Challenges Facing Hr Service Providers in Outsourcing Recruitment and Selection Essay
According to the research results, the transaction cost theory and the resource based view of the firm theories applied to this study confirmed that most firms use recruitment and selection outsourcing as a way of saving costs and focusing on core competences as majority of respondents said the reasons why most of their clients outsource their recruitment and selection activities are basically geared towards cost savings and focusing on core competences in order to gain competitive advantage.
The findings of the research revealed that clients have a lot of expectations from service providers, as majority of respondents interviewed indicated that they expects their service providers to deliver quality services in terms of quality of personnel, time-tohire, cost of savings etc. However, this study showed that there were numerous challenges that confront service providers in their efforts to fulfill or meet the expectations of clients.
Some of the challenges as revealed by the study included poor management of contract, poor management of relationship between the parties, inadequate communication between the outsourcing parties, and lack of skilled workforce in the Ghanaian labour market. KEYWORDS: HR Outsourcing, Competitive Advantage, BPO, Clients and Vendors 10 11 1. INTRODUCTION 1. 1 Background of the Study This study seeks to examine the expectations and challenges that HR service providers face in their recruitment and selection outsourcing activities ithin the Ghanaian labour market. The global market today is highly competitive and dynamic and so many multinational companies are seeking opportunities to grow, to remains competitive and to meet changing business conditions. Furthermore, the labour market today is increasingly also becoming competitive; many companies feel the pain of mounting recruitment costs, time to hire cycles, as well as the longer time and effort burden that recruitment activities place on hiring managers and HR leaders.
Multinational companies around the world are therefore taking advantage of the global market environment and are constantly seeking for opportunities in economies where cheap and readily available skills and expertise can be employed to improve their companies’ performance. The concept of outsourcing “non-core” HR activities including recruitment has been adopted by some MNCs as a strategic management tool to assist them to have competitive advantage.
As Robert (2003) suggests, HRO as a business model offers human resource management professionals a significant opportunity to focus on activities that really add value to the organizations operations and reduce costs. Recruitment Outsourcing is a business strategy that most multinational companies have adopted as a means of gaining competitive advantage by delegating their recruitment or staffing functions to third party entities. The outsourcing of non-core operations or jobs from internal production (in-house) to external entity that specializes in such activities is thus changing the landscape of businesses across the globe.
In most advanced economies, companies are taking advantage of cheap and readily available expertise in developing countries such as India &China, South Africa and Ghana to strengthen their competitive advantage through off-shoring of their BPO including HR activities. 12 Franceschini et al, (2003) suggests “Outsourcing” is defined as the process of transferring the responsibility for a specific business functions or a set of related business functions to an external operator or agent.
According to Greer et al (1999), HRO takes place when a company contracts with an HR vendor to perform an HR activity previously performed by the company in-house. HRO can therefore be defined as the delegation or transfer of HR activities that are traditionally performed internally (in-house) to external third party to perform such activities. HRO is a strategic management tool that deals with delegating the operational responsibility for processes or functions that were previously delivered internally to external agents.
HRO occurs in both the private and public sectors and consists of different types. These include primary and secondary value chain outsourcing, strategic and tactical outsourcing, selective and full outsourcing, business process outsourcing, off-shoring, near shoring, co-sourcing, in-sourcing and geo-sourcing, and outplacement. There has been much debate over the definition of Recruitment Process Outsourcing (RPO). This is because the industry is still growing; hence a widely accepted definition remains elusive.
Some are of the view that any service provider offering services in a number of functional areas should be considered an RPO. For instance, if a service provider conduct candidate searches, performs pre-interviewing screening, set up interviews, and helps to hire the employee may be viewed as an RPO firms. Others contend that the provider should go beyond this to cover the entire candidate lifecycle, including, in some cases, making long hiring decisions.
