Successful Human Resource Outsourcing Strategies

Section 1: Foundation of the Study

National and international borders that once hindered global competition have

disappeared (Edwin & Ohaegbu, 2015). To survive and thrive in the business

environment and beyond, managers realize their organizations must deliver products and

services to end-users located anywhere in the world (Edwin & Ohaegbu, 2015). The

expanding business environment creates new challenges managers need to conquer to

reduce operating costs while maintaining HR effectiveness. To reduce operating costs

while simultaneously maintaining HR effectiveness, organizational managers began

focusing on core functions by outsourcing noncore activities such as HR functions

(Edwin & Ohaegbu, 2015). Marchington (2015) stated if managers wanted to increase

their organization’s strategic value, they first need to shift their focus towards long-term

cost solutions capable of increasing their organization’s viability. One solution managers

began using to remain competitive was to outsource HR functions to focus on core

competencies (Tiaojun, Yusen, & Peter, 2014). When managers began using HRO

strategies, they realized HR needed to become a strategic partner responsible for the

intelligent use and management of HRO strategies (Marchington, 2015). The intent of

expanding HR’s role was twofold. First, organizational managers wanted to reduce HR as

a fixed cost function by acquiring HR services specifically tailored to organizational

needs. Next, organizational managers wanted to outsource noncore functions to focus on

core competencies (Poornachandrika, 2015). Before outsourcing any function, managers

need to assess the consequences of HRO on organizational efficiency and effectiveness,

and to accomplish this; it is imperative they understand the reasoning for deciding to

outsource and the cost of HRO across all business lines (Savino, 2016). According to

Butler and Callan (2014), HRO has a negative effect on operating performance when

outsourcing participation is not optimal. To reduce operating costs while simultaneously

maintaining HR effectiveness, Žitkienė and Blusytė (2015) stated managers need to

manage potential HRO functions against the underlying motives to outsource.

Background of the Problem

In an increasingly competitive global business environment, organizational

managers received pressure to provide improved and faster services, as well as products

at reduced costs (Burma, 2014). Responding to the pressures of making and delivering

improved, faster, and less expensive products and services, managers search for

innovative ways to achieve competitive advantages. One solution organizational

managers discovered to remain competitive is to outsource HR functions (Tiaojun et al.,

2014). Žitkienė and Blusytė (2015) asserted HRO is the management strategy managers

use to decide whether to subcontract certain inhouse activities to external vendors.

Managers use HRO strategies to achieve cost savings and gain competitive advantages

(Žitkienė & Blusytė, 2015). Firms in various commercial enterprises progressively

consider outsourcing as a vital solution to reduce costs, enhance quality, and focus on

their core competencies (Tiaojun et al., 2014). Despite the many benefits some firms

achieve from outsourcing, others experience undesirable outsourcing outcomes because

managers lack the knowledge to identify potential risks or the ability to manage them

(Prystupa, & Rządca, 2015). For example, Edwin and Ohaegbu (2015) discovered

instances where outsourcing HR functions created problems because of the training and

development expenses associated with the development of the remaining inhouse HR

staff. Edwin and Ohaegbu (2015) also discovered instances where HRO strategies created

problems related to the loss of business secrets and expertise. Tiaojun et al. (2014)

discovered occurrences in which outsourcing lowered profits because of double

marginalization. Double marginalization happens when industry-specific firms have

market powers at different organizational vertical levels, thereby creating two separate

instances of losses negatively impacting the market. The decision to outsource HR may

be a risky venture in terms of cost and performance; however, conducting systematic risk

management procedures often offsets the possible negative outcomes of instituting new

outsourcing strategies (Ensslin, Mussi, Chaves, & Demetrio, 2016). The positive and

negative consequences of HRO’s direct and indirect impact on overall firm performance

provides the reasoning for further investigation of the phenomenon (Butler & Callan,

2014).

Problem Statement

Forty-four percent of small to medium-sized firms and 38% of larger firms

outsource portions of their HR functions (Sim, Avvari, & Kaliannan, 2016). Outsourcing

initiatives contribute to increases in employment rates and wages and led to the creation

of over 14 million jobs in the United States; therefore, managers should consider how

outsourcing could impact their organizations (Tingting, 2014). Outsourcing is a strategy

managers use to achieve reduced costs and gain specialized knowledge (Faraji &

Abdolvand, 2016); however, it is important for managers to understand how outsourcing

impacts their firm’s performance. The general business problem is inappropriate

strategies for implementing HRO can affect the profitability of organizations. The

specific business problem is some managers lack the HRO strategies necessary to reduce

operating costs while maintaining HR effectiveness.

Purpose Statement

The purpose of this qualitative multiple case study was to identify HRO strategies

managers use to reduce operating costs while maintaining HR effectiveness. The target

population consisted of three Midwestern firms with 50 or more employees. The

participants drawn from the population consisted of a minimum of two participants per

organization who have increased their organization’s strategic value using HRO

strategies. The findings from this study could benefit social change by helping managers

identify strategies conducive to increasing their organization’s strategic value; thereby

positively impacting local employment rates and the economy.

Nature of the Study

I chose to use the qualitative method for this study. The appropriateness of using

the qualitative method rests in the fact that using a nonmeasurable exploratory approach

allowed for the exploration of a specific group’s behavior thoroughly. Researchers who

use the quantitative approach use measurable data and random sampling, summarize

statistical data, and typically confirm or disprove theoretical hypotheses (Austin &

Sutton, 2014). Mixed methods researchers perform extensive data collection, use

extensive resources, and combine quantitative and qualitative research approaches into a

single study to confirm or disprove theoretical hypotheses (Povee & Roberts, 2015;

Palinkas et al., 2015). I was not measuring data or confirming or disproving any

hypotheses; therefore, the quantitative and mixed methods were not viable options for

this research.

Research Question and Interview Questions

Research Question

The research question that formed the basis of this study was: What HRO strategies do

managers use to reduce operating costs while maintaining HR effectiveness?

Interview Questions

1. What HRO strategies do you use to reduce operating costs while maintaining

HR effectiveness?

2. Which HR functions do you outsource?

3. How has outsourcing HR functions affected organizational operating costs?

4. How has outsourcing HR functions affected organizational effectiveness?

5. How do you measure HRO strategy success and failure as it applies to

operating costs and effectiveness?

6. What are the most important lessons you learned from attempting to reduce

operating costs while maintaining HR effectiveness as it applies to HRO?

7. Is there anything else that you would like to share regarding HRO strategies

used to reduce organizational operating costs while maintaining HR

effectiveness?

Conceptual Framework

The transaction cost economics (TCE) theory was the conceptual framework for

this study. The key proposition of the TCE theory is that transaction properties or costs

influence outsourcing decisions and governance structures (Williamson & Ghani, 2012).

For TCE proponents, firms have both direct and indirect costs associated with

establishing contracts between firms and service providers (Williamson & Ghani, 2012).

TCE advocates use the theory to aid with the minimization of transaction costs and

consider TCE an optimization theory useful in the analysis process to help managers

decide stratagems such as make or buy choices or insource or outsource decisions.

According to Williamson and Ghani (2012), when managers use the TCE theory, they

make hierarchies vs. markets decisions based on transaction costs.

Edwin and Ohaegbu (2015) discovered the cost factor is one of the most

predominant reasons for outsourcing HR activities. When using the TCE framework,

managers implement the organizational structure best-minimizing transaction costs.

Vaxevanou and Konstantopoulos (2015b) stated the TCE framework is the most

predominantly used outsourcing framework because it provides mechanisms to help

managers determine which activities to outsource. Using the TCE framework, I had the

means to identify HRO strategies managers use to reduce operating costs while

maintaining HR effectiveness. I also had the resources needed to discern why managers

chose to keep some HR functions while deciding to outsource others to external vendors.

Operational Definitions

The purpose of this section is to present definitions of noncommon words to

improve understanding of terms as they apply to this study’s context.

Employee displacement: The phenomenon where workers leave or lose their

positions because of a changed, abolished, or outsourced position (Brand, 2015). HR

outsourcing: The process of subcontracting HR functions or services to a third party to

allow firms to concentrate on core competencies (Butler & Callahan, 2014).

Insourcing: The process of keeping organizational resources and services inhouse to

maintain a sustainable competitive advantage (Jong Chul, 2015).

Strategic partnership: A partnership between entities or individuals for

minimizing risks and maximizing learning to reduce costs, improve productivity, improve

service delivery, or generate revenue (Sadovnikova, Pujari, & Mikhailitchenko, 2016).

Vertical integration: The process of determining which activities to perform

internally or within the firm (Williamson & Ghani, 2012).

Assumptions, Limitations, and Delimitations

Assumptions

According to Francis (2014), assumptions are conceivable truths or beliefs authors

trust to be true that impact the study, but have not been verified. I anticipated the

following assumptions would have an impact on this research project. One assumption

was all participants would answer the questions honestly. Another assumption was

because the selected participants had HRO experience that they also had a thorough

understanding of their organizational HRO strategies. Another assumption was that by

conducting semistructured interviews and using an interview protocol, I would capture

enough rich data to identify themes and achieve data saturation. Finally, I assumed that

after researching and selecting the TCE framework as the lens to view the phenomenon, I

would identify strategies that managers use to reduce operating costs while maintaining

HR effectiveness.

Limitations

Limitations are dynamics the researcher cannot control, and they form the

boundaries of the study (Henderson, 2016). According to Snelson (2016), limiting the

scope makes the research feasible and focused, thereby allowing another researcher to

replicate the study. However, limitations are also probable weaknesses possibly affecting

a research project by influencing research variables such as analysis, sample size, and

interpreting and generalizing the findings (Henderson, 2016). For this study, time was a

limitation dictated by the anticipated graduation date. The time limitation also affected

the initial sample selection. The initial sample consisted of a minimum estimation of

participants needed to complete the study quickly; therefore, participant observations and

assessments obtained might not represent the perceptions of other managers. Another

limitation was that I served as the only data collector. The possibility existed that my

experience as a program manager would potentially influence the selected participant

responses. To minimize this limitation and reduce the potential for bias, I followed the

interview protocol closely and only asked scripted and follow-up questions in an even

and consistent tone, ensuring not to inject any verbal or nonverbal cues that might

influence participant responses.

Delimitations

Delimitations are the boundaries defining the scope, thereby making research

practicable and focused (Snelson, 2016). Researchers use delimitations to narrow the

scope of the research project by establishing boundaries and operating parameters for the

study (Hughes & Foulkes, 2015). For this study, I limited the research to Midwestern

managers with successful experience reducing operating costs using HRO strategies.

Another delimiting factor was that I asked questions of managers with 50 or more

employees, thereby limiting the scope of the study. Consequently, the responses from the

selected managers may not represent the views of managers in the selected or other

geographical locations. Using the qualitative methodology itself was a delimiting factor

because the qualitative methodology has specific operating parameters within which the

researcher must operate (Bengtsson, 2016). For example, qualitative researchers logically

explore and capture experiences, and then attempt to provide an in-depth understanding

of those captured experiences (Austin & Sutton, 2014). Using the qualitative method also

allows the researcher to approach the study’s participants with an inquisitive attitude,

helping respondents answer research questions and use their needs, concerns, and voices

to shape the study (Austin & Sutton, 2015).

Significance of the Study

The number of firms outsourcing HR activities continues to rise (Pratap, 2014).

The increase in outsourcing stems from managers’ desire to increase firm value, create

competitive advantages, and focus on core competencies (Savino, 2016). The rationale

behind a leader’s decision to outsource includes benefits firms could achieve in terms of

reducing operational and capital costs, gaining access to expertise not available internally,

increasing flexibility and quality of service, and enhancing organizational efficiency

(Wekesa & Were, 2014). According to Handley (2012), in 2002, 74% of U.S. firms

experienced negative HRO repercussions; 44% did not achieve anticipated cost savings,

and 64% canceled their outsourcing contracts. These inferior outsourcing outcomes

stemmed from organizations failing to conduct due diligence to ensure outsourcing

success (Handley, 2012).

Contribution to Business Practice

In this study, I endeavored to identify through the words and experiences of

knowledgeable managers HRO strategies used to reduce operating costs while

maintaining HR effectiveness. Additionally, I highlight the often overlooked downside of

outsourcing by identifying HRO strategies that fail to reduce operating costs while

maintaining HR effectiveness. The identified strategies might contribute to improved

business practices by demonstrating how managers could evaluate possible HRO

strategies. Understanding how to evaluate HRO strategies could help managers create and

use strategies conducive to reducing operating costs, thereby creating a source of

competitive advantage that could lead to increased profits.

Implications for Social Change

Exploring HRO strategies managers use to reduce operating costs while

maintaining HR effectiveness could contribute to positive social change in multiple ways.

First, exploring HRO activities could contribute to positive social change by helping

firms effectively manage proximal outcomes, such as human capital and motivation, and

distal outcomes, such as employee displacement and operational outcomes. Effectively

managing proximal and distal outcomes could positively impact society by providing

more job opportunities for the community which might positively impact employee

displacement rates. Moreover, job opportunities could manifest from the organizational

manager’s need to support core activity expansion, thereby helping the local community

create a stronger and more resilient local economy with possibly lower crime rates.

A Review of the Professional and Academic Literature

The focus of this part of the study is on past studies conducted regarding

successful HRO strategies used by managers to reduce operating costs while maintaining

HR effectiveness. To achieve the purpose of this study, I used the multiple qualitative

case study approach as a mechanism to help identify HRO strategies managers use to

reduce operating costs while maintaining HR effectiveness. The following research

question guided this study: What HRO strategies do managers use to reduce operating

costs while maintaining HR effectiveness? I have chosen the qualitative case study

methodology to study Midwestern managers who have successfully implemented HRO

strategies that reduced operating costs. This study is important because I sought to

identify strategies that could improve negative HR outcomes in organizations, which

might lead to firms creating competitive advantages, thus increasing their organizational

profits and longevity.

Organization of the Literature Review

The literature review has three primary sections. In the first section, I explored

HRO by discussing why managers outsource and present some of the HRO strategies

managers use to reduce operating costs while maintaining HR effectiveness. Next, I

introduced the TCE framework which is the conceptual framework chosen to examine the

HRO phenomenon. This section is a brief history of the creation, evolution, and current

state of TCE, including some contradicting theories and viewpoints. Last is a section

where I present empirical evidence on how researchers use the TCE framework with

outsourcing strategies. In this section, I also present the outcomes of the TCE framework

and outsourcing collaborations and then provide a transition summary of the literature

review highlights before transitioning into Section 2.

Strategy for Searching the Literature

I conducted a review of the literature on outsourcing strategies using the Walden

University Library’s Thoreau Multi-Database Search, ProQuest Central, and Academic

Search Complete. I also used the Internet and Google Scholar searches to expand research

results. Keywords and terms used to conduct the searches include the following:

outsourcing, human resource outsourcing, information technology outsourcing, human

resources, human resources history, human resource management, strategic human

resource management, outsourcing case studies, transaction cost economics,

administrative and strategic functions of human resources, and resource-based view. The

entire study contained a total of 203 references, of which 192 were peer-reviewed with

182 falling within 5 years (2014-2018) of the anticipated graduation date. The percentage

of peer-reviewed study was 94% while the percentage of studies falling within 5 years of

the anticipated graduation date was 89%. The primary categories for the literature review

were outsourcing, HRO, outsourcing competitive advantages, and outsourcing risks.

The purpose of this qualitative case study was to identify HRO strategies

managers use to reduce operating costs while maintaining HR effectiveness. To

comprehend HRO strategies from an experienced leader’s perspective, it was important

first to understand the HR components contributing to outsourcing outcomes. Therefore, I

began the literature review by first establishing the importance of HRO. Included in this

portion of the review is a brief history and introduction to HRO. Next, I discussed the

literature on outsourcing HR, including the motivations of managers to outsource, the

processes involved in the decision to outsource, and some positive and negative outcomes

of HRO. Then, I presented the lens through which I chose to examine HRO and discussed

the TCE framework, which was the conceptual framework for this study. Finally, I

concluded with a concise summary of the key points in Section 1.

Critical Analysis of Literature Review

The realities of globalization and increased competition present new

circumstances and criteria that managers need to understand and master to reduce

operating costs while maintaining HR effectiveness. According to Kumar and Pansari

(2016), in the modern economic setting, firms must compete to obtain new clientele and

retain existing customers while engaging employees, maximizing profits, and producing

products and services providing differentiation and sustainable competitive advantages.

