EFFECTS OF HUMAN RESOURCE OUTSOURCING ON SERVICE INNOVATION IN PUBLIC

SECTORS
Author(s): Hong-Cheng LIU
Source: Acta Oeconomica, Vol. 64, Special Issue 2: ORGANIZATIONAL INNOVATION AND ITS
DEVELOPMENT SELECTED PAPERS OF THE 8TH ANNUAL INTERNATIONAL CONFERENCE
OF ORGANIZATIONAL INNOVATION (2014), pp. 13-24
Published by: Akadémiai Kiadó
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 Acta Oeconomica, Vol. 64 (S2) pp. 13-24 (2014)
DOl: 10.1556/AOecon.64.2014.Suppl.2

EFFECTS OF HUMAN RESOURCE OUTSOURCING

ON SERVICE INNOVATION IN PUBLIC SECTORS

Hong-Cheng LIU

Department of Public Policy and Management, I-Shou University

No. 1, Sec. I, Syuecheng Rd., Dashu District
Kaohsiung City 84001, Taiwan, R.O.C.
E-mail: hcliu@isu.edu.tw

To deal with a lot of public services, first-level human resources are largely required in
tal institutes. The changes of industries and employment structure have the government, in
ation of budgets and downsizing, apply Human Resource Outsourcing and introduce tem
ployees to reduce labor personnel costs and labor flexibility and to solve the demands for
and non-core businesses for achieving the innovation of administrative services and org
reform as well as enhance organizational competitiveness. Acquiring expected and stable
employees with favorable work performance is a dilemma for personnel units. By distrib
collecting questionnaires on-site, 230 copies of questionnaires were distributed to the su
public servants in various sectors of Kaohsiung City Government. A total of 169 valid c
retrieved, with the retrieval rate of 73%. The empirical results show partially positive ef
man Resource Outsourcing on Service Concept, Customer Interface, and Delivery Sys
vice Innovation, significantly positive effects of Human Resource Outsourcing on Techn
tion in Service Innovation, and remarkable moderating effects of background variables o
lations between Human Resource Outsourcing and Service Innovation.

Keywords: Human Resource Outsourcing, Service Innovation, Public Sectors

RESEARCH BACKGROUND

In face of the unemployment caused by global competition and low prosp

well as the changes of human resource structure, the government, consider
budget and downsizing, has part-time, temporary, and seasonal labors rep
labor demands for temporary and non-core businesses to reduce labor per
costs and labor flexibility and enhance the organizational competitivenes
ernmental institutes tend to introduce temporary employees, as Human R

OOOI-6373/$20.00 © 2014 Akadémiai Kiadô, Budapest

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14 Hong-Cheng LIU

Outsourcing in private enterprises, so as to achieve the administrative service in

novation and organizational reform (Fang 2009). Based on Government Procure
ment Act, public sectors flexibly apply human resources by contracting the em
ployment of services, called outsourcing employees. Human Resource Out
sourcing has rapidly grown in the past years in Taiwan in a way that a lot of gov
ernmental institutes release non-core businesses and employ outsourced employ
ees. However, acquiring expected and stable outsourcing employees with favor
able work performance is a great difficulty for personnel units.
In the early 1990s, the government actively promoted major public investment
in Taiwan because of the increased financial burdens, including the rising person
nel burden. In January of 1998, Executive Yuan passed Guidelines for Reinvent
ing Government, aiming to introduce enterprise management spirit, including
specific movements of downsizing and flexible organizations for the small and
capable government, lean human resources for cultivating enthusiastic and capa
ble public servants, and simplifying businesses for establishing modernized and
high-efficiency regulations. Moreover, Privatization, Build-Operate-Transfer
(BOT), and Outsourcing aimed at flexibly activating the applications of human
resources in various levels in order to provide a favorable environment for perfor
mance management (Huang 2010). Downsizing of public sectors allows the de
velopment of human resource outsourcing businesses in order that the human re
sources in governmental sectors become flexible and the governmental organiza
tion for future consumer societies is composed of core workers, outsourcing staff,
and part-time laborers. Apparently, the applications of Human Resource Out
sourcing to public sectors have become common in Taiwan.