For the purpose of this research study, RPO is defined as “the contracting out of a company’s recruitment activities which are traditionally performed in-house to an external or third party HR service provider for a consideration which is normally the payment of a contract fee. ” According to Dell (2004) HRO has been identified as the fastest growing sector within business process outsourcing and all of the major service providers are pushing hard to develop and increase their share of this potentially huge market.
The Outsourcing Institute, 1994/95 industry surveys’ report view “outsourcing” as essential to competitiveness and that significant capacity and quality improvement is achieved through outsourcing. Some analysts predict that HRO will continue to grow by more 13 than 30% so that global expenditure on HRO in the US alone will reach $14billion by 2009. (Yankee Group, 2005). HRO involves more than outsourcing HR services such as retirement benefits and payroll administration.
HRO plays a strategic role as organizations are outsourcing HR activities such as payroll, training and development, recruitment, pension benefits and in some cases, the entire HR functions (Adler, 2004; Cook, 1999; Greet et al, 1998) in order to have competitive advantage in the global market environment. Ulrich (1998) argues that there has been serious debate about the contribution of human resource functions to organizational performance. This is due partly to the inability of the human resource functions to demonstrate or show concrete value of its contribution at the strategic level in most organizations.
In an effort to address this concern, HRO have been adopted as strategic tool that business executives use as a way of adding value to or enhances organizational performance. Most companies make the decision to outsource for variety of reasons; however cost reduction tends to be one of the most important reasons. Proponents of HRO have argued that many companies that provide outsourcing services are able to do the work at considerably less costs, they don’t have to provide benefits to their employees and have fewer operating cost.
According to them, it also enables firms to focus on their core business, gain access to new technology and expertise which otherwise cannot be obtained in-house. Other benefits of HRO include freeing internal resources for other purposes; accelerate reengineering benefits and the sharing of risks. Critics have, however argued that HRO rather leads to increased costs, loss of control and data insecurity, as well as conflict between service providers and outsourcing company, and serious disruptions of the business should the contract be abrogated.
Cooke et al (2005) pointed out that although HRO as an organizational strategy has increased substantially over the last decade; this trend has attracted less academic research with regards to how outsourcing decisions are made, the manner in which those decisions are implemented, how the outsourcing effectiveness is measured, and most importantly the expected benefits or outcomes of outsourcing decisions on organizational performance. 14 As a result, empirical evidence on the reasons and outcomes of outsourcing HR activities is both fragmented and inconclusive.
There are differences in opinion as to the real benefits of HR outsourcing. For instance, some authors see HRO beneficial in terms of the delivery of services and the enhancement of the strategic position of human resource (Brenner, 1996; Laabs, 1993; Switser, 1997). Others on the other hand, consider HRO as concession and that human resource function no longer has a strategic significance (Baker, 1996; Caldwell, 1996). According to a report carried out by Yankee Group (2005), on HR business process outsourcing, only 48% of key decision makers agreed that HRO had delivered on the promised return on investment they expected.
Kakabadse & Kakabadse (2003) note that although the outsourcing debate involves, what and how to outsource, the most sensitive issues concerns what to outsource, the impact of outsourcing on organizational relationship, the client/supplier interface, performance management, and client satisfaction/dissatisfaction with outsourcing. They refer to a new outsourcing paradigm in which competitive advantage is achieved through good relationships with business partners and customers. This can only be achieved if service providers are in a position to meet the expectations of their clients.
However, many business leaders are beginning to question the extent to which HR service providers meet their expectations in HRO. It is against this background that this study seeks to investigate empirically the expectations and challenges faced by HR service providers in their recruitment and selection outsourcing activities in the Ghanaian labour market in order to gain a deeper insight into the challenges they encounter in their effort to meet these expectations from their clients. 15 1. 2 Research Problem
According to Greaver (1999), even in the best of outsourcing situations problems arise. New innovative management strategy can produce unexpected problems, it is therefore important to investigate whether such problems and mediocre outcomes of outsourcing implementation are due to inherent flaws in the concept or whether they are as a result of poor management practices(Lonsdale and Cox,2000). This research therefore originated in the context of growing concern among business managers in recent times about the failure on the part of HR vendors to meet the expectations of outsourcing firms.
