Outsourcing In The Era Of Economic Recession Featured

The complexity of today’s globalized marketplace is not arguable and it is highly probable that tomorrow’s marketplace would be even more multifaceted.

Consequently, regardless of size, sector and level of internationalization, business players encounter the necessity to continuously innovate in order to survive, maintain competitive positions and grow. Organizations utilize diverse alternatives in an attempt to adjust to the rapidly changing external environment, outperform competitors and achieve strategic objectives. For several years outsourcing has been part of the market by which organizations divest the management of some activities to external partners in order to focus on core activities directly connected with their strategic objectives.

Outsourcing, however, is not a new phenomenon. Certain forms of outsourcing were widely used in the past. Going as far back as the era of the Roman Empire, the collection of taxes was “contracted out” to specific personnel by the Empire. The practice of using external personnel to carry out duties therefore, has a long history. It had a prominent role worldwide up to the period of the industrial revolution when technological advances increased the volume of production and other rapid processes which triggered a paradigm shift from the horizontal relations of partnerships to more complex, vertical integrations with strong internal focus (Kakabadse & Kakabadse, 2002). In the age of cost consciousness of the 20th and 21st centuries, the business model of the vertically structured enterprises has not been proven to be sufficient to respond to market demands and organization consequently seek outsider support. This support was mostly in the form of partnerships, mergers, alliances and joint ventures that created hybrid organizations whereby outsourcing deals regained prevalence (Kakabadse & Kakabadse, 2002).

Looking at the term outsourcing, the first part of the word suggests externality, foreign nature of something, or in other words something that is owned by others. The second part refers to supplements, origins or equipment amongst others. Outsourcing signifies the use of outsider resources to accomplish a task. Outsourcing is a broadly used action across the globe: many businesses opt for this solution in order to supplement, replace, broaden or reduce their operations. It can affect a wide variety of disciplines, including knowledge based functions such as human resources. But just as in every aspect of business, human resource outsourcing

cannot be seen in isolation and without considering contextual factors (Klass, McLendon & Gainey, 2001).

The political, economic, social and legal landscape that a business operates defines the scope of actions that can be taken and shapes the direction of decisions. There are trends in the market and certain patterns emerge in business practice but organizations have different objectives, targets, business plans and strategies to follow hence outsourcing deals are diverse and the related decisions are situationally prudent. For this reason, every outsourcing deal is unique to a business and multifaceted consideration should be made before opting it as a solution which makes the practice increasingly complex in its nature. There is no agreement whether human resource outsourcing (HRO) as a market trend is appropriate or not. There are pros and cons. The main arguments supporting outsourcing underscore the variety of benefits it can offer companies utilizing it such as cost savings, gaining access to further expertise or freeing up capabilities internally to focus on core competencies (Ulrich, 1997; Lepak & Snell, 1998; Cooke, McBride & Shen, 2005; Marchington & Wilkinson, 2008; Gurney, Newham, Scott-Jackson & Woodall, 2009).

There are similarly several warnings about the potential drawbacks of outsourcing because the benefits may not be so obvious and there are substantial financial consequences; that are both explicit and implicit costs such as money, time, effort and lost know-how that could counterbalance gains. Not surprisingly, the same authors who reported its benefits warn about the limitations and this issue justifies the argument of Klaas, McLendon & Gainey (2001) that outsourcing is extremely complex. These arguments raise the question of whether HR outsourcing solutions can be used to a business’ advantage. The ongoing severe global recession is further evidence that outsourcing services from outside of the organization must be the subject of careful strategic consideration. The wide range of opinions results in firms having different drives behind outsourcing deals. While one firm outsources a certain function, the other one would keep that task inside.

Some firms contract out only one function, while others opt for outsourcing the whole processes in the framework of business process outsourcing. Whether one practice is chosen over another depends on what a firm wants to achieve, e.g. be more cost effective due to budget constraints, source expertise it cannot develop in-house or decrease variable payroll budget. The questions around human resource outsourcing are countless which support strong

rationale for continuous research in the field of Human resource outsourcing (HRO). The intentions of organizations are contextually varied and as such every organization has different motive to outsource or not to outsource tasks. The focus for discussion and reactions elicited from readers or audience is to explore the role outsourcing can play under a recessionary economy.

Article Credit: Dr. Francis Anyim, FCIPM

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