The use of information technology in the provision of HR compensation services and its effect on outsourcing and centralization

Conventional wisdom suggests information technology (IT) can reduce inter-firm costs, leading to increased outsourcing. However, IT can reduce costs both within and between organizations, making the net influence of IT on outsourcing, and within firm configuration, unclear. Using transaction- and agency-cost approaches, this paper considers the influence of IT on both outsourcing and the within firm choice of decentralization or centralization of HR services. The interdependence of centralization decisions with outsourcing decisions is a novel theoretical and empirical contribution of the paper. Results from a survey of 243 firms indicate that IT facilitates outsourcing. Centralization of service decision making is positively related to outsourcing of the service which suggests that centralization may be a precursor stage or a facilitator of outsourcing. Empirical results also indicate that decision making on a service tends to be more centralized as the service is more standardized and has a higher level of scope economies.