investigate the strategy of using agency workers to outsource

Write a 10000 word to

BIRMINGHAMCITYBUSINESSSCHOOL

POSTGRADUATE DEGREES

COURSEWORK FRONT SHEET

MODULE TITLE: Investigating a business issue from a HR perspective

MODULE CODE: IHR 7023

LECTURER: F Preen

ISSUE DATE: September 2012

HAND IN DATE: 27 September 2013

HAND BACK DATE: 27 November 2013

Learning outcomes and pass attainment level:

1. Identify and plan a project that is of strategic relevance to the organisation
2. Present a business report, to include a literature review, critique of research methods, data collection, analysis, findings, conclusions and recommendations.
3. Write a reflective account of what has been learned during the project and how this can be applied in the future.
See attachment for Distinction; Merit; Pass and Fail attainment levels

Assignment Title
: The Poster Presentation

The Business report provides the opportunity for learners to demonstrate the ability to diagnose and investigate a live business issue from an HR perspective, to locate the work within the body of contemporary knowledge, to collect and analyse data, to derive supportable conclusions and to make practical and actionable recommendations for change, improvement or enhancement of current practice.

The assessment for the module comprises a portfolio of a written report (10,000 words) and a poster presentation. The weighting is 80% for the written report and 20% for the poster presentation.

Posters are an effective way of communicating concisely, visually and attractively, and can be a powerful way of getting information across. Academic posters summarise information or research concisely and attractively, to help publicise it and generate discussion.

Posters are widely used in the academic community, and most conferences include poster presentations in their programmes. Academic posters can reach a wide audience as they may be displayed for several hours or days, at national or international conferences. They may also be published online as part of conference proceedings, becoming part of a permanent record of research activity.

Assignment task

For this part of the assessment you are required to produce one A1 size poster that explains what you have done for the Business report; what you have found and the recommendations from your research. It should explain the following:

· What was the problem; why the issue was important; the specific aims, objectives and scope of your research

· What the existing literature told you about the problem

· How you went about your research to obtain primary data; which methods you used

· Your findings and conclusions

· Your recommendations

The assessment criteria will include the extent to which you have explained these aspects of your research in an attractive and concise summary as well as the demonstration of critical evaluation.

As well as handing in your poster on the deadline date you are asked to attend a poster display event and answer possible questions about your poster. The event will be held on the same date between 10.00 am and 11.30 am and you are asked to pin your posters to the display points in a room to be notified nearer the time through Moodle. You will need to take down your poster to hand in to G521 by the 12.00 noon deadline.

Guidance on Posters

Detailed guidance will be given on the production of an academic poster in the Research Methods module and it is strongly recommended that all students attend this session.

Further advice and guidance will be placed on Moodle.

Useful websites include,

http://lorien.ncl.ac.uk/ming/Dept/Tips/present/posters.htm

http://www.gcal.ac.uk/coursework/presentations/posters.html

Note that whether prepared using PowerPoint or on separate sheets mounted on card, the Poster must be prepared to be displayed at a maximum size of one sheet of

A1. This is equivalent to 8 sides of A4.

ASSESSMENT CRITERIA FOR THE POSTER PRESENTATION OF THE BUSINESS REPORT

FAIL	PASS	MERIT
Explains all the essential elements of what was undertaken in the research ie: · Which organisation; the problem; why important; the specific aims, objectives and scope of the research · What the existing literature told you about the problem · How you went about your research to obtain primary data; which methods you used · Findings and conclusions · Recommendations	Does not explain all the elements required or only part explains each of them	Explains all the elements in the poster	Explains all the elements in the poster and demonstrates critical evaluation
Summarises information: · Succinctly · Simplicity and clarity · Clearly in terms of design, text and images · Laid out in a logical order	Rambling and/or incoherent rather than succinct; not clear or simple; the design, text and/or images do not explain the research clearly. No logical order.	The poster presents information succinctly and clearly. There is a clear logical order to the information. The design, text and images are appropriate	The poster is succinct, but conveys a lot of information about the research that fully explains what it encompassed
Attractiveness: • Visually – colour used appropriately • Grammatically, syntax, spelling, referencing	Visually the poster is not attractive and puts people off from wanting to know more about the research. An infelicitous style.	The poster is attractive to the viewer visually and the grammar, spelling syntax do not need amending	The presentation used attracts the viewer to it and to read it. It is so appealing that it prompts further discussion with the presenter

