CONTRACTING OUT FOR MUNICIPAL HUMAN RESOURCES: ANALYZING THE ROLE OF HUMAN CAPITAL IN THE MAKE OR BUY DECISION.

Author:Battaglio, Paul
Position::Report
 
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INTRODUCTION

The term human capital has roots in the economics literature concerning the valuation of the human element in firm behavior. According to Becker (1962), a human capital perspective is "concerned with activities that influence future real income through the embedding of resources in people" (p. 9). Thus, a human capital approach to management emphasizes investment in the knowledge, skills, abilities and/or competencies of individuals and the workforce, with the expectation of a return in the form of improved organizational performance. Despite its private sector roots, human capital has proven appealing to managers in the public sector eager to invest in the knowledge, skills, and abilities of public servants.

For local governments, human capital planning is a must as they face an aging workforce and retirements in key management positions over the next decade (Government Finance Officers Association [GFOA], 2010; Kiyonaga, 2004; Pynes, 2009; Society for Human Resource Management [SHRM], 2010; Wilkerson, 2007). Indeed, the aging workforce is more pronounced in the public sector than it is in the private sector, and the public sector must compete for employees with the nonprofit sector and a private sector that has traditionally offered more lucrative short-term opportunities (Goodman, French, & Battaglio, 2015; U.S. Bureau of Labor Statistics, 2011). The workforce strains on local governments are particularly acute for leadership positions as most of these jobs are filled from within. While economic uncertainty has led many to reconsider early retirement, there is still cause for concern given that many workers in the upcoming workforce do not have the experience to fill crucial leadership roles (Center for State and Local Government Excellence, 2009; GFOA, 2010). A human resources impasse is expected to occur as large numbers of government workers retire and an unquantifiable amount of knowledge and expertise becomes unavailable. Additional challenges in recruiting and retaining talented employees and promoting and supporting employee success have emerged in the ongoing efforts of public organizations to overcome these staffing shortages (Henderson, 2008).

Fiscal stress is also a concern of local government personnel systems that have seen a double digit increase among its ranks since the late 1990s. In 1997, there were 12 million local government employees; by 2007 this number increased by 18% to 14.1 million (U.S. Census, 2011). Personnel-related expenditures are typically a dominate feature of local government budgets; however, there is lack of long term strategic plans among municipalities for containing and forecasting personnel costs (Henderson, 2008). The result is a "perfect storm" for the public sector workforce that includes expansions in the 1960s and 1970s; downsizing in the late 1980s and early 1990s; the "brain drain" created by early retirement programs; the declining appeal of public service; competition with the public and nonprofit sectors; lax retirement programs; prohibitions against phased retirement; increased opposition to continued work for government after retirement; and cuts in training and development budgets (Henderson, 2008). Moreover, many localities look to contracting out as an option for controlling personnel-related expenditures. Interest in contracting out HR functions has trended in recent years (Coggburn, 2007; Lavigna, 2003; Wilson, 2006) sparked by efforts at the federal (U.S. Transportation Security Administration) and state (Florida and Texas) levels (Koch, Dell, & Johnson, 2004).

Public HR managers are increasingly faced with the realization that in order to continue fulfilling the core functions of their missions in an environment of shrinking resources, a strategic plan for organizational needs, along with investments in employee knowledge, skills, and abilities, is critical. As a result, many public organizations have developed or begun to develop long-term, human capital plans, creating greater interest in strategic HR functions such as workforce planning, hiring, and employee retention.

This research will address the extent to which human capital planning is a predictor of the efficient use of human resources; specifically, whether the extent to which local government's that are engaged in long-term human resource planning are more readily able to discern the subtle distinctions among human resource functions optioned for contracting out. We begin with a review of the relevant practical and theoretical developments in human resource theory. The sections that follow detail the data and methods employed in the present study. We then offer a discussion with concluding thoughts for practice and future research.

