Critical Thinking Application 1-C Resolution:

Close Down the Human Resources Department

A great deal of research indicates that it is line man- agement that will have the most impact on the role of human resources in creating and sustaining a competi- tive advantage for organizations. While HR staff develops, purchases, and administers HR activities, the proper use of these activities by line management has the most to do with their effectiveness. Fortune maga- zines Thomas Stewart argues that outsourcing those HR functions that can be outsourced will ultimately save the company money and thus facilitate a competitive advan- tage through reducing costs.1 This cost reduction could then increase profits and/or help the company compete on price. Some HR departments are responding by outsourcing many functions traditionally done by full-time employees. Compensation and executive recruiting are two of a grow ing number of areas that are more likely to be outsourced. Stewart argues that an in-house HR department will probably cost the company much more money and since it is line management (not the HR staff) that really deter- mines HR effectiveness, the use of outsourced personnel to perform certain HR activities should have little impact on effectiveness. For example, instead of using full-time HR staff to develop and implement a new performance management system, the company could contract with a company to do this work. Stewart refers the reader to the Washington, DC-based Corporate Leadership Council, which concluded that in- direct compensation (benefits), personnel record keeping, and employee services such as outplacement and retire- ment counseling, and health and safety issues (drug testing, wellness programs, workers compensation) could all be outsourced to save money. Stewart goes beyond the councils recommendation. He argues that many HR functions can now be purchased from vendors with considerable savings and no loss in quality. For example, recruiting can be done through head-hunters now for even low-level jobs. Personnel testing, perfor- mance management, and pay-for-performance systems can be purchased from consulting firms with impressive exper- tise in these areas. He cites Nucor Steel, which has an HR staff of four for its 6,000-person operation. Nucor farms out most of its HR work. Stewart is not the only one critical of HR. Says Keith Hammonds, deputy editor of Fast Company, in a 2005 article diplomatically entitled Why We Hate HR, After close to 20 years of hopeful rhetoric about becoming stra- tegic partners with a seat at the table where the business decisions that matter are made, most human-resources pro- fessionals arent nearly there. They have no seat, and the table is locked inside a conference room to which they have no key. HR people are, for most practical purposes, neither strategic nor leaders.2 Hammonds asks, Why are annual performance ap- praisals so time-consumingand so routinely useless? Why is HR so often a henchman for the chief financial of- ficer, finding ever-more ingenious ways to cut benefits and hack at payroll? Why do its communicationswhen we can understand them at allso often flout reality? Why are so many people processes duplicative and wasteful, creat- ing a forest of paperwork for every minor transaction? Mr. Hammonds pointed to a 2005 survey, which found that only 40 percent of employees thought their compa- nies were effective at retaining high-quality workers. Only 41 percent thought performance evaluations were fair and 58 percent rated their job training as favorable. Most respon- dents said they had little opportunity for advancementand that they didnt know how to move up in their organization. Hammond also recommends serious downsizing and outsourcing of HR functions. There is recent evidence that supports Mr. Stewarts thesis regarding outsourcing some HR activities. For example, one study found that advantages for smaller firms that seek out external HRM assistance.3

Assignment Generate a list of reasons why there may be another side to this story. What key questions would you want to ask Mr. Stewart and Mr. Hammonds regarding outsourcing? Compile a list of advantages and disadvantages to out- sourcing that could help a company make thoughtful deci- sions regarding HR. Review the literature on this subject and look for supportive and contradictory empirical findings.