LITERATURE DISCUSSION AND HYPOTHESES

I. Human Resource Outsourcing

With the example of information technology outsourcing, Kern - W

Heck (2002) defined outsourcing as an organization acquiring relevant
ents, and activities of suppliers through contracts. Alder (2003) rega
sourcing as an organization contracting suppliers for undesired functi
acquire the suppliers' knowledge, skills, services, and human resource
In the study on the externalization of human resource managem
(2011) divided externalization into purchased affairs, outsourcing pro
ployment, and temporary employees. Purchase referred to acquiring
knowledge, skills, or services which were short in an organization, suc
ing courses. Employment indicated employing informal employees for

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HUMAN RESOURCE OUTSOURCING IN PUBLIC SECTORS 15

like part-time personnel. Temporary employees referred to the third party agent
sending people to an organization for human resource services. Outsourcing pro
cesses indicated the continuous operation processes in an organization which
were executed by professional service companies through middle- and long-term
contracts in order to replace the current activities or functions in the organization.
According to the functions of human resource management, Huang (2011) classi
fied the skills into Human Resource Strategies and Planning, Human Resource
Acquisition Management, Human Resource Development Management, Human
Resource Maintenance Management, and Human Resource Information System.
Based on the research of Klass et al. (2001) and the investigation results of
Huang (2011), insignificant dimensions like Human Resource Strategies and
Planning are removed, and Human Resource Reward Management and Human
Resource Maintenance Management are combined. The dimensions of Acquisi
tion Management, Development Management, Maintenance Management, and
Information System are proposed for this study.

II. Service Innovation

Service Innovation is regarded as the combination of technology innovation,

management innovation, social organization innovation, and demand innovation,
with which enterprises could improve the existing or create new service value and
service systems (IfM & IBM 2007). Because of the broad definition of service in
dustry and the diversity of service innovation, Gallouj (2002) pointed out acquir
ing different types of services from the original place as Service Innovation.
According to the service innovation proposed by Hertog (2000), the following
dimensions are proposed for discussing Service Innovation. 1. Service Concept:
The key of Service Innovation is a specific service concept presenting familiarity
in a specific market, but an innovation in another specific market. It is judged by
the novelty of the service concept to enterprise providers, customers, or markets
and by new logics or scientific knowledge contained in the concept. Although the
essence of services is intangible, the service innovation could be practiced with
tangible equipment. 2. Customer Interface: The past research on innovation
tended to ignore the changes of interface between service providers and custom
ers. Nonetheless, such interface is one of the key points in service innovation. Be
sides, the interaction between providers and customers could be the source of in
novation. 3. Delivery System: Delivery is a specific style through customer inter
face interaction and so it is directly correlated with Customer Interface. Neverthe
less, the dimension emphasizes to have the workers accurately execute the work
and develop and provide innovative services through the arrangement of internal

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16 Hong-Cheng LIU

organization. 4. Technology Option: Information technology is a common appli

cation to service innovation. Although technology innovation is not utilized for
service innovation, technology practically enhances and drives the innovation,
therefore technology appears to be widely correlated with service innovation. Al
though some technologies are provided by suppliers, the users are the key in new
service development and practice.

III. Research on Human Resource Outsourcing and Organizational Performance

In the exploratory research on Human Resource Outsourcing, Lee (2009) men

tioned that enterprises should devote to saving and retaining the core resources
and practice Human Resource Outsourcing to enhance the service innovation for
high value added so as to enhance the organizational performance, achieve the or
ganizational goals, and create the development opportunities of employees. When
discussing the correlations between outsourcing and organizational performance,
Gilley et al. (2004) discovered the significantly positive correlations between Hu
man Resource Outsourcing and Market Performance and the remarkably positive
correlations between Human Resource Outsourcing and Service Innovation. Sev
eral studies also showed that outsourcing could assist in enhancing Service Inno
vation and Organizational Performance (Gilley - Rasheed 2000; Gilley - Greer -
Rasheed 2004). Huang (2010) also verified that the higher Human Resource
Outsourcing of an organization could enhance the service innovation perfor
mance, reduce the costs of human resources, and promote the human resource
quality, and the organization could focus on developing the core competence and
service innovation for the organizational efficiency. Huang (2011) further ana
lyzed the motives and acquisition of Human Resource Outsourcing and discov
ered that Human Resource Outsourcing allowed the outsourcing enterprises "pay
ing attention to the development of core competence", "developing innovative
service items and methods", "reducing costs and operation expenses", "enhancing
the efficiency of administrative businesses", "reducing personnel costs", and
"filling up the gap of insufficient experiences of professional personnel".
From the above statement it is considered that Human Resource Outsourcing
presents positive effects on cost control, service innovation enhancement, and
strategy application flexibility. The following hypotheses are therefore proposed.

