Outsourcing Recruitment for SMEs
A study on the Influence of Transaction Costs and Competitive Advantageson the Outsourcing Decision in SMEs
Purpose Master Thesis
Study Business administration – Small Business and Entrepreneurship Student Hilco Boerlage
Supervisor Chris Streb Version v1.8
Index
Introduction...3
Literature Review...5
Literature Review Methodology...5
Human Resources...6
HRM...8
Outsourcing HRM for SMEs...11
Conceptual Model...15 Research Propositions...17 Research Methodology...19 Sample...23 Time Dimension...24 Analysis...24 Findings...27 Discussion...31 Conclusion...38 Further research...40 Limitations...41 References...42
Appendix A – Key Words Literature Review...47
Appendix B – Interview Guide...50
Interview Guide...50
Translated Interview...53
Appendix C – Design Stages of Interview Guide...56
Step 1...56
Step 2-4...57
Step 5...58
Appendix D – Codebook...59
Appendix E – Coding of In-Depth Interviews...62
Introduction
Human resource management (hereinafter: HRM) for Small and Medium Enterprises (hereinafter: SMEs) is not an extensively covered topic in academic research (Dabic, 2011; Sels et al., 2006). Although this is a relatively new field, scholars already established some positive influences HRM practices have on the success of SMEs (Cooper and Burke, 2011; Sels et al., 2006). Along with these advantages, several threats to the SMEs performance were identified (Cooper and Burke, 2011; Sels et al., 2006). Due to the limited research on, and the hinted importance of HRM for SMEs, this research area proposes an interesting area for a master thesis.
Accepting positive effects of HRM on SMEs as a premise in this study, several problems arise when the question of how to best implement HRM practices is broached. These issues seem to be the basic problems SMEs face in almost all business strategy related matters. Amongst others, the costs of implementing strategic solutions may be too high and the owner/ manager may lack experience and expertise (Cooper and Burke, 2011). Most of these problems can be derived from the fundamental characteristics of a typical SME such as the lack of available resources and the characteristics of the owner/manager.
One possible solution to the lack of resources and experience and expertise of the owner/manager might be outsourcing HRM practices. Based on transaction costs, Sheehan and Cooper (2011) argue that a reduction of costs per capita can be obtained for smaller firms if HRM practices are outsourced instead of performed internally. Sheehan and Cooper (2011) also find outsourcing strategic HRM to increase organizational performance for small firms. Applying the most dominant characteristic of a SME, its size, to the theories mentioned above, outsourcing HRM presents itself as an alternative for developing internal HRM practices for SMEs.
This study proposes an addition to theory, by adding the potential influence of competitive advantage to the already described influence of transaction costs. Combining the interesting and relatively unknown field of outsourcing of HRM for SMEs and the two proposed influences, this study explores the possible causal link between both transaction cost and competitive advantage and the decision to outsource recruitment in SMEs.
Within a typical firm, the HRM practices can be divided into several different practices. To narrow the scope of this thesis, the subdivision recruitment will be the focus of this study.
Literature Review
This master thesis focuses on the outsourcing decision of HRM for SMEs. This focus has been selected after an extensive literature review. This chapter will discuss the literature which was researched and determined relevant in light of the final research focus. The structure of this chapter is greatly comparable to the research itself; starting of with a broad scope which will narrow during the research towards a final gap in literature. However, to clarify the method of research, this chapter starts with a description of the research methodology used during the literature review. After the description of the literature review methodology, human resources are discussed. Third, focusing on the management of these human resources, HRM is introduced by describing literature concerning HRM in general. Fourth, focusing on SMEs, literature on the practices of HRM within SMEs is given. Fifth, as natural characteristics of SMEs are identified as negative influences withholding SMEs to introduce HRM and enjoy its potential positive results, outsourcing is introduced and discussed as a means to overcome these obstacles. Within this discussion, the observation is made that literature on the outsourcing of HRM for SMEs is mostly based on transaction costs. Building on this observation, the concept of competitive advantage is proposed as a potential additional influence on the outsourcing decision.
Literature Review Methodology
The search of literature is based on a pre-defined research method. This method consists of three concurrent steps in which the thesis introduction is utilized as a starting point.
In order to conduct a feasible and yet extensive literature study, the sources used for this research are based on those which are made available to students by the University of Groningen. The results were limited to books and articles. Journals were excluded from the results as individual relevant publication in these journals would be found based on the article search. The results where limited to Dutch and English papers.
outsourcing decision of recruitment for SMEs, other relevant literature which is amongst the 5842 results will probably also be found in the search concerning the consecutive sub-topics.
Using the limited sub-topics as starting point, the literature research is conducted employing a three step method. The first step consists of defining key words per subject. These key words are drafted using the subject name and the above described limitations. These key words are entered in the search engine of the University of Groningen called Picarta and the results are further limited by date of publication, title, and abstract. The limitation on date is defined as papers that were published over de last 15 years. This limit is established in order to exclude outdated research and theories. The existence of important and sometimes area defining papers that may transcend this date limitation is recognized. These papers will be included in step 3. Based on the date limit, the author will first make a selection based on the title of the paper and within these results, select papers by the content of their abstract. The decision to include or exclude a paper was made using the limitations which are also used to define the key words. Final inclusion or exclusion based on title and abstract will result in a base of literature that will be studied thoroughly and, if deemed relevant, be used in the literature study.
In step 2 the process of step 1 will be repeated using key words that were found in the relevant papers resulting from step 1. Thus expanding the area of research that was previously limited to the thesis proposal. This will result in a larger and more diverse body of research. Consequently, step 3 will be performed in which all research deemed relevant in step 1and 2 is studied in order to establish if there is relevant material that was not found during step 1 and 2. This can be material that fell outside of the set limitations for example due to the age of the publication or the absence of relevant key-words.
Based on these steps, a body of literature is found on which a thorough literature study will be performed. Consecutively, a sound research proposals are derived and a conceptual model is presented.
A complete overview of the key words and limitations used per topic is given in appendix A.
Human Resources
of a firm's available knowledge, skills, and abilities is referred to as its human capital (Hayton, 2005). With human capital in mind, handling human resources not only constitutes of the basic management of the workforce by recruiting, motivating and retaining employees, but also encompasses handlingthe human capital.
