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VIRTUAL HR: STRATEGIC Human RESOURCE manangement in THE 21st CENTURY
David
This article explores the emergence of virtual HR in organizations as a
response to the increased presence of external structural options to perform
HR services as well as the growing sophistication of information technologies.
We examine the motives that are encouraging HR managers to implement
these virtual arrangement and, drawing from transaction cost economics
and the resource-based view of the firm, we present an architectural
framework that can be used to understand and map the underlying structure
of virtual HR. Theoretical and research implications are discussed
throughout the article.
INTRODUCTION
Strategic human resources management (SHRM) in the 21st century. It
sounds so futuristic. But as the saying goes, the future is now. The pressures
and priorities of HR in the new century are already widely known today. The
landscape is fairly clear: globalization, diversity, information technology, intellectual
capital, and the like are at once increasing organizational variation and
providing a catalyst for innovative approaches to collaboration and integration.
As the pace of change accelerates, product life cycles are getting shorter
and this places a premium on organizational flexibility, capability, and rapid
response. Firms compete less on products and markets and more on eompetenties,
relationships, and new ideas. Talent-if not the rarest of commodities-is
among the most resilient, renewable, and adaptive. People are an organization’s
most important asset. But you’ve heard all that or you wouldn’t be
reading this.
Direct all correspondence to: David P. Lepak, Robert H. Smith School of Business, Department of Management
and Organization, University of Maryland, 3341 Van Munching Hall, College Park, MD 20742. E-mail:
[email protected]
Human Resource Management Review, Copyright 0 1998
Volume 8, Number 3, 1998, pages 215-234 by JAI Press Inc.
All rights of reproduction in any form reserved. ISSN:1053-4822
216 HUMANRESO~RCEMANAGEMENTR~IEW VOLUME 8, NUMBER 3.1998
In this article, we focus on how the HR function is being structured to help
firms compete as we approach the 21st century. Specifically, we explore the
notion of virtual HR: a network-based structure built on partnerships and
typically mediated by information technologies to help the organization acquire,
develop, and deploy intellectual capital. To do so, we first examine a set
of four objectives in HR and use this as a foundation for discussing why outsourcing,
partnerships, and other forms of virtual HR have become so prevalent.
Next, we place virtual HR within the context of organization theory and
discuss some of the enabling mechanisms of information technologies. Third,#p#分页标题#e#
we present a model of how firms can begin to map their portfolio of HR activities
into an overall architecture of virtual HR. Finally we offer some directions
for future research in SHRM.
People, Pressures, and Priorities
To understand the nature of virtual HR within firms, it is important to
understand the factors that contribute to an increased reliance on outsourcing,
partnerships, and other forms of network based structural arrangements. In
general, the emergence of virtual HR can be seen as a result of the often
increasing demands placed on the HR department as organizations continue to
strive to sustain a competitive advantage. More to the point, as firms attempt
to compete through people, HR functions are being called on to pursue four
seemingly contradictory objectives. First, HR depa~men~ are being asked to
be much more strategic (Snell, Youndt, & Wright 1997). As Alvares noted:
The bottom-line business of human resources must be the delivery and/or
development of human capital that enable the enterprise to become more
competitive, to operate for maximum effectiveness, and to execute its business
strategiess uccessfully( 1997,p. 9).
For about the past decade or so, the mantra of HR has been “be a strategic
business partner.” The importance of involving HR in development, planning,
and implementation of competency-based strategies has been well-communicated
(Beatty & Schneier 1997; Ulrich 1997). Even so, a recent study of 1050
companies by the Hackett Group (1998) shows that HR professionals typically
devote less than a third of their time to the most crucial strategic HR initiatives
(e.g., employee development, hiring the best people, training, career management,
performance management) (PR Newswire 1998). Instead the bulk of
their time is still consumed with lower value-added, routine activities. While
the word has been enthusiastically received, most HR functions have a way to
go to be full strategic partners.
In addition to-or perhaps part of-this strategic role, HR functions are
also being asked to provide a greater amount of flexibility in the programs,
policies, practices, and services they provide (Wright & Snell 1998). Achieving
strategic fit in HR today rarely means stable fit and, increasingly, strategic
management means change management. According to the 1,700 HR professionals
responding to a 1997 ~~r~ey ~~~urn~~ Resource B-ends Report, work
VIRTUAL HR 217
in organizational change and involvement with senior management in business
strategy contributes substantially more to an organization than do traditional#p#分页标题#e#
HR administrative activities (Employee Benefit Plan Review 1997).
When asked to name the skill whose importance had increased most in recent
years, these respondents indicated that change management was their clear
choice.
Third, HR functions are being asked to take a hard line on costs. Just as
effectiveness has its twin priority of efficiency, strategic HR has its complement
of cost containment. The typical organization spends approximately
$1,500 annually per employee on HR-related issues, but this amount can double
or triple in less efficient organizations (Employee Benefit Plan Review
1997). A portion of these costs are associated with the development and implementation
of HR systems and processes themselves, but a good chunk is overhead.
Managers are increasingly being asked to prioritize where they can best
utilize their time, talents, and resources, and where they can find places to cut.
