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Entrepreneurial activities in human resource management.

Abstract

The changing nature of human resource management fostered the development of entrepreneurial activities in human resource management. Some of these changes were forced on human resource management through activities such as downsizing, which affected human resource staff as well as other employees. Other changes were the consequence of human resource management's need to demonstrate its ability to add value to a firm. Entrepreneurial activity was demonstrated through an entrepreneurial philosophy, treating other departments within the firm as customers when they utilized the services of human resource departments, and the development of new firms who provided human resource services. Like all entrepreneurial endeavors, human resource entrepreneurs have varied in their success.

The successful entrepreneurs have been able to identify better and more cost-effective ways to provide human resource services. They also have demonstrated the ability of human resource management to add value to a firm.

The field of human resource management typically has not been associated with entrepreneurial activities. In fact, some observers might argue that "entrepreneurial human resource management" is an oxymoron. However, analysis of changes in human resource management reveal that entrepreneurial activities indeed have occurred. Some of these activities resulted from a changing business environment. Other changes were consequences of changes in the field human resource management.

In this paper entrepreneurial activities in human resource management are examined by first analyzing changes occurring in the field of human resource management during the past few decades. Entrepreneurial and intrapreneurial activities in human resource management are then described. Finally, the resulting changes for the field of human resource management are discussed.

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The Changing Nature of Human Resource Management

Human resource management has changed in various ways during the past few decades. Some of these changes are technical ones in which activities such as selection and human resource planning have become more complex and quantitative. Some of these changes are due to external factors such as technology, the legal environment, customer demands, foreign competition, or the globalization of business. Still other changes are due to basic value changes that require greater accountability from all parts of the firm.

The changing values are reflected in the expectation that all functions in a firm demonstrate their worth by demonstrating their ability to add value to the firm.

Human resource management has been criticized for being too expensive and providing no added value since no measurable business value could be demonstrated (Csoka, 1995). Therefore, human resource departments had to transform themselves from cost centers to tools of corporate strategy (Carrig, 1997). Any part of a firm that does not add real value can be removed through downsizing, restructuring, or outsourcing.

Human resources has always had a service role in the firm, but this role needed to change to a new role for human resources -- that is, business partner (Beatty & Schneir, 1997). Closer analysis of the various activities within human resource management reveals that some activities are cost centers (for example, benefits administration), but others do create value (Becker & Gerhart, 1996). For example, recruitment, selection, performance management, and training can add significant value to a firm.

The changes in human resource management also require human resource professionals to scrutinize carefully their own value to the firm. They must adopt a new paradigm that requires identifying the cost of specific actions and/or decisions, relating these costs to specific outcomes, and deciding whether or not the cost is worth the outcome(s). The requirement for bringing value to the firm applies to human resource professionals as well as to all other people. In some cases the results of this analysis may lead to a decision to eliminate specific human resource functions and/or staff.

Human resources can be a unique source of sustained competitive advantage. This is especially true when its parts have high internal and external fit (Baird & Meshoulam, 1988; Lengnick-Hall & Lengnick-Hall, 1988).

Entrepreneurial Activities in Human Resource Management

Since human resource management needs to be a value-added function, the cost and benefits of the human resource function have been analyzed in order to maximize the value of any resources directed toward this function. This analysis requires consideration of specific human resource functions (that is, job analysis, human resource planning, recruitment, selection, compensation system development, benefits administration, performance appraisal, career planning, training, etc.). Each function is analyzed to determine whether or not services related to this function should continue. If the specific services are considered worth providing, the next decision requires identifying the most cost-effective way to provide these services. Should the firm provide these services or should these services be provided by someone outside the firm?

The process of analyzing the cost-effectiveness of specific human resource functions has led to specific changes and entrepreneurial activities related to human resource management. The most obvious outcomes of these changes are outsourcing all or some of the human resource activities, an entrepreneurial philosophy of the human resource professionals providing services to other parts of the firm, and the development of human resource firms who provide the services to firms who have outsourced some or all of their human resource function.

Outsourcing All or Some of the Human Resource Activities

When an organization is deciding whether or not to outsource a specific function, the usual criteria for making this decision concern the place of the function in the overall business strategy. If the function is considered "non-core," it is a likely target for outsourcing. When a firm outsources strategically and emphasizes its core competencies, it can leverage its skills and resources in order to make it more competitive.