The importance of human resources has been described by several studies. Several decades ago, Becker (1964) already concluded that there is a positive relationship between investing in human capital and the productivity of the employees. This relationship, described by the author as the human capital theory, divides human capital in three separate characteristics employees have; knowledge, skills and abilities. More recent research finds human capital to be an intangible resource which is unique to the firm and difficult to copy by competitors (Dabic et al., 2011). Therefore, aligning human capital with the goals of the firm may positively influence the firm's competitiveness. Mosakowski (1998) states the importance of 'the right person for the job' with human resource related organizational parameters such as which employee controls the decision making process or bears the risk directly influencing the organizational efficiency. In a different study, Golhar and Desphande (1997) discuss the importance of firms being able to recruit and retain, and thus maintain, employees. They state that small firms value the handling of human resources as the second most important task of management. However, the authors also conclude that the importance of human resources is often not recognized by management. Other functional areas within the firm such as finance and marketing receive far more attention. Therefore, although the importance of human resources is acknowledged by research, Golhar and Deshande (1997) find that management has yet to grasp this importance.
Reviewing the impact of human resources within SMEs, literature seems to provide positive as well as negative effects depending on the amount of resources invested in managing these human resources. Most research agrees there is a large positive potential for firms when actively engaging in recruitment, retaining, and training of personnel (Becker, 1964; Golhar and Desphande,1997; Hayton, 2005; Mosakowski, 1998). Furthermore, considering the indivisibility of human resources (Dabic et al., 2011), human resources affect the competitiveness of a firm.
resources. Furthermore, the division of labour in small firms is often unclear, thus rendering investment in specialization of employees impractical (Katz et al., 2000).
Klaas et al. (2000) find SMEs in a disadvantaged position when competing head-on with larger firms for the best employees. SMEs are disadvantaged in their possibilities to offer competitive packages to prospective employees and thus attract and retain employees. Furthermore, the authors suggest that SMEs often lack the expertise needed to successfully handle human resources. This lack of expertise is explained by Klaas et al. (2000) as a result of the size of SMEs. Due to their small size, SMEs often have few employees to spread the costs of training a human resource expert or department within the firm. Therefore, the cost of human resource training human resource experts is relatively high for SMEs. This disadvantage is not shared by larger firms which are able to divide the human resource handling costs by more employees and thus see their relative costs lowered by a scale advantage.
In conclusion, research concerning human resources in SMEs finds both possibilities and threats, both of which are often underestimated by management. Challenges regarding human resources handling for SMEs arise due to their scale disadvantages (Klaas et al., 2000) and their lack of resources (Katz et al., 2000). Most SMEs lack resources to compete with larger firms in recruiting and retaining employees. These disadvantages are based on characteristics which are common for most SMEs (scarce available resources, scale disadvantages).
HRM
HRM is an umbrella term concerning all activities related to the management of employment relationships in a firm (Dabic et al., 2011). The generic functions of HRM include selection, appraisal, promotion, and compensation (Tichy et al., 1982). Due to the previously stated importance of human resources, the research on HRM has been extensive. The prevailing opinion is that the strategy behind HRM plays a major part in the overall competitiveness of a firm (Snell et al., 2002, Barrett & Mayson, 2007).
the importance of bundles of HRM practices was acknowledged. The prevailing theory in this era was that of internal and external fit (Baird and Meshoulam, 1988). Internal fit referring to the coordination of all HRM practices with each other. External fit referring to the coordination of all HRM practices with the overall strategy and other practices of the firm. The third era emphasizes the learning ability of the employees. This era fully recognizes the competitive advantages of the intangible resource human capital. Following this recognition, overall firm strategy should have HRM as most important component and HRM practices should focus on the creation and management of intellectual capital (Snell et al., 2002).
In the current HRM research era, most literature agrees that although competitors can often obtain the same hardware and software used by other firms, it is much more difficult to obtain the capabilities and collective knowledge found in a firm's organizational practices, routines, and systems (Oliviera, 1999). Thus, in combination with the available systems and technologies, employees themselves form the basis of a firm's competitive competencies (Prahalad and Hamel, 1990; Dyer and Reeves, 1995). Investments in employees are thus likely to result in an increase in the competitive advantage of the human resources (Huselid et al., 1997). Often, firm management agrees with current research and identifies employees to be a source of competitive advantage (Katz et al., 2000).
Although current research agrees on the influence of HRM on the competitiveness of a firm, literature has taken two separate stances in the debate about the best implementation of HRM. On one side, 'high performance work practices'(Huselid, 1995) are identified as HRM practices which obtain high results when implemented. Thus, according to this theory, best overall practices which are not dependent on context exist. Chandler and McEvoy (2000) find that although several authors agree with 'best practices', literature has yet to identify these practices. The authors find that most studies identify different sets of best practices. Countering the single best practice approach, the contingency approach is offered. This approach suggests that best HRM practices exist for a given context (Cappelli and Crocker-Hefter, 1996). Thus, according to this approach, different HRM practices yield the best results in different contextual settings.
research of De Saa Perez and Garcia Falcon (2004) who find HRM practices such as acquisition and development of a firm's human capital to positively effect the employee skills.
Some research concerning the effects of HRM reveals inconclusive results. Chandler and McEvoy (2000) fail to establish a direct relationship between incentive compensation and organizational performance. Another example is found in a literature study on the influence of training on firm performance (Storey, 2004). This research fails to identify a clear positive influence between training and firm performance. However, Storey (2004) attributes this failure to the failure of firm management to properly make use of training as a HRM practice in their firm. This may be one of the problems facing researchers today. Although research is identifying HRM practices, the successful implementation of these practices has never been identified as an influence on the overall performance. Thus, ambiguous results may simply be a result of a failure on the part of management of firms within the sample to successfully implement an otherwise successful HRM practice.
HRM activities through their influence on the implementation of these activities. Simply said, when management has professional HRM experience, implementing strategic HRM activities is far more likely to lead to success. Thus, not only is it important for firms to implement strategic HRM but also to be able to implement strategic HRM using professional HRM skills and abilities.
Although some research only defines the success of strategic HRM as an increase in firm efficiency, productivity or effectiveness (Ichniowski, 1990; Chandler and McEvoy, 2000), other research defines the influenced areas of firms which, when positively influenced by strategic HRM, increase the overall efficiency, productivity and effectiveness of the firm. For example, Huselid et al. (1997) found no direct relationship between HRM and firm performance. The authors, however, did find a significant relationship between strategic HRM and employee productivity, cash flow and market value. Moreover, the research identified HRM as the tool to select and recruit highly qualified employees and train employees within the firm to create the unique skill sets necessary. Other research relates strategic HRM with employee turnover rates (Dyer and Reeves, 1995), employee involvement and employee motivation (Kidwell and Fish, 2007). Thus, strategic HRM enables a firm to improve its human resources through recruitment, training and maintaining, which is a imitable and often invisible or intangible competitive advantage which enhances the firm's overall capabilities (Huselid et al., 1997; De Saa Perez and Garcia Falcon, 2004).
