A COMPARATIVE STUDY OF THE
DETERMINANTS OF HR
OUTSOURCING IN TURKEY AND
THE EUROPEAN UNION
Dr. Cem Tanova
Eastern Mediterranean University
Outsourcing
• Generally, outsourcing arrangements involve a
company that contracts with a vendor that
rents its skills, knowledge, technology and
manpower for an agreed upon price and
period to perform functions that the client no
longer wants to deal with in-house (Adler,
2003).
Outsourcing and HR
• HR generalist activities such as performance
appraisal,
• Transactional activities such as payroll,
• Human capital activities such as, training and
• Staffing activities such as recruitment and
selection
In the related literature…
• In-house HR staff will be able to focus on
strategic issues by allowing administrative
work to the external organisation.
• Pooling resources can allow economies of
scale for smaller companies. It may not be
cost effective for them to keep in house HR
staff specialized in all areas.
• Specialization may improve services.
Worries…
• HR outsourcing may be problematic if an organisation’s HR
activities rely on tacit knowledge.
• There may be a problem of understanding and responding to
the corporate culture of the company.
• Organisations may lose the advantages associated with their
distinctive practices.
• The service provider may adopt opportunistic behaviour.
Tacit Knowledge Practices and HR activities
•
•
Organisations that rely on tacit knowledge, as part of their organisational culture,
are likely to manage their HR activities without utilizing outsourcing. These
organisations opt to maintain a connection with their newly hired employees.
Thus, even for recruitment activities they tend not to use outsourcing, because
they want their newly hired employees to feel that they have been hired by the
organisations that they will be working with (Stroh & Treehuboff, 2003). Moreover,
organisations that rely on tacit knowledge have to invest more on codifying the
information (Barney, 1991; Corner & Prahald, 1996), therefore the cost associated
with outsourcing will increase which in turn can erode the economies of scale
(Klaas, McClendon, Gainey, 1999). In line with the argument of codifying the
information, these organisations will have to develop contracts in order to
outsource HR activities. Since they lack codified information they are likely to be
subject to opportunistic behaviour of the suppliers. Consequently, the risk
associated with outsourcing will increase and these organisations will be less likely
to outsource HR activities (Klaas, McClendon, Gainey, 1999). Another argument is
that organisations that rely on tacit knowledge, as an important component of
their organisational culture, prefer not to share their information with other
organisations. The organisations where HR activities are closely connected with
tacit knowledge are less likely to use outsourcing in their HR activities.
H1: The organisations that rely on tacit knowledge tend to outsource less.
Strategic Role of HR
• Recently, HR department has come to perform strategic role for
organisations by focusing on better organisational performance (Wright,
Gerhard, Snell, & McMahan, 1997). Thus, as HR department focuses on
the core competences, “those competences that define a firm’s
fundamental business” (Teece et al., 1997), allows non-strategic activities
such as payroll administration to be outsourced. This enables the HR
professional to be more involved in the strategy development of the
organisation as a whole (Laabs, 1993). When the HR department has a
strategic role the core business activities can be performed by high-level,
in-house professionals while outsourcing transactional and administrative
activities which are core activities for vendors (Adler, 2003). A further
argument can be from the viewpoint of a cost benefit analysis. As the
strategic role of HR department increases, the business will focus on the
core competences and will outsource more the routine activities. As one
HR executive said: “I like doing the value-added strategic aspect of my job,
not the administrative, paper-pushing pieces.” Due to using specialized
firms in outsourcing, the costs associated with HR activities will decrease.
(Greer, Youngblood, Gray, 1999).
• H2: As the strategic role of HR department increases the outsourcing
increases
Internal Recruitment Practices
• Organisations in which career opportunities are emphasized
and continued contributions are rewarded will tend to have
lower costs associated with in-house HR activities (Doeringer
& Piore, 1997). It can be said that organisational culture is the
most important element that influences internal recruitment
practices. Organisational culture of Is Bankasi, the largest
private bank in Turkey, is a good example for internal
recruitment. In order to be high level executive in Is Bankasi,
employees start from bottom to up. Therefore, in that type of
organisations reliance on outsourcing activities in HR activities
will be less.
