hro as competitive strategy

8/2/2019 HRO as Competitive Strategy

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OU TSOU RCING HR AS ACO M PETITIV E STRATEGY? ALITERATURE REVIEW AND ANASSESSMENT OF IMPLICATIONS

FANG LEE COOKE, JIE SHEN, AND ANNE MCBRIDEHR outsourcing as an organizational strategy has increased substantiallyover the last decad e. However, this trend h as attracted little acade mic a tten-tion regarding hovi/ outsourcing decisions are made, the manner in whichthese decisions are implemen ted, ho w outsourcing effectiveness is mea s-ured, and its impact on organizational performance . In this article, we pro-vide a critical review of the reason s for, the processes invoived in, and theperceived effectiveness ofHR outsourcing. We investigate the implications ofHR outsourcing for the role of the HR function and for the various groups o fpeople affected by this strategy. We argue that organizations should applyboth the resource-based view and institutional theory w hen m aking out-sourcing decisions. 2005 Wiley Periodicals, Inc.

Introduction

I n recent years, there has been serious de-bate about HR's contribution to organiza-tional performance (Ulrich, 1998). Inpart, this debate is due to the inability ofthe HR functii>n to demonstrate its tangi-ble value and to acco unt for its absence at th estrategic level. The practice of decentralizingHR responsibility from corporate central de-partme nts to business unit-level depa rtments(and further still to line management) hascreated much streamlining of HR responsibil-ities. These trends run parallel to more radicalones where traditional core personnel areasare outsourced to HR service providers. Insome accounts, these trends are perceived aspart of a "crisis," as HR struggles for legiti-

macy and status in cost-conscious times. TheHR function has been described as beingunder siege from external consultants {Red-man & Wilkinson, 2001).The popularity of outsourcing and ofe-HR also subjects personnel practitioners togrowing pressure to measure their perform-ance. A num ber of firms outsource routin eadministrative HR activities to release theirin-house HR team for a more strategic role.However, a minority of others have opted tooutsource the entire package, including thedesign of HR systems that are likely to havea fundamental impact on organizationalculture and performance (Klaas, McClen-don, & Gainey, 2001). This emerging trendraises a number of questions. For example,what HR activities should be outsourced?

Correspondence t o: Fang Lee Cooke, Professor of HRM and Chinese Studies, M anchester Business School, Un i-versity of Manchester, Manchester M15 6PB, UK,Tel: 0044 161 306 8987, fang.L.cookei^manchester.ac.ukHuman Resource Management, Winter 2005, Vol. 44, No. 4, Pp. 413-4322005 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI; 10.1002/hrm.20082


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activities is bothfragmented and

How does HR outsourcing affect the role ofthe in-house HR function and the rest of theworkforce? What are the pitfalls for the HRfunction?Evidence from professional and practi-tioner publications indicates that HR out-sourcing has increased sub stantially over thelast decade (Woodall, Gourlay, & Short,2000). However, few academic researchershave investigated empirically how decisionsof outsourcing are made, the manner inwhich these decisions are implemented, howthe effectiveness of the outsourcing is meas-ured, and, most important; theimplications of these outsourcingdecisions for the role of the HREmpirical evidence function and for different groups

in the workforce. This dearth ofon the reasons for research is in sharp contrast toand effects of ^^^ burgeoning prescriptive liter-ature on the financial and strate-outsourcing HR gic reasons why firms should out-source (Rubery, Earnshaw,Marchington, Cooke, & Vincent,2002) and how to go about it(e.g.. Cook, 1999; Rippin, 2001).inconclusive. As Purcell (1996, p. 22) noted,"We lack the research to make

definite statements on the effectof outsourcing on employees." What hasbeen conspicuously missing in much of theresearch "is the 'insiders" perspectivetheemployees' voice" on the impact of out-sourcing on employment relations (Kessler,Coyle-Shapiro, & Purcell, 1999, p. 6).As a result, empirical evidence on the rea-sons for and effects of outsourcing HR activ-ities is both fragmented and inconclusive.Opinions are divided as to the potential ben-efits of HR outsourcing. For example, someauthors see HR outsourcing as beneficial interms of both service delivery and the en-hancement of the strategic position of HR(Brenner, 1996; Laabs, 1993; Switser, 1997).Others consider HR outsourcing a concessionthat the HR function no longer has anystrategic significance (Baker, 1996; Caldwell,1996). The strength of each argument is dif-ficult to discern, since limited independentempirical research exists in these two partic-ular areas.

We review existing literature, drawingfrom academic and practitioner publicationson HR outsourcing practices, and discuss im-plications for the role of the HR fimction anddifferent groups of the workforce who maybe affected oneway or another by the out-sourcing decision. First, we outline variousrationales for outsourcing in general. Wethen review HR outsourcing more specifi-cally in terms of the commonly perceivedreasons for outsourcing, types of HR activi-ties to be outsourced, current trends of HRoutsourcing, and the effectiveness of the out-sourcing activities.

In the second part of the article, we criti-cally analyze the implications of HR out-sourcing for the role of the HR function in anorganization's business strategy. We questionwhether organizations looking to outsourcetheir HR functions doso as a strategic m ove,or whether they are unwittingly letting go ofa high value-added professional activity thatis central to organizational success. We alsoanalyze the impact of HR outsourcing on thein-house HR staff, the line managers, the em-ployees, and those HR staff who are trans-ferred from the client firm to the HR serviceprovider firm.

As mentioned previously, there has beenlittle academic-oriented research on issuesrelated to HR outsourcing, in contrast to agrowing body of literature on outsourcing ingeneral. We have made use of available re-search to develop our argument. We relymainly on the academic literature, but alsoselectively draw on practitioner publicationsfor statistical information andcritical analy-sis. This article also is informed by our ongo-ing studies on interorganizational relation-ships, the outsourcing of skilled andknowledge-intensive work, and the out-sourcing of the HR function (Cooke, 200 1;Marchington, Cooke, & Hebson, 2003; Ru-bery, Cooke, Marchington, & Earnshaw,2003).Theoretical Views on OutsourcingOutsourcing can take a number of differentforms. The specific activity of HR outsourc-ing is defined as placing responsibility for


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Outsourcing HR as a Competitive Strategy? 4various elements of the HR function with athird-party provider (TurnbuU, 2002). Somecommentators have used the concepts of the"core" and "periphery" to explain and ex-plore the outsourcing of company functions(e.g., Atkinson, 1984; Poliert, 1987; Torring-ton & Mackay, 1986). Broadly speaking, coreactivities are those that the firm does bestand/or are crucial to the firm's competitiveadvantage and therefore must be kept inter-nally. In contrast, "noncore" activities areconsidered to have a lower impact on theoverall performance of the organization andcan therefore be outsourced to externalproviders.