In summary, throughout the last decades, HRM literature has defined and redefined concepts and theories about human resource management. Currently, HRM is seen as a potential competitive advantage. Although, considering HRM practices, both 'best practices' and the 'contingency approach' theories are still widely debated amongst scholars, positive effects are found. As a substantial sub-category of HRM research, strategic HRM is defined as bundles of strategically aligned HRM practices which complement one another and exponentially increase the overall HRM effectiveness.
Outsourcing HRM for SMEs
Outsourcing HRM
Outsourcing is defined as 'the performance, by outside parties on a recurring basis, of HR tasks that would otherwise be performed in-house' (Greer et al., 1999). For large firms, the decision to outsource certain HRM practices results from the influence of driving forces such as downsizing, rapid growth or decline, globalization, increased competition, and restructuring (Greer et al., 1999). The most important derivative of these driving forces is the need for cost saving. Most firms utilize outsourcing as a tool to save costs on HRM (Greer et al., 1999). This is especially true for SMEs which do not have the scale advantages large firms have in spreading the costs of HRM practices and experts (Klaas et al., 2000). Another important reason why firms outsource HRM is the need for HRM expertise. HRM vendors often have many HRM experts and lots of HRM experience available (Csoko,1995; Greer et al., 1999) which can be employed to build successful HRM practices.
The downsides to the outsourcing of HRM are multiple. First, the potential cost saving function is not always obtained (Greer et al., 1999). Second, vendors may demonstrate opportunistic behavior (Sheehan and Cooper, 2011) which might result in unreliable services or higher costs. Also, as dependence on vendors grows, internal HRM knowledge and experience may decrease over time thus leaving the firm without the necessary HRM knowledge in case the vendor fails to provide the needed services or the relationship with the vendor is not continued (Klaas et al., 2001). Furthermore, firms will be unable to develop distinctive human resources which lead to an intangible competitive advantage as the services of the vendor are available to competitors (Ulrich, 1997). Last, outsourcing will lead to inefficiencies as vendors are unfamiliar with firm culture and policies and will be unable to fully tailor HRM practices to the case specific needs (Ulrich, 1997), at least within a reasonable budget (Connor and Prahalad, 1996).
Literature about the managerial disposition on the make or buy decision is undecicive. Outsourcing HRM entails outsourcing the operational tasks necessary to perform HRM in-house and thus clears the schedule of managers and enables them to spend more time on the planning and strategy behind HRM (Stroh and Treehuboff, 2003; Bowen and Ostroff, 2004; Lawler et al., 2004). This consequence is often documented as one which is popular with managers (Klaas et al., 2001; Dickmann and Tyson, 2005). Different research however, finds managers resisting the outsourcing of HRM as outsourcing is viewed as a threat to the current practices (Dell, 2004). Evidence even finds managers resisting the outsourcing of HRM with political power (Young, 2007). The buy-in of managers thus seems not completely ensured.
Most literature on the outsourcing of HRM for SMEs have taken a transaction costs approach. According to this approach, organizational decisions can be based on the effects of the costs of interactions between different stakeholders of a firm (McGee et al., 2005). Transaction costs are the comparative costs of forming and maintaining the contractual and employment relationship, the unit price of the good or service and the costs of monitoring quality and performance (Dickmann and Tyson, 2005). The transaction costs approach on the outsourcing decision is best described by Lepak and Snell (2002) as: "when internal costs equal or excel open market costs, firms should examine outsourcing as a possibility". Klaas et al. (2000) use transaction costs to discuss the possible reductions on costs gained by the use of outsourcing. For example, the use of economies of scale and the more effective access to HRM experience and HRM expertise. The authors also utilize transaction costs to find several possible costs increasing consequences of outsourcing, such as the opportunistic behaviour of vendors. Sheehan and Cooper (2011) employs transaction costs to describe the differences between SMEs and large firms in their HRM costs and the possible influences which may lead from the outsourcing of HRM practices. Moreover, the author finds potential scale advantages for SMEs which may reduce the competitive advantages enjoyed by large firms already utilizing economies of scale. Furthermore, Arthur (1995), Lepak and Snell (2002), and Greer et al. (2004), also find potential scale advantages according to transaction costs. Some authors also find potential downsides, or increasing effects on transaction costs, associated with the outsourcing of HRM (Klaas et al., 2000). Predominantly, the outsourcing of HRM practices related to strategy is found to be counterproductive (Greer et al., 2004). Lepak and Snell (2002) find a difference between idiosyncratic and generic HRM practices. The latter may be outsourced according to the transaction costs theory whilst the former will increase transaction costs upon outsourcing beyond the costs endured when performing the HRM practices in-house. This argument is also found by Klaas et al. (2001) who conclude that the relation specific costs required to outsource idiosyncratic HRM practices reverse the positive potential scale effects.
Competitive Advantage and the Outsourcing of HRM for SMEs
In general, a make or buy decision will be influenced by several factors. Whilst the theory of transaction costs is one potential influencing factor, this is probably not the only influence on the decision to make or buy HRM. A different, commonly used influence in the make or buy decision making is competitive advantage (De Saa Perez and Garcia Falcon, 2004).
create unique and intangible, and thus imitable, human capital. Adding to the importance of human resources as competitive advantage, Becker and Gerhart (1996) argue that traditional sources of competitive advantage are increasingly imitable, with the exception of social structures, thus identifying HRM as an increasingly important tool to leverage human resources as a competitive advantage. This is underscored by Snell et al. (2002) who also find human resources to be increasingly important as competitive advantage.
Direct control over resources and capabilities create competitive advantage (Peteraf, 1993). Lepak and Snell (2002) find that firm's profit optimally from unique and valuable capabilities when they keep these internal. Moreover, Mosakowski (2005) states that a firm's competitive advantages are determined by their internal resources. Therefore, core competences should never be outsourced (Greer et al., 1999).
Thesis Focus on SMEs Outsourcing Recruitment
Conceptual Model
Figure 1- conceptual model
This conceptual model reflects the challenge decision makers face developing their approach to recruitment. They are confronted with the dilemma to either outsource their recruitment or perform their recruitment in-house.
Research Propositions
Large firm and non-size related literature (which is dominantly researched in large-firms) concerning the outsourcing of HRM finds transaction costs and competitive advantage as two of the major influences on the final make or buy decision. This result has never been tested for SMEs. Although it is generally accepted that SMEs are not just smaller versions of large firms, the research on the HRM outsourcing decision of SMEs is limited to a handful of side notes in publications on HRM in SMEs and one paper on the impact of size on the outsourcing intentions of firms (Sheehan and Cooper, 2011). This last publication was only able to contribute to this area of research with a positive link between outsourcing and perceived financial performance in small firms.
Transaction costs
Based on the suggestion of Sheehan and Cooper (2011) that SMEs can employ outsourcing as a solution to the high transaction costs following their scale disadvantage regarding HRM, and thus recruitment, the first and second propositions are formed.