BIRMINGHAMCITYBUSINESSSCHOOL

POSTGRADUATE DEGREES

COURSEWORK FRONT SHEET

MODULE TITLE: Investigating a business issue from a HR perspective

MODULE CODE: IHR 7023

LECTURER: F Preen

ISSUE DATE: September 2012

HAND IN DATE: 27 September 2013

HAND BACK DATE: 27 November 2013

Learning outcomes and pass attainment level:

Assignment Title
: The Poster Presentation

The assessment for the module comprises a portfolio of a written report (10,000 words) and a poster presentation. The weighting is 80% for the written report and 20% for the poster presentation.

Assignment task

· What was the problem; why the issue was important; the specific aims, objectives and scope of your research

· What the existing literature told you about the problem

· How you went about your research to obtain primary data; which methods you used

· Your findings and conclusions

· Your recommendations

The assessment criteria will include the extent to which you have explained these aspects of your research in an attractive and concise summary as well as the demonstration of critical evaluation.

Guidance on Posters

Detailed guidance will be given on the production of an academic poster in the Research Methods module and it is strongly recommended that all students attend this session.

Further advice and guidance will be placed on Moodle.

Useful websites include,

http://lorien.ncl.ac.uk/ming/Dept/Tips/present/posters.htm

http://www.gcal.ac.uk/coursework/presentations/posters.html

Note that whether prepared using PowerPoint or on separate sheets mounted on card, the Poster must be prepared to be displayed at a maximum size of one sheet of

A1. This is equivalent to 8 sides of A4.

ASSESSMENT CRITERIA FOR THE POSTER PRESENTATION OF THE BUSINESS REPORT

FAIL	PASS	MERIT
Explains all the essential elements of what was undertaken in the research ie: · Which organisation; the problem; why important; the specific aims, objectives and scope of the research · What the existing literature told you about the problem · How you went about your research to obtain primary data; which methods you used · Findings and conclusions · Recommendations	Does not explain all the elements required or only part explains each of them	Explains all the elements in the poster	Explains all the elements in the poster and demonstrates critical evaluation
Summarises information: · Succinctly · Simplicity and clarity · Clearly in terms of design, text and images · Laid out in a logical order	Rambling and/or incoherent rather than succinct; not clear or simple; the design, text and/or images do not explain the research clearly. No logical order.	The poster presents information succinctly and clearly. There is a clear logical order to the information. The design, text and images are appropriate	The poster is succinct, but conveys a lot of information about the research that fully explains what it encompassed
Attractiveness: • Visually – colour used appropriately • Grammatically, syntax, spelling, referencing	Visually the poster is not attractive and puts people off from wanting to know more about the research. An infelicitous style.	The poster is attractive to the viewer visually and the grammar, spelling syntax do not need amending	The presentation used attracts the viewer to it and to read it. It is so appealing that it prompts further discussion with the presenter

AIM

To investigate the strategy of using agency workers to outsource

OBJECTIVES

· To explore the reasons for Human Resource outsourcing

· Examine and analyse the various benefits derived from outsourcing the Human Resource sector of a company

· what aspect of the Human Resource function do companies outsource

INTRODUCTION

Outsourcing has been defined by Gupta and Gupta (1992) as ‘the concept of hiring outside professional services to meet the in-house needs of an organisation or agency’ another explanation is a managerial approach delegating non-core functions of the organisation to other specialist and efficient services providers. In recent times, many companies are considering outsourcing their Human Resource because it is becoming a viable option. In the United Kingdom, the situation has been drastic, especially in the hotel sector.