For example, the now-famous turnaround of Continental Airlines began with
an edict from CEO Gordon Bethune that its HR-based strategy had to be self
funding-its marginal cost had to be zero (Carrig 1997). Such cost restrictions
are commonplace in strategic HR; the link to strategy is tethered by increased
accountability.
Finally, while everything else around them may be changing, HR functions
are still being asked to maintain their role as service provider to managers and
employees. The roots of HR, of course, go back to these technical-functional
roles, and responsibility for employment relationships will likely continue to
be the foundation of HR (Ehrlich 1997; Kerr, & Von Glinow 1997; Ulrich 1997).
In short, HR departments are charged with simultaneously being strategic,
flexible, efficient, and customer-oriented.
Anything, Anytime, Anywhere
Meeting these objectives is a pretty tall order for HR managers, but one that
parallels what nearly all organizations face in today’s business environment.
Compared to hierarchical organizations of the past that held all assets internally,
today’s firms are increasingly organized as networks, focusing on their
core competencies and partnering with others to expand their strategic scope
and adaptability in turbulent environments. Some have referred to these as
virtual organizations (Ashkenas, Ulrich, Jick, & Kerr 1995; Davidow & Malone
1992; Miles & Snow 1992; Powell 1990; Snow, Lipnack, & Stamps 1998).
The concept of virtual organization borrows from the information technology
literature where computers use peripheral storage devices such as a hard
drive to augment its active memory (i.e., RAM). The beauty of “virtual memory”
is that operating systems (e.g., Windows) manage the swapping of data
between the hard disk and active storage so, to the user at least, it appears as
if the computer has far more active memory than it actually does (Raymond#p#分页标题#e#
1994). The analogy between virtual memory and virtual organizations should
be obvious. Firms concentrate on their core competencies and outsource pe218
HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8. NUMBER 3, 1998
ripheral work to other firms, all the while managing the network so that their
customer views the relationships as seamless (Davidow & Malone 1992; Hamel,
DOZ, & Prahalad 1989; Mohrman & Lawler 1997). When done successfully,
these virtual firms are able to simultaneously increase efficiency, flexibility,
and responsiveness. And in these cases, it may truly appear that the organization
can do “anything, anytime, anywhere.”
While interest in virtual organizations has primarily focused on the firm as
a whole, a parallel transformation has been occurring within HR. Indeed,
many executives are rethinking how they organize the HR function to make it
more flexible and focused while still providing a full complement of HR services.
In an attempt to meet their strategic objectives, many HR functions are
becoming more virtual in nature, increasing their reliance on external sources
to perform part, if not all, of these HR activities (Brenner 1996; Snell 1994;
Stewart 1996).
From a strategic HR standpoint, this makes logical sense. Outsourcing can
help firms minimize costs by externalizing administrative tasks that do not
contribute directly to a firms competitive success; thereby enabling HR departments
to focus on value-creating activities (Alvares 1997; Car-rig 1997; Davidson
1998; Quinn & Hilmer 1994). As a result, external relationships may help
firms meet the often conflicting demands of efficiency and strategic support. In
addition, outsourcing allows managers to allocate resources on an ad hoc or
just-in-time basis. Rather than investing significant resources to establish and
maintain an in-house capability to provide a HR service that may be needed
infrequently or for only a short period of time, firms may turn to external
specialists to provide the services when needed. Further, as the needs of the
organization change, managers can contract with external vendors to perform
specialized services that the organization cannot perform internally (Dess,
Rasheed, McLaughlin, & Priem 1995). Indeed, the growth of professional service
markets has helped HR staffs shift from traditional specialists to more
flexible generalists capable of responding to broader business issues; thereby,
enabling HR professionals to meet their charges of strategic focus and customer
responsiveness. Not surprisingly then, recent evidence suggests that between
77 and 93 percent of firms outsource at least part of their HR function
and another significant percentage (56 percent) plans to increase the role of
outsourcing in their HR functions (Davidson 1998; Jeffay, Bohannon, Laspisa#p#分页标题#e#
1997).
TOWARD A THEORY OF VIRTUAL HR
Despite the increasing role of outsourcing and other forms of externalization
within HR, researchers still know very little about virtual HR. To frame virtual
HR for purposes of research, it might be useful to position it within existing
literature of organization theory. From one perspective, virtual HR can be
viewed as a special case of organizations trying to cope with uncertainty. As
VIRTUAL HR 219
organizations encounter environmental complexity, they traditionally have
tended to differentiate their internal structures and created specialized subunits
capable of responding to distinct aspects of the environment. The more
varied the environment, the more extensive the differentiation (Scott 1992).
This model for organizing was ideal in rigid hierarchical firms striving to lower
costs and increase efficiency. In today’s business environment, however, uncertainty
stems as much from technological and market change as it does from
complexity. Simply differentiating within the firm is often not sufficient for
today’s virtual structures.
