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The Impact of Human Resource Outsourcing on Company Performance

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FINAL PROJECT iv

Contents List of Tables ii List of Figures iii Abstract iv 1. Introduction 1 1.1 Introduction 1 1.2 Background of Human Resource Outsourcing 2 1.3 Statement of the Problem 3 1.4 Purpose of the Study 3 1.5 Research Questions 3 2. Literature Review 4 2.1 Introduction 4 2.2 Empirical Review 4 2.2.1 The Contribution of Human Resource Outsourcing to Company Performance 4 2.2.2 Hindrances to the Effectiveness of HRO in Improving Organizational Performance 9 2.2.3 Strategies for Improving Human Resource Outsourcing Effectiveness to Achieve High Company Performance 11 2.3 Theoretical Underpinnings 12 2.3.1 Resource-Based View Theory 12 2.3.2 Transaction cost theory 12 3. Research Methodology 13 3.1 Introduction 13 3.2 Research Design 13 3.3 Target Population 13 3.4 Sampling 13 3.5 Data Collection 14 3.6 Data Analysis 14 4. Findings and Conclusion 15 4.1 Introduction 15 4.2 Background Data 15 4.3 Contribution of HRO to Company Performance 16 4.4 Hindrances to HRO Success 16 4.5 Strategies for improving HRO Effectiveness 17 4.5 Conclusion 18 References 19 Appendix: Questionnaire 21 Glossary 23

List of Tables

Table 2.1 The Benefits of HR Outsourcing to an Organization 9

Table 4.1 Response Rate 15

Table 4.2 Background Data 15

Table 4.3 Contribution of HRO to Company Performance 16

Table 4.4 Hindrances to HRO Success 17

Table 4.5 The strategies for improving HRO effectiveness. 17

List of Figures

Figure 2.1 The Principal Reasons for Human Resource Outsourcing (HRO) 8AbstractHuman resource outsourcing is a common strategy in companies which adopt it as a means to enhance their performance. This paper is a project report on the impact of human resource outsourcing to company performance. The project begins with an introduction, which provides the definition of human resource outsourcing and its uses. The background of human resource outsourcing will also be provided, after which a statement of the problem and the purpose of this research will be explained. The research questions will also be provided, which will be used to determine the contribution of human resource outsourcing on company performance, the elements that hinder human resource outsourcing from improving company performance and the strategies for improving the effectiveness of human resource outsourcing. The second section will provide the literature review, which includes the empirical and theoretical reviews. The empirical review will be conducted based on the research questions, while the theoretical review will discuss the resource-based and transactional cost theories. The third part of this project will provide the research methodology, including the design used, the population, sample and method of sampling, data collection as well as data analysis. The final segment contains the results of the research and the conclusion.FINAL PROJECT i1. Introduction1.1 IntroductionThe definition of the term outsourcing narrows to work that is performed, not by the employees of an organization, but rather by other people. It rolls out as profoundly intricate in the current environment and companies justify their decision for use of these subcontracts by a wide range of reasons. Outsourcing can further be described as the provision of services that would usually be executed within a company, by an external worker on a basis that is recurrent. Ideally, the company delegates the noncore business operations by subcontracting enabling it to wholly channel its focus on the core business operations, granting it an advantage with respect to competition (Kodwani, 2007). Analysts conclude that HR outsourcing is mostly arrived at by companies through cost reduction. Cutting costs in the prospects of economic turmoil were tackled by companies through subcontracting some of their HR operations. This take, however, provokes some analyst’s opinions who disregard its benefit claiming that outsourcing of HR operations that bear weight decreases employment opportunities. On the other hand, others acknowledge the functionality of issuing subcontracts whereby high ranked HR professionals are enabled to work on tactical personnel challenges. Outsourcing of manpower is gradually taking a toll in India with the current trend of companies contemplating structuring their payroll. Despite being practiced on a low scale, government operations and the public sector have also incorporated the practice of outsourcing hence it’s not just an affair of large multinational organizations (Seth & Sethi, 2011).The growth of outsourcing of manpower is factored by operations of the HR department as its chief determinant. Big organizations around the world have raised a statistic that is based on the option to subcontract quite a number of their HR operations. This effect is based on the appreciation of the fact that highest level management harbors the need to break out of its subordinate shell where day to day routine operations are run and instead focus on the satisfaction of their customers, tactical planning, decision making and core competencies. These operations that are hence outsourced include but are not limited to training, benefits administration, drug-testing, recruiting, payroll, and running background checks. These very operations are also the ones that cause small-scale organizations to incorporate external help despite their undistinguished feature in studies that feature trends in outsourcing. HR outsourcing constitutes a number of issues, however. They include (Seth & Sethi, 2011):• The ultimate goal and effect of HR as is perceived in future prospects to be restructured or enabling partial subcontracting promoted by agreements made within its operations.• The management and tactical intricacies enabled through deals made within HR outsourcing.• Determining between the noncore and core businesses within the HR.• The impediment faced by HR in progressing with more tactical progressive roles as the aftermath of human resource outsourcing.• Effects such us redeployment and loss of employment opportunities as parts of the stand associated with offshoring.Organizations are affected on a large scale, that is, worldwide, by the difficulties of working towards managing human resource operations. The value of human resource as a business department has split considerations whereby some companies view it as a profoundly important factor towards achieving success while others consider it as inefficient and over sourced therefore justifying its vulnerability to cost reductions enabled by outsourcing. Outsourcing has also been cultivated as a channel through which comparative advantage may be achieved over business rivals following the growth of competition worldwide. The importance of outsourcing is measured by its ability to enable a company focus on business operations and competencies that are considered core. This delegation magnifies the energy channeled towards developing the main talent of the organization rather than mundane duties that circle around the area that doesn’t reflect its talents hence setting up an example to its competitors. Operation costs of the organization