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Outsourcing HR Services:
The Role of Human Resource Intermediaries
Introduction
In an economy characterised by globalisation, rapid organisational change and increasing
competition among companies, external labour markets are moving towards greater flexibility
and limited predictability, while internal labour markets in organisations appear to be shifting
in the direction of greater insecurity, volatility, job instability and non-standard work
arrangements (Kazis, 1998; Osterman, 2010; Piore and Sabel; 1984). Working under these
different conditions, both employers and employees find it difficult to respond to these
changes (Benner et al., 2007; Osterman, 2004). Among several alternatives, externalisation or
outsourcing of products and services has been frequently put forward as a means to address
changes in the labour market, and there has been a rapid expansion in the externalisation of
products and services during the last decades (Kalleberg and Marsden, 2005).
The above-mentioned changes also include HR services delivered within organisations.
The question of whether to “develop human resources through recruitment and training, or
buying them via markets” (Kalleberg and Marsden, 2005, p. 390) is increasingly being
answered with the advice to “buy”. Having traditionally been developed and performed in-
house, single HR services or significant parts of the responsibilities performed by HR have
gradually been outsourced to other organisations and companies (Ulrich et al., 2008). This
change applies not only to larger companies and public organisations but also to small and
medium-sized companies (SMEs) (Cardon and Stevens, 2004; Klaas, 2003). In this regard, we
have seen an increasing number of companies (including SMEs) and public organisations turn
to different employment agencies, recruitment firms, and temporary work agencies but also to
new third-party organisations called labour market intermediaries (LMIs), which provide a
variety of services, not the least of which are related to HR services. The increasing presence
of LMIs in the labour market has been seen as an indicator of labour market failures, and
numerous studies have illustrated the shortcomings of neoclassical economic theory. These
studies have determined that labour market information is neither complete nor symmetric
among workers and employers and that “workers are not commodities, firms are not always
price takers … and there may be scope for third parties – LMIs in particular – to intercede
both to improve the operation of the labour market and to profit from its imperfections”
(Autor, 2009, p. 2). These LMIs include various types of organisations, including private
sector intermediaries, public intermediaries, membership-based intermediaries, and
ownership-based intermediaries, that have a brokerage-oriented function across organisations
and between employers and employees (Benner, 2003; Benner et al., 2007; Osterman, 2004).
The contribution of this article is the exploration of a recently emerging type of LMIs that
we denote as “human resource intermediaries (HRIs)” because they specifically focus on
delivering human resource management (HRM) services and human resource development
(HRD) services to public sector organisations and private companies. An important group of
clients also includes SMEs, which is a group of particular interest because they often have
limited resources for the development of internal HR competence and generally attach less
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importance to developing such competence (Cardon and Stevens, 2004; Kitching, 2008;
Klaas, 2003). More precisely, we focus on three Swedish HRIs characterised by the
following: a) they are owned by their clients, b) their goals are to contribute not only to the
development of single companies but also to local and regional development, and c) they are
classified as “advanced” because they appear to have moved up the HRM value chain, from
exclusively working with staff and job matching towards delivering a wider range of HR
services (cf. Sparrow et al., 2010) that target the entire flow of human resources in, within,
and out of organisations (cf. Beer et al., 1984). Examples of such services include
recruitment, training, competence development, career assistance, and outplacement (Cooke
et al., 2005; Kazis, 1998). The research in this field appears to be limited (Benner et al., 2007;
Cooke et al., 2005), although several related studies have dealt with questions of outsourcing
HR services and the outcomes of these services for clients (Cooke et al., 2005; Gainey and
Klaas, 2003). The purpose of this article is, thus, to explore HRIs as deliverers of HR services.
More specifically, we will analyse and discuss a) how employees in HRIs understand their
role as providers of HR services to their clients, and b) what characterises the HRIs’ work and
the nature of their assignments.
Basic concepts and previous research
In this context, the outsourcing of HR includes situations in which a third-party provider is
used to conduct HR activities that the organisation itself would otherwise normally provide
(Sparrow et al., 2010). The literature on why, what, how, and to what effect the outsourcing
of HR services is accomplished has so far been focused on strategic and financial issues,
whereas the implications of HRM have been relatively unexplored (Fisher et al., 2008). A few
studies mention several possible reasons for an employer to outsource HR: to concentrate on
the core business, to gain from expertise in areas of concern, to share risks, and to select the
most competitive tender (Cooke et al., 2005; Shen, 2005). However, the results from previous
studies on employers’ reasons for outsourcing HR services are both fragmented and
inconclusive, showing a mixed pattern of advantages and disadvantages (see Table 1 below).
Table 1. Compilation of positive and negative effects of HR outsourcing based on Benner (2003), Cooke et al.
(2005), Kabst and Strohmeier, 2006, Klaas et al. (2001), Nesheim et al. (2007), and Ulrich et al. (2008).
Perceived positive effects
Perceived negative effects
Freeing time to focus on core business activities;
Gaining innovative HR expertise, new
perspectives and an objective and critical view;
Being part of a network with timely access to
knowledge and resources that are otherwise
inaccessible;
Facilitating learning and cross-fertilisation
between consultants and clients;
Enhancing the strategic focus of in-house HR
functions;
Using standardised and validated methods that
ensure consistency and efficiency; and
Reducing costs by downsising internal HR staff.
