The influence of business strategy on the decision to outsource human resource activities

Abstract

PurposeThis paper seeks to examine whether the decision to outsource human resource (HR) activities and the performance of the HR department are influenced by the particular business strategy espoused by the organisation. Four distinct strategies are considered: quality‐based, proactive, breadth, and reactive.Design/methodology/approachThe data for the study were obtained from survey responses from 232 organisations, of which 113 were engaged in HR outsourcing.FindingsThe findings suggest that there is a significant relationship between organisations with proactive strategies and the decision to outsource both traditional and transactional HR functions. Breadth strategies demonstrate a negative significant relationship with outsourcing of traditional functions. Outsourcing of both functions has a significant relationship with HR performance – traditional with a positive impact and transactional with a negative impact.Research limitations/implicationsThe paper focuses on the perceptions, knowledge and experience of senior HR managers. Therefore there are understandable limitations in respect of generalisation. In addition, the impact of HR outsourcing on the performance of the HR department focuses only on the reduction of the number of HR employees from the department.Practical implicationsThe results indicate that HR outsourcing has the potential to empower HR managers, allowing them to focus on strategic activities that add more value to their organisation. Also, the results show that HR reduces actual HR labour costs.Originality/valueThe study applies to a very under‐researched area.