Making the HR Outsourcing Decision

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Some observers see outsourcing as a key trend (perhaps even the key trend) shaping the future of human resources (HR). They envision HR departments focused entirely on strategic activities, leaving all the transactional and administrative activities to vendors. But, the author cautions that outsourcing any business activity creates potential risks as well as benefits: Companies can find themselves overly dependent on suppliers, and they can lose strength in strategically core competencies.

Given the importance of the outsourcing decision and the amount of academic and practitioner literature on it, there is surprisingly little consensus about the topic, says the author, probably because of the multiplicity and complexity of the factors involved.

The author synthesizes the strongest of the available research and identifies the six key factors that companies should consider when making important outsourcing decisions. The framework, which helps assess the pros and cons of outsourcing, can be applied specifically to HR functions. In particular, it can help explicate the managerial issues of outsourcing agreements such as the recent landmark deal between BP and Exult Inc. That $600 million, seven-year arrangement provides a window into the many opportunities — and complexities — of HR outsourcing.

Paul S. Adler is a professor in the department of organization and management at the Marshall School of Business, University of Southern California, Los Angeles. He can be reached at padler@usc.edu.

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