Human Resources Outsourcing Strategies

Human Resources Outsourcing Strategies

Veronique Guilloux (Université Paris 12, France) and Michel Kalika (Université Paris, France)
DOI: 10.4018/978-1-59904-883-3.ch070
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Often, organizations externalize work activities and use employment intermediaries (consulting firms, temporary help agencies, contract companies (Nesheim, Olsen, & Kalleberg 2007). At a functional level, firms tend to externalize business as well so that boundaries of firms are extended. Historically production function, catering, cleaning, security, IT functions have been outsourced for several years. HR outsourcing is far more recent. Several elements will be discussed: HR outsourcing definition, typology, process management, and research perspectives on performance.
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Outsourcing can be defined as a phenomenon in which a company delegates a part of its in-house operations to a third party. It includes a contractual relationship for HR services with an external provider. Wahrenburg, Hackethal, Friedrich, and Gellrich (2006) find that outsourcing is a major international trend for companies from all types of industries and for most organizational business units and level. Different activities can be externalized: payroll and benefits, training, HRIS, compensation, recruiting, and/or relocation.

HR Outsourcing Typology

Practitioners subsidize RH externalization in different categories: application service provides (ASP), application outsourcing, business process outsourcing (BPO), and professional employer organization (PEO) (Guilloux & Kalika, 2008).

Different terms exist for application service provider: On-demand software or software as a service can be also found. It offers online human resources management tool and it is often used by SME.

External hosting of HR application: the firm’s application is “taken” and is hosted by the service provider

Third-party maintenance applicative concerns operational and functional maintenance of a software application. A service level agreement is determined: overall service description, service delivery financing aspect, including penalties, contract terms and conditions, and specific performance metrics governing compliant service delivery (system availability, incident resolution time…).

Application outsourcing is a computing resources management (materials and networks) which can be localized in the provider.

For a firm HR processing services consists in entrusting a whole HR process to the provider (legal monitoring, social reporting, functional aid, computation…). The vendor’s resources are mutualized on several clients. The vendor commits himself to reaching results.

Business process outsourcing (BPO) consists in entrusting whole business process to provider (Gyeung-Min & Hyun, 2007). The firm keeps its managerial and strategic decisions.

BPO can be offshore outsourcing (contracted outside a company’s own country), nearshore outsourcing (contracted to a company’s neighboring country), or onshore outsourcing.

Move on rationalization of key business leads some US firms to go further in externalizing working contract, recruitment, remuneration with “professional employer organization.” A professional employer organization assumes full responsibility for the company’s HR administration. It becomes a co-employer of the company’s workers by taking full legal responsibility of the employees (hiring, firing, pay…). This is only set for small firms and is only running in the USA (Klaas, Gainey, McClendon, & Yang 2005)

Key Terms in this Chapter

Supply Chain Management: Encompasses the planning and management of all activities involved in sourcing and procurement. It also includes coordination and collaboration with channel partners, which can be third-party service providers. Supply chain management integrates supply and demand management within and across firms.

Extended Enterprise: A concept that includes the firms as well as the stakeholders (suppliers, distributors, partners and so on)

Core Competency: An area of specialized expertise that is the result of harmonizing complex streams of technology and work activity. Atkinson distinguishes core and peripheral activities. The organisation’s core is tied with employees who are most vital for the enterprise.

Business model: First concept is generally understood as a view of the firm’s logic for creating and commercializing value. Second, business model implementation contains its translation into concrete things, such as a business structure, business processes, and infrastructure. Business models are subject to external pressure and thus constantly subject to change ( Osterwalder et al., 2005 ).

Shared Service Center: A back office optimization of process and support activities. It can be internalized or externalized.

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