Loss of in-house knowledge and capacity as well
as the risk of losing long-term competitiveness;
Quality reductions in HR work, e.g., a gap
between what is delivered and what is actually
needed;
Difficulties in fulfilling promises and client
expectations, e.g., a contract between the
consultant and the client that may benefit one
party more than the other;
Risk of conflict between consultant and internal
HR personnel;
Mismatches between the use of standardised
methods and tools and the client’s unique
organisational characteristics; and
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Higher total costs, e.g., when consultants do not
meet the client’s demands or achieve the expected
results.
The advantages and disadvantages presented above can, to a certain extent, be understood as a
result of comparisons between the types of HR services that are being outsourced. Several
authors (Sparrow et al., 2010; Ulrich, 1998) argue that the outsourcing of HR services is
indeed both possible and desirable. It is a question of the appropriate type of activities to be
outsourced. Thus far, the “answer” has been that it is quite harmless to outsource transaction
services (e.g., payroll, job posting, form submission), while more strategic activities and
services should stay in-house (e.g., HR strategy, HR policy, labour relations). Decisions
regarding whether to outsource HR also seem to be dependent on the legitimacy and status of
the current HR department and on who makes the decision to outsource. When the decision is
made by an HR department with high legitimacy, in comparison to a decision made by the
executive in an organisation in which HR has low status, radically beneficial conditions are
implied (Cooke et al., 2005).
“Intermediary organisation” can generally be regarded as an umbrella term that covers up
to 20 different types of organisations, of which LMIs constitute only one (Moss et al., 2009).
By and large, intermediary organisations are defined by their structural positions, that is,
organisations that mediate the relationship(s) between two or more social actors, including
different types of organisations: companies, public organisations, institutions and others (Van
der Meulen et al., 2005). In this case, LMIs are seen as organisations that interpose
themselves between workers and firms to facilitate, inform, or regulate how workers are
matched to firms, how work is accomplished, and how conflicts are resolved (Autor, 2009).
The continuous growth (in terms of numbers) of LMIs, as well as the significant role they
play, has led to increased research interest, particularly because LMIs are said to fulfil the
need for increased flexibility in the labour market (Osterman, 2004) and because they are seen
as a means to downgrade and replace the employer in shaping labour demand (Benner, 2003).
Previous research has largely focused on the various economic influences of LMIs and their
impact on labour market function. From this perspective, LMIs are reported to reduce
transaction costs for employers and employees, streamline search processes, facilitate
networks, and “share risks”, such as the risk of a failed recruitment. Furthermore, they
facilitate the flow between external and internal labour markets and may contribute to
regional development – primarily by affecting the pace and change of the development of
regional labour markets and secondarily by affecting the production processes within a region
(Benner, 2003). However, more problematic consequences have also been noted, including
how working conditions, job satisfaction and development opportunities seem to decline in a
labour market that is characterised by flexibility, different employment contracts and a
sharper segmentation of and between different groups (Barker and Christensen, 1998;
Kalleberg, 2001).
As stated previously, the focus of this article is on an emerging type of intermediary,
namely, human resource intermediaries (HRIs). In comparison with other types of LMIs (e.g.,
temporary work agencies, public employment offices, and professional employer
organisations), the studied HRIs differ in certain aspects: they are owned by their clients and
strive to maintain long-lasting relationships, they deliver advanced HR services, and they aim
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to contribute to local and regional development. The latter important aspect represents our
point of departure. HRIs provide HR services for employers, but they may also play a
significant role as part of a learning system; their role and function are a central topic in
research focused on understanding systems of innovation at local, regional and national levels
(Asheim, 2011; Dons Finsrud, et al., 2011). This perspective is further elaborated on by
Brulin and Svensson (2012), who distinguish three roles or functions of intermediary
organisations: (1) meeting places for exchanging experiences, (2) mediators/brokers
facilitating contacts and supporting the growth of networks, and (3) motors for driving and
supporting local and regional economic development. These three functions may prove useful
in describing and categorising the studied HRIs.
Numerous studies have also underlined the importance of the contextual setting of the
studied phenomena (Cooke et al., 2005), including social, organisational and economic
surroundings. Over the years, several attempts have been made to identify and characterise
specific traits and features of labour markets in the Scandinavian countries as “welfare
regimes” (Esping-Andersen, 1990), “Scandinavian labour market regimes” (Elvander, 2002),
or “coordinated market economies” (Hall and Soskice, 2001). From these various attempts to
capture the essence of Scandinavian institutions, the Swedish labour market, the specific
foundation of which was laid more than 100 years ago, may nevertheless still be characterised
by a high degree of co-determinative responsibility for the results of bargaining processes and
for conflict resolution. Furthermore, the Scandinavian labour markets are characterised by co-
operative, long-term and consensus-based relationships as well as by inter-corporate networks
between different actors in the labour market (Asheim, 2011). Other frequently mentioned
features of these markets are the presence of relatively powerful labour unions, a high union
density, and the resolution of conflicts being to a high degree institutionalised in the form of
collective agreements between unions and employers (Bengtsson and Berglund, 2010).