To adapt to en~ronmen~l and competitive pressures, virtual organizations
have altered the fundamental nature of structural differentiation. Whereas
hierarchical firms tended to differentiate within their incorporated boundaries,
virtual organizations extend beyond their boundaries to establish collaborative
structures with external specialists (cf. Baker 1992). Within the HR
function, the growth of professional employer organizations (PEOs) and other
HR service firms has provided structural alternatives for managers that were
not available even a few years ago. Essentially, these options enable HR functions
to increase their differentiation by partnering with specialists outside the
firm. Relying on external specialists allows HR to simultaneously respond to
increasing complexity while remaining nimble enough to cope with the increasing
pace of technological and market change.
Yet while outsourcing and other forms of pa~nership may increase both the
scope and flexibility of structural di~erentiation, they make structural integration-
the flip side of differentiation-that much more challenging (Galbraith
1973; Lawrence & Lorsch 1967). As HR becomes more externally differentiated,
HR departments must devise innovative methods for coordinating and
aligning dispersed activities. Whereas firms traditionally have relied upon
managers, task committees, liaisons, and the like to coordinate across increasingly
specialized subunits, information technology (IT) now provides HR with
a much more powerful mechanism to support and sustain externalized HR
relationships (cf. Davidson 1998; James 1997; O’Connell 1996).
Snell, Pedigo, and Krawiec (1995) suggested that IT might influence structural#p#分页标题#e#
integration within HR in three si~i~c~t ways. First, IT can influence the
operational aspects of HR by streamlining operations and alleviating much of
the administrative burden. For example, advances in IT may enable firms to
connect with outside parties capable of providing HR services more efficiently
and effectively than they could provide in-house. Even when these services are
retained internally, IT can help reduce costs and improve productivity by
automating routine tasks and practices, (Groe, Pyle, & Jamrog 1996; James
1997). The 1997Survey ofHuman Resource B-ends conducted by Aon consulting
and the Society for Human Resource Management showed that 62 percent of
firms use information technology to automate compensation and an additional
22 percent say they are considering using it for this purpose. Similarly, over 33
percent of firms use IT for benefits administration with an additional 40 percent
considering it for that purpose (Employee Benefits Plan Review 1997).
220 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8. NUMBER 3.1998
Second, IT can influence relational aspects of HR by increasing the timeliness
and service levels with employees and managers, as well as outside partners
(Snell, Pedigo, and Krawiec 1995, p. 163). By providing line managers and
employees with remote access to HR data bases and information, and increasing
their ability to connect with other parts of the corporation as well as
outside service providers, managers and employees can perform HR activities
themselves; thereby reducing response time and improving service levels
(Brockbank 1997; O’Connell 1996; Wilcox 1997). In addition, IT often facilitates
the sharing of data and information necessary to establish and maintain
relationships with external HR partners that provide customized services to
help meet a firm’s unique needs. Not surprisingly, the 1997 Survey ofHuman
Resource B-ends indicated that use of information technology has increased
management’s satisfaction with HR in 43 percent of responding firms. Similarly,
use of information technology had increased employee satisfaction with
HR in 29 percent of firms.
Finally, perhaps the most dramatic impact of IT on structural integration
within HR is its transformational role. As IT has enabled people to communicate
across geographic boundaries and share information, it has eliminated
barriers of time and space. As a consequence, IT has played a pivotal role in
supporting virtual teams and network organizations. For example, Northern
Telecom (Nortel) relies extensively on the Internet, active Web pages, teleconferencing,
and a data network to facilitate teamwork from over 350 locations in
more than 60 countries (Solomon 1998). Similarly, British Petroleum uses a
combination of PeopleSoft, Oracle, and NetDynamics to integrate its HR administration#p#分页标题#e#
and development across more than 70 countries (PR Newswire
1998).
The bottom line is that information technology is an invaluable tool for
coordinating and integrating the dispersed activities that increasingly extend
beyond the boundaries of traditional hierarchies HR. The basic principles of
organizational design-differentiation and integration-remain the same.
But they are manifesting themselves in substantially different ways today
than at the beginning of the century.
The Downsides of Virtual HR
As firms continue to push their structural limits it is clear that HR can be
deployed in a multitude of ways to achieve its different objectives. But for all of
the benefits of outsourcing and other forms of virtual arrangements, there are
potential downsides as well. Too often, outsourcing decisions in HR are driven
by cost considerations without an eye toward broader strategic issues. As
noted above, HR departments are often charged with becoming more strategic
and efficient. And while executives may recognize the opportunity to cut overhead
costs-and purchase skills or services from an outside source-their
focus tends to be short-term, and their tactics often backfire during implementation.
According to the Hackett Group’s (1998) study,
VIRTUAL HR 221
Outsourcing remains a major HR cost. The cost to perform outsourced fimctions
can run as high as $415 per employee annually, on average, or 28
percent of total per-employee HR costs. Yet only 1.6 percent of HR time is
typically spent managing these third-party suppliers, and the expected reduction
in costs often doesn’t materialize. The white lie of outsourcing is
that it’s a silver bullet guaranteed to lower costs and reduce the worry . . .
Instead, costs often increase and headaches multiply because outsourcing is
undermanaged and poorly monitored.
In addition to cost considerations, the potential loss of operating control over
the.specific facets that are externalized is a significant possibility (Dess et. al.
