According to a recent sampling of the Northeast Human Resources Association's (NEHRA) 4,000 members, outsourcing, both domestic and foreign, is on the rise. NEHRA conducted the e-survey earlier this year to determine outsourcing trends in local organizations.

Outsourcing is the movement of internal business processes to an external company. Offshoring is similar to outsourcing, but describes the practice of companies hiring overseas subcontractors. It also includes firms transferring work to their own company's operations in another country.

Through the survey, the differences between domestic outsourcing and offshoring were apparent. For starters, 83% of organizations surveyed have outsourced a service, job function or product development within the United States while only 37% have outsourced offshore.

According to David Kimmelman, chair of NEHRA's Outsourcing Special Interest Group and Vice President, Development and Alliances, Human Capital Institute, "The results of this survey confirm that outsourcing and/or offshoring of job functions, services, and more will continue to grow in the coming years. There is also evidence that HR professionals will need to play a much more strategic role in the planning and implementation of such programs. Based on the e-survey, fear of job loss is the overwhelming reason why employees have a difficult time accepting outsourcing or offshoring, so communication can play a critical role in how employees will adapt to this event."

About half of those surveyed (51%) have plans to initiate or increase outsourcing work in the US within the next five years, while 68% of organizations polled have plans to initiate or increase offshore outsourcing work within the next five years.

Outsourcing and HR

Most (61%) of the respondents agreed strongly or somewhat strongly with the idea that HR played a strategic and/or tactical role in the planning and implementation of their organization's outsourcing decision. Even more (72%) think that HR will play a strategic role in the future.

Retirement benefits management (54%), payroll (52%), and health benefits management (51%) are among the most common functions outsourced within the US. Others include legal services, training, IT, and executive coaching. The top functions outsourced offshore include software development (21%), customer service or call center (17%), manufacturing and production (13%), quality assurance (10%), and research and development (10%).

Reasons for outsourcing

The most important reason cited for utilizing outsourcing within the US was that the outsourced function is not considered a core competency of the organization (42%). Other reasons included reducing labor costs (35%), increasing productivity (32%), and expanding the skill set of the labor pool (27%). The results realized by companies outsourcing in the US include increased productivity (44%), labor cost savings (38%), and retained competitive position (26%).

The most important reason cited for utilizing offshore outsourcing was labor costs (29%). The most prevalent countries in which organizations have offshoring operations include India (26%), China (16%), the United Kingdom (16%), and Canada (9%). The most important results realized by companies utilizing offshore outsourcing were kept company competitive (61%), saved on labor costs (54%) and increased labor pool skills (36%).

Employee attitudes

About 42% of those surveyed say employees readily accepted the decision to outsource work in the US. The top reasons employees did not readily accept the decision to outsource domestically were job loss (30%), intellectual property concerns (11%), and poor quality work (11%).

Only 30% of those surveyed say employees readily accepted the decision to offshore outsourced work. The top reasons employees did not readily accept the decision to offshore outsourced work were: job loss (53%), poor quality work (42%), and risk of failure (38%).

Outsourcing challenges

The biggest challenges in managing or working in an offshore outsourcing environment include: working across different time zones (66%), language barriers (55%), quality of work (21%), and feedback (21%). A third (33%) of those surveyed think offshore outsourcing has changed the workflow in their organizations.

About the survey

NEHRA members are comprised of HR professionals, representing large and small companies in all industries within the region. The types of organizations that responded to this survey ranged from manufacturing and financial services to health and high tech. The majority (56%) of respondents were from privately held organizations. Over 90 NEHRA members and nonmembers responded to the survey, which was conducted online between Feb. 22 and March 3, 2006. For full survey results, visit the NEHRA website.

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