Externalisation vs Specialisation: What is Happening to Personnel?

E X T E R N A L I S A T I O N VS S P E C I A L I S A T 10 N : W H A T I S H A P P E N I N G T O P E R S O N N E L ?

Katherine Adams lndustrial Relations Services

There are signs that the personnel function in large British organisations may be changing quite fundamentally. In order to explain what is happening, some commentators have been drawn to the model of the ’flexible firm’. Using the model’s concepts of a ‘core’ and a ’peripheral’ labour force, they have floated the idea that personnel is turning into a peripheral function in many organisations. Some have suggested that there might be alarming consequences for those who work in personnel departments. In particular it has been argued that personnel as a function is subject to increasing encroachment from external consultancies which are ’poaching’ their day-to-day activities.

In this article we examine this analysis in the light of a large-scale survey recently undertaken for Recruitment and Development Report (1991). We find that the true picture is, perhaps inevitably, much more complex than many commentators have suggested. Using the findings of the survey, it is argued that the changes transforming personnel - in particular the increasing reliance on market forces to ensure efficiency - cannot simply be explained in terms of straightforward externalisation of the function. Nor is there evidence that externalisation is the overwhelming trend even for particular activities of personnel functions such as graduate recruitment, training and development, or counselling.

What the survey does suggest, however, is a considerable increase in the fragmentation of the personnel function into discrete elements, each requiring different kinds of specialist expertise. On the basis of these findings, we argue in support of the thesis that what is happening is the increasing ‘balkanisation’ of the personnel function. This is importantly linked to the way senior managers appear to be increasingly experimenting with different methods of delivering elements of the personnel function, and in particular with ways of bringing market forces to bear.

PERSONNEL AND THE FLEXIBLE FIRM

A ‘Core‘ and a ’Periphery’?

The ’flexible firm’ has been a highly influential model of the kinds of organisational change companies are trying to achieve. A key component of some formulations is the division of an organisation’s labour force into two distinct portions: the ‘core’, and the ‘periphery‘. The former is defined as a ’numerically stable core group which will conduct the organization’s key, firm-specific activities’ (Atkinson, 1984:29). Although numerically stable, the core group of workers exhibits what Atkinson terms ‘functional flexibility‘. In other words, this group can be redeployed easily between activities and tasks, by means of multi-skilling or through flexible career structures, for example.

At the periphery, however, the key type of flexibility sought by organisations is numerical flexibility, according to this model. Numerical flexibility allows an organisation’s head- count to be easily increased or decreased in response to every fluctuation in the demand for labour. A major way in which organisations are said to ensure the numerical flexibility of

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EXTERNALISATION VS SPECIALISATION: WHAT IS HAPPENING TO PERSONNEL?

peripheral workers - those with only general, rather than firm-specific skills - is by encouraging looser types of contractual relationships.

Different groups within the periphery are distinguished in terms of the relative looseness of these contractual relationships. So ’first peripheral group’ workers are full-time employees, but with less job security and fewer career opportunities than ‘core’ workers. A second peripheral group is made up of part-time workers, jobsharers, and those on short-term or temporary contracts, or public-subsidy trainees. And finally, ‘where jobs are not at all firm- specific, because they are very specialized (eg systems analysis) or very mundane (eg office cleaning), firms are increasingly likely to resource them outside, through the use of subcontracting, self-employed jobbers, temporary help agencies and the like’ (Atkinson, 1984:29).

Although the ’flexible firm’ can be subjected to fundamental criticisms both of its conceptual soundness, and of its empirical truth (Pollert, 19871, the model has been widely used. In particular, some commentators concerned with the apparent transformation of corporate personnel departments (Torrington and Mackay, 1986; Mackay and Torrington, 1986) have seen in the model of the flexible firm a telling way of describing the changes they have charted.

These commentators have used the concepts of the ’core’ and ‘peripheral’ workforces to explain the apparently increasing use of external consultants to perform traditional functions of the personnel department. Torrington and Mackay (1986) found that half of the personnel specialists they spoke to who had used consultants for certain functions, believed that some aspects of personnel work could be subcontracted to external agencies on a semi- permanent basis. Commenting on this finding, the authors say, ‘it may be that the idea of having a core and peripheral workforce will be applied to personnel, and other management functions, and not just to lower-paid manual and white-collar workers’ (Torrington and Mackay, 1986:36).