HUMAN CAPITAL AND WORKFORCE PLANNING IN MUNICIPALITIES

Measuring current and anticipating future workforce capacities--workforce planning--has become increasingly important to public human resource managers (Goodman, French, & Battaglio, 2015; Hays & Kearney, 2001; Selden, 2009). Human capital approaches to public sector personnel incorporate more exacting processes for planning workforce needs. Public employers adopting strategic human resource management practices seek to identify and anticipate skills and abilities that will be needed in the future to enhance their knowledge management capabilities. Managing organizational knowledge becomes increasingly important as the rates of retirement within the public sector increase. Knowledge management requires planning for the exodus of important skill sets and anticipating future competencies that contribute to organizational goals and objectives. Strategic human resource management requires public managers to advance evaluation policies that employ metrics assessing the efficient use of resources (Selden, 2009).

The public service represents arguably the most important resource in the era of knowledge management (Ingraham, Selden, & Moynihan, 2000). In this regard, it is imperative that public human resource managers invest in a more knowledgeable public service, while remaining cost-effective. Such an effort requires a culture shift in the way the public and politicians view the public service, embracing adequate training and development as a means toward improving productivity. This shift toward investment in human capital proved to be constructive in private sector initiatives during the 1990s.

The focus is to incorporate human capital into the strategic planning of the organization (Selden, 2009) and to align human capital objectives with overall agency goals. Accordingly, agency mission and vision statements contain language that emphasizes investment in employees as crucial to achieving agency goals and objectives. The aim is to achieve support from management in leading strategic efforts and buy-in from line mangers and street-level bureaucrats in operations. Strategic planning requires agencies to assess current operations, forecast future operations, and provide guidance toward reaching future objectives. This process engages public managers to scan the environment (internal and external), link objectives with other actors (federal, state, local), develop strategic goals and objectives, identify core competencies, develop operational objectives and strategies, implement a plan, and monitor, evaluate and adjust the plan accordingly (Selden, 2009, p. 16).

Commitment on the part of management, employees, and stakeholders is important toward successful strategic planning (Bryson, 2004; Selden, 2009). Buy-in from all involved requires strategic planning efforts incorporate elements of both top-down and bottom-up approaches to managing (Selden, 2009, p. 19). That is, successfully implementing a strategic plan must include input from management as to directives for achievement and feedback from employees on the plausibility of such directives in their day-to-day activities. Coordinating strategic plans requires collaboration among all employees in carrying out new directives in order to achieve agency goals and objectives.

DATA AND METHODOLOGY

Survey and Dependent Variables

Employing a framework developed by Hays and Kearny (2001) and Kellough and Selden (2003), a survey instrument was developed by the authors and distributed in a three wave mailing to each human resource director from the top fifty populated cities in the United States and 506 human resource directors derived from a random sample of all cities with populations equal to or greater than 20,000. (1) The survey was mailed in the spring and summer of 2009. A total response rate of 33 percent was attained as 184 usable surveys were received after the three mailings. The response rate is characteristic of similar assessments of this "particular professional community" (Hays & Kearney, 2001, p. 589; French & Goodman, 2012). Responses by city population included: 44.6 percent from 20,000 to 49,999; 28.6 percent from 50,000 to 99,999; 16.9 from 100,000 to 249,999; 4.4 percent from 250,000 to 499,999; 3.8 percent from 500,000 to 1,000,000; and 2.2 percent from over 1,000,000. The variation in population, especially the responses from cities under 50,000, is encouraging for a more robust assessment of economies of scale in the present study (Hirsch, 1995).

Responses were received from all U.S. Census Bureau regions of the country. Regional responses were highest from the south (38.6 percent) and were the lowest from the northeast (23.3 percent). Response rates from the Midwest and west are 32.7 percent and 31.1 percent respectively. The regional sampling was within 2 percentage points of their population representation. For example northeastern cities account for 11.4 percent of the all cities over 25,000 and were 10.8 percent of the survey sample. While the sampling was within 2 percentage points of a region's respective population, the response rate from northeastern states was underrepresented and was over represented in...

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