Taking this historical background and the contextual setting into account, it is not surprising
that one common type of LMIs, for-profit private work agencies, was not allowed in the
Swedish labour market until 1993. However, in Sweden as well as in other OECD countries,
these types of organisations have today reached a high level of acceptance and are regarded as
important actors in several areas of the labour market (Håkansson and Isidorsson, 2012).
Methodology and research setting
The empirical foundation of this article comprises a multiple case study (Yin, 2009) of three
Swedish HRI organisations. In this article, we call these organisations the Industry Pool (IP),
Industrial Competence (IC) and the Industrial Development Centre (IDC). This case study is
part of an ongoing research project focusing on the role of HRIs in developing human
resource strategies for increased renewal capacity in SMEs. The project is financed by the
Swedish Governmental Agency for Innovations (VINNOVA) for the period from 2009 to
2013. This article focuses on HRIs as providers of HR services.
The data were collected through interviews with management and consultants in the three
HRIs. Nineteen interviews were conducted, seven at Industrial Competence, six at the
Industrial Development Centre, and six at the Industry Pool. The respondents were selected
based on their knowledge of the internal organisation and its clients. Thirteen of the
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respondents had university degrees and several years of previous work experience in different
types of industrial companies. Six of the respondents were women, and 13 were men.
Characteristics of the respondents are presented in Table 2 below.
Table 2. Characteristics of the respondents.
Respondent
Gender
Educational level
Primary areas of expertise
IC 1
Male
University level
Business development
IC 2
Male
University level
Recruitment, staffing
IC 3
Female
University level
Business development, staffing
IC 4
Female
University level
HR-manager, staffing, recruitment
IC 5
Male
University level
Market manager, business development
IC 6
Male
Upper secondary school level
Regional manager, marketing, sales, recruitment
IC 7
Female
Upper secondary school level
Regional manager, marketing, sales
IDC 1
Male
University level
CEO, business development
IDC 2
Male
University level
Competence development, training
IDC 3
Male
University level
Competence development, training
IDC 4
Female
University level
Administration, quality management
IDC 5
Male
Upper secondary school level
Competence development, training
IDC 6
Male
Upper secondary school level
Business development
IP 1
Male
University level
Staffing
IP 2
Male
Upper secondary school level
Production development, outplacement
IP 3
Female
University level
Outplacement, recruitment, staffing, coaching
IP 4
Male
University level
CEO
IP 5
Male
Upper secondary school level
Outplacement
IP 6
Female
University level
Recruitment, staffing
The interviews were semi-structured (Kvale, 1996) and followed an interview guide that
addressed the following areas and themes (among others):
The professional background of the respondent (e.g., education, age, and previous
work experience);
The respondent’s current work situation in the HRI (e.g., current position, areas of
expertise, characteristics of a typical work day, and cooperation with colleagues);
The respondent’s relationships with clients (e.g., how and when they meet with
clients, how assignments are negotiated);
Characteristics of the organisation (e.g., history, strategies, policies);
Outcomes of the HRI’s work (e.g., short-term and long-term effects);
Future challenges for the HRIs (e.g., finding and keeping customers).
The interviews were conducted on-site in meeting rooms. Although the interviews were face-
to-face, it was important to allow time for interviewee questions to establish and maintain a
positive rapport (Miles and Huberman, 1994). The interviews lasted between 45 and 75
minutes and were recorded and transcribed verbatim. In addition to the interviews, the
empirical material also includes company documents, such as organisational charts, annual
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reports, marketing brochures, and information from websites. In this article, “documents” is
used as an umbrella term for data that have originally been produced for other reasons than
the research at hand (Merriam, 1998).
The analysis of the interviews was conducted in multiple steps. The first step of the
analysis began during the interviews to ensure that the process was sensitive to arising needs
to collect new data or use different methods. After the interviews had been transcribed, each
transcript was read several times to obtain an overall understanding of the material and to
obtain information about the organisational conditions related to the purpose of the study.
Based on these readings, the material was divided into different themes, which were then used
to establish categories. Taken together, the analysis can be described as a process that
alternated between the categorisation of data and the interpretation of emerging patterns. The
analysis of company documents can be categorised as a simplified form of content analysis
(Patton, 2002). The stages in the analysis have included determining the nature of each
document in terms of why it was produced, who produced it, when it was produced and how it
has been used in the organisations (Merriam, 1998). The purpose of the document analysis
was primarily to increase the understanding of the three cases, and it formed the basis for the
description of the organisations.
The three cases were initially analysed and written up separately to obtain an
understanding of their similarities and differences. As a next step, a cross-case analysis was
performed to find themes that were common to all cases (Miles and Huberman, 1994). The
cross-case analysis is presented in this article. In this presentation, quotes are to present a
fuller image of the phenomena being presented. The quotes have been translated from
Swedish to English, with a few minor corrections to the spoken language. However, this has
not altered the meaning of the quote.