Certainly, the flexible firm model has a prima facie attractiveness for those wanting to explore what is happening to personnel departments. In particular, the equation of ‘firm- specific activities‘ with core workers on secure contracts of employment, and of ‘plug-in’, non-firm specific activities with various kinds of peripheral employment could be seen as providing a simple test of whether the skills of personnel professionals are seen by their employing orgunisations as ’jobs which are specific to a particulare firm [or] those involving only general skills’ (Atkinson, 1984:29).

Mackay and Torrington (1986) looked at the use of consultants in a range of personnel functions, and found that their use was markedly more common in certain functions, such as training, recruitment and selection, and management development, than in functions such as employee relations, pay, manpower planning, and appraisal. Torrington and Mackay (1986:34-5) put an alarming interpretation on their findings, arguing that ’it may be that consultants have developed their skills in these core activities in order to turn a bread- and-butter activity for the personnel officer into something that becomes too demanding or onerous for the in-house specialist and can be turned into bread and butter for the consultant’. They conclude that ’there is a potential threat to the personnel function from the possibility of contracting out the work of personnel to external agencies. In a function where there are not many firm indicators of success, it may not be easy to prove the worth

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KATHERINE ADAMS, INDUSTRIAL RELATIONS SERVICES

of the internal resources’ (Mackay and Tomngton, 1986:108).

Transaction Costs - A Challenge to the Model?

The proponents of the flexible firm see it as a way of explaining how organisations react to ’market realities’ such as market stagnation, job loss, uncertainty, technological change, and reductions in working time (Atkinson, 1984:28). These pressures, Atkinson argues, ’have put a premium on achieving a workforce which can respond quickly, easily and cheaply to unforeseen changes’. In particular, the looser employment relationship that holds between organisations and their peripheral workers allows organisations exactly to match the number of those working for them to their requirements. As well as numerical flexibility, the looser employment relationship ’also encourages greater functional flexibility than direct employment (as a result of a greater commitment of the self-employed to getting the job done, the greater specialization of subcontractors, or the relative powerlessness of the worker in this context, according to your taste.)’ (Atkinson, 1984:29). In other words, the flexible firm model assumes that what defines the most ’peripheral’ members of its workforce is that in taking them on, organisations will use the mechanisms of the market rather than the disciplines of the employment relationship, and that they do this in order to secure efficiency.

At this point in the argument - the explanation of why businesses are moving towards flexibility - the flexible firm model impinges upon organisation theory, and in particular upon the endeavour to explain why organisations set up in the first place, and why they sometimes disband. Economists studying this area of organisation theory assume that individuals and groups will always prefer to conduct transactions by making a contract in the market place, rather than by ‘internalising’ the transaction by means of a managerial hierarchy. If they do not, and choose to set up an organisation, contracting with people through the employment relationship rather than through the more direct mechanisms of the market place, then there must be some special explanation for this decision (Francis, 1989).

One influential explanation of why organisations should form, despite the advantages of the open market, is provided by Williamson (1985). His arguments provide an implicit analysis of the pressures which oppose the development of the various kinds of flexibility described in the flexible firm model. Williamson argues that in some conditions, the costs involved in undertaking transactions through the market become prohibitively high, and so individuals will develop hierarchies as an alternative method of undertaking transactions. The conditions that give rise to these costs are those which make it difficult, expensive, or impossible for each side in the transaction to have a full knowledge of what is involved. For example, a firm contracting with a specialist supplier of complex goods or services may have little knowlege of what is involved in producing the goods it has ordered. If the supplying organisation is also one of only a few able to fulfil the contract, then it will be tempted to behave opportunistically in various ways. Williamson’s thesis is that it is the potential costs of conducting transactions in the open market that encourages organisations to develop.

Williamson’s analysis provides an a priori reason for doubting the universality of the flexible firm model. But as has been pointed out (Pollert, 1987), the model does not address the problems posed for its analysis by the cost of transactions in the open market. Although

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it provides an implicit argument to show why organisations might turn to increasing externalisation of functions, it fails to engage with the contrary arguments why organisations might be moving in the opposite direction, towards internalking more of their activities. It seems clear that, in view of these conflicting pressures, different organisations might respond to different circumstances by choosing either increasing externalisation or increasing internalisation as a means of improving their efficiency. In contrast to the picture suggested by the model, the traffic may not all be in the same direction.

