Introduction

At the end of 1999, a start-up company, Exult, signed a $600 million, seven-year contract to provide nearly all human resource (HR) services for British Petroleum (BP) in the United States and United Kingdom (Lawler et al., 2004). Six years later, a cover story in Business Week noted that human resource outsourcing (HRO) had become the fastest-growing segment of business process outsourcing (BPO) with $13 billion in global spending (Engardio et al., 2006). A newer offshoot of the BPO movement, HRO has received less attention and, with the exception of work done by Lawler et al. (2004, 2006), there has been little academic analysis of the levels and effects of the phenomenon. Most of the information on HRO comes from consultancies (Everest Research Institute, 2006; Giacomelli, 2007; Towers Perrin, 2008). This chapter examines the impact of the HRO decision on organizations empirically and builds upon the prescriptive advice found in earlier works on the topic (Beamon, 2004; Cook, 1999). The following analysis explores the link between levels of outsourcing HR activities and employee retention, employee satisfaction, and customer satisfaction using data collected from organizations in 2007 and 2008.

The decision to outsource redraws the boundaries between an organization and its suppliers. Innovations in information technology and the standardization of business processes have increased the types of services considered to be candidates for outsourcing thereby driving the explosive growth in BPO. This transformation has in turn attracted a great deal of attention from the management community inside and outside of academia.