HR Outsourcing Trends: Advantages and Disadvantages

Introduction: Business Change and Globalization

Throughout the past decade, societies have witnessed undeniable changes across all dimensions of life. Impressive technological advancements have been made and incorporated into 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 modern society — focusing on environmental sustainability and reducing consumerism.

A major sector revealing the importance and extent of these 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 employees as merely the force operating machines, but regard them as the most valuable organizational asset. Additionally, customers are no longer perceived as a passive force buying whatever the company produces; they now communicate to companies what should be produced and sold. Communities, too, are no longer simple witnesses to organizational endeavors but represent a powerful stakeholder category capable of influencing 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 established in other global regions. Globalization has primarily promoted the free circulation of resources such as technologies, capital, commodities, and human resources.

The process of globalization has allowed for the implementation of David Ricardo's theory of comparative advantage through capitalization on national strengths. A particular manifestation of this phenomenon has materialized in outsourcing processes, which have significantly increased in popularity throughout the past decade.

The Evolution of Human Resource Management

As the first factories opened during the Industrial Revolution, people were hired to perform mechanical tasks. They worked twelve-hour days in low-paid jobs under unsanitary and unsafe conditions. They were required to possess few skills and were easily replaceable. Henry Ford reportedly wondered why employees brought their heads to work when the company only needed their hands and feet (Losey, 1998).

As events progressed, workers began to advocate for better working conditions and organized into unions. Employers found it increasingly difficult to retain staff members. Governments stepped in and issued new legislation protecting workers' rights and forcing employers to improve working conditions. By the late 1800s, more and more factory owners recognized that productivity levels were directly linked to employee satisfaction. 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 early personnel administration processes: worker selection, employee training, and compensation.

In 1929, in a sustained effort to increase organizational productivity, leaders offered more extensive personnel programs. New worker compensation schemes included medical coverage, vaccines, housing, and other benefits. The concept of employee motivation emerged as a modern form of personnel management by the 1940s. By the 1970s, a new generation of managers had developed. These leaders were no longer focused exclusively on scientific management but emphasized an improved relationship between employee and employer. They centered on communications, research, and public relations, striving to boost productivity through worker creativity, involvement, and initiative.

Contemporaneous human resource management is a complex set of endeavors focused on creating employee satisfaction and converting it into high levels of productivity. The range of operations used to this end is broader than ever, including processes such as selecting employees who can integrate within the organizational culture or add new value to the company, training staff members, providing extensive remuneration, and offering 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, 1998).

Given this context, companies no longer compete solely for customers but also for staff members. Modern organizations go to great lengths to ensure their staffing needs are adequately met. Yet all these intensive efforts result in increased consumption of financial resources. Since profit generation remains the ultimate aim of any economic agent, today's companies strive to attain their financial objectives through cost efficiencies — including cost efficiencies in terms of personnel.