Human Resource Outsourcing Trends (Advantages

Human Resource Outsourcing Trends (Advantages and Disadvantages Human Resource: Outsourcing Trends Throughout the past decade, the societies have witnessed indubitable changes on all dimensions of life. Impressive technological advancements have been made and these have been included within daily activities to improve the quality of human life. At a social level, people are becoming better informed and as such more responsible consumers and more responsible members of the modern society by focusing on environmental stability and by reducing the consumerism levels.

A major sector revealing the importance and extent of the recent changes is the business community. Within this sector, the past decade has imposed a necessity for economic agents to readdress their business models in order to survive. Contemporaneous managers no longer perceive the employees as the force operating the machines, but hold them as the most valuable organizational asset.

Additionally, the customers are no longer perceived as the force buying whatever items the company produced, but they are now the ones communicating the company what it should produce and sell. The communities then are no longer the simple witnesses to the organizational endeavors, but they represent a powerful stakeholder category which can influence organizational processes. All the changes previously mentioned, and several others, have been exacerbated by the occurrence of globalization and market liberalization.

The phenomenon is generally understood as the ability of economic, political, social or technological values to transcend boundaries and become imposed as values in other global regions. Globalization has primarily promoted the free circulation of resources, such as technologies, capitals, commodities, and even human resources. The process of globalization has allowed for the implementation of David Ricardo's theory of the comparative advantage, through capitalization on the national strengths. A particularity of this phenomenon has materialized in the outsourcing processes, which have significantly increased in popularity throughout the past decade. 2.

The evolution of human resource management, the path to outsourcing As the first factories were opened during the Industrial Revolution, people would be hired to perform mechanic tasks. They worked 12-hour days, in low paid jobs and in unsanitary and unsafe conditions. They would be required to possess low skills and they would easily be replaceable. Henry Ford was often wondering why employees brought their heads to work, when the company only needed their hands and feet (Losey, 1998).

As events progressed, the workers began to militate for better working conditions and became organized in unions. By this time, it became harder for employers to retain the staff members. The governments stepped in and issued new legislation that protected the rights of the workers and forced employers to improve working conditions. By late 1800s, more and more factory owners recognized that the levels of productivity were directly pegged to the satisfaction of the employees. By 1900, the first efforts in support of employee satisfaction had been made.

The lack of employee satisfaction, considered the primary cause of absenteeism and high employee turnover rates, was beginning to be addressed through the first personnel administration processes -- worker selection, training of the employees and compensation. In 1929, in a sustained effort to increase organizational productivity, the leaders would offer more extensive personnel programs. The new worker compensation schemes included medical coverage, vaccines, housing as well as other benefits. The term of employee motivation contoured and emerged as a new and modern form of personnel management by the 1940s.

By 1970s, a new set of managers had been formed. These new leaders were no longer focused exclusively on scientific management, but were emphasizing on an improved relationship between employee and employer. These leaders centered on communications, research and public relations. They strived to boost productivity through worker creativity, involvement and initiatives. Contemporaneous human resource management is a complex set of endeavors, focused on creating employee satisfaction and turning it into high levels of productivity.

The palette of operations used in this direction is vaster than ever, including processes such as the selection of the employees who are able to become integrated within the organizational culture or of the employees who are able to add new valued for the company; the training of the staff members, their extensive remuneration or their complementary motivation. "Today, the human resource professional is charged with optimizing employee skills, matching people to jobs and maximizing the potential of employees as valuable resources" (Losey).

Given such a context, a situation was created in which the companies no longer competed just for customers, but also for staff members. Modern organizations will go to wider lengths to ensure the adequate satisfaction of their staffing needs. Yet, all these intense efforts materialize in increased consumption of financial resources. And in a context in which the generation of profits remains the ultimate aim of any economic agent, today's companies strive to attain their financial objectives through cost efficiencies -- including even cost efficiencies in terms of personnel. 3.

Outsourcing In a setting of organizational pursuit of cost efficiencies, desired concomitantly with high personnel skills, globalization offered the perfect answer -- employers would be able to hire low cost workers in foreign countries -- generally less developed ones -- and ensure the adequate completion of the tasks with reduced consumption of financial resources. In a simplistic manner, the previous lines explain the process of outsourcing. Yet, to better understand it, it is necessary to look at some definitions as they are offered by the specialized literature.

Krawjewski and Ritzman (2002) define outsourcing as "allotting work to suppliers and distributors to provide needed services and materials and to perform those processes that the organization does not perform itself." Kovacich and Halibozek (2003) emphasize on the fact that outsourcing is not a process to be implemented for all organizational processes and most importantly, not for the core processes.