The traditional view of organizations was that managers own and manage the resources

under their sphere of control; therefore, HR managers focused on employee direction and

control to achieve predetermined organizational goals (Burma, 2014). As globalization

and technological advancements progressed, business threats and competitiveness

increased across almost every business sector, creating the need for more flexible

business models (Lastra, Martin-Alcazar, & Sanchez-Gardey, 2014). Responding to the

new competitive environment, organizational managers began using strategies such as

outsourcing as a tool to achieve competitive advantages and meet increasing

organizational demands (Dinu, 2015; Glaister, 2014; Tiaojun et al., 2014). From 2000 to

2017, outsourcing increased over 30% per annum (Kabiraj & Sinha, 2017), because

organizational managers discovered successful outsourcing strategies increase

organizational efficiency by eliminating low value and time-consuming activities, thereby

allowing employees to focus on core activities (Davies, White, Plant, & Lee, 2015). HRO

is the process of subcontracting HR functions or services to a third party to allow firms to

concentrate on core competencies (Butler & Callahan, 2014). 80% of HR researchers

profess HR management to be an integral component of organizational performance

(Cristiani & Peiró, 2015; Gómez-Cedeño, Castán-Farreroa, Guitart-Tarrés, & Matute-

Vallejo, 2015; Ralević, Dragojlović, Dobrodolac, Denić, & Nešić, 2015); however,

accortding to Edvardsson and Durst (2014), a lack of research exists on the aspects and

processes involved with HRO.

Vitasek (2016) stated that business professionals used transaction-based

approaches heavily during the twentieth century. Other researchers explored HRO using a

quantitative approach with a correlational or descriptive research design (Wekesa &

Were, 2014; Williamson & Ghani, 2012). Wekesa and Were (2014) and Williamson and

Ghani (2012), revealed researchers examining HRO topics using a quantitative approach

focused on the reasons organizational managers decided to outsource. Limiting research

on HRO to quantitative analysis creates a lack of detailed information about the

relationship between variables. According to Wekesa and Were (2014) and Williamson

and Ghani (2012), when researchers used quantitative methods to determine whether a

statistical relationship existed between two or more variables; they did not have enough

information to understand the complete details of the relationship or descriptive data

presented.

Glaister (2014) discovered limited HRO information exists because most of the

HRO research is qualitative in nature with an exploratory focus thus lacking quantitative

quantifying measures. According to authors such as Sigamani & Malhotra (2013),

Vaxevanou and Konstantopoulos (2015a), Yap and Webber (2015), and Žitkienė and

Blusytė (2015) based on the studies reviewed, busisnesses have a need to explore HR

outsourcing further because the literature on the topic continues to be relevant but needs

additional expansion for greater understanding. For example, Glaister (2014) discovered a

business need exists to understand how HR functions as active outsourcing agents

responsible for HRO strategies and resolves negative outsourcing issues. Vaxevanou and

Konstantopoulos (2015a) stated firms should explore all HRO alternative strategies using

specialized analysis and decision-making models. Žitkienė and Blusytė (2015) stated

HRO is a complex process requiring a thorough examination.

Gill, Bunker, and Seltsikas (2015) stated the primary data collection tool used in

qualitative studies to explore HRO was interviews. The rationale for me using interviews

was to retrieve detailed perspectives and explanations from organizational managers,

which could lead to a better understanding of HRO. Gill et al. (2015) used qualitative

interviews to explore the emerging themes in the adoption of technology for financial

services. Gill et al. ()2015) highlighted the effectiveness of using qualitative interviews to

collect rich data.

Gill et al. (2015) discovered that when analyzing data collected from studies on

HRO, the primarily lens used was grounded theory and thematic analysis. Grounded

theory, or the constant comparative method of data analysis, helps researchers determine

patterns and themes from qualitative data such as semistructured interviews (Gill et al.,

2015). The use of interviews as the primary data source for this study was relevant

because semistructured interviews are one of the primary data collections methods used

in qualitative research. Collins and Cooper (2014) discovered conducting face-to-face

interviews is the most common and nonthreatening means of gathering data from

participants. Wiewiora et al. (2014) stated semistructured interviews are useful for when

conducting in-depth investigations or explorations, which is the intent of this study.

The beginning of HRO. Over time, and using different management innovations,

organizational managers discovered the traditional view or approach to human resource

management was no longer a viable option for their organizations to remain profitable.

The year 2014 was a different time in the business environment wherein managers

outsourced various process and functions such as human resources (Abdul-Halim, Ee,

Ramayah, & Ahmad, 2014).Organizational manager’s use of outsourcing increased over

the past decade because organizational managers began using it as a tool at every

decision-making level; however, many organizational skeptics remain because of the fear

they have relating to relinquishing control and uncertainty associated to outsourcing

agreements (Sakas, Vlachos, & Nasiopoulos, 2014). Organizational managers first used

outsourcing in manufacturing firms at the operational level, then began outsourcing

business process functions such as HR (Khan & Bashar, 2016). My review of the

literature revealed no universally agreed upon beginning date for the use of outsourcing

exists. The concept of outsourcing first appeared in an article in the Journal of the Royal

Society of Arts in 1979. Žitkienė and Blusytė (2015), referred to decisions made by

British car managers concerning the outsourcing of some of their company activities to

German specialists. Jiang and Qureshi (2006) declared outsourcing became a prominent

business strategy in the 1990s, that manifested as a widespread operational strategy.

According to Vaxevanou and Konstantopoulos (2015b), manager’s use of a theory in the

field of outsourcing manifested out of their need to focus on and achieve specific

outsourcing results. The top theories used or referenced with outsourcing, according to

Vaxevanou and Konstantopoulos are:

•Transaction cost theory,

•Resource-based theory,

•Evolutionary theory,

•Knowledge-based view,

•Agency theory,

•Neoclassical economic theory,

•Relational theory,

•Social exchange theory,

•Economy of information theory, and

•Core competence theory.

When organizational managers decide to outsource and want to achieve costs

reductions, they stereotypically use the transaction cost theory (Williamson, 1983). When

they outsource to achieve resource-based benefits, they characteristically use the

resource-based theory (Acar & Polin, 2015). Resource-based theory (RBT) proponents

seek to maximize firm value by coupling resources (Burton, & Rycroft-Malone, 2014).

Organizational managers choose to use the evolutionary theory when there is a need to

understand and choose the correct outsourcing path that will produce predefined

outsourcing outcomes (Vaxevanou & Konstantopoulos, 2015b); however, to achieve

desired results, it is incumbent for them to have a good understanding of the outsourcing

decision-making process (Santos & Rosati, 2015). Managers decide to use the

knowledge-based view when it is important to understand how individuals cooperate to

achieve goals (Vaxevanou & Konstantopoulos, 2015b). When there is a need to

understand the relationship between the organization and the vendor, organizational

managers choose to use the agency theory. According to Vaxevanou and

Konstantopoulos (2015b), organizational managers use the neoclassical economic theory

when the belief is that organizations act rationally to maximize benefits and achieve

balance between organizations. Organizational manages use of the relational theory

when there is a need to develop a vendor relationship to achieve technological

competitive advantages (Sakas et al., 2014). Managers use the social exchange theory

when there is a need to evaluate the vendor relationship using economic cost-benefit

analysis. The social exchange theory is also predominately used during the outsourcing

reconsideration phase (Vaxevanou & Konstantopoulos, 2015b). Organizational managers

use of the economy of information theory when firms have unequal or no information.

Last, managers predominantly use the core competency theory when there is a need for

firms to concentrate on core strengths and outsource noncore functions to achieve

competitive advantages (Vaxevanou & Konstantopoulos, 2015b).

As evidenced by issues in the automotive, manufacturing, and IT industries,

outsourcing has increasingly become a cost-cutting and cost competitive solution.

Consequently, managers need to begin to view outsourcing through a wider lens because

outsourcing may provide opportunities for them to increase organizational flexibility,

lower capital investments, and gain access to improved technologies (Pratap, 2014). One

area many managers outsource to reduce operating costs while maintaining HR

effectiveness is HR (Žitkienė & Blusytė, 2015).

Why managers desire to use HRO. HRO is organizational strategy managers

use to manage the outsourcing of HR functions to external vendors (Žitkienė & Blusytė,

2015). Dinu (2015) defined outsourcing as a process that managers use to elicit and

entrust organizational processes to external vendors. Dinu stated outsourcing is one of the

most extensive and profitable business strategies because it allows organizational

managers to provide quality services and products while significantly reducing the

budgets of selected business segments. Siew-Chen and Seow-Voon (2016) stated

managers use HRO to achieve cost and resource-based benefits. Awino and Mutua

(2014) professed outsourcing manifested out of the need for managers to exploit unique

competencies to increase organizational competitiveness. Jiang and Qureshi (2006),

stated outsourcing emerged as a management strategy that managers use to address

organizational competitiveness issues.

Outsourcing is a strategy that allows managers to reduce costs, focus on their core

competencies, and achieve competitive advantages (Mboga, 2015; Sonfield, 2014). The

decisions and practices managers perform effect the process of HRO. Enterprise

managers decide to outsource because of the short and long-term benefits associated with

outsourcing (Wekesa & Were, 2014). To that end, HRO has both advantages and

disadvantages; therefore, managers should engage in effective cost and benefit analysis to

determine decisions involving the outsourcing of human resource functions (AbdulHalim

et al., 2014). According to Abdul-Halim et al. (2014), positive HRO outcomes depend on

managers’ ability to understand and manage outsourcing relationships. Consequently, it is

incumbent for managers to develop a positive working relationship between internal and

external employees through formal and informal gatherings (AbdulHalim et al., 2014).

According to Ross, Kuzu, and Li (2016), when creating outsourcing strategies managers

need to create and communicate an effective vision for the client and vendor to obtain

organizational support throughout the project.

For example, Langer (2015) conducted a study on biopharmaceutical

manufacturers and revealed companies use outsourcing as a cost-cutting solution. In the

biopharmaceutical manufacturer study, Langer discovered offshoring percentages

increased from 5.7% in 2011 to 14.3% in 2015. Galperin and Lituchy (2014) discovered

HRO has a significate role on the success of organizational human resource management

(HRM). Won (2015) stated managers should use selective or full HRO based on the

specific needs of the organization and future market predictions. Halim, Ahmad, Ho, and

Ramayah (2017), stated the organization’s service provider relationships influence

outsourcing decisions. Other researchers such as Usman, Malik, and Imran (2015), stated

that strategic goals are the uppermost motivating factor associated with HRO decisions.

In a study regarding how political and rational dynamics influence the outsourcing

process, Marshall, Ambrose, McIvor, and Lamming (2015) revealed political goals affect

the outsourcing process. Marshall, Ambrose et al. (2015) stated that managers need to

consider rational behaviors and goals in parallel to achieve desired outsourcing outcomes.

Marshall, Ambrose et al. (2015) also revealed that strategic decision-making view

constructs and logic and rational theories complement each other well in the outsourcing

process.

Managers choose to outsource for a variety of reasons; however, according to

Dinu (2015) the main reasons managers decide to outsource are one or a combination of

the following:

•To reduce operational and labor costs,

•To gain specialized expertise in a particular area,

•To gain access to less expensive labor while maintaining quality

standards,

•To focus on core competencies,

•To reduce risks, and

•To delegate complex noncore functions to experts while realizing the

benefits of outsourced functions.

Managers based their decisions to outsource human resource functions upon the

benefits they anticipate achieving from the process (Wekesa & Were, 2014; Yilmaz &

Bedük, 2014). According to Sigamani and Malhotra (2013), cost-effectiveness is the main

benefit contributing to the decision to outsource human resources. Wekesa and Were

(2014), argued outsourcing has both short and long-term benefits. Short and longterm

organizational benefits are the ability to focus on core and strategic issues, the reduction

of operational and capital costs, access to expertise, increased flexibility, and risk

reduction (Sigamani & Malhotra, 2013; Wekesa & Were, 2014). According to Edwin and

Ohaegbu (2015), companies instituting HRO strategies gain competitive advantages over

the ones not instituting any HRO initiatives.

Other researchers, such as Claus Wehner, Giardini, and Kabst (2015) discovered

firms achieve competitive advantages by outsourcing the HR recruitment function. In

their study of line-managers, examining if outsourced recruitment services provide a

suitable organizational solution; Johnson, Wilding, and Robson (2014) revealed that

when managers make recruitment outsourcing a part of strategic management strategies;

HR achieved positive organizational outcomes. Supporting the effectiveness of

recruitment outsourcing, Johnson et al. (2014) observed line-manger satisfaction was high

regarding high-quality services instrumental in the realization of organizational goals.

However, David, Banerjee, and Ponnam (2017) reported some disadvantages experienced

during the recruitment outsourcing process. The authors revealed that to make profits and

meet deadlines, some agencies encourage job seekers to modify their resumes to match

client requirements.

Managers decide to outsource for specific reasons (Tiaojun et al., 2014). In a

study about HR outsourcing comparing the IT and pharmaceutical sectors,

Poornachandrika (2015) discovered firms outsource HR activities because it was too

costly to hire employees across all areas of the organization’s operations.

Poornachandrika revealed HRO is the motivating variable spurring the virtual

organizational movement and that managers outsourced more HR functions to

concentrate on strategic activities that supported core business functions.

In their study, Krstic and Kahrovic (2015) discerned that organizations outsourced

HR functions to acquire specialized HR capabilities and to improve quality and

efficiency. The authors further noted the two predominantly outsourced HR functions are

recruitment and selection and training. Abdul-Halim et al. (2014) reported their

examination of existing literature revealed researchers have not thoroughly examined the

relationship between partnership quality and outsourcing success. Baraldi, Proença,

Proença, and de Castro (2014) concluded it was important for firms to establish

cooperative relationships to make outsourcing relationships work.

Baraldi et al. (2014) revealed that when firms invest in infrastructure, tailor

activities and processes to client needs, and establish favorable business relationships

between the outsourcing firm and IT firm, then a positive outcome manifests and creates

an atmosphere supporting positive outsourcing outcomes. According to Getz, Lamberti,

and Kaitin (2014), sponsor firms hesitate to relinquish operating risk to strategic partners,

and therefore, they do not sufficiently invest in strategic relationships. To achieve

successful strategic relationships, the purpose of the joint venture must manifest, and both

entities must achieve their objectives (Baraldi et al., 2014).

Organizations benefit from outsourcing by gaining access to external skills,

capabilities, and experiences (Kolawole & Agha, 2015). Sigamani and Malhotra (2013)

discovered outsourcing human resources provides an opportunity for managers to

transform the structure, design, and strategic plan of organizations, which is instrumental

in fulfilling the mission and vision of the organization. Sigamani and Malhotra (2013)

stated the prominent benefits associated with outsourcing human resources are increases

in customization, integrated systems usage, use of multiple service providers, and the

development of human capital.

The traditional functions of HRM involve noncore or routine administrative tasks,

such as payroll, budgets, record keeping (Burma, 2014; Sigamani & Malhotra, 2013).

According to Sigamani and Malhotra (2013), noncore or routine activities are ideal

functions for managers to consider outsourcing to reduce cost and increase efficiency.

The authors asserted administrative functions are the most outsourced HR activities by

managers. Huda, Anika, and Khaled (2014) declared when outsourcing strategies work; a

positive company image manifests because HR can respond quickly and more efficiently

to employees and management goals assisting HR to function as a strategic partner.

Roberts, Henderson, Olive, and Obaka (2013) examined outsourcing in healthcare

organizations to provide hospital managers with a starting point for considering the

possibility of outsourcing. Roberts et al. (2013) determined no one-size-fits-all solution

existed; therefore, stated the decision to outsource depends on organizational

circumstances. When deciding to outsource, Roberts et al. (2013) stated managers need to

justify the cost of outsourcing versus keeping functions inhouse, identify outsourcing

obstacles and best practices, and identify the implications for hospital management. To

ensure the success of outsourcing objectives, Roberts et al. (2013) proclaimed managers

need to ask specific questions and devise solutions to create transparency, integrity, and

trust between the organization and outsourcing vendor.

Sigamani and Malhotra (2013) disclosed outsourcing human resources involves

segmentation into three components: (a) consultants, (b) administrative services, and (c)

technology enablers. The consultant component involves services providing information

strategies on compensation, diversity, and employee benefits (Sigamani & Malhotra,

2013). The administrative service component entails the processing of payroll and

payments; and the technology component involves the segment of the HR industry

providing specific technology needs (Sigamani & Malhotra, 2013).

Commonly outsourced HR functions are training and development, payroll,

recruitment, and other administrative tasks (Halim et al., 2017). To manage threats and

quickly respond to opportunities, business managers use outsourcing strategies to focus

on core competencies thereby reducing costs and increasing profits (Edwin, 2015). When

managers decide to outsource noncore HR activities, they can concentrate on core and

strategic issues, reduce operational and capital costs, and increase efficiencies (Patil &

Patil, 2014). Outsourcing also provides firms with access to specialized skills,

knowledge, economies of scale, and competitive rates, as it allows managers to create

competitive advantages (Patil & Patil, 2014).

Sigamani and Malhotra (2013) asserted that when managers decide to outsource

HR functions, the firm needs to perform eight key steps to achieve positive outsourcing

results. The first step involves setting the objectives, which means that managers need to

create accurate outsourcing estimates and outcomes that project how the organization can

benefit from such external services. The second step includes determining the

implications of outsourcing on major stakeholders, such as the managers, employees, and

customers. The third step is analyzing the tangible and intangible benefits of outsourcing,

ranging from cost-effectiveness, increased workforce usage, increased access to

knowledge, and exposure to new procedures or systems. The fourth step involves

exploring the strategic effects of outsourcing, particularly regarding supporting the

longterm goals, vision, and the mission of the organization. The sixth step is the

management of the contract, drafting the formal agreement of the nature of services

expected from the vendor, and the final terms of the negotiation. The seventh step is

transferring of resources, such as labor, information, and systems between the

organization and outsourcing service providers. The last step includes reviewing and

managing the relationship by conducting audits to ensure quality services, based on the

contract, continued through implementation. According to Abdul-Halimet et al. (2014),

the success of outsourcing partnership remains rooted in quality service, underscoring the

importance of ensuring the fulfillment of contract terms, and satisfying key stakeholders.

