Outsourcing HR – The Role Of Human Resource Intermediaries
Working Paper
Kock, Henrik; Wallo, Andreas; Nilsson, Barbro; Höglund, Cecilia
Introduction
In an economy characterized by globalization, rapid organizational change and increasing competition between companies, external and internal labour markets are described as changing towards greater flexibility and limited predictability. Working in, what is often experienced as changing conditions, employers and employees have difficulties in navigating both external and internal labour markets (Osterman, 2004). In recent years, the development of both the individual co-workers’ competence, and the organizations’ renewal capacity have emerged as key issues for dealing with these changing circumstances. As a result, many organizations invest rather large sums into various HRD activities (Mankin, 2009). However, during recent years it has become common for organizations to outsource parts of, or the entire, HR process (Ulrich, Younger & Brockbank, 2008). Especially, small and medium-sized enterprises (SMEs) that often have limited resources for developing internal HR competence (Cardon & Stevens, 2006) are increasingly turning to third-party organizations, so-called Labour Market Intermediaries (LMIs) (Benner, 2003). What here is denoted as LMI include various organizations – private sector intermediaries, public intermediaries, membership-based intermediaries, and ownership-based intermediaries – that have a brokerage-oriented function between organizations and between employers and employees (Benner, Leete & Pastor, 2007).
In this working paper we are particularly interested in a recently emerging type of LMIs that we denote as Human Resource Intermediaries (HRI), since they specifically focus on delivering HRM and HRD services to public sector organizations and private companies. More specifically, we target HRIs that works on regional bases, are membership-based and can be characterized as “advanced” in the sense that they have moved from exclusively working with staffing and matching towards delivering a wider range of HR services. Examples of such services include recruitment, training, competence development, career assistance and outplacement (Cooke, Shen & McBride, 2005; Kazis, 1998). The research in this field seems so far to be limited (Cooke et al, 2005), although, several related studies have been identified concerning questions of outsourcing HR services (Gainey & Klaas, 2003; Cooke et al, 2005) and the role of professional employer organizations (Klaas, Gainey, McClendon & Yang , 2005). In neighbouring fields, the research interest has been targeted towards the role of intermediaries as important actors for local and regional development (Brulin & Svensson, forthcoming).
The aim of this paper is, thus, to analyse and discuss outsourcing of HR. More specifically, we focus on the role of regional membership-based Human Resource Intermediaries as providers of HR services. The results presented in this paper are preliminary.
Basic Concepts and Previous Research
The term “intermediaries” have long been used in the natural sciences when describing chemical reactions, while in the social sciences intermediaries are generally viewed as forms of organizations, which have risen in-between other forms of organizations (Laur & Hallström, 2011). Generally, intermediary organizations are defined by their structural position, that is, an organization that mediates the relationship(s) of two or more social actors such as institutions or organizations (Van der Meulen, Nedeva & Braun, 2005).
The general notion of intermediary organizations can be regarded as an umbrella term, covering up to 20 different types, whereas Labour Market Intermediaries (LMIs) constitute one of these (Moss, Medd, Guy & Marvin, 2009). Kazis (1998) view labour market intermediaries as providers of functions including organizing, convening, brokering and providing services for employers, such as employment agencies, recruiters, labour contractors, community based organizations, unions, multi-sector collaborations, etc. (Benner, 2003; Kazis, 1998).
The continuous growth in terms of numbers, as well as the significant role appointed to LMIs, has led to an increased interest from researchers, not least since LMIs are described to fulfil needs of increased flexibility in the labour market (Osterman, 2004). Previous research has at large focused on various economic effects and effects on the functioning of the labour market. From this perspective LMIs are described as reducing transaction costs for employers as well as for employees, streamlining search processes and “share risks”, such as failed recruitments. Furthermore, they facilitate flows between external and internal labour markets and may have effects concerning wage levels (Benner, 2003; Cooke et al, 2005). However, more problematic consequences are also described, such as how working conditions, job satisfaction and development opportunities seems to decline in a labour market characterized by flexibility and changed employment contracts, and by a sharper segmentation of and between different groups in the labour market (Barker & Christensen, 1998; Kalleberg, 2001).
