ASSIGNMENT 8
Int. J. of Human Resource Management 11:2 April 2000 336-365
Managing human resource for competitive advantage: a study of companies in Singapore
Naresh Khatri
Abstract We sec two major streams of research in ihe strategic human resource management literature; (I) the link between strategy and human n;source (HR) practices and (2) the link between HR practices and fimi performance. There is a plethora of theoretical perspectives on the first link. Unfortunately, there is not much empirical work. The second link has seen a spate of empirical studies. However, mosi of them embrace the universal perspective and the role of strategy as a contingency has not been adequately addressed. This could potentially result in the underestimation of the impact of HR practices on organizational performance. This study addressed the above two weaknesses in previous research in the strategic HR management field, Using a sample of about 200 of the largest companies representing all major industries in Singapore, we found that organizational strategy affects HR practices. Moreover, findings suggest that the strategy-HR interaction accounts for more variation in firm performance than the main effect of HR. Implications of the findings are discussed.
Keywords Smitegic human resource management: HR planning; HR strategy; con- tingency; configuration; Singapore.
A consensus has emerged among scholars and practitioners alike that the business environment has become more competitive than in the past because of globalization (Ansoff. 1991; Hamel and Prahalad, 1996). In order to survive in this new era, businesses have to focus even harder on their competitive strengths so as to develop appropriate long-term strategies. Old practices and systems that have evolved over time in a relatively stable environmental context are inadequate to meet the challenges posed by the complex and dynamic business environments; of today.
The issue of how to counter the dynamic environmental forces falls in the domain of strategic management research. Broadly, strategic management attempts to match (or fit) an organization with its environment. There is a plethora of approaches suggested in strategic management literature to achieve this match or tit. The majority of them are biased in favour of economics however and thus focus predominantly on the industry determinants of organizational performance (emphasis on the external portion of the SWOT framework) (Lado and Wilson. 1994; Pfeffer, !995; Wright et al., 1994). Undoubtedly, an organization must remain relevant to its external stakeholders' demands, yet there is a need to correct this bias by paying more attention to analysing finns' internal strengths and weaknesses (Barney, 1995).
Naresh Khatri, Assistant Profes.sor, Nanyang Business School, Nanyang Technological University. Mail Box: S3-B2-C-82. Singapore 639798. (tel: (65) 790-5679; fax: (65) 791-3697; e-mail: ankhatri@ntu.edu.sg)
The International Journal of Human Resource Management ISSN 0958-5192 print/ISSN 1466-4399 online © 2000 Taylor & Francis Ltd
Khatri: Managing human resource for competitive advantage 337
The resource-based view of the firm overcomes the bias in the mainstream strategic management literature by stressing the importance of firm-specific resources that can provide competitive advantage to an organization on a sustainable basis. Resources are 'anything that could be thought of as strength or weakness of a given firm, which include tangible and intangible assets' (Wemerfelt, 1984) or 'skills, organizational routines and processes" (Barney. 1991). In contrast lo the traditional external perspective of developing strategy to match the environment (e.g. Porter. 1980, 1985), ihe resource-based view is centred on the internal re.sources of the firm. The assumption is that the origin of competitive advantage lies in possessing, acquiring and utilizing internal resources in getting the firm ahead of its competitors. In short, while the classical strategic management paradigm has an industry-environment focus, the resource-based view is firm-ftx:used, with emphasis on links among strategy, internal resources of the firm and performance (Wright and McMahan, 1992).
The resource-based view provided the necessary impetus to research in the strategic human re.source management field (SHRM) (Wright and McMahan. 1992; Lado and Wilson. 1994; Pfeffer, 1994). Scholars in this ;u"ea argue that the human resource satisfies four conditions necessary to achieve sustainable competitive advantage; human resource is valuable, rare, imperfectly imitable and has no substitutes. Competitors ean easily duplicate competitive advantage obtained via better technology and products, they suggest, but it is hard to duplicate competitive advantage gained through better management of people.
