1 In-house Recruitment vs.

Outsourcing – A Comparative Study

TABLE OF CONTENTS

INTRODUCTION...........................................................................................................................................2
Background to the Research....................................................................................................................2
RESEARCH DESIGN.......................................................................................................................................2
Research Paradigm..................................................................................................................................2
Research Objectives................................................................................................................................2
Research Questions.................................................................................................................................2
Research Methodology............................................................................................................................3
Research Analysis....................................................................................................................................3
LITERATURE REVIEW....................................................................................................................................5
Introduction.............................................................................................................................................5
Global Trends in HR.................................................................................................................................5
Strengths and Weaknesses of Outsourcing.............................................................................................7
Strengths and Weaknesses of In-house Recruitment..............................................................................8
Recruitment Process Outsourcing...........................................................................................................5
Road Map to RPO....................................................................................................................................9
Factors affecting the decision to outsource...........................................................................................10
A CASE ON SIEMENS ENGINEERING LIMITED.............................................................................................13
HR Vision...............................................................................................................................................13
HR Mission.............................................................................................................................................13
Case Study.............................................................................................................................................13
LIMITATIONS.............................................................................................................................................18
FINDINGS & CONCLUSION.........................................................................................................................15
RECOMMENDATIONS................................................................................................................................17
ROOM FOR FUTURE RESEARCH.................................................................................................................18
BIBLIOGRAPHY...........................................................................................................................................19
2 In-house Recruitment vs. Outsourcing – A Comparative Study

INTRODUCTION

Background to the Research

This research paper aims at highlighting the process by which a business decides whether to
outsource recruitment process or to retain it as an in-house activity. There has been an increasing
emphasis on empowering HR for sustainable growth of the business, at the same time; the trend
of recruitment process outsourcing (RPO) is also growing.

As a business practice, organizations have to deal with various operational aspects and have to
decide whether to outsource the process or not.[ CITATION Edw09 \l 1033 ]

RESEARCH DESIGN

Research Paradigm
Critical paradigm was used in our research we intend to evaluate the current practices and
critically analyzing the problems with the current practices.

Research Objectives
Through our research, we intend to find the following;

 Find out the trade-off between control and cost while choosing between outsourcing or
in-house recruitment.
 Compare the quality of the two hiring procedures.
 Develop a case on a particular company and highlight the strengths and weaknesses of
using a particular recruitment procedure.
 Using our findings to develop benchmark recruitment practices.

Research Questions
 Is the company using the right recruitment procedure?
 How can we improve the recruitment practices of the company?
3 In-house Recruitment vs. Outsourcing – A Comparative Study

Research Methodology
For conducting this research, we have relied on both primary and secondary data. Secondary
research helped us in understanding the global trends of outsourcing, the sectors where it is most
prevalent and the enable us to understand the strengths and weaknesses of both outsourcing and
in-house recruitment.

For primary research, we have conducted interviews at two HR Consultancies namely; Talent
Experts and People’s Professional Limited. These interviews helped us in understanding the
local trends of recruitment. We identified the reasons why companies use the services of an HR
consultancy. To develop a case on one of the companies, we visited Seimens Pakistan
Engineering. This interview did not give us sufficient information about the impact of
outsourcing on company performance.

Using this information we developed the case on recruitment practices of Seimens and critically
analyzed it.

Research Analysis
Initially this paper includes the literature review; it focuses on understanding the process of
outsourcing and in-house recruitment, the global trends, recruitment process outsourcing, and
factors affecting decision to outsource.

Literature review is followed by a case study which we have formulated on Siemens Engineering
Limited. Siemens enjoys a leading position in Pakistan in the areas of Power Generation, Power
Transmission and Distribution, Automation and Control, Industrial and Infrastructure Solutions,
Medical Solutions, Transportation and Information Technology Solutions. Siemens Pakistan
Engineering outsources the recruitment for non-technical jobs. It outsources 3 of its departments
namely

 OLM – On-call Logistics and maintenance

 Share services
o Facility management
o Event management
o Waste management
4 In-house Recruitment vs. Outsourcing – A Comparative Study

o Overall house keeping

 Field service (partially outsourced)