The decision-making process as towhether to "make or buy" (goods) or "supplyor buy" (services) has been conceptualizedby Williamson's (1985) transaction-cost eco-nomic model. According to this model, thedecision to provide goods and services inter-nally or to outsource rests upon the relativecosts of production and transaction. That is,a comparison of the costs of coordinatingand managing alternative models of gover-nance related to either buying thegoods/services through market mechanisms(i.e., outsourcing) or supplying thegoods/services through the internal, or "hi-erarchy," mechanism.

In the context of accelerating globalcompetitive pressures, organizations arebeing advised to concentrate on their corecompetencies and utilize outsourcing to cap-italize on others' expertise (Domberger,1998; Porter, 1990; Prahalad & Hamel, 1990).However, what constitutes core activities andcompetencies is not static. Organizations areconstantly reassessing what constitutes thecore and noncore aspects of their businessand readjusting the way these activities canbe sourced, either in-house or externally(Cooke, 2003). In turn, the nature of the ac-tivities themselves is changing. For example,HR activities are becoming more complex,are more compartmentalized into relativelyself-contained areas (Tyson, 1987), and aremore prone to being performed by expertconsultants (Torrington, 1989). Specialistoutsourcing supplier firms have emerged inresponse to this growing market in busi-

nesses, and outsourcing HR is one of them.As Bosch, Webster, and Weisbach (2000, p.108) note, "some very radical decisions arebeing made to outsource apparently centralcore functions."

Arguments for OutsourcingIn general, employers consider using out-sourcing for a number of (overlapping) per-ceived benefits (Shen, Cooke, & McBride,2004; see Table I). First, it allows them toconcentrate resources on their "core" busi-ness activities where they haveexpertise and are likely to do best.Second, it enables firms to profit Outsourcing enfrom the rising comparative ad-vantage of specialized serviceproviders who may have expert- costs down bise in the areas concerned. Third,it provides firms with greater flex- selecting the mibility and productivity by usingtemporary subcontractors to competitive tencover fluctuating demands for for renev^mg labor (Cooke, 2001). This "just-in-time" deployment of human contract.resources also brings other advan-tages of saving direct costs (e.g.,reducing headcount and overtime working)and indirect costs (e.g., cutting administra-tion and backup costs, saving recruitmentand training costs, saving absenteeism costs,and reduced industrial relations problems).Fourth, outsourcing creates opportunities forfirms to shift the burden of risk and uncer-tainty associated with the business to some-one else (National Economic DevelopmentOffice [NEDO], 1986; Williamson, 1985). Inaddition, outsourcing enables firms to keepfuture costs down by selecting the most com-petitive tender for renewing the contract(Domberger, 1998).

If the above reasons for outsourcing arepredominantly concerned with cost reduc-tion, then the final reason listed here is fo-cused more on capacity building associatedwith organizational learning. It has been ar-gued that outsourcing relationships can cre-ate partnerships between contractors andclients that may facilitate learning and cross-fertilization between the two firms (Child &


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41 6 HUMAN RESOURCE MANAGEMENT, Winter 2005

Faulkner, 1998; Powell, Koput, & Smith-Doerr, 1996). Writers on organizationallearning (e.g., Araujo, 1998; Boland &Tenkasi, 1995; Brown & Duguid, 1991; Pent-iand, 1995)have argued that iearningprocesses are collective accomplishmentsthat reside in networks that donot respectformal organizationai boundaries. The im-portance of networks and interorganiza-tionai relationships (e.g., alliances, partner-ships) is also recognized by writers from thestrategic perspective. According toPowell etal . (1996, p. 120), a network "serves as alocus of innovation because it providestimely access to knowledge and resourcesthat are otherwise unavailable, while alsotesting internal expertise and learning capa-bilities."Advocates of the resource-based view(RBV) of the firm (e.g., Barney, 1991; Ulrich,1996) also believe that outsourcing can beproductive to thedevelopment of the corecompetence of the organizationespeciallyin relation to HR practices. The notion of theRBV was "rediscovered" by Wernerfelt (1984)and developed into a more robust theory byBarney (1991, p. 99), who argued that organ-izations "obtain sustained competitive ad-vantage by implementing strategies that ex-ploit their internal strengths, throughresponding to environmental opportunities,while neutralizing external threats and avoid-ing internal weaknesses." The resource-basedview of strategy is closely related to a growingbody of research on high-commitment man-

agement models. This perspective helps todefine both an organization's "core" functionand the optimal HR policies that will elicitthe best performance outcome. 1 he questionthat remains is how to decide which func-tions are not part of the core, and wh o are thenoncore employees.Arguments Against OutsourcingAs noted in Table I, despite the rising popu-larity of outsourcing organizational activi-ties, the practice is not without pitfalls. Oneof the most serious is maintaining the conti-nuity of skill supply and the retention of in-house knowledge and expertise. In manycases, firms seek outsourcing to save trainingcosts, assuming that someone else will carryout the training to ensure the delivery of keyskills. Skill loss can have damaging effects oncompetitiveness. As Prahalad and Hamel(1990, p. 84) point out, "outsourcing canprovide a shortcut to a more competitiveproduct, but it typically contributes little tobuilding the people-embodied skills that areneeded to sustain product leadership."

Another major concern with outsourc-ing, particularly for those firms that operatein the upper end of the product market, isthe loss of quality. Employees often judgeservice quality by comparing their expecta-tion of the resulting service under the pro-posed change with their view of what theservices should be or with the services thatthey used to have . Switching the HR services

T A B L E Perceived Benefits and Potential Adverse Consequences of OutsourcingPerceived BenefitsConcentration on in-house expertiseSpecialist supplier's econom ies of scaleNumerical flexibil ityShift burden of riskCompetitive tendering process

Potential Adverse ConsequencesDiscontinuity of skill supplyLoss of in-house knowledge and capacityReduction in qualityHigher total costLoss of employee morale

Organizational learning from specialist provider Loss of long-term competitivenessSource: Adapted from Shen et al, (2004).


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Outsourcing HR as a Com petitive Strategy? 41from in-house to an external provider in-evitabiy causes disruption to the continuityof the services, often for a prolonged periodof time and with unpredicted problems. In-deed, there have been reports in the mediaand in practitioner journals on the failures ofoutsourcing resulting from unfulfilled prom-ises and/or expectations. These perceivedbenefits and disadvantages must be consid-ered when firms make strategic decisions onwhether or not to outsource functional HRactivities.

HR OutsourcingThe above overview of the perceived benefitsand potential adverse consequences of out-sourcing provides the backdrop againstwhich to discuss the outsourcing specificallyof the human resource functions. In this sec-tion, we review the operational and strategicrationales for outsourcing HR and establishthe scope and extent of HR outsourcing prac-tices. It must be noted that much of the evi-dence that exists is drawn from practitionerexperiences contained in case studies andlarge-scale surveys discussed in practitionerjournals, rather than rigorous independentresearch published in academic journals.

