Outsourcing

HR Management MBAO 6030

MBAO 6030 Human Resource Management

Outsourcing
What is Outsourcing? Outsourcing is a strategic decision to give a task or activity to an independent contractor who determines how best to do the task or activity. The firm and the independent contractor become partners and may establish a long-term relationship. Examples of outsourced activities: IT, HR, Legal services, Manufacturing, R & D. Note: Outsourcing transactions are done in the market.
MBAO 6030 Human Resource Management

Outsourcing
Outsourcing Advantages: Better quality people and knowledge may be applied to an activity or task by the outsourcing firm. Reduction in administrative costs may be possible when certain tasks are outsourced. Outsourcing certain activities and employees that do not fit with company culture may be used to preserve a strong culture or employee morale.
MBAO 6030 Human Resource Management

Outsourcing
Outsourcing Disadvantages: Outsourcing may lead to loss of control of certain activities which may be a problem on time sensitive projects for example. Outsourcing an activity may result in loss of the opportunity to gain knowledge and information that may have general application to other key processes and activities.

MBAO 6030 Human Resource Management

The Decision to Outsource

Work System Design

Insource the Work

Outsource the Work

Contingent employees: temps, consultants

Independent Contractor

MBAO 6030 Human Resource Management

When and how to outsource activities

(Baron & Kreps, 1999)
High

Strategic Importance

???

Insource

Outsource
Low Low

Contingent employees
High

Interdependence
MBAO 6030 Human Resource Management

Outsourcing: Considerations
(Baron & Kreps, 1999)

Does learning from this activity spill over to an important core activity? Can the outsourcing relationship be reversed and the work brought back inside when conditions change?

MBAO 6030 Human Resource Management

Outsourcing: Considerations
(Baron & Kreps, 1999)

Can the outsource supplier adjust more quickly to changing labor or market demands than we can?

Do we have a strong clan-like culture that would be weakened with employees who have different values or interests (such as IT employees)?

MBAO 6030 Human Resource Management

Outsourcing: Considerations
(Baron & Kreps, 1999)

Outsourcing may not be appropriate when: 1. The task is a core activity critical to strategy or technology. 2. Task is highly interdependent with core activity due to technology or work design. 3. Task requires great deal of firm specific human capital or access to proprietary information. 4. Tasks where the employees work in close proximity to regular, core employees and are similar socially to them.
MBAO 6030 Human Resource Management

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?
MBAO 6030 Human Resource Management

Outsourcing
Critical Thinking Questions 3. Some large pharmaceutical companies outsource Research & Development activities. What justification would they have to outsource this important activity?

MBAO 6030 Human Resource Management