OPPORTUNITIES AND CHALLENGES OF

HUMAN RESOURCE OUTSOURCING IN

THE CASE OF LONADD HR
CONSULTANCEY AND DALHOUSIE
UNIVERSITY

By
Fitsum Hailemariam

Advisor
Abraraw Chane (PhD)

A Thesis Submitted to School of Graduate Studies of St.Mary’s

University in Partial Fulfillment of the Requirements for the Degree
of Master of Business Administration (Human Resource
Concentration)

ST. MARY’S UNIVERSITY

SCHOOL OF GRAUDATE STUDIES
 DECLARATION

I hereby declare that this thesis represents my own work, prepared under the guidance of Dr.

Abraraw Chane. All sources of material used for the thesis have been duly acknowledged. I further

confirm that the thesis has not been submitted to this or any other institution for degree or other

qualification for the purpose of earning any degree.

Fitsum Hailemariam ______________________

Name Signature

St. Mary’s University, Addis Ababa June 2021

 STATEMENT OF CERTIFICATION

This is to certify that Fitsum Hailemariam has carried out her research work on the topic entitled,

Opportunities and Challenges of Human Resource Outsourcing in the Case of LonAdd HR

Consultancy and Dalhousie University. The above declaration made by candidate is correct to the

best of my knowledge as an advisor and suitable for submission of Master’s Degree in General

MBA.

Abraraw Chane (PhD) ______________________

Name Signature

St. Mary’s University, Addis Ababa June 2021

 July 2020
Addis Ababa
ST. MARY’S UNIVERSITY

SCHOOL OF GRADUATE STUDIES

OPPORTUNITIES AND CHALLENGE OF HUMAN RESOURCE

OUTSOURCING IN THE CASE OF LONADD HR CONSULTANCY AND
DALHOUSIE UNIVERSITY

By

Fitsum Hailemariam

APPROVED BY BOARD OF EXAMINERS

________________________ __________________

Dean, Graduate Studies

______________________________ _____________________

Advisor

______________________________ _____________________

External Examiner

______________________________ _____________________

Internal Examiner
 Acknowledgments
First and foremost, I am grateful to God that I am alive and be able to see this day despite all the

challenges I have faced throughout the year and to my advisor Dr. Abraraw Chane for his patience

during this tough time we all are in, encouragement, continues support and guidance. I would also

like to thank LonAdd and Dalhousie staff/Management team who have been supportive and

cooperative with my work. Because of their support and encouragement, I was able to do this

work, which I am passionate about. Finally yet importantly, my amazing family and my

extraordinary mother who never get tired of praying and supporting me. I would not be here if it

were not for her prayer and love.

Thank you to St. Mary’s University School of Graduate who taught me to do better in my

profession
 Table of Contents

......................................................................................................................................................... 1
CHAPTER ONE ............................................................................................................................. 1
1. INTRODUCTION ................................................................................................................... 1
1.1 Background of the Study .................................................................................................. 1
1.2 Statement of the Problem ................................................................................................. 2
1.3 Research Objective ........................................................................................................... 3
1.4 Research Question ............................................................................................................ 4
1.5 Significance of the Study ................................................................................................. 4
1.6 Scope of the Study............................................................................................................ 4
1.7 Definition of Terms .......................................................................................................... 5
1.8 Organization of the Study ................................................................................................ 6
CHAPTER TWO ............................................................................................................................ 7
2. LITRATURE REVIEW .......................................................................................................... 7
2.1 Introduction ........................................................................................................................... 7
2.1.1 Concepts, definitions and types of Outsourcing ............................................................. 7
2.1.2 History of Outsourcing ................................................................................................... 8
2.1.3 Theories of outsourcing .................................................................................................. 9
2.2 Outsourcing HR Functions and Activities .......................................................................... 10
2.3 Reasons for Outsourcing ..................................................................................................... 11
2.3.1 Cost effectiveness ......................................................................................................... 12
2.3.2 Focus on core competencies ......................................................................................... 12
2.3.3 Strategic Human Resource ........................................................................................... 14
2.4 Opportunities in Outsourcing .............................................................................................. 15
2.5 Challenges of Outsourcing .................................................................................................. 17
2.6 Empirical study investigation .............................................................................................. 19
2.7 Summary of chapter ............................................................................................................ 21
CHAPTER THREE ...................................................................................................................... 22
3. RESEARCH METHODOLOGY .......................................................................................... 22

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 3.1. Research Approach and Design ......................................................................................... 22
3.2 Data Sources ........................................................................................................................ 22
3.2 Study Population, Sampling technique and Sample Size.................................................... 22
3.3 Data Collection tools/instruments. ...................................................................................... 24
3.6 Ethical Considerations......................................................................................................... 26
CHAPTER FOUR ......................................................................................................................... 27
4. DATA ANALYSIS AND INTERPRETATION ................................................................... 27
4.1 Demographic Characteristics of Respondents................................................................ 27
4.2 The practices of Human Resources Outsourcing in Ethiopia ........................................ 29
4.3 Client, Employee and Legal Issues Surrounding HR Outsourcing ................................ 33
4.4 The Relationships between the Service Provider and Service Recipient ....................... 34
4.5 The risks and the prospects associated with HR outsourcing ........................................ 35
4.6 The role of Human resource outsourcing ....................................................................... 38
4.7 Discussion of results....................................................................................................... 41
CHAPTER FIVE .......................................................................................................................... 45
5. CONCLUSION AND RECOMMENDATION .................................................................... 45
5.1 Conclusions .................................................................................................................... 45
5.2 Recommendations .......................................................................................................... 47

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 CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In business, outsourcing is the contracting out of a business process to a third-party. The term
"outsourcing" became popular in the United States near the turn of the 21st century (Nawab, 2013).
Outsourcing is also used to describe the way public services are handed over to profit firms.
Outsourcing gained momentum in the 1970s, when large corporations were under performing. This
trend became even more pronounced in the early 1980s with the onset of global recession. In fact,
the 1980s witnessed a change of direction in business strategy thinking namely, focusing on fewer
activities. By the 1990s, the agenda was set, with the growing belief that quick wins could be
achieved by pursuing core strategies. Many firms began reengineering their process, in effect
embarking on a search for new ways of organizing the various elements of business. These new
beginnings encouraged a radical overhaul of business processes with the aim of dramatically
improving the performance in critical areas like cost, quality, service, and speed. (Gamble, 1995).
Outsourcing has emerged as the most powerful tool for companies seeking to stay in today’s
competitive business environment.
Therefore, if we go through the history of outsourcing we found that outsourcing was not formally
identified as a business strategy until 1989 (cited in Handerfield, 2006). The term outsourcing is
first used in IT sector. Now-a-day, the scope of outsourcing has broadened. Outsourcing of Human
Resource functions or Human Resource Outsourcing (HRO) is now becoming a strategic choice
for many organizations. As business globalization increases, the need for outsourcing grows as
external suppliers more effectively and efficiently produce or serve a good. (Yang, et.al. 2007).

HR outsourcing services generally fall into four categories: professional employer organizations-
PEOs, business process outsourcings- BPOs, Application service providers ASPs or e-services
(Sharif and Jamal, 2012, p.1). Business process outsourcing can include transferring an entire
business function (e.g. payroll), a production process (e.g. ready-to-install windshield
manufacture) or a portion of the related processes (e.g. mailing paychecks, windshield glass
delivery) (Norman, p.2). In HR, a BPO would make sure a company’s HR system is supported by
the latest technologies, such as self-access and HR data warehousing (Aquinas, 2006, p.308).

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In Ethiopian case the application of outsourcing is in its infancy stage. Currently there are few
companies that are engaged in providing limited outsourcing service. The current outsourcing
practice in Ethiopia is limited to a company's non-core activities which are confined to recruitment
service, security service and janitorial service. Despite its aggressive application in the
international environment, the use of outsourcing in Ethiopia is almost none. Thus, this research
tried to investigate the existing HR practices of outsourcing in LonAdd HR Consultancy and
Dalhousie University as a case.

For the purpose of this study, Human resource outsourcing is described by Reed (2011) as the
process where elements of a company’s human resource management (HRM) functions or
activities are transferred to a provider outside of the company itself. Outsourcing the Human
Resource (HR) function is aimed at improving the efficiency of an organization (Arnold, 2010).

1.2 Statement of the Problem

Outsourcing is increasingly being used as a means of both reducing costs and achieving strategic
goals of organizations. It also helps improvement in operational performance, reduction in
overheads and operating costs. The problem related to outsourcing is the operational difficulties
in that service provider may deny specific technical expertise, capability and capacity for
delivering the desired performance (Aron, Clemons, and Reddi, 2005). There is evidence that
outsourcing does not reduce costs as expected in some cases (Beaumont and Sohal, 2004;
Gonzalez, 2005). Wang et al. (2013), highlights some of the drawbacks of outsourcing and
stipulated that some outsourcing providers are found to lack knowledge, some providers are non-
responsive, and others have low performance standards. In addition, service providers may not
realize the client’s culture or personality, and the services delivered by them may not fit in the
client’s culture due to some of them only produce one set of service delivery system for all their
clients in order to reduce the production costs (Siegel, 2000).
Generally, it is clear that human resource outsourcing brings many benefits to the organization as
well as imposing some negative impacts.
When it comes to Ethiopia, outsourcing is a recent phenomenon, established decades ago. LonAdd
PLC is one of the outsourcing service provider in Ethiopia that has been providing outsourcing
service to governmental and non-governmental organization since 2009. Dalhousie University is

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one of the service users of LonAdd for over five years. The researcher strongly believes that these
two organization can represent the prevailing scene regarding outsourcing. In addition, these
organizations are immensely engaged in outsourcing activities be it either by providing service or
by receiving services as well. They have a lot to share as they are practicing outsourcing services.
These (service provider-client) organizations have encountered employee, service delivery and
performance appraisal related challenges which needs to be investigated and described
scientifically. As with the challenges, there have also been opportunities that could be harnessed
for enhanced organizational performance such as joint staff capacity building program.

In general, there are policy, strategy and operational challenges associated with outsourcing with
the increasing expansion of the sector. For the service provider, recipient and employee, this
presents challenges. Research in Ethiopia, which has so far focused largely on save costs by
outsourcing to the production and service industries, is clear. However, there appears to be no prior
research conducted in the business sector. Even if there are research conducted in the business
sector, there is no comprehensive study aimed at investigating challenges from the service
provider, recipient and employee perspectives. There are lesser researches conducted in the realm
of outsourcing as researchers are not bold enough to tackle the issue of outsourcing as compared
to other human resource related issues. Therefore, research that examines challenges from service
provider, employee and client perspectives are not well explored both theoretically and
empirically. And this research fills the gap and accounts for why this research sought to assess
opportunities and challenges of outsourcing human resource by taking LonAdd HR Consultancy
and Dalhousie University as case. Thus, this research investigated the practices of the HR
outsourcing practice from the employee, employer (Service provider), Client (companies who use
outsourcing).

1.3 Research Objective

The general objectives of this study is to investigate the challenges and opportunities of HR
Outsourcing practice in Ethiopia. Specially, the study have the following objectives.
 To identify the existing, the practices of Human Resources Outsourcing in Ethiopia.
 To find out the client, employee and legal issues surrounding HR outsourcing.
 To examine the relationships between the service provider and service recipient.
 To assess the risks and the prospects associated with HR outsourcing.

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 1.4 Research Question

 How has HRO benefited both the service provider and service recipient?
 Why do companies outsource their employees?
 What are the policy/strategic and management obstacles service providers face?
 What should be done to overcome the bottlenecks and maximize opportunities of HR
Outsourcing practice?

