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LS 222 (19)
Chapter 13

chapter 13: Outsourcing

3 Pages

Legal Studies
Course Code
LS 222
Jennifer Schulenberg

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Chapter 13: Outsourcing • Outsourcing: the practice of one organization contracting with another organization to provide services or products • Contractual relationship for the provision of business services by an external provider • Powerful trend reshaping management • Always been done (cleaning, restaurant functions) • Today: firms are outsourcing everything from I/T to entire functions such as HR • Outsourcing differs from alliances, partnerships, and joint ventures in that flow of resources is one­way, from the provider to  the user Outsourcing • A contractual relationship for the provision of business services by an external • HR functions most likely to be outsourced: o Temporary staffing o Payroll o Training o Recruiting o Benefits administration • Compensation:  Payroll, Benefits, Compensation administration, pension administration • Recruitment and Selection: advertisements, screening of applications, testing, reference checking, preliminary interviews,  executive salary negotiations, exit interviews • Training:  Program delivery, program design and development, training consulting, training consulting, training needs  analysis, program evaluation, strategic planning, administration, training policies • Health and Safety: Employee assistance programs, wellness programs Reasons for Outsourcing Six Major Reasons: 1. Financial savings 1. Cost reduction is typically 10 to 20 percent 2. Economies of scale from specialized outsourcers who are more efficient 3. Cost control 4. Decreased capital commitments 2. Strategic focus 1. Strategic focus ­ decide to focus on specific  core competencies, like customer service or innovation 2. Core work is transformational and adds value to employees or customers 3. Move secondary functions (or non­core work), like benefits administration, to firms that have that do these things  well (they are core competencies for the outsourced firm) 4. Core competencies – resources and capabilities that serve as a firm’s competitive advantage 1. Core competencies distinguish a company competitively and reflect its personality 3. Access to advanced technology 1. Technology has been a main driver of outsourcing 2. Organizations want to improve technical service if they cannot find technical talent or need quick and reliable access  to technology 3. Technology enables a company to reduce transaction time (the time it takes to handle a request 4. Improved service levels 1. Quality improvement 2. Outsource to those who are excellent performers 3. More flexibility in hiring and rewarding employees 4. Improved response time, performance and confidentiality 5. Access to specialized expertise 1. “Outsource when somebody can do it better than you.” 2. Experts understand the complex laws and regulations required in HR 3. Use of experts reduces the risks and liabilities for organizations 4. Access to “best practices” Chapter 13: Outsourcing 6. Organizational politics 1. Outsourced function is not as visible as an in­house department p
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