As earlier on stated according to a survey report carried out by Yankee Group in 2005, on HRO, only 48% of key decision makers agreed that HRO had delivered on the promised returns on investment expected. This survey finding implies that most decision makers are dissatisfied with the expected outcomes from their HRO service providers. It is in this light that this study seeks to uncover the factors behind this state of affairs, thus this study tries to investigate what are the expectations and the challenges that service providers face in their effort to meet their clients demands.
Theoretically, not much information exists in the literature from the academia and researchers on recruitment and selection outsourcing in the Ghanaian labour market. Much of the theories on outsourcing HR activities have focused generally on why firms outsource their HR functions, the arguments for and against HRO particularly in the Advanced economies of Western Europe and United States. Hence this study can provide useful information to the academia. Practically too, business leaders have not focused much attention on the strategic risks and the vulnerability that the outsourcing of their HR functions can pose to their business.
Most business leaders have been lured into outsourcing their HR services due to the much trumpeted expected benefits that it’s brings to organizational performance without analyzing the implications of such decisions and the challenges it entails. Hence most business leaders lack knowledge about the risks or challenges that HRO involves. It is to address these knowledge gabs that this research study tries to find out or investigate the expectations and challenges HR service providers (vendors) face in recruitment or staffing outsourcing in the 16
Ghanaian labour market. Hence the research problem being posed is: What Expectations and Challenges do HR service providers face in the outsourcing of recruitment and selection activities in Ghana? The significance of this study is first and foremost to serve as learning process or useful lesson for companies that intend to use HRO as a business strategy to accelerate and enhance the development of the organizations. Secondly, it is to serve as a source of information to students and business managers who lack relevant information on the subject matter.
Furthermore, it is to contribute to the intellectual debate on the expected outcomes and challenges facing HR service providers in their effort to meet organizational performance especially in this particular subject matter, but which have received very little attention from academia. In addition, it will serve as bases for future studies on the role of key players or actors such as line managers, employees, and senior management and the clients or vendors to the success of HRO. Finally it will provide useful information to guide policy makers to fashion out policies that would engender the growth and development of the HRO business in Ghana. . 3 Research Questions In order to dissect the research problem for easy analysis, the statement of the research problem has been subdivided into two sub-questions as follows: a. What are the expectations of MNCS (Clients) which outsource its recruitment and selection functions to HR service providers in Ghana? b. What challenges confront HR service providers’ in Ghana as they try to meet these expectations? 17 1. 4 Scope of the study This research work is based on a study that attempt to investigate and analyze the challenges and expectations that HR service providers or vendors face in Ghana.
First of all, this study is limited in scope to only the Ghanaian labour market and deals with recruitment and selection outsourcing activities and not to other areas of HRO such as retire benefits, pay roll administration, training and development etc. In addition, to theoretically appraise all theories that might explain HR outsourcing decisions is beyond the scope of one research work. In applying theory for this research study, this study limits itself to only two theories i. e. TCT and RBV.
This underscores the extent to which a study of this kind involves somehow arbitrary decisions with respect to scope. The selection of only the TCT and RBV that have been applied to this study should not be taken as an inference that other theories may not also prove useful in understanding why firms decide to adopt HR outsourcing as a strategic management tool as other theories also assist to explain the motivation for HR outsourcing decisions. Furthermore, the research is mainly limited in scope to multinational companies and do not include State Owned Enterprises and Government Agencies.
Lastly, the research seeks to investigate and analyze the challenges and expectations HR service providers or vendors’ face as they undertake the outsourcing of recruitment and selection activities in the Ghanaian labour market. 1. 5 Structure of the Study The research study has been divided into five sections. The first section, which is an introduction to the research study, covers the background of the study, research problem, research questions, scope of the study, and significance of the study and the structure of the study.