To create opportunities for joint analysis and for a critical and reflective learning process
concerning the studied phenomena (cf. Argyris and Schön, 1989), a seminar was arranged
with representatives from the HRIs and the researchers. In this seminar, the findings from the
cross-case analysis were discussed and confirmed by the HRI representatives. This can be
considered as a form of respondent validation. To what extent is it then possible to make
analytical generalisations of the results of this case study to other contexts or to some broader
theory (Kvale, 1996; Yin, 2009)? In line with Larsson’s (2009) view on generalisation from
contextual similarities, we argue that the findings from this study can be discussed in relation
to other companies with similar focus and organisation. Although this particular type of
intermediary organisation can be viewed as a relatively new actor in the labour market, there
are other intermediary organisations that share at least some environmental and symbolic
characteristics. In this sense, it is possible that the findings of the study may be valuable to
other companies. However, this does not imply that the results should be seen as transferable
in any simple and direct sense. In the end, it is also up to the reader to determine whether it is
possible to make comparisons (Kvale, 1996).
The case organisations
The following section offers a brief presentation of the three HRIs included in the study. The
names of the HRIs are fictitious. Concerning the differentiation between different types of HR
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services provided by the HRIs, we have modified a categorisation by Sparrow et al. (2010)
comprising three broad categories based on two dimensions: the potential value of the HR
service to the organisation and the degree of complexity of the service. The delivery of
transaction services (e.g., employee recordkeeping, payroll, job posting) represents low
complexity and low potential added value and can be based on standardised solutions and the
use of ICT. Employment services (e.g., recruitment, outplacement, training, career support)
represent a higher level of complexity and a higher degree of interaction with the client to
identify demands and deliver the relevant services. The third category, corporate governance
services (e.g., production and organisation change, development of corporate HR strategies
and policies), represents high complexity and a high degree of interaction with the client. The
three HRIs all deliver services within transaction and employment services and strive to
further develop corporate governance services.
Industrial Competence
Industrial Competence (IC) was started in 1997 by a large industrial manufacturing company
in Sweden. The initiative came in part from the trade union. The purpose of IC is to
coordinate, plan and improve the competence of the region with respect to its resources.
Today, IC is owned by a network of 17 companies and two municipalities. In addition, IC has
approximately 70 member companies and 20 to 30 external clients. The owner companies are
represented on the company’s board, which consists of ten members (eight from clients and
two from trade unions). IC’s profit is used for internal business and organisational
development. IC has 26 employees and approximately 220 affiliated external consultants. The
number of external consultants varies depending on the number and type of assignments. The
clients are largely in the manufacturing industry, but IC also has clients in the public sector,
such as municipalities, county councils and government agencies. IC was initially formed as a
supplier of temporary staff but has since become a broad supplier of HR employment
services, including recruitment and staffing, education and competence development but also
corporate governance services such as organisational and business development. In recent
years, IC has also begun to offer services within outplacement and job coaching. IC works
with both blue-collar and white-collar workers. On its web page, IC markets itself as the only
HR supplier a client needs.
Industrial Development Centre
The Industrial Development Centre (IDC) was founded in 1997 (based on an initiative from
the labour government) and is one of 15 similar regional development centres in Sweden. IDC
claims that the centre was created by the industry in support of the industry, but today, IDC is
owned by private companies, municipalities, unions, and a university. The company board
consists of nine clients (six from private organisations, two from public organisations, and one
from the trade union). One aim of IDC is to contribute to the development and growth of
organisations in the region. IDC’s profits are invested in the development of the company.
IDC offers corporate governance services such as business development and organisational
development, and employment services in the form of training and competence development.
During the recession in 2008, IDC also included outplacement among its employment
services. Today, IDC has 16 employees, and there are also approximately 100 subcontracted
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consultants who conduct most of the actual training. IDC’s role is to coordinate and organise
the educational activities that their clients require. IDC’s clients are primarily small- and
medium-sized companies. IDC works with both blue-collar and white-collar workers.
The Industry Pool
The Industry Pool (IP) is a small company with eight employees. It was founded in 2001 with
the intention of facilitating the mobility of personnel between companies in the region where
it is located. Today, it is owned by approximately 40 companies, with another 60 companies
connected to IP on a membership basis. The company board consists of five representatives
from the owner companies. IP is a non-profit organisation, and any generated revenue is used
to benefit the owners. However, IP also has clients who are not owners or members. The
owners and members are primarily manufacturing and industrial companies, ranging from
small to large organisations. The business has expanded from working exclusively with
temporary staffing to offering a wider range of employment services (including recruitment
and outplacement) and corporate governance services such as organisation development and
production development. IP works with both blue-collar and white-collar workers.
The work of the HRIs
The three HRIs (IP, IC and IDC) were all created to facilitate the coordination of HR-related
issues. Their current organisations share many similar features, such as their ownership
structures. Both IP and IC have a membership structure as well, whereas IDC speaks of its
clients and owners as partners. Furthermore, the three HRIs have expanded their offerings to
include the entire range of HR activities, although IC and IP have recently focused more
heavily on outplacement services while IDC is more strongly oriented towards educational
activities. None of the respondents from the HRIs believe that they have competitors with the
same broad customer offerings.