As previously stated, the focus in this paper is directed towards an emerging type of intermediaries, that is, HRIs that work regionally, are membership-based and can be characterized as “advanced” in the sense that they cover the entire HR process in terms of facilitating the inflow of competence to the organizations, developing competence that is already in the organizations, as well as handling competence that is leaving the organization. Matters of HRD, such as training and learning are, thus, seen as a part of the entire human resource flow (cf. Pinnington & Edwards, 2005). Research on these emerging HRIs is still limited and the question of their function and roles in the labour market still remains to be explored. Brulin and Svensson (forthcoming) makes in this respect a distinction between three roles or functions of the intermediary organization: as meeting places for exchanging experiences, mediators of contacts, or motors for supporting local and regional development. The role of intermediaries is understood as important parts of a learning system and is closely related to research focused on understanding systems of innovation on local, regional and national levels (cf. Nuur, 2005). Referring to the three functions of intermediaries described by Brulin and Svensson (forthcoming), the HRIs can possibly be viewed as developing their business from a mediating/brokering function towards a more developmental and motor-oriented function.
In literature, companies handling of HR activities are often connected to outsourcing issues (cf. Gainey & Klaas, 2003). According to Ulrich et al (2008, p. 837-838) “HR expertise can be shared across boundaries by alliances in which two or more firms create a common service or by outright purchase from vendors who specialize in offering services”. Concerning outcomes of outsourcing HR, previous research indicate that it may have both positive and negative effects (Cooke et al, 2005; Klaas, McClendon & Gainey, 2001; Nesheim, Olsen & Kalleberg, 2007; Ulrich, et al, 2008). Examples of positive effects include:
· Freeing time for focusing on core business activities.
· Gaining innovative HR expertise, new perspectives and an objective and critical view.
· Being part of a network with timely access to knowledge and resources that are otherwise inaccessible.
· Facilitating learning and cross-fertilization between consultants and customer.
· Enhancing the strategic focus of the in-house HR function.
· Using standardized and validated methods that ensure consistency and efficiency.
· Reducing costs by downsizing the internal HR staff.
Conversely, examples of negative effects include:
· Loss of in-house knowledge and capacity, and also risks of losing long-term competitiveness.
· Quality reductions of HR work, e.g. when the internal HR competence is based on tacit knowledge there may be a gap between what is delivered and what is actually needed.
· Difficulties to fulfil promises and customer expectations, e.g. if the contract between the consultant and the customer benefits one party than to the other
· Risk of HR role conflict between consultant and internal HR personnel.
· Miss-matches between use of standardized methods and tools and the customer’s unique organizational characteristics.
· Higher total costs, e.g. when the consultants do not meet the demands or expected results.
Methodology
The empirical foundation of this paper comprises a longitudinal study of three Swedish HRIs; The Industry Pool, Industrial Competence and Industrial Development Centre. The study is part of an on-going research project that focuses the role of HRIs in developing human resource strategies for increased renewal capacity in SMEs. The project is financed by the Swedish Governmental Agency for Innovations (VINNOVA) for the period 2009 to 2013. In this paper, focus is on the HRIs as providers of HR services.
The data comprises interviews with management and consultants in the three HRIs. In total, nineteen interviews were conducted, six in The Industry Pool, eight in Industrial Competence and five in Industrial Development Centre. The respondents were selected based on the extensiveness of their knowledge about the internal organization and the customers. The interviews were semi-structured in the sense that they have followed an interview guide with specific topics. The interviews lasted between 45 to 75 minutes and have all been recorded and transcribed verbatim. The analysis was conducted in multiple steps. More specifically, we have read each transcript several times in order to get an overall understanding of the material and to get information concerning organizational conditions related to the purpose and aim of the study. Based on these readings the material has been concentrated into different themes, which in turn have been used to find categories. When taken together, the analysis can be described as a process that has alternated between categorization of data and interpretation of emerging patterns. The three cases have initially been analysed and written separately in order to get an understanding of the similarities and differences between them. As a next step, a cross-case analysis has been made to find themes common to all of the cases (Miles Huberman, 1994). The empirical material has been fed back to the HRIs in order to create opportunities for joint analysis and a critical and reflective learning process (cf. Argyris & Schön, 1989). The findings were then validated by the representatives from the HRIs.