An interview with the company enabled us to find out some of the problems faced by the
company in their current recruitment structure. The information that we received is discussed and
analyzed in our finding and recommendations.
5 In-house Recruitment vs. Outsourcing – A Comparative Study

LITERATURE REVIEW

Introduction
The Human Resources department deals with one of the most important resource in the
organization – people. The responsibilities of an HR department revolve around the management
of people, ranging from selection, recruitment, and hiring, compensating, training and
developing employees. Core functions of HR can be divided into three categories[ CITATION
Jon09 \l 1033 ];

 Driving Operational Efficiencies;

 Representing the views of the people to Top Management;
 Having a view of day-to-day business operations.

It is extremely important that the HR clearly understands the core business of the company and
then develop policies in line with the organizational needs. By knowing the business of an
organization, HR will recruit the right kind of people required by the business and will train them
according to the needs of the organization. All these functions must aim at improving the overall
organization’s performance.

One of the surveys conducted by IRS Employment Review revealed that recruitment is the main
priority function for more than 80% of the HR professionals. [ CITATION Rec02 \l 1033 ] Retention,
recruitment and expanding the base of skilled workers is now the top HR priority as limited
number of employees with the right education, training, and experience has increased
competition. [ CITATION Ret06 \l 1033 ] Performance is now a crucial element of the recruiting and
retention process as explained by one of the senior compensation consultant with Mercer Human
Resource Consulting (Philadelphia). He further added that employers will need to provide more
“holistic” rewards to attract and keep high performers.
These include compensation, benefits, and career opportunities. Employee satisfaction will be a
key to retention, he said.
6 In-house Recruitment vs. Outsourcing – A Comparative Study

Recruitment Process Outsourcing

Organizations in today’s tough global economy are seeking ways to reduce costs while
improving performance. Outsourcing HR practices can be regarded as a by-product of an
organization’s cost cutting measures. Recruitment Process Outsourcing is one single element of
Business Process Outsourcing. It is important here to define Recruitment Process Outsourcing
(RPO) RPO is a form of business process outsourcing (BPO) where an employer transfers all or
part of its recruitment processes to an external service provider. An RPO provider can provide its
own or may assume the company's staff, technology, methodologies and reporting. In all cases,
RPO differs greatly from providers such as staffing companies and contingent/retained search
providers in that it assumes ownership of the design and management of the recruitment process
and the responsibility of results.
A true or total RPO solution involves the outsourcing of the entire recruiting function or process
to an external service provider. This provider serves to provide the necessary skills, tools,
technologies, and activities to serve as their client’s virtual “recruiting department” in some cases
and in others the customer is engaging the RPO service provider to handle specific parts of the
hiring cycle. So the use and benefit of RPO varies with the organization and the industry it is
operating in.

Global Trends in HR
While human resource (HR) activities have traditionally been performed internally, the
outsourcing of HR practices is a rapidly increasing phenomenon. The accelerated rate of HR
outsourcing also corresponds to an extensive change in which non-transactional activities, such
as recruitment, selection and training, are among the most outsourced HR practices.[ CITATION
And08 \l 1033 ] This trend of outsourcing can be dated back to early 90’s and by late 90’s almost
90% firms in US outsourced some administrative HR practices (for example payroll). Over the
last decade the global HR outsourcing trend grew at 8.5% across US and Europe. [ CITATION
And08 \l 1033 ] In recent years, an increasing number of firms have opted to outsource a larger
package of HR functions, including the ones that are likely to have a fundamental impact on
organizational culture and performance[ CITATION BSK01 \l 1033 ]
Hence, firms are confronted with questions regarding the organization and delivery of HR
services, wondering whether and which HR activities should be performed by internal staff
7 In-house Recruitment vs. Outsourcing – A Comparative Study

members and which should be outsourced to external providers. The academic literature suggests
different classifications of HR activities and these have implications on outsourcing decisions.
When activities are considered more transactional or non-strategic, they should be outsourced.
When they represent core practices or are of a relational nature, they should be retained in-house.
[ CITATION Fan05 \l 1033 ] Since recruitment is one of the most important functions of HR,
outsourcing it is still a debate. It is important to discuss the strengths weaknesses of outsourcing
recruitment process. Since we cannot analyze a process in isolation, we need to compare and
contrast with the tradition in-house recruitment process. Finally based on our secondary research,
we will provide a generalized set of condition which encourages reliance on outsourced
recruitment or in-house recruitment.

