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Chapter 13

Chapter 13 - Outsourcing

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York University
Human Resources Management
HRM 3430
Gordon Qi Wang

Chapter 13 Outsourcing  a contractual relationship for the provision of business services by an external provider. A company pays another company to do some work for it. - Occurs when an organization contracts with another organization to provide services or products of a major function or activity - In HR, it means transferring high-volume transactional work from the HR department to an outside contractor - Flow of resources is one-way, from the provider to the user - Typically, there is no profit sharing or mutual contribution - Much of the work being outsourced is being down offshore (outside of Canada) or outside the primary markets o Cal centres in India for Bell Outsourcing HR Functions In HR the functions most likely to be outsourced are: Larger companies rarely engage in 100 % outsourcing for three reasons: 1. The HR function is so critical to the culture and strategic objective of an organization that it must be closely managed by the organization itself. The most critical functions, which are rarely outsource are:  Recruitment  Selection  Performance management 2. Situations arise that are impossible to predict, such as industrial relations disputes and this unpredictably makes it difficult to develop a contractual arrangement with a vendor; timeliness of response is crucial. 3. The lack of providers of total HRM services The rationale for outsourcing There are at least six major reasons that organizations outsource: Financial Savings • Cost reduction by 10% to 20% • Economies of scale can be achieved when a provider, such as Ceridien, which specializes in benefits and administration, concentrates on one area and provides this service to many corporations. • Cost Control  more aware of fees for services from contractor then would be with “free in house services” Strategic Focus • Employers realize they cannot pursue excellence in all areas o They decide to focus on their core competency, such as customer service or innovation, and move secondary functions such as benefits administration, to firms in which these functions are a core competency • Core can be defined by: o Activities traditionally performed internally o Activities critical to business success – core work contributes directly to the bottom line; non-core work doesn’t o Activities creating current or potential competitive advantage o Activities that will influence future growth or rejuvenation • Core functions that should not be outsourced are:
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