Proposition 1:
HRM decision makers in SMEs view outsourcing as a cost saving possibility.
Proposition 2:
HRM decision makers in SMEs view outsourcing as a strategic tool to leverage scale disadvantages.
Competitive advantage
Literature on HRM and recruitment often finds that recruitment is a competitive advantage of the firm (Koch and de Kok, 1999; Katz et al., 2000). Koch and de Kok (1999) suggest two mechanisms which prevent the diminishing of competitive advantage: path dependence and routines. Path dependence stands for the unique combination of investments a firm has made over time that has led to the current established procedures. Routines refer the development of firm specific behaviour through formation and sharing of tacit knowledge. These two mechanisms lead to the following two propositions:
Proposition 3:
Proposition 4:
SMEs will not outsource recruitment when in-house recruitment routines are already developed.
Combining transaction costs and competitive advantage
With both transaction costs and competitive advantage as influences on the make or buy decision concerning recruitment, SME decision makers are likely to make certain decisions when focusing more on one or the other. Literature on HRM in SMEs have both found SMEs to face a scale disadvantage and that the HRM practices of SMEs are often a competitive advantage (Koch and de Kok, 1999; Katz et al., 2000). Based on these two findings, the last two propositions are proposed:
Proposition 5:
When an SME decision maker concerned with the make or buy decision regarding recruitment focuses on the costs, recruitment will be outsourced
Proposition 6:
Research Methodology
Literature on research methodology widely agrees on the distinction between quantitative and qualitative research. Quantitative research is based on quantitative data such as numbers and figures which are relatively easy to interpret statistically whereas qualitative research relies on qualitative data such as words, sentences, pictures, non-verbal communication etc., which need interpretation and in-depth analysis by researchers to reach conclusions (Bernard, 1996; Blumberg et al., 2008; Creswell, 2009). There are several opinions regarding the best practice for certain research. These opinions can be divided between literature which clearly categorizes several research forms and divides these between quantitative and qualitative research methods (i.e. Creswell, 2009) and literature which finds quantitative and qualitative research not equally exclusive and that 'there are no predeterminates for the appropriateness of either a qualitative or a quantitative study' (Blumberg et al., 2008). Although, on first sight, this difference seems enormous, the principles behind these differences are based on the same premises. Both opinions provide evidence of the division between data and analysis made by Bernard (1996) and Green (2001). Also, both opinions integrate the possibility of mixed methods. One example is Moret et al. (2007), who elaborates on the possibility to integrate quantitative analysis in qualitative research.
The distinction between data and analysis is important in the design of the research method. Both subjects are often described separately in literature (McLellan, 2003; Mack et al., 2005; Guest et al., 2006; Blumberg et al., 2008; Creswell, 2009). Therefore, each is discussed separately below.
Data
In order to be able to analyse data, the data must first be gathered. And before gathering of the data, the characteristics of the data-gathering must be defined. Blumberg et al. (2008) and Creswell (2009) find several characteristics that need to be defined. These are, summarized: Purpose, Method of Data-Collection, Sample, and Time Dimension. Each characteristic will be discussed separately below.
Purpose of the Study
The purpose of this study is to explore the possible influences of both transaction costs and competitive advantage on the decision to outsource recruitment in SMEs.
Data-collection
purpose of the data (Mack et al., 2005). With a study aiming to prove a hypothesis, quantitative data is preferred. When the purpose is not solid confirmation but more causal inferences and focus on exploring possibilities, a broader scope is possible with qualitative data (Maxwell, 2004). As the purpose of this study is exploration of a possible causal link, a qualitative data collection procedure will be employed.
Maxwell (2004) finds three common used qualitative data collection procedures. These are: Participants Observation, In-Depth Interviews, and Focus Groups. Creswell (2009) adds Case Studies and Grounded Theory to this list. As this study focuses on explaining why SME HRM decision makers make certain decisions, the use of in-depth interviews best fits the purpose of the study. In-depth interviews 'are optimal for collecting data on individuals’ personal histories, perspectives and experiences, particularly when sensitive topics are being explored' (Maxwell
2004).
The method of interviewing different decision makers will enable data gathering on the views and arguments of the decision maker as well as past events. Since the data collection depends solely on the information provided by the interviewees, there is a possibility that vital information is not discussed. The use of follow-up interviews after the initial analysis enables inclusion of previously undiscussed relevant topics.
Interview Guide
During the design of the interview guide, several raw variables are drafted based on the propositions. These variables are given in Table 1 (the complete design according to the steps of Emans (2008) is given in appendix C).
During the design of the raw variables, indicators are utilizes. Indicators can be defined as raw variables that are not conceptual variables but relate to the conceptual variable enough to be able to represent it. Data on the indicator will thus enable inferences regarding the conceptual variable.
Raw Variables Based on Conceptual Variables
No Conceptual Variable No Indicator/raw variable
1 1
2 The views the interviewee states he or she has
2 3
4
5 The views the interviewee states he or she has
3 6
7
4 8
9
5 10 Reasons why the interviewee has opted to outsource recruitment in the past 11 Reasons why the interviewee would opt to outsource recruitment
12
6 13 Reasons why the interviewee has opted to outsource recruitment in the past
14 Reasons why the interviewee would opt to outsource recruitment 15
16
Table 1: Raw Variables Based on Conceptual Variables SME decision makers' view on
outsourcing of recruitment as costs saving possibility
The degree to which the interviewee has knowledge about costs savings of outsourcing of recruitment
SME decision makers' view on outsourcing of recruitment as a strategic tool to leverage scale disadvantages
The degree to which the interviewee is aware of the scale disadvantage leveraging characteristics of outsourcing of recruitment
- The interviewee would outsource recruitment if this would enable access to expertise which is available for larger competitors
- The interviewee would not outsource recruitment if this would enable access to expertise which is available for larger competitors
SMEs decision to outsource unique recruitment
The degree to which the interviewee takes the differences between the firms recruitment and the recruitment of its competitors into account in the consideration of the outsourcing - The interviewee would outsource recruitment when the recruitment of his or her firm would differ from the recruitment of competitors
- The interviewee would not outsource recruitment when the recruitment of his or her firm would differ from the recruitment of competitors
SMEs decision to outsource exsisting recruitment routines
The degree to which the interviewee takes the existing recruitment routines into account in the consideration of the outsourcing
- The interviewee would outsource recruitment when there are existing recruiment routines in the firm
- The interviewee would not outsource recruitment when there are existing recruiment routines in the firm
SME decision makers' decision to outsource recruitment based on costs
- The interviewee would outsource recruitment if costs of outsourcing are lower than performance in-house
- The interviewee would not outsource recruitment if costs of outsourcing are lower than performance in-house
SME decision makers' decision to outsource recruitment based on competitice advantage
The degree to which the interviewee would consider outsourcing when recruitment directly influences the profitability of the firm
Indicators are employed to simplify the conceptual variables which are difficult to translate into interview questions. More than one indicator is utilized per conceptual variable in an attempt to simplify the variable without a decrease in the the quality of the variable.