There have been a number of studies on various aspects of managing human resource strategically, especially studies on the link between human resource practices and organizational pertbrmance. However, as noted by Becker and Gerhart. "given the importance and complexities of the strategy research area, this body of work is relatively small and most of the key questions are sorely in need of further attention" (1996; 779). We undertook this study to overcome the dearth of empirical work in SHRM.
One of the most important arguments in SHRM field is that HR practices that are consi.stent with or support organizational strategy are more effective than those that do not (Miles and Snow, 1984; Schuler and Jackson. 1987; Truss and Gratton. 1994). Unfortunately, there is little empirical evidence to support the above view (Dyer and Reeves. 1995; Lengnick-Hall and Lengnick-Hall. 1988; Wright and Shennan. 1998). Thus, the focus of this study is to examine empirically if the fit of HR practices with organizational strategy increa.ses their effectiveness. Specifically, we examine (1) the link between strategy and HR practices and (2) the moderating effect of strategy on the link between HR practices and organizational performance.
Theoretical background
Two streams of research dominate the SHRM hterature: (1) the link between strategy and HR management and (2) the link between HR practices and firm performance.
Link between strategy and HR management
The link between strategy and HRM can be further divided into two sub-streams: macro and micro. The macro sub-stream focuses broadly oii the status and infiuence of HR function in the organization. The focus of macro stream is not on individual HR practices, but on the link of HR function with the business strategy. Several scholars have put forward frameworks linking business .strategy with HR strategy in this area. Five frameworks - Golden and Ramanujam (1985). Lengnick-Hall and Lengnick-Hall
338 The Intemational Joumal of Human Resource Management
(1988), Schuler (1992), Wright and McMahan (1992), and Truss and Gratton (1994) - which have received much attention are discussed next.
Golden and Ramanujam (1985) proposed four types of linkages bet'ween HR management and the strategic planning process: administrative, one-way, two-way and integrative. In firms with an administrative linkage between HR and strategic planning, the human resource management department plays the traditional personnel role. It provides day-to-day operational support and is primarily involved in handling the paperwork. Top managers and other functional managers generally view the HR fiinction as relatively unimportant. The firms with one-way linkage between HR and strategic planning have a sequential relationship between strategic planning and the HR function. The HR function typically designs programmes and systems lo support the firm's strategic objectives. The HR function merely reacts to strategic initiatives. The two-way linkage is characterized by a reciprocal and interdependent relationship between strategic planning and HR function. Top management recognizes that business plans affect and are affected by HR activities. The HR functitm is viewed as credible and important. Companies having integrative linkage between strategic planning and the HR function show a frequent and dynamic interaction, both fonnal and infonnal. The senior HR executive is viewed as a true strategic business partner with other senior executives.
Lengnick-Hall and Lengnick-Hall (1988) proposed a reciprocal linkage between competitive strategy and human resource strategy. If competitive strategy dictates the demand for skills/employees, human resource strategy determines organizational readiness. Unlike most of tlie literature which explicitly or implicitly assumes unidirectional relationship flowing from strategy to HR practices, the authors emphasize that human resource strategy both affects and is affected by organizational strategy.
Schuler (1992) proposed the 5-P model, linking strategic busitiess needs with strategic human resource management activities. The five ' P ' s ' stand for human resource phil- osophy, human resource policies, human resource programmes, human resource prac- tices and human resource processes. The author noted that strategic human resource management consists of all activities affecting the behaviour of individuals in their efforts to formulate and implement the strategic needs of the business. Further, successful efforts at strategic HR management begin with the identification of strategic business needs. If these needs are important to the success of the business, and if SHRM can be instrumental in meeting these needs, then these needs should be systematically analysed for their impact on human resources management aclivities including HR philosophy, policies, programmes, practices and processes.
Wright and McMahan (1992) Identified six theoretical models (behavioural per- spective, cybernetic models, agency/transaction cost tbeoiy, resource-based view of the firm, power/resource dependence models and institutional theory) that are useful for understanding both strategic and non-strategic determinants of HR practices. They argue that the first four theories are applicable to strategic HR decision making. Tliese attempt to view HR activities as being determined by proactive, strategically intended decisions. The latter two focus on the institutional and political determinants of various HR practices, and explain the non-strategic and dysfunctional determinants of HR practices. The authors suggested that both types of theories are necessary for understanding the role of HR practices in strategic management.
