Managing Business Risks from HR Sourcing

By Peter Cappelli

Offshoring and outsourcing practices remind us that organizations often make “sourcing” decisions – where to do what work – that help to define their supply chain. These decisions raise concerns about reliability (will they deliver) and responsiveness (can they meet changing needs). Those risks, in turn, require risk management approaches.


Data reported by the Human Resources Outsourcing Association (HROA) suggests that outsourcing of HR tasks grew by over 20 percentage points from 2007 to 2009 alone and now exists in about 90 percent of organizations. Manufacturing firms have long had to decide in which of their locations to produce the various components of their final products or to buy them from vendors. Better information technology has expanded the range of businesses where sourcing choices are possible, especially in white collar jobs.

Operating costs should not be the only or arguably even the most important factor behind these decisions, though. Bank of America kicked off the outsourcing trend in 2000 in a partnership that transferred most all of its HR tasks for 144,000 employees to the new Exult venture but struggle to see the expected benefits. Some Professional Employer Organizations (PEOs), which take over the employment functions for organizations, created different problems when some owners absconded with their client’s cash. Nor does the decision to keep the work in house necessarily eliminate risks. Smaller companies in particular frequently found that their own competencies in key areas such as IT resided in a few key employees. When those individuals left, or worse, if “lift-outs” took away an entire team, the company was devastated. Labor disputes in other countries disrupt production in complex supply chains. Consumer backlash in the U.S. from outsourcing call center operations to India forced some business to backtrack on that decision.

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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.