The term ‘Human Resource’ was once seen in companies operations as a department that issued policies, heard grievances and problems of it staff. As time went on, it then included various aspects of training that benefits administration and staffing. The focus however is gradually changing again, now as a strategic consultant to the main business, trying to match personnel and their skills with the corporate goals of the company with the view of achieving competitive advantage. Human Resource outsourcing is becoming popular due to the perceived numerous benefits with emphasis on cost effectiveness and adding value to the organisation. In the United Kingdom, the growth of Human Resource outsourcing stemmed from increased demand in the public sector but now the private sector is also expressing more interest.

(Winkleman et al, 1995) explained: outsourcing is actually not a new concept because organisations have always hired outside providers services in assisting their operations, especially Information and Communication Technology (ICT). What makes it different today is the range of services organisations are asking for from suppliers and the extent to which it has become politically correct and responses to changing market and corporate conditions.

The rationale for outsourcing is simple and compelling in that contracting part of the operation is seen to be cheaper than the company doing all by itself. (Hendry,1995) in his discussion states that outsourcing not only enable organisation to make gains but also allow them to focus more especially on those activities it can perform better in-house. Even though the cost factor is obvious, (Rubin, 1990) emphasized the point that it is more important to understand the managerial basis of decision-making. Aside its cost effectiveness, it also has a strategic dimension whilst organisations attempt to find the ‘right size to fit a new environment’.

Armstrong (2001) introduced a list of Human Resource areas that are often outsourced. These are: Training, Payroll Management, Health and Safety Monitoring and Advice, Recruitment and finally Employee Welfare and Counselling activities.

Different authors have classified outsourcing drivers. According to (Winkleman et al, 1993) there are two basic drivers for outsourcing success; these are cost reduction and strategic shift in how organisations operate. (Grupter et al, 1992) added two more drivers as market forces and technical considerations.

(Hiemstra et al, 1993) also indicated four drivers, which are cost, capital, knowledge and capacity. (Beulen et al, 1994) suggested five main drivers for outsourcing: quality, cost, finance, core-business and cooperation.

LITERATURE REVIEW

The review of literature is a key process of any research project as it allows research to be placed in context. Equally, it does not only become familiar concepts, theories and arguments associated to the research topic but also identify any gaps in the audience’s knowledge (Veal, 1997; Finn, Elliot-White and Walton, 2000).

The overall purpose of human resource management is to ensure that the organisation is able to achieve success through people. HRM aims to increase organisational effectiveness and capability – the capacity of an organisation to achieve its goals by making the best use of the resources available to it. Ulrich and Lake (1990) remarked that: ‘HRM systems can be the source of organisational capabilities that allow ﬁrms to learn and capitalise on new opportunities.’ But HRM has an ethical dimension which means that it must also be concerned with the rights and needs of people in organisations through the exercise of social responsibility.

The literature has been categorised into three sections: reasons for outsourcing, the benefits of outsourcing and the issue of control.

Traditionally Human Resource activities were performed in-house but now on an increase, being outsourced. This is because it has proven to reduce cost and provide economies of scale, gaining access to expertise, among others. In other instances, as any other discipline, outsourcing among its benefits also stands its limitation of inefficiency because of supplier’s lack of firm-specific knowledge and engages in opportunistic behaviour (Ulrich 1996).

Argument against outsourcing:

This debate was published in the Human Resource Management International Digest in 2005. Gordon Croy, group supplier chain director of NTL, in his argument believe that outsourcing recruitment is not a sensible option. For him, there is one thing the recruitment agency lack, that is having in-depth knowledge and understanding of the business culture and its subtle modifications as the business managers will consider in its recruitment selection. What the recruitment agencies focus on is matching people to job descriptions. He again argued that managers could have gone through much of the process of recruitment rather than spending that time to brief a recruitment agency properly and feel confident that they have grasped the culture to meet their requirement.