Different techniques are used to develop the indicators. Indicators 1, 2, 3, 5, 6 and 8 are self-descriptive indicators in which the interviewees are asked to describe themselves in terms of the conceptual variable. Indicators 10 and 13, which are identical, relate to the behaviour of the interviewee in the past. Indicators 4, 7, 9, 11, 12, 14, 15, and 16 are based on behavioral intentions of the interviewee in future events. These indicators have the ability to place the interviewee in an fictional situation and gather data on the preferences and possible decisions of the interviewee regarding this fictional event. This technique is used extensively as it enables the research to gather extensive data on the views and decisions of decision makers regarding a decision which is generally not often encountered. Furthermore, indicators 15 and 16 are composite indicators with a focus on detail. These composite indicators are complementary and must be combined in the data analysis.
Both open and closed questions are used in the interview. The closed questions use field coding to note answers which can be statistically related to other interviews. The open questions rely on probing by the interviewer. In some instances, the interviewer is instructed to probe in certain directions. For example, when probing on the views the interviewee has on the cost savings of the outsourcing of recruitment, the interviewer is instructed to probe for the pros and cons. With other open questions, the interviewer is instructed to probe using a funnel technique. This technique is used to funnel the interview towards certain areas in the discussion. For example, when probing on the degree of knowledge the interviewee has on the cost savings of outsourcing of recruitment, the interviewer is instructed to go into detail (funnel) on each cost savings possibility mentioned.
During the interview, the interviewer is instructed to summarize the answers using key words and use of audio recording. The use of key word notation during the interview aids the interviewer in the structuring of the interview and probing and funneling.
Sample
The sample selection for the in-depth interviews was based on the concept of convenience sampling. Convenience sample selection requires the researcher to select the sample subjects, enabling the selection of known subjects. This selection method is one of the more inexpensive selection methods. Although this selection method will yield a relatively unreliable result in terms of population representativeness, the method can be effective in exploratory work (Blumberg et al., 2008).
The sample size of this study is also a consensus between the available time and resources, the necessity for in-depth interviewing and follow-up interviews and the purpose of the study. Within the available time and with the available resources, seven SME decision makers were found willing to participate in this study.
In-depth interviews are often conducted based on the concept of theoretical saturation (Guest et al., 2006). Guest et al. (2006) conducted research into the minimal sample size in which relative theoretical saturation will be achieved. Although this research concludes that twelve interviews are enough to reach full saturation, the basic themes and codes were present after six in-depth interviews. This sample size of seven interviewees in this interview is thus enough to yield the basic themes and codes regarding the research area.
Since this research is related to SMEs, the decision makers all represent firms which fall within the definition of SME according to the categorization of the European Union which can be found on the website of the European Union, accessible on < http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm> accessed on 26-06-2012.
The full sample is given in table 2.
No Name Function
1 Doorenbos Director of operations 2 Elkhuizen Financial director
3 Hulshof Owner
4 van Hulst HRM manager
5 Jansen Owner
6 Bakker HRM manager
7 van Nes Owner
Time Dimension
The data is collected in a period of one month in which each interviewee is interviewed one or multiple times, based on the necessity of follow-up interviews. The interviews are not designed to capture differences in the period between interviews and the study can thus be characterized as cross-sectional.
Analysis
The analysis of quantitative data and qualitative data follow the same basic steps. First, the data is put into an analysable structure (i.e. a table using software such as Microsoft Word (La Pelle, 2004) or Microsoft Excel (Meyer, 2008). Second, the data is analysed using quantitative methods such as sums, means, and deviations. Before the analysis, the qualitative data is coded to make it analysable (Bernard, 1996). Last, the information gathered using statistical methods is interpreted qualitatively by the researcher(s).
The single difference between the quantitative and the qualitative approach is that the qualitative data first needs to be coded as a preparation for the analysis (La Pelle, 2004; Meyer, 2008). This process of coding is performed based on a codebook (Ryan and Bernard. 2003; DeCuir-Gunby et al., 2011). The codebook is a collection of codes and themes. Codes are used to label sections of data (i.e. certain comments made in interviews) which represent some sort of information (DeCuir-Gunby et al., 2011). The same code will be given to each piece of data which relates to the same information. Thus enabling the analysis of this information based on the combined findings on this code. Themes are concepts which are fundamental for the study. Codes can be assigned to themes when they represent a part of the theme. The structure between themes and codes enables the data to be translated into information which is linked to the study.
Connectors, Missing data, Theory-Related Material, Cutting and Sorting, and Metacoding. The first six processes refer to the search of characteristics found or missing in the data. The last two processes refer to the analysis of the data.
Before the data can be analysed, it needs to be converted to an analysable structure since the data consists of the transcriptions of several in-depth interviews. Almost all publications on the analysis of qualitative data refer to the advantages of using computers to aid the structuring and processing of the data (La Pelle, 2004; Blumberg et al., 2008; Meyer, 2008; Creswell, 2009). The advantages are obvious in the possibility of computers to handle large databases. The software designed specifically for qualitative analysis of in-depth interview data consists of several well documented programs. The costs of these programs inhibit their use for this study. Two general-use software programs which are available for this study are proposed by literature; Microsoft Word (La Pelle, 2004) and Microsoft Excel (Meyer, 2008). When the possibilities of the two programs are compared, Microsoft Excel, which is originally a database program, enables the use of table sorting, automatic selection, and automatic sorting whilst Microsoft Word cannot provide these functions with the same ease. Therefore, the coding of the data of this study is performed using Microsoft Excel.
Name/Description
Drafting of Codebook based on the conceptual model and propositions
Data conversion into Microsoft Excell
Revision of Codebook based on first reading of data
Data coding with continued revision of Codebook
Data analysis based on Codebook
Table 3 – Five steps of interview analysis
The first themes and codes are drafted based on the propositions and the literature review. The interview guide is used for the design of the themes and codes, as this document is used to conduct the interviews and is also based on the propositions. These codes are meant to closely represent the propositions.
The transcripts of the interviews are converted to a table in Excel. Each row contains one sentence. The sentences are already coded with line numbers and the name of the speaker. This initial coding will be used later on to enable the maintainance of the initial structure of the data.