A Further Dimension - Balkanisation

The idea that the flexible firm model as it appears in some presentations is over-simplistic in the way just described seems particularly true when the model is applied to the personnel department. Well-publicised moves in some organisations provide some initial evidence that the flexible firm model may indeed not be adequate to describe what is happening to the personnel function, and that there is indeed some ’traffic in the opposite direction’. We are thinking here of some organisations’ moves to internalise personnel activities tradition- ally performed out of house - notably by setting up their own temporary or recruitment agencies (RDR, 1990).

Another charted trend (IRS ET, 1991) can be seen as throwing further doubt on the appropriateness of the flexible firm model to all personnel departments. This is the move in some organisations towards ’devolving’ personnel functions to line managers - who are, in the model’s own terms, undisputed members of the core workforce.

But although the core/periphery distinction is too broad to categorise adequately the personnel function taken as a whole, might it not provide a useful way of distinguishing between core and peripheral elements of personnel activity? The work of Mackay and Torrington discussed above at least implies such a possibility. This line of thought, at least at first sight, appears to be a potentially more fruitful application of the model. Thus, recent research (Ciark and Clark, 1990) has furnished a critique of Torrington and Mackay‘s thesis as it applies to one particular personnel activity, namely executive recruitment. Clark and Clark in fact reject Torrington and Mackay’s use of the core/periphery model and their argument that this particular aspect of the personnel function is under threat from external consultants. This rejection is based on three findings: first, that executive search and selection consultants have not developed their techniques beyond the capability of in-house personnel specialists; second, that the ’threat’ to personnel departments from consultants will depend on other, organisation-specific factors; and third, that the model cannot be applied as a general explanatory factor given that search and selection is such an organisation-specific activity.

The idea that the core/periphery distinction can be used to distinguish between different elements of the personnel function involves the implicit assumption that personnel is a kind of ’bundle’ of separable functions. This assumption in turn is informed by a further debate, which concerns the increasing ‘balkanisation’ of the personnel function. This involves the concept that personnel work is becoming more complex, hence more fragmented - and hence more prone to be performed by expert consultants (Torrington, 19891, and also more compartmentalised into relatively self-contained areas (Tyson, 1987). Tyson has explained this in terms of barriers to promotion and career paths between those personnel specialists

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involved in relatively low-level administrative routine or ’firefighting’, and those with a more strategic role. He discusses the invasion of non-specialists, particularly line managers, into territory previously controlled by personnel managers. He also discusses the externalisation of the function through the use of consultants as a form of balkanisation.

The idea of the fragmentation or compartmentalisation of activities within the personnel function need not, though, be seen solely in terms of divisions between the people who are ’allowed to perform them. The idea that certain activities of the personnel department are relatively self-contained as activities looks prima facie to be a useful one when explaining why it is - if it is - that certain activities are more prone to externalisation than others. Certainly Torrington and Mackay (1986:34) argue that the activities for which consultants are most often used are those which ‘can be readily parcelled up and passed to an outside body, such as training and recruitment’. The same authors argue (Mackay and Torrington, 1986:108) that areas like organisational restructuring, job evaluation, and team briefing are more dependent on personnel support and facilitation and hence less likely to be ’wrapped up in a self-contained package’ and externalised.

The findings of our research, detailed below, provide a continuation of the more detailed examination of particular activities within the personnel function essayed by Torrington and Mackay, and Clark and Clark. The new research focuses on six major activities of the personnel function: graduate recruitment, executive search and selection, temporary staff recruitment, training and development, outplacement and redundancy counselling, and counselling other than redundancy counselling.

In order to examine whether each of these functions is in fact being subjected to increasing ‘externalisation‘, however, we propose a refinement of Atkinson’s original model.

Refining the Model

The flexible firm model proposes a workforce differentiated by degrees of ’peripheralisation’, ranging from the core workers, through three increasingly externalised groups of peripheral workers. The degree of peripheralisation is determined in each case by the group’s security of employment. The model implies that the ’looser’ the employment contract between the organisation and its employees, the more the organisation is using market forces, rather than organisational control, as a regulator of its activities.