Section two takes a look at the literature review of the study which focus on some definitions and trends in HR Outsourcing, types and process of HR outsourcing, Motivation for HRO, TCT and RBV theories and their limitations, relate the HRO decisions to TCT and RVB theories, Outline other arguments for and 18 against HR outsourcing. Section three covers the methods and research strategy used in the study. This section consists of the research design, data collection, data analysis, reliability and validity of the study and an overview of the business environment in Ghana and HR Outsourcing Activities.
The section four covers the empirical findings, operational areas of HR service providers in Ghana, the expectations from MNCs from TCT and RBV perspectives as well as the challenges facing service providers from the interviews conducted and the last but not the least section consist of the discussion and conclusion, the managerial implications of the study well as areas for future research. 19 2. LITERATURE REVIEW 2. 1 Definitions and HR Outsourcing Trends Outsourcing HRM activities by multinational companies has become popular way of improving basic services as it allows professionals time to play a more strategic role in the organization.
In recent times, HRO has attracted a lot of attention by business managers, financial analysts, scholars and the media. Many articles have been written on the subject and a lot of research work carried out on several aspects of HRO such as managerial motivation, human resource management business processes, the relationship between the outsourced company and the vendor or service provider etc. Cook and Gilder (2006) defined HRO as having a third- party service provider or vendor administer on an on-going basis, an HR activity that would normally be performed internally.
According to Greer, Youngblood & Gray (1999) HRO occurs when a company contracts with an HR vendor to perform an HR activity previously performed by the company. Domberger (1998) argues that “Outsourcing” is the process whereby activities traditionally carried out internally are contracted out to external providers. Greaver (1998) also stresses that outsourcing is the act of transferring some of the organization’s recurring internal activities and decisions rights to outside providers as set forth in a contract.
Turnbull (2002) also points out that HRO is defined as placing responsibility for various elements of the HR functions with a third party. For the purpose of this study HRO is defined as” the delegation or transfer of HR- related activities that were normally performed internally (in-house) by an organization’s HR department to an external third party. ” Some analysts suggest that outsourcing certain business process including human resource, procurement, financial and accounting functions to IT consultants and service providers is growing in popularity as companies seek to reduce their operating costs.
The HR business process outsourcing service sector grew 8% worldwide last year to $405billion, according to market research firm (Framingham, MA). The sector is expected to grow at 11% per year to reach $682billion in 2008, as companies strive to 20 reduce costs further. For instance Procter & Gamble signed a 10-year, $400million contract last year to outsource its HR functions to IBM Business Consulting Services (Chemical Week, September, 24, 2003:14).
Dearlove (2003) predicted that business process outsourcing was estimated to yield $50billion in revenue worldwide by the end of 2004 and according to a survey carried out by the Society for Human Resource Management; according to the report currently 58% of companies outsourced at least one of their human resource management activities. (HRM Outsourcing Survey, SHRM, 2004). According to IDC research, spending on HR services is forecast to reach 126billion US dollars worldwide by 2010. The United States which is the largest portion of the market is forecast to reach 68billion US dollars by 2010, growing at a compound annual growth rate of 10. % over the 5year period i. e. 2005-2010 (IDC Research, 2005). The origin of HRO can be traced back to the definite work of Micheal Hammer and Jim Champy in Re-engineering the Corporation. This transcends the business process reengineering (BPR) industry in the early 1990,s. It is not bizarre to find out that HRO is being referred to as off-shoring, business process outsourcing (BPO) business transaction outsourcing (BTO), near shoring, or on-shoring in management literature. This shows that HRO calls for a more carefully defined definition. (Corporate Research Forum, 2006).
