In today’s fierce competition in business, corporations need to generate more revenue creatively while keeping cost of sales at minimum level without scarifying efforts. Michael Porter refers this current competition as ‘hyper competition’, which he thinks it best describes the intense development of business today. Amidst highly demanding consumers, companies spawn new methods and uncharted techniques to gain the lead within their industries.
Concerning the need to reduce costs, enterprises strive for finding the best methods to increase revenue while keeping costs as low as possible. While the technology advancement can help enterprises to reach economy of scale, outsourcing of employees (human resources) can be the attractive savior for them to keep their fixed costs, which contributed by cost of employees and researches to name a few, to reach minimum level.
Many believed that outsourcing is a breakthrough that will adjust the way corporations manage their human resources in the future although some may have problems in differentiating outsourcing with employer-vendor relationship, but the bottom line is outsourcing involves a degree of two-way relationship, including information exchange and coordination. In addition, there are also those who reveal the economic threats that come along with the outsourcing method.
Outsourcing is an activity to transfer existing business function to external provider that includes delegating the functions of relevant physical and human assets toward external providers. While outsourcing provides attractive benefits for employers, they should consider many potential drawbacks including the different culture between employers and the outsourced personnel.
II. Statement of the Problem
Outsourcing involves transferring significant amount of management control and decision making to the chosen outsourcing provider. Fortunately, in the Internet era where any documentations process is exchangeable over the Internet and jobs can be discussed via e-mail or instant messaging, outsourcing-typed employment model have proved to promote significant savings. According to McKinsey & Co, Internet-enabled services (ITES) market is likely to touch $142 billion in 2009. There would be a net saving about $390 billion from current $532 billion for these services (Kurian, 2003). U.S. can fulfill the net saving through off shoring to other countries, like India.
Dookril (2004), in general, says there are two main advantages that companies obtain by outsourcing:
– Focusing on Core Competencies
This is the most common reason to outsource in which the company can focus and develop its core competences although some companies also outsource their core functions in order to gain better competitive advantages in the market they serve.
– Lowering Cost
At a glance, outsourcing can help companies to cut additional cost associated with the employee cost like medical and travel allowance since the companies only pay in bulks to the provider of outsourcing staffs. In this situation, the company can shift the variable costs of employees into fixed costs, which in turn, enable the company to manage its cost of sales and offer competitive price to customers.
However, outsourcing might also poses disadvantages since the inclusion of external parties in efforts of achieving corporate goal. The common problems in outsourcing are:
Uncertainty of Product or Service Quality
Media and companies, which has used outsourcing, reveals the discouraging facts that sometimes outsourcing leads to worse services or products as the outsourced functions also reach core functions like sales and customer service.
Because the outsourcing provider has access to certain corporate functions, documents, database, and other resources; it raises concerns about the security of corporate confidential information.
Concerning the benefits and drawbacks of outsourcing method in human resource management (HRM) discussion, as mentioned above, therefore the research statement or question for this research is
“As corporations realize the benefits of outsourcing, what are some of the barriers that HR outsourcing creates between employee and employers that may widen the gap between tem and result in the unachieved target?”
I choose this research statement or question since it may be different from others who only focus on the benefits of outsourcing. Instead of discussing the partial discussion on outsourcing issues, I decide to discuss the potential clashes caused by outsourcing since according to Michel Janssen, founder and President of Everest Group, there is possibility that outsourcing have closed relation to the loss of jobs in the US.
Concerning the elaboration of outsourcing, this paper will discuss three main research questions as following:
1. This paper intends to discuss how successful is human resource outsourcing and what factors and initiatives that best take advantages of outsourcing that contribute to the success?
2. Using the non-participant observation method, collecting data and analyzing qualitative information from journal, books, magazine and other online materials, this paper aims at elaborating the effects does HR outsourcing have on employees’ benefits and services?
3. In addition, the paper aims at formulating and suggesting the areas of human resources need outsourcing in order to describe the future for HR outsourcing
By using the three research questions as mentioned above, this paper hopes that in the end, there are particular stances towards outsourcing issues in order to better manage human resources of a company.