There really isn’t anyone who has all the areas that we have. Usually they are good in one area.
There isn’t anyone who talks with the clients at all levels, the way we do. (IC Respondent 4)
The respondents from the HRIs stress the significance of their unique networks and their
importance in facilitating the cooperation of their clients and members. This is an aspect of
nurturing the relationship with their clients and of generating value from the structure of
ownership and membership. The HRIs facilitate cooperation for their owners and members in
different ways. For instance, IC arranges meetings to enable the exchange of experiences and
the creation of new networks. One of the respondents from IC explains the purpose of such
meetings:
For us, it [the purpose] is of course to get better contact with the company and to have more in-
depth collaborations. For them, I hope that there is a lot of knowledge exchange between the
participants. When you arrange a themed activity, people who are interested in that theme will
come. That’s the goal. That they will discuss things with each other. It is not as if we have regular
workshops — they are more like discussion forums. (IC Respondent 2)
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The respondents from IDC highlight their close relationship with research centres and other
stakeholder organisations as important channels for updates on the latest issues within the
field of HR and as a vehicle to find connections between their clients and Swedish and
European development programs. The respondents at IP mention working on active
cooperation projects that establish company pools in which members can exchange
experiences and from which they can borrow employees. One of the respondents also
emphasised the value arising from IP’s capability to help its clients connect with each other.
A good outcome for us, if you don’t count the economical profit, is when we have created value
for our members. /…/ The best scenario is probably when we have had some sort of gathering
where two companies that did not know each other previously can create a relationship and an
exchange that carries on even after we leave. That is perhaps the best way for us to add value to
the member companies. (IP Respondent 1)
In addition, IDC and IC have a formal collaboration agreement. They share many owners and
clients and arrange joint meetings with them. The aim of their collaboration is to complement
each other by offering an even wider array of services. The respondents from these two
intermediaries speak positively about this arrangement, although they feel that the
collaborative model needs to be more clearly defined and should move beyond just informing
each other of the possibility of new assignments.
With respect to the HRIs’ handling of clients’ assignments, the interview findings indicate
many similarities across the three intermediaries. In each of the HRIs, the definition of an
assignment is created in a dialogue with the client. At IDC, the assignments are discussed
with the clients to find the best solution and to develop the clients’ ability to place orders.
According to the respondents at IC, it is crucial to perform a needs assessment and, through
dialogue with the client, discover potential dimensions of a project that were not initially
apparent. Similarly, the respondents from IP emphasise the importance of having in-depth
discussions with clients because the clients do not always know what they need or how their
problems can be addressed.
We do it together. We communicate with each other. I start to open up, and then they open up as
well, and after a while, the entire box is open, and then we can start talking solutions and above all
what we can offer. (IP Respondent 5)
The work methods and tools
The three HRIs have several similarities with respect to the methods and tools used in their
assignments. All respondents report that they adapt their methods to the client’s demands and
needs and choose tools relevant to the nature of the assignment. The respondents at IP claim
that they are flexible in most assignments, but in regard to outplacement, they usually follow a
specific structure with defined checkpoints. At IC, the respondents report that they use certain
validated approaches, models and tools in their work but that these are dependent on requests
from the clients and on the nature of the assignments. It is perceived as difficult to find
standardised solutions for many assignments. At IDC, all models are developed to meet the
needs of the client. The respondents from all three HRIs mention both advantages and
disadvantages with their individually adapted work. The advantages of non-standardised
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solutions include the ability to be sensitive to the client’s needs and to avoid time-consuming
and inflexible methods. Conversely, the respondents at IC believe that it is easier to assure
quality when they offer standardised solutions. The disadvantages of non-standardised
solutions are mostly related to the risk of becoming too flexible in the client’s eyes. The
respondents at IP also note that such solutions make it more difficult to learn about the work
habits of others in the company, and the respondents from IDC point to difficulties in
comparing the effectiveness of different solutions.
Furthermore, the results show that all three HRIs conduct some type of evaluation and
follow-up with their clients’ assignments. At IDC and IC, each assignment is evaluated when
it is completed. At IP, the consultants’ work is evaluated both during the assignment and after
it is completed to create close relationships with their clients. However, there also seems to be
a lack of evaluation and follow-up routines within each HRI. Respondents from all three HRIs
state that the documentation of their work is important but that it needs to be improved. At
IDC, the respondents say that they are good at documenting information related to the clients
but not with respect to their internal work processes. At IC, an IT program is used to
document the work, but it is not fully utilised; instead, informal conversations occur between
colleagues, although the respondents believe that these conversations do not provide sufficient
information about the projects. At IP, the respondents document the assignments only
sporadically, and therefore they recently purchased an IT system. However, one respondent is
doubtful whether this IT system will lead to actual changes.
We’re not the kind of guys who love administration and documentation, but we need it. We talk a
lot, all the time, but if I get sick or something, then there isn’t a whole lot put down on paper. /…/ I
will probably not write myself to death in the IT system, but at least it’s there. (IP Respondent 3)
The relationship between HRIs and clients
All three HRIs are eager to function as strategic partners for development and to contribute
their competence at an advanced level. The respondents at IDC also say that their goal is to
help their clients develop strategic planning related to HR issues so that they can become
better purchasers of IDC’s services.