Using a combination of literature and case study research, Plugge, Borman, and

Janssen (2016) examined two different outsourcing approaches. The researchers revealed

how using versatile approaches result in positive outcomes for clients in the long -term.

In one contextual analysis, the first action of the client was to reorganize activities and

then outsource the functions. In the second contextual analysis, the client did the opposite

by first outsourcing activities and then reorganizing the functions. The authors discovered

that by reorganizing first and outsourcing afterward, the company improved governance

of the process, resulting in richly defined and more stable vendor outsourcing capabilities

that contributed to transient success.

Conversely, outsourcing first and rearranging later revealed the company had less

control of the redesign of the client’s organizational structure thereby creating the need

for an augmented adjustment period to generate a flexible arrangement of outsourcing

abilities capable of accommodating imminent changes. Plugge et al. (2016) demonstrated

that by outsourcing first and rearranging later, firms might enhance success as time

progresses because resulting changes in the customer environment would allow the

company to accommodate client needs. In this section of the literature review, I address

how outsourcing could contribute to the obtainment and sustainment of competitive

advantages. I also discuss the negative side and conflicting views about outsourcing.

Contrasting outsourcing suppositions and negative outsourcing outcomes

Contrary to research supporting HRO, authors such as Butler and Callahan (2014)

asserted that HRO negatively affects operating performance when outsourcing

participation is not optimal. Lahiri (2016) revealed that when managers decide to use

outsourcing strategies, the results achieved ranged anywhere from positive to negative.

Jiang and Qureshi (2006) emphasized that researchers often overrate outsourcing findings

because they overestimate outsourcing benefits and underestimate the transaction costs

associated with outsourcing.

Jiang and Qureshi researched outsourcing studies from 1990 to 2003. In their

study, they grouped outsourcing methodologies into the following five categories:

1. Case studies.

2. Surveys.

3. Conceptual frameworks.

4. Mathematical Modeling.

5. Financial data analysis (included publicly available financial data and

government statistics).

Jiang and Qureshi (2006) included outsourcing determinants (why managers

decided to outsource), outsourcing processes (the steps in the outsourcing process, such

as contract negotiation, partner selection, and monitoring and control activities), and

outsourcing results (how outsourcing impacted the firm). The authors discovered that

previous research on outsourcing was theoretical and based on subjective evidence, from

case studies, surveys, or other self-reported data used to support declarations. The authors

also discovered that although evidence supporting the importance of outsourcing exists,

researchers have failed to determine the effect of outsourcing firm performance using

tangible data from financial reports. Jiang and Qureshi (2006) discovered only four

researchers used financial data with a limited focus to examine the results of outsourcing.

The researchers emphasized the importance of using financial statistics to measure the

effect of outsourcing; however, cautioned that researchers’ access to financial data

primarily depends on the availability of accessible databases.

According to Jiang and Qureshi (2006), managers considered outsourcing a

prodigious option; however, the authors further stated researchers had not documented

outsourcing’s impact on firm performance and firm value using financial metrics to

support their findings. In their findings, Jiang and Qureshi (2006) revealed only 19.8% of

researchers’ literature provide a results-based view of outsourcing. Jiang and Qureshi also

revealed a minimal number of researchers provide evidence to support a relationship

between a firm’s outsourcing decisions and its stock market value, nor did they provide

evidence to support a relationship between outsourcing contracts and outsourcing

outcomes.

Even though HRO benefits organizations (Johnson et al., 2014), researchers have

documented multiple disadvantages (Claus Wehner et al., 2015). Prystupa and Rządca

(2015) discovered that despite the many benefits some firms achieve from outsourcing,

others experience undesirable outsourcing outcomes because their managers lack the

knowledge to identify potential risks or the ability to manage them. Raassens et al. (2014)

revealed that when firms announced their intent to outsource, shareholder value decreased

by 15%.

Hepeng (2014) documented that managers of small and mid-sized enterprises are

more satisfied with their internal human resources, making them less likely to outsource.

Contradicting the findings of researchers, such as Wekesa and Were (2014) regarding the

significant benefits of outsourcing, other researchers have revealed negative effects or

disadvantages associated with HRO (Claus Wehner et al., 2015; Glaister, 2014). For

example, according to Patil and Patil (2014), HRO cannot succeed without input,

coordination, and total support from all stakeholders. In offshore outsourcing, the

organization provides services internationally; however, according to Faraji and

Abdolvand (2016), the lack of face-to-face interaction affects trust and the overall

relationship between the customer and the service providers. The authors stated that it is

necessary for firms to create an atmosphere promoting accurate knowledge transfers

between the vendor and firm.

Other threats associated with HR outsourcing are strategic, contractual,

operational, cultural, and dependency risks (Patil & Patil, 2014). The costs associated

with HR outsourcing are coordination, transacting, and monitoring costs (Patil & Patil,

2014). The decision to outsource human resource functions without performing due

diligence is risky in terms of cost and performance; however, executing systematic risk

management can offset the possible negative outcomes of instituting outsourcing

strategies (Rennung, Luminosu, & Draghici, 2015). Effectively assessing the risks against

gains is crucial for improving the success rates for outsourcing initiatives (Glaister,

2014).

Other outsourcing obstacles or problems include situations that manifest when

some of the HR personnel remain at the firm. When this happens, the training and

motivation of the remaining staff often become overlooked. The organization must be

prepared to manage this type of problem and understand time is of the essence. Liu,

Wang, and Huang (2017) stated that employees of the hosting and outsourcing vendor

should receive training and have frequent information exchanges. Ross et al. (2016)

asserted that frequent information exchanges aid in establishing long-term relationships,

which positively affects outsourcing success rates. Mao, Liu, Zhan, and Deng (2016)

stated the sharing of resources between the host and the outsourcing firm helps in the

exchange of experiences needed to achieve successful outsourcing outcomes. Other

authors are also advocates of outsourcing initiatives.

Davies et al. (2015) conducted a quantitative study on the outsourcing of inbound

materials handling, and warehousing (IMHW) functions to a third-party vendor. Using a

hosting company located in South Wales employing more than 1, 000 employees and an

outsourcing firm providing workforce solutions to firms in the aviation, defense,

government, and technology sectors, the researchers compared the throughput and

accuracy using data covering 13 months before and 16 months after outsourcing the

IMHW functions. Using trend analysis, correlation, and linear regression analysis, Davies

et al. (2015) discovered that outsourcing the IMHW functions has a desirable operational

performance outcome; therefore, stated outsourcing is an effective strategy for

organizations desiring to focus on core competencies. The authors, however, warned that

although outsourcing is an effective organizational strategy, operational performance

might suffer, and it could take months and, in some cases, years to rectify. Davies et al.

(2015) also discovered the outsourcing literature lacked research covering on-site

outsourcing, where the activity remains physically located within the host organization,

and an external vendor manages the function. In fact, the author only found one case

study in which the author addressed on-site outsourcing; therefore, it is evident that we

need more studies to address this gap in the literature.

Vaxevanou and Konstantopoulos (2015b) conducted an extensive outsourcing

literature review based on five phases: the preparation phase, the phase of selecting an

external service provider, the transition phase, the management of the relationship phase,

and the review phase. The authors revealed most researchers had investigated the

outsourcing preparation phase, which is where organizations decide to outsource

functions or keep them internally. Vaxevanou and Konstantopoulos (2015b) declared the

areas needing further research are as follows:

1. The transition phase which should include knowledge transfer.

2. The phase of selecting an external service provider. In fact, in a study in

which they examined the role of service quality on partnership quality and

HRO. Abdul-Halimet et al. (2014) used data from 96 manufacturing

companies located in Penang, Malaysia, and discovered that managers

lacked the knowledge to select the correct service providers and did not

understand how to manage outsourcing relationships. Getz et al. (2014)

stated that the management of outsourcing activities is unpredictable

because managers formed partnerships using internal sourcing approaches

created inefficiencies with parties who had dissimilar goals and agendas.

3. The management of the relationship phase which should include

monitoring business changes, change administration, information

administration and execution administration methods. The evaluation of

trust during this stage is also important. For example, according to Kaynak

and Avci (2014), trust alleviates opportunistic behavior and the perception

of risk. Abdul-Halimet et al. (2014) stated that for organizations to achieve

continuous competitive advantages managers needed to recognize,

analyze, and promote interorganizational relationships.

4. The review phase which should include an examination of the

consequences of outsourcing on portability and cost reductions. The

review should also examine the effect of contracts and service level

agreements on outsourcing relationships, their effect on occupation

movement, and their effect on the strategic and operational levels and

identify the dangers, advantages, difficulties, and opportunities at each

business operating level.

Glaister (2014) conducted 27 qualitative interviews with senior HR management

to determine how HRO affects HR’s role, competencies, and relationships among HR

managers and non-outsourcing counterparts. The author discovered that HRO leads to an

increased focus on cost reduction, causing managers to overlook the development of

employee skills. Glaister also revealed the benefits of external HR appear limiting,

especially when compared with the benefits of internal human resources, suggesting that

internal human resources are an exceptional means for enhancing the departmental role in

the organization.

According to Wehner, Giardini, and Kabst (2015), the negative perceptions of

people inside and outside the organization represent a disadvantage of outsourcing human

resource functions. Wehner et al. (2015) conducted a study using a scenario-based design

to examine the effects of recruitment process outsourcing (RPO) on recent graduates. The

authors discovered that RPO negatively influences graduates, irrespective of the

employer’s or service provider’s image, particularly regarding satisfaction with the

recruitment process and the perceived attractiveness of an organization. Despite the

tendency for negative perceptions about recruitment outsourcing, the authors discovered

when there was a positive perception or image of the organization and the service

provider was a favorable fit, the negative perceptions of applicants about recruitment

outsourcing diminished. The authors further discovered that RPO does not affect an

applicant’s job acceptance intention; however, they revealed a perceived fit between

employer image and service provider image positively affected applicant reactions. The

authors also revealed employer image has a positive association with employer

attractiveness and service provider image has a positive connotation with an applicant’s

satisfaction with RPO.

Kamanga and Ismail (2016) professed adequate supporting infrastructures,

effective performance criteria, managerial capabilities, effective risk management, and

top management support all contributed to the success of outsourcing initiatives. In the

already discussed study of 96 manufacturing organizations in Penang, Malaysia,

AbdulHalim et al. (2014) discovered commitment and top management support did not

have a significant association with the success of HRO. In this section of the literature

review, I discussed some opposing views of outsourcing; however, in the following

section, I will examine the framework selected for use in this study.

Exploring HRO with the TCE framework. The lens used to conduct this study

was the TCE framework. Using the TCE framework is a viable option when a researcher

needs to perform effective cost and benefits analysis to quantify outsourcing decisions

(Roberts et al., 2013). In this section, I introduce TCE and explain the framework’s basic

principles. Next, the focus shifts to examining when managers should and should not

outsource followed by a section about the extension and advancement of TCE. Finally, I

present support for using TCE as the lens through which to view the outsourcing

phenomenon and then present some contrasting TCE theories and viewpoints.

Transaction cost economics. Williamson receives credit for creating the TCE

framework and coining the term transaction costs economics in the 1970s (Williamson &

Ghani, 2012). Researchers and managers use the TCE framework in a variety of

management disciplines because of the value they achieve when using the framework to

examine organizational and hierarchical phenomena or when confronted with making

decisions such as whether to insource or outsource activities (Giustiniano & Clarioni,

2013). The underlying principle of TCE is firms have direct and indirect transactions

associated with establishing contracts or buying goods and services from firms and

service providers (Williamson & Ghani, 2012).

For proponents of TCE theory, internal and external asset usage (asset specificity)

has an impact on transaction costs; therefore, the importance of transaction specific assets

influences outsourcing decisions and organizational structure (Williamson & Ghani,

2012). Asset specificity encompasses resources that provide value to context-specific

transactions. According to Coase (1937), firms existed to identify and effectively manage

transaction costs. Coase (1937) also stated firms incurred costs when purchasing products

or services, therefore, declared the inclusion of transaction costs was just as important as

production costs if not more so. Coase’s (1937) assertion later became known as

transaction costs and included all expenses associated with the frequency, asset

specificity, uncertainty factors, and expenses associated with provider and price

searching, negotiation, and contracting functions. Unlike external transactions, internal

transactions are costs that do not involve outside individuals or organizations

(Williamson & Ghani, 2012).

When to outsource according to TCE proponents. When external transaction

costs exceed internal transaction costs, the organization should benefit and grow, thereby

evading the need to outsource. Conversely, if the internal transaction costs exceed

external transaction costs, organizations are more likely to resort to outsourcing

(Williamson & Ghani, 2012). The costs of contract monitoring, supervision, and

inspection affect the efforts needed to establish and maintain contracts. These costs affect

transaction costs that provide managers with the necessary data required to make

organizational and outsourcing decisions. Managers must consider simple market

exchanges when asset specificity is low. However, the hierarchy structure is the best

management solution when asset specificity increases, conditions of bilateral dependency

develop, and unsettling influences pose interfirm contracting hazards (Williamson, 2012).

For Williamson (1985), transaction costs comprise two categories: ex-ante and ex-post

costs. Ex-ante costs include all costs associated with obtaining provider information and

price searching, and all costs associated with drafting, negotiating, as well as

safeguarding contracts. Ex-post costs comprise all the costs incurred while evaluating and

measuring inputs and outputs, and the costs sustained when performing monitoring and

enforcement activities (Williamson, 1985).

The TCE innovator: The beginning. Coase (1937) receives credit as the pioneer

of the new institutional economics era (Williamson, 2016) and one of the world’s greatest

economists (Shirley, Wang, & Menard, 2014). Coase also receives credit for guiding the

economics arena into a new period of enlightenment. The new institutional economics era

resulted as a direct outcome from Coase’s publishing of the article The Nature of the

Firm in 1937. Researchers began including neglected institutions by neoclassical

researchers in their economic analysis (Baştürk, 2016). For example, Coase began to

include the law in economic analysis thereby demonstrating that transaction costs had an

economic impact (Baştürk, 2016).

Coase (1937) developed the TCE theory to explain how internal and external costs

affected organizational decisions and disagreed with existing theorists who professed

relative prices dictated production factors. Theorist preceding Coase did not provide

reasoning for the existence of firms because they relied entirely on market exchanges to

quantify the prices and quantities of all products and services (Loasby, 2014). Coase

(1937) posited the price Mechanism-controlled transactions outside the firm, and

industrialists determined firm transactions internally. Coase (1937) proclaimed

entrepreneurs determined the firm’s size because as firms acquired more transactions,

their size increased. Coase (1937) further reasoned if the price mechanism regulated

production, then production was not dependent upon organizations; therefore, Coase

(1937) questioned why organizations needed to exist. Additionally, Coase (1937) also

declared expenses existed when using the price mechanism. Coase additionally stated

some costs conditions make it advantageous to use alternative arrangements, such as

directing or acquiring resources through an entrepreneur. Williamson and Ghani (2012)

supported this position by arguing the choice between vertical integration and the market

depend on the number and degree of relationship-specific assets and the difficulty

associated with writing contracts. Coase (1937) further argued the expenses of arranging

extra exchanges increase with scale, and thus parallel the costs of additional market

transactions.

Coase (1937) urged economists to consider human-related costs not associated

with production and subsequently developed the TCE theory in 1952 with the central

premise firms internalized functions until it was more economical to outsource. For

Coase (1937), firms incurred costs when they purchased a product or service. Coase

(1937) also asserted firms and markets were different structures that existed to manage

the same transactions. Coase (1937) also stressed the decision of when and where to

complete transactions impacted firm productivity. Consequently, considering the

magnitude of expenses, business managers decided if exchanges should occur inside the

organizations or in the business sector. Coase (1998) advocated for understanding and

support for TCE, expressing the need to develop relevant theories to reflect the evolving

commercial climate.

Extending TCE. According to Kay (2015), researchers’ initial foundation of

transaction costs economics did not focus on any explicit area of research; rather

researchers first used TCE to support economic consequences of costly exchange (costs

associated with participating in the market). The use of the TCE framework facilitated

scholars transitioning from thinking of firms as avoiders of negative costs toward

perspectives the firm produced constructive information (Kay, 2015). Williamson (1983)

expanded on Coase’s work by adjoining the market and administration modes of the

organization. Until this point, economists and organization theorists examined markets

and organizational administration modes separately. Williamson postulated it was

imperative to examine the relationship of various structures with each other to understand

the powers and limits of the market and the internal modes of the organization. To assist

managers in this area, Williamson proposed a failures framework proponent to evaluate

the viability of finishing related transactions across business sectors or within the firm. In

the market failures framework, Williamson used humanistic organizational psychology

and open systems theory to define the conditions under which it was more viable for

formal organizations to conduct market transactions.

