The Reasons for outsourcing HR in external organizations


There is an increasing trend in outsourcing of HR works to an external organization for several reasons as companies look for ways to remain competitive in the current economic environment. Many studies have shown that use of external firms in delivering HR services has helped organisation achieve expertise service, efficiency, economies of scale in staffing and resources, better management information, transparency of cost, strategic contribution from HR to business goals and inter-group learning.

The aim of the study is to explore the reasons behind outsourcing of HR functions to an external firm and if it is beneficial for an organization, taking the service provider's point of view. The above reasons stated will be verified from the data collected through an interview using a qualitative data analysis technique.

For the purpose of this study the semi-structured and non-ambiguous interview format was chosen and interview was conducted with the employee of Accenture BPO services (India). The interviewee is working as a HR coordinator in Accenture BPO services. The order of questions varied according to the conversation flow and to make the flow of the interview smooth, open ended questions were used. The respondent was informed in advance about the interview and a background regarding the interview was also provided so that the interviewee can prepare his ground for further investigation. The interview was conducted in an informally way. The first set of questions were asked on a theoretical basis over the telephone as the interviewee is located in India and then series of conversations were exchanged over an extended time period by email to get clarification. Individual questions were sent based on the response of the first set of questions to get more relevant data. Generally the idea behind taking an electronic interview was to give more flexibility and participation from the interviewee. My motive was to give flexibility and gather as much information as possible relevant to the study with careful analysis and consideration.

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I adopted template data analysis as it is more flexible and less time consuming to handle large data without going through a highly specified procedure. The technique essentially helped me extracting information from the data relevant to my research requirements. Template analysis is used for thematically analyzing any kind of textual data produced for different purposes in different contexts. "Template analysis combines a deductive and inductive approach to qualitative analysis in the sense that codes will be predetermined and then amended or added to as data are collected and analyzed" (Saunders et al, 2007). Template analysis helps to reduce large amount of unstructured text to that which is most relevant and manageable for the study purpose. In template analysis (King, 1998), codes or categories are preselected according to the researcher's particular interests. This approach therefore helps in exploring and selecting key themes from the data to be analyzed.

Data analysis:

Extracting and deciding the most salient themes is the important part of analysing and interpreting my data. There are some themes which needs careful attention than the others to match the research requirement. So, I created initial coding and categorised the entire data to the codes, filtering the unwanted data and arriving at the most relevant templates. The resulting template after the initial categorisation is defined in such a way that it serves my interpretation of the data set and presentation of the findings.

It was developed by carefully examining the research questions and the interview transcript data to help guide the analysis. The template constructed is in the table below:

Importance of human resource management:

Human capital

taking care of human resource

gaining competitive advantage

solving human resources issues

motivates the employee

Employee and organisational performance.

Responsibilities of HRM and the kind of services provided by external firm:

recruitment; selection;

training and development;

pay and promotions;

performance management;

compensation and benefits system;

grievances procedures;

employee involvement and participation; reporting

legal complaint procedure; employee assistance program; employee appraisal.

outsourcing of HR functions:

small and large organizations

some practices or entire practices

to meet competitive advantage

cost-cutting and risk-shifting

innovative technology and better ideas

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rational decision free from internal pressure

lack experience in-house

offer services as otherwise could not be achieved

advantages of outsourcing HR services

cost-reduction as laborcost is less

value-added service

same quality service at cheaper price

reduces burden of developing and maintaining it internally

organization can focus on more strategic issues

improve efficiency and accuracy

employee satisfaction

access to sophisticated technique and technology

expertise service

convenient and better decision making

vendor responsible for providing end-to-end service

some of the limitations of outsourcing.

lack of communication

restraints flow of information

lost of jobs for the service taking body, threat to the current employee, rise of unemployment due to outsourcing

lost of personnel touch

security of data

company measures the profit through

return of investment, reduced operating cost, improved service quality, improved employee satisfaction and reduction of staff.

evaluation of performance to ensure delivery of good service

surveys and feedback from the client and employees

outside firm( service provider) goes through extensive training and development to ensure the professional standards.

It is important to consider that, categories are usually organized in a hierarchical fashion, with similar categories being grouped together to produce a more general code. It also allows for parallel coding, in which the same segment of text might be classified under two or more categories.

The final template is to serve my main motive of the findings so after carefully deleting and structuring the data, the final template was drafted.