The complete data set is read before any coding is done. This enables the researcher to create an overview of the data, find any missing data and get a first sense of the information which is contained in the data. Based on this first reading, the existing theme and codes in the codebook are revised, when necessary. Also, based on the insights gained in this first reading, new themes and codes may be added.
The data set is coded based on the codebook. Every sentence is individually given one or multiple codes which identify the information of the sentence. Also, when information is found which is not represented by an exsisting code, a new code is drafted and added to the codebook. When every interviews is coded, all interviews are read again to identify any missing coding or codes which were drafted after the coding of a certain section.
Findings
The analysis of the in-depth interviews resulted in 41 codes which are used to categorize the remarks of the interviewees. These codes all identify a certain percentage of the data. The codes which were used most frequently are given below in table 4. The complete codebook is presented in appendix D. The coding of the relevant parts of the in-depth interviews is presented in appendix E.
Below, the findings are presented per topic of interest. These topics were drafted based on the frequency of code appearance (table 4 or appendix D) and the themes which were found in the codebook (appendix D). Per topic, a few quotes which underline the findings are given.
Multiple Influences
The costs of recruitment are a large factor in the decision to use outsourcing or keep recruitment efforts in-house. All interviewees refer to the costs as an influence on this decision. However, costs were not often seen as the sole decision making characteristic. Only Mr. Jansen states that he finds costs to be the decisive factor in the decision to use outsourcing. All other interviewees give evidence of other influences on the outsourcing decision. Ms. Hulshof, for example, who used outsourcing in the past, states that she will never use outsourcing again in the future. Although Ms.
Quote Name Mr. Bakker Ms. Hulshof Mr. van Hulst Mr. Bakker Mr. Jansen Table 5 – Quotes on Multiple Influences I would outsource based on a cost advantage, however, this is not why
we're outsourcing at the moment
In the past, we tried outsourcing as this seemed cheaper, boy were we wrong
I have used outsourcing as the cheapest way to buy job advertisement space and CV databases
Our recruitment partner has the network which is currenlty necessary to find the right person for the right job
When the costs of recruitment are lower when outsourced than when I do it myself, I would definately outsource recruitment
Description %
Remark about the costs of recruitment 12,46 Negative about the outsourcing of recruitment 5,78 Positive about in-house recruitment 5,47 Positive about the outsourcing of recruitment 5,17 Remark about the importance of control over recruitment 4,86 Remark about the importance of recruitment 4,71
Hulshof made the decision to utilize outsourcing based on a prospective cost advantage, the results were stated as extremely undesirable. Overall, the interviewees easily identify costs as a factor in the make or buy decision, yet profess that there are other influences which are equally or even of more importance.
Make or Buy
The number of remarks regarding a positive stance towards in-house recruitment was slightly larger than the number of remarks regarding a positive stance towards outsourcing. Furthermore, there is a fairly large difference between the number of remarks which are negative about outsourcing (5,78%) and the remarks which are negative about in-house recruitment (3,04%). Most interviewees indicated that they were most positive towards in-house recruitment. Three interviewees currently utilized some form of outsourcing and only partially utilized outsourcing. These interviewees confess the desire to keep control over the overall recruitment process in-house. Two other interviewees utilized outsourcing in the past and currently performed all recruitment efforts in-house. These interviewees also confessed the desire to keep recruitment in-in-house. However, when asked whether the interviewee would utilize outsourcing in the future, most interviewees stated this as a possibility. The main reason given for future outsourcing was cost saving. Obtaining expertise was not found to be a reason to outsource recruitment.
Cost Savings
Quote Name
Ms. Hulshof
Outsourcing is a necessity Mr. Bakker
There have to be clear advantages before I will think about outsourcing Mr. van hulst Mr. Jansen Table 6 – Quotes on Make or Buy I don't think it's possible to outsource recruitment in a way that costs are
lower than in-house recruitment which does not have a negative influence on the quality of the recruitment
I will only opt for outsourcing if there is a clear benefit over the current way I perform my recruitment
Quote Name
Ms. Hulshof Mr. van Nes Mr. van Hulst Mr. Elkhuizen Table 7 – Quotes on Costs Savings As I do most of the recruitment work myself, we have little recruitment
expenses
My outsourcing partner will want to make a profit and would be less informed about my needs than myself
As I make little use of recruitment, costs of retaining an employee or a network would be relatively high
The identified cost savings were concurrent with the scale disadvantages found in literature. The interviewees found the costs of operating a database of prospective employees and the costs of advertising for these candidates to be high. Almost all interviewees stated that costs could possibly be lowered when outsourcing was utilized. However, more than half of the interviewees currently used their own network to find new employees. This was stated to be a low cost recruitment method which could not be performed at lower costs by utilizing outsourcing. Only when this method would fail due to a depletion of possible candidates, outsourcing would be the most cost efficient recruitment method. Interestingly, most interviewees did not identify the time spent by themselves or colleagues on in-house recruitment as costs. Mr. van Hulst remarked that he was shopping around for candidates in his social circle and so he was doing most of the work off the clock.
Expertise
Obtaining expertise was also found in literature to be a possible reason to utilize outsourcing. However, during the interviews, all interviewees disagreed with this statement. Several interviewees stated that they had the necessary experience regarding recruitment in-house. One interviewee stated that he knew that companies offering outsourcing services advertised with this experience but he had never found evidence of this. This same interviewee referred to the possible advantage these firms could have in organizing assessments of candidates. This service, however, would never be cost efficient for a smaller size firm, according to this interviewee.
Importance of Uniqueness
Most interviewees found recruitment to be important for the firm. This importance was mainly
Quote Name
I think the reason of gaining expertise through outsourcing really exists Mr. van Hulst I don´t feel I´m buying something I couldn´t do myself Mr. Bakker
Table 8 -Quotes on Expertise
Quote Name
Everything would change if I were to outsource Mr. van Hulst
We won´t outsource at the moment due to the risk of losing our unique firm culture Mr. Elkhuizen Mr. Doorenbos Table 9 -Quotes on Importance of Uniqueness It is due to our very good recruitment efforts that we are able to realise the good
ascribed to the influence of recruitment on the quality of the employees. Mr. Elkhuizen stated that his current in-house recruitment method of using the social network of his employees to recruit new employees provided a social structure in the firm which would be difficult to obtain when employees were recruited through an external firm, possibly without the use of social ties between candidates. This uniqueness of recruitment was important for him. The uniqueness of in-house recruitment was also labelled important by other interviewees. Ms. Hulshof with past experience with outsourcing of recruitment found a large difference in the quality of employees obtained through outsourcing compared to the quality delivered by in-house efforts.