Williamson’s approach contradicted the neoclassical approach because the

researcher provided mechanisms for assessing hierarchical structures whereas

neoclassical advocates determined prices and outputs using a lens fixated upon supply

and demand. Williamson and Ghani (2012) further expanded on Coase’s work by

identifying how firms reduced costs by keeping functions inhouse. For example,

Williamson and Ghani stated it was more advantageous to in-source complex transactions

within a single governance structure to manage complex and costly contracts.

Williamson and Ghani (2012) further expanded on Coase’s work by emphasizing

the importance of explaining firms’ boundaries and describing two factors that influenced

transaction costs. The first factor, limited rationality, involved the powerlessness of

people to foresee all matters involving transactions (Williamson & Ghani, 2012).

Williamson and Ghani identified the second factor as the risk of opportunism. The risk of

opportunism manifested when one entity, involved in the transaction, profits from

unexpected changes in conditions during the exchange and then exploits the situation by

requiring contract alterations creating strategic advantages (Williamson & Ghani, 2012).

Williamson (2016) agreed with Coase’s proclamation that direct and indirect costs

correlated to establishing service provider contracts. However, Williamson (2016) also

stated a need existed for firms to identify the key attributes of alternative governance

methods and to increase transaction efficiencies positively impacting transaction cost

outcomes.

TCE relevancy. Managers use the TCE framework to identify incentives and

conflicts between internal and external services; therefore, the framework provides

managers with the tools needed to make HRO decisions (Giertl, Potkany, & Gejdos,

2015; Giustiniano & Clarioni, 2013). For example, Giustiniano and Clarioni (2013)

empirically tested a conceptual model to examine the impact of outsourcing on business

performance by comparing the financial records from the databases of various companies.

The sample consisted of 107 companies from the Osiris database with outsourcing

experience between 2000-2009. Using TCE as the study’s theoretical framework, the

researchers discovered outsourcing created competitive advantages for their firm and

revealed outsourcing occurred more when the organizational perception was the

organization could not provide the services internally. The researchers explained the

results by contending using the TCE framework allowed managers to assess the costs and

benefits of outsourcing. The TCE framework is an appropriate choice for this study

because the framework encompasses the tools necessary for management to determine

the viability of outsourcing HR functions, which then directly impacts the firm’s vertical

integration strategies.

Brewer, Wallin, and Ashenbaum (2014) stated the TCE and resource-based views

(RBV) are two complementary frameworks managers use when making outsourcing

decisions. The TCE framework is also an excellent tool to use when managers need to

balance transaction and production costs with insourcing and outsourcing decisions

(Muthoni & Nyakagwa, 2014). For example, Williamson and Ghani (2012) conducted a

review of the literature and revealed when using the TCE framework; firms often decided

to internalize functions if the transaction and production rate, associated with the

outsourcing activity, was high. Williamson (2016) theorized all organizational forms

represented instruments used to acknowledge management. Additionally, the author

stated organizations needed to realize the value of good because it was always superior to

worse. What Williamson meant by this statement is that organizations possessing superior

transactional cost economizing strategies will replace those with inferior ones; however,

this position led to contradictory views of TCE.

Contrasting TCE theories and viewpoints. Early researcher criticisms of TCE

focused on the incorrect assumptions and logic about the similarities and differences

between organizations and the market. Moran and Ghoshal (1996) produced an article

based on the literature about the weaknesses of TCE, leading to the proclamation

researchers needed to consider alternative theories. Moran and Ghoshal professed this

process needed to occur because TCE proponents rooted their position in the logic of the

markets.

Moran and Ghoshal (1996) further argued TCE supporters suggested opportunism

is the only relevant disposition; however, supporters then took the position all

dispositions needed to include opportunism; thus, not having an autonomous role in

shaping behavior or inducing governance. Moran and Ghoshal reasoned the structural

advantages of an organization were not the same with larger markets, which meant

organizations were more than proxies manifesting to address efficient transactions when

markets failed. Moran and Ghoshal asserted, the normative use of the TCE framework

within organizations only increased latent conflict, diminished reciprocated gains, and

restricted ways in which firms achieved order. The authors further stated Williamson’s

assertion that opportunism was the only disposition (conditioning factors) of relevance

and the major source of transaction costs was counterintuitive because TCE proponents

did not explore the impact of opportunism or other dispositions in an evidentiary manner.

Moran and Ghoshal (1996) stated once firms factored in opportunism

Williamson’s solution for mitigating the risks associated with opportunism was likely to

enhance its negative effects. Further contradicting TCE framework proponents, Moran

and Ghoshal presented a Bad for Practice theory wherein the assumption was that social

organizations, disposition conditioning, and situation (feelings associated with an entity

or situation) evolve interdependently and influence each other. In other words, the authors

agreed with Williamson to a point by stating opportunism existed, and it influenced

opportunistic behavior; however, Moran and Ghoshal professed opportunism was not the

only major factor contributing to transaction costs.

TCE proponents focus on identifying and analyzing the variables impacting

market or hierarchical transactions. For example, TCE advocates such as Coase (1937)

and Williamson (1983) included the behavioral aspects of economic actors in the TCE

framework, which contradicted the position of neoclassical economic theory advocates

who viewed the firm as a production function (black box). The black box or production

function is a process where firms convert inputs into outputs based on technology alone

(Williamson, 2012).

According to neoclassical advocates, all firms had identical access to resources

and operated in a perfect competition paradigm; however, in this view authors did not

adequately address or explain economic phenomena (Coase, 1937; Williamson, 1983).

Transaction costs proponents, therefore, created the TCE framework to expand upon and

to fill the void created by other simplistic theories, such as the neoclassical view.

Transaction costs advocates view firms as hierarchies that add value by economizing

transactions which they achieve through organizing different assets to minimize

transaction and production costs (Williamson, 1983). To economize transaction costs,

TCE activists examine how governance modes impact transaction costs. For example, by

including the behavioral aspects of economic actors into the TCE framework, transaction

costs proponents provided managers with the means to identify and distinguish between

internal coordination and motivation issues impacting the choice of hierarchies versus

markets.

Williamson (1983) stated managers decided to use either the market (buy), where

the firm purchased products or services externally; hierarchy or vertical integration

(make), which is where the firm makes products or performs services internally; or the

hybrid (a combination of the market and hierarchy structures) governance structure

depending on the one most effectively minimizing transaction and production costs.

Market governance structures involve relatively simple transactions easily produced or

transmitted by outside organizations. Transaction costs associated with the market

governance structure entail costs related to search, selection, bargaining, enforcement,

governance, and work coordinating costs. Using the hierarchy or vertical integration

governance structure, managers develop products inhouse because of their complexity or

difficulty in finding qualified suppliers. Transaction costs associated with the hierarchy

governance structure include costs such as asset specificity costs (the cost incurred to

acquire and maintain skill employees to perform special tasks), production costs, and

governance costs. An important note about the hierarchy structure is that governance

costs are much lower because the management staff normally renders the decisions

whereas in the market structure the courts render the decisions. The hybrid organizational

structure combines elements of the market and hierarchy governance structures.

Williamson (1985) described the market and hierarchy structures as being inverse

counterparts. For Williamson, the market structure is the most viable structure to use

when addressing high uncertainty and opportunistic environments needing strong and

enforceable contracts. The hierarchy structure, which pertains to the decision to make or

make vs. buy, decision (whether to insource or outsource) is the most feasible structure to

use in high asset specificity (encompasses resources providing value to context-specific

transactions), high uncertainty, and high frequency of transactions environments because

it has lower transaction costs (Williamson, 1985).

According to transaction costs economics proponents, managers should use the

hierarchical governance structure when the level of the transaction-specific investment is

high; however, to do so, firms need to either develop the capability internally or acquire

an organization possessing the needed capability; however, developing the capability

internally or acquiring an organization possessing the required capability could prove too

costly. Consequently, managers need to also consider the costs of internal development or

acquisition (Schermann, Dongus, Yetton, & Krcmar, 2016); therefore, creating the need

for other frameworks to bridge the gap.

In more recent research, Schermann et al. (2016) reviewed the applicability of

TCE in the information technologies sector by analyzing whether it worked to choose

contract types for the business or whether it would help to create a new foundational

theory to use. This viewpoint represents an important use for applying the TCE construct;

however, once Schermann et al. (2016) finished their review, they concluded it would

remain beneficial to construct a new foundational theory to use with such issues.

Schermann et al. took this position because TCE led to task uncertainty in relation to

information technologies, which derived from the evolving management processes of the

modern firm. Consequently, this aspect of TCE created the need for other theories such as

the resource-based theory (RBT), which could bridge the gaps created by TCE. The

empirical basis for their recommendation was the inconsistency between the expected

outcomes of TCE when it comes to what types of contract managers will pursue based on

their analysis of transaction costs.

TCE’s disparity with RBT and the theory of core competencies (TCC). A

contrast between the RBT and the transaction costs theory exists, and it stems from how

the advocates of each theory view ownership (Kozlenkova et al., 2014) For TCE

proponents such as Coase (1937) and Williamson (1985), when a firm makes ownership

decisions managers need to focus on minimizing exchange and production costs. For

TCE proponents, when market exchanges have high transaction costs, vertical integration

or joint ventures is the most viable option for managers (Kozlenkova, Samaha, &

Palmatier, 2014). Additionally, according to TCE supporters, to mitigate the risk of

opportunism the selection of governance mechanisms is of paramount importance.

Conversely, RBT proponents seek to maximize firm value by coupling resources

(Burton, & Rycroft-Malone, 2014; Lin & Wu, 2014). The principal impetus for using

RBT in most marketing contexts is it provides a robust framework for incorporating

numerous, divergent resources to describe their synergistic and varietal effects on

performance and their related contingencies (Kozlenkova et al., 2014). Agreeing with this

assertion, RBT proponents such as Takahashi (2015), stated firms needed to possess a

collection of resources they could use in a variety of ways to produce different services,

which in turn provided economies of growth. RBT proponents asserted firms achieved

unrivaled performance because they had superior resources and effectively utilize those

resources (Kozlenkova et al., 2014).

The use of RBT expanded to operations management sector as a way of

explaining operations management (Hitt, Xu, & Carnes, 2016); hence, is now one of the

foremost frameworks used in management. For example, Hitt, Xu et al. (2016) specified

RBT represented a way for firms to depict usage of their resources, especially external

resources, such as outsourcing HR. The authors specifically referred to information

technology as a growing external resource that modern firms encounter when trying to

decide on the best processes for management within their operations (Hitt, Xu et al.,

2016). The authors concluded RBT added richness to the growing field of management,

especially when considering outsourcing; however, they also acknowledge disparages

exist (Bromiley & Rau, 2016; Kaufman, 2016). Kaufman (2016) expounded on the issues

of RBT, expressing that RBT authors did not provide any guidance on how to evaluate

resources. According to Kaufman, not providing managers with the ability to evaluate the

value of resources hindered managers’ ability to measure success. Bromiley and Rau

(2016) contended RBT was not an appropriate framework to use in the operations

management (OM) field because it was too difficult to measure sustained competitive

advantages. Consequently, Bromiley and Rau introduced a new novel theory, the

practice-based view (PBV), which provided a method for explaining the process of

management, by utilizing capable practices. Hitt, Carnes, and Xu (2016) argued Bromiley

and Rau use research and evidence from the past, citing articles from the 1990s, and the

authors failed to account for the evolution of the industry, including the use of

information technology.

Hitt, Carnes et al. (2016) identified important gaps between their review and

Bromiley and Rau’s (2016) review involving the independent variable and the level of

analysis. According to Bromiley and Rau, one needs to examine only the top 10% of

firms to explain sustained competitive advantages. However, in recent studies researchers

have examined the differences in firm performance individually and compared to industry

averages thereby allowing RBT proponents to explain how diverse firms, at varying

levels of performance, develop and sustain advantages (Hitt, Carnes et al., 2016).

RBT proponents argue when utilizing resources in the firm, organizations create

competitive advantages (Hitt, Carnes et al., 2016); however, opposing proponents such as

Dyer and Singh (1998) argued that firms could also achieve competitive advantages by

combining resources transversely across organizational boundaries. In this relational

view, Dyer and Singh focused on the network strategies and processes creating sources of

competitive advantages. For example, the authors used Toyota’s and General Motors’s

(GM) production networks to demonstrate how knowledge sharing strategies create

interorganizational (relationships between two or more organizations) competitive

advantages (Dyer & Singh, 1998). In the example, the authors demonstrated how Toyota

transfers knowledge directly to its suppliers by assimilating and dispensing knowledge

through its OM consulting division and by transferring personnel to the supplier to

increase the supplier’s ability to adapt to and use the newly acquired knowledge (Dyer &

Singh, 1998). Toyota accomplished these knowledge transfers because Toyota’s

management understood what knowledge to transfer and whom to transfer it to on the

supplier side (Dyer & Singh, 1998). These successful knowledge transfers created

interorganizational boundaries creating sources of competitive advantages for Toyota. In

contrast to Toyota, GM, had proprietary innovations which, according to RBT

proponents, is the best way to generate rents; however, because of its proprietary posture,

suppliers refused to engage in knowledge-sharing activities with GM because their

managers perceived they had nothing to gain from the exchange (Dyer & Singh, 1998).

From the GM and Toyota examples above, we see how collaborating firms can

generate relational rents through relation-specific assets and knowledge-sharing routines;

however, this relational perspective contradicts practices used with the RBV and industry

structure views (Dyer & Singh, 1998). Therefore, future research scholars should

examine the relational perspective and RBV differences in greater detail. Moreover,

because of the failure rate of many alliances, it is important for researchers to examine the

factors that impede the realization of relational rents (Dyer & Singh, 1998).

Differences also exist between TCE and TCC. For example, TCE proponents

focus on the choice between firms versus markets depending upon the relative transaction

costs of the varying organizational structures (Williamson & Ghani, 2012). For TCE

advocates, firms and institutions are bundles of contracts providing efficient mechanisms

for creating and rearranging incentives (Williamson & Ghani, 2012). TCE supporters

view vertical integration as a means of addressing preexisting market control issues or as

a strategic means of creating or enhancing upstream or downstream market control

(Williamson & Ghani, 2012). Contrary to TCE proponents, TCC cohorts stress core

competence defines the firm’s structure and boundaries (Agha, Laith, & Manar, 2012;

Ibraimi, 2014; Jabbouri & Zahari, 2014). Core competencies are unique tools, skills, and

behaviors that create a dynamic and flexible environment allowing firms to support new

products, services, or markets (Yang, 2015). Yang (2015) defined core competence as the

successful integration of innovations, specialized knowledge, skills, methods, and

practices providing management with the capabilities necessary to develop core products

and new business. For TCC cohorts, before making any insourcing and outsourcing

decisions firms must first define their core competencies because, according to Enginoglu

and Arikan (2016), core competency is a key element for understanding competitive

advantage in current fast-paced and competitive business environments. TCC proponents

professed that core competencies provide firms with differentiation and competitive

advantages (Agha et al., 2012; Jabbouri & Zahari, 2014).

In a 2010 study conducted in the United Arab Emirates by Agha et al. (2012), the

authors used electronically administered surveys and collected data from 77 managers in

the paint industry to study the shared vision, cooperation, and empowerment core

competencies. Agha et al. (2012) scrutinized the flexibility and responsiveness

dimensions, associated with competitive advantage. Agha et al. and Jabbouri and Zahari

(2014) discovered core competence positively impacted competitive advantage and

organizational performance and that competitive advantage positively impacted

organizational performance. The authors argued in addition to identifying competencies;

managers need to assess core competencies against their competitor’s competencies and

ensure the firm’s core competencies (Jabbouri & Zahari, 2014). Managers should also

ensure the firm’s core competencies provided value and differentiation to the market

(Jabbouri & Zahari, 2014).

For example, Chadwick, Super, and Kwon (2015) reviewed HR practices,

amongst CEOs in resource management. Chadwick et al. (2015) revealed HR represented

a resource, therefore stated all managers needed to participate in supervising resources. In

their study, Chadwick et al. depicted the need for more middle managers to orchestrate

HR issues to alleviate top management stress and allow upper management to focus on

other tasks. In their study, Chadwick et al. highlighted the need for firms to identify core

competencies thereby prioritizing management’s focus within the firm.

Outlining core competencies and prioritizing management’s strategies may help

alleviate issues associated with HR outsourcing initiatives. One of the dominant strategies

firms use to define their core competencies and to achieve sustainable competitive

advantages is the competence perspective (Wekesa & Were, 2014). In fact, the focus of

many current managers is to focus on core competencies. However, it is important to

identify some gaps existing in the literature on core competencies.

For example, according to Enginoglu and Arikan (2016), the biggest gap in core

competence literature stems from the lack of its practical use. Enginoglu and Arikan

discovered existing researcher’s work was highly descriptive and limited to Western

cultures. The authors also discovered researchers limited much of the core competence

literature to large firms and had not investigated if a link existed between organizational

culture and core competencies.

