Professional Employer Organizations and Their Impact on Client Satisfaction With Human Resource Outcomes: A Field Study of Human Resource Outsourcing in Small and Medium Enterprises

Abstract

Increasingly, small and medium enterprises are outsourcing human resource (HR) activities to professional employer organizations (PEOs). The authors draw on social network theory, transaction cost economics, and social exchange theory to examine how PEO and client characteristics moderate the impact associated with outsourcing human capital-enhancing HR services. Results from a study suggest that using a PEO for human capital-enhancing services was positively related to HR outcomes and that this relationship was stronger when a weak-ties service delivery model was used, client receptivity was high, and the PEO contract was more detailed.

Keywords

HR outsourcing professional employer organizations enterprises

Get full access to this article

View all access options for this article.

References

Aaron, C. 2000. PEO census 2000. The ProEmp Journal, 4: 40-46.

Angione, J. 2001. The visionaries. The ProEmp Journal, 5: 28-39.

Baron, J. N. , Burton, D. M. , & Hannon, M. T. 1996. The road taken: Origins and evolution of employment systems in emerging companies. Industrial and Corporate Change, 5: 239-275.

Baron, J. N. , & Kreps, D. M. 1999. Strategic human resources. New York: John Wiley.

Becker, B. E. , & Huselid, M. A. 1999. Overview: Strategic human resource management in five leading firms. Human Resource Management, 38: 287-302.

Blau, P. M. 1964. Exchange and power in social life. New York: John Wiley.

Bryk, A. S. , & Raudenbush, S. W. 1992. Hierarchical linear models: Applications and data analysis methods. Newbury Park, CA: Sage.

Coleman, J. S. 1990. Foundations of social theory. Cambridge, MA: Belknap.

Connor, K. R. , & Prahalad, C. K. 1996. A resource-based theory of the firm: Knowledge versus opportunism. Organizational Science, 7: 477-501.

10.

Cook, M. F. 1999. Outsourcing human resource functions. New York: American Management Association.

11.

Delery, J. E. , & Doty, D. H. 1996. Modes of theorizing in strategic human resource management: Tests of universalistic, contingency, and configurational performance predictions. Academy of Management Journal, 39: 803-835.

12.

Gainey, T. , & Klaas, B. S. 2003. The outsourcing of training and development: Factors impacting client satisfaction. Journal of Management, 29: 207-229.

13.

Ghoshal, S. , & Moran, P. 1996. Bad for practice: A critique of the transaction cost theory. Academy of Management Review, 21: 7-12.

14.

Granovetter, M. S. 1973. The strength of weak ties. American Journal of Sociology, 78: 1360-1380.

15.

Granovetter, M. S. 1982. The strength of weak ties revisited. In P. V. Mardsen & N. Lin (Eds.), Social structure and network analysis: 105-130. Beverly Hills, CA: Sage.

16.

Greer, C. R. , Youngblood, S. A. , & Gray, D. A. 1999. Human resource outsourcing: The make or buy decision. Academy of Management Executive, 13: 85-96.

17.

Gulati, R. 1995. Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances. Academy of Management Journal, 38: 85-112.

18.

Hansen, M. T. 1999. The search-transfer problem: The role of weak ties in sharing knowledge across organizational subunits. Administrative Science Quarterly, 44: 88-111.

19.

Heneman, R. L. , Tansky, J. W. , & Camp, S. M. 2000. Human resource management in small and medium-sized enterprises: Unanswered questions and future research perspectives. Entrepreneurship Theory and Practice, 25: 11-26.

20.

Hirschman, C. 1997. All aboard: The boom in employee leasing may bring good career opportunities for HR professionals. HR Magazine, 42: 80-86.

21.

Hirschman, C. 2000. For PEOs, business is still booming. HR Magazine, 45: 42-48.

22.

Huselid, M. A. , Jackson, S. E. , & Schuler, R. S. 1997. Technical and strategic human resource management effectiveness determinants of firm performance. Academy of Management Journal, 40: 171-188.

23.

Klaas, B. S. , McClendon, J. , & Gainey, T. 1999. HR outsourcing and its impact: The role of transaction costs. Personnel Psychology, 52: 113-136.

24.

Klaas, B. S. , McClendon, J. , & Gainey, T. 2000. Managing HR in the small and medium enterprise: The impact of professional employer organizations. Entrepreneurship Theory and Practice, 25: 107-124.

25.

Kreft, G. G. , & de Leeuw, J. 1998. Introducing multilevel modeling. London: Sage.

26.

Lepak, D. P. , & Snell, S. A. 1999. Virtual HR: Strategic human resources in the 21st century. Human Resource Management Review, 8: 215-234.

27.

Masten, S. , & Crocker, K. 1985. Efficient adaptation in long-term contracts: Take or pay provisions for natural gas. American Economic Review, 75: 1085-1096.

28.

Mulherin, J. H. 1986. Complexity in long term contracts: An analysis of natural gas contractual provisions. Journal of Law, Economics, and Organization, 2: 105-118.

29.

Nelson, R. E. 1989. The strength of strong ties: Social networks and inter-group conflict in organizations. Academy of Management Journal, 32: 377-401.

30.

Nooteboom, B. , Berger, H. , & Noorderhaven, N. G. 1997. Effects of trust and governance on relational risk. Academy of Management Journal, 40: 308-338.

31.

Podolny, J. M. , & Baron, J. N. 1997. Relationships and resources: Social networks and mobility in the workplace. American Sociological Review, 62: 673-693.

32.

Provan, K. G. , & Milward, H. B. 1995. A preliminary theory of interorganizational network effectiveness: A comparative study of four community mental health systems. Administrative Science Quarterly, 40: 1-33.

33.

Ring, P. S. , & Van de Ven, A. 1992. Structuring cooperative relations between organizations. Strategic Management Journal, 12: 483-498.

34.

Takeishi, A. 2001. Bridging inter- and intra-firm boundaries: Management of supplier involvement in automobile product development. Strategic Management Journal, 22: 405-433.

35.

Ulrich, D. 1996. Human resource champions. Boston: Harvard University Press.

36.

Walker, G. , & Weber, D. 1984. A transaction cost approach to make or buy decisions. Administrative Science Quarterly, 29: 373-391.

37.

Williamson, O. E. 1993. Transaction cost economics and organization theory. Institutional and Corporate Change, 2: 107-156.

38.

Williamson, O. E. 1996. The mechanisms of governance. New York: Oxford University Press.

39.

Wright, P. M. , Smart, D. L. , & McMahan, G. C. 1995. Matches between human resources and strategy among NCAA basketball teams. Academy of Management Journal, 38: 1052-1074.

40.

Youndt, M. A. , Snell, S. A. , Dean, J. W. , & Lepak, D. P. 1996. Human resource management, manufacturing strategy, and firm performance. Academy of Management Journal, 39: 836-866.