HI: Human Resource Outsourcing shows significantly positive effects on Ser

vice Concept in Service Innovation.
H2: Human Resource Outsourcing appears to have remarkably positive effects
on Customer Interface in Service Innovation.

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HUMAN RESOURCE OUTSOURCING IN PUBLIC SECTORS 17

H3: Human Resource Outsourcing reveals notably positive effects on Delivery

System in Service Innovation.
H4: Human Resource Outsourcing presents significantly positive effects on
Technology Option in Service Innovation.

IV. Research on the background variables of organization

and Human Resource Outsourcing

Through interviews Lee (2009) discovered the distinct outsourcing models and
feasibility of Human Resource Outsourcing in different industries and organiza
tional forms. Huang (2011) did not find out the obvious correlations between Se
niority and Human Resource Outsourcing of an organization. As a matter of fact,
some research showed the correlations between the number of employees in hu
man resource department and the number of total employees in an organization.
Norman (2009) supported the effects of Seniority on Human Resource Out
sourcing. Consequently, the following hypotheses are proposed.

H5: Organizational Form appears to have moderating effects on the correla

tions between Human Resource Outsourcing and Service Innovation.
H6: Seniority reveals moderating effects on the correlations between Human
Resource Outsourcing and Service Innovation.
H7: Number of Employees shows notable moderating effects on the correla
tions between Human Resource Outsourcing and Service Innovation.

RESEARCH METHODOLOGY

I. Research framework

From the summary of the above literature review, the conceptual framework is
drawn (Figure 1) to discuss the correlations among demographic variables, Hu
man Resource Outsourcing, and Service Innovation in public sectors.

II. Research samples and sampling and data analyses

The sectors in Kaohsiung City Government are selected as the research subjects,
including 23 bureaus: Civil Affairs Bureau, Finance Bureau, Education Bureau,
Economic Development Bureau, Marine Bureau, Agriculture Bureau, Tourism
Bureau, Urban Development Bureau, Public Works Bureau, Water Resources
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18 Hong-Cheng LIU

Service Innovation
Demographic variables

Service Concept
H5-7
Customer Interface

Delivery System
Human Resource
Outsourcing in Technology Option
public sectors Hl-4

Figure 1

Bureau, Social Affairs Bureau, Labor Affairs Bureau, Police Department, Fire
Bureau, Department of Health, Environmental Protection Bureau, Mass Rapid
Transit, Bureau of Cultural Affairs, Transportation Bureau, Legal Affairs Bureau,
Military Service Bureau, Land Administration Bureau, and Information Bureau;
4 departments: Secretariat, Personnel Department, Department of Budget, Ac
counting and Statistics, and Civil Service Ethics Office; and 3 commissions: Re
search, Development and Evaluation Commission, Indigenous Affairs Commis
sion, Hakka Affairs Committee. The questionnaires were distributed and col
lected on-site. A total of230 copies of questionnaires were distributed to the supe
riors and public servants in various sectors of Kaohsiung City Government. A to
tal of 169 valid copies were retrieved, with the retrieval rate of 73%, and each col
lected questionnaire was regarded as a valid sample. The collected data were ana
lyzed with SPSS and the hypotheses are tested with Factor Analysis, Reliability
Analysis, Regression Analysis, and Analysis of Variance.

III. Analyses

Regression Analysis is applied to understanding the correlations between Human

Resource Outsourcing and Service Innovation, and Analysis of Variance is uti
lized for discussing the effects of demographic variables on the correlations be
tween Human Resource Outsourcing and Service Innovation.