Result: From the above analysis my findings is that Outsourcing the work of the HR functions to an external firm has proved beneficial for some organizations for a number of factors. Organizations are highly inclined towards outsourcing to get specialized HR services and to reduce the burden of actually developing and maintaining it internally because there are no enough resources available inside the firm. So under such circumstances it is best for the HR works to be outsourced to a third party vendor who could offer the same quality service at a much lower price. Therefore, over the last decade there is an increased demand for outsourcing in order to acquire more effective and standardized HR services relating to specialized technology and communication. Some organizations outsourced their entire HR functions like recruitment, training, processing payroll, benefits administration, compliances and employee relations etc. Such outsourcing practices are likely to be adopted by those firms due to skill shortages and where internal resources are limited. It is likely to be adopted by organisations to achieve highly valued services and gain competitive advantage. Such activities provides a standardized mechanism for organizational development by not only improving HR services for employees which are not available in-house but also giving greater opportunities to internal staff to focus on strategic issues. Therefore it is advantageous for those firms where HR practices are not fully functional and established due to lack of knowledge and skills. Also the service provider group ensures quality service by rigorous trainings and specialisation suited for the project. They evaluate their performance regularly by taking feedbacks from the employees and the client to maintain the standards. Some of the disadvantages of such practices indicated in the templates are it sometimes constraint the flow of information, threat to the current employees, can contribute to increase in unemployment rate and data privacy issue.


Hence my conclusion from the above findings is that cost is the primary outsourcing reason.

Company choose to outsource as they believe outsourcing can lower cost. In one of the questions the interviewee sites example saying that labour cost is a lot cheaper in India than countries like US or UK. Other top reasons include access to outside HR expertise, service quality and ability to realign resources and focus on core business strategy. One of the other reasons that I can derive from the analysis is the opportunity to alleviate regulatory or administrative burdens as the vendor provides end-to-end service.

Difficulties: I encountered some difficulties in accessing data as I had to find a relevant interviewee to satisfy my research needs. The number of emails were exchanged to get clarifications which was kind of time consuming. There are some limitations to the findings as the data I have clustered is only from the service provider's point of view and not the service taking body. The information provided could have been counter verified from the service taking body as well in order to validate the data properly. So it is hard to generalise the findings.

Experience of conducting qualitative research and reflective learning

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The research work has given me an insight to a varied field of information into the subject matter and created a platform to understand, learn and practice a large number of analysis technique which will eventually enable me to take up various challenges and gain a huge amount of advantages on the research area. It has helped me achieving a clearer picture of the procedural frameworks available and also analysing which framework would best suit my research needs.

Data collection and analysis needs to be done in a systematic and orderly approach so that a verifiable conclusion can be obtained. After the data collection through interview, selecting a suitable data analysis technique was a challenge as it is a demanding process which needs careful attention and consideration. The data collected was raw and unstructured which needed to be organised into categories and there are number of ways to accomplish it. Due to my limited knowledge in the field selecting a suitable data analysis technique was a bigger task because if I adopt any other technique it might mislead the research to a vague findings or highly descriptive data. It was therefore important to choose the appropriate templates in order to answer the research questions. So adopting a relevant data analysis technique was crucial in order to achieve the aim and objectives of the research and satisfy the research requirements. Generalisation depending upon a sample of interview was again a complex process.

Qualitative research usually emphasizes on meaning of words rather than quantification in the collection and analysis of the data. It serves as a better understanding of social realities and drawing attention to processes, meaning pattern and structural features. It provides a rich insight into the meanings of specific objects or activities. It helps in understanding human behaviour and the reasons that govern such behaviour. It is about validating theories and generating theories from the hypothesis constructed. It is an inductive view of the relationship between theory and research whereby the theory is generated out of the research.

It is a valuable approach in business and management as it involves collection, analysis and presentation of information. Research methods play an important role in today's highly competitive business scenario where organisations are prone to adopt complex business strategies to meet the organisational goals and objectives. Such business strategies are vulnerable to the rapidly changing and uncertain market place. Qualitative research can help acquiring an in-depth knowledge about the structure and culture of the organisation. Qualitative research therefore, has special value for investigating complex and sensitive issues. So conducting qualitative research can be an added advantage to ensure proper validity of the service or products being launched in the market through rigorous interview, focus groups and projective technique. It is an interesting approach in management and business as it helps in providing rich insights into the issues which needs to be resolved. Qualitative research can therefore provide an invaluable finding in different business areas to gain a sustainable advantage.