Importance of Control
The availability of current in-house recruitment methods was not found to be a disabler for possible outsourcing of recruitment. Most interviewees identified their current recruitment methods and still confessed to possible outsourcing in the future. However, some interviewees made reservations about retaining characteristics of the current recruitment methods. With this, interviewees confessed the fear of losing control over the quality of new employees. This loss of control was stated by most interviewees as a negative consequence of outsourcing. Most interviewees stated that they would desire to keep control over the process or at least have the final say. In one extreme case, Ms. Hulshof had not kept this control over the outsourced recruitment and the quality of her employees had fallen to a level where customers came to her complaining about her staff.
The final say needs to be controled by us Mr. Elkhuizen Ms. Hulshof
Mr. van Nes I will always keep some form of control over recruitment. Mr. Bakker
Table 10 -Quotes on Importance of Control Keeping control over the recruitment process is the most important
factor for me regardless of costs.
Discussion
In this discussion the previously presented findings will be discussed. First, as the purpose of this thesis was to explore the influences of transaction costs and competitive advantage on the outsourcing decision of recruitment of SMEs, the findings related to the conceptual model will be discussed and concluded in the confirmation of an adapted version of the proposed model. Second, due to the exploratory nature of the research, several additional interesting findings are presented and discussed in light of current research. Whilst the former findings confirm the propositions which are based on literature which is found in the literature review of this thesis, the latter findings are related to different areas of research. Therefore, new literature and research is introduced.
Influence of Transaction Costs
The possibility that HRM decision makers in SMEs view outsourcing as a cost saving opportunity was suggested by Sheehan and Cooper (2011). This suggestion is based on the transaction costs. The suggestion being that when the costs of in-house performance and the costs of outsourcing are examined, the lowest cost method will be favored.
Furthermore, literature suggests scale disadvantages as one of the most important influences on the outsourcing of recruitment by SMEs (Arthur, 1995; Klaas et al., 2000; Lepak and Snell, 2002; Greer et al., 2004; Sheehan and Cooper, 2011). As SMEs have the propensity to be small or medium in size, the transaction costs of recruitment efforts per capita are relatively high. One possible solution to the cost disadvantage of SMEs in recruitment costs might be to utilize
outsourcing. By employing a company which bundles the recruitment efforts of multiple SMEs, the recruitment costs can be spread over a larger workforce, and thus the per capita costs will be lower. Following this logic, SMEs can save costs by outsourcing recruitment efforts.
All interviewees refer to costs as a decision making influence. Thus, in concurrence with the suggestion of Sheehan and Cooper (2011), costs are established as an influence on the decision making process of HRM decision makers in SMEs regarding the outsourcing of recruitment. Also, as most remarks during the interviews are coded as remarks about costs, costs may be identified as having an important influence on the outsourcing decision.
interviewee specifically explained this logic as reason to utilize outsourcing in the past. Influence of Competitive Advantage
In contrast to the cost advantages, other influences on the make or buy decision of SME decision makers regarding recruitment are proposed. The uniqueness and the availability of developed in-house recruitment routines are proposed as inhibitors of outsourcing.
Although both possible inhibitors are drafted due to their proclaimed relation to competitive advantage in literature (Kock and de Kok, 1999), the findings regarding both differ immensely. With regard to the uniqueness of in-house recruitment, all interviewed decision makers found the uniqueness of in-house recruitment important. For the decision makers, the uniqueness of the current in-house recruitment was mostly their involvement in the in-house recruitment practices. One decision maker was willing to pay substantially more to keep control over recruitment. Another decision maker found that by controlling recruitment, he could influence the social ties between employees. The mentioned form of uniqueness can be defined as the influence of the decision maker on the recruitment process by controlling everything.
While decision makers attested to their fear of losing control, or uniqueness, the same decision makers did not find the availability of current in-house recruitment practices to inhibit the use of outsourcing. The decision makers gave evidence of understanding their current recruitment practices and still claimed to consider possible outsourcing in the future. This might be due to the fact that most SMEs did not invest heavily in sustainable recruitment routines or departments. Therefore, although this might be an inhibitor for larger firms who see prior investments lost with the sacrifice of in-house routines to outsourcing, SMEs may have invested less and will thus lose less when changing from in-house recruitment to outsourcing.
Although both influences are employed in prior research to identify the influence of competitive advantage (Kock and de Kok, 1999), the large difference in proclaimed importance of uniqueness and existing practices might be an indicator that competitive advantage is not being represented. More probable is the representation of control. Uniqueness is seen by decision makers as their control over the recruitment process. The decision makers often identify certain in-house recruitment practices which are deemed unique due to the controlling influence of the decision maker. With this controlling influence of the decision maker as a competitive advantage, decision makers agree that this inhibits the complete outsourcing of recruitment.
Adapted Conceptual model
competitive advantage as influences on the outsourcing decision. However, the characteristics of competitive advantage employed in this research, uniqueness and path dependency, are not identified as indicators of competitive advantage. Therefore, in the final conceptual model, these are replaced by the controlling influence of the decision maker.
Figure 2 – Adapted Conceptual Model Costs
finds: “As I use my own personal connections to recruit new employees, I do all my recruitment off the clock, so there are no costs”. Another example is Mr van Nes who notes that “outsourcing can be useful in finding the best candidates in a large pool of contestants” however, finds that “it is impossible to have lower recruitment costs than my current costs”.
Only two decision makers did, at some point, see the practical cost savings for their own firm, however, both are currently not utilizing outsourcing of their recruitment efforts. One of these decision makers made the decision to outsource recruitment based on costs, the other made the decision to keep recruitment in-house based on a different influence. Thus, only one decision maker acted on a costs saving potential.
Interestingly, the arguments decision makers use to argue the non-applicability of theoretical cost saving opportunities of outsourcing recruitment for their firm are mostly based on the idea that the current recruitment methods are most efficient. However, only one decision maker gave evidence of being aware of the actual costs of outsourcing. Also, non of the decision makers defined the time they spend on recruitment as a resource. Therefore, the basis on which the decision makers concluded the efficiency of in-house recruitment over outsourcing possibilities was identified as 'logic' and 'gut feeling'.
Logic, as decision makers explained that the current efforts did not cost anything, so it was impossible for outsourcing to save costs. Mr Jansen; “When I need a new employee, I just look around in my social network, so basically, I have no costs. Thus, a company providing me with a [recruitment] service, would always costs me more”.
Gut feeling as decision makers explained that they were convinced that in-house efforts were cheaper. For example, Mr Elkhuizen remarks “My feelings tell me that the costs advantage is not that clear”. Mr van Nes also finds that “it's difficult to guess if something which looks to be cheap on the short run, really is the cheapest”.
decision maker. The bounded rationality presented by Nooteboom (1993) finds that in cases available information is low, transaction costs are high based on the uncertainty which SMEs face. Based on the lack of information, the decision makers are found to favor in-house recruitment over outsourcing. This may be explained by the raise in transaction costs given by Nooteboom (1993). Thus, whilst outsourcing is generally employed as a method of obtaining lower transaction costs through the advantage of economies of scale, the lack of information may lead to an aversion towards outsourcing due to a raise in transaction costs. However, further research is necessary to prove this possible link between the information deficit of decision makers and their in-house favoring instinct.