1995). As firms continue to enter contracts and partnerships with external
parties they may find themselves locked into specific arrangements, making it
difficult to adapt to changing organizational needs. Related, a continued reliance
on external sources may erode HR’s internal ability to execute activities
critical to competitiveness (cf. Bettis, Bradley, & Hamel 1990). In these cases,
HR may actually decrease its ability to meet and support their firm’s strategic
objectives as well as limit its flexibility if outsourcing is pushed too far or
poorly managed.
While the notion of virtual HR is inherently appealing, its management
requirements are at once interesting and potentially confusing. How do we
distinguish between activities that are done internally versus those that are#p#分页标题#e#
done externally? How do firms coordinate across these activities? How do firms
effectively manage the different facets of virtual HR to meet their objectives?
What is the nature of the relationships? Are we talking about outsourcing
tasks, human capital, technology, processes, or practices? How does this all
relate to strategic considerations? There are a lot of questions about the management
of virtual HR, but they all center on a common theme: the challenge of
virtual HR lies in managing the web of relationships and the permeable boundaries
that separate organizations. And as firms increasingly rely on internal
and external arrangements to perform their HR activities, research and theory
are needed that help us understand the overall architecture of virtual HR; that
is, how the various components of virtual HR fit together and are managed to
meet HR’s strategic objectives (cf. Davidson 1998; Nadler, Gerstein, & Shaw
1992).
Mapping the Architecture of Virtual HR
Fortunately, researchers have made great strides in understanding which
components of a firm’s HR architecture should be managed internally or externally.
These “make” or “buy” decisions are consistent with research in transaction
cost economics (Williamson 1993) and the resource based view of the firm
(Barney 1991; Hamel & Prahalad 1994) which reinforce the fact that there are
a host of structural options within virtual HR to meet their strategic objectives.
Advocates of transaction cost economics (e.g., Coase 1937; Williamson
1975), for example, propose that the ideal governance mode or structural arrangement
for the management of assets or resources depends on the extent to
222 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8, NUMBER 3. 1998
which they are specific to a particular firm. In the context of HR, this perspective
suggests that firms are more likely to internally deploy HR activities as
their firm-specificity increases. Adopting a resource-based perspective, Hamel
and Prahalad (1994) suggest that firms should focus their efforts on resources
that are core to a firm’s competitiveness. Similarly, Quinn (1992) suggests that
firms should outsource those activities that are not critical to a firm’s success;
thereby freeing up resources to focus on core competencies. Though the focus of
these theoretical perspective vary, we believe that they converge on two dimensions-
value and uniqueness-that serve as strategic criteria for determining
which HR activities are candidates to be externalized and those which
are not (Lepak & Sell in press). We discuss these dimensions more fully
below.
Value of HR Activifies. Organizational resources (i.e., skills, knowledge, technologies,
relationships, tasks, functions, etc.) are valuable when they help a#p#分页标题#e#
firm enact strategies that improve efficiency and effectiveness, exploit market
opportunities, and/or neutralize potential threats (Barney 1991; Porter 1985;
Ulrich & Lake 1991; Wright & McMahan 1992). Thus, the value of an HR
activity depends on its ability to help firms achieve a competitive advantage or
develop core competencies. Functions that are not valuable (i.e., critical or core
to firm competitiveness) are candidates to be externalized while those that are
valuable are likely to be retained internally (~hesbrough & Teece 1996; Saunders,
Gebelt, & Hu 1997).
The key question then is what makes something valuable. On the one hand,
value is “the amount that buyers are willing to pay for what a firm provides
them” (Porter 1985, p. 38). Thus, HR activities must somehow contribute toward
customer-based perceptions of value (Beatty & Schneier 1997; Hamel 8z
Prahalad 1994; Snell, Youndt, & Wright 1996). In the case of HR, there are a
host of proximate or “functional” customers (i.e., managers, employees, job
applicants, contractors, partners, etc.) who depend directly on HR’s services.
But ultimately strategic value extends beyond HKs own customers and requires
satisfying the needs of the customers of the firm as a whole. The greater
the benefit to the customer, the greater the value of the activities.
In addition to benefits derived through HR activities, however, the value of a
HR activity is also influenced by costs accrued in its use (Jones & Hill 1988;
Jones & Wright 1992). In this light, we can conceive of value as the strategic
benefits derived from a particular HR activity relative to the costs associated
with its deployment. For example, though extensive internal training may
help firms create a highly talented workforce, doing so requires a significant
investment of time and money. These costs may diminish the utility or value
generated from training. Similarly, in many companies’ benefits administration
plays a much smaller strategic role than does the training function, which
may directly enhance the skill base of a firm. This is not to say that benefits
administration is not important, but rather its strategic value is likely to be
less. There may be firms, however, in which the effective deployment of benefits
ad~nistration is a critical component of HR’s success. This possibility raises
VIRTUAL HR 223
an impo~ant point-the extent to which a HR activity such as ree~itme~t,
training, compensation, or performance appraisal is valuable is likely to vary
from firm to firm depending on the strategic context of each firm.
