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文献原文Risks and Rewards in HR Business Process OutsourcingDavid W. ConklinCopyright 2005 Elsevier Ltd All rights reserved. Risks and Rewards in HR Business Process OutsourcingDavid W. ConklinManagers have expressed differences of opinion about the risks and rewards of outsourcing companies human resource activities, including the entire business process. This paper reviews the literature to date and studies the example of one of the earliest cases of outsourcing an HR business process, when EDS took on the responsibility for Canadian Imperial Bank of Commerce. With the offloading of functions such as payroll and recruitment, a companys HR department can therefore concentrate on strategy and become a facilitator for change. The paper concludes with lessons that managers can apply when considering the outsourcing of HR functions.Article OutlineIntroduction How to choose HR activities as potential candidates for outsourcing How to analyse potential HR candidates for outsourcing How to achieve successful inter-company governance Future issuesConclusion References IntroductionAuthors have advocated a variety of criteria for making outsourcing decisions. In the strategy literature concerning “make or buy”, a focus on the core versus non-core dichotomy has led to the recommendation that activities essential to a companys competitive advantage should not be outsourced, while all other activities should be candidates for outsourcing. Some commentators have emphasised certain characteristics of the company itself, leading to the conclusion that the appropriate decision may differ among companies and over time. For example, companies that need to cope quickly with impediments to the development of new Human Resource (HR) processes may outsource to gain management expertise. Some authors have also emphasised costs, asset specificity and the degree of precision in contracts. To the extent that HR activities differ in regard to these features, appropriate outsourcing decisions may also differ. For example, if an activity such as payroll can be quantified with certainty, then the contract may be precise enough to minimise risks. At the other extreme, it may be particularly difficult to quantify HR business process outsourcing (HR-BPO) in terms of deliverables over time. Here the risk of uncertain outcomes may argue against outsourcing, unless the vendor and buyer can develop ways to mitigate this risk.Product development necessarily entails incomplete contracts with uncertainty and risk, and so authors examining the outsourcing of product development recommend creation of a strategic alliance and emphasise the need for trust. Related concerns include how best to stimulate innovation, and how best to direct it. Ongoing innovation has been particularly important with IT, and so an extensive literature on IT outsourcing has analysed this partnership perspective and the need for “trust”. Product development and IT literature have pointed to the nature of the inter-corporate governance structure as a crucial determinant of outsourcing success. This article applies insights and lessons from this literature to the subject of HR outsourcing. In HRO-BPO, for example, both buyer and vendor expect that ongoing innovation will improve IT-HR technologies and HR practices. Consequently, risk mitigation in HR-BPO focuses largely on the inter-company processes and structures for decision-making and dispute resolution, and the cultures and capabilities that are necessary for a successful strategic alliance.Over the period 20012004, the number of multinational corporations that outsourced their HR business process rose from approximately six to 40, and several vendors now offered global HR-BPO, including Exult, Accenture and IBM.1 However, as Exhibit 1 indicates, surveys of decisions concerning HR outsourcing have revealed a wide range of managerial opinions. The complexity of issues has led to the creation of HR consulting firms that specialise in providing advice on whether to outsource, how to design a contract and what governance structures to establish.Exhibit 1 HR Outsourcing: Survey Results*Hewitt Associates LLC (2002)Surveyed more than 500 CFOs and finance executives from companies with $1bn or more in revenue. Functions outsourced or intended to be outsourced: health and group benefits 49 per cent defined contribution pension plans 37 per cent payroll 35 per cent HR information services 14 per cent executive compensation 5 per cent 52 per cent did not intend to outsource HR functions.Aberdeen Group (2004)Surveyed 244 mid-market companies. More than half outsourced some HR activities, mostly pensions, payroll, tax management, and services associated with hiring, such as background checking and drug testing. 71 per cent “simply were not persuaded that HR outsourcing provided enough value to undertake it or add to what they outsource today.” 70 per cent stated they would never outsource employee records 48 per cent would never outsource employee call centres. Differences among sectors and countries were substantial.U.S. Conference Board (2004)Surveyed 122 companies with more than $1bn in revenue More than 60 per cent would refuse to outsource HR information systems. Found differences among countries, with more resistance to HR outsourcing in Europe than in the US.Watson Wyatt (2004)Surveyed 280 companies Many companies failed to study the risks and rewards of HR outsourcing carefully enough, and many underestimated the burden of managing relationships with the vendor. Surveys of decisions concerning HR outsourcing have revealed a wide range of managerial opinionsHow to choose HR activities as potential candidates for outsourcingExhibit 2 presents a summary of issues that authors have emphasised in deciding which activities are potential candidates for outsourcing. Prahalad and Hamel say a companys