Competitive reasons in outsourcing of HR practices

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Recruitment and selection are two of the most important areas in human resource practices. A lot of research has been done in the field of Human Resource management. However, there are still dearth of study in the field of outsourcing issues related to individual HR practices, for instance, recruitment and selection. This paper will critically evaluate the work of Ordanini and Silvestri (2008), where they investigated the outsourcing decisions of recruitment and selection services. The work they have presented is a strong and interesting piece of research with some loopholes. The argument in this submission will be developed through the critical review of Ordanini and Silvestris' paper, discussing in turn its literature and conceptual bases, research methods, main findings and practical implications.

Ordanini and Silvestris' paper reports a study of 276 medium and large sized firms in Italy, where the data was collected from the HR top managers. The focus of the study was to propose and test a model of drivers affecting the decision to outsource Recruitment and Selection practices in HR. The findings are presented based on two perspectives, the Transaction Cost Economy (efficiency drivers) and Resource Based View (competitive issues) based perspective, which influence the outsourcing of the administrative and core activities respectively. Findings of Ordanini and Silvestris' paper confirm the relevance of both categories of predictors, but they reveal how efficiency motivations are more important for the decisions to outsource administrative recruitment and selection practices, while competitive issues matter more for the strategic side of Recruitment and selection activity. However, Ordanini and Silvestris' findings are not consistent with the earlier studies in the field of outsourcing of HR practices.

In their investigation, Ordanini and Silvestri are critical of the established academic literature that suggests the outsourcing decisions of the HR Practices, which can be based on their categorisation of non- strategic or strategic behaviour (Cooke, Shen and McBride 2005). Ordanini and Silvestri cite Cooke (2005) to identify the problem in the literature, as the classification of some of the HR activities such as training, recruiting and selection is still not explicit as they at times are grouped among non-core activities and at times considered in more strategic cluster of HR activities (Gainley and Klaas 2003).

As a result, Ordanini and Silvestri intend to contribute to the literature by focusing on the recruitment and selection outsourcing by citing examples of studies by Klaas , Mc Clendon and Gainey (1999).They have developed their theoretical base by focusing on two perspectives: the resource-based view of the firm (Barney, 1991; Prahalad and Hamel, 1990) and transaction cost economics (Williamson, 1975), which are closely related to two drivers core activities and cost reduction respectively. According to Delmotte and Sels (2007) "there exist many different drivers for HR outsourcing yet we only focus on the two most often debated drivers for HR outsourcing: core activities (focusing view) and cost reduction (efficiency view)."

Ordanini and Silvestris' alternative on the recruitment and selection outsourcing is that firstly both TCE and RBV perspectives should be jointly considered as administrative and core- practices, seems to co-exist citing Lepak and Snell's (1999) model of Virtual HR. Secondly, it is also envisaged that TCE & RBV explanations may effect differently as recruiting activities should be more affected by cost drivers while selection activities are more competitive effected. Basically, by discussing the literature and identifying the need to classify the drivers for outsourcing recruitment and selection based on TCE & RBV perspectives separately, leads Ordanini and Silvestri to formulate eight hypotheses. The hypotheses concern the nature of the outsourcing of Recruitment and selection activities as the administrative activities or both the administrative and the core activities. To test these hypotheses Ordanini and Silvestri conducted a survey using "CATI (Computer-Aided Telephony Inquiry) technique" following random sampling of 1,500 medium and large-sized firms based in Italy. The Content of the telephonic interview questionnaire was assessed through a discovery- oriented approach, which included literature findings, interviews with the managers and pre-test. (2008)

The response rate of 21%, with 276 representing the usable data seems to be quite reasonable compared to the other studies of similar nature (Klaas et al., 1999). Although the research method used by Ordanini and Silvestri is more detailed and structured, however there are some concerns with the research approach that should be addressed. Firstly, the issue with research strategy is the focus. Ordanini and Silvestri failed to present the insight of the issues mentioned in article. The approach used by them is more generalised with a single method for data collection (telephonic interview). However, a detailed case study with one or more company would have given rather stronger outcomes to fulfil the objectivity of the research. In an ideal scenario a researcher would have used a triangulation approach (for example, using case study, interview and questionnaire survey to increase reliability and validity of the study).