are also reduced enabled by outsourcing unimportant duties. Advantages accruing from specialization that the outsourcing vendors avail and economies of scale may contribute to the possibility of earning profits from cost structure of a supplier that is low (Kodwani, 2007).1.2 Background of Human Resource OutsourcingMany big and varied organizations had their performance at below average in the period around the 70s marking the growth stage of outsourcing trend. The early 80s marked the rapid growth of the trend amidst, simultaneously, the commencement of the recession which effected a global scale. Business operations took a different turn with the inclusion of outsourcing despite having a small range of operations to be juggled about. These operations that were subjected to outsourcing frequently include catering, IT, security and cleaning (Kodwani, 2007).It was not until 1989 that outsourcing formally gained recognition as a business tactic. The difference however set with the lack of self-efficiency within some companies that compelled them to outsource the operations which they couldn’t perform. A good example is publishers who have regularly sort services that incorporate fulfillment, printing, and composition. The foundation for the growth of subcontracting hence may be coined from the functionality of these external vendors in the provision of this mundane but still important services. Support services featured outsourcing in consecutive times. The 90s saw companies outsource services whose relevance to the chief operations of running the business was distant, in a bid to cut cost on business operations. Rising service companies were subcontracted by managers to provide services that enlisted, data processing, security, human resources, and internal distribution of mail, plant maintenance and accounting as a measure of keeping the house in order. Components of outsourcing that bring about saving on the costs is another development as top management seeks to multiply their gains (Huma, 2013).Organizations effect their outsourcing differently, either partially, or wholly, that is, their entire business operations. More than fifty years of human resource outsourcing history can be dated to when automatic data processing profits reached 40,000 associates and $7billion .the conference board conducted a survey from which they amassed that a majority of organizations, over seventy-five percent, outsource their main HR operations or if not, have plans to effect that progress. The survey went on to show that sixty-seven percent of American organizations admitted to outsourcing, partially or wholly, of five and even more human resource operations. This trend projects a possibility in which human resource outsourcing firms will create and fill employment opportunities for half of the matched professionals in the years between 2020 and 2021. This market is taking shape rapidly. Despite this similar market being deteriorated over the past three years, the prospective days bear an incredible growth expectation in comparison to businesses that major in outsourcing. $31 billion set the target for the industry established worldwide through outsourcing in 2007, $50 billion target by 2010, denoting a CAGR of 12% within the period running from 2007 to 2010 (Kodwani, 2007).Cutting costs tend to be the major reason that organizations put forward to justify the decision to outsource, despite the many reasons that they manage to put across. This decision, however, motivates researchers to share an enlightenment by advising to not only factor cutting costs as the chief determinant in deciding to outsource. Improved quality settles the ideal gain from human resource outsourcing. Other promoters of human resource outsourcing are earning greater developed skills, reducing risks, promoting advanced technological access and achieving flexibility (Azhar & Shehzadi, 2012).1.3 Statement of the ProblemMany studies have attempted to explain human resource outsourcing, but they do not provide sufficient evidence to show its significance in improving the performance of companies. HRO is linked with the improvement of company performance, but there is not sufficient empirical evidence to prove that this relationship exists.1.4 Purpose of the StudyThis study is aimed at providing a relationship between human resource outsourcing and organizational performance. Thus, the study will explain the contribution of HRO to overall company performance by providing the reasons why organizations adopt the strategy and its success. This research will give empirical evidence of the importance of HRO. Further, it will provide a theoretical evidence of the significance of HRO to companies, using the path-goal theory. The method through which the research was conducted will be provided along with the sample used. This will be followed by the results of the research, which will be presented graphically and analyzed. The study will then be concluded with a summary of the findings and recommendations for improving the use of HRO by companies.1.5 Research Questionsi. What is the contribution of human resource outsourcing to company performance?ii. What are the hindrances to the success of HRO in improving company performance?iii. What improvements can be made to HRO to achieve company performance?2. Literature Review2.1 IntroductionThis chapter contains the literature review, which entails an analysis of empirical data and theories relating to Human Resource Outsourcing and the various impacts that it has on the organizational performance.2.2 Empirical Review2.2.1 The Contribution of Human Resource Outsourcing to Company PerformanceMany firms prefer to outsource their human resource activities. This could be because of several reasons at the operational or strategic level best known to them. The existence of shared similarities in the organizational functions makes it suitable for an organization to outsource its activities. Organizations have been pressured to look into their HR processes mainly due to the need of experiencing improved productivity, increased productivity and generally the growth of the organization. This, therefore, has led the organizations to move in a direction of strategic outsourcing disregarding discrete services. As per the observations made by Gray, Geer, and Youngblood (1999), decisions regarding human resource outsourcing are often a result of the engulfing need to incur lower costs for services rendered for HR. HR function, due to stiff competition and decreasing of the organization size, experiences immense pressure to show value in a way that is both effective and efficient. Even though some of the HR functions elements were carried out by external service providers, an observation was made by Brewster that actually relating human resource management and outsourcing is a better financial option as it saves the organization a lot of its finances (Turnbull, 2002). To add to this advantage, outsourcing also saves time for the HR professionals of the company receiving the services and enables them to engage in other functions that a more strategic and consultative. This increases the human resources capability improving its performance since they concentrate on the implementation and designing of activities