Core competencies are the integration of knowledge, human resources, financial

and non-financial capital that provides organizations with a source of competitive

advantage (Enginoglu & Arikan, 2016). Existing research on core competencies is rooted

deeply in Western culture (Enginoglu & Arikan, 2016). In addition, there is a missing

literature link between organizational culture and core competencies; therefore, future

researchers should focus on including Eastern cultures and bridging the link between

organizational culture and core competencies (Enginoglu & Arikan, 2016).

Summary and Transition

Section 1 of this study included an introduction to the premise for this research

and included the problem and purpose statements, research question, conceptual

framework, operational terms, the significance of the study, and review of relevant

literature. In the literature review, I presented the groundwork needed to understand the

HRO phenomenon. To achieve this end, the literature review included some of the

reasons managers outsourced and some variables contributing to either positive or

negative outsourcing outcomes. Next, I presented the TCE framework as the lens used to

explore HRO strategies used to reduce operating costs while maintaining HR

effectiveness. I selected the TCE framework because it is a reputable tool to use when a

leader’s goal is to achieve cost reductions through outsourcing strategies. The TCE

framework is also a trustworthy tool to use when managers need to balance transaction

and production costs with insourcing and outsourcing decisions (Muthoni & Nyakagwa,

2014).

The scholarly articles contained in Section 1 provided the means for me to create

the foundation for this study. In Section 2, I provided additional details on the nature of

the study, the participants, and the research design. In Section 3, I included the

presentation of findings, recommended performance improvement strategies, suggestions

for future action, and reflections on the process and results of the research.

Section 2: The Project

Section 2 includes the procedural facets of the study, which comprises the role of

the researcher, the research method and design, the population, the data collection

process, and data analysis techniques. The purpose of this research, which was to identify

strategies managers use to reduce operating costs while maintaining HR effectiveness. To

achieve this end, I discussed my role in the data collection process and then the research

method and design. I conclude this section with a discussion of research integrity checks

and balances such as using multiple data sources and conducting member checking.

Purpose Statement

The purpose of this qualitative multiple case study was to explore HRO strategies

managers use to reduce operating costs while maintaining HR effectiveness. The

population consisted of three Midwestern firms with 50 or more employees. The

participants, drawn from the population, consisted of a minimum of two participants per

organization who have experience reducing operating costs using HRO strategies. This

research may prove beneficial for managers by identifying different HRO strategies and

their success or failure outcomes in varying contexts, thereby contributing to their ability

to choose outsourcing strategies conducive to the reduction of operating costs. Through

this study, the potential exists to contribute to social change by identifying strategies that

reduce employee displacement rates associated with outsourcing initiatives. Potentially

reducing employee displacement rates stemming from outsourcing initiative uncertainties

could cause seasoned and communal contributing employees to remain in the local

community, thereby strengthening local municipalities. The identification of successful

HRO strategies might also lead to the creation of additional jobs associated with the

firm’s core capabilities, thereby reducing local unemployment and crime rates.

Role of the Researcher

One of the primary roles of the qualitative researcher is to serve as the data

collection instrument (Isaacs, 2014). As the researcher of this qualitative study, I served

as the data collection instrument. In addition, as part of the data collection process, I

asked open-ended questions and reviewed company documents such as standard

operating procedures and project management plans. Collecting data in this manner

allowed triangulation to occur, which according to Leung (2015) helps the researcher

achieve reliability. Postholm and Skrøvset (2013) stated researchers need to be aware of

their biases and assumptions for there to be an effective working relationship between

researchers and participants. To help prevent bias in this study, I recorded and transcribed

each interview using a semistructured interview protocol, conducted member checking,

and used triangulation. According to Postholm and Skrøvset, when researchers

successfully identify biases and assumptions, effective knowledge transfer manifests

between researchers and participants.

According to Sanjari, Bahramnezhad, Fomani, Shoghi, and Ali Cheraghi (2014),

researcher involvement happens during every stage of a study. Sanjari et al. (2014) stated

researcher involvement involves conducting interviews, transcribing functions, inquiry,

authentication, and the recording of concepts and themes. Collins and Cooper (2014) said

conducting face-to-face interviews is the most common and non-threatening means of

gathering data from participants; therefore, face-to-face interviews will be the primary

source of collecting data for this study.

As a former program manager for a Midwestern company, I am familiar with

some outsourcing strategies; therefore, I have a basic understanding of how outsourcing

could positively impact an organization if firm managers perform due diligence to

maximize chances of achieving desired outsourcing outcomes. Conversely, I have also

witnessed how not conducting due diligence for outsourcing strategies negatively impacts

outsourcing outcomes; however, my experience does not include knowledge from an HR

perspective.

Using a semistructured interview protocol, asking open-ended questions, telling

the participants the purpose of the study, defining both the participant and researcher’s

role, explaining the process of the study, and adhering to the protocols of the Belmont

Report helped to alleviate fears and encourage participation. The Belmont Report

establishes guidelines to protect respect for persons, beneficence, and justice for research

including human subjects. Conducting personal interviews in natural and neutral settings

convenient to the participants such as private meeting rooms also helped instill

trustworthiness. To ensure high ethical standards in this research, I performed a

selfassessment to identify biases before collecting and interpreting data and provided

participants the opportunity to review interpreted interviews to ensure I captured the

correct meaning of their responses. Using an interview protocol allows authors to outline

the procedure and methods for conducting user interviews, thereby ensuring researchers

elicit and collect useful data (Castillo-Montoya, 2016). Using an interview protocol

allowed me to ask open-ended questions in a uniform and chronological manner, aiding

in the potential reduction any biases.

Participants

Postholm and Skrøvset (2013) stated to acquire study participants, researchers

must first convince them the research topic is important. I explained to potential

participants the purpose of the study and how it might contribute to their continued HRO

success. The targeted population consisted of HR managers and managers of Midwestern

firms with 50 or more employees. The participant sample, drawn from the population,

consisted of a minimum of two managers per organization who had experience reducing

operating costs using HRO strategies. Participants received a letter of cooperation (see

Appendix B) to participate in the study via email, which included the purpose for the

study and an explanation of how their participation might contribute to improved business

practices and social change. Confirmed participants signed an informed consent form that

I delivered and retrieved in person or by fax or email. The signed consent form served as

an acknowledgment and agreement by the participants to participate in the study. To

identify study participants, I used the purposeful sampling strategy. Purposeful sampling

entails selecting information-rich cases containing an abundant amount of information

about the central issue or social purpose of the study (Palinkas et al., 2015).

Sample size may vary; however, according to Boddy (2016), the context and

purpose of the research are the determining factors dictating the sample size. Selecting

two participants from three different organizations who had experience reducing

operating costs provided a good beginning point to collect data. For the interview

process, I obtained a minimum sample of six managers who had reduced operating costs

while maintaining HR effectiveness. This sample provided enough data to gain an

understanding of the HRO phenomenon because I selected potential participants based on

their experiences and involvement with the phenomenon under investigation. Participants

in this study did not receive any compensation for participating in the study other than

having the satisfaction of knowing they would be contributing to the future success of

firms by identifying successful outsourcing strategies, thereby positively impacting social

change.

According to Newington and Metcalfe (2014), participant recruitment is one of

the most important aspects of a research project. Additionally, the authors stated it is

important for researchers to establish a meaningful working relationship with participants

and to achieve a meaningful working relationship, researchers need to disclose the intent

of the study and the process flow to the study’s participants. I disclosed to participants the

intent and process flow of the study and explained how I would protect their

confidentiality and privacy by using techniques, such as masking participant and

organizational names. Participants also received a briefing about other security

precautions, such as, storing computer records on a password-protected removable hard

drive and securing the removable hard drive and any physical files in a locked fireproof

safe until they reach their 5-year destruction date. Finally, all study participants had the

opportunity to review interview interpretations for accuracy and received a summary of

the findings.

Research Method and Design

Research Method

I chose to use the qualitative multiple case study approach for this study because

using a non-measurable exploratory approach, such as, the qualitative approach allowed

for the identification of strategies that helped managers reduce operating costs while

maintaining HR effectiveness. The qualitative approach is appropriate to use when a

researcher seeks to understand the underlying reasons, opinions, and motivations

associated with a phenomenon (Bengtsson, 2016). When using the qualitative approach,

researchers attempt to provide meaning to collected data, which is usually in the form of

words acquired through the interviewing process (Malterud, Siersma, & Guassora, 2015;

McCusker & Gunaydin, 2015). Using the qualitative method also allows researchers to

approach the study’s participants with an inquisitive attitude helping respondents answer

research questions and use their needs, concerns, and voices to shape the study

Bengtsson, 2016).

I chose not to use the quantitative approach because when researchers use the

quantitative approach they already understand what they seek, therefore, they collect the

data needed to confirm or disprove theoretical hypotheses (McCusker & Gunaydin,

2015). Additionally, quantitative data collection methods are much more structured than

qualitative data collection methods and more appropriate for testing hypotheses but are

not relevant for gathering or analyzing contextual information. In addition, the results

from data gathered from quantitative data collection methods provide numerical

descriptions rather than detailed narratives which normally results in researchers not

providing an elaborate accounting of the human perception.

I chose not to use the mixed method approach because mixed method researchers

perform extensive data collection, use extensive resources, and use a combination of the

quantitative and qualitative research approaches; hence, must have experience with both

quantitative and qualitative methodologies (McKim, 2017). The quantitative and mixed

method approaches are not appropriate for this study because I do not seek to capture or

use measurable data. The purpose of this research was to identify strategies managers use

to reduce operating costs while maintaining HR effectiveness. Because of the exploratory

nature of this study, using the qualitative approach was the most conducive approach to

achieving the objectives of this research.

Research Design

The chosen design was a multiple case-study. Case study research is a popular

approach among qualitative researchers because of its appropriateness and

methodological flexibility for use with qualitative methods (Hyett, Kenny, &

DicksonSwift, 2014). The case study approach is appropriate when researchers choose to

analyze everyday situations using multiple sources of evidence. When used in a business

context, the case study research design provides researchers with adaptability to the types

of sources and procedures available and provides them with a means to examine

interactions between the organizational groups and individuals impacted by the

organization (Chetty,

Partanen, Rasmussen, & Servais, 2014).

Using the case study design, I collected and analyzed data from a variety of

sources; thereby, assisting with the exploration of managers’ real-world experiences with

HRO strategies they used to reduce operating costs while maintaining HR effectiveness.

The designs not chosen for this study are grounded theory, ethnography, phenomenology,

and narrative designs. I did not select the grounded theory design because according to

Rintala, Paavilainen, and Åstedt-Kurki (2014), grounded theory researchers strive to

contribute to theory development and the intent of this study is to present findings and not

to generate theory.

I decided not to use the ethnography design for this study because researchers use

ethnography to learn about a culture and it requires prolonged field research by observing

participants (Morgan-Trimmer & Wood, 2016). For this research, I did not have the time

or resources to spend extended periods in the field trying to ascertain and describe the

experiences of an entire culture or populace. I also decided not to use the phenomenology

design for this study because phenomenology researchers investigate participants lived

experiences and seek to understand the essence of a phenomenon (Koopman, 2015).

However, I did not desire to investigate lived experiences; rather I wanted to explore

strategies managers use to reduce operating costs while maintaining HR effectiveness.

Finally, I did not select the narrative design because I required a thorough accounting of

HRO strategies from an experienced industry leader’s perspective; therefore, I needed

access to multiple data sources. Proponents of the narrative design acquire data by

capturing the stories from participants (Khan, 2014); however, I needed to capture a more

comprehensive view of the strategies managers use to reduce operating costs while

maintaining HR effectiveness.

Population and Sampling

The target population for this study consisted of participants from three

Midwestern firms with 50 or more employees. The sampling method best suited for this

study was the purposive sampling method. According to Robinson (2014), using

purposive sampling ensures researchers acquire the correct participant sample needed to

study the phenomenon under investigation. Using purposive sampling, researchers select

participants with experience and knowledge of the phenomenon thereby allowing for the

obtainment of detail-rich responses relevant to the researcher’s central research question

(Masso, McCarthy, & Kitson, 2014). Therefore, I used purposive sampling to identify

participants with the relevant experience. The purposive sample, drawn from the

population of three Midwestern firms, consisted of a minimum of two managers per

organization, who had proven experience reducing operating costs using HRO strategies.

The participants included senior-level managers, HR managers, and participants from

various other departments.

According to Fusch and Ness (2015), researchers should use the sample size

providing the best prospect for achieving data saturation. The concept of data saturation is

pertinent to all qualitative research where researchers use interviews as the primary data

source (Marshall, Cardon, Poddar, & Fontenot, 2013). Data saturation occurs when data

replication or redundancy ensues because of bringing new participants repeatedly into the

study (Marshall et al., 2013). In other words, data saturation is the point where no new

information manifests from conducting more interviews. After interviewing and

analyzing the data from an initial sample size of two managers per organization and no

additional new information, coding or themes materialized, I recognized that I achieved

data saturation. However, I would have continued to add additional interviews until data

saturation occurred, if that had not been the case.

According to Marshall et al. (2013), the sample size varies depending on the data

the researcher needs to answer the research question; however, the sample selected must

provide credibility. The sample and size credibility for this research rested on the

selection of participants with proven experience reducing operating costs using HRO

strategies. My experience in the IT industry as a program manager provided access to

participants who received a standard participation letter of cooperation via email. Once

participants indicated their interest in participating, they received the informed consent

form and a synopsis of the purpose of the research before any interviews took place. The

informed consent letter served as a reformation to the participants concerning their ability

to withdraw from the study at any time.

The primary data collection tool used in qualitative studies to explore HRO is the

interview (Gill et al., 2015). I used semistructured interviews and an interview protocol to

capture enough rich data to identify themes and achieve data saturation. According to

Oltmann (2016), qualitative interviews are an established and essential research method. I

conducted the interviews at a time and location convenient to participants.

To help prevent bias in this study, I recorded and transcribed each interview,

conducted member checking and used triangulation. Additionally, I ensured participants

only I had access to the study data and their identification, whose identity I masked using

pseudonyms. According to Mitchell and Wellings (2013), keeping participants’ identities

hidden helps to protect their personal information and maybe even their careers. Dheensa,

Fenwick, and Lucassen (2016) stated researchers must keep participant information

confidential. Dheensa et al. (2016) also stated by ensuring participants’ privacy,

researchers engender trust amongst themselves and participants thereby establishing an

autonomous relationship assists participants with freely sharing information. Therefore,

to further establish a trustful relationship with participants, I disclosed the intent and

process flow of the study. Participants also received a briefing about other security

precautions, such as, storing computer records on a password-protected removable hard

drive and securing the removable hard drive and any physical files in a locked fireproof

safe until they reach their 5-year period destruction date. Furthermore, all study

participants had the opportunity to review interview interpretations for accuracy and

received a summary of the findings. Participants in this study did not receive any

compensation for participating in the study other than having the satisfaction of knowing

they could potentially be contributing to the future success of firms creating improved

outsourcing strategies.

Ethical Research

Sanjari et al. (2014) stated researchers must address challenges in every phase of a

research project. Therefore, researchers must provide due diligence to adhere to ethical

guidelines when considering issues such as; anonymity, confidentiality, informed

consent, and interaction impacts (Sanjari et al., 2014). For this study, adhering to ethical

principles and practices was paramount. I followed and adhered to The American

Psychological Association’s (APA) and Walden University ethical principles, code of

conduct, and integrity and compliance standards. I also observed the protocols established

in the Belmont Report (U.S., 1979) and informed all participants that I would adhere to

this protocol to ensure their protection, to alleviate any fears, and to encourage

participation. I also adhered to Sanjari et al.’s (2014) suggestion about obtaining a signed

consent form and obtained a signed consent form from all participants. The consent form

contained a withdrawal clause, reassuring participants of their ability to withdraw from

the study at any time without repercussions. To withdraw from the study, participants

could contact me by using any convenient communication medium (call, text, email, or

fax) at any time. The consent form contained the purpose of the study and a statement

where I informed participants they would not receive any incentives or inducements for

participating in the study.

In compliance with ethical standards, I completed the National Institutes of Health

training on the protection of human participants in research training (Appendix A). I also

obtain Walden’s institutional review board (IRB) approval (06-18-18-0353594).

According to Fiscella, Tobin, Carroll, He, and Ogedegbe (2015), the charge of the IRB is

to minimize participant risks while maximizing research data quality. To achieve this end,

the IRB oversees ethical practices ensuring adherence to federal and state regulations and

institutional policies and procedures (Fiscella, Tobin, Carroll, He, & Ogedegbe, 2015).

Participants received a briefing about security precautions such as; storing computer

records on a password-protected removable hard drive and securing the removable hard

drive and any physical files in a locked fireproof safe until they reach their 5-year

destruction date. I had all the participants sign an informed consent form and stored all

signed informed consent forms in a secure locked safe and listed the consent form

template location in the table of contents. Finally, I protected participants’ confidentiality

and privacy by masking participant and organizational names and using codes to

distinguish interview responses and maintained participant discretion throughout the

study. The appendices applicable to ethical research for this study include the

National Institutes of Health training on the protection of human participants in research

training certificate (Appendix A), a letter of cooperation (Appendix B), an interview

protocol (Appendix C), and a consent form (Appendix D).

