. The findings are based on published research and is supported by the experience of the members of the International Personnel Association, which represents 60 of the top 100 multinationals in the U.S. and Canada.
The Problem
To outsource or not to outsource, that is the problem. Given the competitive nature of business today, an increasing number of companies are answering in the affirmative, at least when it comes to HR functions. According to a survey conducted by Buck Consultants (anon., 2000), since 1996 the number of employers outsourcing HR and/or benefits activities has risen a dramatic 23%. Among the commonly mentioned advantages of outsourcing are that it leads to reductions in corporate costs and increases in efficiency, enabling internal employees to focus more directly on meeting core organizational goals.
What HR functions can and should be outsourced? What are the advantages and disadvantages of doing so? This paper addresses these issues. Critical to the discussion is a model depicting the various variables firms should take into account when deciding whether and what to outsource. The reasons companies outsource, the challenges they have faced in doing so, and what they have learned, provide the frame of reference for this model.
This paper and the outsourcing model that is presented summarize many years of research on outsourcing. It also draws on evidence from the field that supports or contradicts these findings. This evidence was gathered during an IPA panel discussion with HR executives representing some of the nation's major firms. The discussion took place at the 2002 annual meeting of the International Personnel Association where 45 members were present and engaged in the outsourcing discussion. This paper was distributed to the IPA board for additions/corrections and validation prior to its publication, thus showing support of the membership for the experiences noted within this paper.
Reasons to-and Not to-Outsource
Research on outsourcing typically presents outsourcing as primarily a time- and money-saving strategy, as a way to obtain better services at cheaper rates (Jeffay, Bohannon, & Laspisa, 1997). Yet, as the research and the comments of our panelists indicate, companies...