From time management point of view, Gordon Croy further argued that the reason for outsourcing as time management does not really hold in today’s world of business because online advertising and electronic mails saves a lot of time involved with recruitment. Again, initial interview could also be done on phone and would only have to spend time to meet face-to-face with the selected few best applicants.

In the view of cost, Croy argues that recruitment companies cannot guarantee an effective recruitment, yet it will definitely guarantee a sizable cost. Since the recruitment agencies demand a percentage of fee upfront, as well as money for advertising, these monies are not refundable and therefore would not be able to meet the company’s requirement. We should remember that recruitment agencies are also in business to make profit.

Argument in support of outsourcing:

A proponent of outsourcing, Bryan Duggan, head of recruitment at PMMS counters much of Croy’s argument. Talking about cost, he is of the opinion that though outsourcing recruitment seems an expensive option, it may be cheaper in reality. He calculates that taking into consideration two managers’ direct salaries as well as business overheads and revenue missed because their attention is diverted from their usual practice. He estimated about £11,000 a day lost for the involvement of those managers who have shifted away from their prime function.

Aside money though, Duggan argues that the recruitment process is a strategic function and as such should be handled by professionals. In that the cost of hiring a wrong person is far more and could be minimised by using an experienced agency that has access to a lot of candidates and tried and tested methods of screening them to the best effect. They research into and have learned skills of psychology, curriculum vitae reviewing, body language and interviewing. Managers whose specialisms are totally different should not solely handle that.

In the case of volume recruitment, the agencies with their experience, established infrastructure and recruitment processes become most useful. The agency would be in the best position to know how to handle unexpectedly large numbers of responses, how to standardize applicants and run the right tool.

Simon Pettit, a business head of Hudson, adds that finding the right person is not an easy task and is very involving. It means having a deep understanding of the marketplace and creative ideas about the approach to use. A lot goes onto advertising such as using the press, online advertising, leafleting, and posters among others. His tacit point is that the manager will not have all the time, experience and the creative ideas to go the extra mile to find the right people. This limits the chance of getting the right people.

REASONS FOR OUTSOURCING:

Gaining Competitive advantage:

Human Resource outsourcing is a managerial decision, to support managers’ decisions as to outsource Human Resource activities or not, Adler (2003) has classified some major factors to assist organisations in deciding which Human Resource process to outsource. These factors are dependency risks, spillover risks, trust, relative proficiency, strategic capabilities and flexibility. These factors were the base considerations for BP outsourcing deal with Exult Inc. in December, 1999. The impact of this deal was though a success. Achieving competitive advantage was a paramount reason for this decision of outsourcing.

Other Authors, (Becker et al 1998) undertook a research to emphasize the fact that Human Resource system can provide competitive advantage to organisation, in that with the supply of more expertise probably from a different environment with different skills and the know-how can turn the whole organisation around, hence achieving a competitive advantage over it competitors. Managers therefore with this notion of gaining new experience may decide to sort elsewhere. More research has proven the fact that Human Resource is a collective system of activities and has a direct correlation with firm’s performance.

(Switser 1997) explains that Human Resource outsourcing represent a strategic tool for gaining competitive advantage. He mentioned that when Human Resource activities are outsourced, it gives both Human Resource managers and non Human Resource managers’ spare time to deal with strategic business issues. This also provides an alternative argument in support of Human Resource outsourcing.

Another argument in support of in-house sourcing is the fact that the Human Resource Manager stands the opportunity of knowing the potentials of the applicant after going through the applicant’s Curriculum Vitae. Though the applicant may not be a good match for the current vacancy, he/she might be a perfect fit for another field of the business and such an opportunity might not be skipped. If a recruitment agency is to do this, they might be ignored because they are working towards a specific job description and such a potentially great employee may be lost.
From time management point of view, Gordon Croy further argued that the reason for outsourcing as time management does not really hold in today’s world of business because online advertising and electronic mails saves a lot of time involved with recruitment. Again, initial interview could also be done on phone and would only have to spend time to meet face-to-face with the selected few best applicants.