Strengths and Weaknesses of Outsourcing

Outsourcing is more commonly known as offshore and businesses which rely on this process
usually outsource a number of non-strategic departments like IT maintenance, Logistics,
Technical Support etc. There are numerous advantages of outsourcing but it is equally important
to discuss the weaknesses and then evaluate the process for its effectiveness.
Strengths
 Swiftness and Expertise: Most of the times tasks are outsourced to vendors who
specialize in their field. The outsourced vendors also have specific equipment and
technical expertise, most of the times better than the ones at the outsourcing
organization. Effectively the tasks can be completed faster and with better quality
output.
 Concentrating on core process rather than the supporting ones: Outsourcing the
supporting processes gives the organization more time to strengthen their core business
process.
 Risk-Sharing: One of the most crucial factors determining the outcome of a campaign
is risk-analysis. Outsourcing certain components of your business process helps the
organization to shift certain responsibilities to the outsourced vendor. Since the
outsourced vendor is a specialist, they plan your risk-mitigating factors better.
 Reduced Operational and Recruitment costs: Outsourcing eludes the need to hire
individuals in-house; hence recruitment and operational costs can be minimized to a
great extent. This is one of the prime advantages of offshore outsourcing.
8 In-house Recruitment vs. Outsourcing – A Comparative Study

Weaknesses
 Risk of exposing confidential data: When an organization outsources HR, Payroll and
Recruitment services, it involves a risk if exposing confidential company information to a
third-party.
 Synchronizing the deliverables: In case you do not choose a right partner for
outsourcing, some of the common problem areas include stretched delivery timeframes,
sub-standard quality output and inappropriate categorization of responsibilities. At times
it is easier to regulate these factors inside an organization rather than with an outsourced
partner.
 Hidden costs: Although outsourcing most of the times is cost-effective at times the
hidden costs involved in signing a contract while signing a contract across international
boundaries may pose a serious threat.
 Lack of customer focus: An outsourced vendor may be catering to the expertise-needs
of multiple organizations at a time. In such situations vendors may lack complete focus
on your organization’s tasks.

With all these pros and cons of outsourcing to be considered before actually approaching a
service provider, it is always advisable to specifically determine the importance of the tasks
which are to be outsourced. It is always beneficial for an organization to consider the advantages
and disadvantages of offshoring before actually outsourcing it.

Strengths and Weaknesses of In-house Recruitment

When affirm decides to recruit employees, it usually rely on in-house recruitment process rather
than outsourcing because it is a general perception that recruitment for strategic/important
positions should be done using in-house process. Whether it is worth relying or not, we can find
that by analyzing its strengths and weaknesses.
Strengths
9 In-house Recruitment vs. Outsourcing – A Comparative Study

 No hidden cost: Unlike outsourcing, the business knows the cost that will incur during
the recruitment process. During outsourcing a business might be unaware of the hidden
charges which are to be charged by the service provider.
 No Loss of Confidential Data: Employees which are recruited by the company and for
which they work for, they are likely to be more loyal. This will reduce the risk of loss of
confidential information which might be very helpful in gaining competitive advantage
for a competitor.
 Relatively Unbiased: Though we cannot claim that in-house recruitment is completely
unbiased, however it is relatively less biased as opposed to outsourcing because only
those candidates are selected who are genuinely meeting the company’s criteria.
 Cultural Fit: Since the existing employees are well aware of the organization’s culture,
they only recruit individuals who fit the organization’s culture. When outsourced, the
service provider might select an individual who does not understand the values of an
organization and does not fit well in the organization. This can lead to potential conflicts
making in-house recruitment a better choice. In house recruitment thus reduces the risk of
employee mismatch.
Weaknesses
 It is more costly as opposed to outsourcing: In-house recruitment costs in terms of time
of existing employees who are involved in the recruitment process. It is relatively lengthy
as the existing employees have to screen out people and screening in itself is a difficult
and lengthy process which requires a lot of time.
 Attracting people is trickier: Businesses need to maintain their website as it is more
difficult to attract people. In case of outsourcing, attracting employees is not the concern
of the business rather it is looked after by the service providers.
In-house recruitment can be effective when recruiting employees for senior position and can
reduce recruitment costs. However, this is not a very diverse method of recruitment and you risk
losing out on interesting and innovative perspectives from external candidates.