• H3: As internal recruitment increases, the outsourcing will
be less.
Firm Size
• As firm size increases it is more likely that the firm will benefit
from economies of scale. Needless to say, HR activities require
specialized expertise and substantial training (Ulrich, 1996).
Following this line of argument, the costs associated with HR
activities will be high for the small firms due to the infrequent
use of these services. Because of infrequent use of these HR
activities, per unit cost associated with in-house performance
will be high. This causes diseconomies of scale. On the
contrary, per unit cost of large firms will be lower because of
the frequent use of these services (Abraham & Taylor, 1996;
Williamson, 1996).
• H4: As the firm size increases, the outsourcing will decrease.
Samples
• 13 EU member countries, and Turkey
• UK, France, Germany, Spain, Denmark, The
Netherlands, Italy, Sweden, Ireland, Portugal,
Finland, Austria, Belgium and Greece.
Variables
• Dependent Variable “use of HR Outsourcing”, independent
variables; “tacit knowledge”, “Strategic Role of HRM”,
“Internal Recruitment”, “Size of the organization”.
• Use of HR outsourcing = Payroll + Recruitment + Training +
Other HR activities (0 – 4)
• Tacit Knowledge = Presence of unwritten HR strategy (0 – 1)
• Strategic Role of HR = HR is represented on the Board (0 – 1)
• Internal Recruitment = Recruitment of Top + Middle + First
line managers from within (0 – 3)
• Organization size = Total number of employees (200 – X)
Appearence of
Rational benefits
Legitimacy
concerns
Use of Tacit
knowledge
Strategic role of
HR
–
Regulatory Bodies
+
Outsourcing
Internal
Recruitment
Size
–
–
Market vs Hierarchy
Friendly Higher Order
Inst.
Top Management
Convictions
H1: The organisations that rely on tacit knowledge tend to
outsource less.
Indpendent Samples t test
EU sample: t=2.54, p<0.05,
N=2533
Mwritten=2.33, sd=1.59
N=1490
Mtacit=2.20, sd=1.54
Turkish sample: t=1.72, p<0.1,
N=142
Mwritten=1.66, sd=1.25
N=72
MTacit=1.36, sd=1.11
H2: As the strategic role of HR department increases the
outsourcing increases
Independent Samples t test.
EU sample: t=6. 40, p<0.001,
N=2790
MStrategic=2.36,
N=2298
Moperational=2.09,
Turkish sample: t=2.50, p<0.01,
N=121
MStrategic=1.69,
N=135
Moperational =1.31,
sd=1.58
sd=1.50
sd=1.31
sd=1.09
H3: As internal recruitment increases, the outsourcing will be less.
H4: As the firm size increases, the outsourcing will decrease.
Correlations
EU sample:
internal recruitment and use of outsourcing r=0.12**
Size and use of outsourcing r=0.03*
Turkish sample:
internal recruitment and use of outsourcing r=0.11
Size and use of outsourcing r=-0.08
• ** p<0.01 * p<0.05
H3 and H4 were not supported.
General Implications
• The organizations that do not have written policies and
procedures are less likely to use outsourcing; these
organizations may lag behind their competitors in the
increasingly competitive business environment and
globalization. The organizations that rely on tacit knowledge
seem to have more difficulty in outsourcing HR activities.
These organizations need to have more explicit information in
order to be able to outsource effectively.
• As the strategic role of HR increases the routine activities tend
to be outsourced. This provides a comparative advantage to
organizations where HR plays a strategic role.
• The debate on the determinants of outsourcing can benefit
from a more holistic approach which blends institutionalism
with contemporary research on outsourcing. The existing
literature on determinants considers outsourcing decisions as
mainly rational choices. These choices, however, are
embedded in particular contexts the institutional aspects of
which have remained largely uninvestigated.