1.5 Significance of the Study

A Recent trend around the globe is outsourcing, this means the products and services are contracted
to outside vendors that have expertise in a particular area (Henery Mintzberg and James Brain
Quinn, 1992). In Ethiopia, the concept of outsourcing is still relatively new and unexplored among
the general public and business community. In addition, few formal researches has been done to
identify the country's outsourcing potential. Therefore, the researcher believe that this research
has great significance in creating awareness, about outsourcing, among the society, business
people and scholars. Furthermore, this research can serve as stepping stone for other researchers
in similar area. The human Resource Outsourcing practice in the case of Ethiopia mainly focused
on lower level employment such as Janitor & Guard but the past few years there is a big change
most companies made by start working with highly professional people who use the service.
Despite all the positive change and growth mentioned there is a major information gap between
business owners, society and service provider which require more work to create awareness. There
is not only information gap but there is also misconception of the service. It is very rare to find
research carried out on this specific topic and this research paper add value to all involved parties
by touching most of the area including Ethiopian legal system regarding on Human Resource
Outsourcing practice.

1.6 Scope of the Study

This study focuses on the Human Resource Outsourcing Practice in Ethiopia as a whole, but due
to the fact that there are only a few companies providing this service in Ethiopia, the majority of
them are located in Addis Ababa. Despite the fact that some of these service providers are not
located in the same city, their challenges and benefits are similar to the majority of them.

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Considering that and the time, resource limitation for the purpose of this study the researcher
chooses one of the companies working on this service for over 11 years’ name LonAdd HR
consultancy as a service provider and Dalhousie University as a service recipient. The following
HR functions are most commonly outsourced: High-volume recruiting, temporary staffing,
background checks, relocation, payroll, benefits administration, health insurance management,
coaching, creating/updating employee handbooks and policy manuals, compensation program
development/implementation, writing and updating affirmative action plans, and Independent
contractor compliance.

1.7 Definition of Terms

Human Resource: The department or support systems responsible for personnel sourcing and
hiring, applicant tracking, skills development and tracking, benefit administration and compliance
with associated government regulations.

Outsourcing: is a business practice in which services or job function are farmed out to a third
party.

Business process reengineering: the examination and redesign of business processes and
workflows in the organization.

Goals: the primary purpose of a business is to maximize the profit for its owners or stakeholders
while maintaining corporate social responsibility.

Cost: the monetary value that has been spent by a company in order to produce something

Human resource functions: Human resource functions are categorized into 2 groups, which are
core and non-core task. The purpose of HR function is to support HR with business strategy.

Client/service recipient: It could be organization or a person who buys goods or pays for
services. Client usually have an arrangement or a relationship with seller or service provider.

Employee: this employee of the service recipient’s organization.

Service providers:
LonAdd: Name of a company combines two different countries city Lon-London and Add-
Addis

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Organizations/firms: An entity aimed at carrying on commercial enterprise by providing goods
or services.

1.8 Organization of the Study

This research paper organized in five chapters as below. The first chapter covers introduction,
statement of the problem, research objectives, significant of the study, scope of the study. The
second chapter provides an overview of related review of literatures and empirical studies. Chapter
three outlines the research methodology and describes in detail the data collection tools and the
unit of analysis. Then the findings of the study provided in chapter four and will provide a brief
analysis and synthesis of the findings of the research. The final chapter focused on providing
summary, conclusion and recommendation based on the result of the research carried out.

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 CHAPTER TWO

LITRATURE REVIEW

2.1 Introduction

This chapter basically disclosed the predominant literatures regarding outsourcing. It deals with
issues related to history of outsourcing, types of outsourcing, challenges of Outsourcing, reasons
for outsourcing, and opportunities of human resource outsourcing. It also further deal in defining
different strategies in an effort to establish connection with outsourcing as well.

2.1.1 Concepts, definitions and types of Outsourcing

According to William, F (1999), outsourcing is defined as the effort of obtaining products or

services from different institutions that are outside of the organization. Outsourcing encompasses
constricting for the delivery of a provision for a specific task, which used to be formerly conducted
as an in-house chore, leaving the chores for another organization to perform the duties on the
organization’s behalf (Reilly and Tamkin. 1996). It is expected that organizations should
contemplate outsourcing when there is a strong need for support for specific purposes. It should
also consider issues related to time, money and quality from the external service provider. And
only core competency-oriented tasks should be considered for the contract of the candidates.
Though it is a common fact that different skill or knowledge may let to allow in serving a customer
base better but dealing with product or provision should be kept in house. Nowadays, the
outsourcing of selected activities has become an essential part of a company’s strategy. For the
sake of Companies advantage outsourcing are important and entail reduced costs, experienced
services and expertise. Outsourcing permits companies to give emphasis on their resources
regarding their core business. Outsourcing refers to an organizations decision to contract with an
external organization to deliver chores or service to a company. Though there is an immense
practice of outsourcing by different governmental and non-governmental organizations, there is
still comparatively little pact about whether outsourcing is consistently useful (Pollitt and
Bouckaert 2000).

Outsourcing is a combination of two words which is “out” and “sourcing” (Power et al., 2009).
Power et al. (2009) went on to describe sourcing as the process whereby an entity transfers its

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work, responsibilities and also its right to another entity. They indicated that it is necessary for an
organization to outsource its activities because another organization can do it better at a faster rate
and also cheaper than the focal organization.

Ashley (2013) also defined outsourcing as the situation where a company allocates its risks and
responsibilities to another organization to perform those activities. The researcher adopts the
definition of Anikin and Rudaya (2012) who described, outsourcing as the situation where a
company delegates its operations to be managed by a third party that can do it cheaper, better and
at a faster rate.

Outsourcing can be separated into internal and external types depending on the level of control
over performance of outsourced function. Internal outsourcing is the reallocation of functions
within the business system for saving control over its performance and external outsourcing is the
delegation of performance of separate or mutually related functions to external outsourcer
(Vashista, 2009).

2.1.2 History of Outsourcing

It is believed that the practice of outsourcing came into the scene few thousand years ago. It is
assumed that it began with the production and selling of different edible items, household supplies
and utensils (Maynard, 2006). Human history reveals that gathering crops and hunting animals
were activities that enabled families to survive by fulfilling their needs. This somehow paved way
for what is known as bartering. This led to the exchange of goods and services where money was
developed to enhance the process of bartering.

Jagdish Bhagwati, Arvind Panagariya and T. N. Srinivasan, Autumn, 2004, “outsourcing” was
considered as a situation where companies increased their purchase of manufactured goods like
where car companies bought window cranks instead of making them in the 1980s.

Although outsourcing has been around as long as since the time when work specialization came
into existent, outsourcing has been around simultaneously. Companies started to outsource some
small functions like personnel, advertising and data entry functions. (What is outsourcing:
Sourcingmag.com) It is believed that the processes can be done more proficiently and with less
cost by other companies who have the specialized expertise, gears and capacity.

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Presently, outsourcing assumes different forms. Institutions still hire service providers to take care
of different business processes. However, some organizations outsource the whole process. (What
is outsourcing: Sourcingmag.com) This shows the that outsourcing needs differ based on the
institutions desire.

2.1.3 Theories of outsourcing

Outsourcing consists of several activities. According to Doyle and Tapper (2011) each activity can
be described by several frameworks that are entrenched in some theoretical frameworks.
According Perunovic and Pedersen (2009) outsourcing can be captured under three approaches,
and these they indicated as Resource-Based View, Core Competency Approach, and Transaction
Cost Theory.

Perunovic and Pedersen (2009) described the resource-based view as the type of outsourcing that
is built on the idea that an entity that does not have valuable and organized resources and
capabilities would need an external provider that can assist the focal organization in overcoming
its weaknesses. Perunovic and Pedersen (2009) stipulated that resource based theory is mostly used
in the preparation phase and helps to define the framework for making decisions and also in the
selection of the appropriate vendor.

It is critical that the organization attaches greater concern to its core activities. On the other hand,
if some activities of an organization are not critical to the operations of the company it is wise that
those activities are outsourced to another entity so that the company can concentrate on its core
operations. Prahalad and Hamel (2013) described core activities as that which an organization
possesses and which in turn aid the organization to have a competitive advantage. The organization
needs to focus and concentrate on its core activities to help it maintain its competitive edge.
Sullivan and Ngwenyama (2008) emphasized that it is prudent to give those activities that are not
core to the operations of the company to another organization that can deliver at a lower cost and
more efficient that the focal company itself.

The development of the transaction cost was based on the notion that the organization must be able
to analyze the costs associated with planning, adapting, and monitoring the completion of task
under different structures of governance. The management of an organization must be able to
weigh the cost associated with executing a particular task within the organization and that outside

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the organization (Aron et al., 2012). That is, they must be able to weigh the cost of internally
conducting their production processes (insourcing) and that of giving to an entity who has the
technological knowhow and other facilities to undertake the task at a cheaper price and also
effectively (outsourcing). The decision of whether to choose to buy from the market or to develop
in-house is based on the cost associated with the acquisition of that product or service and this can
be derived from both the production cost and the transaction cost.

2.2 Outsourcing HR Functions and Activities

Human resource outsourcing was described by Reed (2011) as the process where elements of a
company’s human resource management (HRM) functions or activities are transferred to a
provider outside of the company itself. Outsourcing the Human Resource (HR) function is aimed
at improving the efficiency of an organization (Arnold, 2010). The evolution of the internal and
external organizational environment has changed the notion of the HR function (Young, 2007).
The earlier focus which was on traditional operational and administrative perspectives has lately
had a major shift to changes in strategic HRM and employment relationships (Beardwell &
Claydon, 2012). The recent approach to HR management has to do with clarifying the relationship
between business strategy and HRM. Organizations are further required to assess the way in which
HRM can be strategically used in the achievement of organizational goals (Thompson et al., 2008).
Outsourcing HR activities is a major strategy adopted by business executives to meet the demands
and objectives of organizations. This includes reduction in costs, gaining access to advanced
technologies, increasing flexibility, and a focus on core activities (Barthelemy, 2009).
Armstrong (2006) indicated that most companies require the services of professional firms. Most
companies have therefore outsourced their HR function due to developments in technology (Turek,
Watson, Bhansali, Baron & Lacerte, 2005). According to Armstrong (2006) outsourcing the HR
function is a cost-effective HR 19 strategy. Several companies have outsourced all or some HR
activities because they might not be able to afford the cost of employing talented fulltime or part-
time employees across all areas of the organization’s operations.
The issue of whether or not to outsource the human resource function hinges on the benefits and
costs of outsourcing HR needs. There has been a tremendous increase in the number of
organizations that have outsourced their human resource functions, notwithstanding the
disadvantages and challenges that are associated with outsourcing. The last two decades had a

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major shift with many companies outsourcing most or all of their HR functions
(Beardwell&Claydon 2012). Companies nowadays believe that the development and maintenance
of the HR function requires a lot of expenditure and this has called for the greater number of
functions being outsourced to external entities. The HR function has therefore become the most
popular function to outsource. There is therefore a major increment in the number of Human
Resource Outsourcing (HRO) providers. Berry (2007) stipulated that that the outsourcing industry
is worth billions of Pounds and that there is a significant increase and this trend is affecting the
future of human resource strategy.

2.3 Reasons for Outsourcing

Companies that outsource chores primarily aspire to get advantage in terms of benefits and cost
wise. It involves to basically reduce the scope, definition of quality levels, re-pricing, re-
negotiation, cost re-structuring, and access to lower cost economies through cost re-structuring
according Rothman, J (2003). It operates to leverage and compare fixed costs to variable costs.
Where outsourcing changes the balance of the ratio and hence making variable costs more
predictable.

