Scientific Research Design: What Are the Effects

Scientific Research Design: What are the effects of human resources outsourcing on leadership performance and employee commitment?

There is speculation that an outsourced human resources (HR) department will have a negative impact on a company's performance. Furthermore, the researcher believes that this impact will be more significant in larger companies. To test this hypothesis, the researcher will perform case studies of two companies, a large one and a small one, that have recently transitioned from outsourced HR to in-house HR. The goal of the research will be to ascertain how HR impacts leadership performance and employee commitment.

Outsourcing of functions that have traditionally been done in-house is one of the most significant changes to impact modern business. In many ways, outsourcing provides opportunities for organizations to increase their functionality and decrease their costs. However, it is critical to recognize that outsourcing can have negative consequences for a business, and that these negative consequences may not be apparent in a financial overview of the organization. Many firms have transitioned towards the outsourcing of human resource functions. However, many of them have done so without a thorough understanding of the true extent of the impact of human resources outsourcing on leadership performance and employee commitment. A review of the literature reveals that outsourcing can have negative impacts on an organization if the outsourced function is considered a core function of the organization. Therefore, the size of the organization and the importance of human resources in the organization should help determine how outsourcing those functions impacts leadership performance and employee commitment.

Literature Review

Human resources outsourcing is one of the more interesting concepts in today's business world. The human resources department is a critical component of the modern business. However, the reality is that the human resources department does not have to act as a functioning unit for the business to operate smoothly. Instead, as long as human resources professionals are able to interact with employees and management when they are needed, HR can perform its functions from practically any location. There is a difference between the ability to perform a job and performing a job well, however. This research will attempt to demonstrate whether outsourcing human resources has an impact, positive or negative, on leadership performance and employee commitment.

In 2003, Harmon et al. sought to investigate the relationship between a very active and involved HR department and employee satisfaction in a medical office environment. The role of HR in a medical office is to reduce costs and to attract and retain patient care and support employees. The investigators looked to see if there was something HR could to in order to accomplish both objectives at the same time. What they found is that high-involvement works systems (HIWS), which are largely driven by HR, can improve functionality and satisfaction in the workplace. HIWS are characterized by involvement, empowerment, development, trust, openness, teamwork, and performance-based rewards. HIWS are linked to greater employee satisfaction and lower costs to the consumer, which satisfy the dual mandate of an HR department. Taking a resource-based view of an organization means that the organization will only be successful if its human resources department is successful (Harmon et al., 2003). This would make HR a core function of the organization, not a peripheral function, and important consideration when examining other research in the subject area.

In fact, one of the issues that may have consistently hampered firm performance is a failure to treat human resources as an integral part of the firm's organizational and functional structure. In 1997, Barney and Wright looked at how human resources could help organizations gain a competitive advantage. What they uncovered was a disconnect between a corporation's stated opinion about the importance of HR and the actual importance that many firms gave to the HR department. Barney and Wright used the VRIO (value, rareness, imitability, and organization) framework to look at the role of HR in developing a sustainable competitive advantage. Their results suggested the organizations were underutilizing the potential of HR to drive competitive advantage (1997). This would support the notion of HR as a core function, even if the firm treats it like a peripheral function, suggesting that outsourcing it would ultimately not be beneficial to the organization.

Martinez-Sanchez et al. engaged in a study that examined workplace flexibility and how it impacted managers' perceptions of the organization's performance. The research specifically examined outsourcing, though it also examined the precursors to outsourcing. The research was conducted in Spain and the methodology involved a postal survey to a sample of 156 Spanish firms. Interestingly enough, the study found that outsourcing did not have a significant relationship with firm performance. While internal workplace flexibility was correlated with firm performance, external flexibility did not have that same correlation. However, the researchers also found that whether outsourcing impacted a firm's performance was linked to whether the function being outsourced was considered core or peripheral. When a function that was considered core to the organization was outsourced, then firm performance declined as a result of that outsourcing. Therefore, if HR is considered a core function in an organization, which it might be in larger organizations, then outsourcing HR can impact firm performance. Furthermore, the study asked for perceptions about performance but did not engage in any objective measures of firm performance. It may be that outsourcing HR has some type of impact on performance, but that the impact is not subjectively understood. However, the perceived impact of outsourcing on peripheral activities is positive (Martinez-Sanchez et al., 2007).

Gilley and Rasheed examined outsourcing and its impact on firm performance. Like Martinez- Sanchez et al., Gilley and Rasheed separated outsourcing into two different areas: peripheral and core tasks. They found that outsourcing did not necessarily have an effect on firm performance, even if a near-core function was being outsourced. However, what did impact firm performance was the strategy that the firm employed to moderate the impact of outsourcing on employees. The natural expectation is that outsourcing, when it results in job loss in the firm, is going to impact morale. However, if the firm was dynamic anyway, then loss of jobs due to outsourcing did not have a negative impact on firm performance (Gilley & Rasheed, 2000).

Verwaal et al. examined some of the reasons that firms engage in outsourcing. Outsourcing is traditionally viewed as a good option when engaging in the outsourcing can yield the same results for an organization at a lower cost. However, there are sometimes trade-offs in an outsourcing decision. Many times, the costs will be significantly lower than the costs of keeping a function in-house, which requires an evaluation of whether the financial benefits of the outsourcing are significant enough to outweigh the possible negatives of the outsourcing. What Verwaal et al. looked at was the concept of value creation and value claiming. They found that resource value maximization is dependent upon value-claiming motivations in outsourcing decisions. For the vast majority of firms, when making an outsourcing decision, the firm simultaneously considers resource value and transaction costs. Because many smaller firms do not have the need of a full-time HR professional, the resource value / transaction costs analysis for the HR department are going to lean in favor of outsourcing those positions (Verwaal et al., 2009).