Road Map to RPO

There are no set of rules defined which we can use when deciding on whether to outsource
recruitment process or not. There is little structured information available, however, using the
10 In-house Recruitment vs. Outsourcing – A Comparative Study

following model, we can take a business through the initial decision making regarding
outsourcing.[ CITATION Edw09 \l 1033 ]

This is a road map through which we can evaluate the cost and benefits associated with each type
of recruitment process.

Factors affecting the decision to outsource

Businesses are always working harder to improve their competitiveness in the market, and any
decision that brings about the reduction in cost while maintaining the strategic focus will
increase competitiveness. Some of the factors that influence a firm’s decision to outsource its
recruitment are the costs involved, the availability of recruitment agencies and the shift in the
structure of organizations.

1-Cost

Due to improvements in technological and transportation facilities, transaction costs, which

include cost of communication, transport and market information, are lower now, which means
that organizations don’t have to keep a large number of middle management but, a small but
efficient work force. This has enabled firms to focus on their core competencies and hire the
people for technical positions through in-house recruitment and outsource the rest through
professional employers.
11 In-house Recruitment vs. Outsourcing – A Comparative Study

According to a research report prepared in India, organizations that outsource their recruitment
process, save up to 40% of their recruitment cost.1 HR services such as payroll and pensions have
become easy to administer electronically, their market value has dropped.

In manufacturing sector, outsourcing recruitment can reduce the costs significantly because the
wage negotiation, timings and transportation are handled by an outside firm. A higher level of
efficiency can be achieved through specialization. In this way the company saves a lot of time
and resources.

2-Shift in organizational structure

In recent times, organizations focus on decentralizing, rather than centralizing their core
activities. This means that functions strategize and focus on what they do best, rather than
following orders from the top management only. In a situation where firms are striving to be the
most competitive, they prefer hiring outside organizations called professional employer
organizations (PEO), to recruit the best people for their business.

3-Availability of specialist organizations

The availability of a good recruitment agency influences the decision to outsource. The
reputation, of the firm in the job market, firm’s part and present clients are important
determinants in this regard.

Recruitment agencies specialize in poaching. Poaching means employing a competent and

experienced person already working with another reputed company in the same or different
industry; the organization might be a competitor in the industry[ CITATION Rec11 \l 1033 ]. Instead
of a company directly buying talent, the recruitment agency gets the best people from the market
at attractive pay packages. In this way the outsourcing company does not need to develop its
employees as much. But this is also a problem for organizations because the employee’s loyalties
are fickle in such a situation, which is a problem for Human resources.

1
http://www.scribd.com/doc/3804606/Recruitment
12 In-house Recruitment vs. Outsourcing – A Comparative Study

The model above is taken from Gretton, 2009 . It highlights the stages to strategic sourcing
decision process. It highlights the factors and the stages after which a decision is taken to
outsource any process or carry it out in-house. Stage 1 tells the overall strategic veiw of the
company, stage 2 is based on due dilligence, in which the benefits of outsourcing are assessed.
Stage 3 focuses on carrying out consensus in the various stakeholders. And in stage 4, the
decision is made.
13 In-house Recruitment vs. Outsourcing – A Comparative Study

A CASE ON SIEMENS ENGINEERING LIMITED

With a global network with more than 460,000 employees in 190 countries and engaged in a
broad range of activities - from information and communications technology to automation,
transportation, medical solutions, energy and domestic appliances. Siemens is driven by a
customer-focused strategy aimed at winning and improving customer economic performance and
business process via e-business, and using the world's best technology, service and thinking.