Uniqueness of W? Activities. Along with value, the strategic architecture of
HR builds on the uniqueness of HR activities (cf. Hamel & Prahalad 1994;
Quinn & Hilmer 1994). Combining transaction cost economics and the resource-#p#分页标题#e#
based view of the firm, uniqueness can be thought of in terms of firmspecificity
(Williamson 1991) or scarcity in the external market (i.e., rare>
(Barney 1991). For example, companies such as Disney, Southwest Airlines,
and Nordstrom frequently have been singled out for their world-class employee
orientation and culture development programs. These programs are not only
unique, they are difficult to imitate.
As noted in the transaction cost perspective (Williamson 19751, firms are
more likely to internalize activities when the transaction costs of doing so are
lower than those costs that would be incurred through relying on open market
relationships. As HR activities become more idiosyncratic to a particular firm,
relying upon an external arrangement may prove infeasible and/or incur excessive
costs since these activities are not likely to be readily available in the open
market. And if rare, they may be extremely costly to acquire, thereby diminishing
their potential value. In direct contrast, HR activities that are generic or
standardized across firms may not justify the costs of their internal deployment.
Since external vendors or specialists may provide these services more effrciently,
externalization may be appropriate for such activities. In the context of
virtual HR, these theoretical perspectives suggest that managers will forgo the
deployment of WR activities to the market when it is more efficient to do so.
In addition to the uniqueness of any single HR activity or resource, uniqueness
may also stem from the firm-specific combination of different HR activities.
Configurational views of HR highlight the importance of combining HR
activities for competitive advantage (Delery & Doty 1996; Lepak & Snell in
press). For example, extensive training and socialization, when coupled with a
developmen~l performance appraisal, may have the long term effect of developing
human capital that is quite unique to a particular firm, more so than if
either HR practice were used in isolation. In the context of virtual HR, this
raises an important caveat for outsourcing and partnering: externalizing parts
of an overall HR con~~ration may dimi~sh the uniqueness of the entire
system, thereby jeopardizing its strategic contribution.
Building on these points, we can conceive of HR activities as spanning two
continua (cf. Carrig 1997). On the one hand, HR activities can range from those
that are directly instrumental for achieving organizational objectives (i.e., high
value) to those that may be primarily administrative or transactional in nature
(i.e., low value). Further, these activities may be routine (i.e., low uniqueness)
or extremely idiosyncratic (i.e., high uniqueness). As shown in Figure 1, when
we combine the dimensions of value and uniqueness, we can begin to understand#p#分页标题#e#
how virtual HR can be structured to achieve the four strategic charges of
enhanced efficiency, flexibility, strategic focus, and customer-responsiveness.
224 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8. NUMBER 3.1999
High
Uniqueness
Idiosyncratic
HR activities
Core
HR activities
Peripheral
HR activities
Traditional
HR activities
Low High
Value
Figure 1. Virtual HR
When HR activities are both valuable and unique, we can view them as core
activities that firms will likely deploy internally to achieve competitive advantage
(cf., Barney 1991; Stewart 1997). This makes intuitive sense when we
consider that these activities may not be available in the external market;
thereby precluding externalization. In addition, these functions are valuable;
that is, their strategic benefit exceeds the managerial and bureaucratic costs
associated with their use. As a result, firms have strategic incentives to retain
and internally deploy these HR activities (Prahalad & Hamel 1990; Reed &
DeFillippi 1990). For example, given their unique needs and the clear strategic
value of its employees, Microsoft expends a significant amount of time, money,
and energy to ensure that its recruitment and selection activities generate job
candidates capable of helping Microsoft stay on the cutting edge. Given their
large volume of applicants, this is no simple task. Yet, while recruitment and
selection would likely be deemed core at Microsoft, the value of investing in
recruitment and selection might be significantly less in another firm. In other
words, though the characteristics of HR activities that fall within this quadrant
may be the same across firms (i.e., valuable and unique), the particular
set of HR activities that will fall within this quadrant will likely vary from firm
to firm.
As shown in figure 1 valuable HR activities that are more generic and
widely spread throughout an industry are unlikely to occupy core HR space.
These traditional aspects of HR are important for most firms but they are often
fairly standardized. Rather than develop these HR activities internally, the
growing supply of external vendors, advances in information technology, and
increasing sophistication of HR software and databases provide numerous
options for HR managers to perform these activities. For example, many firms
are pursing on-line career development centers that enable employees to use
VIRTUAL HR 225
computers and the Internet to map their own career options (Warner & Keagy
1997). While these systems may be valuable to a firm, their development and
use do not require significant internal investments. In an effort to allocate
limited resources toward the most valuable HR activities, organizations may
purchase and retain standardized HR activities and systems from external#p#分页标题#e#
sources to realize significant savings in developmental expenditures while
gaining instant access to a wide variety of capabilities (Quinn 1992).
