Contracting Out for Municipal Human Resources: Analyzing the Role of Human Capital in the Make Or Buy Decision

Abstract

Human capital continues to be a guiding force in the effort to tap the potential of employees for organizational excellence. This is especially true of public organizations that are eager to attract the right persons for the right jobs in an increasingly competitive labor market. Human capital theory also suggests that not all employees possess knowledge and skills that are of equal strategic importance to the organization. Thus, organizations will seek to retain and develop employees that are mission crucial, while pursuing service delivery alternatives such as contracting out for non-essential goals. Utilizing a national survey of local government human resource professionals, the present study assesses the role long-term and short-term human resource planning plays in the contracting out of human resource functions. The results suggest that contracting out human resource services may be less of a factor in long-term strategic management assessments. In contrast to local governments lacking workforce planning metrics, municipalities that have the capacity to engage in sophisticated long-term human resource planning may not face the same managerial, fiscal, and political pressures to contract out.