HR Vision

Employees at their full potential

HR Mission

To enhance creativity and job satisfaction of our employees by providing opportunities for
personal development limited only by their own ability and drive.

Case Study
Siemens is using outsourcing of recruitment process only for non manufacturing positions since
their core activity is manufacturing. This means the policy is same as recommended in our
literature review by Gretton (2009) research. Thus they recruit all engineering people for
manufacturing through in-house recruitment while outsource all noncore positions. The
departments where recruitment is out sourced are the following.
 OLM: Logistics and maintenance: Require Engineering background

 Operation & Maintenance Service (Industrial and Power Plants)

 Repair, Overhauling & Maintenance of Motors & Alternators

 Condition Monitoring (Thermography, Vibration Analysis, NDI & Oil Analysis)

 Spare Parts Management

 Share services: Require mostly non engineering background

14 In-house Recruitment vs. Outsourcing – A Comparative Study

 Facility management

 Event management

 Waste management

 Overall house keeping

 Field service (partially outsourced): They conduct on field project. Require both technical
and non-technical backgrounds

Most of the complaints about quality of human resource performance come from Share services.
These complaints are regarding poor time management, waste of resources etc.
Their manufacturing work force has proven to be highly competitive and they have reached 0
labor wastage goal. This shows that their recruitment processes are strong. Generally technical
background recruitment is a lot harder than management background recruitment but they have
managed to maintain a strong in-house technical recruitment system along with their
manufacturing concerns.

A Job Profile Form is used for all new employees to prepare a structured description of the
individual tasks and the skills necessary for the position. The form assists in clearly outlining the
job responsibilities of the position and the skills and knowledge required. The form is used for
discussion of supervisor with the new employee in order to have clarity of role. It can also be
used for recruitment for the position as well as analysis of competencies and subsequent gap
analysis. These competencies are specified but there is no way to measure them in the
candidates. There are no soft skill tests during the recruitment process and in management
positions those are the most critical skills.

Their in-house recruitment process includes the following stages

1. Written test
2. HR interview: Interview Evaluations Guidelines provide a list of questions as per the
Siemens Leadership Capabilities. Both condensed and details user guidelines are
available on how to evaluate candidates.
15 In-house Recruitment vs. Outsourcing – A Comparative Study

3. Interviews with concerned department people

4. Last interview with a panel
In case of out-sourced recruitment
1. The hired recruiters perform the initial screening
2. Candidates are selected an interview

FINDINGS & CONCLUSION

This research brings us to the conclusion that while outsourcing reduces costs; it pays to keep
core activity recruitment in-house for the following reasons.
 This maintains a company’s control over its recruitment process and the type of human
resource it is getting.
 It allows the company to build a strong leadership pipeline to manage its core business
concerns in the future. People who may potentially be leading the core business concerns
of the company are too valuable to be outsourced. Therefore, by controlling their
recruitment closely and managing their growth effectively a company can save cost of
outsourcing higher management positions because they will already have someone in the
pipeline who has been a part of the company’s core business concern to take these
positions.
When outsourcing, one must ensure that clear expectations are set with recruiters about the
quality of candidates provided to the company. The positions that are outsourced should not be
completely left to recruiters. Companies must maintain some control over the sort of resource
being recruited and for that there must be some screening conducted by the company. Quality of
outsourced recruitment greatly depends on the quality of hired recruiter. Therefore, companies
should be careful in choosing the right recruiter for the positions.

In this case, Seimens is doing a great job in its in-house recruitment but not performing as well in
the resource it is recruiting through out-sourcing. That is because they are not participating
enough in this type of recruitment and are leaving it completely to hired recruiters. They need to
work more closely with the recruiters to communicate all the job requirements as well as work
culture with the candidates. Also the soft skills of candidates need to be more carefully reviewed
in the screening conducted by Seimens after the candidates have been presented to them.
16 In-house Recruitment vs. Outsourcing – A Comparative Study