However, some organisations (Humble, 1988; Griffiths, 1989) have been experimenting with ways of introducing the disciplines of the market without substantially altering the employment contracts of their workers. The development of cross-charging between divisions or even departments within an organisation, and the rise of paid-for ‘internal consultancy’ are particular examples of this kind of development.

In contrast to the work of Torrington and Mackay, and Clark and Clark, which simply looked at the increase in the use of external consultants for different personnel activities, our research examines organisations’ use offour different alternatives to the corporate personnel department, which can be seen as representing a kind of scale of increasing degrees of ’externalisation’, understood as the application of market forces to the delivery of personnel activities. The four alternatives examined are as follows: specialised in-house units or agencies, ’internal consultancy’, ‘businesses within a business’, and external consultancy.

For organisations wanting to move away from reliance on the personnel department,

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setting up a specialised in-house agency is an option which offers an alternative way of running a particular personnel activity, without necessarily involving a great deal of ’externalisation’. In-house agencies are, though, sometimes used in organisations which operate ’cross-charging’ between departments, and our survey findings indicate that they may sometimes be used as a ‘staging post’ on the way to the introduction of a more overtly market-led approach, such as internal consultancy . Thoroughgoing internal consultancy, on the other hand, involves the introduction of charging ’customers’ for the personnel activity provided by the consultancy, in order to turn the activity into a profit rather than a cost centre. Internal consultancies may provide charged-for services to outside organisations as well as to departments or divisions within their own organisation.

The third option, the business within a business, takes the application of market forces to personnel activities a step further. Also known as ’franchising’, this final option allows organisations to ’[subcontract] the operation to an individual or group of individuals who set up their own business. Depending on the size of the operation, these individuals remain self-employed or go on to become direct employers in their own right’ (Sisson, 198929). Businesses within a business act effectively as external consultancies, except that they may retain special links with the ‘parent’ organisation.

Finally, external consultancy, the fourth option considered, represents the most market- oriented method of delivering personnel activities on this scale of four methods. Our research investigates the use of each of these four options for the six personnel activities detailed above, and also the reasons given by organisations which have adopted them.

Balkanisation, Yes - Externalisation, No

Earlier, we entertained the idea that the balkanisation thesis - the claim that certain activities of the personnel department are relatively self-contained - might be a useful one when explaining why it is (if it is) that some personnel activities are more prone to externalisation than others. But, using the refinement of the flexible firm model suggested above, we find that our survey results refute this idea. For these findings, detailed in the next section, reveal that although all six of the personnel activities we examine can be seen as being subject to increasing ’compartmentalisation’ into self-contained units, the evidence cannot support the idea of these elements of the personnel function being prone to externalisation.

On the basis of the findings of our survey, we argue in the next section that all of the personnel activities we examine can be seen as subject to increasing balkanisation on the grounds that all are increasingly being managed by the four alternatives to the personnel department outlined above. And these four alternatives can be seen as representing a range of different ways of ’packaging out’ the activity to personnel specialists.

But although it is true that activities within the personnel function are subject to increasing balkanisation, this does not mean that these activities will necessarily be subject to increasing externalisation. In fact, we find that this is far from being the case. We argue that, far from being able to show that the personnel department as a whole is subject to increasing externalisation, the core-periphery model cannot even be used to make a watertight distinction between different activities of the personnel function in terms of those which are and those which are not subject to increasing ’externalisation’.

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THE RECRUITMENT AND DEVELOPMENT REPORT SURVEY

Our survey was designed to investigate the apparent changes in the way different personnel activities are being delivered in organisations, discussed above. It took the form of a postal questionnaire conducted amongst the 1,000 largest UK employers in October and Novem- ber 1990. Ninety-eight organisations responded to the survey, between them employing one-and-a-half million people. The currency and accuracy of our interpretation of their responses was checked with the organisations in February 1991. Details of their responses can be found in the article already quoted (RDR, 1991).