In the view of cost, Croy argues that recruitment companies cannot guarantee an effective recruitment, yet it will definitely guarantee a sizable cost. Since the recruitment agencies demand a percentage of fee upfront, as well as money for advertising, these monies are not refundable and therefore would not be able to meet the company’s requirement. It’s important remember that recruitment agencies are also in business to make profit.

Minimising cost:

One of the reasons of Human Resource outsourcing has been identified as reducing cost. The activist, ( Roberts, 2001) campaigned for outsourcing as substantially lowering costs and risk, while greatly expanding organisational flexibility, innovative capabilities, and opportunities for creating value-added stakeholder returns”. Obviously the target of cutting down cost of production is a primary reason why many companies consider the option of outsourcing. In the United States (US) for example, saving in the cost of labour was a major incentive why many companies tend to outsource. For instance, these facts were given in United State outsourcing article by Vietor and Veytsman (2007). Financial analyst in the US earns about $35 per hour, it costs only about $10 per hour for the same position for a person in India. Similarly, employees in China and Mexico were willing to work $1-$2.50 per hour as compared to $11-$20 per hour in the US. In effect it is convincing enough for a company to outsource rather than provide in-house. However, these reasons are not without challenges. Some of the challenges have been identified as quality of HR services from suppliers, insufficient employee preparation towards the jobs, and lack of proficiency to manage HR outsourcing.

Reduces workload of staff:

According to (Klass, 2003) one vital rationale for Human Resource outsourcing has been reducing workload on regular staff. Outsourcing actually takes off some of the heavy schedules on managers and other staff involved with the processes of recruitment. Reducing work overload creates more time and increase flexibility on managers to manage the business effectively. There is less distraction and more concentration on planning, operating and growing the business. It also allows managers to focus on best practice- what they are good at doing best. Staff recruitment is a tedious job and very involving. It is not just about getting the employee to the field but also concerns staff training, logistics and equipping the staff with all the necessary tools needed to do the work effectively. When the company decides to outsource all of its Human Resource, these would be taken care of by the supplier leaving the outsourcer with little or no workload.

Strategic move:

To some organisations, HR outsourcing is a strategic move. The vision is to reduce cost, achieve workforce flexibility, access HR expertise and focus managerial resource and keep up with changing workforce regulations. (Klaas et al, 1998).

Every organisation has its goals and objectives to achieve so as to be successful to remain in business. For the organisation to be successful, it should be strong enough to cope with it competitors. However this could only be achieved through a well-developed strategic process. Strategy in simple terms is the critical plans and decisions taken by an organisation in achieving its targets in business. However if to the organisation, the Human Resource management such as payroll, logistics and recruitment is not of strategic relevance, could ignore outsourcing.

DiRomualdo and Gurbaxani (1998) have identified three strategic intents by businesses. They argue that firms outsource so as to achieve anyone or more of these three. They are strategic improvement (cost reduction and enhancement of efficiency), strategic business impact (improving contribution to companies performance within existing lives of business) and finally strategic commercial exploitation (focus on leveraging technology-related assets).

The strategic literature has basically point out the cost effectiveness as primary reason for outsourcing but has now shifted to other reasons of strategic re-positioning, greater service integration, higher value creation and core competence enhancement

(Quinn 1999)

Some researches further argue in support of strategic outsourcing. Outsourcing decision is taken to improve incentives within a firm. That is, the intensity of managerial incentive is a primary motivator since managerial efforts are focused on core competence

According to (Bates, 2002) Human Resource outsourcing continues to grow at a very rapidly pace. He estimated the growth is expected to rise to $100 billion per year. Professional Employer Organisations offer several Human Resource services amongst them are benefit administration, 401k administration and insurance administration. Professional Employer Organisations are “growing about 30% per year” (Hirschman 2000) and is estimated to continue to grow at this pace between 2005 and 2010.