and programs that tend to maintain the organization’s workforce. There are four key roles of an HR. These four roles include employee champion, partner with strategic ways, an administrative expert, and an agent of change (Sethi, 2011). Similarly, it was argued by Gray et al (1999) that outsourcing of human resource and role of the business partner is actually dependent on one another, a factor that the HR department was putting into assumption. By these roles, the HR can contribute or add the largest value to the organization. This is quite difficult though since these roles pose a difficulty in quantitative measurement.Improvement of an organization efficiency and overcoming organizational politics can also be well tackled by the outsourcing of human resource. For instance, the United Kitchen training and sales manager saw that a firm could well maintain its objective subsequently avoiding office politics by simply outsourcing all personnel, employing an expert who is not compromised by the organization’s politics. Also, the expert can decide to ask for additional support from other experts in other organizations (Sethi, 2011). In summary, one is able to identify the main reason for outsourcing as the need for consistency (Sisson & Storey, 2000). Other reasons for outsourcing may include the requirement of specialist services, reduction of cost, and enabling of HR to carry out roles that are more strategic. Generally, most opinions are in line with the fact that outsourcing is both a strategic to and also an exercise that fairly reduces the cost. The decision to outsource is generally considered to be a strategic one as Oates (1998) suggests, adding that it is only decided at a senior level.According to a survey conducted by IDC, it was found that the process of business HR Outsourcing (BPO) will be the most developing area in the world of outsourcing human resource. The growing alternative to carrying out outsourcing often in HR services shows that companies may be required to choose a vendor. However, this decision being sensitive requires a lot of analysis as the vendor is put to accountability. Geoffrey Dubiski, a director at Yoh Human Resource Solutions in Philadelphia stated that proper outsourcing by an organization means improvement in quality services, saving of funds, as well as giving HR more time to deal with main functions (Sethi, 2011). In case there is poor outsourcing, results may affect the organization by decreasing the quality service leading to more complaints from the employee. Also, a Watson Wyatt Worldwide consultant (situated in Washington D.C) named Micheal Cornetto, commented that most service providers are capable and give services that are satisfactory but none gives an exceptional service. A professor of HR studies, Patrick Wright also emphasized that quality services are an element to explore. This is mainly because the quality of services is expected to improve but there is no quantitative information to actually support that outsourcing is much better and fairly cheaper. Wright continues to elaborate that the need to outsource is to acquire more services at a reduced cost, which in return results to more saving. However, the HR professionals may be at risk. This is because the vendor may lack skill necessary in vendor management making faults in the process hence having uncertainties in handling of the services (Sethi, 2011).In a study done by SHRM in 2004, 56% of the 169 human resource professionals surveyed claimed that the organization in which they are employed uses vendors to undertake their HR activities to incur less cost of operation while 41% claimed that it was to reduce HR related expenses (Sethi, 2011). Wright emphasized that outsourcing isn’t a solution for poor internal organization’s systems. He claimed that a company should first adjust their own processes and outsource afterward. In not doing, then a company may experience bigger problems than those existing before outsourcing. A report by Deloitte Consulting on reviewing of 25 big companies, stated that companies were both dissatisfied and had additional costs which were a very negative result of outsourcing. A study “Calling in the Outsourcing Market Report, 2005” was conducted elaborating on information technology and business process outsourcing. In this study, the dissatisfaction of costs and negative experiences were reported by 70% of the companies on outsourcing projects. In addition, demand for senior management intervention was called for. Additional cost emerged from unplanned complexities of the process and lack of establishing effective cost structures. Many organizations complained that they incurred hidden costs in the outsource management process that they believed was carted for in the contracts with the outsource providers. According to the senior strategy principal at Deloitte, Ken Landis, one cause of such results could be the conflicting Objectives existing between the outsource providers and the organization that hired for their services. He also made an additional observation that large companies may not fully realize the value of outsourcing. The structural advantages in place may not always result in faster, cheaper or better services and therefore a disadvantage to large companies (Sethi, 2011).The decision as to which type of HR functions to outsource is one major element in organizational function outsourcing. Many factors should be put into consideration when making such decision, for example, the interrelationship between the effect of outsourcing these functions and performance of the organization. To effectively do this, the company may be required to separate between core activities and the noncore activities. A suggestion by Finn (1999), explained that a simple distinction can be made. In his explanation, he included three key area, that is, HR policies and a line management responsibility and top-level strategy. This entailed appraisal, specialist activities involving recruitment, occasionally administration of personnel including pension, payroll, and lastly professional human resource consultation, for example, advice on legal issues. As stated by Ulrich (1998), core activities are transformative duties which create a special and unique value for customers, investors, and employees. On the other hand, noncore activities are dimmed to be routine duties, transitive and therefore can easily be replicated or duplicated. According to Hall and Torrington (1998), outplacement, safety and health, quality initiatives, training or management development, and recruitment were functions that were supposed to be outsourced. This is the fact that they were considered as non-core activities or that company needed the expertise to internally deal with them for lacking such skills.A large survey conducted in 1999 on 3,964 companies situated in the European countries, provided further evidence on the significance of human resource outsourcing. The survey which was done on the companies mainly focused on four different HR outsourcing areas. These areas included training and development activities, payroll and benefits, recruitment and selection and workplace reduction. The results of the survey indicated that 97% of most organizations at least use external providers