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CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Human resources outsourcing evolved from hiring payroll processing companies in the 1990s to delegating tasks previously performed by human resources assistants and specialists, such as recruiting, coordinating benefits and handling unemployment claims. Some small businesses outsource entire human resources departmental functions; however, many companies outsource singular processes.Small businesses to large corporations decide for one reason or another that outsourcing human resources functions is a way to improve efficiency and minimize staffing costs. Large organizations that employ thousands of people may find it's simpler to outsource a process, such as payroll, rather than employ two to three payroll clerks and purchase sophisticated technology than engage the services of an organization that focuses entirely on processing payroll (Elmuti, 2003). Small companies might decide that outsourcing human resources processes is more cost-effective and efficient than creating a human resources department while the business is focused on other projects associated with starting a new business (Elmuti, 2003). Organizationalperformance is an important consideration when small business owners weigh the pros and cons of Human resource outsourcing. One school of thought is that aorganizations can focus its energy and expenditures on developing the product it sells. This enables organization to allocate its resources to areas that include engineering and research and development, instead of recruiting staff, maintaining personnel files and other human resources tasks. The other school of thought has more to do with human capital and talent believes that an organization may find herself without the talent she needs to build an efficient human resources department. In this case, Human resource outsourcing resolves the dilemma organizations face during the search for an in-house human resources expert. In the first scenario, an organization directing its focus on product design and sales may determine the expense of Human resource outsourcing can be easily justified by more attention given to product sales. An organization that doesn't have the requisite talent to lead a human resources department can justify the expense of Human resource outsourcing by the confidence in the level of competency Human resource outsourcing companies offer. A well-designed human resource outsourcing strategy can allow organizations to focus on their core competencies in order to increase efficiency without having to invest in people and technology (King, 2007; Lau & Zhang, 2006).Additionally, this production strategy permits organizations to become increasingly profitable, and better able to service both local and international customers (Maidment, 2003). An example of this is Nike Inc. which outsources nearly 100 per cent of its shoe production, locallymanufacturing only key components of the “Nike Air” product. As a consequence of this outsourcing, Nike Inc. can focus solely on its corecompetencies, such as production design, marketing, distribution and sales (Entrekin& Court, 2001). 

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