For each of six activities - graduate recruitment, executive search and selection, temporary staff recruitment, training and development, outplacement and redundancy counselling, and other counselling - we asked respondents whether they currently used any of four alternatives to the personnel department. The four alternatives were external consultancy, specialised in-house agencies, an ’internal consultancy’ approach, or a ‘business within a business’. These last two options need a word of explanation. Internal consultancy we defined as ‘an in-house agency which is run as a profit centre, selling its services to the parent organisation, and perhaps also to external organisations’. A business within a business was defined as ’the splitting off of certain human resource functions from the personnel department, and launching them as a separate company, one which may trade with the parent organisation, and sometimes also with external organisations’.

Respondents were also asked whether their previous method of delivering each activity had been the personnel department, external consultants, or some other method, and were asked to specify what this method was. Our survey organisations were further asked when the new method, if any, was adopted. A final, open question asked what were the major reasons for changing to - and other perceived advantages of - their current way of managing each personnel activity.

Alternatives to the Personnel Department

Figure 1, representing the aggregated replies of the 98 respondents, clearly shows how organisations are increasingly adopting alternatives to the personnel department for all six of the activities we considered. A total of 78 out of the 98 organisations have implemented one or more of these methods in one or more of the activities.

The most widespread of the alternative methods we found to be external consultancy, with 71 organisations using it. But, echoing the findings of other studies (Marginson et al., 19881, for the majority of our responding organisations the use of external consultancy was not a recent innovation. In-house agencies are revealed to be the second most popular of the alternatives, with 52 organisations using this method. In general, they have been more recently adopted than external consultancy. The rarest of the four options - internal consultancy and businesses within a business - are also the most recently adopted, with the majority being introduced within the last two to three years. Internal consultancies were found in 13 organisations, and businesses within a business in just three.

A significant finding was the considerable variation between the six different activities in terms of the methods which organisations are using to manage them. Training and

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FIGURE 1 lncreasing Use of Alternatives to the Personnel Department

Comparison of total numbers of organisations previously and current/y using alternative ways of managing six HR functions.

E A I B E A I B E A I B E A I B E A I B E A l B Graduate Executive Temporary Training Outplacement Other

recruitment search/ staff and and counseling selection recruitment development redundancy

counselling Key: 0 No. of organisations previously using alternative methods

Total no. of organisations currently using alternative methods E External consultancy A In-house agency I Internal consultancy B Business within a business

development, for instance, stood out as the activity by some way the most likely to be managed by each of these four alternative methods. And, as Figure 1 makes clear, there is a wide variety between the ways organisations are choosing to manage each of the other five activities.

We argued earlier that the four alternatives - in-house agency, internal consultancy, business within a business, and external consultancy - could be seen as representing a kind of scale of increasing ‘externalisation’, understood in terms of the degree to which market forces are brought to bear on the delivery of the activities. If the flexible firm model were appropriate for the personnel function as a whole, then it would seem that organisations shoirld be increasingly prone to use alternatives at the ‘external’ end of the scale in preference to those on the ‘internal’ end. In other words, they would be more likely to use external consultants, and set up businesses within a business or internal consultancies, than to use in-house agencies to deliver personnel activities.

Our findings make clear, however, that this is far from being the case. Although there has been a considerable increase in the use of external consultancies over the last ten or so years, this is very much more apparent for some activities (such as training and development, and executive search and selection) than for others. If an activity like graduate recruitment is no longer being run exclusively by the personnel department, it is much more likely to be run

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as an in-house agency (19 organisations) than through external consultants (five organisations). (Internal consultancy or a business within a business are used by just two organisations for graduate recruitment.)

Even for activities which have seen a major rise in the use of external consultancies, there has sometimes also been a significant - and often more recent - increase in methods other than external consultancy. So while 50 organisations currently use external consultancies for training and development, for example, and 11 have set up an internal consultancy approach, and two have even established %businesses within a business’ for this activity, 41 organisations actually use in-house agencies. (Some organisations use more than one method for their training and development, which explains why the numbers add up to more than 98.) Furthermore, the increase over recent years in the number of organisations using in-house agencies (from 10 to 41) is about twice the increase in those using external consultantsforthisactivity(from23 to50). Inotherwords, thegapbetween thetwomethods appears to be diminishing rapidly.

