Strategic Human Resource Management

Section Five

Human Resource Outsourcing

Human resource departments have outsourced many of their
activities over recent years. Indeed, recent surveys have found
up to 91 percent of respondents reporting that their firms
outsource some of their human resource activities.^35 There are
a number of explanations for this trend and several are related
to increased demands for greater performance. Cost reductions
and greater efficiencies are often cited as benefits of
outsourcing. However, practitioners are quick to point out that
when outsourcing is adopted solely for cost reduction, the
result is often disappointing. Sustainable competitive advantage
appears to result from outsourcing when it allows human
resource departments to focus on value-added activities and
when outsourcing helps to support the strategic direction of the
firm.^36 For example, by outsourcing employee relocation
activities, the human resource department can reallocate its
resources to higher-value activities such as performance
management programs.

While there is little empirical evidence on the impact of
human resource outsourcing, a recent study of small
manufacturing firms has found that human resource
outsourcing can contribute to several measures of firm
performance. Although subjective measures of financial
performance were used, the measures correlate well with