By doing this the firm can concentrate its resources on a set of core competencies in which it can achieve preeminence and provide unique value to its customers (Quinn, Doorley, & Paquette, 1990). A carefully planned outsourcing of specific human resource activities can help a firm gain or retain its competitive advantage (Jeffay, Bohannon, & Laspisa, 1997).

When downsizing became a method for cost cutting and/or increasing shareholder value, most firms looked to the human resource department to reduce the number of employees. When this was accomplished, human resource departments then were asked to reduce the headcount in their own department. They moved from being the implementers of downsizing to the target of downsizing (Greer, Youngblood, & Gray, 1999). Many human resource departments saw their size decrease dramatically (Csoka, 1995).

Therefore, firms who see human resources as a non-core function often will decide to outsource all or some of the human resource function. This outsourcing is made to outside vendors who can perform the specific human resource function(s) better, faster, and more cost-effectively (Davidson, 1998).

In general, firms should first outsource the less critical areas of human resources--for example, payroll. They can outsource other activities after they have gained experience from outsourcing these less critical functions (Quinn & Hilmer, 1994). Carrig (1997) offered a specific classification of human resource activities that identifies a recommended order for outsourcing human resource activities. Carrig's (1997) classification includes three categories: transactional, traditional, and transformational. The transactional activities are the easiest to outsource. These activities include (in order from least difficult to most difficult to outsource) benefits administration, record keeping, employee services, communication, and performance management. Traditional activities are moderately difficult to outsource. These activities include (in order from least difficult to most difficult to outsource) training, recruiting, employee and labor relations, compensation, and management development. Transformational activities are the most difficult to outsource. These activities include (in order from least difficult to most difficult to outsource) business partner, strategic planning, organization development, and knowledge management.

Outsourcing of human resources started as a way to control human resource costs. Its popularity is gaining, but it is not a new concept (Haynes, 1999). Now outsourcing of human resources is seen as a strategic tool that heightens efficiency and allows firms to focus on their core business. Also, the popularity of mergers and acquisitions makes firms concerned about controlling fixed costs such as the wages for the human resource department (Gault, 1998).

The use of outsourcing can change the nature of human resources. Carrig's (1997) analysis of human resource practices lead to the conclusion that the human resource department of the future will have its greatest value if it extends outsourcing to a strategic partnership. In this way outsourcing is more than shifting the responsibility of specific tasks to a contractor.

An example of the partnership model for outsourcing is provided by the relationship between Corning and CCFL (College Center of the Finger Lakes), a nonprofit education and training organization founded as a consortium of colleges and chartered by the New York Board of Regents. Corning gradually shifted responsibility for much of its training from Corning's training department to CCFL. Corning still monitors the quality of the training provided by CCFL, and Corning does NOT outsource training related to the firm's core competencies. The initial partnership started by having CCFL administer sixty skill courses while Corning retained responsibility for education and training processes. This partnership progressed to a point where CCFL and Corning formed a joint organization in which CCFL managed skills courses, administered core competency courses, and developed training curricula; Corning installed systems and provided consulting. In the final stages of this partnership CCFL was responsible for delivering all training courses while the Corning training department provided strategic leadership, was responsible for the training content of employee orientation and leadership courses, focused on competency centered learning, and conducted research (DeRose & McLaughlin, 1995).

Corning's training department was characterized as entrepreneurial before the partnership with CCFL (DeRose & McLaughlin, 1995). It continued to be entrepreneurial with its partnership with CCFL, which was mutually beneficial. Corning was able to outsource most of its training to CCFL and control training costs. CCFL was able to expand its market, develop its entrepreneurial skills, and learn from a topnotch corporate training department (DeRose & McLaughlin, 1995).

An Entrepreneurial Philosophy of the Human Resource Professionals Providing Services to Other Parts of the Firm

When firms identified separate business units, human resource departments often were not identified initially as a business unit. They generated costs, not income. Therefore, they could not produce profits. However, when human resource management departments are expected to deliver economic value, a firm's various constituencies are willing to pay for these services (Beatty & Schneir, 1997).