To advance quality includes accomplishing a move to modify in quality through contracting out
the service with a new provision level arrangement. There is also acquisition of operational
knowledge for best practice that might be tough or overwhelming to develop in- house. Agreement
for services, enables work to be completed more cautiously and efficiently by private contractors
with the target of providing high quality service, productivity and cost reduction.

Various researchers underline purposes in different way. However, there are some common
motives for outsourcing regarding acceptance in different literatures available. The review of
literature reveals that many motives for outsourcing are overlapped. Lonsdale & Cox (1998) reveal
that different researches are conducted from various viewpoint. They classify it into five core
reasons why firms outsource: focus resources on core activities, cost reduction, convert fixed costs
to variable, benefit from supplier’s investment and innovation and improve time to market. Quelin
and Duhamel (2003), disclose that a prominent measure for outsourcing is to decrease operational
cost, emphasize on core activities and incorporate simplicity.

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The reasons for outsourcing according to Lacity et al (1994), are categorized into four parts:
financial, business, technical and political. There are also other categorizations by different writers.
This clearly show that outsourcing became a common phenomenon for business activities of
companies. And it traces its reason as to look for skills and resources that are not present in-house.
Thus, outsourcing can be regarded as an operational strategy that is crucial in business.

In this paper, some of the reasons for outsourcing the human resource of an organization are discussed
below. According to Prasad and Prasad (2013), there are three main reasons for performing
outsourcing.

2.3.1 Cost effectiveness

The high level of competition around the world has culminated into the effect whereby companies
are not able to increase their production cost although there are increases in asset costs
(Mouhammed, 2008). According to Potkaany (2011), it for institutions acute to adopt tactics that
are aimed at lowering asset costs. Stroh and Treehuboff (2003) described outsourcing as an
effective strategy that can help an organization to give out its noncore activities to be performed
by another supplier. This they indicated could help the company maintain its customer services
and also gain a competitive advantage in the market that it operates.
Growth in organization has globally put a pressure on organizations to put much investment in
human resource (Potkany, 2011). This investment can however be costly and can dramatically
affect the operational costs of many companies.
Companies would also need to maintain and develop key human resource personnel that are
needed to manage and further administer the large size of the workforce. HR outsourcing is needed
to maintain efficient HR services at a price cheaper than what the focal company can offer. This
situation according to Enlow and Ertel (2006) enable the organization to focus on the main
objectives of the company and further invest in its core competencies, helping the company to be
effective in terms of cost.

2.3.2 Focus on core competencies

The reason behind many outsourcing decisions taken by most management is that they would want
to focus on the core competencies of their organizations. This Potkany (2011) indicated will help
the organization to maintain its competitive advantage in the market that it operates. Hansen (2009)

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emphasized that outsourcing HR activities helps in the reduction of the load of work that that
employees have to undertake and further allows the company to have the time to focus on strategic
decisions and further develop the core competencies of the organization.

Managers would have the necessary time to concentrate on the core activities rather than spending
the time available on human resource activities that are becoming more advanced and highly
technical with the introduction of technology. Davidson (2009) emphasized that some of the
functions that are internally performed by the human resource department are not critical and that
they could easily be outsourced to other entities. According to Davidson (2009) one of the aspects
of HR that can easily be outsourced is recruitment. Organizations have specialized in recruitment
services to the extent that they have advanced technologically and have developed websites and
other technologies that can be accessed by a lot of applicants and this increases the chance of
selecting the most suitable applicant for a particular position being advertised by companies. This
complex activity would have taken enormous time of the company and this also requires experts
who are well endowed in those areas of practice.

Software applications and other technological advancements have impacted on the management
of human resource of many organizations (Stone, 2009). According to Stone Human Resource
Information Systems (HRIS) and other HR software has been and continues to play very critical
roles in the managing of people in various organizations. Stone indicated that HRIS has played an
enormous role in the improvement of most organizations and have positively affected performance
thereby increasing the productivity of most organizations that have adopted them. The major
challenge that was discussed by Stone was that HRIS needs to be constantly updated and this
requires huge sums of money to be invested which comes as a great cost to the company and which
must be done any time there is an upgrade of the system.

Another challenge that was also highlighted by Stone was that some organizations may also lack
the expertise that is needed in the handling and maintenance of the HRIS systems. Organizations
would also have to invest a lot of money in the training and development of the experts to man
that process. It is therefore cost effective to outsource the HRIS to another supplier that can
undertake such activity at a lesser cost because it enjoys economies of scale.
It is prudent that an organization outsources its HR activities such that it can concentrate on its
core competencies and further and save costs that are associated with performing those activities

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that are not core to the operations of the company. There are several factors that motivates HR
outsourcing that includes concentration on core competencies and cost saving. That
notwithstanding a major driver for outsourcing HR activities has been the focus on HR as a value-
adding function at the strategic level.

2.3.3 Strategic Human Resource

There is greater recognition to the strategic importance of the human resource function in an
organization (Wirtz, Heracleous&Pangarkar, 2008). Human resource (HR) has become more
aligned with organizational goals and strategy as perspectives of HR has evolved from operational
and administrative to strategic. This evolution has called for an increment in the focus of
outsourcing the HR function, and has become critical in most organizations. Makenna and Walker
(2008) described outsourcing the human resource function as a major component of contemporary
human resource.

Organizations can therefore gain competitive edge over their competitors if they isolate their
human resource management (HRM) functions. A survey conducted by Gilley et al. (2009)
revealed that outsourcing the human resource function of an organization positively impacted on
the performance of the organization. It was revealed from the study that outsourcing both training
and payroll led to a higher tendency for organizational innovation.
It was further revealed that stakeholder performance was increased if an organization outsourced
its training and development functions of the HR. This also led to an increased ability to add value
to the stakeholder. Furthermore, if the training activity is outsourced it also leads to improved
supplier-customer relations, due to the fact that employees are well trained by expert professionals.
The research also indicated that when companies outsource they become more strategic and they
spend less time on meeting objective related to cost and they are able to address developmental
issues effectively. It also helps organizations to have more time for strategic planning.
Elmuti (2003) conducted a study on the activities that are mostly outsourced by most companies
that have adopted outsourcing of their HR functions. It was revealed from the study that the
activities that are mostly outsourced were payroll, administration of retirement plans and benefit
administration. It is however clear that HR outsourcing is no longer restricted to recruitment, legal
compliance, training and development and payroll.

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Many organizations have increasingly outsourced their HR activities. This indicates that
organizations and human resource outsource providers becomes business partners. In order to
understand their client’s businesses HR providers, need to consider the context of their client,
including organizational culture and structure. It has become obvious that outsourcing as a HR
strategy is increasing in popularity.

2.4 Opportunities in Outsourcing

Outsourcing refers to a business function of handling works outside the company by other entities.
The reasons for outsourcing differ and focuses on giving the work for outsiders instead of
developing expertise within the company.

Kenneth L (2004) states that a company who does outsourcing will surely do the chores in a better
and less price than a worker hired by an institution. Large and small business firms do outsource
functions for different reasons. Small businesses may lack the needed capacity while large
companies are also affected by economic and digital factors.

From a business development viewpoint, outsourcing paves way for small and large business a
brilliant opportunity for start- up. This develops a business mode that provides services for small
companies. Some decent examples of outsourced functions include mail delivery, accounting, IT
services, payroll, public relations, security, transport management, mail handling and cleaning
services.

Outsourcing secures growth and development for both public corporations and private companies.
This a sole way for growth as it enables them to focus on their functions by leaving functions for
specialized firms. The ultimate goal in outsourcing should be the provision of an efficient service
achieved by cutting costs and by transferring benefits for consumers. Thus, firms who adopt
outsourcing strategy are at a competitive advantage than their competitors in the same industry.
Therefore, this thought is very valuable as it ensures that there is specialization and dedication of
resources to core functions.

Fan et al. (2011) discussed some advantages of outsourcing the human resource (HR) activities to
organizations. According to them there are so many advantages associated with outsourcing the
HR function but the most significant ones are cost savings and flexibility. It has been realized that
when an organization hand over its noncore activities to a third party that can be trusted, the

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organization can then concentrate on those activities of the organization that are critical to its
operations and can help in increasing the competitive advantage of the company.

Another advantage of outsourcing the HR function is cost savings. Outsourcing HR becomes very
necessary when a particular human resource aspect of the company is not mostly needed by the
company full time. When a particular process in the operations of an organization is such that the
organization have to spend a lot of money and other resources in say acquiring and training of
experts to man that operation which the company does not require the service full time, then it
becomes necessary that the company outsource that activity to an external company that can
provide that service effectively and efficiently and at a lower cost than the company can provide.
Lacity and Willcocks (2012) indicated that outsourcing activities that are not critical to an
organization helps the company save a lot of cost that are associated with hiring of experts and
technical expertise. The training for the hired staff is also high and it is therefore expedient that
the company outsource that activity.

The third major advantage to outsourcing HR is access to qualified personnel to handle an activity
that the company lacks the required expertise to undertake effectively. Adler (2013) emphasized
that by outsourcing some of the noncore HR activities of the company to a third party, the company
get the possibility of accessing highly qualified personnel that may not have been available to the
focal company. The company then gets the opportunity to exploit fully innovations, investments
and the specialist capabilities of the supplier. This is a major advantage to the focal company.

Another advantage in outsourcing HR is improvement in performance that can be offered by the

outsourcer due to economies of scale. Some workers would not want to work in a less stimulating
environment and as such working in a large company can provide a variety of opportunities and
functions that could help save that worker. Fan et al. (2011) emphasized that the level of
operational experience is much higher with service providers due to the fact that there is much
concentration of staff on tasks as compared to internal operations. This helps the supplier to offer
service at a lower rate than the focal company as it enjoys economies of scale due to the large
volumes of works that it undertakes.

The fifth advantage of outsourcing HR as highlighted by Fan et al. (2011) is flexibility. Grimshaw
and Miozzo (2013) indicated that flexibility has been key reason to outsourcing HR for many

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organizations. Contract taken by an outsourcer and its employee’s job is dependent on the degree
of flexibility that reflects changing business environments.

2.5 Challenges of Outsourcing

An obstacle that hinders a given policy from being implemented is a barrier or a challenge. It also
limits the extent of the implementation. This will somehow pave way for certain policies to be
overlooked where strategies will be less effective to the dismay of stakeholders. Though there has
been many good things said about human resource (HR) outsourcing, nevertheless there are some
challenges associated with HR outsourcing. There are some complex issues in managing
outsourcing relationships (Wirtz et al., 2010). According to Sullivan and Ngwenyama (2008), the
notion of contract being based on cost savings has diminished and contracts nowadays incorporates
equity-based outsourcing, value-based outsourcing and business process outsourcing.

There is much concentration on cooperation between the outsourcing and the focal company. This
cooperation highly depends on the quality of the relationship existing between both parties. The
factors that tend to be an advantage in outsourcing HR can also be a challenge in the management
of outsourcing of Hr activities. Advancement in technology and development that are brought
about as a result of technological changes can be said to be a major factor in enhancing outsourcing
relationship. This can also be a major challenge when the other party is not ready to adopt new
technologies and this can adversely affect the relationship.

Fan et al. (2011) reveals that the foremost challenges to outsourcing activities are absence of
managerial control, quality constraints, threat to security and confidentiality, hidden costs and
reallocation of existing team.

Another challenge has to do with security and confidentially. The outsourcing contract will have
terms and security spelt out in them. The challenge is that although these terms are clearly stated
there is always a problem associated with auditing. Ashley (2012) emphasized that there is a major
challenge associated with the execution and auditing of terms that are captured under the
outsourcing contract.