RESEARCH RESULTS AND ANALYSES

I. Factor Analysis

With Factor Analysis, four factors of Acquisition Management (eigen

2.468, a = 0.81, Development Management (eigenvalue = 2.075, a = 0.84
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HUMAN RESOURCE OUTSOURCING IN PUBLIC SECTORS 19

tenance Management (eigenvalue = 1.762, a = 0.88), and Information System

(eigenvalue = 1.229, a = 0.80) were extracted for Human Resource Outsourcing.
The covariance explained achieved 84.375%.
With Factor Analysis, four factors of Service Concept (eigenvalue = 2.233, a =
0.86), Customer Interface (eigenvalue = 1.947, a = 0.82), Delivery System
(eigenvalue = 1.662, a = 0.83), and Technology Option (eigenvalue = 1.434, a =
0.85) were extracted for Service Innovation. The covariance explained reached
86.191%.

II. Correlation Analysis of Human Resource Outsourcing

and Service Innovation

(1) Correlation Analysis of Human Resource Outsourcing and Service Concept

in Service Innovation

Applying Regression Analysis to testing HI (Table I), Acquisition Management

(ß = 1.527, p = 0.041), Maintenance Management (ß = 1.976, p = 0.013), and In
formation System (ß = 2.237, p = 0.002) appeared to have significant effects on
Service Concept in Service Innovation, partially supporting HI.

(2) Correlation Analysis of Human Resource Outsourcing and Customer Interface

in Service Innovation

Applying Regression Analysis to testing H2 (Table 1), Acquisition Management

(ß= 1.681, p = 0.035), Development Management (ß = 1.862, p = 0.018), Mainte
nance Management, (ß = 2.073, p = 0.008), and Information System (ß = 2.132,
p = 0.005) presented remarkable effects on Customer Interface in Service Innova
tion, partially supporting H2.

(3) Correlation Analysis of Human Resource Outsourcing and Delivery System

in Service Innovation

Utilizing Regression Analysis for testing H3 (Table 1), Acquisition Management

(ß = 1.925, p = 0.016), Development Management (ß = 2.341, p = 0.000), Mainte
nance Management (ß = 1.577, p = 0.037), and Information System (ß = 2.469, p =
0.000) showed notable effects on Delivery System in Service Innovation partially
supporting H3.

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20 Hong-Cheng LIU

(4) Correlation Analysis of Human Resource Outsourcing and Technology Option

in Service Innovation

Utilizing Regression Analysis for testing H4 (Table 1), Development Manage

ment (ß = 1.762, p = 0.026) and Information System (ß = 2.316, p = 0.000) re
vealed remarkable effects on Technology Option in Service Innovation, support
ing H4.

Table 1

Regression Analysis of Human Resource Outsourcing and Service Innovation

Dependent Service Innovation

variable ->

Independent Service Customer Delivery Technology

variable I Concept Interface System Option
Human

Resource
Resource ppPpfipfip
ßpßpßpßp
Outsourcing
Acquisition 0.897 0.537 1.827* 0.015 1.057 0.334 1.538* 0.047
Management
Development 1.533* 0.044 1.233 0.217 0.845 0.526 2.134** 0.000
Management
Maintenance 1.732* 0.021 1.626* 0.038 1.927* 0.011 1.662* 0.036
Management
Information 1.694* 0.036 2.046** 0.003 2.162** 0.000 1.781* 0.018
System
F 11.381 16.843 27.657 36.184
Significance 0.000*** 0.000*** 0.000*** 0.000***
R2 0.237 0.269 0.348 0.391
Adjusted R2 0.024 0.032 0.038 0.047
Note: * p < 0.05, ** p < 0.01, *** p < 0.001
Data source: Self-organized in this study

III. Moderating effects of background variables

(1) Effects of Organizational Form on the correlations between Human Resour

Outsourcing and Service Innovation

With Analysis of Variance, the empirical results of Table 2 showed the

ing effects of Organizational Form on the correlations between Develo
Management, Maintenance Management and Service Concept, between A
tion Management, Information System and Customer Interface, betwee

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HUMAN RESOURCE OUTSOURCING IN PUBLIC SECTORS 21

opment Management, Maintenance Management, Information System and Deliv

ery System, and between Development Management and Technology Option,
partially supporting H5.

