Rationale for HR outsourcing

Rationale for Outsourcing                

General Rationale

Outsourcing provides greater economics of scale, flexibility, cost of savings, and effectiveness and expertise to a firm. Outsourcing has a strategic dimension too. Outsourcing strategy is an important value differentiator in present day dynamic market environment involving heavy investments.

Rationale for HR outsourcing

While the above rationales in general apply to HR outsourcing also, it is facilitated more by revolutionary developments in communication technology. The opportunities in HRM outsourcing has been realised by the companies with the advent of databases and support systems for management decisions. The outsourcing provides for web-based self service, which is very comfortable for the employers. New portal technology facilitates providing various requirements at a single point.

The in-house establishment and development of e-HRM applications require substantial investments and expertise. There is continuous escalation in expenditure for maintaining and upgrading the technologies, which prompted the companies to think in terms of outsourcing, because the practice of outsourcing already exists in other operations. Apart from these, HR always has a non-core-function tag, which contributed to increasing tendency to outsource it without much risk. According to the Institute of Personnel Development, the single largest reason for outsourcing HRM can be said to be the core-business concept. As the businesses became more and more competitive, the organisations began feeling that it would be more prudent to concentrate all their energies and expertise on their core-business and leave the HRM to outsourcing.

It is the experience of some organisations, which outsourced some low-end HRM functions, that with such outsourcing the managements were free to bestow greater attention to more important HR functions like Change-management skills and project management skills. HR outsourcing is considered to be a strategic tool for gaining competitive advantage. It frees the HR and other managers to leave aside the low-end HRM functions and concentrate on more important issues.

The other important reasons for HR outsourcing are cutting administrative and high transaction cost activities minimizing the work-burden of regular employees, taking advantage of economies of scale, gaining expertise and skill from outside vendors and improving efficiency and quality.

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