Even for executive search and selection, for which 48 organisations use external consultancy, and which is the least likely of our six activities to be run as an in-house agency, seven organisations do use an in-house agency (while just one has set up an internal consultancy to manage this function). Five of these seven in-house agencies have in fact been set up in organisations which also use executive search and selection consultants. So it is clear from the sheer variety between activities revealed in our findings that

sweeping generalisations about thevulnerability to externalisation of the personnel function as a whole are not borne out by our findings. What we have uncovered, alongside the undoubted increase in organisations using external consultancy, is evidence of considerable traffic going ‘in the opposite direction’, as discussed in our introduction. In other words, although some organisations may be encouraging the application of market forces to some personnel activities by engaging externalconsultants, others are prefemng to maintain these activities in-house in the form of in-house agencies. Even those organisations which use external consultancy for some personnel activities are using in-house agencies for others.

We discussed earlier, however, a more initially attractive way of applying the flexible firm model to personnel, namely using the scale from external cpnsultancy to in-house agencies as a means of differentiating between personnel activities in terms of those which are, and those which are not, liable to increasing ’externalisation’. And indeed, our findings do initially support the possibility of such a distinction.

If we ignore the special case of training and development, which, as we saw, has been subject to the greatest increases in the use of allfour of the alternative methods, a pattern does seem to emerge for the other five personnel activities. Graduate recruitment, for example, is the activity out of the five we are now considering which is most likely to be run ’internally’ by means of an in-house agency: it is run in this way by 19 organisations. At the same time, it is the least likely to be run ’externally’ through external consultants (five organisations).

At the other extreme, executive search and selection is the one out of the five activities most likely to be performed by external consultancies (48 organisations), and (with outplacement and redundancy counselling) the least likely to be performed as an in-house agency (seven organisations). Outplacement and redundancy counselling continues the pattern, being frequently performed by external consultants (41 organisations) and infrequently by in-

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house agencies (seven organisations). A less extreme case, but still intelligible in terms of the emerging pattern, is temporary staff recruitment, where we found that 16 of our respondents use an in-house agency and 41 use external consultants.

The picture emerging from this analysis, then, is of organisations wanting to move away from reliance on the personnel department, but differentiating between different personnel activities in terms of whether they ’externalise’ the activity by using external consultants, or keep the activity in-house, but run it as a specialised unit or agency.

Although such an analysis is attractive, it should not be overstated. For one thing, the picture for the last activity of the five - counselling - is considerably less clear-cut, like that for training and development. Seventeen of our organisations manage their counselling through an in-house agency and 14 use external consultants. For another, the number of organisations now using non-majority methods in each of the other four cases - graduate recruitment, executive search and selection, temporary staff recruitment, and outplacement and redundancy counselling - is far from negligible, and has shownan increase over the past few years.

As well as straightforward evidence of increasing use of non-majority methods alongside increases in majority methods, there is evidence, too, of a few organisations actually changing from the dominant method to the minority one for some activities. For example, we found two organisations which have moved from employing executive search and selection consultants to using an in-house agency for this personnel activity. Finally, we found that some organisations use both external consultants and in-house agencies simultaneously to deliver certain functions. Organisations with specialist training departments, which also use consultants for some parts of their training activity, are, of course, a familiar case of this kind of combination approach.

What emerges from our findings is, in fact, a story of great complexity, with organisations differing quite considerably from one another in the ways they choose to deliver the six personnel activities considered here. It is this complexity which, we argue, gives the lie to the over-simple thesis of the widespread externalisation of personnel activities.

This complexity is most marked in the case of training and development. Nearly half of those organisations in our survey which use an alternative method for training and development use it in tandem with one or even two of the other methods. Only 20 of the 50 organisations using external training and development consultants use this method of managing their training in isolation. And just 14 of the 41 using an in-house agency for this function do so without using any other of the four methods. The complexity of organisations’ management of their training and development activities is not new, however. Indeed, what the survey findings suggest is a fairly continuous process of innovation and experimentation, with organisations trying out different combinations of alternatives, and willing to drop them if they prove unsuccessful.

Reasons for Change

The complexity of organisations’ management of their personnel activities described in the previous section is further borne out by our findings concerning their reasons for using alternative methods of managing these activities. The questions in our survey relating to reasons were open ones, and a very wide variety of responses was received.