Organizations stand the risk of losing vital and confidential information when they outsource their
HR activities. This Berry (2007) indicated to include reports, audit trails, and personal data. In-
house knowledge and skills could also be lost. Knowledge and organizational innovation is also

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lost when organization outsource their HR. The company is also likely to face decreasing
organizational productivities due to the loss of employee skills and knowledge (King, 2004). Many
organizations also experience loss of control over its human resource activities if they introduce
outsourcing. This is greatly influenced by the quality of HR provider and the service agreement
that exists between the provider and the organization.

One of the expectations of outsourcing HR is that the focal company expects to receive better
services than that offered by its staff. The challenge therefore is the ability to choose an outsourcer
that can provide the expected service. The outsourcer must be chosen such that it would not have
any negative influence on the goods and services provided by the company. Adler (2013) indicated
that if care is not taken in the selection of the outsourcer the consequence might be so grave that it
can affect the position of the focal company.

Another major issue associated with outsourcing is that both parties are bound by only the terms
and conditions as stipulated in the outsourcing contract. Anything that is not captured under the
contract cannot be enforced on the other party. Any other duty that is performed by the outsourced
company will be subjected to charges and that brings additional cost to the focal company.

The issue of outsourcing has to do with doing away with a particular function that was being
performed by the focal company. Since that function is to be sublet to another supplier it will place
in the minds of the employees that they are going to be fired. It is a major challenge to management
how to relocate and further compensate those that the company no longer needs their services. The
company will also be challenged how to relocate some of the company’s employees to the
outsourced entity to perform that particular function. Brown and Cregan (2008) indicated that
outsourcing becomes a major challenge to managers who were part of the process and see it fail.
If adequate attention is not paid to remaining employees the organizations risk facing serious
obstacles when outsourcing HR activities. The remaining employees may exhibit some negative
feelings and these could affect the organizational culture.

Outsourcing HR would not necessary be a cost saving approach to an organization especially when
the company already has in existent effective human resource management (Marquez, 2007).
Marquez accessed an organization that invested in building its own service benefits and internal
activities. The organization Marquez emphasized was able to reduce about 11% of its HR costs.
Marquez advised that companies must first attempt to develop its own human resource activities

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before outsourcing. This was supported by Thomas (2005) who opined that internal HR activities
could as well bring a cost saving benefit to an organization.

Management should make an obligation to stay attentive on the fixed plans and must only make
substantial changes to the plan with careful consideration on the implications and consequences of
the change. A balance between business activities and strategy initiatives should be maintained.
When companies are immersed in new strategy development, they tend to forget their primary
business strategies and as a result implementation problems start to occur.

Strategy is execution to Nickols (2000). He divides the strategy execution into four groupings:
flawed strategy and flawed execution, sound strategy and flawed execution, flawed strategy and
sound execution, and sound strategy and sound execution. A great opportunity for success comes
leaving environmental and competitive influences.

The execution of inappropriate strategy is a main problem that leads to unsuccessful

implementation strategy. Downes (2001) wrote that the kinds of execution obstacles most
companies run into fall into two categories: problems internal to the company and problems
generated by outside forces in its industry. Both the internal and external matters are affected by
the scope of flexibility companies have to launch strategic initiatives successfully.

According to Brannen (2005) to improve the implementation certain subjects must be undertaken.
These are inadequate or unavailable resources, poor communication of the strategy to the
organization, ill-defined action plans, ill-defined accountabilities, and organizational/cultural
barriers.

2.6 Empirical study investigation

The chapter presents summary of the empirical studies conducts across the globe and Ethiopia
that are pertinent to the research under study.
To start with, a study conducted by Klass (1999) uses transaction-cost economies theory to explain
the outsourcing benefits received by the firms and its transaction cost is varying to different
organizations. The study indicates that transaction costs could be increased by opportunistic
behavior by service providers to which the firm has grown dependent. For example, agencies may
increase price at contract renewal, charging more for adjustments or add-on during the contract
period. (Klass, Clendon and Gainey 1999)

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Another study conducted by Miller (2011) on selected respondents that included top executives of
various companies revealed that 86% of the respondents felt that the introduction of outsourcing
in the HR of their various companies has had a positive effect on their companies and had increased
the overall performance of their respective companies. Miller‟s study further revealed several
reasons why management would want to outsource it HR activities. These the study revealed to
include concentrating on core business activities of the company, outsourcing to quickly attain the
goals of the business and focusing on product innovations to increase its competitive advantage.

A recent World Bank study concluded that more outsourcing in developing countries “is
significantly associated with more advanced market and reliable access to service providers”. If
the banks lack the skills to undertake their own in-house operation and can’t afford to hire the
necessary expertise, they can find themselves in practicing business process outsourcing. (World
Bank, 2009).

IT outsourcing is strongly focused around technical professionalism, and the migration to business
process outsourcing introduces this extra dimension of application professionalism. IT outsourcing
is a common occurrence and, for instance, about 90 % of European banks outsource ICT functions.
This includes software development and IT-enabled processes such as call centers and accounting.
According to a global survey of 50 banks, back office and other routine support functions are also
increasingly outsourced. (World Bank, 2009)

Focusing on its core business and creating a competitive advantage within the industry is an
important driver for HR outsourcing in Indian banks (Surya Narayan, 2012). The primary reason
for banks mainly utilizing in house resources to organize events was due to the confidentiality of
information. In order to respect client confidentiality and to not reveal sensitive data, this prevents
them from using an external company to outsource event services.

Furthermore, there was a general consensus of outsourcing event service was not cost effective
and it was more for the reasons of time saving and the using an external company, they have access
to the expertise and up-to-date knowledge of what is going on in the event industry, including
technology equipment for example (Delphine Francoise et al., page 14).

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Fan et al. (2011) discussed some advantages of outsourcing the human resource (HR) activities to
organizations. According to them there are so many advantages associated with outsourcing the
HR function but the most significant ones are cost savings and flexibility.

In Ethiopia, Meresa Mulat (2007) argues that “in spite of its aggressive application in the
international environment, the use of outsourcing in Ethiopia is almost none. No formal research
has been done in this area to assess the impacts, challenges and prospects of outsourcing in the
country.” His findings showed that Ethiopian organizations are willing to outsource non-core
business functions, such as maintenance and janitorial services, security services and information
technology services.
Muluneh Atinaf Kebede (2009) study it can be understood that more core business function such
as IT related business are being outsourced since there is lack of experienced in-house Software
developers are some of the reasons.

2.7 Summary of chapter

This chapter has reviewed literature related to the study. The chapter began with literature on the
definition and types of outsourcing. It discussed the definitions that had been adopted by various
writers. It also highlighted the types of outsourcing. The various theories of outsourcing were also
captured. The chapter highlighted issues that had made organizations opt for outsourcing and
discussed why an organization would want to delegate its function to be performed by an external
organization. The chapter further highlighted on outsourcing HR functions and activities. The last
part of the chapter captured the empirical studies conducted. The next chapter is the methodology
and will capture the methods that will be adopted for gathering and analyzing the data gathered.

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 CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Research Approach and Design

This research looked into an area that is not well explored in Ethiopia. As I indicated in previous
chapters outsourcing in Ethiopia is recent phenomena and the best approach to investigate such
type of issues was qualitative research approach. Accordingly, the study will use descriptive
research design with qualitative approach so as to get deeper understanding and complete
description of the phenomenon under investigation (Drubig, 2001). Descriptive research can be
used to identify and classify the elements or characteristics of a subject under study (Collis &
Hussey, 2003). It helps to obtain information concerning the current status of the phenomena to
describe that what exists with respect to variables or conditions in a situation (Key,
1997).Therefore, this research followed a qualitative research with a drive to describe the practices
of HR in Ethiopia taking the case of LonAdd PLC and Dalhousie University.
3.2 Data Sources

For the purpose of this study, both primary and secondary data will be collected. Primary data
were collected using key informant interview, interview questioner and focus group discussion.
Whereas secondary data were collected from published documents, official organizational
documents such annual plans and reports, financial and strategic documents.
3.3 Study Population, Sampling technique and Sample Size

In this study, the interest of the researcher is not to generalize to a population, but to develop an
in-depth investigation, to appropriately understand the phenomenon, the writer purposefully or
intentionally selects individuals and sites (Creswell, 2009). The data was gathered using purposive
sampling or non-random sampling method for the reason that it allowed the researcher to select
the study participants.
Sampling technique:
This qualitative inquiry had employed purposive sampling. The targeted population are from
Lonadd PLC & Dalhousie University. The targeted population is comprised of Support and Core
staffs, Country director, Managing director, Finance and Admin Mangers, President, Officers,

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coordinators and managers. Qualitative research employs purposeful sampling in which individual
and sites are selected purposefully with the hope to better understand the research problem.
Purposeful sampling requires the researcher to decide who should be sampled in what form to
provide rich and in-depth information (Creswell, 2007b).
Therefore, a total of 37 individuals took part in the study through a sample survey. These
individuals are listed in the below table.

Instrument Quantity Organized Role

Interview 20 employee Support & core staffs
KII 2 Country Director and
Dalhousie Finance and Admin
Manager
Total 22
Table 3.1 Number of people who were interviewed.

Instrument Quantity Organized Role

Interview 12 employee LonAdd Consultancy Officers, coordinators
and mangers
KII 2 Managing Director and
Operation Manager
Total 14

Table 3.2 Number of people who were interviewed.

Instrument Quantity Organization Roles

1 Ethiopian employers association President/Representative
Total 1
Table 3.3 Number of people who were interviewed.

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3.3 Data Collection tools/instruments.

Qualitative study relies on the integration of data from a variety of methods and sources of
information through triangulation so as to minimize biases and limitations of a single data
collection method (Maxwell, 2008). Therefore, document analysis, key informant interviews,
Focus group discussion, and semi-structured interview were used to collect relevant data that help
to address basic questions of the study
3.3.1 Document analysis

According to Payne & Payne (2004), written documents with private or public sphere are important
to categorize, explore, interpret and recognize the limitations of physical sources. To achieve the
aim of this particular study, secondary documents such as annual reports, strategic document,
journals, working papers, articles, and internet sources directly or indirectly related to outsourcing,
HR outsourcing were reviewed, analyzed and synthesized.

3.3.2 Key informant interview

Key informants, as a result of their personal skills, or position within a society, are able to provide
more information and a deeper insight into what is going on around them. It is an expert source of
information as Marshall, (1996) suggests. As a result, the researcher did conduct interview with 5
people to get rich and detailed data. To make it work, key guiding questions was developed to
make gather from key informants with identified directors, managers and coordinator. Total of five
people will be interviewed using interview guide developed by the researcher.
3.3.2. Focus group discussions

FGD is a type of interview that involves carefully selecting individuals who usually do not known
each other. They generally consist of 7-10 members alongside the researcher and extremely useful
in providing qualitative data (Abiy et al., 2009). In this study two focus group discussion were
conducted, each consists of 5-7 individuals. The researcher goal was to generate the maximum
amount of discussion and opinions within a given time period. The researcher took time to
carefully plan the questions. The researcher introduce participants to the discussion topic and make
them feel more comfortable sharing their opinion with the group. The researcher was also able to
delve further into the discussion topic and the participants’ opinions.

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3.3.3 Interview- questions
An interview involves a purposeful interaction of the investigator with participants to secure data
pertaining to the problem of the study that cannot acquire from observation and document analysis
alone. Unstructured interview enables the qualitative researcher to know and deeply understand
about something from the research setting (Gays, 212).
Following the general interview guide recommended by McNamara (1999), in these study face-
to-face interviews with 2 and questioner with 20 staffs from Dalhousie University carried out. The
researcher anticipated challenge of face-to face interview due to COVID and might be forced to
do via phone call or email. Given to the good profile of staffs in both organization, interview were
administered through email and phone calls. The researcher made maximum effort to meet face-
to-face interview by applying social distancing and personal protective equipment’s.