As human resource departments developed and, in some cases, redefined their role in the firm, they proved that they could also generate income and, therefore, profits. This change often was accomplished by defining other departments in the firm as internal customers. The human resource department provided services needed by other departments--for example, training and recruitment. Therefore, internal customers could pay the human resource department for these services in the same way that they could hire an outside vendor to provide these services.

If a truly competitive model is used, departments or business units within a firm can be allowed to choose who will provide needed human resource services--the firm's human resource department or one of various outside vendors. Under such a model the human resource department is forced to adopt an entrepreneurial philosophy and look for better and more cost-effective ways to provide human resource services. If other business units are potential internal customers for the human resource department, the human resource department must create services that satisfy these internal customers and demonstrate value (Csoka, 1994).

Examples of this model are provided by Hewlett-Packard and Levi Strauss. Hewlett-Packard has a personnel manager in most of its divisions. These personnel managers purchase services through the regional or national organization. Levi Strauss developed a human resource consulting unit that does research on best practices and provides consulting services (Csoka, 1994).

Development of Human Resource Firms Who Provide the Services to Firms Who Have Outsourced Some or All of Their Human Resource Function

When firms outsource one or more human resource activities, these activities still must be performed successfully. In some cases these activities are performed by consulting firms who have existed for many years and developed expertise in one or more human resource areas (for example, Hay Associates). In other cases increased outsourcing has resulted in new opportunities for entrepreneurial firms who provide the needed human resource services. In fact, some of the new entrepreneurs are the human resource staff who formerly worked for one of the firms who has decided to outsource some of its human resource activities.

As outsourcing has increased, the amount of money directed to outside vendors obviously increased. Davidson (1998) described the amount of outsourcing revenue as "skyrocketing."

A summary of this outsourcing revenue (described in a survey completed by Staffing Industry Analysts, Inc.) projected 1997 outsourcing revenues as increasing 35 percent over 1996 revenues. Results of this study suggested that there was no end in sight for this record breaking growth (Davidson, 1998). A consultant with The Search Alliance, Inc., also forecasts continued growth in this area (Haynes, 1999).

Some of the entrepreneurial activity for human resource services has occurred not only in entrepreneurial human resource firms, but also in larger established firms who have expanded related services to include human resource activities. For example, Pricewaterhouse Coopers (PwC) and the HRIS/Payroll software vendor PeopleSoft have formed an alliance that allows them to offer human resource services needed by firms who choose to outsource.

They formerly provided services such as retirement planning, health and welfare planning, and stock-related administration. They expanded their services to include human resource services such as recruiting, applicant screening, pre-employment testing, and orientation for new hires. Newer services include payroll processing, compensation administration, training advice, performance management, human resource data maintenance, change management, employee communication, relocation services, expatriate administration, and termination processing. The addition of these services moves PwC-Peoplesoft toward a point where they can provide "one-stop shopping" for firms who decide to outsource human resource activities (Gunsauley, 1999). Obviously, the ability to offer such a wide range of services is extremely attractive to firms who are outsourcing human resource activities and are looking for an outside vendor to provide these services.

Intrapreneurial Activities in Human Resource Management

Pinchot (1985) brought attention to the activities of intrapreneurs, whom he described as "dreamers who do" -- that is, the people who take responsibility for creating any kind of innovation within an organization. Intrapreneurs may create or invent, but they always are able to turn an idea into a profitable reality.

Intrapreneurship is not a new idea. More than a hundred years ago John Patterson, the founder of National Cash Register, created a plan in which employees were paid for their ideas (Terazono, 1999). However, the importance of intrapreneurship has grown recently. Large firms want to compete, so they have sought out characteristics such as flexibility, growth, and innovation that are usually associated with entrepreneurship (Stevenson & Jarillo, 1990). Intrapreneurship is a way to stimulate innovation and use the creative energy of employees. The resources and independence given to employees allows them to innovate within the firm (Carrier, 1996).

Pinchot (1985) cited examples of intrapreneurial successes for products such as the Post-it notes produced by 3M, the Pontiac Fiero produced by GM, and the personal computer produced by IBM. He referred to intrapreneuring in a service industry by describing banking innovations such as certificates of deposit and Master Charge.