Truss and Gratton (1994) reviewed the major models of SHRM and identified five key aspects of the SHRM process that should be included In any model of SHRM. These are: external environment, overall strategy of the organization, the internal organization (structural, cultural, political and psychological factors), human resource
Khatri: Managing human resource for competitive advantage 339
strategy and individual HR practices and outcomes (tnotivation, satisfaction, perform- ance and comtnittnent of employees). One unique feature of the model is that it explicitly recognizes the important distinction between intended HR strategy and realized HR practices which has been ignored in most models on SHRM.
While the above perspectives explained macro-level relationships between strategy and HRM, another sub-stream of research has chosen to examine these relationships at the micro level. In one of the earliest works in the micro tradition. Miles and Snow (1984)' argued that the human resources management practices must be tailored to the demands of business strategy. They noted that successful firms display a consistent strategy supported by complementary organization structures and management pro- cesses. They suggested that strategies pursued by companies can be classified broadly into four types: defenders, prospectors, analysers and reactors. While defenders, prospectors and analysers pursue consistent strategies, reactors lack any consistency in their .strategies. Defenders are characterized as building human resources, prospectors ys acquiring resources and analysers frequently have to 'buy' as well as 'make' key human resources. When viewed from this theoretical perspective, firms pursuing a defender strategy would emphasize training programmes and internal promotion (building human resources), while firms with a prospector strategy would spend more efforts on recruitment and selection (acquiring human resources) and performance- based compensation. Ajialysers would focus their attention on HR planning.
In another influential work in the micro sub-stream, Schuler and Jackson (1987) provided a detailed treatment of the three competitive strategies (innovation, quality- enhancement and cost-reduction) and the required role behaviours. They argued that it is more useftil to think about what is needed from an employee who works with other employees in a social environtnent and that these needed employee behaviours are actually best thought of as needed role behaviours. Based on the different role behaviour requirements in different competitive strategies, they recommended a set of HR practices for each .strategy.
Research on the relationship between overall strategy and HR practices has been predominantly theoretical in nature so far. Thus, empirical studies are very much needed to test the validity of the above theoretical frameworks. Further, empirical studies can help us refine these frameworks or., in fact, may allow us to develop new and more valid frameworks.
Link between HR practices and firm performance
In contrast to the dearth of empirical work on the strategy-HR practices relationship, the relationship between HR practices and organizational performance has been the subject of significant empirical examination (Arthur. 1994; Huselid. 1995; Huselid and Becker, 1996; Gerhart and Milkovich. 1990: Ichniowski et al., 1994; Koch and McGrath. 1996; Pfeffer. 1994; Terpstra and Rozell. 1993). Previous research has used one of the following three ways to examine the effectiveness of HR practices on firm performance: universalistic, contingency or configurational (Delery and Doty, 1996). Researchers in the universalistic perspective are tnicro-analytical in nature and posit that some HR practices are always better than others and that all organizations should adopt these practices. Contingency theorists argue that, in order to be effective, an organization's HR practices must be consistent with other aspects of the organization. A common contingency factor identified in this line of research is bu.siness strategy. The configurational theories are concerned with how the pattern of multiple independ- ent variables is related to a dependent variable rather than with how individual
340 The Intemational Joumal of Human Resource ManagemetU
independent variables are related to the dependent variable. According to the con- figurational perspective, in order to be effective, an organization must develop an HR system that achieves both horizontal and vertical fit. Horizontal tit refers to the internal consistency of the organization's HR practices, and vertical fit refers to the congruence of the HR system with other organizational characteristics, such as firm strategy (Delery and Doty, 1996).
Guest (1997) termed universalistic, contingency and conligurational perspectives as intemal fit (HRM as an ideal set of practices), extemal fit (HRM as strategic integration) and configurational fit (HRM as bundles), respectively. The author noted that there is empirical support for each of three perspectives but consistently stronger support for the intemal fit model, and the general approach represented by this stream of research is sufficiently encouraging to suggest that it is continued and improved.
