Sustainability of Business Service Outsourcing: the Case of Human Resource Outsourcing (HRO)

This paper discusses the theory and evidence behind the logic of business process outsourcing, with a specific focus on human resource outsourcing (HRO). Market analysts project rapid growth in the global market for HRO, from around $30 billion in 2005 to just over $40 billion in 2008. The paper interprets HRO as a case of the unbundling of corporate functions, used as part of fundamental corporate restructuring by global multinational companies. Demand for HRO is satisfied by a mixed type of vendors who believe that their survival depends on growth in the scope of expertise and economies of scale, leading to consolidation through M&A. As HRO deals grow in the scope of processes and shift their weight from transactional to transformational work, contracts are likely to become more complex and longer. Consequently, more relational contracts will have to be used to govern outsourcing relationships. Moreover, professional jurisdiction is being redefined through outsourcing, particularly for the HR profession but also for consultants and lawyers involved in third-party advisory networks. We argue that the sustainability of growth in HRO depends substantially on whether relational contracts and a newly reconstituted HR profession emerge in due course.