Basically, we are trying to shift from being some sort of experts to function more as a help to self-
help. /…/ Because the more qualified and professional the client gets, the easier it becomes for us.
(IDC Respondent 1)
However, although the goal of an HRI is to be a strategic, long-term HR resource, it is not
always easy to achieve this goal. According to the respondents, one reason for this difficulty
relates to the characteristics of the clients’ assignments. Although some assignments are long-
term and strategically oriented, most of the HRIs’ work is short term and characterised by the
respondents as ”firefighting”, dealing mostly with previously identified HR issues that, for
several reasons, had not yet been targeted.
There is a lot of firefighting. I reckon it’s at least 60 to 70 per cent. Because they [the clients] can’t
cope with it on their own –they just don’t have the time. (IC Respondent 6)
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According to the respondents from IC, the fear is that a more strategic approach might fail
because many of their clients are not willing to devote sufficient resources to HR issues. The
HRI’s adoption of a more strategic, long-term, competence-building approach is additionally
problematic because it may have a negative effect on the HRI’s business. One of the
respondents from IC explicitly notes that the company is dependent on the clients’ lack of
competence and their inability to handle the ups and downs of their HR processes.
No, I don’t think that is preferable, because then we couldn’t do any business. I think that most
companies would like to be able to do it all on their own. But I don’t think that it’s possible to
solve all issues internally. (IC Respondent 2)
The respondents believe that the involvement of an external resource in an organisation’s HR-
related work is a delicate matter that may have both positive and negative consequences for
organisations. The respondents describe some issues that are not appropriate for outsourcing.
For example, activities that involve the manager-employee relationship or work rehabilitation
of employees are seen as difficult to outsource, as are some types of activities relating to
organisational change. These issues require sufficient knowledge of the personnel and the
organisation, and thus according to the respondents, they should be handled internally.
Furthermore, the respondents mention that their clients may find sharing certain types of
information with the HRIs problematic. Many clients are competitors, and this competition
creates the concern that a company’s secrets may leak out to other networks. On a long-term
basis, the frequent use of intermediaries may also lead to a decline of the HR competence
within the client company.
On the positive side, the respondents from all three HRIs mention that they, as an external
resource, are able to contribute new ideas, see the larger picture and challenge the existing
”truths”. For example, the respondents at IP claim that their work helps their clients widen
their perspectives and ”think outside the box”, which may in turn better equip them to address
change. According to the respondents, the outsourcing of HR may be an especially good
solution for smaller companies lacking sufficient internal HR competence or resources. The
respondents also note that it is often easier for them, as external partners, to raise difficult and
uncomfortable questions.
We leave no stones unturned, so to speak, which you typically won’t do when you’re inside of the
company. We can dare to be a little uncomfortable. I feel that when I’m out on an assignment I can
be uncomfortable and ask questions that those who work in the company don’t want to ask, and
that is an advantage with hiring us. (IP Respondent 2)
Summary of similarities and differences between the HRIs
In sum, the studied HRIs share similar features such as their ownership structure, membership
base, and unique networks. They all strive to establish and maintain long-term relationships
that are based on dialogue with the clients. The HRIs attempt to adapt their methods and tools
to the type of client and assignment. As external providers of HR services, the HRIs also seek
to contribute new ideas and solutions to HR issues, as well as to facilitate a more strategic
perspective of HR on behalf of their clients. Taken together, the results indicate that the work
of the HRIs seems to be beneficial for clients in several ways. However, the positive results
12
are also accompanied by important challenges and unresolved issues that warrant further
attention. In Table 3 below, the main similarities and differences between the HRIs are
summarised.
Table 3: Similarities and differences between the three HRIs.
Theme
The Industrial
Development Centre
The Industry Pool
Industrial Competence
Using networks to
facilitate cooperation
of clients and
members
Connects clients with
research centres and
development programs,
and acts as a channel for
updates on latest HR news.
Arranges company pools
for exchange of employees
between members and
arranges meetings to
connect clients.
Arranges meetings to
enable exchange of
experiences and creation of
new networks.
Negotiating
assignments in
dialogue with client
Discusses assignment with
clients to find solution and
to develop clients’ ability
to place orders.
Have in-depth discussions
with clients because they
do not always know what
they want or need.
Uses needs assessment
analysis and dialogue to
discover unapparent
dimensions of
assignments.
Standardisation and
flexibility of methods
depending on clients’
demands and needs
Develops and adapts
models to meet the needs
of the client.
Are flexible in most
assignments, but follows
specific procedure for
outplacement assignments.
Uses validated models and
tools but these are
dependent on requests
from clients and on the
nature of the assignments.
Evaluation and
follow-up
Evaluates each assignment
after it is completed.
Evaluates both during the
assignment and after it is
completed.
Evaluates each assignment
after it is completed.
Documentation and
organisational
learning
Documents information
related to the clients, but
not information related to
internal work processes.
Documents assignments
sporadically, but has
recently purchased an IT
system.