core competence should be a major determinant in the make or buy decision, and this view plays a central role in the HR outsourcing debate.2 Stroh and Treehuboff express the opinion that “When considering outsourcing the focus should be on keeping core activities in-house and outsourcing non-core activities only.”3 They believe that the activities that define a companys competitive advantage may be too important to outsource. This view is linked to the resource-based theory of the firm which argues that the capabilities of a company are dependent on resources within it, and so to outsource certain resources might limit any capabilities that depend on them.For some authors, core competence means more than a unique technology or product design. For Javidan, a companys capabilities relate to its ability to exploit its resources, while a competency is a cross-functional integration and co-ordination of capabilities; and a core competency is a collection of competencies that are widespread in the corporation. 4 Hamilton et al. also recommend that the company retain those capabilities that encompass the entire value chain.5 These perspectives suggest that the cross-functional attributes of some HR activities, with their impacts on the entire value chain, may form a core competency and competitive advantage, providing a warning against HR-BPO.However, new roles for the HR department, particularly as an agent of change, complicate these recommendations. Post demonstrates that a company “can stretch to build new competences”, thereby altering the competitive environment in its favour and offering new strategic opportunities.6 Today, as companies face pressure to automate, downsize, become more international, adopt e-business procedures etc, the HR department has new responsibilities as an agent of change.7 The ability to fulfil these responsibilities is becoming a potential core capability, and to outsource HR-BPO may enable the HR department to focus on this new core capability. Gilley et al. have analysed relationships between HR outsourcing and organisational performance in manufacturing companies. They conclude that outsourcing of certain HR activities has a positive impact on overall innovation within the company.8 Boselie and Paauwe have examined HR competencies in European companies and conclude: “we foresee a development by which the time spent on the traditional transactional HR activities will decrease, while at the same time the HR professional is required to spend more time as a change facilitator.”9 Paauwe et al. have pointed to the “knowledge economy” as another factor increasing the importance of HR. Here HR has come to play four additional roles, each of which involves new and complex responsibilities: human capital steward, knowledge facilitator, relationship builder (both internally and externally) and rapid deployment specialist.10 These developments support the outsourcing of traditional transactional HR activities, including HR-BPO if possible, so that HR management will then be free to focus on what has become a new core capability of the company, playing a key role in managing change and improving the flexibility and adaptability of the organisation.Many analysts of the HR outsourcing decision support the view that this core/non-core dichotomy is not adequate by itself, and point to other features of importance. 11 Lepak and Snell extend the core/non-core focus to include uniqueness.12 HR activities should be categorised in accordance with their contribution to the companys core competencies and competitive advantages, and also in accordance with the extent to which they are rare in the external market. All activities are candidates for outsourcing except for those possessing both core competence and uniqueness. Other authors focus on the degree to which HR activities entail an interactive relationship with employees and other business units. Activities with both high strategic value and high relationship features should be kept in-house, while all the rest are candidates for outsourcing.13Klaas et al. have introduced additional determinants. They relate a companys organisational characteristics to its outsourcing success in four categories of HR: generalist activities (e.g. performance appraisal), transactional activities (e.g. payroll), human capital activities (e.g. training), and recruiting and selection.14 They conclude that distinctive or idiosyncratic practices requiring tacit knowledge may suffer if outsourced. Companies operating in uncertain environments may gain greater benefits from outsourcing than other companies. Companies where HR is expected to participate in corporate strategy may prefer to retain strategic-orientated generalist activities, as may companies that rely on promotions to improve efficiencies in bureaucratic organisations. In general, they conclude that “organisational characteristics have different effects on various types of HR activities outsourced”.15 The research by Boselie, Paauwe, Klaas and others suggests that the make or buy decision will differ not only among HR activities, but also among companies over time. “Classifying an activity as non-core may lead to serious oversimplification of the complexity of the real business situation.”16Of particular importance for HR-BPO is whether management wants to achieve substantial and rapid change in its HR business processes. A strategy literature on “transformational outsourcing” suggests that: “The key issue is new capabilities a company has concluded that it lacks an important set of skills”17 This company- and time-specific need to remove a strategic impediment may be a central determinant in considering HR-BPO, as innovations in HR transactions, particularly in web-based technologies, have become a new objective. This perspective also has important implications for academics who pool HR data across companies and over time in