in HR on one main service function. The most commonly preferred service was identified to be training and developing activities “bought-in service.” Out of the three areas identified above, one-third of the companies that were surveyed were found to be using external providers while 50% of the companies surveyed remained constant rendering vendor’s services. In U.K to be specific, 32% of the organizations used the service providers in the area of pay and benefit. Although this evidence in the hiring of service providers provides helpful insights into the type of outsourcing activities an organization can engage, it limits and gives a small visual because of the scale of the study. It is uncertain how organizations make decisions on which of these HR functions are to be outsourced, and whether they stand in the classification of a noncore activity (Vernon, Philips, Brewster, & Ommeren, 2000). In Hewitt Associates survey (done in 2005), there was an indication that out of 129, 94% of the organizations gauged that one HR function is expected to grow beyond expectation as a result of outsourcing is payment and welfare and health benefits (Sethi, 2011).New functions emerging include headhunting, global mobility, and recruitment. Employers also could consider areas such as HR technology support, staff learning, and performance management for outsourcing as stated by Bryan Doyle, the president of an HR outsourcing business (Sethi, 2011). Uncertainty rises when measuring the effectiveness of outsourcing HR functions and evaluation on how vendors and the client organization coordinate their internal functions and the outsourced activities to realize a logical and orderly HR function. To clearly establish this relationship, a company may look at the recent patterns in HR outsourcing. Several organizations tend to outsource routine administrative HR functions so as to create time for their internal HR to carry out more strategic functions. On the other hand, few decide to outsource the whole HR functions. However, this could adversely affect the performance of the organization as well as its culture (Klaas, McClendon, & Gainey, 2001). Due to this emerging pattern, several issues came to question. For instance, the functions that should be assigned to vendors, the effects of external providers on the duties of internal HR activities, and in general the whole workforce. Evidence from HR professionals clearly identified that utility of vendors has increased over the last 10 years (Prisim HR, 2017). This has mainly been brought about by the increasing popularity of HR outsourcing due to the benefits organizations gain from the activity.A study done in 2007 on benchmark of HR department as well as its analysis in the Bureau of National Affairs (BNA), USA, showed that at least 72% of employers who were surveyed outsource one HR activity at least. This study shows that the top 5 HR activities which are commonly outsourced are; pension, training, employee benefits such as life insurance, cafeteria, and medical insurance etc., employee assistance, and payroll (Bloomberg, 2016). Generally, employers consider outsourcing because of a variety of realized benefits. By outsourcing an organization is able to focus its funds and resources on the main business functions in which proper performance will be experienced since they have expertise. It also creates profit to the firms from the increased comparative advantage due to the expertise of service providers in the concerned areas (Cooke, Shen, & Mcbride, 2005). Also by outsourcing human resource, it increases the flexibility of the firms as well as their productivity due to use of temporary subcontractors who cover labor demands which keep fluctuating. The referred “just in time” human resources usage brings along other benefits of saving indirect costs for instance, (cutting back up, administration costs, reduced industrial relations problems, saving recruitment, training and administration costs) and direct costs such as reducing overtime working and headcount. Lastly, it enables firms to pass risk burden as well as uncertainties of the business to others. Additionally, firms can be able to reduce costs to be incurred in the future by choosing highest competitive option available to undertake the contract renewal (Glaister, 2014).Apart from cost-reduction, Human Resource outsourcing has other major implications that can be utilized to increase the organizational performance as well as productivity. The various activities associated with HR outsourcing have been found out to bring about good relationships between the client firm and the vendors taking the contracts which facilitates effectiveness, efficiency and, learning among the organizations (Jahedi, 2016). The most frequently stated factors behind human resource outsourcing include improving the quality of service delivery and reducing costs. However, there other factors that act as drivers for human resource outsourcing. One of the factors involves effecting or undertaking organizational change. HR outsourcing provides an organization with the opportunity bring change. For instance, a business entity can utilize HR outsourcing to get access to innovative and efficient Information Technology solutions, apply common standards, and share best practices among others (Brown & Wilson, 2012).In the case of organizational projects, human resource outsourcing can reduce the project commencement time. This is so because it can reduce the project wait time, that is, the time taken before a given project begins. The reason for this is that the steps recruitment process associated with human resource outsourcing is much faster and simpler compared to the normal recruitment process in an organization. Furthermore, human resource outsourcing eliminates the additional recruitments which come with in-house recruitment. These additional recruitment include employee training and development among others (Griffin, 2012). Therefore, HR outsourcing can ensure that an organizational project meets the set deadline. The figure below illustrates the six common reasons why organization outsource the human resource.Figure 2.1 The Principal Reasons for Human Resource Outsourcing (HRO)Source: XEAM Ventures (2017)From the figure above, 36% of the companies in the world outsource the human resource with the aim of focusing on their core competencies. The other reason for outsourcing is cost-reduction whereby 36% of the organizations throughout the globe aimed when conducting manpower outsourcing. 