The Case Organizations
In this section, the three HRIs included in the study are presented.
The Industry Pool
The Industry Pool (IP) is a small company with eight employees. It was founded in 2001 with the intention to facilitate mobility of personnel between industrial companies in the region where it is situated. Today it is owned by approximately 40 companies and in addition there are also about 60 companies connected with IP on a membership basis. The board of the company consists of representatives from the owner companies. IP is a non-profit organization and any revenue is used to benefit the owners. However, IP has also got customers that are not owners or members. The owners and members are primarily manufacturing, industrial companies, ranging from small to large organizations. The business has developed from exclusively working with temporary staffing to offering a wider range of HR services, such as recruitment, organization development, production development and outplacement. IP works with both blue collar and white collar workers. All of the interviewed employees in IP have university education as well as several years’ previous work experience in different types of industrial work.
Industrial Competence
Industrial Competence (IC) was started in 1997 by a large industrial manufacturer in Sweden. The purpose of IC is to coordinate, plan and improve the competence resourcing of the region. Today, IC is owned by a network of 17 companies and two municipalities. In addition, IC has about 70 member companies and 20-30 external customers. The owner companies are represented in the company board. IC’s profit is used for internal business and organizational development. In total, IC has 26 employees and approximately 220 external consultants that are connected to the company. The number of external consultants varies depending on the number and types of assignments. The customers are foremost in the manufacturing industry, but IC has also got customers in the public sector, such as municipalities, county councils and government agencies. IC started out as a supplier of temporary staff, but has since then become a broad supplier of HR services, such as recruitment and staffing, education and competence development, organization and business development. In the last couple of years IC has also started offering services within the area of outplacement and job coaching. IC works with both blue collar and white collar workers. Most of the interviewed employees in IC have university education. All interviewed employees also have several years’ experience in different types of work.
Industrial Development Centre
Industrial Development Centre (IDC) was founded in 1997 and is one of 15 similar regional development centres in Sweden. IDC is owned by private companies, municipalities, unions and universities. IDCs profit is invested in development of the company. IDC offers services within the area of business development, competence development and organizational development. Recently, IDC has also started offering services in the outplacement area. Today IDC has 16 employees, but there are also approximately one hundred subcontract consultants that conduct most of the actual educations. IDCs role is to coordinate and organize the educational activities that the customers need. IDCs customers are primarily small- and medium sized companies. IDC works with both blue collar and white collar workers. Most of the interviewed employees in IDC have university education as well as several years’ previous work experience in different types of organizations.
The work of the HRIs – adjustment, flexibility and networking
The three HRIs included in this study share a common background in the sense that they were all created to facilitate coordination concerning HR related issues. Their current organizations share many similar features, such as the member-owner structure. Furthermore, they have also widened their offers to include the entire HR process, but IC and IP have recently focused more on outplacement services, while IDC is more oriented towards educational activities. None of the respondents from the HRI feel that they have competitors with the same broad customer offers.
The respondents from the HRIs stress the significance of their unique networks and their importance for helping their members to cooperate. For instance, IC arranges meetings to enable exchange of experiences and facilitate creation of new networks. The respondents from IDC highlight their close relationship with research environments and other stakeholder organizations as important channels for updates on the latest issues within HR and to find connections between their members and national and European development programs. The respondents from IP mention working actively with cooperation in terms of establishing company pools where the members can exchange experiences and borrow co-workers from each other. In addition, IDC and IC have a formal collaboration. They share many members and customers and arrange joint meetings with customers. The aim of the collaboration is to complement each other to offer an even wider assortment of services. The respondents from these two intermediaries are positive concerning this arrangement, but feel that the model for collaboration needs to become a bit more clearly defined.