Data Collection Instruments

According to Sanjari et al. (2014), researchers are the instruments used to collect

and analyze data in qualitative studies. McCusker and Gunaydin (2015) stated qualitative

researchers serve as the data collection instruments because they comprehend the type of

information they seek to interpret. Therefore, for this study, I served as the data collection

instrument and collected data by conducting semistructured interviews using open-ended

questions. I also used organizational documentation and observations as a source for data

collection. According to Pacho (2014) and Salvador (2016), researchers often use

semistructured interviews and organizational documentation as primary sources of data

collection. Stuckey (2013) stated researchers use observations as a data gathering medium

to develop an understanding of the phenomenon. In the interviews, I used an interview

protocol (Appendix C) which also contains a list of open-ended questions. Using open-

ended questions provides study participants with the freedom to convey their thoughts

and perspectives and ensures interview consistency. Allowing participants to recount

their experiences and articulate their views in their own words provides participants with

the opportunity to introduce aspects of the topic that may not manifest using closed-ended

questions (Harvey, 2015). According to Jamshed (2014), using an interview protocol will

help to ensure all the facets and themes relevant to the study materialize during the

interviews. In the interest of protecting the participant’s welfare, using open-ended

questions will allow participants to freely decide the scope and depth of the information

they wish to share during the interviews (Stuckey, 2013).

According to Fusch and Ness (2015), using multiple data sources helps qualitative

researchers achieve data saturation, thereby strengthening the study’s reliability and

validity. I will use semistructured interviews, organizational documentation, and

observations as primary sources of data collection. To enhance reliability researchers

identify the testing methods used in the study (Mohamad, Sulaiman, Sern, & Salleh,

2015). For this study, to enhance the reliability and validity of the data collection process,

I performed verbatim transcriptions for each interview, provided summaries of the

interpretations to participants for member checking, and used an interview protocol.

Conducting verbatim transcription of interviews helps to maintain the integrity of the data

(Chandler, Anstey, & Ross, 2015; Jamshed, 2014). Member checking strengthens the

validity and reliability of the data (Andraski et al.,2014). Using an interview protocol

helps researchers ask open-ended questions in the same order and manner for every

participant; thereby, reducing the potential for bias and increasing data reliability

(Wiewiora et al., 2014).

Data Collection Technique

For the data collection technique, I conducted semistructured interviews, asked

open-ended questions, and collected data from organizational documents. Conducting

inperson interviews helps to develop a positive rapport researchers need to gather rich

qualitative data (Sivell et al., 2015). Semistructured interviews consist of open-ended,

probing questions that have the propensity to create follow-up questions (Fleming,

Phillips, Kaseroff, & Huck, 2014). Conducting interviews allows researchers to create an

open and relaxing forum; enabling researchers to readily capture participant views and

experiences.

According to Stuckey (2013), interviewing is the primary method used in

qualitative research because when researchers use interviewing as a source for collecting

data, they can ask questions directly related to their research question, thereby,

controlling the scope of their study. Furthermore, asking open-ended questions during

interviews allows researchers to elicit rich and meaningful responses from participants

(Stuckey, 2013). However, Stuckey cautioned researchers to listen carefully and engage

with participants to identify additional probes. Stuckey further stated although most

researchers encourage taking notes during interviews, it is difficult to capture direct

quotes or participants’ true meaning during note taking because researchers must remain

engaged in the conversation.

Wiewiora et al. (2014) stated using open-ended questions helps to ensure

consistency. However, Roberts et al. (2014) stated the analysis of open-ended data is rare,

at times ineffective, and primarily conducted through a manual human coding process

comprising higher associated costs. Conversely, authors such as; Leitch, Oktay, and

Meehan (2015) stated the use of Computer Assisted Qualitative Data Analysis Software

(CAQDAS) to analyze and code data is increasing. Another disadvantage of asking

openended questions is participants’ often do not provide the underlying reason for their

responses (Roberts et al., 2014).

I conducted in-person semistructured interviews, and each interview took place in

a private setting. The participants received assurances about confidentiality and received

an opportunity to ask questions about the process before any interview began. According

to Cridland, Jones, Caputi, and Magee (2015), a first-rate interview protocol helps

researchers focus on specific aspects of the phenomenon as they relate to the research

question. In the interviews, I used an interview protocol (Appendix C) containing a list of

open-ended questions. Using an interview protocol helps researchers ask open-ended

questions in the same order and manner for every participant thereby; reducing the

potential for bias (Wiewiora et al., 2014). According to Mctate and Leffler (2016), the

exact wording and procedures used in structured interviews may limit opportunities for

researchers to ask follow-up questions; nevertheless, structured interviews allows

researchers to achieve higher degrees of reliability across studies (Leffler, Riebel, &

Hughes, 2015).

To supplement the data from the interviews, I also reviewed company documents,

such as; standard operating procedures, mission statements, business plans, outsourcing

documents, shareholder agreements, and project management plans. Using company

documents along with interviews allows researchers to triangulate the data which

increases data reliability (Fusch & Ness, 2015). Wieland et al. (2014), revealed using

company documents to be an excellent data collection source. Cheng and Phillips (2014)

stated the use of documentation as a data source is a popular method used by researchers

to enhance their research projects. The authors, however, stated some organizational

managers restricted access to certain company documentation; therefore, researchers

might not have access to important data sources. Additionally, in some studies, the

documentation is so vast researchers do not take the time to analyze the documentation

(Cheng & Phillips, 2014). Wieland et al. (2014), further noted how managers stored their

company documents in different non-indexed locations making it difficult to identify and

retrieve documents.

Asking open-ended questions provided study participants the freedom to convey

their thoughts and perspectives regarding the HRO strategies they used to increase their

organization’s strategic value. Participants recounted their experiences and articulated

their views in their own words, which provided an opportunity to introduce aspects of the

topic that might not have manifested using closed questions. Following a semistructured

interview protocol (Appendix C) is a practice widely used by researchers because it helps

researchers capture as many themes related to the research question as possible (Jamshed,

2014).

To identify potential study participants, I used LinkedIn and recommendations

from established contacts. Before beginning an interview, I reiterated the purpose of the

study and reminded the participants of their rights including their right to withdraw from

the study at any time. I audio recorded all interviews, took notes during the interviews,

and conducted member checking to ensure the accuracy of the data. Member checking is

a quality control process involving researchers asking participants to review the

researcher’s interpretations for accuracy (Andraski et al., 2014). This process helped me

identify additional probes and themes leading to a greater understanding of the

phenomenon. Researchers audio record interviews to ensure accurate data collection and

to provide participants with interpretations for member checking (Chandler et al., 2015).

Audio recording allows researchers to conduct verbatim transcription of interviews

thereby maintaining the integrity of the data (Chandler et al., 2015; Jamshed, 2014). I

performed verbatim transcriptions for each interview and provided summaries of the

interpretations to participants for member checking. According to Austin and Sutton

(2015), verbatim transcription often takes an experienced transcriber eight hours or more

to transcribe one 45-minute audio-recording. In addition, the process generates 20 to 30

pages of written text (Austin & Sutton, 2015). Jamshed (2014) stated recording

interviews might create contention between the researcher and the participant. To

alleviate the transcription contention mentioned above, I used a professional transcriber to

provide verbatim transcription services. To alleviate possible contentions between myself

and interviewees stemming from recording the interviews, I ensured participants sign an

informed consent form. In the consent form, I addressed audio recording the interview,

listed safety and confidentiality precautions, and provided a list of the interview questions

to interviewees before their interview.

Elo et al. (2014) stated using an interview protocol helps ensure credibility. I will

follow the interview process and protocol.

Interview Process

1. Identify potential participants using LinkedIn and personal/professional contacts.

2. Send potential participants a letter of cooperation to participate in the study via

email and phone.

3. Send positive participation responders an overview of the study’s purpose, a

copy of the interview questions, and a consent form. The consent form will

contain language about audio recording the interview and statements ensuring

participants all information will be confidential, their participation will be

voluntary, and they may withdraw from the study at any time. I will send

negative responders a thank-you email for their time and consideration.

4. Establish a date, time, and location for the interview (participant’s choice for his

or her convenience and privacy).

5. Conduct the interview using the pre-established open-ended interview questions

(see interview questions at the bottom of this form). I will note any probing

questions.

6. Send a thank you email to the participant.

7. Modify the interview protocol to include any probing questions asked during the

interview.

8. Transcribe the interview

9. Perform member-checking to ensure accurate interpretations.

10. I will repeat steps 5 through 8 until I achieve data saturation.

Data Organization Technique

Owen (2014) stated data organization involves labeling and creating purposeful

coding for captured data. According to Gibson, Benson, and Brand (2013), assigning

codes allows researchers to establish and protect participant confidentiality. To achieve

efficient cataloging and labeling, I used the computer-assisted qualitative data analysis

software (CAQDAS) NVivo. According to Leitch et al. (2015), the use of the CAQDAS

is increasing. Cope (2014a) stated researchers use CAQDAS because it allows them to

manage large data sets and it provides researchers with an expedient means to analyze

data. According to Woods, Paulus, Atkins, and Macklin (2016), researchers use

CAQDAS to analyze data gathered through interviews, focus groups, documents, field

notes, and open-ended questions. To protect all collected data, I stored all data on a

password-protected external hard drive I will secure in a locked cabinet for 5-years.

Data Analysis

According to Surkis and Read (2015), data includes everything a researcher needs

to replicate a specific scientific output. Surkis and Read stated data is not static nor

isolated. The authors also stated researchers process and used data with different

measuring instruments and often combined different data types. Data is an important

output of any research project, and proper data management is an important aspect of

making data discoverable, accessible, and understandable (Surkis & Read, 2015).

I used the CAQDAS NVivo to assist me with data analysis functions such as,

coding, theme identification, document reviewing, and querying tasks. Capturing and

coding data with NVivo assisted me with incorporating data from all sources into a

structured format to make it easier to organize and identify themes. I also created a

coding scheme using the NVivo software to code the interviews. Neal, Neal, Vandyke,

and Kornbluh (2015) suggested using at least two coders to ensure reliability; therefore, I

enlisted the services of an additional coder. Once I completed the coding process, I

followed Neal et al. ’s. (2015) suggestion by organizing and analyzing the data to identify

the presence of any additional themes. I correlated the key themes with the literature to

include new studies published since the undertaking of this study and the conceptual

framework. I also used triangulation and the case study process to produce replicable and

methodologically consistent data by using an interview protocol (see Appendix C) and

reviewing company documents.

Reliability and Validity

Reliability

Lishner (2015) stated there are many recommendations for improving

dependability (reliability) in research findings. Pocock (2015) discovered reliability is

important to achieve data quality and stability. Elo et al. (2014) revealed researchers use

accuracy as the variable to measure a study’s reliability in academic research. Elo et al.

subsequently stated to achieve accuracy, researchers must use consistent and replicable

methods (Elo et al., 2014). Replication in research is important because it generates a

comparable set of observations and data consistency (Lishner, 2015). Consequently,

replication is now a widely advocated mechanism used to achieve research reliability

(Braver, Thoemmes, & Rosenthal, 2014; Cumming, 2014; Makel & Plucker, 2014;

Stanley & Spence, 2014).

Peake-Andrasik et al. (2014) declared ensuring a study’s trustworthiness is the

responsibility of the researcher. To ensure I achieved reliability in this study, I

documented the steps taken to obtain data from all sources. Documenting the steps and

procedures creates transparency and reliability for the study (Cope, 2014b). If a

researcher can replicate the research, it is reliable (Elo et al., 2014). Another means to

achieve reliability is to use triangulation Leung (2015). Triangulation entails researchers

using multiple sources of data (Andraski et al., 2014; Cooper & Hall, 2014). Using

triangulation enhances the study’s credibility, which according to Archibald (2015) and

Harvey (2015) creates enhanced results from enriched data analysis.

To achieve triangulation, I used software analyzation methods, multiple sources of

information, and conducted member checking. Gibson, Webb, and Lehn (2014), and

Humphry and Heldsinger (2014) recommended using software analyzing methods to

evaluate interview data, multiple sources of information. Using software such as NVivo

assists researchers with identifying themes and grouping data (Woods et al., 2016).

Member checking is a quality control process involving researchers asking

participants to review the researcher’s interpretations for accuracy (Andraski et al., 2014).

Member checking strengthens the validity and reliability of the data (Andraski et

al.,2014; Elo et al., 2014; Roche, Vaterlaus, & Young, 2015). Member checking

strengthens the validity and reliability of data by helping researchers capture the correct

meanings and terms from interviews (Archbold, Dahle, & Jordan, 2014; Forber-Pratt,

2015; Fusch & Ness, 2015).

Validity

Validity is the overall quality of a study; judged by the researcher’s credibility and

trustworthiness of the findings (Pocock, 2015). Fusch and Ness (2015), stated using

multiple data sources helps qualitative researchers achieve data saturation, thereby

strengthening the study’s reliability and validity. Cairney and St. Denny (2015) stated

methodological triangulation enhances credibility and strengthens the validity of the

study. I followed Fusch and Ness’s assertion about multiple data sources by using

semistructured interviews, organizational documentation, and observations as the primary

sources of data collection. To adhere to Cairney and St. Denny’s declaration concerning

triangulation, I performed verbatim transcriptions for each interview, provided summaries

of the interpretations to participants for member checking, and used an interview

protocol. Conducting verbatim transcription of interviews helps to maintain the integrity

of the data (Chandler et al., 2015; Jamshed, 2014). Member checking strengthens the

validity and reliability of the data (Andraski et al., 2014). Using an interview protocol

helps researchers ask open-ended questions in the same order and manner for every

participant; thereby, reducing the potential for bias and increasing data reliability

(Wiewiora et al., 2014). Elo et al. (2014) avowed using an interview protocol contributed

to the assurance of credibility. Jamshed (2014) stated following an interview protocol is a

practice widely used by researchers because it helps them capture as many themes related

to the research question as possible. I used an interview protocol

(Appendix C) to collect data from multiple participants.

Elo et al. (2014) reasoned transferability in qualitative research addresses how

researchers ensure their study’s information will transfer to future research projects.

Qualitative researchers enhance transferability by providing rich descriptions of the

population, sample, method, design, and sampling techniques (Anney, 2014; Barratt,

Ferris, & Lenton, 2014; Rossetto, 2014). For this study, I provided enough information

about the population, sample, method, design, and sampling techniques to give future

researchers enough information to appropriately judge the study’s transferability.

Confirmability in qualitative studies has to do with other researchers’ validation or

endorsement of a researcher’s results (Christ, 2014; Peak-Andrasik et al., 2014). To

promote confirmability in this study, I used multiple sources of data for triangulation and

created an audit trail to document my actions during the collection, analysis, and

presentation of data. Cope (2014b) stated an audit trail is essential to qualitative research

and improves the study’s credibility. I also used a standardized interview format, member

checking, and documentation analysis to ensure transferability and confirmability of the

study.

Data saturation happens during the data collection process when no new

information emerges from data collection efforts (Peake-Andrasik et al., 2014; Siegle,

Rubenstein, & Mitchell, 2014). In qualitative research, data saturation dictates the

purposeful sample size (Hammarberg, Kirkman & de Lacey, 2016). I used purposeful

sampling and continued to add new interviewees from different organizations to help

reach the point of data saturation, which happens when no new information materializes

from additional interviews.

Summary and Transition

The purpose of this case study was to identify HRO strategies managers use to

reduce operating costs while maintaining HR effectiveness. In Section 2 of this research

project, I provided the purpose statement, the role of the researcher, participants, research

method and design, and population and sampling. I also discussed ethical research, data

collection, data analysis, and reliability and validity.

In Section 3 I presented the findings of the study and discussed how the findings

contribute to managers use of effective HRO strategies that reduce operating costs while

maintaining HR effectiveness. I also discussed the implications of social change,

provided suggestions for future research, and included a reflection of my experiences as a

DBA Doctoral student.

Section 3: Application to Professional Practice and Implications for Change

Introduction

The purpose of this qualitative case study was to identify HRO strategies used to

reduce operating costs while maintaining HR effectiveness. The study population

included participants from Midwestern firms with 50 or more employees with experience

identifying HRO strategies used to reduce operating costs while maintaining HR

effectiveness. I used semistructured interviews and an interview protocol to capture

enough rich data to identify themes and achieve data saturation. To help prevent bias in

this study, I recorded and transcribed each interview, conducted member checking, and

used triangulation. For the data collection technique, I conducted semistructured

interviews, asked open-ended questions, and collected data from organizational

documents.

The fluctuating business environment created new obstacles for managers to

conquer in order to reduce operating costs and maintain effectiveness. To achieve this

end, managers began focusing on core functions by outsourcing noncore activities such as

HR functions (Edwin & Ohaegbu, 2015). According to Mansor, Abu, Abashah, and

Kassim (2018) outsourcing is one of the most prominent practices in HR management;

however, Glaister (2014) discovered a need existed for organizational managers to

understand how HR functions as active outsourcing agents and resolves outsourcing

issues. Moreover, Žitkienė and Blusytė (2015) declared HRO was a complex process

requiring more examination.