13% of the companies conduct HR outsourcing to enhance the quality of the services and products that they are offering. The other reasons include increasing the speed of reaching the market (10%) fostering innovation (4%), and capital conservation (1%) (XEAM Ventures, 2017).There are various ways through which manpower outsourcing can increase organizational productivity. The factors are illustrated in the table below.Table 2.1 The Benefits of HR Outsourcing to an OrganizationThe Benefits of HR Outsourcing To an Organization1Reduces the operational and overhead costs2Conversation of fixed costs in an entity into variable costs3Achieving price competitiveness4Realizing high level of flexibility5Focusing on competencies6Accessing latest and efficient technologies7Better control of the internal organizational departments8Improved product and service quality9Access to external competencies10Acquisition of specialized expertise11Spreading business risksSource: Xu (2015)2.2.2 Hindrances to the Effectiveness of HRO in Improving Organizational PerformanceHuman resource outsourcing features a challenge of employees restructuring in the company. The potential loss of sovereignty over the operation also sparks anxiety and ultimately, responses from employees set a challenging field for subcontracting. Broader coverage to be familiarized with later will pre-empt greater resistance to be encountered. Organization development interventions or and effective communications bear quite a considerable value at this point with the new chapter constituting implementation of a platform that facilitates self-service. These systems, as a matter of fact, are not simply apparent. To work within the confines of this new plan, employees require assistance. Human resource outsourcing also comes with quite a number of risks. Cheap subcontracts may contribute to one of the risks coined under business operations. Disclosing private affairs of the company to competitors defines another risk, that of spillover. Outsourcing, unfortunately, falls under the cloud of risks caused by political matters. The contentious matter regarding the American elections where outsourcing was the blame tool used by the opposition to justify lack of employment opportunities and advocating for its removal serves as an example of such a risk (Kodwani, 2007).Human resource outsourcing harbors other challenges such as it occasionally draw attention towards potential toppling of the structure of the organizational model of operations, driving the situation beyond influence when unsavory external vendors gain control. The network of these outsourcers should be familiar with the regulations put in place for their operations and are required to work within the confines of these regulations, covering them and their employer’s country, , as well as maintenance of the continuous supply of skillsets, avoid legal actions to be taken against them failure to commit. Such a situation could immensely implicate their operations. One on one relationship between employees and human resource personnel also suffers the risk of deterioration. Day to day interaction between the human resource personnel and the employees enables the creation of interest in their employees. Morgan and Stanley hence may have been provoked as with the arising issue to facilitate the provision of services focused on planning for retirement within its company. Other challenges that human resource outsourcing face or potentially bear include potential redundancies, dedicated focus towards the product neglecting the consumer, loss of skillset that have been nurtured within the company and the risk that sparks fear of trade being stopped by the provider of the service (Kodwani, 2007).Passing sovereignty over the mandate to employ or fire employees to a professional employer organization dents an organization’s record. These professional employer organizations, also referred to as PEOs, seek to have the final say over decisions regarding employees’ employment, dismissal, and even disciplinary actions. Ideally, this sits as an unhealthy business plan that may not feature well within the passage of time. Sadly, these issues would accrue where a company enlists online services through an application service provider. Online storage and management of all data raise security concerns factoring in inevitable crashes and these may result in adverse effects to any company. Human resource outsourcing normally anticipates complaints that include medical claims being denied, late delivery of payrolls and mixing up of payrolls. Selection of the external vendor strikes major points in human resource outsourcing. Wrong selection of the vendor contributes to missing out on the benefits of outsourcing. organizations claim that the chief qualification in selecting a subcontractor for human resource is measured by the vendor’s prowess in human resource operation showcased, supported by the 95% response rates outlined in the survey by Hewitt Associates of 2005 (Seth & Sethi, 2011).Retention of talents and knowledge gained in the company, as well as maintenance of the continuous supply of skillsets, constitute the most significant requirements. More often than not, companies employ outsourcing to cut costs accrued from training with the assumption that the training will be carried out by another party, enabling provision of chief skills. Loss of skills facilitates potential destructive effects relating to competition. Quality deterioration also serves as a risk resulted from outsourcing especially affecting companies that function within the higher end of the market concerning that product. Employees usually gauge the quality of the service with the parameters confined under their prediction of the outcome of the service guided by the prospective alterations against their opinion of the services as they existed or their preferred current state. Change of mandate over human resource services to the external vendors from the company’s personnel creates a series of inevitable interruptions towards progressive working usually guaranteed for a longer time frame with unexpected challenges arising. Failures enabled by outsourcing specifically promises that were not fulfilled as well as expectations have indeed been documented in professional journals as well as reported through media outlets. All these factors narrowed towards idealized merits and demerits should and must be carefully factored into a tactical decision-making process by companies regarding determination of human resource outsourcing (Sethi, 2011).2.2.3 Strategies for Improving Human Resource Outsourcing Effectiveness to Achieve High Company PerformanceA company can indemnify its disadvantages by channeling its focus into applying precautions that are required such as committing to understanding the restructuring of operations and details needless to say, the maintenance of tactical human resource dockets such as planning confined to the company’s disclosure since it deals with important operations and essential abilities hence providing competitive advantage. This reason justifies the need for companies to outsource human resource operations such as processing of payrolls as it does not contribute towards achieving a sustainable lead since it is not an essential business operation for the company. A balance is therefore required between internal operators and the external vendors. Outsourcing of human resource operations is measured by the size of the company. Payroll operations create the best example of human resource operations that medium-sized and small scale companies should consider outsourcing since they may lack the necessary resources to enable efficient processing of such operations. Processing of benefits, on the other hand, set the example for human resource operations that larger organizations should consider outsourcing since they earn greater profit margin reducing the proportionate of saving in costs when performed within the company. Change management, an effective