Outsourcing Personnel Functions

Abstract

One of the more recent "hot button" issues in our field is that of outsourcing all or some human resource (HR) functions whether by fee for service or contract. Advocates from the field of Public Choice Economics assume and, in many cases, economically substantiate the case for privatization of governmental functions. 1 Even though these economists demonstrate an underlying antigovernment bias, their basic argument with supply of government services is "that agencies should compete to provide citizens with goods and services instead of acting like monopolies under the influence of organized pressure groups."* Responsiveness to the needs of individual citizens (or to governmental units to be served by staff agencies, for that matter) is best obtained by competing within markets, with the result of economic choices by clientele between competing services. From this market environment economies in resource allocation and efficiency and effectiveness in operations are said to result. Public Choice Economists would also include simulation of market forces by introducing competition, possibly within the same department, governmental iurisdiction, or between other public, profit or nonprofit providers.?This essay departs from an article by Robert J. Agresta. 4 He argues for an extension of the Public Choice approach from one of "citizen-customers being empowered to select freely among providers of a service-whether it is schools or health care (with vouchers) or groceries (with food stamps)-and have control over the resources needed to acquire the service... to the same market relationship between central administrative (staff or auxiliary staff) agencies and the line units to which they provide services. While Agresta writes of building choice into any line-staff relationships, this article is concerned with HR service supply alternatives and alternative modes for their delivery.

The Benefits of Human Resource Centralization: Insights from a Survey of Human Resource Directors in a Decentralized State

“…Such thinking, however, misses the mark: HR outsourcing is, in essence, an effort to centralize HR. Just like the traditional centralized model of public HR, outsourcing efforts are typically sold on their ability to maximize classic instrumental values such as efficiency and economy (Kellough and Selden 2003;Siegel 2000). This occurs because HR functions are consolidated within one entity-just not a public one.…”

Some lessons in outsourcing

“…Outsourcing of personnel functions has certain key advantages. Cost reduction is the primary reason, followed by quality considerations due to customisations produced, and considerable time savings since the outsourcer's income is dependent on customer satisfaction (Siegel, 2000).…”

“…The cultural shock may be too much to handle for the organisation. Also, the suppliers may not have caught up with the latest equipment and software (Siegel, 2000). A recent survey of 104 individuals from 80 firms (Bhaskar, 2000) found no differences between the US and European responses.…”

“…Issues such as agreement terms, service levels, security issues, warranty, exhibits, incentives, disclaimers, bankruptcy, acts of God, performance measures, and the changes anticipated should all be covered as a part of the contract. Bonuses and penalties also should be factored into the contract (Siegel, 2000).…”

“…Monitoring costs should be added to vendor proposals. As much as possible, single sourcing should be avoided (Siegel, 2000).…”