5b Outsourcing

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MBAO 6030 Human ResourceManagement

Outsourcing

HR Management

MBAO 6030


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MBAO 6030 Human Resource Management

Outsourcing

What is Outsourcing?

Outsourcing is a strategic decision to give a task or activity to

an independent contractor who determines how best to do the

task or activity.

The firm and the independent contractor become partners andmay establish a long-term relationship.

Examples of outsourced activities: IT, HR, Legal services,

Manufacturing, R & D.

Note: Outsourcing transactions are done in the market.


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Outsourcing

Outsourcing Advantages:

Better quality people and knowledge may be applied to

an activity or task by the outsourcing firm.

Reduction in administrative costs may be possiblewhen certain tasks are outsourced.

Outsourcing certain activities and employees that do

not fit with company culture may be used to preserve a

strong culture or employee morale.


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Outsourcing

Outsourcing Disadvantages:

Outsourcing may lead to loss of control of

certain activities which may be a problem on

time sensitive projects for example. Outsourcing an activity may result in loss of the

opportunity to gain knowledge and information

that may have general application to other keyprocesses and activities.


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Work SystemDesign

Insource theWork

Outsource theWork

The Decision to Outsource

Contingent employees:

temps, consultants

Independent

Contractor


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High

Low

Strate

gicIm

portance

Strate

gicIm

porta

nce

Low High

InterdependenceInterdependence

Insource

Outsource

???

Contingent

employees

When and how to outsource activities(Baron & Kreps, 1999)


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Outsourcing: Considerations(Baron & Kreps, 1999)

Does learning from this activity spill over to an

important core activity?

Can the outsourcing relationship be reversed

and the work brought back inside when

conditions change?




Can the outsource supplier adjust more quickly

to changing labor or market demands than we

can?

Do we have a strong clan-like culture that would

be weakened with employees who have different

values or interests (such as IT employees)?




Outsourcing may not be appropriate when:

1. The task is a core activity critical to strategy or

technology.

2. Task is highly interdependent with core activity due totechnology or work design.

3. Task requires great deal of firm specific human capital

or access to proprietary information.

4. Tasks where the employees work in close proximity toregular, core employees and are similar socially to

them.



Outsourcing

Critical Thinking Questions

1. The university hires many contingent faculty

(adjuncts) to teach courses on a part-time basis.

What challenges does this present to universityadministration? Why are these adjuncts hired in the

first place?

2. A current trend in the practice of HR management is to

outsource a good deal of the HR function. Whichaspects of the HR activities should be outsourced, and

which ones should be kept inside a firm?



Outsourcing

Critical Thinking Questions

3. Some large pharmaceutical companies

outsource Research & Development activities.

What justification would they have to outsourcethis important activity?

Documents

5b Outsourcing