(Ratnam, 2001) describes the strategic aspect of Human Resource sourcing. His argument is that Human Resource outsourcing is a key value differentiator. Perhaps heavy investments as coupled with the issues of today’s dynamic market situation, which means outsourcing which is directed towards strategic supplier partnerships is a key value differentiator.

As the business environment conditions in recent times, he asserts that companies should have flexibility in order to meet it current and future opportunities. This behaviour provides the ability to manage and cope with the changing market situations in order to remain competitive.

Achieving core competency:

Another strong case for Human Resource outsourcing has been made by Armstrong (2003). He claims that there has been a drastic shift from the view of Human Resource services as a major responsibility of the organisation, to the stance that it can be contracted to an external body; the excuse for resorting to this exercise is “prove it cannot be subcontracted”.

As stated by the institute of personnel development 1999, (cited in Armstrong, 2003), One major cause in support to increase in outsourcing remains the concept of the organisation which concentrate in-house expertise on it primary activities and outsource any necessary support from range of suppliers.

The point is that Human Resource managers can play more strategic roles by contributing to strategising the company’s future direction rather than spending time on staff payroll or checking on absence records.

Alternative opinion in support of this argument in (Pollit, 2004), discuss a cable and wireless manager, who expressed that after the company’s Human Resource entry-level services were outsourced; management then had enough time and focused more on strategic issues such as change management skills, internal-consulting skills and project management skills. This improvement was believed to be influential, enjoying easy entry to senior people, organising programs and representing senior management in transforming the whole company. He believed that the three functions are very necessary in enhancing the skill capability of Human Resource.

Further explanation on this is (Raynor, 1992) who in his argument mentioned and I quote: ‘after all….. we are not in business of managing compensation claims, hiring people or maintaining a building; rather we are in a business of writing software, or designing batteries or manufacturing automobiles. Why not hire an outside company that is an expert at providing the services that are, for us, essentially a distraction from our primary business?’

Technology advancement:

The recent trend of technology also contributes to the issue of outsourcing. It creates room for the provision and purchase of outsourcing services. Modern use of technological gargets calls for demand and hence supply of labour to operate them. Most of these equipments require specialised skills and experts to take charge. So therefore organisations in such need would resort to outsource.

In respect to (Mintzberg et al 1995), the overall basis for any outsourcing activity as cited in Allen Colin’s article on Human Resource outsourcing is that, outsourcing provides.

· Greater economics of scale

· Cost effective

· Levels of expertise

· Flexibility

· Reduces cost and improves valued-added

BENEFITS:

Outsourcing predominately increase assets and reduce cost in the immediate financial period. There has been a significant savings on operational and capital costs by organisations engaged in outsourcing parts of their in-house operations ( Rimmer, 1991).

Laugen et al (2005) in their research found a correlation between outsourcing best practice and high performing companies. This is clearly explained by the Transaction Cost Economics (TCE ) – the underpinning for make or buy decisions

In TCE the decision as to either to buy or produce in-house are determined by the most cost-effective option. Here the organisation weighs the cost and benefit to determine which process of Human Resource outsourcing will cost them the least should they outsource. To this regard, Marshall (2001) identified differing natures of the outsourcing management processes associated with high, medium and low asset specificity.

Assessment is carried out by the organisation analysing the cost of internal operation as compared to sourcing from a supplier. Based on that, management decision is taken as to outsource or not to outsource. (Freytag and Kirk, 2003; Momme and Hvolby, 2002; Canez et al., 2000) have developed frameworks to this effect, others are (Baines et al., 2005) strategic positioning process for “make” versus “buy” decision-making and outsource supplier selection. (Klaas et al 1999) also used the TCE to develop hypothesis about organisational-level factors that are likely to affect whether reliance on Human Resource outsourcing will produce benefits for the organisation. i.e. idiosyncratic Human Resource practices, uncertainty, pay level, firm size, overall outsourcing emphasis, cost pressures, Human Resource strategic involvement to develop seven hypothesis.

