Analysis of the Impact of Human Resource Outsourcing on the Effectiveness of the Human Resource Function, Nairobi, Kenya

Abstract

This research explored the impact of outsourcing human resource activities on the effectiveness of the human resource function in HR departments in firms registered with the Institute of Human Resource Management (IHRM) in Nairobi, Kenya. The study was anchored on The Transaction Cost Economic theory which emphasizes minimization of resource cost either through concentrating on core competencies and subcontracting other non-core areas of operation or subcontracting even their primary activities to others that can perform them less resource costly thereby earning some returns which is in form of the difference between the value of the contract and the cost of its execution. The target population of the study was 259 HR departments of firms registered with IHRM. Non-probability purposive sampling was used in selecting the respondents who are HR department's representatives. A sample size of 72 organizations. The data was analyzed using both descriptive and inferential statistics through computer based Statistical Package for Social Sciences (SPSS). The study findings showed that training & development outsourcing and compensation outsourcing had significant and positive effect on the effectiveness of the HR function. However, recruitment outsourcing had insignificant effect on the effectiveness of the HR function. In addition, the vendor characteristics moderates the relationship between recruitment outsourcing and Effectiveness of the HR function (β =. 314, ρ< .05), relationship between training outsourcing and Effectiveness of the HR function (β = .550, ρ< .05), relationship between compensation outsourcing and Effectiveness of the HR function (β = 0.419, ρ< .05). Thus, the study concludes that training & development outsourcing and compensation outsourcing are vital HR outsourcing activities in improving the effectiveness of the HR function. Therefore, the study recommends that firms should do a thorough cost-benefit analysis before outsourcing recruitment as the impact was not significant.