Reasons for HR OutsourcingTliere are a number of reasons, at both thestrategic and operational level, why firmswant to outsource HR activities. Many sharesimilarities with the outsourcing of other or-ganizational functions. In particular, de-mands for increased productivity, profitabil-ity, and growth have forced organizations toexamine their internal HK processes, result-ing in a move toward strategic outsourcingservices and away from discrete services. AsGreer, Youngblood, and Gray (1999) observe,HR outsourcing decisions are frequently a re-sponse to an overwhelming demand for re-duced costs for HR services. Downsizing andtougher competition mean that the HR func-tion is under increasing pressure to demon-strate value, both in terms of efficiency andeffectiveness {Roberts, 2001). Although someelements of the HR functions, as noted ear-

is seen as an

organizational

lier, may have always been performed by ex-ternal service providers, Brewster observesthat a new dimension "is this finance-drivenidea connecting outsourcing to human re-source managementthe idea that you cansave a lot of money by outsourcing" (quotedin TurnbuII, 2002, p. 10).

In addition, outsourcing is seen as a wayof liberating HR professionals within theclient organization to perform the more con-sultative and strategic role of designing andimplementing programs aimed at retainingthe workforce and enhancing its perform-ance. This rationale is in line withUlrich's (1998) influential thesisof the four roles of HR, in which Outsourcing HRhe proposed that HR should be astrategic partner, an administra-tive expert, an employee cham- effective way tpion, and a change agent. In asimilar vein, Greer et al. (1999) bypassargue that HR outsourcing is con-sistent with the business partnerrole that the in-house HR depart-ment is attempting to assume.These roles arguably are where efficiency.HR can add the greatest value tothe organization, but they are dif-ficult to measure quantitatively.

Outsourcing HR also is seen as an effec-tive way to bypass organizational politicsand improve efficiency. For example, accord-ing to the sales and training manager ofUnited Kitchen, a company that has out-sourced all personnel and training, the com-pany's aim was to buy an expert who couldmaintain an objective view, would not getembroiled in office politics, and yet couldcall on the support of a wide range of otherexperts in their own organization (Pickard,1998).

In short, the main reasons for outsourc-ing HR appear to be fairly consistent (Sisson& Storey, 2000). Typical reasons includeseeking specialist services and expertise, costreduction, and enabling HR specialists totake on a more strategic role. In general,most commentators are convinced that out-sourcing is seen not only as a cost-cutting ex-ercise but also as a strategic tool. As Oates(1998) suggests, the outsourcing decision is a


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strategic one and is generally taken at a sen-ior level.Types of HR Activities to Be OutsourcedAs with the outsourcing of other organiza-tional functions, one major issue in out-sourcing HR is to decide what types of HR ac-tivities should be outsourced. In making thisdecision, organizations need to consider thelikely impact of outsourcing these activitieson the organization's performance. To do so,they may need to distinguish between "core"and "noncore" activities. Finn (1999) sug-gests that a basic distinction can be m ade be-tween HR "core" and "noncore" activities.The former include top-level strategy, HRpolicies, and line management responsibili-ties (e.g., appraisal and discipline), while thelatter include specialist activities (e.g., re-cruitment and outplacement), routine per-sonnel administration (e.g., payroll and pen-sion), and professional HR advice (e.g., legaladvice related to employment regulations).Ulrich (1998) goes one step further by sug-gesting that core activities are transforma-tional work that creates unique value for em-ployees, customers, and investors. Noncoreactivities would be transactional work that isroutine and standard and can be easily du-plicated and replicated.

While writers of strategic managementwarn of the danger of outsourcing core ac-tivities, are firms really following this advicein making their decisions about which HRactivities are to be sourced from externalservice providers? Do any clear patterns arise

from organizations' HR outsourcing activi-ties? Hall and Torrington (1998) found thattraining and management development, re-crui tment and selection, outplacement,health and safety, quality initiatives, jobevaluation, and reward strategies and sys-tems were the likely HR activities to be out-sourced, either because they were co nsiderednoncore or because the organization lackedthe expertise to handle them internally. Halland Torrington's findings are supported byShaw and Fairhurst (1997), who found thattraining and development along with facili-ties management were the most likely areasto beoutsourced, while industrial relationsexpertise was the least likely area.

A rece nt large-scale survey (V ernon,Philips, Brewster, &c Om meren, 2000), theCranet Survey, provides further evidence tosupport these earlier findings. The surveywas carried out in 1999 on 3,964 organiza-tions, each with more than 200 employees inEuropean countries. It focused on four differ-ent areas of HR outsourcing: training and de-velopment, recruitment and selection, payand benefits, and workplace outplacement/reduction. The survey found that some 97%of the organizations in the survey used ex-ternal providers in HR to cover at least one ofthe main service areas (see Table II). The re-sults showed that training and developmentactivities were the most common "bought-inservice." One-third of organizations sur-veyed used external providers in at leastthree of the areas identified. W hile 50% ofthe surveyed organizations remained con-stant in the use of external providers, 40%

T A B L E M The Incidence of HR OutsourcingExternal Provider TypeTraining and developmentRecruitment and selectionPay and benefitsWorkforce outplacement / reduction

Percentage ofRespondents Using77%59%30%29%

Source: Vernon e t al . (2000, p. 7).


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Outsourcing HR as a Comp etitive Strategy? 41reported an increase in their use. In particu-lar, 32% of U.K. organizations made use ofexternal providers for pay and benefits.While this empirical evidence providessome useful insig hts in to th e types of HR ac-tivities that firms are sourcing from externalproviders, it provides only a partial and su-perficial picture due to the quantitative na-ture and the scale of the studies. What re-m ains unclea r is how firms reach th edecision on why these particular HR activi-ties are to be outsourced and whether theytruly constitute the noncore activities of thefirm, h is equally unclear as to whether andhow the effectiveness of these outsourcingactivities is evaluated and how outsourcingprovider and client firms coordinate their in-hou se and o utsourced HR activities to createa coherent HR function. One way to under-stand these relationships is to examine therecent trends in HR outsourcing.

