HUMAN RESOURCE

OUTSOURCING
Evolving Role of HR
• Strategic management decisions
• Value-added services
• Achieve a competitive edge
• Primary functions are based on frameworks:
competency-based
structural
process-oriented
profit centers
HRO?
■ Any activity in which a company
lacks internal expertise and
confidentiality and requires an
unbiased opinion on human
resources, can be outsourced.
■ HR outsourcing services:
PEOs, BPOs, ASPs, or e-services.
Professional employer
organization (PEO)
■ Assumes full responsibility of
company's HR administration
■ Takes full legal responsibility of
your employees
Business process
outsourcing (BPO)
■ Referring to outsourcing in all
fields, not just HR
■ Putting in new technology or
applying existing technology in a
new way to improve a process
■ Self-access and HR data
warehousing
Application service
providers (ASPs)
■ host software on the Web and rent
it to users
■ packaged applications (People
Soft) or customized HR software
Why are organizations
outsourcing?
Preference for HRO
■ Outsourcing of BOP instead of BPO
■ Saves key people’s time
■ Concentration on core competency
■ Enhancing profitability
■ Mid-sized cos - >87% of funds towards
routine processing transactions
■ Best systems, most experienced minds
 Some Statistics
■ U.S. - >2/3rds of the corporations have
outsourced 5 or more HR functions
■ 98% are ready to further outsource
■ HR personnel shrunk by 16%
■ Survey on “Outsourcing in the Asia-Pacific”
confirms lack of momentum(5%)
■ Outsourcing market in APAC region - $1.14 billion
in 1999 to $2.56 billion in 2004
 Advantages of HRO
• Reducing or eliminating fines and penalties by keeping pace with
changing government regulations.
• Achieving measurable, bottom-line results by increasing efficiency
and leveraging outsourcee’s economies of scale.
• Lowering infrastructure and facility costs by having the HR
function administered off-site.
• Sharpening your business focus by eliminating interruptions
caused by employer obligations, risks and liability.
• Improving employee retention and morale by providing timely
answers to payroll and benefits questions.
 When and how to outsource activities
(Baron & Kreps, 1999)

High
Strategic Importance

??? Insource

Outsource Contingent
employees
Low
Low High

Interdependence

MBAO 6030 Human Resource Management

Factors hampering HRO
■ Cost factor & Confidentiality
■ The fear of losing jobs
■ Loss of sensitive information to
public/competition
■ Ethics and quality of outsourcing vendors
■ Possibility of security breaches
■ Cost-benefit equation not clear
■ Lack of psychological acceptance
 EXAMPLES
■ Pepsico: Signed a 10 year deal with Hewitt
Associates
■ Delta Airlines: Signed a deal with Affiliated
Computer Services for 7 years, valued at $120
million.
■ Duke Energy: Has a 7 1/2-year contract with
Hewitt Associates to handle payroll,
performance management, and other HR
back-office administrative services.
Outsource Retain
activities activities
• Have high • Support key
volumes business processes
• Are repetitive • Get influenced by
and routine external forces
• Reflect • Require high
content expertise
consistent
customer needs • Are ad-hoc,
periodic future
• Have
oriented projects
opportunities to
• Are difficult to
leverage
measure
• Are service and
• Have high impact
efficiency driven
on organization as
• Are easily a result of non
measurable in performance,
terms of failure or mistake
performance
Areas where HRO will work
• Relocation • HR Information
Systems
• Recruiting/Staffin
• Disciplinary Issues
g • HR Surveys
• Competence • HR Research
Development • Staff Loans and Perks
• Salary • Manpower and Career
Administration Planning

• Consulting and
Training
Outsourcing
Critical Thinking Questions
1. The university hires many contingent faculty (“adjuncts”)
to teach courses on a part-time basis. What challenges
does this present to university administration? Why are
these adjuncts hired in the first place?
2. A current trend in the practice of HR management is to
outsource a good deal of the HR function. Which
aspects of the HR activities should be outsourced, and
which ones should be kept inside a firm?
Critical Thinking Questions
3. Some large pharmaceutical companies outsource
Research & Development activities. What
justification would they have to outsource this
important activity?
 CASE STUDY
■ HR XCEL serves clients and their employees in all 50
states, Canada, Mexico and Puerto Rico. We work
with companies of various sizes in a wide variety of
industries.

Wondering if HR XCEL is a good fit for your

company? Read about several HR XCEL clients, how
we approached their HR challenges, provided a
solution and the successful results we achieved.