analysing outsourcing.18 The opinions and insights summarised above suggest that the analysis of performance implications, differing among activities, companies and points in time, will require sophisticated segmentation of the data. Exhibit 2 suggests that managers must consider more than just the core/non-core dichotomy in deciding whether an HR activity is a potential candidate for outsourcing.Exhibit 2 Issues to consider in choosing HR activities as potential candidates for outsourcing Whether the activity underlies the companys core competencies or core capabilities (Prahalad and Hamel; Stroh and Treehuboff; Javidan; Hamilton et al; Post) Whether the activity is unique to the company, and the value to the company of this uniqueness (Lepak and Snell) The loss of relationship features, internally or externally (Gilley et al) The benefits the company can gain by having its HR personnel focus on strategic issues, freed from transactional activities (Gilley et al; Boselie and Paauwe; Paauwe et al; Greer et al; Lee) Whether the activity requires tacit knowledge internal and unique to the company (Klaas et al) The companys need to retain jobs in order to provide promotion opportunities to its employees (Klaas et al) Whether the company wants to achieve transformation in its HR business processes (Linder)How to analyse potential HR candidates for outsourcingExhibit 3 presents a summary of issues authors have emphasised in analysing potential candidates for outsourcing. The following issues, while originally presented in regard to the outsourcing of other activities, are also relevant for HR. In the 1930s, Coase pointed to transaction costs as a key determinant of activities kept within the company.19 Williamson has built on this, adding the relevance of asset specificity whether or not the supplier can use its machinery and equipment to serve other customers and contract clarity, how well the deliverables can be specified.20 With HR activities, IT and the internet have reduced some transaction costs and they have also created the opportunity for a vendor serving multiple customers to achieve economies of scale that a single company could not achieve in-house. However, a sharp division among HR activities exists in regard to the potential for contract clarity. The clarity of specification may be an important factor in explaining the extensive outsourcing of certain activities such as payroll, time and attendance records, benefits, pensions and employee records management. Meanwhile, major obstacles in regard to quantification of service levels remain an important factor limiting HR-BPO. Whether and how the buyer and seller can overcome these obstacles has become a central issue in the make or buy decision for HR-BPO.Humphreys et al. advocate a model that consists of five evaluation stages: identifying and weighting performance categories; analysing technical capabilities; comparing internal and external capabilities; analysing supplier organisational capabilities; and determining total acquisition costs.21 These stages are helpful for evaluating potential HR candidates for outsourcing, including HR-BPO. Alexander and Young add several important elements to this evaluation process, each of which suggests the need for a dynamic analysis with projections of future circumstances.22 For example, the nature and extent of projected economies of scale and scope should be analysed in order to negotiate fair pricing. The number and strength of alternative vendors should be considered to determine the possibilities for switching contracts or possessing negotiating power. The outsourcing process itself may improve a companys benchmarking and target setting benefits that should be included in the analysis. A vendor may be able to cope more efficiently with fluctuations in a buyers demand, enabling a buyer to lay off this risk and turn fixed costs into variable costs again, the value of this benefit may differ among companies. Many authors have also predicted that a vendor may be able to improve the quality of service activities.23 Some emphasise that outsourcing may improve innovation to the extent that it may become a companys “new engine of growth”.24For the HR business process, with its increasing reliance on IT and the creation of new web-based HR services, the ability to innovate within an outsourcing relationship is of major importance. An earlier literature on the outsourcing of manufactured components emphasises the need for a collaborative partnership to achieve ongoing innovation. Nellore and Sderquist examine the ability to collaborate between motor vehicle OEMs and their suppliers in activities where product development introduces new challenges.25 For Nellore and Sderquist, the nature and extent of this challenge with the need to modify specifications continually differs among types of components, being in itself a reason to reject outsourcing for certain activities. They also point to the degree of trust between buyer and vendor as an important factor in dealing successfully with this innovation challenge.In choosing a vendor, mitigation of risks emphasises the importance of factors in addition to price. In 2002, an International Data Corporation (IDC) White Paper sponsored by Cap Gemini Ernst & Young, reported on IDC surveys of senior decisionmakers in large companies that had opted for “transformational outsourcing”. These surveys found that “customers are evaluating their service providers on much more than pricewhile price is a factor, it is not among the top reasons for working with one service provider over another.”26 The report concludes that more important issues include: responsiveness and customer service, guarantees and service level agreements, ability to enable future business strategies and expertise within the specific industry.Many of the issues in Exhibit 3 differ in importance among companies, activities and ov