Trends in HR OutsourcingOver a decade ago, Adams (1991) argued:

Personnei as a function is subject to in-creasing encroachment from externalconsultancies which are "poaching"their day-to-day activities . . . [but]there is no evidence that externaliza-tion is the overwhelming trend evenfor particular activities of personnelfunctions such as graduate recruitment,training and development, or counsel-ing, (p. 40)Evidence now exists to suggest that HRoutsourcing has increased substantially overthe last decade (Andersen, 1996; Harkins,Brown, & Sullivan, 1995). Qualitative andquantitative reports from a range of sourcessuch as People Management (various issues)and the Cranet Survey (Vernon et al., 2000)provide further evidence of this growth (alsosee Maurer & Mobley, 1998; Mobley, 2000;PricewaterhouseCoopers, 2002).Although evidence points to the contin-uing growth of HR outsourcing, the antici-pated speed of its continuing growth is open

to considerable debate. On the one hand, a

number of commentators believe that HRoutsourcing will continue to grow rapidly.Am ong 314 delegates of the HR Forum 2000,62% reported that they already were out-sourcing some of their HR activities (Pickard,2000d). A few large organizations such asBritish Telecoms (BT) have also turned theirHR function from a cost cen ter in to a sepa-rate revenue-generating business to capital-ize on the growing outsourcing market forHR services (Hammond, 2001). Moreover, ac-cording to an article in People Management,the transfer of HR services to overseas loca-tions is about to see a phenomenal increase,although it is noted that legal and culturaldifferences may inhibit the transfer of advi-sory roles (Crabb, 2003).

There is reason to remain more conserva-tive about the growth of HR outsourc ing. Forexample, as reported by Pickard (2000c), theHR consultancy firm William M. Mercer ar-gues that HR outsourcing is evolution, notrevolution. Companies with a clear policy ofapplying outsourcing across their businesswere still in a minority. Indeed, Pickard's re-search leads her to question whether reportsof a boom in outsourcing HR services may bemore hype than reality. According to theCranet Survey (Vernon et al., 2000), 40% ofthe surveyed companies failed to report anyincrease in the use of external providers forHR over the past three years. Figure 1 belowindicates that U.K. organizations use HR out-sourcing to a lesser extent than Belgium, TheNetherlands, and France.

Since 2000, the HR outsourcing news inthe United Kingdom has been dominated byhigh-profile HR outsourcing decisions from afew super-large blue chip organizations.

Source: Pickard (2000b)FIGURE I.Thetrends in HR Outsourcing


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for companies to

These include the BP Amoco deal with Exultin 2000 ("Huge Outsourc ing Hits HR Jobs,"2000), BAE Systems and Xchanging's part-nership in their new company "TogetherHR" in 2001 (Hammond, 2001), PrudentialFinancial's HR outsourcing deal with Exult in2002 (Higginbottom, 2002), and tlcomsgiant Cable & Wireless's HR outsourcingarrangement with e-peopleserve (Wuster-mann, 2002). To a large extent, the successor lack thereof of these outsourcing dealsserves as a barometer for the HR outsourcingmarket. Indeed, there is evidence to suggestthat many organizations remainprudent in their perception aboutthe success of outsourcing. WhileIt appears that the HR outsourcing has become a

trend, it has yet to prove a successoverriding trend is (Ham mo nd , 2001 ).The UK outsourcing firmNorthgate Information Solutionsoutsource only part commissioned a study in whichinterviews were conducted withof their HR functions joo senior managers from U.K.companies employing between400 and 10,000 people. The re-suits indicate that many compa-nies are mistrustful of outsourc-

ing HR. Despite recognizing the benefits ofremoving administrative work from staff(cited in Hammond, 2002), managers in thestudy expressed a reluctance to outsource,particularly following the limited success ofhigh-profile deals such as that between BPand Exult. Half of the larger companies andthree-quarters of the smaller companies sur-veyed reported spending more than 40% oftheir time on HR adm inistra tion. The inter-view survey also found that a significantnumber of companies (42% of large firmsand 14% of small firms) had outsourcedsome services, most notably recruitment.However, plans to take it further were lim-ited, with 75% of larger compan ies and 8 8%of smaller ones having no plans to out-source HR in the next two years.

It appears that the overriding trend is forcompanies tooutsource only part of their HRfunctions to a third party, rather than hand-ing over control of the entire departm ent. Asthe Cranet Survey suggests, the growth ofHR

fo a third party.

outsourcing is not as widespread as had beenpredicted, and there is no way to judgewhether the next few years will see a surge inactivity or a slow growth from a steady state(Vernon et a!., 2000). Inaddition, the CranetSurvey "[did] not yield conclusive evidenceof major trends or key drivers that infiuenceorganizations to utilise external providers inresourcing their HR functions" (Vernon etal., 2000, p. 16). This conclusion also refiectsthe findings from a study by Greer et al.(1999) showing that rationales for, and theextent of, HR outsourcing appear to be verycomplex and without any distinct patterns.Overall, considerable variations existamong organizations in their use of HR out-sourcing. More important, these variationsseems to bear little relationship to the size,cost, or productivity of the function (Greer etal., 1999; Vernon et al., 2000), althoughKlaas et al. (2001) found that idiosyncraticHR practices, firm size, and cost pressures af-fected both the degree of outsourcing andthe perceived benefits.

Effectiveness ofHR Outsourcing?The effectiveness of HR outsourcing as amanagement strategy has rarely been ex-plored, especially with work that involves in-depth, firm-specific knowledge and great au-tonomy. Outsourcing in general may lead toa reduction in the quality of products, orper-haps more so, of the services provided(Cooke, 2001; Marchington et al., 2003). Incertain organizational activities, such as HRactivities, it is often difficult to specify the re-quirement in a manner that leads to observ-able and verifiable outcomes (Domberger,1998). Effective monitoring and measuringof these activities requires enormous re-sources and expertise from an in-house mon-itoring team.

One danger with outsourcing HR is thatthe service provider may have a vested inter-est in standardizing all parts of its service inorder to achieve economies of scale acrossclients. Standardization may lead to a detri-mental loss of the client company's uniqueorganizational characteristics. In addition,many problems may arise from a mismatch


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Outsourcing HR as a Competitive Strategy? 4in culture between the host operation andthe supplier (Pickard, 1998, p. 23). When thequality of services provided by an HR out-sourcing service is deemed unsatisfactory,the cost of an alternative solution (such asswitching suppliers, obtaining a long-termcoritract with the new supplier, or bringingthe service back in-house) may increase con-siderably, and any immediate improvementsmay be difficult to materialize (Caulkin,2002).

From a strategic point of view, most com-mentators would agree that outsourcing ad-ministrative HR activities is plausible. Ulrich(1998) argues that outsourcing transactionalHR activities that are heavily reliant on ex-pensive IT systems frees internal HR profes-sionals to engage in strategic decision mak-ing. However, this result cannot be easilyachieved. As Liff (1997) noted, any attemptto develop an HR information system wouldface many operational problems.

