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This study investigates the relationship between a number of organizational characteristics and the decision to outsource HR. Determinants of the outsourcing of four categories of HR are examined: HR generalists activities (e.g., performance appraisal), transactional activities (e.g., payroll), human capital activities (e.g., training), and recruiting and selection. HR executives in 432 organizations provided data on outsourcing levels and organizational characteristics. Reliance on HR outsourcing was associated with idiosyncratic HR practices, strategic HR involvement, positive HR outcomes, promotional opportunities, demand uncertainty, and pay level. As predicted, however, the impact of organizational characteristics varied among the different types of HR activities outsourced. (c) 2001 John Wiley & Sons, Inc.
Introduction
While HR activities have traditionally been performed in-house, advocacy for the outsourcing of HR is increasing (Stewart, 1996; Jamrog, Groe, & Pyle, 1997). Some argue that HR outsourcing can reduce costs, increase service quality by producing greater economies of scale, increase incentives and accountability for service providers, and increase access to experts in specialized areas (Csoko, 1995). Others, however, argue that outsourcing exposes organizations to opportunistic behavior by contractors, that HR outsourcing will limit the ability of firms to develop distinctive competencies within its workforce, and that outsourcing will create inefficiencies because contractors are often unfamiliar with their clients' strategy and culture (Ulrich, 1996). As a result, while research has shown the importance of effective HR management to organizational performance (Huselid, 1995; Becker & Gerhart, 1996), there has been considerable controversy about who should perform HR activities (Wright, Gerhart, Snell, & McMahan, 1997).
Although HR outsourcing may be increasing, there is substantial variation in how firms are responding to this controversy (Csoko, 1995). While some firms may make little use of HR outsourcing, others rely heavily on the use of outside vendors to provide HR activities, ranging from routine administrative tasks (Jamrog et al., 1997) to heavy reliance on outsourcing of major portions of the HR function (BNA, 1996; Corporate Leadership Council, 1996; Goldfarb & Naasz, 1995). Given that HR outsourcing has important consequences for the quality and cost of HR as well as for the HR profession (Ulrich, 1996), it is important to better understand why firms differ in the use of this increasingly important practice. Our study attempts to shed light on this issue...