While some modern situations contradict this theory, the two authors insist that outsourcing represents "contracting for outside services that are a necessary part of doing business but are not core functions or core competencies. […] Outsourcing is a tool, not a cure-all. It allows [the company] to focus on its core functions and let other companies assist by providing the services they perform best." In other words, they argue that outsourcing helps the initial company focus more on customer satisfaction by transferring complementary non-core processes to other entities.

Hirschheim, Heinzl and Dibbern (2006) argue that outsourcing is most common with information system services, and in this context, they define the process as one of "obtaining IS services through external organizations that own some or all the necessary resources and where control and management of the resources and activities, reside." Claire-Lise Benaud and Sever Bordeianu (1998) simply argue that "outsourcing is the use of outside agency to manage a function formerly carried out inside a company." Regardless of the standpoint taken by one in understanding outsourcing, fact remains that the phenomenon has been gaining increasing popularity.

It is most commonly observed in the relationship between developed countries and emergent ones. Specifically, economic agents in highly developed states look to outsource their business operations to more cost effective regions. The companies in the emergent and less developed economies sign contracts with the foreign companies by which they oblige to deliver the desired items. Outsourcing operations are extremely common within the Information Technology field, as well as within the manufacturing sector.

Nike is a representative outsourcing company, having only maintained its administrative and marketing operations within the United States, and outsourced all manufacturing operations to less developed nations. Companies engaging in outsourcing actions forward a series of reasons in support of their outsourcing decisions. Marc J. Schniederjans, Ashlyn M. Schniederjans and Dara G.

Schniederjans (2005) argue that the most important of these reasons are: the search for cost efficiencies the desire to gain outside expertise the desire to improve the quality of the services the need to focus more extensively on core processes the necessity of gaining more access to technologies. The general trend was that of outsourcing manufacturing operations and information technology services.

In the United States for instance, the years between 1996 and 2003 have witnessed an astonishing increase in outsourced it services from $100 billion to nearly $600 billion, as revealed in the chart below: Source: Marc J. Schniederjans, Ashlyn M. Schniederjans and Dara G. Schniederjans In the more recent period however, a change has occurred in terms of the actual operations being outsourced. While it and manufacturing remain the most preponderant ones, increasing popularity is being gained by various staff functions, such as accounting, pension administration, tax and so on.

Large size entities are currently outsourcing whole processes, rather than just isolated operations. And most importantly, more and more of the outsourced operations are closer to core operations. "The trend in large organizations is to outsource entire processes. This will be done with strategic relationships and the transfer of significant decision rights. The providers will have large, sophisticated operations providing value-added services at a level incomprehensible even fifteen years ago. […] the outsourcing begins with processes furthest from the core and then moves toward it" (Greaver, 1999).

This virtually means that the international community could soon observe mutations in the type and nature of the outsourced processes. In general terms, companies are looking to outsource growing numbers of more complex operations as they are not willing to assume the risks and make the necessary investments. In this order of ideas, they outsource the operations to firms which have already made the investments and assumed the risks.

"Organizations are reluctant to invest in and maintain cutting-edge technology and technical specialists internally, when they know that similar assets exist externally, and were developed with others' investment and risk" (Greaver). While the companies recognized and capitalized on the benefits of outsourcing, the communities identified the limitations of the processes. The most common dissatisfaction was linked to the fact that outsourcing took jobs away from national workers and gave them to foreigners.

In 2003, over 300,000 jobs within the United States were lost to outsourcing, and the figures were expected to maintain an ascendant trend (Schniederjans, Schniederjans and Schniederjans). But the real numbers far exceeded the initial estimates and by 2007, the total jobs lost in one year alone had reached 5.6 million. "According to a study from the Economic Policy Institute, the U.S. lost 5.6 million jobs as a result of the U.S. non-oil trade deficit in 2007 alone. 70% of these jobs were in the manufacturing sector" (Thomas, 2009).

The natural response to these events was that of an increased resistance to outsourcing. Employee groups pressured the federal agencies to develop and implement new legislations that would better protect the jobs of the domestic workers. Several government officials became involved in the anti-outsourcing rhetoric and supported programs for national employment in the detriment of foreign contracts. In 2004, the state of Tennessee was for instance the first to implement an anti-outsourcing program; it basically revolved around the stimulation of American companies to hire national contractors to perform informational system services.

Following the example of Tennessee, 36 American states developed legislations to reduce the outsourcing phenomenon. Still, most of the one hundred bids have not been legalized and are still discussed at the federal level. Their existence however points out to a growing trend of better regularization of outsourcing activities, generally in the sense of their restriction (Schniederjans, Schniederjans and Schniederjans).

The trend could be maintained in the immediate future due to the internationalized economic crisis, and might be supported by the necessity to create national jobs and support domestic industries in order to overcome the financial hardship. 2010 looks like an interesting year in terms of outsourcing and is projected to bring about several changes. At a general level, the economic revival which has been foreseen is expected to lead to several delayed outsourcing contracts to be resumed.