Angela Baron, a Chartered Institute ofPersonnel and Development (CIPD) Adviser,pointed out that the boundaries between HRactivities and policy making may be blurred.What appears to be routine may turn out tobe a key function that should stay in-house(cited in Pickard, 2000a). Baron's view isshared by Bob Hill, manager of personnelservicing at Imperial Chemical Industries(ICI), who believed, "If HR needs to be closeto the business and adding value, this be-comes more difficult if it's outsourced"(quoted in Pickard, 1998, p. 23).

in a similar vein, Simon Drysdaie, an HRmanager at BP Amoco, the first UK-based pri-vate multinational to outsource its entirepersonnel administrative function, has pub-licly warned that outsourcing HR strategywould be going a step too far (Taylor, 2001).Many interviewees in Greer et al.'s (1999)study likewise cautioned against outsourcingactivities that could remove or distance theHR function from the employees. The gen-eral consensus appears to be that with ex-treme outsourcing, HR departments run therisk of losing their identities and control.Therefore, a mixture of outsourcing and in-house activities appears optimal under manycircumstances. The need to preserve confi-

change their

dentiality and an appropriate amount ofcontrol are important considerations, partic-ularly for activities involving sensitive infor-mation (Greer et al., 1999).

HR is a service that is coproduced withline managers and employees. HR profes-sionals are being asked to help provide busi-ness solutions for employee problems. Theyare being challenged to develop core compe-tencies to help formulate and deliver thesebusiness solutions. HR departments arebeing challenged to change theirbureaucratic culture, to be morecustomer-focused, and to deliver HR departmentsvalue-added services. Outsourc-ing should, therefore, be used in being challengeconjunction with an internal HRteam that focuses on core compe-tencies to produce these solutions bureaucraticin partnership with an externalHR service provider. culture, to be more

However, outsourcing is onlyone component of the strategictransformation process. As one and to deliver vasenior vice president for HRpointed out in Greer et al.'s study added sen/ices(1999, p. 90), It is difficult tochange your role to strategic bydumping activities via outsourcing. It is eas-ier if you are already in the strategic role."The same study further reveals that the roleof HR outsourcing depends on how seniorHR executives view the role of the HR func-tion (Greer et al., 1999).

Similarly, Vernon et al.'s (2000) studyfound that the formal position and the in-fluence of the HR function have not changedin the past decade. The study further revealsthat outsourcing is often a business decisionmade by senior management and occurs out-side the control of the impacted function.Where top management actively evaluatesthe performance of the HR function, out-sourcing appears to be more common (Ver-non et al., 2000).

In general, the more centralized the or-ganization and HR function, the more HRoutsourcing is likely to be deployed as a re-source tool. Vernon et al. (2000, p. 14) writes,"When decisions are taken at headquarters,more than 40 per cent of organizations used


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422 HUMAN R ESO U R C E M A N A G EM EN T , Winter 2005

external providers for pay and benefits,whereas when they are taken on a devolvedbasis, less than 30 per cent use externalproviders." More significantly still, they findthat there is scant relationship between thesize or na tur e of the HR function and th e useit makes of external providers. This findingsuggests that the function makes ad hoc re-sourcing decisions, disregarding efficienciesand functional good practice. Additionally,what occurs is "an organization specific re-sponse rather than any reai professionalgood practice or shared learning. It is thisfactor that provides an interesting challengefor the HR function" (Vernon et al., 2000, p.17). In other words, outsourcing HR to en-able an in-hou se HR dep artme nt to take on amore strategic role remains largely an aspira-tion rather than a reality.

Even if the in-house HR dep artm ent takeson a more strategic role, a number of issueswill be raised as to how it can develop andmanage the complex relationships with theoutsourcing service provider and the rest ofthe organization (see Figure 2). In particular,how will the in-house HR department man-age its multisourced HR functions? W hat con-trol mechanisms are in place to operate sucha system successfully? How can they makesure HR input reaches the strategic level whenthe HR functions are delivered by a poten-tially iaige and growing collection of special-

ized and self-contained units, both internaland external to the organization? In a nut-shell, howshould the two-way relationshipsindicated in Figure 2, between the role of out-sourcing HR, in-house HR, line management,HR strategy, and the business strategy, be de-veloped and maintained? Given the fact thatmost outsourcing relationships incur moreproblems than anticipated, some with seriousimplications, how can the in-house HR teamdisassociate itself from these operational prob-lems and diffuse discontent from its "clients"on the one hand, and try to enhance itsstrategic im portance on the other?

Given that HR outsourcing has impor-tant consequences for the quality and cost ofHR, the HR profession (Ulrich, 1996), andthe strategic position of the in-house HRfunction, it is important that we assess theimplication of HR ou tsourcing for th e role ofthe HR function and the people concerned.It is to this issue that this article now turns.Implications of HR Outsourcing forthe People AffectedOutsourcing HR may bave serious implica-tions for different group s of employees in theorganization, both in terms of their (chang-ing) roles and their experience of the HRservices as a resuit of outsourcing. The mostobvious groups of people likely to be affected

Business strategy

HR strategy

Outsourcing HR In-house HR Line management

FIGURE 2. Relationships Between the Role of Outsourcing HR, In-house HR, LineManage ment, HR Strategy, and the Business Strategy


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Outsourcing HR as a Com petitive Strategy? 42are HR professionals, line managers, employ-ees who receive the services, and outsourcedHR staff who provide the services.In-house HR ProfessionalsOutsourcing HR may impact in-house HRprofessionals in a number of waysmost no-tably, in terms of the nature of their workand their career patterns (see Table I), al-though detailed studies on these aspects re-main scarce. According to Ulrich's proposal(1998) of HR's four new roles, the HR workwill be shared in varying proportions withline management, employees, external con-sultants, and other groups. However, Ulrichdoes not really discuss the process of interac-tion by which this distribution of work is de-termined (Procter & Currie, 1999). Nor havethe implications for their career prospectsbeen contemplated.

Outsourcing HR not only leads to joblosses (Pickard, 2000b), but also creates aneed for monitoring and evaluating the serv-ice provider's performance and inevitably re-quires work reorganization for the in-houseHR staff. For example, Greer et al.'s (1999)study suggests that where HR activities areoutsourced, it is important that the usercompany deploy in-house HR generalistswho know the business. These generalistscan manage the outsourcing relationshipsbecause they enhance the perception and re-ality of HR as a true business partner. Forthese generalists, knowing where to get aproblem solved is more important than hav-ing specialized HR knowledge. However,there is a danger of work intensification for

these HR professionals, as their colleaguesmay still be relying on them to provide theservice because they may be used to it andunfamiliar with the new system.For example, Shen et al.'s study (2004)found that the outsourcing of the estatemaintenance function of a National HealthServices (NHS) trust hospital in the UnitedKingdom under a Private Finance initiative(PFI) agreement has led to severe work i nten -sification and radical change in the job con-tent for the NHS maintenance manager. It isnot difficult to imagine that similar thingscan happen to the HR managers where out-sourcing HR takes place, since both func-tions require intimate knowledge of the or-ganization and a relatively high level ofrelationship management.HR outsourcing further raises issues con-cerning the career prospects of the HR staff.W hen HR activities are outsou rced, fewer ca-reer develop men t oppo rtunities are availablefor the in-house HR staff, especially thosewith specialist instead of generaltst skills. Inthe meantime, where only a limited numberof activities are performed in-ho use, broad orgeneral HR experience will be more difficultto obtain. Furthermore, the practice of in-creasing specialization apparent in manyoutsourcing firms raises important questionsabout how HR professionals are to betrained. It is arguable that existing trainingfor the HR profession is generalist-oriented.This notion runs parallel to an increasing de-mand for specialists in a wide range of dif-ferent functional areas, from recruitment topay, and from training and development tooutplacement.

