Section Two
Outsourcing has been pursued for several operational
reasons as well, such as for greater efficiency or better service
in the performance of functions. For example, companies
almost universally outsource 401(k) plans because large
financial services companies can provide almost flawless low-
cost administration of the plans. Other examples include
medical claims processing and the processing of benefit
continuation under the Consolidated Omnibus Budget
Reconciliation Act (COBRA). Outsourcing also has been seen as
a vehicle for cutting costs. While cost reduction is an important
consideration in many firms, the evidence indicates greater
likelihood of successful outsourcing when it is pursued as part
of a coordinated plan, such as for strategic focus and service
quality, rather than solely on the basis of lower costs. In
addition, outsourcing has been used to obtain specialized
expertise that is not available in-house. During the past two
decades, down-sizing has often reduced the number of human
resource specialists in human resource departments. This
reduction in staff has required organizations to go to outside
vendors to obtain specialized services, such as for test
validation or in-depth assessments for leadership
development.^57
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