Agile HR and Transaction Costs: Why Empowerment Is an Economic Advantage

In 2019, Yin, Wang, and Lu made a compelling argument: if you want to understand why companies move toward agile and empowerment-based HR practices, look through the lens of Transaction Cost Economics (TCE). It reveals something powerful—agility isn’t just a cultural shift. It’s an economic strategy.

TCE,originally proposed by Ronald Coase in 1937 and thereafter pioneered by Oliver Williamson (1971), says organisations incur “transaction costs” every time work must be directed, monitored, or coordinated. Traditional hierarchies try to reduce these costs through control. Agile organisations reduce them through trust, transparency, and empowerment.

But the story gets deeper when we look at two critical factors within employment relationships:

1. Human Asset Specificity: The Hidden Cost Driver

Human asset specificity refers to the degree to which employees’ knowledge, skills, and experience are unique to the organisation.

• In 2025, Gartner estimates that 72% of roles in large enterprises involve organisation-specific knowledge—shared systems, processes, and cross-functional context.
• The more specialised the role, the more costly it becomes to monitor or replace that talent.

A simple example: An HR Business Partner operating across global sites in a matrix structure doesn’t just perform transactions. They navigate informal networks, global context, and tacit knowledge. Their value comes from organisation-specific expertise that cannot be easily codified or supervised.

High human asset specificity means traditional control mechanisms fail—because monitoring specialised, tacit work becomes expensive and ineffective.

2. Performance Ambiguity: When Work Cannot Be “Checked”

Performance ambiguity describes how difficult it is for leaders to evaluate the true quality of an employee’s work.

As task complexity rises, performance becomes harder to measure. McKinsey notes that more than 56% of modern work is now interdependent, not individual. This shift makes output harder to attribute to one person.

In global, collaborative, matrixed teams—like HR, product development, or digital transformation—performance signals are diffused. We can not monitor everything. We can not codify everything. We can not audit everything.

Under these conditions, the cost of supervision skyrockets.

The Yin et al. (2019) Insight: Empowerment Reduces Transaction Costs

This is where agile comes in.

Yin, Wang, and Lu (2019) argue that empowerment practices are not simply “people-centric”—they are economically rational in environments with:

• High human asset specificity
• High performance ambiguity

In such contexts, empowering employees reduces transaction costs because organisations no longer need to expend resources on intense monitoring, approvals, and oversight.

Agile structures—such as self-managing teams—enable employees to:

• Gather real-time information directly
• Coordinate at source
• Make decisions at the closest point of knowledge
• Resolve issues without upward escalation

This reduces the cost of communication, alignment, and control.

Yin et al. put it simply:

Empowerment allows teams to access information from one another, reducing monitoring, communication, and coordination costs.

Why Agile HR Amplifies the Effect

Agile HR isn’t just empowerment. It rests on three reinforcing principles that directly cut transaction costs:

1. Transparency of Information

Dashboards, stand-ups, OKRs, and open workflows reduce the need for managers to “check” work. Information becomes self-regulating.

2. Continuous Learning and Skill Fluidity

When employees continuously upskill and acquire broader context, they rely less on managerial interpretation. Cross-skilled teams self-correct faster.

3. Rapid Feedback Loops

Frequent retrospectives reduce the cost of errors by catching them early—reducing rework and supervision needs.

In essence, agile HR redesigns the system so that people manage work, not managers managing people.

The Economic Outcome: Leaner, Faster Organisations

When human asset specificity and performance ambiguity are high, the economic logic becomes clear:

• Less monitoring → lower administrative costs
• Better coordination → lower communication overhead
• More autonomy → faster decisions
• Shared information → reduced internal friction

This is why firms like Spotify, ING, Haier, and countless tech and non-tech enterprises adopt agile: It economically outperforms traditional control-based models in complex environments.

The Bottom Line

Under conditions of high knowledge specificity and ambiguous performance—conditions that define modern, interconnected work—agile HR practices reduce transaction costs across performance monitoring, communication, and coordination.

Agility is not a soft, cultural trend. It is a strategic response to the rising complexity of work.

Firms don’t adopt empowerment because it “feels good.” They adopt it because it is cheaper and more effective than control.

And that is why the future of work will continue to shift from supervision to self-management—because economics will demand it.