How HR staff we re affected by BP Amoco's outsourcing of its HR functionWhen BP Amoco outsourced Its HR func tion, nearly half of its HR staff w ere affected. Wh ile E xultwo uld need to employ up to 350 existing staff me mb ers, BP Am oco adm itted that many of its em-ployees would not want to transfer to Exult 's two headquarters, which would be based in the UnitedKingdom and the U nited States. Job losses were expected. In add ition, many of those who retainedtheir jobs w ithin BP Am oco w ould have different roles. According to a senior figure of the giant cor-poration, "Clearly, a compu ter can't help if an employee needs to talk to som eone. We expect the HRstaff who remain with us to be able to focus on that, and on the strategic and policy aspects of thej ob " ("Huge Outsourcing Hits HR Jobs," 2000, p. 13}.


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424 H U M A N R E S O U R C E M A N A G E M E N T , Winter 2005

Therefore, outs ourcin g HR may affect thein-house HR staff in ways such as job inten-sification, change in job content, reductionof career development opportunity, and in-creased levels of stress, especially when therelationship with the service provider isstrained and the quality of services unsatis-factory. More broadly, the role that HR pro-fessionals play will bedependent upon theirinteraction with other groups both withinand outside the organization (Procter & Cur-rie, 1999). C omm unication can be more dif-ficult, especially when there is geographical,as well as organizational, separa-t ion. But if the onward march ofHR outsourcing is a given, thenIf the onward march the HR professionals will need to

learn how toplay the game (Turn-J 2002)f HR outsourcing isa given, then the HR

professionals wiil Line ManagersA key driver in the developmentneed to learn how to ^f ^R policies in recent years has

play the game. been HR's objective to increaseline management involvement inand ownership of HR decisions.For example, Vernon et al. (2000)found that the most common pattern of pol-icy decision making in Kurope involved sliar-ing responsibilities between the HR special-ists and the line ma nagem ent: "About a thirdof senior HR specialists reported an increasein line management responsibility for HR is-sues over the last three years" (Vernon et al.,2000, p. 7). The role of line managers in im-plementing HR policies and shaping HRpractices has long b een recognized (e.g., Cur-rie & Procter, 2001; Marchington & Parker,1990; McConville & Ho lden, 1999; Procter &Currie, 1999).

In other words, line managers do notmerely implement decisions or changes for-mulated by the HR function. Knowledge ofthe operational context gives line managersa particularly significant infiuence in the im-plementat ion of changes in the area ofhuman resources and the role the HR func-tion may adopt. Marchington and Wilkinson(2002) provide anoverview of the role of theline managers in the HR function and how

HR personnel can facilitate the line man-agers in issues related to HR. This sub ject willnot, therefore, be expanded upon here .What needs to be highlighted is that out-sourcing HR activities may bring inconven-ience and work intensification to the linemanagers in ways similar to those of the in-house HR managers.

Instead of having their HR colleagues atha nd to call for help, HR outsourcingproviders are likely to be located ina differentplace. They may not have sufficient under-standing of the line managers' local needs orthey may have never met with each otherand established a working relationship. Intheory, the HR outsourcing provider is thereto provide the service, but in reality, som e ofthe jobs may be difficult to explain viaelec-tronic devices, and it would be more efficientfor the line managers to just do it themselves.In addition, the need to raise work requestsfor even the sm allest job as a result of the out-sourcing agreement inevitably creates extraworkload for the line managers. As previousresearch shows, outsourcing of service provi-sions tends to create new rigidity and bu-reaucracy in the way work is organized andmonitored (Cooke, Earnshaw, Marchington,& Rubery, 2004; Marchington et a!., 2003).Employees Receiving HR ServicesOu tsourcing t he HR function may have a sig-nificant impact on the workforce, on bothin-house employees who receive the HR serv-ices and those who provide the services. Out-sourcing the HR function is in many waysdifferent from the outsourcing of other busi-ness processes in that the organization isarming an external service provider with itsemployees' personal information that maybe of a sensitive and confidential nature.Outsourcing the se tasks may seem unsettlingto employees.

Outsourcing HR may also require em-ployees to adopt different ways of obtainingHR assistance and information. One of thekey features of HR outso urcin g services is theadoption of a self-help, online HR informa-tion system (HRIS) for employees of theclient firm to input and update their per-


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Outsourcing H R as a Competitive Strategy? 4sonal data on the system. As noted above,the implementation of an HRIS often in-volves unpredicted operational problems forvarious reasons, including the incompatibil-ity of IT systems between and within the twoorganizations, lack of in-house expertise tomaintain the system, lack of clear ownershipof problems, and lack of willingness of em-ployees to use the system. All these changesmay cause some fear and resistance amongthe workforce. BP Amoco's outsourcing ofHR is a case in point (see Higginbottom,2001). As a result, it may actually be morecostly for the organization to acquire the HRservices from the external provider when allthe indirect costs (both financial and emo-tional) that may incur in-house are calcu-lated. This is especially true for Iarge organi-zations in which employees are highlyprofessional and highly paid.

Outsourced HRStaffTraditionally, skilled and knowledge-inten-sive work such as HR activities has been pro-vided by workers of "status." Employers tendto have an employment relationship withthese employees that is characterized by rel-atively high levels of trust in order to elicitgreater commitment and effort from theworkers (Streeck, 1987). It has been arguedthat the tacit knowledge possessed by theseworkers is vital for the organizational com-petitiveness (Cooke, 2002; Manwaring, 1984;Pavitt, 1991; Polanyi, 1966; Willman, 1997).Outsourcing of this type of work replaces thestatus approach by a (short-term) contractualrelationship of tight specifications of ail as-pects as a predominant mechanism of con-trol. This mode of employment relationshipdoes not encourage workers to provide"extra-functional" contribution to enhancethe firm's competitiveness (Fox, 1974). Infact, the potential problem of gaining com-mitment from the nonemployee workers iswell recognized by organizations and aca-demics (Cooke, Hebson, & Carroll, 2005).For the employees of the service provider,job security may be low and firm-specificknowledge may be lacking as a result of mul-ticlient services and the standardization of

a nd increased

common features opost-transfer

work processes. Indeed, lack of critical ex-pertise and a customer service focus, or fail-ure to take the interests of their client intoaccount when delivering their HR services,have been found to be some of the main rea-sons for the failure of the HR outsourcing re-lationships (Greer et al., 1999).