Outsourcing looks beyond just short-term cost savings, another motivating factor is the organisations ability to focus on it “core” activities (Arnold, 2000). Focusing on “core” activities comes with a varying degree of organisational benefits and also improves performance. To this effect, productivity increases as well. (Nohria et al, 2003) find out that a company needs to increase it productivity by twice its average in order to be a leading competitor. Other researches also focus on explaining the relationship between productivity growth and outsourcing. (Abraham et al, 1996) also in their research found out firms ‘contract out’ services with the aim of smoothing production cycles and benefiting from specialisation. (Raa et al, 2001) also found a positive association between the rate of outsourcing and productivity growth in their study.

Access to advance technology:

Another important suggestion about this theory is the fact that outsourcing have also proven organisations have an advantage of exploiting more advanced technologies from the suppliers as the supplies are significantly more advanced and use the most effective technologies. Another fact is that as suppliers continue doing their work over and over again, they become more experienced and easily discover the most effective operations. Even though other outcomes are less obvious, it has been claimed by Kerr and Radford (1994) that the outsourcing process in a way has helped to undermine the power of trade unions dominating the United Kingdom workforce in public sectors.

Profitability:

Normally when business is booming, what happens is that business owners think of expanding their businesses, but at the same time control cost of production. When done properly it yields the best of results in profit rise. Some areas where firms can achieve profit maximisation are staffing. Employers have the flexibility of contractors supplying those staff only for as long as they need it, helping to cut down cost. The second area is capabilities. In terms of capabilities, outsourcing allows even smallest firms to employ experts such as marketing expert, researchers and other specialist but not necessarily to ‘own’ the person. Firms rather ‘rent’ their skills without adding to their payroll. This helps to achieve its target but at a minimum cost hence increasing profit margin. The third area to increase profit margin is services. Sometimes some services may be cheaper or easier to be handled outside. Such is human resources, which mostly is outsourced. Other functions such as recruiting and payroll management is easier handled outside.

Cost effectiveness:

Subsequently, Greaver (1999) classified an improvement in credibility and organisational status as potential benefit of associating with famous providers.

Other recognised benefits though difficult to measure, indicate that outsourcing enhances organisational credibility greater workforce flexibility and preventing being locked into specific assets and technologies.

The Boston consulting Group (1991) researched on over 100 key companies that engages in an extensive outsourcing practice and found out most western companies outsource mainly to save on overhead or induce short-term cost savings.

Subsequent theory revealed, until the 90’s, one of the major drivers for outsourcing was its cost effectiveness. This is because, in a real economic world, a common goal for many if not all businesses are on cost savings and profit maximisation. Every business is in for profit by cutting down cost, choosing the cheapest cost of production which outsourcing is to solve. Others are of the opinion that the growths in indirect overhead costs, which represent “non core competencies”, are commonly being outsourced.

(Lewis et al, 1991) have also discovered another interesting issue; their point is that the outsourcing is a trade-off between lower production cost, i.e. if the supplier possesses lower cost technology and higher monitoring costs.

Maximisation of efficiency:

(Domberger, 1998) also gives another important suggestion about this theory, in order to increase efficiency of organisations core value, organisations tend to specialise in such fields and outsource their non core values. An example is Unilever, the Anglo-Dutch group, with a portfolio of 1,600 food, toiletries and household products. September 1999 announced that in order to enhance sales growth and profitability, it would focus on a smaller number of power “brands” (core products) who have worldwide reach, thereby reducing costs and exploiting new channels of distribution, such as the internet as cited in journal of management development, vol. 19, No 8.

Flexibility:

Flexibility could be analysed in terms of increase in demand and change in demand. Organisations should have the capability of meeting customers demand and also being able to satisfy customer’s preferences at any time. Outsourcing enables organisations avoiding these two constraints. It presents the opportunity for meeting changes in volume of production as well as seasonal changes in response to market conditions of customer’s demands. A situation of the fashion apparel retailing, where companies respond rapidly to industries short life cycles and the quick changes in fashion. This enables the company to achieve delivery of goods to its stores within the shortest possible time of design conception.