3.3.4 Data Analysis and interpretation

Creswell (2012) forwarded identified six steps for qualitative data analysis and interpretation. According
to him, “preparing and organizing the data, exploring and coding the database, describing findings and
forming themes, representing and reporting findings, interpreting the meaning of the findings, and
validating the accuracy of the findings” (p.236). Therefore, in this study paper, notes that will be taken from
key informants, FGD and semi-structured interview will be thematically analyzed and described. The
analysis was continue on data presentation and of conclusion for each thematic area. Finally,
recommendations was forwarded.

3.5 Quality Assurance

The researcher did use triangulation as data quality assurance technique to overcome unfairness
and cross-examines the trustworthy of the participant’s response. The data that will be collected
through interview and FGD cross-checked using document review and key informant interview
and vice versa. By using these techniques, the researcher will verify the collected data from
different sources. According to Bhattacherjee (2012), data quality assurance principles for
qualitative research to preserve the trustworthiness of the collected data are. (1) Addressing
credibility; to do this, the researcher will try to demonstrate that a true picture of the phenomenon
under the study so that the readers will find inferences believable. (2) Addressing confirmability;
to do this, the researcher will try to demonstrate the different subjectivity issues under

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investigation. Transferability; to do this, the researcher will provide sufficient detail of the practice
of HR outsourcing for a reader to be able to decide whether the prevailing environment is similar
to another situation and the finding can justifiable by applied into the other setting. (3) Addressing
dependability; to do this, the researcher did strive to enable future investigators to repeat the study
so that to arrive at the same conclusion.
3.6 Ethical Considerations

The researcher has gotten permission from LonAdd PLC and Dalhousie University to undertake
this research, thus the interview will be conducted and questionnaires will be distributed with full
knowledge of the management. The research will maintain confidentiality about the information
that the researcher will gather from respondents, and data will be used for academic purpose only
and will ensure that the respondents and organization as a whole will not be exploited.

Participants will be informed about the voluntary nature of their participation in the study and will
confirm their willingness to take part in the study by signing on consent forms. The consent form
will clearly-have stated the aim of the research, the expectations from the research, voluntary
participation and withdrawal. The researcher will respect the dignity of the research participants
in such a way that their right to privacy and confidentiality will be recognized and respected.

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 CHAPTER FOUR

DATA ANALYSIS AND INTERPRETATION

In this chapter, the collected data through focus group discussion, key informant interview and
other documents has been analyzed and interpreted. The chapter consists of respondents’
demographic characteristics, the existing practices, the client, employee and legal issues
surrounding HR outsourcing, the relationships between the service provider and service recipient,
the risks and the prospects associated with HR outsourcing as well as the role of Human resource
outsourcing. Initially, the researcher planned to participate 37 respondents for key informant
interviews, Focus group discussion, and semi-structured interviews, however, the researcher
collected data from 34 individuals which makes the study participation rate 91.8%. In this chapter,
the background of these respondents will be presented followed by the responses of organized in
to main thematic areas of the study.

4.1 Demographic Characteristics of Respondents

Regarding the demographic variable of the respondents, sex, age, educational level were used as a
describing variable’s. Accordingly, regarding the sex of the respondents, the majority of them
23(67.65%) were males while the remaining 11(32.35%) of the total respondents were females.
This shows the dominance of male respondents in this study case.

The other demographic descriptor used was age of participants. Therefore, based on the age
category of the respondents, the majority 64.71% of them fall in the age range 31-40 years while
the remaining 23.53% and 11.76% of the total respondents were in the age group 30 years and
below as well as 41-50 years respectively.

Lastly, regarding the educational level of respondents, the overwhelming majority 73.53% of the
respondents were first degree holders while the remaining26.47% of the respondents had MSC/
MA and above level of education. This shows the well-educated participants of the study which
will contribute for the validity of the result gained since most of the respondent will have sound
understanding and appreciation of human resource outsourcing practice and related issues.

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Table 4.1 Demographic Characteristics of Respondents Dalhousie University (Service Recipient)

Variables Options Frequency Percentage

Gender Male 13 59.09%
Female 9 40.91%

Age 30 years & below 6 63.63%

31-40 years 14 64.71%

41-50 years 2 9.1%

51 years and above - -
Educational level High school and - -
below
Diploma - -
Degree 15 68.18%

MSC/ MA and above 7 31.82%

Total 22 100.00%
Source: Own Survey, 2021

Table 4.2 Demographic Characteristics of Respondents LonAdd HR Consultancy (Service Provider)

Variables Options Frequency Percentage

Gender Male
Female 14 100%

Age 30 years & below 2 14.29%

31-40 years 10 71.42%

41-50 years 2 14.29%

51 years and above - -
Educational level High school and - -
below
Diploma - -
Degree 12 85.71%

MSC/ MA and above 2 14.29%

Total 14 100.00%
Source: Own Survey, 2021

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Table 4.3 Demographic Characteristics of Respondents Ethiopian Employee Association (Policy Maker)

Variables Options Frequency Percentage

Gender Male 1 100%
Age 41-50 years 1 100%
Educational level Degree 1 100%
Total 1 100%
Source: Own Survey, 2021

As can be seen on the above respondent both service recipient and service provider has their own
perspective of looking the benefit and challenges of HR Outsourcing:

LonAdd HR Consultancy/ Service provider: Having experts in the field who can recruit and
manage the right employee for most company who doesn’t even understand the context of hosting
country labor law is a benefit to the service provider. Business opportunity, job creation and
contributing to the economy

Challenges: The legal framework has many gaps especially when it comes to HR Outsourcing.
This has been a big issues for service provider when there is a need for legal mediation between
employee and service provider. The other challenge, when the employee has belongingness issue
that affect their day to day activity as well as their relationship with management and the team.
Since the service providers manages remotely, creating that environment for the employee to feel
that they belong there is very challenging at times

Dalhousie University/Service recipient: Some of the benefit of HR outsourcing for service

recipient, they can focus on strategical work than routine activities, administration cost minimized
when the employee is managed remotely by outside party, service recipient doesn’t have to deal
with any legal issues raised by the employee, the service recipient employee being managed by
highly qualified professionals who has well experience in the area

Challenges: It is not always easy to explain criteria needed to outside party. Even though there is
a clear understanding and written document signed by both parties, there is still a challenge having
the right people on the job with the right attitude. The other challenge which is shared by both
parties’ service provider as well as service recipient, when the employee has belongingness issue
that affect their day to day activity as well as their relationship with management and the team.
Since the service providers manages remotely, creating that environment for the employee to feel
that they belong there is very challenging at times

4.2 The practices of Human Resources Outsourcing in Ethiopia

As the basic principle of outsourcing is simply acquiring a product or service form outside supplier
rather than producing in the organization or it is transfer or delegation of the operation and day-

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to-day management of the business process to an external service provider, the following section
provides the practice of human resource outsourcing practice in LonAdd HR Consultancy.

In the subsequent segment, participants are represented by code number to hide their real identity
to conform to confidentiality ethical standards while conducting and stating participants’ ideas and
perspective. Concerning the practice of human resources outsourcing in Ethiopia, the responses
from Focus group discussion and semi-structured interviews have showed that HR outsourcing is
sometimes praised as one of the strategic tool in the higher competitive environment. Therefore, it
assists organizations to focus on their scarce resources, increase customers’ perception towards
quality and reduce the cost of outsourcing the HR functions.

According to respondent [no 19];

“Outsourcing of human resources is almost nothing in Ethiopia. Some

Ethiopian organizations are restricted to the practice of reaching staff
members through third-party services to perform their HR functions."

Most of the respondents have agreed that the practice of HR outsourcing in Ethiopia is low.
However, recently, there are many improving circumstances in the country with growing number
of company sizes, it is becoming necessary to outsource human resource activities.

According to respondent [no 8], expressed regarding the demand for the practice of HRO in
Ethiopian;

"Human resources outsourcing is an important practice in Ethiopia because it enables companies

to focus on core operations, save on costs, create a stable, cost-effective operational platform,
focus internally on business goals, and make investment in HR and IT systems."

Similarly, respondent number [1], from Dalhousie, with a role of procurement and Logistics officer
with a work experience of above three years have expressed his understanding of outsourcing he
responded as the objective of outsourcing is getting the services that can be done internally from
outside service providers with minimized cost, minimized risk , with better technology, in timely
manner. Accordingly, the requirements for outsourcing, he replied as;

"I did not believe that outsourcing is necessary because the number of employees in my company
is very little outsourced. And the outsourced HR tasks can be performed internally."

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Regarding the organization needs for outsourcing, Respondent [5] who is an IT Officer with an
experience of more than three years; expressed his ideas as;

"I think that this type of arrangement is a good practice for an organization's HR wing. Because
the organization is a programme, and the program has an expiry date by nature, I think that the
management of human resources is an essential way." Respondent [no 12] with a position of
Innovation Fund and Income Generation Officer, with more than 4 years of experience puts his
opining as follow:-

"Yes, in its structure, our organisation's role was not only the
administrative function. Therefore, some excellent companies must
outsource their HR roles in particular. It also reduces the workload for
recruitment, salary and related issues." In relation to the practice of HR
outsourcing Respondent [no 7] expressed his idea as follow.

"Main risk includes the lack of HR handbook and guidance for the recruitment of newly recruited
personnel, and the lack of comprehensive direction, Clearness and transparency lacking (e.g. lack
of clear evidence on the annual wage adjustment/augmentation: what are the references and
considerations? Information not communicated prior to the letter arrival), Ambiguity about
employees' benefits (reduction payment, entitlement and non-entitlement leave, overtime payments
or travel and delegation compensation) and lack of staff on the latest HR information and
regulations.'

In summary, regarding the practice of outsourcing in Ethiopia, despite the dramatic increase in
outsourcing practices by many organizations around the world, the above findings showed that
human resource outsourcing or performance of outsourcing are still lacking behind the practice of
other countries. However, in the global circumstances, there is an acute shortage of evidences
about the practice and success of these human resource outsourcing practices. As per the findings
of this study, in Ethiopia aspects of outsourcing such as managerial motivation, relationship with
service providers, advantages, risks and how outsourcing affects organizations are reported.

The interview and focus group discussion results showed that organizations struggle to produce
the highest quality of the products benefit the most by performing and maintaining the HR
functions in their own hand particularly on recruitment and training related activities. Recruiting
the right people with the accurate attitude, and train them with suitable training are the starting

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point for organizations to produce highest quality products. Moreover, it is not easy to explain
criteria needed to outside party since these processes most of the time is based on past experiences.

The above result showed that one of the main tasks of human resource management, in addition to
securing the effectiveness and efficiency of human resource activities, is the continuing balancing
of manpower endowment and its requirements. Innovative or transformed needs for the
procurement of one or more HR functions thus increase if an imbalance between manpower
endowments and manpower requirements occurs. The primary determinants of outsourcing human
resource activities in Ethiopia have a direct effect on manpower requirements.

This collection of determining factor includes the range of products and services with the related
kind and extent of tasks to be fulfilled in the firm, labor productivity and working time of workers
per period. Changes in manpower requirements result directly from variations in these primary
determinants. For instance, a more comprehensive range of products and services, a decrease in
labor productivity or a reduction in working time increase manpower requirements in a quantitative
or qualitative manner, temporarily or permanently will be desirable. Secondary determinants
indirectly influence manpower requirements via changing primary determinants. They may have
internal or external origins and be predictable or unpredictable for the firm. Conditions of supply
and product markets, including cost structures and cost competition, a firm’s production
technology and organizational factors all belong to this group of determinants.