Uses IT program, but it is
not fully utilised.
Conversations occur
between colleagues, but
these do not provide
sufficient information.
Strategic and/or
operative focus
Wants to function as a
strategic partner, but most
of the work is
characterised as short term
”firefighting”.
Wants to function as a
strategic partner, but most
of the work is
characterised as short term
”firefighting”.
Wants to function as a
strategic partner, but most
of the work is
characterised as short term
”firefighting”.
Negative aspects of
outsourcing HR
Some activities are
difficult to outsource.
The clients find sharing
information as problematic
due to risk of leakage to
competitors.
The frequent use of
intermediaries may lead to
a decline of the client’s HR
competence.
Some activities are
difficult to outsource.
The clients find sharing
information as problematic
due to risk of leakage to
competitors.
The frequent use of
intermediaries may lead to
a decline of the client’s HR
competence.
Some activities are
difficult to outsource.
The clients find sharing
information as problematic
due to risk of leakage to
competitors.
The frequent use of
intermediaries may lead to
a decline of the client’s HR
competence.
Positive aspects of
outsourcing HR
Contributes with new
ideas, sees the larger
picture and challenges
existing truths.
Contributes with new
ideas, sees the larger
picture and challenges
existing truths.
Contributes with new
ideas, sees the larger
picture and challenges
existing truths.
13
Discussion and concluding remarks
In this section, we discuss problems and possibilities concerning the studied HRIs’ work with
their clients. The discussion is focused on the characteristics of the work of the HRIs, the
nature of their assignments and how they understand their role as providers of HR services to
clients.
First, the results indicate that one advantage of working with an external actor is that a
consultant can more easily address uncomfortable issues and can see the bigger picture more
objectively (cf. Nesheim et al., 2007). However, an HRI’s attempt to establish a long-term
relationship with a client (many of whom are also owners) may cause the HRI to lose some of
the external, critical edge that is likely needed to address problems on a more strategic level.
Thus, although having a close relationship with the client may be beneficial in some ways,
there is also a potential danger in becoming too familiar and “going native”, which might
result in the HRI’s decreased capacity to take on more strategic tasks.
Second, there appears to be a balance between meeting each client’s needs and using
standardised methods that establish quality and that are easy to validate (Cooke et al., 2005;
Ulrich et al., 2008). This flexibility is seen as a sales argument and is used to establish good
relationships with clients, which can lead to new assignments that are more proactively
oriented. However, the problem is that an HRI’s ability to be flexible may also create
solutions that are too expensive or too disparate to evaluate, potentially causing the HRI to
lose the ability to argue for the long-term effects of its services. Instead, the HRI may become
the “handyman” who changes lightbulbs and tends to the squeaky floorboards instead of the
“architect” who designs new houses (cf. Cooke et al., 2005).
Third, one contributing reason for the focus on short-term solutions is that the need for
speed is usually of great importance in the industrial world. Internal HR competence is often
low in client organisations (cf. Cardon and Stevens, 2004), causing them to view some issues,
such as the recruitment and development of employees, as just one more production issue that
can be handled in a technical manner. For the HRIs, this tendency means that selling services
that quickly show results could be a strategy to work their way up to more advanced
assignments (e.g., corporate governance services; Sparrow et al., 2010). However, a
precondition for the development of this type of relationship is that clients need to be more
aware of the complexity of HR services available. By providing fast results, the HRIs will be
welcomed back but at the risk of continually providing quick fixes unless they also work at
developing the internal HR competence of their clients. As the results indicate, this is an
aspect that works in the HRI’s favour, but it is also something of a “Catch-22” because if
clients develop their HR internally, their need to hire external consultants may decrease.
Therefore, in these client-owned HRIs, there is a question about whose needs should be
prioritised if such a situation arises – those of the client or those of the HRI (cf. Ulrich et al.,
2008).
Fourth, the conditions for an HRI to work strategically demand an internal coordination
process within the HRI. The results show that the individual consultant’s insights about the
client and the assignment are shared mainly via oral communication with other consultants in
the HRI, which the respondents view as problematic. When many consultants are working
with the same client at different times or on different assignments, the lack of access to
14
information about previous projects may restrict their progress. A lack of documentation may
therefore be seen as a constraint on the effort to develop a strategic partnership.
In conclusion, the results of the interviews show that all three HRIs appear to have certain
strengths in relation to their competitors (e.g., dialogue with clients, long-lasting relationships,
unique networks). At this point, however, these advantages do not seem to be fully realised.
The nature of the HRIs’ assignments is, to a large extent, based on short-term, firefighting
activities, while more strategic corporate governance services are less common. However, the
respondents from the HRIs also maintain that they do in fact strive to become long-term
partners with their clients and focus their attention on more strategic HR issues. Based on this
analysis, we may conclude that it is not self-evident that this kind of ownership structure
creates benefits for either the HRIs or their clients. There is also little empirical evidence
suggesting that the HRIs have promoted development, either locally or regionally (Brulin and
Svensson, 2012). From the interviews, it is evident that the mission to contribute to local and
regional economic development (as expressed in documents and on websites) seems to be
displaced by short-term projects with single clients. Rather than fulfilling their potential to act
as developmental motors, the work of the HRIs is oriented towards mediating contacts
between employers and employees and creating meeting places for clients to exchange
experiences.