Therefore, the answers to our research questions are

 Is the company using the right recruitment procedure?
There is no right or wrong recruitment process. Each company must decide according to
its environment. However we do believe that Seimens is using the right mix of sources of
recruitment.
o Core business human resource recruitment, whether technical or non technical, is
in-house so as to maintain maximum control over quality of such resource and
create a strong leadership pipeline.
o Noncore human resource recruitment is outsourced to save the scarce time and
resource of the HR department. Conducting all the recruitment in house would be
too much for the HR department and may result in other inefficiencies.
 How can we improve the recruitment practices of the company?
While Seimens mix of sources of recruitment is good but it is not perfectly executed.
While outsourcing Seimens should maintain control over the quality of hired resource
through involving their recruiters in the company activities and explaining to them the
company culture so as to set a clear expectation with the incoming candidates. Also
candidates presented by recruiters should be analyzed on measurable criteria of soft skills
before induction since most of them are management people and soft skills are the most
critical for them.
17 In-house Recruitment vs. Outsourcing – A Comparative Study

RECOMMENDATIONS
Our recommendations include the following.
1. Resetting the expectation with the hiring firm regarding company cultural and work
expectation with the employees.
2. More emphasis on generally lacking skills in orientation to create a correct expectation in
employees from the start.
3. Perform regular checks of skill deficiency and plan training accordingly. These checks
can be made by taking feedback not only target department employees and management
but also other departments. No department works in isolation and other departments
feedback can be very useful in finding out problems that cannot be pointed out internally.
4. Focus on employee commitment and retention so that turn over in outsourced
departments decreases and there is a strong pipeline of committed employees in the
department. This way a culture will be established of strong company values and new
employees will have to adjust to it.
5. Setting measurable criteria for soft skills like time management against which employees
or candidates should be measured.
6. Bonuses and such incentives should be given to reinforce preferred skills like time
management etc so that people strive to develop such traits. System should be put in
place to measure such progress of people. This intention should be made public so that
other people follow the example.
7. Appraisal criteria should be shared at the time of hiring and the same criteria should be
used during appraisals. The feedback should be shared with the employees so that they
understand their faults and work on them.
8. There should be career consultants who openly discuss the appraisal with the employees
and help them improve it in the future. There should be incentive to reach highest
appraisal results.
18 In-house Recruitment vs. Outsourcing – A Comparative Study

LIMITATIONS
 Time constraint was one of the major limitations of the research study which ultimately
affects the quality of the study
 Biasness in telling all the flaws in the HR department by the organization since all the
research was dependent on the interviews
 Not enough knowledge regarding the research studies since it was a first for us
 Completely analyzing the organization could have let other issues apart from HR come
up
 Not possible to analyze all the organizations to set benchmark for the industry. There are
too many other variable influencing the recruitment decisions.

ROOM FOR FUTURE RESEARCH

Our research is based on the case of one company however the case may differ in
different companies. For many companies complete in house recruitment is a better
strategy while others complete out sourcing is the preferred strategy. Many smaller
companies outsource core as well as noncore positions. Similarly many MNCs like
Unilever out source lower tier positions while pipeline and train their current staff for
middle and higher level positions. Currently we have studied recruitment differences in
core and non core functions. But in the future there must be more research on level of
position, job type, business type and the relevant recruitment strategy for them.
19 In-house Recruitment vs. Outsourcing – A Comparative Study

BIBLIOGRAPHY
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Management , 125-138.

Fang Lee Cooke, J. S. (2005). Outsourcing HR as a competitive strategy? A literature review and an
assessment of implications. Human Resource Management , 413-432.

Gretton, E. (2009, September). Outsourcing vs Insourcing; Analyse the Business Proposition in the case
of Chester Racecourse's Catering Contract.

Jordan, J. (2009). How I see HR. Personnel Today .

Recent Trends in Recruitment in Retailing Industry. (n.d.). Retrieved Jan 4, 2011, from shopping wonk:
http://www.shoppingwonk.net/shopping/recent-trends-in-recruitment-in-retailing-industry

Recruitment tops HR priority list. (2002, May 28). Personnel Today .

Retention & Recruitment Now Top HR Professionals' Objectives. (2006, April). HRFocus .

Silvestria, A. O. (2008). Recruitment and selection services: Efficiency and competitive reasons in the
outsourcing of HR Practices. The International Journal of Human Resource Management , 372-391.