Compared to traditional HR activities, generic activities that have more
limited value-added may be treated as peripheral. As the information needed
to develop and implement these activities becomes more codified in industry
standards, design specifications, and the like, external sources may prove a
more efficient source to provide or design these services (Chesbrough & Teece
1996). As a result, these HR activities are likely candidates to be outsourced to
external vendors (Davidson 1998). For example, in today’s environment firms
may contact companies such as Peoplesoft and Manpower to handle their
recruitment and staffmg needs on a moment’s notice. As noted above, firms are
increasingly outsourcing administrative tasks such as payroll and benefits and
pension administration that often do not require any firm-specific customization
(Davidson 1998). This is a logical decision in those cases where these
activities contribute little, if any, to the competitiveness of the firm. Relying on
outside vendors enables organizations to reduce overhead costs by accessing
capabilities from external specialists who can perform these activities more
efficiently.
Lastly, when unique HR activities are not directly instrumental for creating
customer value, we can view them as idiosyncratic. For example, companies
such as IBM, AT&T, and Ford long maintained a cadre of industrial psychologists,
lawyers, and accountants to conduct personnel research for them. These
HR research departments produced custom-made reports that were focused on
strategic decisions within HR and the firm as a whole. However, over time,
most firms have drastically reduced or eliminated HR research functions because
of their limited or infrequent strategic value. In their place, most firms
have established ongoing relationships with consulting firms (e.g., Andersen
Consulting, Deloitte and Touche) and university-based research centers (e.g.,
Cornell’s Center for Advance Human Resource Studies, USC’s Center for Effective
Organizations). Partnerships may provide a structural alternative that
meets the firm’s unique requirements without drawing resources away from
other, more directly valuable functions. As with a contracting approach, establishing
a partnership allows a firm to capitalize on an external party’s specialized
knowledge without incurring the costs of internal development. However,
in contrast to a short-term contractual arrangement, ongoing partnerships
imply that firms and external parties work together over time to co-design and
execute HR activities that meet the unique needs of a firm.
Applying the Architecture of Virtual HR#p#分页标题#e#
As this discussion illustrates, a particularly important challenge for managers
adopting an architectural perspective to map virtual HR is determining
226 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8. NUMBER 3.1998
TABLE 1
Levels of Virtual HR
Level
HR Sub-functions
HR Practices
Primary Orientation
Decisions regarding the structuring of HR sub-functions such as
HR planning, recruitment/staffing, training and development,
performance appraisal, and compensation.
Decisions regarding the structuring of HR practices within an HR
sub-function such as (within staffing) planning, college recruitment,
interviewing, EEO/AA record keeping, test administration,
selection decisions.
which HR activities are most and least important from a strategic point of view
and deciding the most appropriate structural alternative for their deployment.
In other words, managers must determine which activities fall into which
quadrant. However, there is not likely to be a single dominant architecture
that all firms should emulate or a listing of which HR activities should be
deployed in each quadrant. Rather each firm’s architecture will likely differ, as
what is core in one firm may be peripheral in another. For example, in some
organizations recruitment, selection, and training may be core while compensation
and benefits are peripheral and performance appraisal is more traditional.
In other firms, compensation and performance appraisal may be the
most critical facets of the HR function. The possible combinations as to what
HR activities within the architecture of virtual HR fall into each quadrant are
endless. To complicate the management of the HR architecture further, firms
must simultaneously make these distinctions at multiple levels of analysis. As
shown in Table 1, HR can be virtual at either the sub-function or practices
levels.
At the sub-function level, firms may differentiate how they manage the
entire HR department. As table 1 indicates, this level of analysis involves
decisions pertaining to the deployment of entire sub-functions (e.g., recruitment,
training and development, compensation systems, etc.>. For example,
managers may decide to handle all staffing activities internally, outsource all
compensation, and partner with external vendors to develop and conduct
training programs.
While some firms may outsource entire sub-functions, it may be more likely
that firms will handle some activities within a particular sub-function internally
while outsourcing others. In other words, in addition to the sub-function
level of analysis, firms must make decisions regarding the individual practices
within each sub-function. For example, within the compensation sub-function,
it is becoming more common for firms to maintain control over primary or final#p#分页标题#e#
compensation decisions while outsourcing the administration of payroll and
benefits programs to external specialists and partnering with consulting firms
to conduct wage surveys and job evaluations. In contrast, some firms may
VIRTUAL HR 227
High
Uniqueness
Low
Idiosyncratic HR activities:
Customized distance
learning
Core Training Activities:
Curriculum design and
development; Proprietary
skills training
Peripheral HR activities:
Safety training, Basic skills
training, Facilities
~n~ernent~ Course
Scheduling
Traditional HR activities:
Course Management and
day-to-day ~ini~~tio~
LO%
Value
High
Figure 2. Hypothetical Example of Virtual Training
internally conduct their own wage surveys and job evaluations, believing that
these practices are too unique and valuable to delegate to outside parties.
These decisions regarding whether or not to outsource sub-unctions and
practices determine what a particular firm’s HR architecture will look like.
And though firms may enact. similar architectures, as noted above, most architectures
will likely differ as factors influencing the value and uniqueness of HR
activities differ across firms. As a result, it is not possible to depict an ideal
architecture. However, to illustrate the broad applicability of this architectural
perspective we draw from companies as diverse as Corning, one the one hand,
and Caribbean Hotel Management Services (CHMS) on the other, to discuss a
hypothetical example of virtual training within HR. The hypothetical mapping
of virtual training is shown in Figure 2.