Additional complications in the employ-ment relationships may occur where the HRoutsourcing decision involves the transfer ofexisting HR staff to the external .serviceprovider (see Table 1). For the employeesconcerned, the transferred HR staff are likelyto be protected, at least in princi-pie, by some sort of employmentregulation of the specific country ^ork intensifica(e.g., the Transfer of UndertakingProtection of Employment[TUPE] regulations in the United performanceKingdom). In theory, the employ-ment contract of the transferred monitoring arworkers is preserved intact underTUPE regulations. In reality, how-ever, their terms and conditionsand other experience of workmay change significantly, albeit working life.incrementally (Cooke et al.,2004), since the impact of TUPEhas proven to be only marginal to date(Colling, 1999; Wenlock & Purcell, 1990). AsDomberger pointed out, "the principal effectof TUPE is to ensure minimum standards aremaintained in negotiated transfers. The leg-islation is designed merely to assure the con-tinuity of employment" (Domberger, 1998,p. 143).

For example, Cooke et al.'s (2004) studyof outsourcing in the public sector revealsthat work intensification and increased per-formance monitoring are common featuresof post-transfer working life. Outsourcing of-fers the new employers opportunities to im-prove organizational performance by creat-ing change through reducing staff numbers;introducing new skills and working prac-tices; and by modifying individual incen-tives, employment terms and conditions,and attitudes to the workplace (Domberger,1998). None of these changes can be pre-vented effectively by TUPE, although not allof these changes necessarily point to a wors-


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ening scenario to the disadvantage of theworkers (Cooke et al., 2004).However, this raises a question as to theextent to which the client organization canexpect their ex-employees to (continue to)demonstrate loyalty and commitment inproviding their services. These employeesm ay be resentful that they are being"dumped" by their former employer and/ormay have taken on their new employer's or-ganizational values that are not necessarilyin line with those of their former employer.

These issues may be exacerbated if thenew employer has also taken onstaff from other client organiza-It is difficult to draw

clear conclusionson the types of H R

activities thatshould be

outsourced and theeffectiveness ofH R

outsourcing.

ronment with multiple cultures,multiple identities, and compet-ing demands for preferential treat-ment from client organizations(Rubery et al., 2 003). These issuesalso present a serious challengetor the new employer. The out-sourcing firm has to manage afragmented workforce, one whereemployees have different employ-ment packages. At the same time,the outsourcing firm is trying toimplem ent a coherent HR strategyan d a consistent organizationalculture while deiivering customized HR serv-ices to its client o rganizations.ConclusionsThe aim of this article has been to provide anoverview of the various aspects of HR out-sourcing with a com bination of empirical ev-idence and academic debate. The intentionhas been to provide a critical review of thestate of affairs in the practice of HR out-sourcing and to raise issues that require fur-ther academic research and attention fromorganizations interested in HR ou tsourcing.Existing literature on HR outsourcing ap-pears to be rather limited in general. This isperhaps due to both research and practice inHR outsourcing being in its early stages ofdevelopment. There is a longer tradition offirms outsourcing discretional aspects of HR(e.g., payroll, training, health and safety,

legal advice), areas in which they lack in-house expertise and that are deemed non-cost-effective to develop and maintain in-house. Existing evidence suggests that HRoutsourcing has increased substantially overthe last decade, although some authors re-main cautious about the future growth of HRoutsourcing. Training and payroll appear tobe the favorite aspects of HR outsourcing. Inaddition, recruitment, taxation, and legalcompliance are often outsourced. However,empioyee relations, HR planning, careermanagement, and performance appraisal areless likely to be outsourced, as they are morelikely to be seen as core competencies or ac-tivities. Even so, there are no clear patternsof the types of HR activities that are out-sourced.Existing evidence also suggests that theprimary motives for HR outsourcing are toreduce cost, togain external expertise, to en-hance strategic focus of the in-house HRfunction, and to improve service quality.Cost reduction and "sell-out strategy" arealso important factors for making decisions.While the overwhelming objective for out-sourcing appears to be cost reduction, boththe transaction-cost economics model(Williamson, 1985) and the resource-basedview of the firm (Barney, 1991) seem to in-fluence firms' HR outsourcing decisions. Thediverse evidence as to whether the HR out-sourcing trend is set togrow or not and/or atwhat rate implies pragmatic decision makingby firms when considering whether to out-source HR activities.

Due to the limited number of empiricalstudies on various aspects of HR outsourcingand the fragmented and inconclusive evi-dence they have yielded, it is difficult todraw clear conclusions on the types of HR ac-tivities that should be outsourced and the ef-fectiveness of HRoutsourcing. In fact, evi-dence seems to suggest that organizations'decisions in outsourcing are not always ra-tional (Vernon et al., 2000), nor is theirprocess successful or the outcome effective.It is possible, however, to identify a numberof research issues and practical implicationsthat require further attention from academ-ics and practitioners (in addition to a num-


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Outsourcing HR as a Com petitive Strategy? 4ber of empirical and research questions thatwe have already raised throughout the re-view). As HR outsourcing is an issue thatwould benefit considerably from academic-led empirical research, we address these is-sues and implications to both academics andpractitioners together, but where appropri-ate, we differentiate the two types of readers.

First, management should make an in-formed judgment as to whether and whythey need to outsource, and what kind ofrole the in-house HR team should play in theoutsourcing process. A related question is de-ciding what activities to be outsourced. Itmust be noted that there is no "best prac-tice." What differentiates "core" from "non-core" is a highly subjective and contentiousissue (Legge, 1995; Purcell & Purcell, 1999).What are deemed noncore activities mayturn out to be central to the effective opera-tion of an organization. What is a noncoreactivity for one firm may prove to be a coreactivity for another due to their different or-ganizational histories and operating envi-ronments. For example, a large call centerwith a high volume of staff turnover mayfind it more cost-effective to outsource theirrecruitment and training processes, whereasan organization operating in a knowledge-intensive market with a high-road HRMmodel (e.g., consultancy firm) may wish tokeep these functions in-house, as they areoften seen as important mechanisms forshaping the organizationai culture.