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The predominantly public sector organisations setting up internal consultancy arrange- ments or businesses within a business, unsurprisingly, gave the introduction of compulsory competitive tendering, changes to the running of the Health Service, major organisational change, and changes to the structure of financial accounting systems as major reasons. Major organisational change - such as takeover, merger, and decentralisation - is a frequent reason for introducing any of the four alternatives.

But when it comes to the other two options - in-house agencies and external consultancy -a very wide variety of further responses is apparent. Some of the reasons given for adopting one of these two alternatives are peculiar to particular personnel activities. And on the other hand, some are common to both in-house agencies and external consultancy. The need for impartiality, for example, is cited as a reason for using external consultants for training and development, outplacement, and all types of counselling, and also for in-house agencies concerned with outplacement and redundancy counselling, and for training and development. Furthermore, different organisations gave directly contrary reasons for using external outplacement and redundancy counselling consultants, for example, with some impelled to use them because of the increasing need for outplacement, and others using them because of declining demand for this activity.

Frequently-mentioned reasons for using external consultancy include the lack of in-house resources, shortages of recruits (for all three of the recruitment activities), and cost effectiveness, with improved efficiency, time-saving, confidentiality, and the specialist knowledge offered by consultants being other reasons mentioned. Torrington and Mackay (1986:34-5) found that the ’felt need for outside expertise’ was very much more frequently mentioned than other reasons for using external consultants, and used this finding to argue, as we saw before, that consultants are turning personnel activities into specialisms which are too demanding for in-house personnel people.

We did not find, however, that the specialist knowledge offered by consultants was a predominating factor, although several organisations amongst our sample did mention the need for specialist expertise, or the better service offered by external consultants. As previously mentioned, the lack of in-house resources was a fairly frequent reason, though this cannot be straightforwardly understood as a reflection on the lack of skills of in-house staff. Organisations giving lack of resources as a reason often indicated that what they had in mind was pressure of work on in-house staff, rapid company expansion, the fact that work done in-house was sometimes too slow, or the need to make the best use of those in- house resources there were.

The range of reasons given for setting up an in-house agency, on the other hand, include the need to facilitate internal cross-charging, cost considerations, and demand fron managers for more clearly identifiable resources. The use of in-house staff in these kinds of agency is not seen as being inconsistent with high-quality personnel services. The need for strategic, and high-quality training are cited as reasons for setting up an in-house training unit, while concern for the ’market image’ of the organisation has encouraged others to set up in-house graduate recruitment agencies.

The ‘Balkanisation’ of Personnel

On the evidence of our survey, we have seen that the core/periphery distinction as applied

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EXTEFWALISATION VS SPECIALISATION: WHAT IS HAPPENING TO PERSONNEL?

to personnel is a considerable over-simplification of the true picture. What our findings do fairly clearly support, however, is the argument that personnel as an activity is being increasingly dealt with in discrete and self-contained ‘packages’.

Figure 1 graphically demonstrates the increasing use of all four alternatives to the personnel function examined in our study. And each of the alternatives can be seen as a different way of ’parcelling up’ a particular personnel activity. As we saw in our earlier discussion, the increasing use of external consultants has been seen as a corollary of the increasing compartmentalisation of personnel activities, and is explicitly seen by Tyson (1987) as part of the ‘balkanisation’ of the personnel function.

But the other alternative methods discussed here - in-house agencies, internal consultancy, and businesses within a business - can also be seen as going hand-in-hand with the ‘parcelling out’ of different parts of personnel work. Setting up a specialised in-house agency to provide a particular personnel activity is an obvious indication of the increasing specialisation of that activity. The idea of internal consultancy is a further development of the specialised in-house agency, with the addition that it is run as a profit centre. Businesses within a business involve the splitting off of individual personnel activities - often, in the case of our survey organisations, the training and development activity - and launching them as separate companies.

The increase over the last five to ten years in all these methods, which is indicated in our survey results, is a clear indication of the increasing specialisation and fragmentation involved in personnel work. Even different aspects of one activity in particular, the recruitment function, are apparently being run as quite separate activities. This is apparent from our findings on the increasing use of the alternative ways of running graduate recruitment, executive search and selection, and temporary staff recruitment.

Finally, the finding that in order to deliver some personnel activities, notably training and development, organisations are using two or even three different alternative methods in combination may be an indication of even more minute fragmentation, with different methods being used for different aspects of the training and development activity.