As noted above, those training activities that are deemed core to a firm’s
competitiveness are often handled internally. In many firms, for example, it
would be rare for a firm to abdicate overall responsibility for the direction and
strategic linkage of its training activities to an external party. Further, activities
such as curriculum design and development and certain forms of proprietary
skills training (in patented technologies, processes, protocols, etc.) would
logically be reserved for internal organization and administration.
Similarly, training activities that are repeatable and/or broadly deployable,
though perhaps not firm-specific, also would likely be handled internally (if the
value generated justifies its internal expense). For example, many firms would
likely dedicate a staff of professionals to handle course management activities.
While the content of training programs might change, this staff would have
responsibility for general oversight and coordination of day-to-day operations
of the training function.
228 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8, NUMBER 3.1998
Perhaps the biggest gray area of virtual HR concerns non-proprietary activities#p#分页标题#e#
that have considerable overhead costs. In these instances, both contracting
and partnering are viable options. The key difference between these two
structural options is that contractual activities are essentially sent out of the
firm to be performed by an external specialist (and only their product is purchased
by the firm) while partnerships are co-developed and/or performed by
external specialists internally. The choice between these two essentially comes
down to whether the needs are firm specific or not.
In this light we can see that there are a host of low-value activities involved
in training that might be prime candidates to be outsourced. Firms may contract
out to external providers the content and delivery of training programs
such as language training for expatriates, safety training, stress management,
time management, basic skills training, and the like. These types of training
programs are often readily useful to most firms without any firm-specific considerations.
Further, facilities management, catering, hotel administration,
transportation and scheduling are all necessary but cumbersome aspects of
training overhead. Some companies still absorb most or all of these costs to
maintain complete control over their corporate university campuses, but increasingly
firms are opting to cut costs by externalizing these activities.
While contracting may be an ideal option for generic non-proprietary activities,
a partnership may be more appropriate when the outcome or product of
the relationship needs to be customized to the firm’s specific needs. For example,
the partnership between Caribbean Hotel Management Services (CHMS)
and Hocking College extends the idea of joint design and administration, and
also shows the power of information technology in a virtual setting (Theibert
1996). CHMS was faced with a situation where it had talented workers without
the specific skills they needed to perform well and, worse, the firm is
located in St. Lucia, in the Caribbean ocean. Unable to send its workers to
school overseas, CHMS contracted with Hocking College in Ohio to establish a
partnership to provide virtual training. In this arrangement, at the beginning
of each academic quarter, Hocking sends a professor to St. Lucia to provide
tailored training and development for CHMS employees. Once the on-sight
training is complete, CHMS’s employees continue with their coursework at a
distance, using info~ation technologies to submit their lessons and communicate
with their professors at Hocking (Theibert 1996). Through this partnership,
CHMS is better able to meet its special training needs by tapping into
expertise of Hocking’s professors without having to internally develop its own
training program.
Similarly, Corning has developed a partnership with the College Center of#p#分页标题#e#
the Finger Lakes (CCFL) to split responsibility for delivering various training
programs (DeRose & McLaughlin 1995). In this partnership, CCFL provides
peripheral or non-critical training courses and programs while Corning’s internal
training staff focuses on activities more central to the firm’s competitive
advantage as well as the overall design of the training program. More importantly,
to ensure that CCFL is able to meet Corning’s specific needs, members
from CCFL participate in Corning’s strategic training meetings and a Corning
VIRTUAL HR 229
manager is assigned to oversee the partnership. By establishing a partnership
rather than simply contracting out these training courses, CCFL is able
to customize the training design and delivery to Corning’s idiosyncratic
needs.
While this example of virtual training is somewhat hypothetical, it underscores
the changing nature of HR in many firms. As noted by Ulrich (1997,
p. 51, “For years, HR professionals and theorists have emphasized building HR
practices within the firm. The shift to a customer focus redirects attention from
the firm to the value chain in which it is embedded.” While HR departments in
the past have emphasized functional specialties (i.e., staffing, compensation,
EEO regulation), as organizations require greater strategic focus, customer
responsiveness, flexibility, and efficiency, many HR departments are recasting
the way they operate. And as HR becomes more virtual, managing processes,
information, and relationships are likely to take on a greater role.
DISCUSSION AND CONCLUSION
In this article we have tried to highlight how the HR function is being structured
as firm’s move into the 21st century. Building on the structural aspects of
differentiation and integration, we have explored the notion of virtual HR as a
response to the strategic charges of being more efficient, flexible, strategic, and
customer-oriented. And while the transition toward virtual HR presents a
great opportunity for SHRM researchers, we believe that there are several
specific research issues that are likely to increase in importance in the coming
years.
The Changing Focus of l-03 (Practices, Processes, or Relationships?). Perhaps
the most direct research implication for SHRM concerns the actual focus of HR
in a virtual environment. Managing virtual HR likely requires HR managers
to gain a greater mastery of information and relationships than ever before
(Davidow & Malone 1992). As the boundaries of HR continue to expand, HR
staff will be required to alter their professional perspectives and view HR
activities in terms of their value added. And as HR departments continue to
rely on external parties to perform a greater portion of their activities, those
professionals who remain will likely be called upon to facilitate and nurture#p#分页标题#e#
these relationships to ensure smooth implementation. These pressures will
require a shift in emphasis from reliably implementing valid practices to establishing,
supporting, and enhancing the processes and external relationships
that directly help firms attain competitive advantage. In short, the
changing focus of HR is likely to require a substantially modified skill set than
traditionally employed by HR professionals.
