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THE IMPACT OF OUTSOURCING HUMAN RESOURCE FUNCTION ON ORGANIZATION PERFORMANCE
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The debate on human resource (HR) outsourcing is polarized. HR outsourcing is seen as an opportunity for the HR function by some and as a threat by others. The first view suggests that HR outsourcing is an instrument creating time for HR to become a strategic partner. The second view considers HR outsourcing as a cost-cutting instrument gradually reducing HR staff. (Delmotte, Sels, 2008).
With the increasing globalization, outsourcing has become an important business approach, and a competitive advantage may be gained as products or services are produced more effectively and efficiently by outside suppliers (Yang, et. al. 2007; McIvor, 2008). The need to respond to market changes on a daily basis and the difficulty of predicting the direction of such changes mean that organizations must focus on their core competences and capabilities (McIvor, 2008). Traditionally, outsourcing is an abbreviation for “outside resource using”. Outside means to create value from without, not within, the company (Yang, et. al. 2007). Outsourcing allows firms to focus on their own core competences by relocating limited resources to strengthen their core product or service (Lee and Kim, 2010) and to strategically use outside vendors to perform service activities that traditionally have been internal functions (Raiborn, et. al. 2009; Elmuti, 2004; Bustinza, et. al. 2010). Outsourcing can also involve the transfer of both people and physical assets to the supplier (McIvor, 2005).
Efficiency in different organizations is a question of how well they allocate inputs such as staff, assets and subsidies to produce the maximum output such as number of loans, financial self-sufficiency and poverty outreach, (Balkenhol, 2007). Balkenhol (2010) also provide a working definition for efficiency as the optimal combination of staff time, staff number and cost of operations to respectively disburse and reach the maximum number of loans and clients, especially the deprived, while delivering a range of valued services. In other words, when an organization pursues efficiency, it will afford management to concentrate on activities that yield more results at minimum cost to the units and to clients. Hence, attention will be given to the designing of correct product lines, effective market strategy, good targeting efficiency and the gradual removal of bottlenecks in supply. Gonzalez Vega, (2003) cited in Martinez-Gonzalez (2008) suggest that because there are potentially few technically trained staff in the field of microfinance, available funds may be misapplied. The lack of incentive packages could also influence the behavior of staff and managers while, lapses in decision making and policy implementation, incorrect regulation and inappropriate intervention by donors, incorrect product designs and methodologies all create enormous wastes. The improvement of the microfinance sector will not suffice when wastes persist, Martinez-Gonzalez, (2008). The business of these organizations is highly dependent upon the work force. An organization can have all the capital and resources in the world but without a workforce to have the ideas organized, produce and market a product, nothing would ever reach consumers (Turner and Turner 1995). In the long term, the application of specific human resources outsourcing strategies has been found to be related with the performance of the organization. Moreover, where appropriate outsourcing strategies have been applied, the organizational performance has been found to be increased. Outsourcing practices affect organizational outcomes, whether some practices have stronger effect than others, and whether complementary or synergies among such practices can further enhance organizational performance.
1.2 Statement of the Problem
Making enough profit from any business is majorly dependent upon the work force. A business organization can have all the capital and resources in the world but without an organized and good workforce, produce and market a product, there won’t be any profit maximization. Substantial uncertainty remains, as to how outsourcing practices affect organizational outcomes, whether some practices have stronger effect than others, and whether complementary or synergies among such practices can further enhance organizational performance. Similarly, many HR functions these days struggle to get beyond the role of administration and employee champion, and are seen as more reactive than as strategically proactive partners for the top management and that HR organizations also have the difficulty in providing how their activities and processes add value to the company (Smit, 2006).
1.3 Objective of the Study
The main objective of this study is to find out the impact of outsourcing human resources function on organization performance, specifically the study intends to:
1. Find out the role of HR in an organization
2. Analyze the impact of outsourcing HR function on organization performance
3. Find out the reasons why organization outsource HR function
4. Examine the factors that impede successful performance of an HR in organization
1.4 Research Question
1. What are the role of HR in an organization?
2. Is there any significant impact of outsourcing HR function on organization performance?
3. What are the reasons that makes organization outsource HR function?
4. What are the factors that impede successful performance of an HR in organization?
1.5 Research Hypothesis
Ho: there is no significant impact of outsourcing HR function on organization performance
Hi: there is significant impact of outsourcing HR function on organization performance
1.6 Significance of the Study
This research work will expose organization to the importance of HR and engaging in the practice to assess the impact of outsourcing on their operations. As unemployment rate rises in Nigeria, it will provide government with more insight to reviewing policies of companies outsourcing their operations since it impacts on job creation which helps in economy development. The research will further educate businesses about outsourcing ensuring that if the goal of an organization is to engage in this mode of operation all options are well analyzed. The study will also help organizations to estimate the relative cost of outsourcing to their companies and lastly this research work will serve as a guide and reference point for other research on the same topic.
1.7 Scope of the Study
This research work will be conducted in Ado-Odo LGA in Ogun state since the local government area is a home to many organizations, also this research will examine the function an HR and the benefits of outsourcing HR fuction,
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