structure of resolving disputes and good governance need to be established where multi-supplier joins the equation. The company should ensure all parties involved work together in harmony. The rapid change of things, however, should influence companies to avoid signing contracts that are span longer time frames. The third party comprises of the outsourcers thus relegating a two-way communication and instead, the company, the employees, and the vendor form a three-way communication, which creates room for errors. Here, communication is very essential. The big retail company, Sears, Roebuck, and Co., identified with this (Kodwani, 2007).A large number of industrial operations have incorporated outsourcing of human resource operations. There are three considerations that have been suggested to facilitate the incorporation of outsourcing in a company’s human resource activities. The first consideration is the transactional benefit that is affiliated with outsourcing. Negotiating the subcontracted labor to independent contractors and contingent workers for particular projects enable organizations to gain flexibility. Companies that merit from the perspective of a transactional benefit invest when they analyze timelines of contracts in relation to benefits that accrue with long term or short term relationships. Implementation of such timelines for the contract should fall under planning and scope of the project. The second consideration comes about with the social perspective’s benefit. Membership coins the social status that accompanies being an employee. Dependence does not, however, affect every employee relationship. Successful outsourcing of these roles is achieved when they are exploited rather than being dependent. Examples of such activities include warehouse operations, maintenance, and security (Kodwani, 2007).The final consideration encompasses benefits that accrue from administrative duties. The delegation of talents such as those of a web designer by an organization can lower costs that the administration accrues. In addition, clerical work, which defines low-level operations will greatly cut costs when subcontracted. The list ends with any human resource tasks which managers have little to no experience handling justifying the administrative role of outsourcing. The considerations to be effected in facilitating outsourcing within a company definitely reflects the advantages that are gained from administrative, social and transactional perspectives. A thorough analysis of these functions guarantees a company development of a better strategy towards human resource outsourcing. The four techniques of leadership, participative, supportive, achievement-oriented and directive, have been promoted by Bush (2009) as useful tools in subcontracting. She particularly emphasizes the supportive leadership technique as befitting in outsourcing functions that employees relegate as unchallenging and also the participative technique as supporting the relevance of independent contractors contemplating equipping the company tasks that have been outsourced with effective training. Accountability of results of the tasks which human resource leaders, who bear the responsibility of establishing the subcontracts, are in charge of must be ascertained (Bush, 2009).2.3 Theoretical Underpinnings2.3.1 Resource-Based View TheoryAbilities and strengths of a company are considered in resource-based view and its level of competence. This perspective describes the resourcefulness of a given firm regarding resources and skills. The uniqueness of a firm and the non-alternate elements give the company the competitive edge in the market and the primary determinants of the performance of the company. Prahalad and Hamel further describe these non-alternate capabilities as the pillars that define a firm’s competence. The resource-based view discusses the flexibility and ability of a company to acquire services from outside sources. However, this is limited to the aspects that are not core competencies to the firm. This can be illustrated by the outsourcing of IT services for a company that does not fundamentally deal with IT (Kiptum, 2008).Nonetheless, there is a significant shift in recent outsourcing with firms leveraging some of the core competencies to gain competitive advantage. Therefore, RBV theory encourages companies to build on creating and maintaining a competitive edge in the market by directing their resources to the services and products that fill the unique niche in the market. The RBV perspective goes further to admonish firms on the issue of outsourcing and advises on the thorough evaluation of the practicability and effectiveness of an in-house production of these core competencies versus outside acquisition. Therefore, in a scenario where a firm can acquire a particular commodity of the right quality and price without compromising on its core competencies the firm can consider outsourcing as a viable alternative. Because the end goal is to ensure management concentrates on the firm’s core concerns by reducing costs and improving services on the other non-core business aspects (Kiptum, 2008).2.3.2 Transaction cost theoryTCT is an economic theory formulated in 1937 by Coase. The theory focuses on the cost incurred in determining the prices of commodities and services provided by the enterprise to its customers. Transaction Cost Theory is an institutional theory as it is solely used within the internal environment of an organization. TCT suggests that when the internal transaction cost is significantly lower to the market cost, an enterprise is at an advantage to exist in the market without facing financial losses. TCT is an essential strategic tool in business enterprises. Through its deployment, business entities are able to adequately price commodities and services to ensure profitability in the organization (Kiptum, 2008).3. Research Methodology3.1 IntroductionThis section covers the research method used in this study. It contains the study design, the target population, the method of sampling and size of the sample, the methods of collecting data and the analysis of gathered data.3.2 Research DesignThe design of a research is the study plan containing an outline of the actions that are required to conduct the project. The design contains the processes involved in verifying the links between variables, which help answer the research questions guiding the project. Further, the research design gives a guide for the definition and measurement of the variables used (Mugenda & Mugenda, 2003). The design used in this research was the descriptive research design. This design involves describing the attributes of a group or an individual (Kothari, 2008). Further, according to Mugenda and Mugenda (2003), this design centers on the present situation of a phenomenon. Hence, the descriptive design entails the gathering and evaluation of information to define a phenomenon’s present condition. The use of this study design allows the researcher to identify a situation and the relationships between the conditions under study. The relationships may be causal (Kothari, 2008). This design mostly uses interviews, observations, and questionnaires to gather information.3.3 Target PopulationA population is a whole group