Second, changes in manpower endowment may necessitate the procurement of several HR

functions. There are various variables impacting an association's labor gift. From one perspective,
there are pretty much exogenously given boundaries which a firm can't impact straightforwardly
or in a momentary viewpoint, for instance, work turnover, pace of nonattendance of faculty or
changes of the labor gift through maturing measures. Then again, there are "activity boundaries"
on which organizations may choose straightforwardly, like the acquisition of faculty, staff
decreases and relocation, advancements, preparing or further training. Concerning labor
necessities, an adjustment of determinants of labor gift might be unsurprising or capricious, be
caused remotely or inside and produce results quantitatively or subjectively just as for all time or
just for a brief time. Any unevenness between labor prerequisites and gift requires the satisfaction

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of a few HR errands and may trigger a choice on whether these assignments are to be completed
by in-house creation or outside acquisition.

4.3 Client, Employee and Legal Issues Surrounding HR Outsourcing

Concerning the client, employee and legal issues surrounding HRO, the following results have
been gained. As to the legal issues in using HR outsourcing, the respondent acknowledged that
these requirement such as the presence of legal framework which handles human resource
outsourcing issues are available. However, these requirements needs updates so as to include the
latest holes and disputes in the area.

In relation to whether the employee respondent recommend the use of HRO for future use,
Respondent [no 2] states his ideas as;

“I don’t recommend for this organization”

Regarding whether the organization needs HR of outsourcing;

“Yes, it is important, because the organization was structurally, have

no HR. however, it needs skilled human resource to implement
activities and achieve its target. For this to do so there should be HR
who find and employ personnel.”

According to respondent [14] a gender advisor in Dalhousie with a work experience of three years
regarding the challenges that have been encountered with this service provider;-

“I appreciate the services provided from LonAdd specially the staffs

who manage to provide the required support timely however, I have a
little reservation regarding building the capacity of staff, facilitating
loan and credit from different banks and close follow up and procedure
on work place sexual harassment and bullying policy.”

Regarding the significance of outsourcing activities for the recipient organization Respondent [no
2], from Dalhousie, with a role of ATTSVE ATVET Coordinator, above 4 years of experience
expressed his opinions as follow;

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 “No, it’s not important. Because administrative manager, office
assistances and finance assistances are available in our organization
and can facilitate the payroll and benefits. The recruiting and hiring
process of employees were handled by our managers. I did not even see
any significant impact of Lonadd in hiring and promoting of employees
in our organization. For instance; Most of the employees who are
currently working in our office are directly promoted by the
recommendation of their supervisor’s means it was not merit based and
the role of Lonadd was not impactful on this regard.”

Concerning the Performance management in the service recipient organization, Respondent [no 6]
puts his idea as;

“It has been managed at organizational level, but, could be managed

at individual level in observing the performance of service provider’s
in terms of their legal requirements they have been able to fulfill for
their employee, their response to the organizations request for
anything needed, their efforts they made in satisfying employees of the
organization and etc. In case of our organization, performances have
been carried out at organizational as well as at individual level.”

4.4 The Relationships between the Service Provider and Service Recipient

Concerning the relationships between the service provider and service recipient of HR outsourcing
service in Ethiopia, the two parties practice HR outsourcing functions based on the perceived
quality attainment and cost reduction from the part of service recipient. Some elements of the
operational cost are relevant for the firm’s decision making has already been extensively
documented the previous and proceeding sections of this study.
The respective results show that the relevant cost elements can either rise or fall with external
service procurement, depending on the specific situation of the demanding firm. Whether and
under what conditions total costs per service unit decrease or increase by using an external
procurement can be determined only empirically.
Total costs may be reduced if the service provider can realize economies of scale, learning curve
effects, advantages of specialization or of labor costs, and if these cost advantages exceed the
provider’s profit mark-up. Such cost reductions are more probable if external HR services are
provided for organizations with minor and infrequent demand for specific, non-discretionary
separable services, as in this case comparatively high fixed costs per service unit would arise for

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the focal firm. However, if dependency arises between the focal firm and the provider, profit mark-
ups may form a considerable element of service prices, increasing the total costs for HR functions
of the focal firm under external procurement.
Furthermore, through the external delivery of particular HR services, expected but hard-to-
calculate costs arising from liability for errors, legal processes, etc. may be lower. Calling in a HR
consultant may be beneficial for the firm in that any such costs would be lower, because it is the
service provider’s responsibility to observe the law in dealing with a third party in the workplace,
or comply with antidiscrimination regulations in the pre-selection process. From this perspective,
a highly regulated labor law can strongly support the demand for external HR services.

4.5 The risks and the prospects associated with HR Outsourcing

Regarding the risks of HR outsourcing, various issues were discussed with respondents during the
interview and focus group discussion sessions. Based on the results, the following demonstration
of the results were presented in terms of direct quotes form the responses as well as summary of
the majority of responses gained in the area of risk and prospects associated with HR outsourcing.
Regarding the risks associated with HR outsourcing themes such as cost, trustworthiness of service
providers, selecting and managing service providers and the availability of service providers to
select based on merits and comparison were discussed.

According to Respondent [no 1], there are various challenges for human resource outsourcing
including;

“Staff development schemes like trainings, seminars etc. are not

possible, unable to get timely decisions from the higher-level officers
of the outsourcing company, poor communication on organizational
and timely government rules, laws procedures, lack of orientation upon
employment and so on…”

Similarly, according to respondent [no 2];

“The outsourcing activity currently do not provide training, insurance

claim delay, expected to deliver the original document which takes long
time especially for field office, and low job security due to contract
agreement delay”

Regarding the administrative and legal challenges, Respondent no 3 expressed his ideas as;

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 “The main challenge here is it is difficult to answer employees’
question in relation to salary raise and insurance matters. I feel
sometimes that employees get reluctant to forward their questions to
the outsourcing company (in this case LONADD) and become
discouraged. I think the outsourcing company must have a discussion
with staff periodically in relation to the working environment,
promotion, position, and salary raise. In addition, HR manual is not
distributed to employees”

Additionally, respondent number 4, a female with a position of financial officer in Dalhousie

experienced around three years express her idea as;

“I don’t face any legal challenge, but I have seen some administrative
challenges for example, since I join the organization I ask for human
resource policy but we couldn’t find until now, they don’t have code of
conduct, they don’t follow-up on the submission of performance
management filled forms which uses as a base for the salary increment
and also I didn’t see them having any meeting at least once in a year
with the employees. If there is any new issue or policy by the employer
they only implement with no prior notification or discussion with the
employees.”

According to respondent no 4; regarding the challenges of service provider;

“They don’t give the employees amended or renewed contract

agreement with in the time. I didn’t see this service provider give or
initiate any training. Capacities building training is always an issue for
the employees and always raise this request but they don’t have
detailed answer for the employees”

According to respondent [no 6] on the other hand expresses his ideas as;

“May be, timely accessing competent individuals were a challenging.

In case, lack of providing an individuals an opportunity for a positions
and capacitating he/she, the service provider are very sticky to the
requirements provided by organizations. There were no flexibility in
this case and individuals will not get an opportunity. Only experienced
personnel’s participate as outsourced HR are very sticky to the
requirements set by organization’ and this brings in erosion for human
resources development. Not only has this, it also affect organizations
timely implementations of activities and delays achievements of
organizations goals, as a position will not get a person on time. This
was one of the administrative challenges, I faced. I did not know any
legal challenge I ever faced.”

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Regarding the future recommendation for the use of HRO, Prospects Most of the respondent do
not recommend HRO for future of their organization; for instance; according to respondent [no 2];

“I recommend outsourcing for huge companies. Companies with less

staff can manage both recruiting and other HR tasks by hiring one or
two additional staff”.

Similarly, regarding whether the respondent recommend HRO for future use, Respondent [14]
expressed his ideas as;

“I would not because I believe the human resources has to be in close

contact with the employees to handle any concerns and improve work
as well as personal development goals of the employees. their might be
times where the organization needs support on in hiring a lots of
employees a country as well as regional level which might be
overwhelming, thus, outsourcing temporarily might be relevant to
share this responsibility”

The results discussed have shown that the respondents from the side of service recipient
organization had concerned such as outsourcing does not provide an organization with a
competitive advantage. Some of them asserts that HR should enable the organization to compete
head to head with talent competitors and offer things that differentiate the experience to attract the
best talent. A solution to this issue is requiring an exclusivity agreement from the HRO vendor,
but this would reduce the cost benefits accruing from the economies of scale.

Furthermore, HRO limitations the development, the picture and the capacities of the HR work and
inhibits the development of HR Professionals. Outsourcing bad systems does ensure that the
system will be fixed. Drawing in advisors to help fix the frameworks may be a superior method to
build the apparent worth of the HR work. HRO won't improve inside picture, and no constructive
outcome can have tremendous adverse consequence and it restricts the capacity of the HR group
to become worldwide HR work.

Respondent [17] whose position was an academic programming and ATVET Linkage coordinator
with five years of experience enlist administrative and legal challenges they have been facing as
follow;
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 “Getting standardized letter of experience, accessing the insurance
claim on time, problem of getting guaranteed letter, which can be used
as a reference to be guaranteed to someone else, a reference whether
the tax deducted from my salary is paid to the concerned government
body and problem of getting support to get benefit house loan from
commercial banks”

In summary, the above results and other findings presented showed that the major risks involved
in the HR outsourcing area are related to the reduction of the aggregate of understanding about the
workforce controlled and owned by the organization. A reduced number of HR positions may
reduce the ability to attract high quality HR professionals for the service recipient organization
which may intervene the independence of its effort and competitive advantage than other
organization in the sectors. Additionally, relocating an HR activity to a vendor can take a year or
more and the substituting costs may make it very difficult and costly to return the activity in the
client organization. This can lead the vendor to act opportunistically with respect to reducing
service levels and pricing a contract renewal. Interfacing with another organization on critical
business processes involves transaction costs such as monitoring the agreement, establishing and
renewing the contract and the risk of the vendor being acquired or failing that otherwise would not
exist. Lastly, any learning and resulting innovations that would provide higher quality and/or lower
cost HR service are captured by the customers of service recipient.

4.6 The Role of Human Resource Outsourcing

Respondent [no 1] expressed his ides as the practice of Human resource outsourcing can result in
reduction of costs for the client organization:

“Yes I feel there is a reduction of cost as a result of outsourcing; it may

reduce costs for setting up and running costs of internal departments”.

However, respondent number 3; stated his ideas that

“Regarding reduction of cost as a result of outsourcing; it depends on

size of the organization. For organizations with less staff outsourcing
(1-100) is not cost effective. However, for organizations with high
number of staff it is cost effective and time saving. For example in our
case, there is no cost reduction”

According to respondent [no 2] the major goal and objective of outsourcing is to;

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 “Reducing the cost of experts and other internal costs, increase
efficiency, access to HR experts not available inside the company,
increase the speed of response and reduce risk.

Regarding cost reduction of HRO, Respondent [No 2] expressed his idea as:

“No, I don’t feel, may be the salary of one HR expert but it’s not
significant cost reduction if you calculate with the level of satisfaction
of the employees”

Performance was found to be managed by the will of the supervisor, not by the merits of the
employees. According to respondent number 2;

“It totally depends on the evaluation of the supervisor only.”

According to respondent number 3; the goal and objectives of outsourcing include;

“Fewer burdens on human resource department, getting more talent

from the pool of the recruiting organization, and lower time
requirement for hiring”.

Similarly, as to respondent [no – 4]; the goal and objectives of outsourcing include;

“To minimize man power and administration cost, to get qualitative

service, it will make ease for the organization in the face of legal law
with the employment process issues, it also making easy by taking full
responsibility of employment process with any related issues for the
organizations. If there is any issue raised by the employee or the
government related to employment for example; income tax, pension,
etc., the outsourcing provider take full responsibility at the face of
law.”

