The association between employment externalization and organizational performance: The moderating roles of strategy and firm-specific knowledge

This study examined the association between employment externalization and organizational performance. Employment externalization is defined as the use of agency temporaries, short-term hires, on-call workers, or contractors and contract services for on-site work There is an abundance of research identifying the extent that externalization is used in industry. There is also some research identifying why organizations use externalized workers. However, there is little research specifically identifying the outcomes resulting from the use of externalized workers. Most discussions deal with efficiency outcomes, with very few addressing issues of effectiveness.; 1168 surveys were mailed to the top Human Resource officer of publicly held U.S. Corporations. The key independent variable measured was employment externalization intensity measured both in terms of number of workers and proportion of work accounted for by externalized workers. Key dependent variables measured were perceived worker commitment, perceived worker flexibility and perceived employment transaction-costs. Financial indicators of performance were not measured due to problems in data gathering. Key moderator variables measured were firm-specific knowledge and organizational strategy. Respondents were asked to provide all the data used in the study.; It was hypothesized that there would be differences between externalized and internalized workers on the key dependent variable. T-test indicated that results supported this hypothesis. It was also hypothesized that employment externalization intensity would be negatively related to perceived worker commitment and flexibility, and positively related to employment transaction-costs. This hypothesis was not supported. Finally, it was hypothesized that an organization's competitive strategy and firm-specific knowledge would moderate the relationship between employment externalization and the key dependent variables. Multiple regression analysis indicated that there was very little support that strategy moderates the relationship, and no support that firm-specific knowledge moderates the relationship, between employment externalization intensity and the key dependent variables. Thus, the long-term relationship between externalization intensity and organizational commitment is more negative for organizations using a differentiation strategy compared to those using a cost-focus strategy. The few statistically significant results can also be attributed to chance.