Question

Companies "contract out" functions which are critical to success often, don't they? For example, many companies "contract out" the Human Resources function as a strategy to save money. Isn't Human Resources Management critical to a company's success?

Answer 1

We can understand that the company wants to do cost-cutting but they cannot contract out the entire business function like Human resources. This is not a good strategy even though it can save money for the company. Just outsourcing the recruitment process is a good strategy because the consultancy can identify the right candidate and suggest to the company. But outsourcing the entire process can put the entire company at risk. There is no guarantee that the consultant company will stick to the company rules and regulations and also make sure that the hiring happens according to the organizational goals. They can have a biased mindset and hire the people they like or introduce a new system that does not have any positive impact on the business. They might change the salary and leave structure according to their interest. We can agree that the top management will be involved in these discussions and decisions but they cannot get rid of the biased mindset of the service provider. They will not think from the perspective of the wellness of the company. They just want to run the business and make money out of it. So it is a big risk for the company to outsource a business function that is responsible for the development of talent in the company. The business function will make sure that the organizational goals are reached and make the employees follow good ethical behavior. Outsourcing the entire business function can backfire and put the company in trouble.