As to Respondent [5] with a position of Field (ATVET) Office coordinator and innovation fund
officer for ATTSVE project, Dalhousie University with an experience of around two years, the
goal and objectives of outsourcing include;

“Outsourcing’s goal is to give those specific tasks of the organization

to some body, which is outside of the organization’s scope of
management directly. I think its objective is to ease control overheads,
running cost and most importantly, it is a way to transfer the legal and
risks related issues to some else.”

According to respondent [no 6]

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 “Yes, for ATTSVE project for instance, the cost of office and with
required facilities, a human resource person full time employment costs
like salary, transportation allowances, assistant for HR salary, cost of
office supplies a lots of things reduced. Had it been HR employed by
the project, the project incurs all this costs. Time also saved. Time taken
in managing human resource issues might affect project targets
consuming time for program staffs.”

Regarding the role of HR outsourcing, the resulted showed that the activity can benefit lesser
production prices, cost avoidance, strategic focus, flexibility and relational rents. Dropping the
average unit cost of the product or service sold by an organization is the primary reason most
organizations give for outsourcing other inputs. The respondent have acknowledged that their
organization outsource HR activities to explain the outsourcing decision as enabling them to better
focus on strategy as well as other core activities of the organization. Outsourcing normally allows
an organization to avoid some future costs that are incurred by the vendor. It also enable a company
to redirect energy to its particular core competencies by making more competent use of labor
market. It provides an opportunity for increase productivity and contribute to better focus on an
organization’s strategic direction. Outsourcing buyer group meetings are filled with stories about
how companies jumped into outsourcing without fully understanding the implications of this
decision.

Additionally, the role of HR outsourcing can be summarized into four groups that affect
organizational performance. One purpose is cost in a way that the outsourcing service provider
firm can do the action for fewer costs than the client organization. A second purpose is quality in
which service provider firm can do the action in a better quality since it specialized in doing this
activity as its major source of mission. A third purpose is risk reduction when the service provider
is usually better able to assume the risk of doing the activity. The last purpose is focus in which
the service provider should do this activity because it is time consuming and diverts focus. When
one considers the principle agency problem, and convenience in which service provider do this
because it is hard or otherwise undesirable.

Outsourcing an HRM movement incorporates both immediate and aberrant expenses and
advantages to an association. A portion of the more clear direct expenses incorporate the faculty
expenses of time spent in recognizing the HRM exercises to be re-appropriated, choosing a seller
or merchants, and dealing with the seller relationship. At times outsourcing involves material and

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supply costs, preparing, travel, new gear and programming. Direct advantages, then again,
incorporate staff time saved and investment funds from extra working efficiencies, for example,
lower material, equipment and programming costs.

4.7 Discussion of Results

The findings of this study has found that inability of service recipient company to control the
operation of the vendor, it may pose inherent practice risks. Consistently, this finding is similar
with Alex (2010) who stated that, due to lack of direct control on the human resource the vendor
might hire under qualified or unqualified employees, depending on his discretion, which would
successively, hampers the quality of service further.

This study has tried to understand HR outsourcing practices, risks as well as prospects in Ethiopia.
The research has found that it is hard to determine the factors that predict the degree of HR
outsourcing. Various literatures have established different types of business strategy as the
moderator between outsourcing and performance. This study has showed that organizations that
emphasize on cost efficiency tend to engage with external vendors to perform HR functions.

The results also showed that by engaging with external vendors, this requires honest investment in
understanding the particular need of the organization. In short, organizations that highlight on
quality focus more on performing HR functions in their own internal capabilities. Additionally,
focus on distinctive practices and tend to be different which assumed to add values for the
effectiveness of the organization.

According to Smith, Vozikis, and Varaksina (2006) indicate that most of the organizations
outsourced at least one HR function. The most frequently outsourcing HR functions include;
outsourced recruitment, outsourced human resource information system followed by training and
benefit administration.

One of the findings of this study showed that the major reasons to engage in the practice of HR
outsourcing in Ethiopia is to decrease the cost of HR function as well as to acquire the right
employees in reduced time lapses. This result is consistent with McClendon and Gainey (1999)
where organizations that encountered with cost pressure involve with external vendors to perform
HR functions as this generate more benefits and immediate saving.

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The result also showed that it is highly likely that the outsourcing decisions require proper
approximating of the cost of a service or product, the time horizon of the outsourcing decisions
and any associated opportunity costs as well as any related desired outcomes. Therefore, the
relationship between two parties in a market business must have coinciding motives in order to
enter into, develop and maintain a relationship. Moreover, HR outsourcing is expected to be made
on the basis of the management team’s skill level, interest, and preferences. So, the outsourcing
decision may be decided of talent, interest in performing the activity and convenience rather than
how business strategy predicts HR outsourcing.

The literature is divided in terms of the level of human resource outsourcing. For instance; Lilly,
Gray and Virick, (2005) suggest that HR activities should be outsourced heavily. On the other
hand Quinn (1992) argues that HR outsourcing should be limited to only non-core HR functions
whereas core HR functions should be done in house to preserve the competitiveness of the
establishments. However, decision making on which area of HR to outsource depends on the
business strategy of the organizations. To accomplish that, the association would need to zero in
on its center ability and agreement its noncore exercises and capacities to an outside organization
which has the asset and furthermore could accept that action as its center. This outsourcing
procedure would empower the central association to focus its center abilities and thusly increment
its proficiency without contributing a great deal (Lee, 2008). Outsourcing takes into consideration
associations to focus on its center skills. Outsourcing auxiliary exercises permits the establishment
to zero in additional on center capacities and to stress less over the other non-center business tasks.

Kennedy (2003) contends that the center explanations behind outsourcing incorporate upgraded
administration, staffing limitations, and spending imperatives, to get to innovation. Likewise,
Jefferies (1996) states that outsourcing, when appropriately arranged and controlled, is required to
create a few advantages, like decreased expenses, improved assistance quality, and expanded
productivity and advancement. Promoters of outsourcing contend that the private area offers better
support more productively and at lower cost than the public area which is unmotivated by benefit.

They call attention to that outsourcing to a worker for hire can lessen work expenses and increment
benefits, give a solitary mark of responsibility, and give unsurprising expenses; the subsequent
expense investment funds allows the organization to zero in more assets on its center business

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capacities (Jurison, 1995). At the end of the day, outsourcing brings about improving the essential
triangle of an association; quality, cost and time. Defenders of outsourcing perceive that the private
area merchants offer types of assistance more productively and at lower cost than the public area
(Jefferies, 1996)

Moreover, this study has found that most of the respondents didn’t agree on higher performance
HR outsourcing for the client organization. In fact, some of the respondents find it very
handicapped and lack the advantages that it was supposed to provide for the client organization in
terms of quality service and cost.

The study also showed that effective HR outsourcing are not merely adopted but are shaped for
specific organizations with specific competitive needs to produce best results. With the exclusion
of other characteristics such as human resource management strategy, structure and environmental
factors as the antecedents to HR outsourcing which will add value for future practice of HR
outsourcing in Ethiopia.

The role of practicing human resource outsourcing has been disputed. The results of this study also
showed contradictory results when the importance of such activity is concerned. Similarly, the
literature also have an ongoing argument on the issue. For example, Gilmer (1997) contends that
the fundamental analysis of outsourcing as being its human resource consequences. Due to moving
positions from the monetary organization to the specialist, who is playing out the reevaluated work,
may bring about compensation cuts, staff repetition, or conservation/decrease. Once in a while the
specialist organization could even utilize staff on agreement. Along these lines, outsourcing
pundits feel that agreement staff may foster less dependability to the establishment than if they
were utilized straight by the foundation. In this manner, they express dissatisfaction with the
subsequent insufficient assistance by project workers. Additionally,

Ender and Mooney (1994) likewise distinguished that the best deficiencies of outsourcing is staff
conservation/decrease brings about adverse consequence on institutional resolve. Ideally, they
formulated a bunch of rules for moderating these adverse consequences of outsourcing. The rules
are: outsourcing of the executive’s faculty just, cutting back the staff by whittling down, including
representatives in choosing the project worker, and re-offering the agreement regularly. Then
again, the increasing utilization of outsourcing in the course of the last 20 years has been filled by

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contentions from the board masters/master and driving scholastics that an association's upper hand
originates from its capacity to recognize, focus on and foster its center abilities and exercises, and
re-appropriate anything which is non-center. Nonetheless, there is some conflict concerning
whether outsourcing ought to just apply to the non-center exercises an association or on the off
chance that it can likewise incorporate center exercises.

For Prahalad and Hamel (1990), center abilities and exercises are the key to an association's
prosperity and ought not be re-appropriated. Yet, Gay and Essinger (2000) take an alternate
position, they do accept that outsourcing can accept the contracting-out of both center and non-
center exercises. Nonetheless, to confound the image, it is here and there hard to characterize what
is or isn't a center movement (Mitzberg, 1998). In any case, paying little mind to which exercises
it embrace, or how these are characterized, there is a lot of proof to show that outsourcing is
increasingly taking over from vertical coordination as the favored way to deal with getting sorted
out the arrangement of numerous merchandise, cycles and services(Domberger,1998)

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 CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1 Conclusions

The main objective of this study was to investigate the challenges and opportunities of HR
Outsourcing practice in Ethiopia. More specifically, the study tried to identify the existing, the
practices of Human Resources Outsourcing in Ethiopia, client, employee and legal issues
surrounding HR outsourcing, examine the relationships between the service provider and service
recipient, to assess the risks and the prospects associated with HR outsourcing and to assess the
role of Human resource outsourcing.

Concerning the practices of human resources outsourcing in Ethiopia, the study has found that it
has little application as compared with other countries level of utilization. The practice of attaining
staff members through exhausting the services of the third party to take care of its HR functions is
only limited to very few organizations in Ethiopia. Despite the dramatic increase in outsourcing
practices by many organizations around the world, the above findings showed that human resource
outsourcing or performance of outsourcing are still lacking behind the practice of other countries.
However, in the global circumstances, there is an acute shortage of evidences about the practice
and success of these human resource outsourcing practices. As per the findings of this study, in
Ethiopia aspects of outsourcing such as managerial motivation, relationship with service providers,
advantages, risks and how outsourcing affects organizations are reported. Recruiting the right
people with the accurate attitude, and train them with suitable training are the starting point for
organizations to produce highest quality products. Moreover, it is not easy to explain criteria
needed to outside party since these processes most of the time is based on past experiences.

Regarding the client, employee and legal issues surrounding HR Outsourcing in Ethiopia. The
study has found that the presence of legal framework which handles human resource outsourcing
issues are available. However, these requirements needs updates so as to include the latest holes
and disputes in the area.

Concerning the relationships between the service provider and service recipient of HR outsourcing
service in Ethiopia, the two parties practice HR outsourcing functions based on the perceived
quality attainment and cost reduction from the part of service recipient. Some elements of the

45 | P a g e
operational cost are relevant for the firm’s decision making has already been extensively
documented the previous and proceeding sections of this study. The respective results show that
the relevant cost elements can either rise or fall with external service procurement, depending on
the specific situation of the demanding firm. Whether and under what conditions total costs per
service unit decrease or increase by using an external procurement can be determined only
empirically. Total costs may be reduced if the service provider can realize economies of scale,
learning curve effects, advantages of specialization or of labor costs, and if these cost advantages
exceed the provider’s profit mark-up. Such cost reductions are more probable if external HR
services are provided for organizations with minor and infrequent demand for specific, non-
discretionary separable services, as in this case comparatively high fixed costs per service unit
would arise for the focal firm. However, if dependency arises between the focal firm and the
provider, profit mark-ups may form a considerable element of service prices, increasing the total
costs for HR functions of the focal firm under external procurement.