According to Schumacher, (2005) Outsourcing first appeared in the IT industry in the 1980,s at the time when companies recognized the benefits of having IT service partners in order to develop complex systems, and enhance the way that a business process or service is managed. The outsourcing industry has taken different dimensions since then, with HRO assuming a dominant role in the business process market. As a result of increased globalization and high pressure to innovate, most business managers are compelled to adopt business strategies and tactics that would enable them have sustained competitive advantage over their rivals.
HRO has been adopted as a strategic management tool by which business managers intend to increase their competitiveness in today’s global market environment. Outsourcing HR activities can 21 be a way to quickly gain competitive advantage by reducing costs, improving quality, and concentrating on core business. The outsourcing of human resource services has emerged as a front runner in the ever growing business process outsourcing market.
The demand for greater corporate productivity and profitability as well as the potential efficiencies that is likely to be derived from the combination of human resource services across a host of enterprises, have fueled the pace at which HR transactions are contracted. The human resource departments of major US corporations have moved strongly to outsource key functions. According to a 1994 survey of 400 corporations conducted by the Olsten Corporation, 45 percent of firms outsource payroll management, 38 percent outsource tax administration; 53 percent outsource benefits management and 34 percent outsource their workers compensation.
In a 1995 survey of 121 businesses, HR Magazine found that 91% outsource one or more of their HR functions, and 16% outsourced more than $1million annually. Functions most outsourced included outplacement, (64%) training delivery (46%) and training development (40%) Information Technology and management information Systems led the way in outsourcing, but recently outsourcing has been extended to other operations. Outsourcing is now one of the major significance in the HRM area. It has come to the front line as the role of HRM in contemporary business environment has gained particular prominence.
HRM is the second most likely corporate business function to be outsourced, according to a study by American Management Association (HRM Focus, 1997). Outsourcing activities initially comprises only a small segment of HRM such as payroll functions (Adler, 2003) but has grown gradually to encompass many HR functions. Today, HR outsourcing involves more than outsourcing HR services such as payroll administration. Instead, HR outsourcing also play a strategic role as organizations are outsourcing HR activities such as training and hiring, and in some cases even the entire HR functions. Adler, 2004; Cook, 1999; Greer et al, 1999, Lepak and Snell, 1998). As pointed out by Woodall, Gourlay, & Shorts, (2000) evidence from professionals and publications from practitioners have shown that HR has increased considerably over the last decades. For example qualitative and quantitative reports from a range of sources 22 such as People Management and the Cranet Survey (Vernon et al. , 2000; Pricewaterhouse (2002) provide further proof of this growth. 2. 2 Types of Outsourcing There are different types or categories of outsourcing.
Some of them are information technology outsourcing, knowledge process outsourcing and business process outsourcing. Others include primary and secondary value chain, selective and full outsourcing, tactical and strategic outsourcing, off-shoring, near shoring, in-sourcing, co-sourcing, geo-sourcing, and outplacement. 2. 2. 1. Primary and secondary value chain outsourcing According to Porter (1985) the value chain is described as a model that outlines the value activities performed or undertaking in a company and their linkages to the company’s competitive position.
In the process of converting inputs into outputs companies undertake many different kinds of activities which can either be defined as primary or auxiliary or secondary activities. The primary activities link the supply side (raw materials, inbound logistics and production) to the demand side (out bounded logistics, marketing and sales). The primary activities create and bring value to the customer and they form part of the value chain that deliver the market offering. Supporting (auxiliary) or secondary activities assist and improve the performance of the primary activities.
They constitute an infrastructure base that allows the primary activities to be carried out. The margin which is described as the difference between the total value and the total cost of performing all activities in a company is determined by how the activities are carried out, how they interact and how the links among the activities are managed. The management of these activities influences the costs and efficiency of other activities. One way of describing outsourcing in a company is through their primary and secondary value chain activities.