Similarly, as firms continue to push the limits of IT to achieve organizational
objectives, we would encourage SHRM researchers to examine how IT can
function not only as a cost reducing tool but as an asset that helps better
control and coordinate across organizational boundaries. Though information
technologies have had a dramatic impact on HR, the potential uses of IT have
230 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8, NUMBER 3,1998
not been explored or developed to their full potential. As noted by Snell, Pedigo
and Krawiec (1995) IT may serve an operational, relational, and transformational
role in HR. However, though we are only at the brink of understanding
the different uses of IT, technology investments too often focus solely on their
role in reducing costs and automating tasks (James 1997). As we strive to
understand how to better manage virtual HR, we must also gain better insights
in to how we can harness the potential of IT.
Overcoming Barriers. HR activities are also notoriously intractable and often
represent one of the major sources of bureaucratic inertia within firms. Once in
place, it is difficult to change a system that has both a practical and symbolic
impact on the organizational members. There will likely be a certain degree of
managerial resistance to these changes as well. For example, the continued
reliance on IT may serve as a threat in that IT may actually provide a mechanism
to disband HR professionals altogether (Stewart 1996). Further, a potential
downside for HR managers is that IT may enable line managers to solve
their own HR problems, thereby diminishing traditional value added of HR (cf.
Beatty & Schneier 1997). In this light, a significant charge for HR managers
and researchers is to understand how organizational change processes can be
used to implement virtual HR and overcome these obstacles. Researchers such
as Kotter (1995) and Ulrich (1997) have discussed how organizations can overcome
individual resistance and successfully implement change efforts. That
research could be expanded to help us understand how to successfully adopt a
virtual structure in HR.
#p#分页标题#e#
Managing the HR Architecture. As IT and external differentiation continue
to increase in prominence in HR, SHRM researchers may need to approach
HR as a multi-layered architecture consisting of an assortment of options at
both the sub-functional and practice level. The architectural framework
discussed above highlights the fact that there are a host of structural options
for virtual HR. Yet, we still know very little about how to manage these structural
arrangements as a portfolio or system. Though the task of managing
a single contractual relationship or partnership may not seem that complicated,
as we consider managing multiple relationships, practices, and subfunctions
between different structural arrangements, managing the entire HR
architecture can be a fairly daunting task. As this web of relationships assumes
a more prominent role in HR, SHRM researchers may want to draw
from network analysis and theory to better understand these arrangements
(Brass 1995).
HR managers must also keep in mind the firm’s strategic needs and objectives.
For example, while internalization, the most traditional role of HR (i.e.,
centralized operations), may support the strategic charge of organizational
efficiency, contracting, partnering, or purchasing HR support are options that
may be more conducive to attaining flexibility and customer-responsiveness. If
keeping track of all these different facets of virtual HR were not difficult
enough, as the competitive environment changes and organizations adapt
their strategic and operational approaches, what is core and peripheral in
VIRTUAL HR 231
virtual HR will likely change as well (Lepak & Snell in press). For example,
HR managers may engage in peripheral activities that have no immediate
strategic value but might pay off in the future or HR managers may disband
HR activities that have become relatively obsolete due to environment or organizational
changes. Research that examines these temporal aspects of value
and uniqueness in virtual HR would prove particularly valuable as SHRM
researchers strive to understand how the HR function can firm’s obtain and
sustain a competitive advantage.
We would also encourage researchers to explore the circumstances under
which different combinations of internal development, partnering, contracting,
and the like are most appropriate. In the past, SHRM researchers have focused
on identifying a specific set of practices and systems that are needed to help
organizations achieve a single strategic goal such as cost, quality, innovation,
and the like. One of the aims of that stream of research is the creation of a list
of best practices that are optimal in all situations, or at least for a given
strategy. That research might be extended to the context of virtual HR to help#p#分页标题#e#
us understand how to manage different structural combinations of HR activities
in certain circumstances to enhance HR’s ability to meet its strategic
objectives. While there may not be an optimal HR architecture that applies to
all firms, research that examines the positive or negative synergistic effects
stemming from combining different HR components in a firm’s virtual HR
architecture would be especially useful to understand the linkages between
virtual HR, strategy, and firm performance.
In conclusion, current trends concerning externalization and information
technologies suggest that HR in the 21st century may look dramatically different
from HR in the past. As organizations continue to search for ways to be
more responsive, flexible, strategic, and efficient, HR managers are being
forced to explore more innovative methods of performing their HR activities to
support these strategic initiatives. Yet, as we talk about virtual HR, it is
important that we not lose sight of the fact that these different facets must be
managed in concert as a portfolio of HR activities. With limited resources
available to meet multiple strategic priorities, it may be the implementation
and management of virtual HR that helps firms meet the demands of coming
years.
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