of cases, objects or individuals that share an observable attribute (Mugenda &Mugenda, 2003). The target population used in a study is the specific group from which data is required. A population is a clearly defined group of services, individuals, factors, items, households or events that are examined to produce generalized outcomes. The intended population for this research was thirty staff members in private companies located in Washington State.3.4 SamplingA sample is a small group within a population which is used to provide the desired data for the study. The process of sampling involves choosing the group in a population that can be used as a representative of the whole population (Mugenda & Mugenda, 2003). This research used the simple random and purposive methods of sampling. The simple random method, as defined by Kothari (2008), is a procedure involving numbering each individual in a population, putting the numbers together and shuffling them before they are given back to the population. Purposive sampling, on the other hand, is a non-probability form of sampling that is based on the judgment of the researcher.The purposive method of sampling was used to select the companies on which the research would be conducted. The researcher selected organizations that have experience with HRO. The simple random approach was applied in the selection of company employees. The researcher selected 42 employees from the selected companies, who represented 40% of the whole population. These techniques of sampling were found appropriate for the study since it was conducted on few companies and employees from specific divisions. 40% representation is considered statistically substantial when conducting a descriptive research.The sampling formula used to determine the size was:Where;nf= targeted sample size in a population of below 10,000n= targeted sample size in a population of over 10,000N= estimated population size3.5 Data CollectionData collection is a method of obtaining information from specific sources to support the research and/or oppose notions from previously conducted studies. This procedure is meant to help the researcher rely on accurate data to make a conclusion. The data used in this research was primary data. This is information acquired first hand, that is, directly from the respondents. Primary data can be collected using interviews and questionnaires among other methods (Kiptum, 2008). The method of data gathering used in this study was questionnaires. They were found appropriate for this study because they are administered quickly and easily and provide the respondents with time to answer the questions asked after having given them a thought. The researcher used questionnaires with structured closed-ended questions, which were used to rate the relationship between HRO and company performance using different metrics. Additionally, the questionnaires helped determine the degree to which companies outsourced their services and the impact it had on the company employees. The researcher used the questionnaires to find out the background data of the respondents. The questionnaires were standardized to obtain relevant data from the respondents. The researcher handed in the questionnaires to the companies under study with the permission of the management. The employees were asked to fill out the questionnaires, which were collected after 10 days.3.6 Data AnalysisData analysis involves arranging and providing meaning to the collected data. The analysis method used in this research was descriptive analysis, which involved coding and processing the data and presenting the outcomes using statistical methods including the frequencies and the mean. This information was then presented using tables to create a visual depiction of the results.4. Findings and Conclusion4.1 IntroductionThis section covers the findings of the research. Out of the 42 intended respondent, 34 responded to the questionnaire. This was an 80.95% response rate, which is very good (Mugenda & Mugenda, 2003). The table below shows the response rate:Table 4.1 Response RateFrequency%Responded3480.95Did not respond819.05Total42100Source: Researcher (2017)4.2 Background DataThe questionnaire contained questions regarding the respondents’ age, gender and job position. The responses were are shown below:Table 4.2 Background DataCharacteristicsRespondentsTotal NumberPercentage (%)Age18-24111132.425-309926.431-357720.636 or over7720.6Total3434100GenderMale202058.8Female141441.2Total33100Job positionManagerial101029.4Non-managerial242470.6Total3434100Source: Researcher (2017)Of the 34 respondents, the largest population was aged between 18 and 24.This was 32.4% of the total number. The employees aged 25 to 30 added up to 9, which was 26.4%. The age groups of between 31 and 35 and 36 and above each had 7 respondents, adding up to 20.6% for each group. There were more female than male respondents. 20 of them were female (58.8%) while 14 (41.2%) were male. Additionally, the number of employees with non-managerial positions was greater than that of managerial staff members. The non-managerial employees were 24 (70.6%) while those with managerial posts were 10 (29.4%).4.3 Contribution of HRO to Company PerformanceThe respondents provided answers to questions regarding the contribution of HRO to company performance, which are presented in the figure below:Table 4.3 Contribution of HRO to Company PerformanceStatementStrongly disagreeDisagreeNeutralAgreeStrongly agree1. Human resource outsourcing helps reduce overall company costs.2751762. Human resource outsourcing makes the employees more productive.001013113. HRO contributes to company growth.052819Source: Researcher (2017)The table above indicates that most of the respondents (17) agreed with the statement that HRO reduces overall company costs. 6 of the respondents agreed while 5 were neutral. There were respondents who disputed this statement, 7 of them disagreeing and 2 strongly disagreeing. The statement that HRO improves employee productivity was received quite positively, as 11 respondents strongly agreed, 13 agreed while 10 of them were neutral. Further, most respondents (19) strongly agreed that HRO contributes to company growth. 8 respondents agreed, 2 were neutral and only 5 disagreed with the statement.4.4 Hindrances to HRO SuccessThe following table shows the responses provided to statements about the hindrances to the effectiveness of HRO in improving company performance.Table 4.4 Hindrances to HRO SuccessStatementStrongly disagreeDisagreeNeutralAgreeStrongly agree1. HRO interferes with the daily operations of employees.0402192. HRO compromises the quality of services provided.029158Source: Researcher (2017)According to table 4.4, most respondents were supportive of the statement that HRO interferes with employees’ daily operations. 21 agreed while 9 strongly agreed. However, 4 respondents disagreed with this statement. The respondents also received the statement that HRO compromises service quality positively, as 15 agreed while 8 strongly agreed. 