For instance, in a company the primary value chain activities such as manufacturing and advertising can be 23 outsourced. In the same vain the secondary value chain activities such as payroll, research and development (R&D) and PC support can also be outsourced. It must be noted that HRM activities including recruitment outsourcing, payroll administration, compensation, Procuments falls under the secondary activities in the vain chain. The figure1 illustrates this point. Figure 1: Distinction between Primary and Secondary Chain activities Source: Adapted from M. E Porter (1985) 2. 2. 2.
Tactical and Strategic Outsourcing Tactical outsourcing is often used to resolve practical problems such as filling a vacancy. Strategic outsourcing on the other hand involves outsourcing that is linked to a company’s long-term strategy and is expected to have effect on the company for a long time, for instance the outsourcing of R&D. Strategic outsourcing has more influence than tactical outsourcing on areas like core competency, future costs, current and future competitive advantages. Strategic outsourcing can be implemented within a year; however it takes a longer time to see its full impact.
According to Greaver (1999) the risk with strategic outsourcing are higher, because it involves a greater part of the organization than tactical outsourcing. 24 2. 2. 3. Selective and full outsourcing Another means of distinguishing between types of outsourcing is selective and Full Outsourcing. Outsourcing can be described through a continuum ranging from selective to full outsourcing. In selective outsourcing the company decides to outsource a discrete activity like security or cafeteria rather than doing it in-house. In full outsourcing a whole function or process like IT or HR is outsourced to a vendor.
The figure2 in the next page illustrates this. Generally the risk involved in selective outsourcing is lower compared to full outsourcing. Figure 2: Continnum describing Selective and Full Outsourcing Source: Adapted from Hakan Borg (2003). 25 2. 2. 4. Business Process Outsourcing According to Gartner Group (2000) BPO is defined as the delegation of one or more IT intensive business processes to an external provider who in turns owns, administrates, and manages the selected process and processes based upon defined and measurable performance metrics. Business process utsourcing includes outsourcing services related to accounting, Human resource, benefits, payroll administration, finance, sales and marketing, legal services etc. BPO is based on the principles of re-engineering, but also combines them with the ownership and management of processes on behalf of a client by an outside vendor. Business process outsourcing has been applied to many transactional processes that can be easily defined or scaled and transferred to third party owners who have deeper expertise than the outsourced company. The management of the IT systems has been the only major element of outsourcing market until recent times.
The figure 4 below gives examples of the traditional outsourcing activities that have change to what now constitute business process outsourcing. Figure 3: Traditional Outsourcing changes to Business Process Outsourcing Source: IDC, Human Resource Service Marketplace, Part 1 US forecast and analysis, 2000-2005. 26 2. 2. 5 Off-shoring, Near-shoring and On-shoring Off-shoring occurs where business operations are subcontracted out to companies in distance countries where taxes, savings and low cost of labour provide necessary incentives for companies to farm –out some of the in-house processes.
Near-shoring on the other hand is a situation, where work is done or services are performed by people in neighboring countries instead of the domiciled country. Whiles On-shoring occurs where in-house processes are subcontracted out to domestic companies. 2. 3 HR Outsourcing Process HRO process is a very complex activity which involves details and sensitive decisions affecting the company’s employees and assets. In order to guarantee the successful implementation of the company’s HRO decision, the company’s management is assisted by consultants at various stages of the outsourcing process.
The outsourcing institute, based on a survey it conducted in 1995 on 30 outsourcing firms, identified the key phases of the outsourcing process, and the average amount of time required for each phase. According to the report the outsourcing process is broken down into seven distinct steps, which can be grouped into three main categories: The pre-solicitation phase, the solicitation phase and the implementation phase. On the average firms required 14. 6 months to complete outsourcing process, ith the fastest outsourcing action taking six months and the most prolonged requires twenty four months. The pre-solicitation phase involves the assembly of internal project team, the identification and evaluation of candidate functions for outsourcing, and the development of the request for proposal (RFP). These steps need 4. 5 months or about 30 percent of the total process time. According to the survey, the Chief Financial Officer typically spearheads the outsourcing team and exerts top-down leadership. 27