"Outsourcing and Human Resource Management: an International Survey" edited by Ruth Taplin, Routledge

Reviewed by James Brewer

Review:

For all the fuss and emotion over outsourcing, the learned literature on the subject has been scant, writes James Brewer. Vital aspects including the human resource issues and the legal and insurance implications have been barely touched on. Outsourcing goes beyond the question of simply a search for cheaper labour, and its teething problems are forecast to pile up legal costs in the US alone of $500m.

In her latest book, Ruth Taplin, director of the Centre for Japanese and East Asian Studies, has assembled analysis from a dozen experts on this widely-used strategy deployed by organisations including banks, insurers, multinational companies and even small- and medium-sized enterprises. The book comes up with news on some surprising developments, such as the trend to insourcing in Europe. This brings people into a business to work alongside permanent employees, with adjustments according to workflow.

One of the strengths of the book is its international reach, encompassing insurance requirements, operational management and recruitment in the context of the financial services, automotive and IT industries of Japan, North and South Korea, South Africa, Mexico, Eastern Europe, China, India and elsewhere. Prof Taplin insists that outsourcing constitutes a new historical phase in global production and the global division of tasks. She warns that too often outsourcing is seen as a process that can be universally applied while ignoring the country-specific and crosscultural issues.

Risk assessment and an understanding of enterprise risk management are vital. Objectives do not have to be too ambitious, but they have to be clear - there have been enough corporate missteps in the past few weeks to drum in that lesson, but more company-shaking bungles come to light every day.

In 2005, McKinsey carried out a study of 30 outsourcing deals worth $20bn, and up to half of them failed to deliver the anticipated value. Cint Kortmann, an advocate of insourcing who has run schemes serving insurance and banking businesses that would otherwise employ enough staff fulltime to cope with peak loads, says there is an increasing need for talents in the global market, yet a decreasing set of organisations that provide the "nursery facility".

This is certainly a theme becoming increasingly familiar to the marine, insurance and legal components of our readership. He argues: "If human resources professionals can overcome their need for 'ownership' of employees, insourcing may be just the answer they are looking for."

Mr Kortmann founded his own company, Talent&Pro, in 1998 to insource graduates into insurance, pensions and banking, and has built it into a service with turnover of €25m ($37m) by bringing in people to carry out both complex and straightforward tasks while the rest of a company gets on with its core activities.

Former Lloyd's broker Oliver Prior, a consultant to FirstCity Partnership, offers what must be one of the best round-ups to date of the risk aspects. It would be naïve, he emphasises, for a major bank to assume that its risks can be transferred to a data-processing centre in Asia. A bank outsourcing a function continues to carry the reputational and legal risk in the view of its clients and regulators.

Even the best indemnity agreements can be worthless if there is inability to enforce them or to obtain redress, says Mr Prior, whose career has included posts at all the top brokerages of Sedgwick, Aon and Willis.

It is almost impossible for an outsourcer to secure insurance in their own name that will guarantee service levels - so the onus for a third-party guarantee should be placed during the tendering phase on the prospective provider of the services, says Mr Prior in the course of his invaluable treatise on the pitfalls.

(This review was produced in collaboration with the Journal of Interdisciplinary Economics.)