Klaas et al. (2001) argue that tacit knowl-edge is one of the crucial factors that war-rants consideration when deciding to use HRoutsourcing. HR processes cannot always becodified for transactional purposes, but areoften based on tacit knowledge that reflectsthe organization's unique culture. Tacitknowledge is the result of an accumulationof experiences that may be difficult to com-municate to those without equivalent expe-rience (Barney, 1991). Since contractors con-trol work processes, unless they share therequired tacit knowledge, they may choosesuboptimal processes (Conner & Prahalad,1996). Addressing this limitation may re-quire intense day-to-day involvement by or-ganizational managers with the HR contrac-

the firm.

tor until the contractor acquires the tacitknowledge.In addition, firms need to look beyondthe resource-based view that helps themidentify their core competence, and there-fore competitive advantage, when they makeoutsourcing decisions. An organization's HRstrategy may be profoundly influenced by acomplex institutional context of resource de-cisions and not just by strategic factors suchas the nature of the product market. This in-stitutional context includes decision makers'norms and values, corporate history, organi-zational culture and politics, pub-lic and regulatory pressures, andindustrywide norms (Oliver,1997). In other words, an organi- An organizationzation's HR strategy may beshaped by the social as well as strategy may beco nom ic con text of the firm. ^^^^^^ ^ ^^^

We therefore need academicresearch to provide evidence on social as welt the following topics: the mostcommon reasons for outsourcing economic contexHR activities, the scope of out-sourcing, who within the organi-zation makes outsourcing deci-sions, the implications that thechan ged role of HR will have o n the businessand the workforce, and whether there areany industrial and national differences inthese choices and outcomes. Such empiricalresearch is necessary if HR outsourcing is tobe presented as a strategic option instead ofa capricious whim, especially for multina-tional corporations operating in a diverse in-stitutional environment.Second, in terms of the outsourcingprocess, it is necessary for management to clar-ify their specific organizational needs, choosethe right suppliers, manage the change effec-tively, maintain control of the outsourcing re-lationship, and at the same time develop anongoing partnership with the supplier. Firmsthat outsource their HR activities also need todevelop a comprehensive model with whichto evaluate the effectiveness of the outsourc-ing, incorporating both financial and nonfi-nancial indicators and direct and indirect costsin both the short term and long term. In par-ticular, an HR outsourcing provider worthy of


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assuming responsibility for the new work mustbe flexible and skilled enough to provide in-novative and customized approaches to prob-lem solving. Any external input needs to bemanaged and monitored. Managing this rela-tionship requires management time, soundjudgment, and considerable interorganiza-tional management expertise. No externalsupplier can make strategic decisions aboutwhat is needed and what can be afforded (Hall& Torrington, 1998), and decisions like thesemust remain firmly in-house.

Moreover, firms need to manage the po-tential tension between the differ-ent objectives within the HR strat-

Firmsneedto ^^ ^^^^ organization. We havealready highlighted the consider-

managethe able impact that HR outsourcinghas on HR personnel, line man-

potential tension agers, employees, and outsourced, , HR staff. If HR outsourcing is notbetween the . , ^ . , ,implemented m a way that takes

different objectives due consideration of the issues in-dicated above, there could be an

within the HR adverse effect on the psychologicalcontract of employees, thereforecreating a negative impact on orga-

organization. nizational performance.Third, in terms of the implica-

tions of outsourcing HR and therole of the HR function, there

may be a danger of "hollowing out" the in-house HR function through streamlining toline management and outsourcing. As Halland Torrington (1998) argue, the outsourc-ing of HR activities presents a potential prob-lem of throwing out the baby with the bath-water. Even if the in-house HR team is to takeon a more strategic role following the out-sourcing, this raises a number of issues as tohow it can develop, manage, and maintainthe internal and external relationships thatrelate to its different roles: monitoring out-sourced HR activities; providing an amountof in-house HR activities; being an HR strate-gist; and being a strategic partner to the busi-ness. In addition to considering the varietyor the portfolio of roles the HR functionmight adopt, from both the academic andpractitioner point of view, we need to under-stand the processes by which these are deter-

strategy of the

mined, ln other words, "if HR managerswant to become strategic change-makers,they need to understand both where andhow they can do so" (Procter & Currie, 1999,p. 1089).

Ideally, existing literature should be ableto provide evidence in and advice on themost appropriate HR activities to be out-sourced and how the relationship betweenHR outsourcing and the in-house HR func-tion should be managed. However, there is apaucity of rigorous empirical research in thisarea, which leaves a number of unansweredquestions. Rigorous empirical research istherefore required to identify how in-houseHR teams manage their multisourced HRfunctions and the control mechanisms thatneed to be in place to operate such a systemsuccessfully. In addition, it is necessary to un-derstand how HR input can reach the strate-gic level when the HR functions are deliveredby a potentially large and growing collectionof specialized and self-contained units, bothinternal and external to the organization.

The debate over HR's contribution to or-ganizational performance, along with the de-cision by some companies to outsource rou-tine administrative activities in order to givetheir in-house HR team a more strategic role,raises a number of questions that this articlehas tried to address. Although theoretically,outsourcing HR could be a competitive strat-egy, there is insufficient empirical evidenceto know whether it actually is in practice.These questions raise a considerable researchagenda for academics and provide a cautionto practitioners to carefully consider all ofthe implications of outsourcing HR.

AcknowledgmentsWe wouid l ike to thank the three anonymous re-viewers and the associate editor Professor ScottSneil for their constructive com ments to the firstversion of this article. We wo uid also l ike to thankRizwana Zafar for her assistance with the elec-tronic literature searches. The w o r k underpinning^this article was conducted as part of a larger proj-ect funded by the Department o f H ealth (DoH ) ofBritain. The views expressed are tiwse of th e au-thors and do not necessarily reflect those of Do H ,


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OutsourcingHR as a Competitive Strategy? 42

FANG LEE COOKE is a professor of HRM and Chinese studies at the Manchester Busi-ness School at the University of Manchester. She has written and published widely onissues related to human resource management, business, and ennployment, particularlyin China. She also has a strong interest in researching outward Chinese investment andthe employment of migrant Chinese in developed countries. Dr. Cooke is the author ofHRM, Work and Employment in China Routledge, 2005).JIE SHEN, PhD, is a lecturer In HRM at the School of Management, University of SouthAustralia. His main research interest is international human resource management,HRM, and industrial relations in China.Dr. ANNE MCBRIDE is a senior lecturer in employment studies and a member of theHRM, Employment Relations, and Law group of the Manchester Business School, Uni-versity of Manchester. Dr. McBride's main research interests are health services man-agement, gender relations at work, and public-sector industrial relations. She is cur-rently leading a major U.K. Department of Health-funded research project exploringissues of skills development and organizational learning. She has also written on work-force modernization and working-time issues in the NHS and is also the author of Gen-der Democracy in Trade Unions (Ashgate, 2001 ).

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