Other authors (for example, Bordeaux, 1987; Luchsinger & Bagby, 1987; Ross & Unwalla, 1986) have analyzed the characteristics of intrapreneurs. Some authors (for example, Ellis, 1985; Knight, 1987; Lessem, 1987; Roner, 1988) described the roles and functions of intrapreneurs. Other authors (for example, Clark 1999; Pryor & Shays, 1993) describe ways to maximize the success of intrapreneurial efforts.

The aforementioned authors' advice for encouraging intrapreneurs is applicable to any field (including human resources). However, it is important to note the fact that these authors did not cite human resource management as a likely place to find intrapreneurs.

Examples of intrapreneurial human resource activities were certainly not so dramatic as those found in manufacturing, but they have occurred and continue to occur. Intrapreneurial human resource activities occur primarily in two ways: (1) intrapreneurs in a firm develop services that can be sold to other firms (2) intrapreneurs in two or more firms work together to provide services that can be sold to a third party.

Intrapreneurs Within a Single Firm

Employees in human resource departments (or units within human resource departments) can become intrapreneurs when they develop ideas for providing human resources in a new way or to new customers. IBM, Disney, and Xerox all provide excellent examples of this type of change. In 1992 IBM unveiled a new company called Workforce Solutions that operated within IBM. Workforce Solutions offers human resource services and programs to IBM and other firms. Walt Disney Company operated Disney University as part of its human resource and community relations departments. Disney University sells human resource experience and knowledge to other firms.

Xerox Corporation formed Human Resource Solutions in response to the large number of benchmarking requests Xerox had received from other firms. Xerox's Human Resource Solutions has become a business within Xerox Corporation (Laabs, 1995).

Intrapreneurs in Two or More Firms Working Together

In order to achieve economies of scale, the human resource departments of several firms can work together to form a new corporation that provides human resource services to any number of firms. This approach, which has been referred to as "inside-outsourcing," is relatively new (Csoka, 1995). It was used by the human resource departments of nine Fortune 1000 firms in recent years to place the human resource function virtually out of the parent companies. The new firm can sell human resource services back to the parent company (Goldsmith, 1995). They also can sell services on the open market to firms other than the parent companies.

The operation of this type of human resource organization allows the parent organizations to treat the new human resource organization as a free agent operating in a competitive environment.

When the initial contract period is over, parent companies use the performance of the human resource organization as a basis for deciding on any future purchase of services. Parent companies are free to decide whether or not they want to continue purchasing all or some of the services provided by the human resource organization. Key human resource professionals in the new human resource organization are partners in the new business in which they own stock. An advisory board, composed of top human resource leaders, helps the human resource organization maximize the quality of service delivery so they maintain a competitive advantage (Csoka, 1995).

Discussion and Conclusion

The field of human resource management initially may seem like an unlikely place for entrepreneurial activities. However, it is a place where various entrepreneurial activities have occurred.

These entrepreneurial activities have resulted in new and better ways to provide human resource services. Some of these entrepreneurial activities have occurred through classic ways by the development of new firms started by entrepreneurs with expertise in human resource management. Other entrepreneurial activities have occurred through new activities and/or partnerships between existing firms or through intrapreneurial activities by human resource departments.

The development of these entrepreneurial activities has reinforced the development of human resource management as a function that adds value to a firm. Like all changing activities, any changes in human resource activities or method delivery must be monitored carefully to guarantee its success. The advantages and disadvantages of encouraging and utilizing the services of specific human resource entrepreneurs must be carefully assessed before deciding to value these entrepreneurs more than human resource professionals who operate in more traditional human resource departments.

In general, the most successful human resource entrepreneurs are found in firms known for quality human resource management. This finding is especially apparent when human resource management is one of the firm's core competencies.

[ILLUSTRATION OMITTED]
Table 1

Continuum of human resource activities

 Benefits Administration
 Record Keeping
Transactional
 Employee services
 Communication
 Performance management
 Training
 Recruiting
Traditional
 Employee Relations & Labor
 Compensation
 Management Development
 Business Partner
Transformational
 Strategic Planning
 Organizational Development
 Knowledge Management


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By Margaret E. Mitchell
Associate Professor, Department of Management & Organization
Connecticut State University
New Britain, CT 06050-4010
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Author:Mitchell, Margaret E.
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Date:Mar 22, 2000
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