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Professional Employer Organizations and Their Role in Small and Medium Enterprises: The Impact of HR Outsourcing

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  • Brian S. Klaas

Abstract

While effective HR services and programs can help firms gain competitive advantage, small and medium enterprises (SMEs) often lack the internal resources required to develop and deliver these services and programs. As a result, SMEs increasingly are outsourcing HR activities to professional employer organizations (PEOs). Questions remain, however, about the conditions under which SMEs will benefit from outsourcing HR to a PEO, as well as about the type of benefits that are potentially available. The very nature of many HR activities raises questions about the risks associated with market governance and a PEO's ability to ensure service quality for SMEs. In order for these questions to be addressed, it is necessary to understand the process by which PEO utilization affects SME outcomes. In this article, we use transaction cost economics, social exchange theory, and the strategic HR literature to develop a framework for understanding the factors and conditions likely to affect whether and how an SME will benefit from using a PEO.

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  • Brian S. Klaas, 2003. "Professional Employer Organizations and Their Role in Small and Medium Enterprises: The Impact of HR Outsourcing," Entrepreneurship Theory and Practice, , vol. 28(1), pages 43-62, January.
    • Handle: RePEc:sae:entthe:v:28:y:2003:i:1:p:43-62
    DOI: 10.1111/1540-8520.00031
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    Cited by:

    1. Klaas, Brian S. & Klimchak, Malayka & Semadeni, Matthew & Holmes, Jeanne Johnson, 2010. "The adoption of human capital services by small and medium enterprises: A diffusion of innovation perspective," Journal of Business Venturing, Elsevier, vol. 25(4), pages 349-360, July.
    2. Marina Dabić & Marta Ortiz‐De‐Urbina‐Criado & Ana M. Romero‐Martínez, 2011. "Human resource management in entrepreneurial firms: a literature review," International Journal of Manpower, Emerald Group Publishing Limited, vol. 32(1), pages 14-33, March.
    3. Irwin, Kristin C. & Landay, Karen M. & Aaron, Joshua R. & McDowell, William C. & Marino, Louis D. & Geho, Patrick R., 2018. "Entrepreneurial orientation (EO) and human resources outsourcing (HRO): A “HERO” combination for SME performance," Journal of Business Research, Elsevier, vol. 90(C), pages 134-140.
    4. Martina Musteen & Mujtaba Ahsan & Taekyung Park, 2017. "SMEs, Intellectual Capital, and Offshoring of Service Activities: An Empirical Investigation," Management International Review, Springer, vol. 57(4), pages 603-630, August.

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