HR outsourcing in small and medium-sized enterprises. Exploring the role of human resource intermediaries
| Pages | 1003-1018 |
| Published date | 06 August 2018 |
| DOI | https://doi.org/10.1108/PR-03-2017-0066 |
| Date | 06 August 2018 |
| Author | Andreas Wallo,Henrik Kock |
| Subject Matter | HR & organizational behaviour,Global HRM |
HR outsourcing in small and
medium-sized enterprises
Exploring the role of human resource
intermediaries
Andreas Wallo and Henrik Kock
Department of Behavioural Sciences and Learning, HELIX Competence Centre,
Linköping University, Linköping, Sweden
Abstract
Purpose –Small and medium-sized enterprises (SMEs) are increasingly outsourcing human resource (HR)
activities to outside labour market intermediaries. In this paper, the focus is on a specific type of labour
market intermediary, the HR intermediary (HRI). The purpose of this paper is to describe and discuss SME
outsourcing of HR services to membership-based HRIs, and potential problems and benefits that may arise in
this process.
Design/methodology/approach –The empirical foundation co mprises case studies of thr ee Swedish
HRIs and 12 of their SME clien ts. The data were collec ted through semi-struc tured interviews and a
document study.
Findings –The findings show that social aspects such as trust, shared values, communication and
commitment are crucial characteristics of the cooperation between HRIs and SMEs. These social aspects are a
result of the owner/membership structure, and a distinguishing feature of the studied HRIs in comparison to
other types of labour market intermediaries.
Research limitations/implications –The results of the study un derline the need for incr eased
research related to the intermediary concept and its meanings in diff erent contexts. There is also a nee d for
more empirical research on HRIs, e.g. comparisons between different types of HRIs, and studies of the
emergence of virtual int ermediaries. Future studies should fo cus on the role of LMIs and HRIs in regional
development processes.
Practical implications –Companies that interact with HRIs should reflect on the different pros and cons
that this cooperation may result in, both in the short term and in the longer term.
Originality/value –The study provides an enhanced understanding regarding the relations between SMEs
and HRIs, based on the two broad types of SMEs (with low/high internal HR skills) and two types of HRIs
(with short/long-term orientation).
Keywords Qualitative, Small to medium size enterprises (SME), HR outsourcing, HR activities,
Human resource intermediaries, Labour market intermediaries
Paper type Research paper
Introduction
Due to the pressure for increased change, today’s external labour markets are described as
moving towards greater flexibility and limited predictability, while internal labour markets
in organisations are changing in the direction of increased insecurity, instability and
non-standard employment agreements (Bonet et al., 2013; Kazis, 1998; Osterman, 2010).
For organisations to cope with the growing needs of flexibility, human resource (HR)
activities have become increasingly important, both at the operative and strategic levels
(Boxall and Purcell, 2011). However, many organisations lack the resources and skills to
handle these HR activities. This applies particularly to small and medium-sized enterprises
(SMEs) (Cardon and Stevens, 2004; Klaas, 2003).
An increasingly popular answer to how organisations with scarce resources can handle
their HR activities is outsourcing (Reichel and Lazarova, 2013; Sheehan and Cooper, 2011),
i.e. to employ an external party to carry out all, or parts of, the work instead of utilising
Personnel Review
Vol. 47 No. 5, 2018
pp. 1003-1018
© Emerald PublishingLimited
0048-3486
DOI 10.1108/PR-03-2017-0066
Received 8 March 2017
Revised 15 September 2017
7 November 2017
9 February 2018
Accepted 3 March 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0048-3486.htm
This work was supported by VINNOVA (The Swedish Governmental Agency for Innovation Systems).
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Role of human
resource
intermediaries
internal resources (Sparrow et al., 2010). Consequently, a growing number of organisations
are turning to a new actor in this emerging market for outsourcing of support services, the
so-called labour market intermediary (Bonet et al., 2013; Nesheim and Rørvik, 2013). These
intermediaries include organisations (private, public, ownership-based, member-based) that
operate in the gap between employers and employees (Autor, 2009; Benner et al., 2007).
Labour market intermediaries have also been described as important from a regional
development perspective since they have the capacity to increase the flexibility of labour
markets (Benner, 2003) as well as to support knowledge transfer between organisations
within a region (Smedlund, 2006).
In this paper, a specific kind of labour market intermediary, the HR intermediary (HRI),
is discussed. An HRI acts as a third party between employers and employees, or between
organisations, with the purpose of delivering HR services, e.g. recruitment, training,
competence development, career assistance, and outplacement (Kock et al., 2012). HRIs are
typically profit-driven private companies that specialise in a selection of HR services.
For example, they can be traditional recruitment and staffing agencies or so-called
professional employer organisations (PEOs) that enter into co-employment relationships
and become the employer of record for those working at the client’scompany
(Klaas, 2003). However, in the paper, the focus is on HRIs that are owned by their clients,
and that not only aim to target single clients, but also have ambitions to contribute to a
regional development of the labour market, not least due to the fact that both owners and
customers are dispersed across a certain region in Sweden. These HRIs can also be
classified as advanced because they have moved up the HR valuechain, from exclusively
working with staffing towards targetingtheentireHRflow(seeSparrowet al., 2010;
Wallo et al., 2016). The membership approach and the focus on the entire HR flow
differentiates the studied HRIs from other types of intermediaries, such as PEOs. A central
group of clients for the HRIs in this study is SMEs, which are considered important in
terms of employment and economic development, at the local, regional and national levels
(Muller et al., 2016; OECD, 2005), but often have limited resources for working with HR
activities (Delmotte and Sels, 2008).
Outsourcing of HR activities has previously been observed in several studies
(e.g. Delmotte and Sels, 2008; Sheehan and Cooper, 2011; Sim et al., 2016). However,
research on the effects of outsourcing of HR services has so far been focused on
strategic and financial issues, while other impacts have been given less attention
(Fisher et al., 2008). Previous studies have focused mostly on why companies outsource,
and the potential advantages and disadvantages of outsourcing (see Cooke et al., 2005;
Nesheim et al., 2007), but less is known about the actual outsourcing process, the character
of the relationship between the client and the intermediary, and other outcomes of this
cooperation (Nesheim and Rørvik, 2013).
In response to the limitations in the knowledge of HR outsourcing, we contribute to the
literature by exploring the roles of membership-based HRI and their relation to clients,
especially SMEs. We also contribute to a better understanding of the outsourcing of HR
services to a third-party vendor, acting in the gap between employers and employees.
More specifically, the purpose of the paper is to describe and discuss SME outsourcing of
HR services to membership-based HRIs, as well as potential problems and benefits of this
process. The following research questions will be addressed in the paper:
RQ1. What characterises the relationship between SMEs and HRIs in regard to the
outsourcing of HR services?
RQ2. What factors enable or restrict SME’s outsourcing of HR services to HRIs?
To accomplish the aim of describing and discussing SME outsourcing of HR services to
HRIs, the rest of this paper is organised as follows. The next section describes previous
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