Implications for research and practise
Regarding implications for research associated with this study, further studies are warranted
on LMIs in general and the category denoted in this paper as HRIs in particular. Several
issues need to be addressed concerning possible implications for both HRD research and HRD
practice. One important issue for research concern what factors drive organisations to
outsource parts of, or the entire HR function, to third-party organisations, i.e. HRIs. Closely
connected to this issue is whether different factors are important for HR outsourcing in
different types of organisations? It seems reasonable to assume that a certain part of HR
outsourcing is cost-driven, and often combined with a purpose to enable a focus on more
value-creating HRD activities. Other motives also include improving the performance of the
HR function. However, these motives are probably more common in larger companies with
substantial HR functions, while SMEs, in comparison, often have more limited HR resources.
From this perspective, companies with limited HR resources are generally more vulnerable to
outsourcing HR, and future research can contribute by describing and analysing how
companies with limited HR resources are affected by outsourcing. Other important issues for
research concern different types of effects from outsourcing HR. Is this a sustainable way for
companies to “have their cake and eat it too” in terms of outsourcing HR, but still keeping it
close enough to avoid possible negative effects (e.g., loss of in-house knowledge and capacity
to train the staff, loss of long-term competitiveness, a reduced capacity to take on
organisational change, etc.)?
The results presented in this article have several limitations in terms of the selection of
cases, the selection of actors and the total number of interviews. In the next stages of the
research project, of which this study is a part, the scope will therefore be broadened to include
clients, board members, and union representatives to expand the knowledge base concerning
15
the possibilities and limitations of HRIs providing HR services to clients. It would also be
interesting to study the service quality of the external consultants that HRIs sometimes
employ to meet client requirements that cannot be handled by the regular staff of the
organisation. Furthermore, it is also necessary to widen the search outside of the Swedish and
Scandinavian labour markets to explore to what extent similar or different types of HR
intermediary organisations exist in other countries or contexts.
Based on the findings presented, there are also some implications for practise that can be
discussed, concerning both HRIs and their clients. One important challenge for HRIs is to
avoid being overwhelmed by short-term and reactive assignments that deliver value to their
clients through the use of standard solutions. Since they have a strong position in the market
and few competitors, there is a risk that the HRIs will stick to “picking the low-hanging fruit”,
rather than engaging in more developmental HRD activities that can result in a stronger focus
on providing employment and corporate governance services. A concentration on short-term
and reactive assignments also actualises the risk of a deterioration of competence among the
consultants, and subsequently, they may lose their capacity to “contribute with new ideas”.
These issues can also be connected with the aspiration of being a “learning partner” to the
client. The presented results revealed that the internal work routines concerning
documentation, follow-up and evaluation of different assignments were not sufficient. Hence,
from an HRD viewpoint the conditions for organisational learning within the HRIs need to be
developed.
Furthermore, long-term relationships, ownership and membership structures, and the
availability of unique networks can prove to be valuable for the clients as they contend with
their upcoming competitors in the market. The three HRIs have access to large and unique
networks of companies, but so far this potential seems to be unexploited. Here is also a
potential risk of complacency amongst the HRIs in the sense that the lack of competition may
lead to stagnation in development of the HR services. This is especially troublesome if more
actors start adopting and elaborating the concept. Another challenge for HRIs is to help their
clients see the advantage of being an owner or member. The results indicate that although the
value of ownership is highlighted in the interviews, few concrete measures have been taken to
realise this value.
Considering the clients of the HRIs, several implications can be elaborated. Outsourcing
parts of HR, or the entire HR function, has indeed different effects on the company.
Regardless of whether the company choses one or the other, it is necessary to be aware of
possible consequences both in short and long term. One obvious question that has to be raised
is: “why should we outsource HR, and what are the possible effects from doing this”? The
company has to consider the pros in terms of cost-saving, freeing time for more value-adding
activities, focusing on the development, etc. and put them in relation to possible cons, e.g.,
loss of in-house competence, dependence on out-side vendors, etc. The question “to develop
or to buy” has in this sense no straight answer. The rationale behind Outsourcing HR is more
than if someone can perform the job to a cheaper cost, it is also a question of whether
someone can do it better than you can (Kabst and Strohmeier, 2006, p. 239).
Finally, long-term and consensus-based relationships as well as intercorporate networks
among actors are needed for expanded collaboration that supports local and regional
development (Asheim, 2011). In public debate (and partly in research), there are different
16
descriptions and suggestions concerning what structural properties a regional development
system should comprise, but there are few suggestions concerning how to realise these
structural properties (Dons Finsrud, et al., 2011). However, different kinds of labour market
intermediaries have been described as one, among others, important actor in regional
development processes (Brulin and Svensson, 2012). To fulfil a more development- and
motor-oriented function, the studied HRIs need to take advantage of their networks by
developing and putting into place more extensive and long-lasting projects. This also implies
the need to expand the HR consultants’ competence, such as business and change
management expertise.
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