Empirical study on the impact of human resource outsourcing on firm performance

Abstract

newline In a quest to examine the impact of Human Resource Outsourcing (HRO) activities on the firm s performance in the Indian context, various streams of literature on the Human Resource (HR) activities, Human Resource Outsourcing, Transaction Cost Economics and Resource Based View of the firm theories were extensively reviewed to build a robust theoretical model. Extensive literature survey was conducted to develop the model, which was empirically tested and implications drawn. newline newlineLike all other operations, outsourcing human resource activities also became popular in the recent past for most companies of all sizes and businesses. For instance, the call centre of IBM in UK is staffed and managed by a HRO agency. The main motivation for HRO is the desire for improving firm s financial performance. Therefore, to improve their performance, they have to concentrate on those activities that are core to the firm. These core activities contribute to their core competencies through which organizations build their competitive advantage and sustainability. Using third party suppliers to perform all non-core activities can help them achieve this. This has led to the rise in outsourcing including HRO that had previously been done internally. newline newlineIn this context, outsourcing of HR activities draws everyone s attention. Experts observe that outsourcing is a key trend that is going to shape the future of HR (Cooke, Lee, Jie, and McBride, 2005). They envision HR as focusing more on the strategic activities of the organization than on mere administrative functions. These administrative and transactional operations which are performed internally can be left to the third party suppliers. The biggest HR activities contract so far has been between British Petroleum and Exult Inc. British Petroleum agreed to pay Exult (now Hewitt Associates) $600 million to take over its HR transactional activities and services.