This would materialize in an increase in employment rates in India and other Asia-Pacific less developed countries, and their adjacent economic boost of 8 up to 10 per cent. While employment and economic state is expected to increase in the United States and the developed European countries, their rates are expected to be lower (Taylor, 2010).

In terms of specific outsourcing trends, the top ten most discussed expectations for 2010, as identified by the International Association of Outsourcing Professionals, are as follows: 1) Outsourcing contracts that have been frozen due to economic instability will be reestablished and acted upon 2) Companies will realize that the expenditure costs with outsourcing have not always been beneficial and company relations will focus more on better stakeholder interactions and operations that add more value to the entity 3) Companies will seek to sign flexible outsourcing contracts, rather than rigid, long-term ones 4) Service providers are expected to unite forces in mergers and acquisitions as a means of consolidating their positions and reducing the threats of an unstable economic climate 5) Economic rates and employment are expected to increase in India and other Asia-Pacific countries, while the growth rates in the United States and Europe will be inferior; more young graduates will be hired in outsourcing deals 6) the traditional outsourcing destinations will lose ground to new countries, such as those in Central or Southern America 7) a higher level of competition among service providers will occur 8) New technological advancements will be incorporated to add more value to organizational processes, increase their efficiency and the overall organizational performance 9) in light of the incremental focus placed on environmental and social responsibility, outsourcing companies are expected to feel growing pressures in terms of respecting these new demands 10) Finally, it is highly probable for new legislation that regulates the outsourcing field to be developed and implemented and for it to impact the outsourcing contracts and operations (International Association of Outsourcing Professionals, 2009).

4. Advantages and disadvantages of outsourcing The outsourcing phenomenon is one of the most discussed topics within the contemporaneous society, attracting both fierce disclaimers as well as ardent supporters. Each party has strong arguments that back their position. The supporters forward the several advantages of outsourcing, such as increased emphasis on core operations, reduced costs or shared risks. As it has been mentioned throughout the previous sections, outsourcing operations generally revolve around non-core company processes.

By outsourcing some of the complementary processes, the company is better able to focus on its core operations. It will as such strive harder to satisfy the customers through the offering of higher quality products and services and it will also strive to satisfy the needs of other categories of stakeholders. In terms of customers, these will be better satisfied as their access to more cost effective and high quality products and services will increase, but also because their access time to the respective items will decrease.

The benefits of the company being better able to focus on core processes are available at a community level. Another major advantage, probably the most important one, is that the outsourcing contracts save the domestic company significant financial resources. India has been a desirable outsourcing destination due to its ability to offer same quality services as in the United States, but at significantly lower prices.

Studies have shown that companies outsourcing call center services, billing or other such services to India can save up to 60% of the adjacent costs (Outsource2India, 2009). Directly pegged to the incurring of lower costs is the fact that, as the company outsourcers operations, it is no longer forced to invest in infrastructure, personnel and other business components.

This virtually means that additional savings are made, and that the financial resources can be used to better train the internal staff, to increase the levels of profitability, those of core process productivity and so on. Outsourcing creates more jobs and more opportunities within the foreign countries.

In other words, companies which outsource support the development of the communities in which they operate through the creation of more jobs -- and the reduction of the socio-economic problem of unemployment -- but also through the payment of taxes to the local budgets. This money would be used to improve the local infrastructure, to support socially and economically disadvantaged categories, to improve the educational system, the medical system and so on.

But most importantly, outsourcing practices create advantages for the company that can operate at higher levels of efficiency or which can become more competitive. Outsourcing creates competitive advantages for the organization due to all of the previously mentioned benefits, but also though its ability to increase the company's access to specialized services. "Outsourcing can help your organization gain a competitive edge in the market. You can also get access to specialized services for different business processes and thereby provide your customers with best-of breed services.

Such strategic outsourcing can give your business a competitive edge among your peers. The benefits of outsourcing can give your organization a cutting-edge in the worldwide market" (Outsource2India). A final benefit of outsourcing to be hereby mentioned is the ability of the companies in both domestic as well as foreign markets, to construct relations on shared risks and then to share the resulting profits. A relevant example in this sense is the occurrence of a union strike.

If a manufacturing company encounters such a situation, then its totality of operations within the country is compromised. While if the strike or other union problem emerges within the foreign plant, the domestic company would not be negatively impacted to such an intense degree (Meyer, 2010). Despite the realization of the benefits generated by outsourcing to the company or the communities of stakeholders, there are also vehement disclaimers of the outsourcing process who argue the existence of several negative points.

One of these points is the loss of jobs within the domestic market of the company. And the general counter argument was that outsourcing only aimed at low skilled jobs, meaning as such that it directed the American citizens to get higher levels of education, strive towards better paid jobs and improve their living standards. Yet, the past few years have shown that American companies are beginning to also outsource more technical and white collar.