(Carney, 1997) has identified the five ‘C’s of Human Resource outsourcing and its benefits. These are:

· COST: reduces service cost, internal fixed costs to a variable, which is more transparent and easier to manage.

· COMPETENCY: greater focus on core business and core competency requirements.

· CHANGE: a vehicle for rapid implementation of change, in terms of technology, organisation and culture.

· CURE: a way to fix difficult problems or deficiencies in service levels.

· CASH: improvement in balance sheet and cash flow e.g. transferred assets exchange for lump sum payment though rare in Human Resource outsourcing.

CONTROL OVER THE PROCESS

Despite all the arguments in support of outsourcing, which seems to be winning, what still puts many companies’ off is the thought of not having control over the process of recruitment. What make managers hesitant in this circumstance are the facts that, taking someone on, especially in team work without having any form of interaction to know the kind of personality they will be dealing with. Knowing that, personal chemistry is as important in team situations as having the right skills on paper (Lawler et al, 2003) findings in their study of 100 companies revealed the most common problems of Human Resource outsourcing. One meagre services end up being more expensive than promised, contractor’s lack of information about the client and unanticipated resources refined to enhance the relationship. Suppliers should not take for granted the fact that one successful outsourcing should work for all. It should be noted that the various firms operates differently with varying needs and may absolutely have nothing in common, hence may require different procedures from their suppliers. It should be best for the suppliers to assess carefully their clients’ individual operations and treat them as such. Outsourcers are liable for supplier’s actions though the outsourcers have little or no control whatsoever.

Others are compliance violations, contractors not being able to meet the task as expected, loss of positive repute, loss of internal expertise and technical skills.

(Roberts, 2001) explains some risks of outsourcing as “organisations are afraid of losing some control over the delivery of, outsourced services and finding themselves overly dependant on the supplier or liable for the supplier’s action. Outsourcing sensitive information, particularly confidential information, somehow cannot be avoided since it might form part of the client company’s briefing to the supplier. Moreover supplier has inherent liability if information security is breached

(Shelgren, 2001) in his recent survey, showed that 90% of companies with 50000 or more employees outsourced some part of their Human Resource activities. In this way, some sensitive confidential information could be kept away from the supplier.

Furthermore one important issue organisations turn to consider one way or the other is the people who matter most, that is, the customers. Many customers value the personal touch and the kind of treatment offered them. When this factor is missing, customers end up getting upset. If the outsourcing processes affect customers directly, then it becomes a problem in that it would be difficult for organisations to have a say since the function has been transferred elsewhere, and cannot directly and immediately be controlled.

RISK AND CONCERNS

Despite all these benefits of outsourcing, it has been found also that some organisations do not realise the expected benefits from outsourcing. The nature of certain task and its risk level is the very reason a firm might outsource. Such task may be expensive, complex to operate, low efficient and difficult. However if the outsourcing process is not carefully handled and thoroughly assessed, can result in severe financial loss causing decreased in shareholder’s value, damaged company reputations, dismissal of staff especially senior management and the worse of all collapse of the business itself. A report quoted in (Londsale, 1999) and (Mclvor, 2000) mentioned that only 5% of companies surveyed realised their expected benefits from outsourcing. Reasons given are highlighted; companies focusing on achieving benefits in the short-terms, lack of formal outsource decision-making processes, such as medium and long-term cost-benefit analyses, increased complexity in the total supply network.

(Hays et al, 2000) studied the effect of information systems outsourcing announcement on the market value of contract –granting firms. Empirical evidence was provided from the capital market that outsourcing is considered to be a value- added business exchange for outsourcing firms. The control of risk has been seen as necessary in an outsourcing contract in that controlling the amount of outsourcing value and outsourcing span, the risk can be controlled by the outsourcing firm.

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