Based on the results of this study, human resource outsourcing has inherent risk as well as some
challenges in Ethiopian context. The result showed that the major risks involved in the HR
outsourcing area are related to the reduction of the aggregate of understanding about the workforce
controlled and owned by the organization, relocating an HR activity to a vendor can take a year or
more and the substituting costs may make it very difficult and costly to return the activity in the
client organization, establishing and renewing the contract and the risk of the vendor being
acquired or failing that otherwise would not exist and learning and resulting innovations that would
provide higher quality and/or lower cost HR service are captured by the customers of service
recipient.

Lastly, regarding the role of HR outsourcing, the result showed that it has various roles for the
client organization such as outsourcing service provider firm can do the action for fewer costs than
the client organization. A second purpose is quality in which service provider firm can do the
action in a better quality since it specialized in doing this activity as its major source of mission.
A third purpose is risk reduction when the service provider is usually better able to assume the risk
of doing the activity. The last purpose is focus in which the service provider should do this activity
because it is time consuming and diverts focus. When one considers the principle agency problem,
and convenience in which service provider do this because it is hard or otherwise undesirable.

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 5.2 Recommendations

Based on the findings and conclusions of this study, the researcher want to make the following
suggestions;

 Service recipients of human resource outsourcing services should train the new comer
outsourced staffs about the norms and cultures of its operations and their duties and
responsibilities required to increase their engagement and commitment level.
 Huma resource outsourcing services should be checked at certain time intervals against
fixed measurements or set standards. The standard must be transparent and well-known by
both the client and the supplier. This has to be supported by well-established Service Level
Agreement between service providers and service recipient.
 The Ethiopian labor law should be more clear and inclusive of Human Resource
Outsourcing practice.
 Monitoring and evaluation system need to be put in place for timely corrective action
before time elapses and rectification becomes so difficult. When it is used in a calculated
and well-designed way, outsourcing could bring lots of benefits to the client organization.
If applied without proper assessment of the capacities of service providers, it may involve
irreparable damages in the short-range and could draw lots of risks that may disturb time-
honored organizational culture. Hence, any form of outsourcing is likely called for
maximizing benefits and minimizing risks.
 Since human resource outsourcing has many advantages, the user organization has to focus
on outsourcing other noncore activities of the bank like office equipment maintenance,
human resource recruitment and selection, acquired asset management and transport
management
 Service recipient organizations of human resource outsourcing should give due emphasis
on increasing employee belongingness and commitment feeling. Since this will enable the
organization to create productive employees who contribute for the betterment and
achievement of the organization goals.

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References

1. Basu, R. (2015). Managing Projects in Research and Development. Gower publishing, 2015
2. Gamble, R. H. (1995). Inside outsourcing. Corporate Cash flow, 16(8), p. 2–14.
3. Yang C, Huang JB. A decision model for IS outsourcing. International Journal of Information
Management 2007; 20:225–39
4. Adler, T.R. (2013), the Swift Trust Partnership: A Project Management Exercise: Investigating
the Effects of Trust and Distrust in Outsourcing Relationships. Journal of Management
Education, Vol. 29, No 5, pp. 714 – 737.
5. Anikin B A and Rudaya I L (2014), Outsourcing and out staffing: high technologies of
management. Moscow: Infra-M
6. Aron, R.,Clemons, E. K.,and Reddi, S. (2005). 'Just right outsourcing: Understanding and
managing risk', Journal of Management Information System,Vol. 22,No.2,pp.37-55.
7. Barthelemy, J. (2003) The Seven Deadly Sins of Outsourcing Academy of Management
8. Executives Vol.17.No 2 PP 87-98
9. Delphine Francoise et al., How does the Banking Industry choose to outsource events?
10. Fan, L. L. Ramachandran S., Wu Y. H. and, Yue Z. N. (2006), “Outsourcing in business,
Journal of Information Technology Management” Vol 2, No 3 pp. 12-13.
11. Fan, Y. (2000) Strategic Outsourcing: Evidence from British Companies, Lincoln school of
management, pp. 213-219.
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13. Gonzalez, R., Gasco, J. and Llopis, J. (2005). “Information systems outsourcing reasons in the
largest Spanish firms,” International Journal, Vol. 25 No. 2, pp. 117-36.
14. Lacity M., Willcocks L., (1995). “Interpreting Information Technology Sourcing Decisions
from a Transaction Cost Perspective: Findings and Critique”, Accounting, Management and
Information Technology, 5, 3/4, pp. 204-244
15. Ngwenyama, OK & Bryson. N (1999), ’Making the information systems outsourcing decision:
A transaction cost approach to analyzing outsourcing decision problems', European Journal of
Operational Research, vol. 115, no. 2, pp. 351 - 367.
16. Maynard, A. (2006). Outsourcing 101 - A Primer: Next press USA. Retrieved February,

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17. 2015, from Next press USA: http://www.theoutsourcerzone.com.
18. Meresea M. (2007), “Outsourcing in Ethiopia”, MA Thesis, Addis Ababa
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of Operations & Production Management”, Vol. 24 No. 7, pp. 688–700.
20. Aron, R.,Clemons, E. K.,and Reddi, S. (2005). 'Just right outsourcing: Understanding and
managing risk', Journal of Management Information System,Vol. 22,No.2,pp.37-55.
21. Nicholas Beaumont and Amrik Sohal. (2004). Outsourcing in Australia. International Journal
of Operations & Production Management, Vol. 24 No. 7, pp. 688–700.
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Business Review, May/June, pp. 77-91.
23. Perunovic, Z., Pedersen J., (2007). "Outsourcing process and theories”, Proceedings of the
POMS 18 Annual conference, Dallas, Texas, U.S.A.
24. Pollitt. C. and Bouckaert. G. (2000). Public Management Reform: A Comparative Analysis,
Oxford University Press: New York.
25. Potkany, M. (2011), Personnel outsourcing processes. E+M Ekonomie a Management, 4, 53 –
62. 137
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implement a successful outsourcing process. Kogan: Page Limited
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28. Implement a Successful Outsourcing Process.
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236. “Service Outsourcing Management Option Study (2009)”
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outside Journal of Leadership &Organizational Studies, Vol. 10, No. 1, pp. 23-34
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Regulatory Simplification Division

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34. Thompson, A.A., Strickland, A.J. and Gamble, J.E. (2008).Crafting and executing strategy: The
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Appendix I: Questionnaire for key informant

Dear Respondent,

My name is Fitsum Hailemariam. I am a student in St Marry University. I am conducting a research

on the topic “opportunities and Challenges of Human Resource Outsourcing in Ethiopia” for
partial fulfillment of the requirement of Master in Business Administration. Hence, the purpose of
this questionnaire is to collect primary data from LonAdd Outsourcing Service Provider and
Dalhousie Service Recipient. As your valuable information is crucial for the success of the study,
I kindly request you to take a few minutes to fill the questionnaire. Your response for all questions
will be used only for academic purpose and will be kept confidential.

Section I: General Information

Please put a tick (√) mark in the box of your response for the following questions.
1. Gender: Male
Female

2. Age: 30 years & below 31-40

41-50 51 and above

3. Educational Level: High School MSC/ MA

Diploma Above
Degree

4. Which organization do you belong?

LonAdd Dalhousie

5. What is your role in the organization?

6. How long you been in the organization?

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 III. Key Informant Interview: (Service provider)

3.1 What is outsourcing, in light of its desirability for organizations and employee? For which
organization outsourcing is good? Private, NGOs or government business types).
3.2 When was Ethiopia commenced outsourcing? Is enabling environment, is it trending up/down?
3.3 What benefits outsourcing brings to organizations? cost, strategic focus etc?
3.4 In your opinion, how are employees perceiving outsourcing? Commitment & ownerships?
3.5 What is the best model for performance management? Should it be service provider?
Recipient? or joint?
3.6 Are there conducive policy and legal formwork?
3.7 Do you know business/sectors that outsourcing of HR is not desirable for?
3.8 What is the service charge or management fee from outsourcing?
3.9 How do you compare the challenges and benefits before and after outsourcing?
3.10 What prospects for HR outsourcing in Ethiopia?
3.11 What do you advice/ recommend to employers, service providers employees and
government?

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Appendix II: Questionnaire for employees

Dear Respondent,

My name is Fitsum Hailemariam. I am a student in St Marry University. I am conducting a research

on the topic “opportunities and Challenges of Human Resource Outsourcing in Ethiopia” for
partial fulfillment of the requirement of Master in Business Administration. Hence, the purpose of
this questionnaire is to collect primary data from LonAdd Outsourcing Service Provider and
Dalhousie Service Recipient. As your valuable information is crucial for the success of the study,
I kindly request you to take a few minutes to fill the questionnaire. Your response for all questions
will be used only for academic purpose and will be kept confidential.

Section I: General Information

Please put a tick (√) mark in the box of your response for the following questions.
1. Gender: Male
Female

2. Age: 30 years & below 31-40

41-50 51 and above

3. Educational Level: High School MSC/ MA

Diploma Above
Degree

4. Which organization do you belong?

LonAdd Dalhousie

5. What is your role in the organization?

6. How long you been in the organization?

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 II. Employee Interview question, Service Recipient
2.1. What is your understanding the concept of Human Resource Outsourcing?

Very high Medium Very Low

High Low
2.2 As an employee of Dalhousie, how do you feel the service delivered by the outsourcing service
provider?
Very high Medium Very Low
High Low
2.3 Do you believe your organization needs outsourcing? Is it important for your organization,
why?

2.4 What do you think the goal and objectives of outsourcing?

2.4 Do you feel there is a reduction of cost as a result of outsourcing, can you cite example?

2.5 What is your level commitment to the organization?

2. 6 Do you feel ownership of your organization? Or you feel otherwise?

2.7 What challenges have been encountered with this service provide? Insurance claim, contract
agreement and training?

2.8 Could you tell me how is performance managed?

2.9 Could you enlist administrative and legal challenges you have been facing?

2. 10 Do you recommend outsourcing in future?

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Appendix III: Service Recipients Questionnaire

Dear Respondent,

My name is Fitsum Hailemariam. I am a student in St Marry University. I am conducting a research

on the topic “opportunities and Challenges of Human Resource Outsourcing in Ethiopia” for
partial fulfillment of the requirement of Master in Business Administration. Hence, the purpose of
this questionnaire is to collect primary data from LonAdd Outsourcing Service Provider and
Dalhousie Service Recipient. As your valuable information is crucial for the success of the study,
I kindly request you to take a few minutes to fill the questionnaire. Your response for all questions
will be used only for academic purpose and will be kept confidential.

Section I: General Information

Please put a tick (√) mark in the box of your response for the following questions.
1. Gender: Male
Female

2. Age: 30 years & below 31-40

41-50 51 and above

3. Educational Level: High School MSC/ MA

Diploma Above
Degree

4. Which organization do you belong?

LonAdd Dalhousie

5. What is your role in the organization?

6. How long you been in the organization?

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 III. Key Informant Interview: (Service recipients)

3.12 What is outsourcing, in light of its desirability for organizations and employee? For which
organization outsourcing is good? Private, NGOs or government business types).
3.13 When was Ethiopia commenced outsourcing? Is enabling environment, is it trending
up/down?
3.14 What benefits outsourcing brings to organizations? cost, strategic focus etc?
3.15 In your opinion, how are employees perceiving outsourcing? Commitment & ownerships?
3.16 What is the best model for performance management? Should it be service provider?
Recipient? or joint?
3.17 Do you know business/sectors that outsourcing of HR is not desirable for?
3.18 How do you compare the challenges and benefits before and after outsourcing?
3.19 What prospects for HR outsourcing in Ethiopia?
3.20 What do you advice/ recommend to employers, service providers employees and
government?
3.21 Why you outsourced your HR function? Is for cost saving, legality issue or labor risk
transfer?

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