Necessity of economies of scale
During the literature research, recruitment expertise was identified as a possible scale disadvantage of SMEs (Klaas et al., 2000). This was not supported by the decision makers. All interviewed decision makers were skeptical about retaining recruitment expertise. This skepticism was due to a proclaimed lack of necessity of expertise beyond the current available expertise. Most decision makers found themselves sufficiently experienced to perform the current recruitment methods at the necessary level. For example, Mr Bakker remarks: “I don't think I'm buying something which we couldn't do ourselves”. Also, Ms Hulshof states: “We have all necessary expertise in-house.” Mr van Hulst even finds that “the firms I have used in the past for outsourcing proclaimed great expertise in recruitment, yet these firms never offered something I couldn't do myself ”.
Interestingly, the SME decision makers whom were interviewed for this research contradict the research findings from Beaumont and Sohal (2004). Major differences between both researches are the firm sizes in the sample and the outsourcing function which is researched. The firm size researched by Beaumont and Sohal (2004) starts at 20 employees and has no upper limitation. This research focuses on SMEs. Furthermore, the research of Beaumont and Sohal (2004) focused on outsourcing in general. This paper focuses on the outsourcing of recruitment.
Although the reasons behind the fundamental differences in findings cannot be concluded without further research, it seems that the outsourcing reasons of SMEs might differ from large firms. Also, the demands of SME recruitment may differ from the mean demands of recruitment. This may be an indication that outsourcing is not a homogeneous business decision based on prescribed advantages and disadvantages. The advantages and disadvantages may thus be more contingency based.
Control
The outsourcing of recruitment seems to be influenced by the need of decision makers to control the recruitment routines. However, most decision makers do not find this to inhibit the complete use of outsourcing. For example; Mr Bakker, who uses outsourcing at the moment to find candidates, remarks: “I want to make the final decision to hire someone myself”. Also, Mr Elkhuizen explains “We could utilize outsourcing when our current method of recruitment via personal networks of employees dries up, however, we need to have full control over the recruitment. That is, I would still do the final conversations with the candidates.”
It seems that decision makers are reluctant to outsource recruitment completely, yet are positive about outsourcing some parts of the recruitment process. It may be that decision makers identify certain areas of recruitment, such as the final decision to hire a candidate, as important areas to control, whilst other areas, which are deemed less important may be outsourcing based on a cost advantage.
business process or activity to the firm's strategy+” The findings regarding the desire of decision makers to have control, or the final say, over recruitment because they find it important for the firm that the right employees are hired, confirm the proposition of Espino-Rodriguez and Padron-Robaina (2006).
Conclusion
This thesis proposes a conceptual model in which two influences on the make or buy decision of recruitment for SMEs are identified. The influence of costs is discussed sparsely in literature. The influence of competitive advantage is an addition proposed in this thesis. With the available literature regarding the make or buy decision being scarce, this thesis aims to expand this knowledge. In-depth interviews with seven SME decision makers were conducted and analysed. Based on this research, it is apparent that there are more influences on the make or buy decision of recruitment of SMEs. However, the uniqueness of in-house recruitment and current in-house routines are not good representatives of competitive advantage as an influence. Control over recruitment is found to be an important influence on the outsourcing decision of SME decision makers.
Three interesting conclusions regarding the influences are worth mentioning.
First, although decision makers identify costs as an important influence on the make or buy decision, the costs of recruitment are often unknown to the decision maker. Also, the differences in costs of outsourcing opposed to the costs of in-house performance are often, partially, unknown. In this situation decision makers rely on a gut feeling regarding the costs to make the decision. This gut feeling is mostly in favour of in-house recruitment. Decision makers also favour in-house recruitment based on other influences. Controlling influence of the decision maker is identified as a major influence on the make or buy decision. It thus seems that the decision makers favour in-house recruitment.
Second, the scale disadvantages proposed by the transaction cost theory as a push towards outsourcing were not evident in the findings. The findings do not contradict the theory that SMEs are unable to perform certain efforts in a quantity beyond the minimum efficiency quantity and thus face higher costs per capita. However, the findings give evidence of a lack of interest with SMEs for efforts which are influenced by scale disadvantages. Most SMEs proclaim to use in-house recruitment routines which cost less than an outsourcing solution. Thus, although costs per capita might differ between large firms and small firms, the needs also differ.
Further research
The findings of this thesis identify a number of interesting directions for further research. First, this research is focussed on two influences on the make or buy decision. Different influences, such as regulations, firm size, or the existence of a parent company may exist. Further research on potential influences may utilize the conceptual model of this thesis and add to it.
Second, the gut feeling favouring in-house recruitment utilized by decision makers to replacing information about costs need further research. Research on the propensity to replace information with a gut feeling when information gathering is difficult, might prove interesting in a larger discussion than the make or buy decision of recruitment. Not only this phenomenon but also the applicability to different decisions may prove an interesting research topic.
Third, the existence of scale disadvantage is admitted by decision makers. However, the decision makers also claim that these advantages do not cause any harm as the SMEs do not employ the methods on which these disadvantages apply. This finding is in line with research which differs from the 'little large firms' definition of SMEs and must be further researched as a possible addition to this area of research.
Fourth, this research has identified the possible existence of several levels of propensity to outsourcing. Decision makers can be more or less open to outsourcing. Further research in the identification of these levels of propensity may lead to a scale of outsourcing propensity which has large applicability than on recruitment.
Last, as this research has focussed on recruitment, there may be an applicability of the results to other HRM functions. This applicability may be researched using the conceptual model of this thesis.
Limitations
This thesis has several limitations. First, the size of the sample is small. Although seven in-depth interviews were sufficient to conclude several interesting findings, the generalizability and applicability of the conceptual model and findings needs cannot be concluded without further research.
Second, as the distribution of the sample within the area of SMEs has not been a variable in this research, the applicability of the conceptual model and findings on a specific area needs further research. Although distribution is wide, with sectors ranging from ICT to Cleaning services and sizes between 80 and 3 employees, the generalizability also needs quantitative research.
Third, as the in-depth interviews have been conducted with decision makers on the recruitment of SMEs, there is a possibility that these managers have tried to provide the expected answers. The interview guide has tried to minimize this possibility by limiting the information regarding the research given up front and a spread of questions covering historical facts and personal motives, however, there is a possibility that the answers differ from reality.