The participants in this study shared their views and experiences about HRO

strategies used to reduce operating costs while maintaining HR effectiveness. I

categorized the findings into themes. In the findings, I included a detailed theme analysis

and suggested potential areas of improvement related to HRO strategies. I based my

recommendations for performance improvement strategies on the themes discerned from

the perceptions of the participants, my review of organizational documents, and gaps in

the literature. The identification of successful HRO strategies might lead to the creation

of additional jobs associated with the firm’s core capabilities, thereby reducing local

unemployment and crime rates.

Presentation of the Findings

The principal research question for this study was: What HRO strategies do

managers use to reduce operating costs while maintaining HR effectiveness? The

participants in the study represented three Midwestern firms with 50 or more employees

with experience identifying HRO strategies used to reduce operating costs while

maintaining HR effectiveness. The literature review of peer-reviewed articles and

supplementary studies generated the foundation for the conceptual HRO components

associated with the central research question. I used a semistructured interview protocol,

and once I completed each interview, I performed member checking and coded the

responses using unique identifiers for each participant: C1P1 for company 1 participant 1,

C1P2 for company 1 participant 2, (b) C2P1 for company 2 participant 1, C2P2 for

company 2 participant 2, C3P1 for company 3 participant 1, and C3P3 for company 3

participant 2. I identified recurrent participant phrases and words and used those

recurrences to establish interview data interpretations. Next, I established general

interpretations from the interview data for coding. The participants validated their

transcripts and my corresponding data interpretations of their interviews. The member

checking validated my data interpretations to support the themes I discovered in the

study. During the data analysis process, I identified these five themes:

1. Outsourcing strategies

2. Outsourced functions

3. Operational costs

4. Organizational effectiveness

5. Success measurement

The identified themes helped reveal strategies managers use to increase their

organizations’ strategic value. According to Marchington (2015), organizations need to

shift their focus towards long-term cost solutions capable of increasing their

organizational viability. One prominent solution that managers began using to remain

competitive was to outsource HR functions to focus on core competencies (Tiaojun et al.,

2014).

Theme 1: Outsourcing Strategies

The first identified theme in this study was outsourcing strategies. I asked the

participants to identify strategies used to reduce operating costs while maintaining HR

effectiveness. Mansor et al. (2018) emphasized the importance for managers to

implement HRO strategies because doing so reduced operating cost and allowed

organizations to remain competitive. Mishra, Kumar, Sharma, and Dubey (2018) argued

that using organizational strategy based on organizational structure, managers could

minimize complexities associated with outsourcing decisions. All participants in this

study used outsourcing strategies that included the identification of core competencies;

however, their level of outsourcing varied depending on their organizational structure and

business.

C1P1 said because of their company’s size and specific business industry they did

not want to perform HR functions themselves. C1P1, therefore stated that they outsourced

all their HR functions. For C1P1, it was important to select a vendor that was compatible

with the organization. C1P2 supported C1P1’s position by stating they outsource all the

HR functions to an external vendor; however, they stated it was important to select a

vendor specializing in HR services tailored to their industry.

C2P1 stated their company saved money by partially outsourcing non-core HR

activities to external vendors; however, they expressed the importance of selecting a

vendor that was compatible with the organization. In addition, C2P1 stated that in

addition to saving money, the company increased their profit margin by focusing on core

functions. C2P2 communicated they experienced a reduction in operating costs when

outsourcing portions of their HR functions; however, similar to C1 participants, they

expressed the importance of compatibility and communication with the HR vendor to

ensure the success of HRO partnerships.

C3P1 supposed that using a partial outsourcing (not outsourcing all HR functions)

strategy, which reduced the number of HR employees, contributed to the company

reducing operating costs significantly. C3P1 also attributed the cost reduction to the

remaining HR staff’s use of advanced HR technology provided by the HR vendor and

professed the importance of vendor compatibility and constant communication. C3P2

said their company reduced operating costs by using HR professionals to assist in HR

areas in which they did not excel such as payroll and HR compliance functions. C3P2

echoed the importance of vendor compatibility to ensure the success of HRO strategies.

Deciding to outsource all or portions of HR is consistent with Cole (2017) who

said that outsourcing provides capabilities that strengthen firms’ non-core areas or

functions where the company lacks expertise. However, Cole also stated it is incumbent

for managers to determine which functions are core and non-core before designing and

implementing strategies. Glaister (2014) said that a need exists for organizational

managers to understand how HR functions as active outsourcing agents and resolves

negative outsourcing issues. In addition, the strategies the organizations used in this study

support Vaxevanou and Konstantopoulos (2015a) who said that firms should explore all

HRO alternative strategies using specialized analysis and decision-making models. Sakas

et al. (2014) said that many organizational skeptics remain stemming from trust issues

because of the fear related to relinquishing control of organizational secrets and

uncertainty associated with outsourcing agreements. All participants stated compatibility

and constant communication were key elements to ensuring HRO success. Abdul-Halim

et al. (2014) stated positive HRO outcomes depended on managers’ ability to understand

and manage outsourcing relationships; therefore, it was incumbent for managers to

develop a positive working relationship with the outsourcing vendor. Ross et al. (2016)

said that when creating outsourcing strategies, managers need to create and communicate

an effective vision to ensure outsourcing success.

Theme 2: Outsourced Functions

The second identified study was outsourced functions. I asked participants to

identify HR functions that contributed to reducing operating costs while maintaining HR

effectiveness. The participants provided the following responses:

C1P1 reported outsourcing all their organization’s HR functions (core and

noncore) to two industry-specific HR vendors. C1P1 said one vendor does hiring

functions, job applications, background checks, training, quarterly testing, and drug

screening. The other vendor handles other functions such as payroll, compliance with

policies and procedures, and grievances.

C1P2 verbalized they outsourced all their human resources functions, which

included payroll, healthcare, performance management, training, background screening,

recruitment, write-up procedures, employee handbook, and dispute resolutions. Mutually

C1P1 and C1P2 expressed that the organization did not have the expertise inhouse to

perform HR functions because their focus was to concentrate on core activities.

C2P2 stated our organization outsources employee hiring, payroll, security check

services, healthcare management, and benefits management. Both C2P1 and P2

articulated that outsourced functions were non-core activities and the organization did not

have the expertise inhouse to perform the functions. C2P1 and P2 also stated that their

main focus was on core functions.

C3P1 communicated our leadership outsources background and drug screening,

which alleviated the burden of performing the function inhouse. In addition, C3P1 stated

that our organization outsources some of its recruiting efforts, which helps to support

surges in staffing needs, while not having to employ multiple recruiters. Other outsourced

HR functions according to C3P1 are payroll, 401k management, and health and business

insurance. C3P2 said that their management, outsourced payroll, background/security

screening, drug screening, benefits management, 401K management, and recruiting,

which are all non-core functions.

The above-mentioned outsourced HR activities identified by the three

organizations support Halim’s et al. (2017) position that the most commonly outsourced

HR functions are training and development, payroll, recruitment, and other administrative

tasks. The decision to outsource human resource functions without performing due

diligence is risky in terms of cost and performance; however, executing systematic risk

management will offset the possible negative outcomes of instituting outsourcing

strategies (Rennung et al., 2015). Effectively assessing the risks against gains is crucial

for improving the success rates for outsourcing initiatives (Glaister, 2014). However,

there are outsourcing obstacles or problems that managers incur when outsourcing HR

functions. Glaister noted the effects of outsourcing HR activities on inhouse HR

operating as a multi-sourced function, needs further investigation.

Edwin and Ohaegbu (2015) and Patel, Budhwar, Witzemann, and Katou (2017)

noted that problems managers incur when outsourcing HR functions include situations

that manifest when some of the HR personnel remain at the firm. In the Patel et al. (2017)

study, the authors used a case study approach and semistructured interviews at a German

subsidiary of a United States Multinational Company to identify HRO implementation

processes and post-implementation decisions and their impact on the HR function. The

authors revealed the effects of outsourcing on inhouse (remaining HR personnel) HR

included decreases in the flexibility of HR functions, decreases in transactional HR

processing times, declines in HR manager satisfaction, and work intensification for HR

managers. Patel et al. (2017) also discovered uncertainty remains as to whether the

function of HR enhanced its strategic position through outsourcing. Moreover, when

some HR staff remains inhouse, the training and motivation for the remaining staff often

become overlooked. Another HRO issue as noted by Patel et al. (2017) was the decrease

in transparency or flexibility of the HR department stemming from an inadequate

understanding of how the outsourced activity performs within the new provider to include

their internal processes. This problem stems from adhering to newly defined processes

between the HRO vendor, the HR manager, and the remaining HR staff. However, Patel

et al. (2017) noted that authors had not reflected the transparency or flexibility decrease

issue in the literature. In fact, in the HR literature, authors often refer to flexibility

decreases as a benefit of HRO (Patel et al., 2017). To correct or improve the transparency

issue, Patel et al. (2017) suggested using effective vendor management by building a

relationship through structural integration between the company and the HRO provider.

In Edwin and Ohaegbu’s (2015) study, the authors revealed occurrences where

outsourcing HR functions created problems because of the training and development

expenditures interrelated with the development of the remaining inhouse HR staff. Edwin

and Ohaegbu (2015) also discovered instances wherein HRO strategies created problems

related to the loss of business secrets and expertise; therefore, cautioned that when

outsourcing there was a danger of company disruptions caused by misinterpretations and

inferior processes to effectively transfer data between organizations. To rectify these

problems associated with outsourcing, Mao et al. (2016) suggested the sharing of

resources between the host and the outsourcing firm to aid in the exchange of experiences

needed to achieve successful outsourcing outcomes. Ross et al. (2016) and Savino (2016)

asserted that frequent information exchanges aid in establishing long-term relationships,

which positively affects outsourcing success rates. Liu et al. (2017 reinforced Mao’s and

Ross’s position by suggesting employees of the hosting and outsourcing vendor receive

training and have frequent information exchanges.

Theme 3: Operational Costs

The third identified study theme was operational costs. I asked participants to

identify how outsourcing HR functions affected organizational operating costs. Mansor et

al. (2018) declared that to reduce operating cost and remain competitive it was important

for organizational managers to embark on the practice of HRO. However, to achieve the

aforementioned while simultaneously maintaining effectiveness, Žitkienė and Blusytė

(2015) supposed managers needed to manage potential HRO functions against the

underlying motives to outsource.

C1P1 stated that utilizing external human resources vendors saved money because

the owner did not need to invest in establishing an HR department. Establishing an HR

department would include costs related to recruiting and hiring, training, additional space,

and other overhead costs. According to C1P1, they found it more cost efficient to

outsource to someone else. C1P2 supported this position by stating that outsourcing saved

money because it was more cost effective to do so rather than hire HR personnel or create

a human resources department.

C2P1 communicated they saved money by outsourcing non-strength activities to

external vendors. C2P1 additionally stated they had an increase in their bottom line

stemming from their ability to focus on core capabilities. C2P2 verbalized that they

experienced reductions in operating costs since they began outsourcing HR functions.

C3P1 response was they reduced operating costs significantly because they

eliminated headcount and gained access to current HR technology that assisted them in

conducting business more effectively. C3P2 answered by stating they reduced operating

costs by using HR professionals to assist them in areas where they did not excel. All

participants identified cost as a factor for deciding to outsource portions or all their HR

functions.

Savino (2016) articulated that cost advantages were a primary driving force when

managers decide to outsource. Edwin and Ohaegbu (2015) identified the cost factor as

one of the most predominant reasons for outsourcing HR activities. Žitkienė and Blusytė

(2015) professed that by managing potential HRO functions against the underlying

motives to outsource, managers increased their chances of achieving successful

outsourcing outcomes.

One of the most prominent tools used to measure the costs of outsourcing is the

TCE framework (Coase, 1937; Giertl et al., 2015; Giustiniano & Clarioni, 2013;

Gulbrandsen, Lambe, & Sandvik, 2017; Williamson & Ghani, 2012). Managers use TCE

as a minimization of transaction costs tool and consider TCE an optimization theory

useful in the analysis process to help managers resolve decisions such as; whether to

insource or outsource.

Using the TCE framework managers implement the organizational form

bestminimizing transaction costs. Vaxevanou and Konstantopoulos (2015b) supposed the

TCE framework provides instruments to help managers determine which activities to

outsource and is the most predominantly used outsourcing framework. The justification

behind a leader’s decision to outsource includes benefits they could achieve in terms of

reducing operational and capital costs (Mboga, 2015; Savino, 2016; Sonfield, 2014;

Wekesa & Were, 2014; Žitkienė & Blusytė, 2015). To economize transaction costs, TCE

activists examine how governance modes impact transaction costs. For example, by

including the behavioral aspects of economic actors into the TCE framework, transaction

costs proponents provided managers with the means to identify and distinguish between

internal coordination and motivation issues impacting the choice of hierarchies versus

markets.

Williamson (1983) stated managers decided to use either the market, hierarchy or

vertical integration, or the hybrid (a combination of the market and hierarchy structures)

governance structure depending on the one most effectively minimizing transaction and

production costs. However, Ketokivi and Mahoney (2016) discovered notable authors

voiced fundamental reservations and provided dynamic critiques about TCE. The primary

reason that TCE receives negative critiques stems distorted analogies manifesting from

misinterpretations of TCE’s central, creating confusion about the supporting logic of the

theory (Ketokivi & Mahoney, 2016).

To reduce the number of TCE critics, researchers should remember that at its core

the purpose of TCE is understanding economic exchanges (i.e., transactions) in complex

and high-stake situations (Ketokivi & Mahoney, 2016). Using TCE, the goal of managers

is to make the transacting cohorts bilaterally dependent. For example, if Company A

produced widgets and Company B located themselves in close proximity to Company A

and supplied them with the parts needed to produce widgets, then this would be a

bilaterally dependent relationship because conducting business together, both businesses

would profit. In addition, it would hurt both organizations if one or the other decides to

leave the partnership for whatever reason. Therefore, TCE proponents seek a bilaterally

analogous business relationship that promotes a win-win scenario for both parties.

The participants in this study all said they used cost savings as one of the

determinants for outsourcing. In addition, C1, C2, and C3 managers all formed a

bilaterally analogous business relationship that had a positive impact on their companies

and the outsourcing firms. This bilaterally dependent business relationship was only

possible because the companies and the outsourcing vendors created a quality driven

partnership built on trust and communication (Abdul-Halim et al., 2014; Faraji &

Abdolvand, 2016; Kaynak & Avci, 2014; Roberts et al., 2013).

Theme 4: Organizational Effectiveness

The fourth identified theme was organizational effectiveness. I asked participants

to discuss how outsourcing HR functions affected their organizational effectiveness.

According to Žitkienė and Blusytė (2015) having an effective business strategy was a key

factor in achieving organizational effectiveness. HRO strategies are a subset of business

strategies and are a summary of how managers will achieve HR goals, customer

expectations, and competitive advantage targets. Business strategy authors explained why

the company is in business and defined competitive advantages and core activities, which

provides the strategic direction for the organization (Mansor et al., 2018). The

organizations in this study provided the following data concerning organizational

effectiveness.

C1P1 iterated that outsourcing human resources functions allowed them to focus

on their core functions. C1P1 further articulated they were seeking a creative solution that

contributed towards their differentiation strategies while maintaining HR effectiveness.

C1P2 articulated they wanted the ability to focus on what their business does best and not

the minutiae of HR. According to C1P2, there are so many laws they wanted to ensure the

company was up-to-date and safe. C1P2 additionally stated they increased effectiveness

by focusing on core functions and building long-term relationships with quality vendors.

C2P1 stated effectiveness increased by focusing on core functions and

outsourcing non-strengths to an HR vendor with the expertise to supplement the HR areas

where they did not excel. C2P2 enunciated effectiveness increased because they focused

on IT related functions and services which is their core business function. Both C2P1 and

P2 stated that HRO allowed them to invest more in their core functions.

C3P1 said HRO increased organizational effectiveness by allowing time to be

spent in other more important areas. C3P1 stated HRO helped them to streamline

activities and ensure they either led or kept abreast with their industry providers. C3P2

stated they can now focus on our core capabilities, which allows them to create and

sustain competitive advantages while fulfilling all their HR needs. C3P2 stressed the

importance of the vendor’s reputation for consistency, and their stability and reliability in

operations when seeking to establish successful long-term outsourcing contracts.

Hamid, Maheen, Cheem, and Yaseen (2017) stated that organizational managers

strive to improve their performance and effectiveness. All the participants in this study

declared they achieved organizational effectiveness by having open communication

channels with the outsourcing vendor and by clearly defining processes, which according

Davies et al., (2015) and Dinu (2015) decreased uncertainty and increased trust between

organizations. However, it is important to note that although outsourcing can be an

effective strategy for organizations, operational effectiveness may briefly suffer, and

recovery may take many months (Davies et al., 2015). According to Butler and Callan

(2014) and Handley (2012), HRO has a negative effect on operating performance when

outsourcing participation is not optimal. Consequently, it is imperative for organizations

to prepare properly for functional conferrals, especially within the contexts of training

and tacit knowledge exchange between the host and outsourcing organization

(AbdulHalim et al., 2014; Davies et al., 2015). To achieve this end requires careful

planning to minimize disruptions and maximize operational effectiveness. Operating in

this manner reveals host organizations have an entrusted interest in the ongoing support

of outsourced activities thereby creating an atmosphere conducive to maximizing

organizational effectiveness. However, to successfully reduce costs and maintain

effectiveness it is important for managers to have an efficient measurement process.