9 of the respondents were neutral while only 2 disagreed.4.5 Strategies for improving HRO EffectivenessTable 4.5 below shows the responses to the statements on the strategies for improving HRO effectiveness.StatementStrongly disagreeDisagreeNeutralAgreeStrongly agree1. Outsourcing non-important services make the adjustment easier for companies.00101772. Outsourcing trained personnel improves the quality of work.0022012Source: Researcher (2017)The table above indicates that most of the respondents (17) agreed that outsourcing non-important services make it easier for companies to adjust to changes. 7 of them strongly agreed while 10 of them were neutral. 20 of the respondents agreed that outsourcing trained personnel improves the quality of work, 12 agreed while 2 of them were neutral.4.5 ConclusionThis research study was conducted to determine the link between human resource outsourcing and company performance. The study addressed the contribution of HRO to company performance, the factors that hinder the effectiveness of HRO in achieving company performance and the strategies for improving HRO effectiveness. The research was conducted using questionnaires, which were given to employees of various private companies. The response rate was 80.95%; 34 out of 42 responded to the questionnaires.The results showed that most respondents were female, had non-managerial roles in their companies and were in their initial years of employment. The results indicate that human resource outsourcing contributes to the reduction of the overall costs incurred by companies. However, some respondents disagreed with this statement, which is probably as a result of the additional costs that have been associated with human resource outsourcing. The respondents also supported the notion that human resource outsourcing makes employees more productive. Some employees, however, did not acknowledge the impact of HRO on their productivity, but they did not deny it either. This is because 10 of the respondents neither agreed nor disagreed with the notion. Further, the statement that HRO contributes to the growth of companies was greatly supported, which implies that companies that adopt HRO increase their chances of growth.Based on the respondents’ reaction to the statement that HRO interferes with the staff members’ day-to-day operations, it is evident that many employees are adversely affected by HRO. This is due to the fact that they have to work with new people, making it difficult for them to adapt. Further, the statement that HRO compromises service quality was supported significantly. Those who did not agree did not disagree either. Hence, HRO mostly leads to lower quality of the services provided. However, human resource outsourcing can be improved to contribute to the success of companies. One way to achieve this is through outsourcing the non-important functions of the company in order to allow members of the organization to adjust easily to the changes. This can prevent the interruption of employees’ activities and reduce the cost linked with outsourcing. Additionally, to deal with the problem of quality, the respondents supported the notion that companies should outsource trained personnel.ReferencesAzhar, S., & Shehzadi, I. (2012). Human Resource Outsourcing . Lahore: University of Management and Technology. Bloomberg. (2016). HR Department Benchmarks and Analysis 2015-2016. Bloomberg BNA, 1-19. Brown, D., & Wilson, S. (2012). The black book of outsourcing: How to manage the changes, challenges, and opportunities. New Jersey: John Wiley & Sons, Inc. Bush, P. (2009). Leading independent contractors. Journal of Management Research, 72-82. Cooke, F., Shen, J., & Mcbride, A. (2005). Outsourcing HR as a competitive strategy? A literature Review and assessment of implications. Human Resource Management, 413-432. Finn, W. (1999). The ins and outs of human resources. Director, 66–67. Glaister, A. J. (2014). 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Human resource outsourcing: issues and challenges. The Journal of Nepalese Business Studies, 40-46. Kothari, C. R. (2008). Research methodology: Methods and techniques. New Delhi: New Age International Publishers. Mugenda, O., & Mugenda, A. (2003). Research methods: Qualitative and quantitative approaches. Nairobi: ACT Press. Oates, D. (1998). Outsourcing and the virtual organization: The incredible shrinking company. London: Financial Times-Pitman Publishing. Prisim HR. (2017). 2017 Human Resource Outsourcing (HRO). Trend Reporting, 1-21. Seth, M., & Sethi, D. (2011). Human resource outsourcing: Analysis based on literature review. International Journal of Innovation, Management and Technology, 127-135. Sethi, M. S. (2011). Human Resource Outsourcing: Analysis Based On Literature Review. International Journal of Innovation, Management and Technology, 127-135. Sisson, K., & Storey, J. (2000). The Reality of Human Resource Management. Oxford: Oxford University Press. Turnbull, J. (2002). Inside outsourcing. People Management: Connected HR, 10-11. Ulrich, D. (1998). A new mandate for human. Harvard Business Review, 124–134. Vernon, P., Philips, J., Brewster, C., & Ommeren, J. (2000). European trends in HR outsourcing: Report for William M. Mercer and the Cranfield School of Management. Bedford : Cranfield University. XEAM Ventures. (2017). Why You Need To Outsource Your HR Functions. Retrieved from XEAM Ventures: http://xeamventures.com/blogpage/why-you-need-to-outsource-your-hr-functions/ Xu, R. (2015). Human Resource Outsourcing in China. Case company: WISCO. Vaasa: Vaasa University of Applied Sciences.Appendix: QuestionnaireQuestionnaire: Human Resource Outsourcing and Company PerformanceDear Respondents,The questionnaire will be used to gather data that is relevant to human resource outsourcing and company performance. The information you will provide will only be used for the above purpose.A. Please tick (√) the appropriate answer to these questions.1. GenderFemale ( ) Male ( )2. Age18-24 ( ) 25-30 ( ) 31-35 ( ) 36 and over ( )3. Job positionManagerial ( ) Non-managerial ( )B. Please indicate the degree to which you agree/disagree with the following statements by circling the numeral that suits your opinion. 1- SD (strongly disagree); 2 –D (disagree); 3- N (neutral); 4- A (agree); 5- SA (strongly agree).StatementSDDNASAContribution of HRO to company performance1. Human resource outsourcing helps reduce overall company costs.123452. Human resource outsourcing makes the employees more productive.123453. HRO contributes to company growth.12345Hindrances to HRO success1. HRO interferes with the daily operations of employees.123452. HRO compromises the quality of services provided.12345Recommendations for improving HRO1. Outsourcing non-important services make the adjustment easier for companies.123452. Outsourcing trained personnel improves the quality of work.12345GlossaryOutsourcing- The process of contracting jobs outside the organization.Human resource-The personnel working within an organization.Human resource outsourcing- Sub-contracting the functions of human resources to suppliers outside the organization.Company performance- An organization’s progressing in raising its revenues and achieving its profitability goals.Key Reason for HR OutsourcingSalesEnhance Quality Reduce Cost Capital Conservation Boost Innovation Increase speed service and produt delivery Focus on Core Competencies 0.13 0.36 0.01 0.04 0.1 0.36

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