Also, the structured telephonic Interview used by the authors for data collection is an area of concern. According to Wimmer and Dominick (2003), closed or structured telephonic interview approach is much more standardised using a prearranged list of answers for the respondent to choose from. They stated that there is a little freedom for flexibility, due to the fixed question order. On the contrary, in the telephonic interviews respondents may also provide very elaborate answers in an attempt to figure out the purpose of the study. As stated by Breakwell, Hammond, Fife-Schaw and Smith (2006) that in telephonic interviews there is no room for unanticipated discoveries.

Moreover, according to Gilley and Rasheed (2000), an accurate picture of the outsourcing phenomenon can only be obtained if it is measured on the basis of two fundamental characteristics: breadth (i.e.the number of HR activities outsourced) and depth (i.e. the extent to which an organisation outsources a given activity). But Ordanini and Silvestris' study only considers the breadth of the recruitment and selection outsourcing phenomenon, and fails to explain the depth of outsourcing as another specific criteria.

Another challenge to Ordanini and Silvestris' research approach concerns their use of two variables, size of the firm and business group as control variables as the measures for the study. However, according to Delmotte and Sels (2007), there is various other control measures like organisational age, industry, employment evolution which might affect the study adversely which Ordanini and Silvestri failed to discuss. In their study, by doing the T-test for two groups, they found that in a construction industry the mean for outsourcing HR practices is 1.99 while that in the Chemicals, food and energy is 3.41, which clearly shows that other control measures do have considerable impact on the findings.

Yet, Ordanini and Silvestris' initial findings suggest that the strategic involvement of HR personnel seems to have no effect on the decision to outsource recruitment and selection practices which is not consistent to the earlier conclusions of Gainey and Klaas (2003), who found positive and significant relationship among them. However, the findings tends to indicate that both TCE and RBV explanations should be jointly considered in understanding recruitment and selection outsourcing decisions, which appear as a complex phenomenon. Again, it seems that RBV-based motivations are much more important in the decision to shift from simply externalized recruiting (i.e. the first two phases) to externalizing the first phase of selection. Hence, giving a multi-faceted picture of what drives the decision to outsource recruitment and selection practices and shows that efficiency and competitive reasons affect the intensity of recruitment and selection outsourcing in a very peculiar way. Also, the outsourcing of the administrative phases seems to be driven primarily by TCE efficiency drivers, while the outsourcing of core activities seems to be affected by the Competitive issues raised by RBV. Again, Ordanini and Silvestris' suggested that future researchers should pay attention to the other elements of the organisation and not just the HR department. Therefore, what should be exploited through outsourcing and what should be protected from external appropriation, should be decided from the point of view of its own organization. Furthermore, Ordanini and Silvestris' study ignored the possibility of the opportunity and the risk associated with the recruitment and selection outsourcing, which are not fixed but may shift over time which can be taken care in future researches. Along with this, researchers should also be careful about the nature of the relationship with the service provider, as that can be another implication of Ordanini and Silvestris' study. (2008)

After carefully and critically reviewing the paper, it can be concluded that, Ordanini and Silvestri attempts to contribute to the existing research in the outsourcing of HR practices by analysing recruitment and selection outsourcing decisions. The study also demonstrates that, decisions on how to structure recruitment and selection activities in an organization are complex and multifaceted, involving both operating issues existing at the HR department level and strategic considerations at the firm level. As Cooke et al. (2005) rightly stated that "the scarcity of this kind of research is in sharp contrast to the burgeoning prescriptive literature on the financial and strategic reasons why organisations should outsource."