HR OUTSOURCING AND ITS IMPACT: THE ROLE OF TRANSACTION COSTS

Although HR activities have traditionally been performed in-house, organizations are increasingly relying on outside contractors to perform these activities. Using a Transaction Cost Economics perspective, this study examined whether organizational-level factors moderated the relationship between the degree of reliance on HR outsourcing and the perceived benefits produced by outsourcing. Moderated regression was performed using data provided by over 300 HR executives on outsourcing levels, organizational characteristics, and the perceived impact of outsourcing. Support was found for a number of the transaction cost hypotheses regarding the impact of organizational characteristics. Specifically, the relationship between the degree of outsourcing and the perceived benefits generated was moderated by reliance on idiosyncratic HR practices, uncertainty, firm size, and cost pressures. No support was found for hypotheses regarding the moderating effect associated with pay level, overall outsourcing emphasis, or strategic involvement by HR.