Table 2

Effects of background variables on the correlations between Human Resource Outsourcing

and Service Innovation

Background Human Resource Service Customer Delivery Technology

variable Outsourcing Concept Interface System Option
Organizational Acquisition 0.253 0.025 0.075 0.174
Form Management
Development 0.016 0.424 0.019 0.000
Management
Maintenance 0.003 0.321 0.000 0.334
Management
Information 0.162 0.043 0.038 0.281

System

Seniority Acquisition 0.000 0.035 0.833 0.041

Management
Development 0.437 0.422 0.000 0.013
Management
Maintenance 0.022 0.642 0.012 0.426
Management
Information 0.014 0.471 0.000 0.391

System

Number of Acquisition 0.000 0.007 0.913 0.384

Employees Management
Development 0.423 0.002 0.675 0.243
Management
Maintenance 0.036 0.084 0.046 0.000
Management
Information 0.512 0.438 0.075 0.002
System

(2) Effects of Seniority on the correlations between Human Resource Outsourcing and
Service Innovation

With Analysis of Variance, the empirical results of Table 2 revealed the moderat
ing effects of Seniority on the correlations between Acquisition Management,
Maintenance Management, Information System and Service Concept, between
Acquisition Management and Customer Interface, between Development Man
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22 Hong-Cheng LIU

agement, Maintenance Management, Information System and Delivery System,

and between Acquisition Management, Development Management and Technol
ogy Option, partially supporting H6.

(3) Effects of Number of Employees on the correlations between Human Resource

Outsourcing and Service Innovation

With Analysis of Variance, the empirical results of Table 2 presented moderating

effects of Number of Employees on the correlations between Acquisition Man
agement, Maintenance Management and Service Concept, between Acquisition
Management, Development Management and Customer Interface, between
Maintenance Management and Delivery System, and between Maintenance Man
agement, Information System and Technology Option, partially supporting H7.

CONCLUSION

The research results of Table 2 show that more successful Human Resource
Outsourcing could enhance Service Innovation in public sectors, and conse
quently the following suggestions are proposed.

I. Management of Human Resource Outsourcing in public sectors:

Maintenance Management

Both international and domestic famous enterprises present successful cases of

Human Resource Outsourcing. However, public sectors have to choose the best
ones for Re-Developing Management and constantly inspecting Maintenance
Management, rather than directly passing the work to Human Resource
Outsourcing companies. The employees in public sectors are directly affected by
Human Resource Outsourcing, therefore the proper application could effectively
enhance Acquisition Management so that the governmental sectors could acquire
the necessary employees. The acquisition and retention of employees could pro
mote the organizational efficiency and Service Innovation.

II. Reinforcing shared value in the organization: Information System

The research findings show that Information System in public sectors could assist
in enhancing Service Innovation. As outsourcing employees and the employees in
public sectors reveal distinct message delivery because of distinct Organizational
Forms, the government should establish a complete communication channel to
prevent the message from "spread" and "distortion". Moreover, a platform shared

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HUMAN RESOURCE OUTSOURCING IN PUBLIC SECTORS 23

with all organizational members could further shape the organizational culture. Ir
regularly sharing some "stories" and "activities" allows the outsourcing employ
ees sharing the common conversation with the employees in the organization to
reinforce the coherence and share the value. Besides, the governmental sectors
should provide the sustainable learning environments for the employees and con
stantly remind and educate the employees, as they are the precious assets of an or
ganization. When the employees constantly develop and innovate, the govern
mental sectors could make a break-through.

III. Devoting to employees' competitiveness: Development Management

When public sectors, through resource integration, outsource some functions to

"more suitable" companies, the orientation of the organization and the core com
petence of the governmental sectors should be taken into account. In this case, the
governmental sectors could develop and manage the employees and explore the
capabilities through "job design", "job rotation", and "E-learning". For the em
ployees, they could accumulate the core specialties by "rooting" and cultivating
the second or the third specialties through "expansion" to become the instant
power of the governmental sectors.

ACKNOWLEDGEMENT

The author would like to thank the National Science Council of the R
China for financially supporting this research under contract n
102-2410-H-214-008.

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