Theme 5: Success Measurement

The fifth and final identified theme was success measurement. I asked the

participants to identify how they measured HRO strategy success and failure as it applies

to operating costs and effectiveness. Jiang and Qureshi (2006) discovered that researchers

have failed to determine the effect of outsourcing firm performance using tangible data

from financial reports. The authors revealed only four researchers used financial data

with a limited focus to examine the results of outsourcing. Therefore, the researchers

emphasized the importance of using financial statistics to measure the effect of

outsourcing. The organizations in this study provided the following data concerning HRO

success measurement.

C1P1 expressed measuring the success or failure of their human resources

outsourcing decision was simple because they judged success by if the HR vendor

provided solutions for their HR needs. C1P1 stated thus far; the vendors provided

solutions for anything they needed. For C1P1, this was a success, which spoke directly to

the effectiveness and costs savings their outsourcing decision. Another means of

measurement according to C1P1 was their ability to examine how much product they

moved, their number of repeat customers, the quality of their reviews and their ranking in

the industry. C1P1 declared that top rankings in the aforementioned areas, led to

increases in revenue thereby verifying the effectiveness of their HRO strategies.

C1P2 pronounced they realized from the onset they did not want to do any human

resources functions inhouse because they wanted to focus on their industry specific

functions. C1P2 also it was crucial to find an industry specific vendor capable of

responding to not only current, but future human resources needs. C1P2 mentioned the

importance of having effectual working relationships with the outsourcing vendor and

said they measured success by their ability to stay up-to-date and compliant, provide

relevant training, and their ability to focus on core activities. C1P2 said they measured

success by analyzing their cost savings, increases in their sales profit margin, and ability

to focus on core capabilities.

C2P1 voiced they measure success by examining if their HR needs were met.

C2P1 stated that if their clients are satisfied, and save money while increasing profits then

they achieved success. C1P2 articulated that achieving all their HR needs, saving money,

and the ability to focus on core activities was how they measure success.

C3P1 stated that as a smaller company, their ability to focus on core activities,

which increases productivity was how they measured the success or failure of their

outsourcing strategies. C3P2 professed they measured success by identifying reductions

in costs related to the overhead associated with HR functions, increases in their

bottomline, and their ability to focus on core capacities. All participants in this study

declared they used cost savings and the ability to focus on core capabilities to measure

the successfulness of their outsourcing strategies.

HRO is a strategic choice business managers adopt because of the host of

possibilities associated with how to accomplish certain HR functions (Savino, 2016).

Qureshi (2006) suggested using financial data to measure the outcome of HRO. Handley

(2012) recommended conducting due diligence to ensure outsourcing success. Kaufman

(2016) stated it was important to provide managers with guidance regarding how to

evaluate resources. According to Kaufman, not providing managers with the ability to

evaluate the value of resources hindered managers’ ability to measure success.

AbdulHalim et al. (2014) revealed a need for researchers to thoroughly examine the

relationship between partnership quality and outsourcing success. Baraldi et al., (2014)

concluded it was important for firms to evaluate cooperative relationships to measure

HRO success.

Application to Professional Practice

The lens used to conduct this study was the TCE framework. Using the TCE

framework is a viable option when researchers’ need to perform effective cost and

benefits analysis to quantify outsourcing decisions (Roberts et al., 2013). Using the TCE

lens revealed researchers examining HRO topics using a quantitative approach focused

on the reasons managers decided to outsource; however, limiting research on HRO to

quantitative analysis created a lack of detailed information about the relationship between

variables (Wekesa & Were, 2014; Williamson & Ghani, 2012). For example, researchers

using quantitative methods determined whether a statistical relationship existed between

two or more variables; however, they did not have enough information to understand the

complete details of the relationship or descriptive data presented (Wekesa & Were, 2014;

Williamson & Ghani, 2012).

Unlike the quantitative method, using the qualitative methodology, conducting

interviews, examining company documents, and conducting member checking provided

the means to understand the descriptive data provided by the participants in this study,

which helps managers understand HRO strategies. Researchers such as Glaister (2014),

Sigamani and Malhotra (2013), and Yap and Webber (2015) used a qualitative approach

to study HRO. To reduce operating costs while simultaneously maintaining effectiveness,

managers began focusing on core functions by outsourcing noncore activities such as HR

functions (Edwin & Ohaegbu, 2015; Poornachandrika, 2015).

All the participants in this study used outsourcing strategies that included the

identification of core competencies; however, their level of outsourcing varied depending

on their organizational structure and business line. According to the authors in the

literature review, the reasons to outsource, differ depending on the organization.

Sigamani and Malhotra (2013) and Wekesa and Were (2014) declared managers

decided to outsource because it allowed them to focus on core and strategic issues,

provided reductions in operational and capital costs, and afforded access to expertise,

increased flexibility, and risk reduction knowledge. Poornachandrika (2015) discovered

firms outsource HR activities because it was too costly to hire employees across all areas

of the organization’s operations and to concentrate on strategic activities that supported

core business functions. Wekesa and Were (2014) and Yilmaz and Bedük (2014) declared

that managers based their decisions to outsource HR functions because of the benefits

they expected to achieve from the process. Usman et al. (2015) stated that organizations

decide to outsource because they want to achieve strategic goals. However, Edwin and

Ohaegbu (2015) discovered instances in which outsourcing HR functions created

difficulties associated with the development of the remaining inhouse HR staff. Edwin

and Ohaegbu (2015) discovered some HRO strategies created problems stemming from

the loss of business secrets and expertise. Therefore, effectively performing risk

assessments is crucial for reducing the success rates for outsourcing initiatives (Glaister,

2014). Outsourcing all or portions of HR, as all the organizations did in this study,

supports Cole’s (2017) declaration that outsourcing provides capabilities that fortifies

firm’s non-core areas or functions where the company has deficient expertise.

To reduce risks, all the participants in this study performed a risk assessment and

developed an HR outsourcing strategy that aligned with their organizational goals and

objectives. C1 participants stated their motivation to initiate HRO strategies was there

desire to focus on core competencies and achieve cost reductions; however, emphasized

the importance of compatibility with the outsourcing vendor. Compatibility along with

HR expertise for the C1 organization were primary considerations because C1 managers

outsourced their entire HR department, therefore, realized the need to have open

asynchronous communication and trust with the outsourcing company. A review of the

company’s documents exposed supporting strategies for creating an environment

conducive to focusing on core competencies, reducing HRO costs, and creating effective

outsourcing relationships.

C2 participants said their motivation to initiate HRO strategies was to save money

by partially outsourcing non-strength HR activities to external vendors. Similar to C1, C2

participants expressed the importance of selecting a vendor that was compatible with the

organization. C2 participants also stated that in addition to saving money they wanted to

increase their boom line by focusing on core functions. In addition to the aforementioned,

a review of the company’s documents revealed supported efforts and strategies for

creating an environment conducive to reducing HRO costs and creating effective

outsourcing relationships.

C3 participants quantified that their motivation to initiate HRO strategies was the

elimination of headcount and access to HR technology, which reduced operating costs. In

addition, C3 managers wanted external HR experts to help the company in HR areas

where their employees did not excel. Similar to C1 and C2, C3 also professed the

importance of vendor compatibility and constant communication. Reviewing company

documents, I identified documentation supporting the need to conduct HRO to gain HR

expertise and reduce HR costs. In addition, I discovered documentation stating the

importance of vendor compatibility and communication.

All three companies in this study had similar motives to commence HRO to

varying degrees; however, further review using the TCE lens revealed that authors

discovered instances in which sponsor firms hesitated to relinquish operating risk to

strategic partners, and therefore, did not sufficiently create an environment conducive to

establishing successful HRO relationships Getz et al., 2014). Baraldi et al. (2014) stated

to achieve successful strategic relationships, the purpose of the joint venture must

manifest, and both entities must achieve their objectives (Baraldi et al., 2014). As stated

earlier in this section, all companies in this study identified the importance of trust and

communication before and post vendor section. C1 had an HR liaison, and C2 and C3 had

HR managers responsible for bridging the gap between the company and the outsourcing

vendor. The responsibilities of the liaison and managers, as specified in their company

documentation, was to establish effective communication channels and perform periodic

quality reviews of the outsourcing vendor.

Finally, further review using the TCE lens revealed researchers, such as Edwin

and Ohaegbu (2015), discovered that companies instituting HRO strategies had

competitive advantages over the ones not instituting any HRO initiatives. Supporting

Edwin and Ohaegbu’s (2015) position, Claus Wehner et al. (2015) discovered firms

achieve competitive advantages by outsourcing the HR recruitment function. The

findings in this study are consistent with Edwin and Ohaegbu’s (2015) and Claus Wehner

et al.’s (2015) assertations, as each company in this study, decided to use HRO as a

means to achieve competitive advantages by reducing costs while maintaining HR

effectiveness.

Implications for Social Change

According to Wallo and Kock (2018) organizations increasingly outsource HR

activities to external labor intermediaries. In fact, from 2000 to 2017, outsourcing

increased over 30% per annum (Kabiraj & Sinha, 2017). The challenge, therefore,

becomes to conduct HRO activities in a well-planned manner, with clear goals and

strategies that include the management of risks and outsourcing partnerships. In the

findings from this study, I revealed that trust, shared values, communication, and

commitment are crucial characteristics for establishing successful HRO partnerships. I

also provided evidence that supported Davies et al.’s (2015) position that successful

outsourcing strategies increased organizational efficiency by eliminating low value and

time-consuming activities; thereby allowing employees to focus on core activities.

Moreover, the social impact of businesses in the business and management literature is a

prominent subject (Bakker, Crane, Henriques, & Husted, 2018) because of how

businesses impact individuals and society.

Consequently, through this study, I provided some positive implications for social

change. I highlighted HRO benefits, risks, costs, reasons to outsource, risk management

solutions, and identified the importance of individual and organizational characteristics as

drivers for HRO strategies. Armed with this information, managers can make HRO

decisions conducive to reducing operating costs while maintaining HR effectiveness,

which should lead to competitive advantages and financial increases for the firm.

Subsequently, financial increases for the firm would positively impact social change by

decreasing unemployment rates. Decreases in unemployment rates would manifest from

the community having the opportunity to gain employment through the HRO vendor to

support the new work streams, and the outsourcing company needs to gain more

specialized skills to support their core capabilities. In addition, a reduction in

unemployment rates may also reduce crime rates because according to Bender and

Theodossiou (2016), unemployment rates directly impact crime rates. Accordingly,

competitive advantages and financial increases for firms translate into positive outcomes

for the community; therefore, in the next section, I provide some action recommendations

for organizational managers.

Recommendations for Action

Through the findings from this study, I strengthened and supplemented other

studies regarding HRO strategies; however, I also provided new insights from the

perspective of reducing operating costs while maintaining HR effectiveness. Towards that

end, recommendations of this study are for organizational managers to conduct due

diligence to ensure outsourcing success. Due diligence should include managers first

understanding there is no one size fits all solution because the reasons to implement HRO

strategies and the strategies supporting outsourcing goals varies amongst firms.

Therefore, it is incumbent for managers to create HRO strategies within the boundaries of

their organization that produce long-term benefits for not only their organization but for

the outsourcing vendor as well. To achieve this end, managers must create an atmosphere

promoting information exchanges, trust, and total support from all stakeholders

(including the HRO vendor) to avoid inferior outsourcing outcomes.

Recommendations for Further Research

I limited this study to HRO to managers from Midwestern firms with 50 or more

employees who have achieved success in implementing HRO strategies that reduced

operating costs while maintaining HR effectiveness. However, a need exists for future

researchers to study the gap in literature identified by Davies et al. (2015) wherein the

outsourced activity remains physically located within the host organization (insourcing),

and an external vendor manages the function inhouse. I also suggest that future research

scholars conduct further explore the effects of combining the TCE framework with other

frameworks (Schermann et al., 2016) to identify the best TCE framework combinations

for industry-specific HRO strategies. Finally, future researchers should consider

examining the most effective means for measuring HRO success, identify if the means

should vary across industries, and provide empirical supporting HR becoming more

strategic due to HRO strategies.

Reflections

For this study, I wanted to explore strategies managers used to achieved success

implementing HRO strategies that reduced operating costs while maintaining HR

effectiveness. For me, this was an important issue that needed more research because

most organizations do not identify HR as one of their core strengths. However, effective

HRM is central for achieving organizational goals and as Galperin and Lituchy (2014)

discovered HRO has a significate role on the success of organizational HRM.

During this study, I visited three organizations and interviewed two participants

from each company, which along with company documentation and personal notes taken

during the interview, provided enough information rich data for me to reach data

saturation. During the interviews, I kept my personal opinions and thoughts to myself;

however, during a few of the interviews, I had to ask the participants elaborate on their

responses to ensure I obtained enough quality data. The participants enjoyed participating

in the study and said they looked forward to reading the completed study. I did, however

initially encounter difficulty finding businesses willing to participate in the study, which I

attribute to either the formalness of the letter of cooperation or my inability to personally

speak to decisions makers prior to sending them the letter. Therefore, I suggest when

possible, that researchers speak directly to decision-makers or informationally explain the

IRB documents to their assistants before sending the documents to the organization point

of contact.

As for my Doctor of Business Administration (DBA) journey, to say the journey

was arduous would be an understatement. However, I do have to admit that the prize at

the end outweighed all struggles and setbacks experienced during the journey. My intent

here is not to imply anything negative about the DBA program at Walden University;

however, it is important to mention that when deciding to embark upon this program one

prepares family and friends for what is to come once the DBA journey begins. Without

family buy-in, time management skills, desire, patience, and some selfishness (putting

school work first), then one will not complete this demanding but rewarding program.

Conclusion

HRO significantly impacts the success of organizational HRM (Galperin &

Lituchy, 2014). However, despite the many benefits some firms achieve from

outsourcing, others experience undesirable outsourcing outcomes because managers lack

the knowledge to identify potential risks or the ability to manage them (Prystupa, &

Rządca, 2015). Furthermore, HRO cannot succeed without input, coordination, and total

support from all stakeholders (Patil & Patil, 2014). To achieve successful outsourcing

outcomes managers, need to create strategies addressing vendor trust, shared values, and

effective communication channels. Therefore, it is important for managers to not only

create outsourcing strategies but to effectively communicate those strategies and vision

and obtain organizational support throughout the outsourcing lifecycle (Ross et al., 2016).

In addition, managers should engage in effective cost and benefit analysis to determine

decisions involving the outsourcing of HR functions (Abdul-Halim et al., 2014).

One of the most used tools used for cost analysis is the TCE framework.

Vaxevanou and Konstantopoulos (2015b) stated managers predominantly use the TCE

framework because it provides mechanisms to help them determine which activities to

outsource. The TCE framework is also an excellent tool to use when managers need to

balance transaction and production costs with insourcing and outsourcing decisions

(Muthoni & Nyakagwa, 2014). According to Williamson and Ghani (2012), when using

the TCE framework; firms often decided to internalize functions if the transaction and

production rate, associated with the outsourcing activity, was high. Using the TCE

framework, I had the means to identify HRO strategies managers use to reduce operating

costs while maintaining HR effectiveness. I also had the resources needed to discern why

managers chose to keep some HR functions inhouse while deciding to outsource others to

external vendors.

Examining the organizations in this study through the TCE lens exposed five

important themes. In theme 1, outsourcing strategies, I revealed the main reasons or

strategies adopted by the organizations in this study manifested from their desire to

reduce operating costs and focus on core competencies. In theme 2, outsourced functions,

I discovered the common outsourced functions amongst the organizations included

recruiting, background checks, drug screening, and payroll functions. In theme 3,

operational costs, I discovered all the participants reported achieving costs reductions

from HRO initiatives and revenue increases stemming from their ability to focus on core

capabilities. In theme 4, organizational effectiveness, I exposed that all the companies

identified the ability to focus on core compentencies while not experiencing any HR

degradation as their means of measuring success. Finally, in theme 5, success

measurement is where the managers identified how they measured the success of their

HRO strategies. All managers stated they quantified success by the money they saved,

their ability to focus on core capabilities, and increases in their bottom line. However,

achieving positive HRO outcomes depends on managers’ ability to understand and

manage outsourcing relationships; therefore, it is incumbent for managers to develop a

positive working relationship between internal and external employees (Abdul-Halim et

al., 2014); thereby gaining access to external skills, capabilities, and experiences

(Kolawole, & Agha, 2015). Finally, according to Sigamani and Malhotra (2013),

outsourcing HR provides an opportunity for managers to transform the structure, design,

and strategic plan of organizations, which is instrumental to fulfilling the mission and

vision of the organization. Finally, efficient HRO strategies are an effective means for

managers to experience increases in customization, technology, HR expertise, and the

development of human capital.

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