Question

Using the models in the Baloh, et al., article and your additional research, evaluate ways in which HR can manage the outsourcing of innovation. Describe the methods HR can use to manage the outsourcing of innovation as a foundation of understanding. How can HR play a significant role in ensuring that the organization maintains its competitive advantage when managing the outsourcing of innovation? Provide a brief rationale.

Answer 1

Outsourcing helps the organization reduce payroll and operating costs and free up resources for other purposes. The organization relies on its human resources (HR) department for negotiations and communications with the outsourcing company for a smooth transition for the organization as well as the new team.

Ways to manage outsourcing of inovation:

• Operating small labs near university campuses (to promote an interchange of ideas between the labs’ staff and professors and graduate students at the universities),
• Selling commercially viable ideas to both customers and competitors,
• Selling the use of your company’s logistics and distribution systems to competitors (which lowers your overall costs due to economies of scale),
• Hiring idea brokers to scout for new product ideas, using customers to beta test your new products (used widely by the software industry), and
• The open source software movement (where numerous developers contribute to develop exciting new software applications, challenging traditional models of innovation).

Analysis

When an organization considers transferring its functions, it may hire an outsourcing consultant to work with the HR department and the organization's management team. HR helps the team analyze departments which may be under-experienced, such as applications development in IT, or have unmanageable workloads such as printing in the administrative function. HR helps the team determine if a change in structure and the addition of outsourcing will help the organization in its productivity.An organization relies on its HR department to conduct background checks to find an outsourcing company qualified to handle the organization's functions. HR looks into the type of industries the company has experience working with, the type of workload their staff are accustomed to handling and their ability to meet deadlines. It's the role of HR to thoroughly screen the companies before giving the organization the hiring go-ahead.Once an organization has selected an outsourcing company, HR reviews the proposal with the knowledge and experience to identify problems with outsourcing such as redundant positions, employees' skills which do not match the organization's requirements, inaccuracies in contractual terms of employee salaries and hidden costs. HR also ensures that the outsourced company receives accurate information to represent the company in its operations.

Some HR administrative functions, such as payroll and employee benefits, may be outsourced in an organization. But, outsourcing doesn't always eliminate the HR department. It can bring about additional responsibilities such as managing the client relationship. HR communicates information on the rights and responsibilities of both parties. In addition, it ensures that the outsourcing company meets the organization's compliance requirements by monitoring its activities periodically and conducting annual performance evaluations.

Benefits or Significance of outsourcing that helps the organisation to maintain its competitive edge:

Core Competencies

Outsourcing allows an organization to focus on a set of ‘core competencies,’ which are the critical or fundamental functions that provide a competitive edge.Core competencies should focus on skill sets, not product knowledge, since products are easily duplicated or outdated but skills can be transferred across the organization and infiltrate all functional areas.The skill sets identified should be flexible and able to adapt to changing business requirements. It is crucial that the core skills continue to be valued by customers and provide the organization with a competitive edge over the long run.

Increased Return on Investment

Not only does outsourcing allow the organization to gain maximum returns on investments in internal resources, it also allows it to benefit from the vendor's specialized capabilities, which may be expensive to develop internally. Many HR departments outsource functions because they are too time-consuming and their service delivery is too slow. For example, American Express outsourced its defined contribution plan administration to improve service and reduce turn-around time; their employees now have better access to information, and the HR staff has significantly reduced its work load and administrative overhead

Limiting Organizational Uncertainty

Outsourcing can transfer risk from one organization to another. In the case of a neglected function or process, it allows the outsourcing organization to realize the benefits of reengineering immediately, without assuming any of the risks of investing time and resources in a process which may not increase efficiency or reduce costs.

Advantages	%
Saving time	37
Gaining expertise	18
saving cost	26
minimizing hassle	16
Concentrating on core business	11
improving service	30

Better Cost Management

Outsourcing may promote better cost management. Organizations usually pay the vendor a negotiated fixed fee, and additional fees based on volume. Once the negotiated limit on the number of transactions has been reached, employees may have to reassess the urgency of their request for service. For example, when Continental Bank in the United States decided to outsource many non-core functions, such as cafeteria and legal services, they realized that many of these services were overused: they were perceived as 'just internal costs,' not 'real' costs. This perception has changed since the outsourcing push, and Continental has reduced overall costs while improving service levels.