What Kind of Organisations are Making Changes?

Our survey questionnaire included some questions designed to find out more about our responding organisations. They provide a fairly clear picture of the kinds of organisation which are most likely to introduce the alternative ways of managing personnel activities examined in our research. We found that innovation of this kind is much more prevalent amongst multinationals than amongst other organisations; that it is considerably more common amongst private sector than amongst public sector employers; and, finally, that organisations where the personnel function is decentralised to line managers are also more likely to have introduced these alternatives to the personnel department,

The finding that multinationals are most likely to be innovative in this area is perhaps of particular interest. Of the 28 multinationals in our survey sample, we found that just one has not introduced any of the four alternative methods for any of the six personnel activities. Two-thirds (18) of them have innovated widely, introducing alternative methods in four, five, or six of the activities which we considered.

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CONCLUSION

Our survey aimed to chart some of the changes which have been taking place in the personnel function over the last few years. As we have seen, so far from supporting the view that personnel as a function is subject to increasing ‘externalisation’, our findings do not even give credence to the view that some individual personnel activities are being straightforwardly ’externalised’. What we have uncovered, in fact, is a picture of great variation between organisations in terms of the extent to which they are ’externalising’ particular functions, and of their reasons for doing so. One factor adding to the complexity of the picture is the fact that some organisations are actually using several different methods in combination, involving quite different degrees of ’externalisation’, for individual personnel activities. This is especially so for their training and development activities.

Perhaps one of the most interesting findings to emerge from this study is the extent of experimentation amongst the large organisations in our survey. Particularly for the training and development function, but also to a lesser degree for the others, what we have uncovered is a story of ongoing change and adaptation, with organisations unafraid to try out, and often to discard, a succession of fairly diverse ways of managing personnel activities.

What our findings do lend credence to, however, is the argument that personnel is becoming increasingly subject to specialisation and fragmentation, with organisations using a range of different methods - not just external consultants - which encourage the compartmentalisation of different personnel activities. We see clear indications of the increasing use of in-house agencies, internal consultancy, businesses within a business, and external consultants for the six personnel activities we have examined. These different methods all have in common the fact that the activities are performed by specialists and experts, and are carried out by groups which are in different ways separated from the corporate personnel department.

The increasing use of alternatives to the personnel function other than external consultancy is also, we have found, characterised to some extent by the desire to bring market forces to bear on the personnel function. The development of internal consultancy and businesses within a business in particular, although on the whole fairly recent developments and as yet far from widespread, represent a deliberate attempt, often on the part of public sector organisations, to bring the disciplines of the market to bear on personnel activity.

Although we have pointed to the considerable diffferences between the way different organisations manage their personnel activities, one common strand that has emerged is the extent of personnel fragmentation and specialisation in multinational organisations. We saw that the majority of these organisations use alternatives to the personnel function to provide four, five, or all six of the personnel activities which we have investigated.

It would be interesting to know why it is that multinational organisations should be so prone to the fragmentation of their personnel function, and what the implications of this might be for the effectiveness of the function. Of course the sheer workload of personnel

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activities involved in large organisations could well be a factor influencing increasing specialisation. But these findings do raise the questions of how large organisations are able to manage their fragmented personnel functions, and what control mechanisms are required to operate such a system successfully. In particular, the question arises of how organisations can manage their human resources strategically when the personnel function is composed of a potentially large and growing collection of specialised and self-contained units.

Finally, the increasing fragmentation of the personnel function indicated by our survey raises interesting issues about the future of personnel as a profession. In particular, the increasing specialisation apparent in the organisations we surveyed would seem to raise an important question about how personnel professionals are trained. It is arguable that existing training presupposes a generalist personnel profession, not borne out in our survey. What our findings imply, in fact, is an increasing demand for specialists in a wide range of different areas, from recruitment to counselling, and from training and development to outplacement. If there is a mismatch between the profession for which personnel people are trained and the functions they actually fulfil in organisations, then this may perhaps give legitimate cause for concern - both to those involved in the training and development of personnel professionals and to the organisations which employ them.

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KATHEKINE ADAMS, INDUSTRIAL RELATIONS SERVICES

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Documents

Externalisation vs Specialisation: What is Happening to Personnel?