MacDuffie (1995) and Lahteenmaki et ai (1998) argued in favour of 'bundles* of HR policies and practices and noted that effects of HR practices on organizational pertbnnance are multiplicative rather than additive as assumed in prior research in SHRM. This view is similar to that of Becker and Gerhart (1996) who observed that any effect of HR practices lies in the architecture of the system, not in selecting so- called best practices.
While the previous research on the HR practices-perfonnance litik has demonstrated that HR practices affect organizational penFormance significantly, it has raised a couple of important questions. First, most of the empirical research has been conducted in the United States.^ Whelher or not HR practices affect performance in other countries remains an empirical question for further testing. Second, with some notable exceptions such as studies conducted by Huselid and his colleagues (Huselid, 1995; Huselid et ai. 1997), much of the research has looked at a single or a few HR practices at a time (Becker and Gerhart, 1996). This approach is appropriate in the exploratory phase but quite deficient or even inappropriate considering that a single or a few HR practices may show a spurious significant relationship with perfomiance because of being correlated with HR practices that actually influence performance. Therefore, the natural research progression is to examine the impact of many HR practices simultaneously so that their independent effects can be better understood.
HR practices in Singapore: a background
Most of the studies on HRM issues in Singapore fall into two categories. The first category of studies follows the traditions of labour economics and the level of analysis for these studies is the economy or society at large (e.g. Pang, 1993; Islam and Chowdhury, 1997; Shaw et ai, 1995). There is no consideration of HR issues at the organizational level. Studies in the second category, on the other hand, are micro- analytical and most of them are limited to studying the employee tumover problem, which is the most important problem companies in Singapore face (e.g. Cheng and Brown, 1998; Debrah, 1993. 1994; Koh and Goh. 1995). The link between strategy and HR practices and between HR practices and performance outcomes is rarely considered. Cunningham and Debrah's (1995) study is an exception. Their study investigated HR competencies needed to manage HR function strategically. Nonetheless, we provide a brief overview of HRM in Singapore and recommend interested readers to refer to Cunningham and Debrah (1995), Debrah (1993, 1994) and Wilkinson (1986) for a comprehensive coverage of HR scene in Singapore.
The extemal environment of organizations in Singapore is quite complex and influences their HRM practices to a large extent. The major environmental pressure is
Khatri; Managing human resource Jbr competitive advantage 341
the acute labour shortage resulting in a tight labt)ur market and the consequent government regulations on the recruitment of foreign workers. The unemployment rate at the time of the study was as low as 2.6 per cent. Singapore depends quite heavily on a large pool of both skilled and unskilled foreign workers, who represent about 20 per cent of the labour-force (Islam and Chowdhury. 1997).
The labour shortage has been the main feature of the economy for nearly two decades. Organizations face serious difficulty in recruiting employees. A still more formidable problem they face is high employee turnover as organizations vie for employees and in many cases 'poach' employees. Because of labour shortage, employees, especially non-managerial, pick and choose jobs. Job-hopping is quite prevalent and accompanying job-hopping is the poor attitude of employees.
To tide themselves over the problem of job-hopping, companies are using a strategy of core and peripheral employees (Debrah, 1993). The core employees are treated well so that they stay with the company and the operations of the company remain unaffected. Singapore has subsidiaries of both Eastern and Western corporations. Fisher and Shaw (1992) found evidence of the impact of the headquarters on HR practices in Singapore subsidiaries. Thus, HR practices in Singapore have a mixed influence from the West and the East. There is no noticeable influence of unionization on HR practices because unions in Singapore are neither strong nor militant (Fisher and Shaw. 1992). The National Trade Union Congress has a symbiotic relationship with the government and employers (Islam and Chowdhury. 1997).
Shaw et al. (1995) examined the role of Singapore government in HR practices. The authors observed that Singapore's government has taken an interventionist role not only concerning broad issues of economic policy but with respect to HRM activities as well, and it has focused heavily on productivity improvement. The government also encourages the adoption of business practices which seem to work well in other countries. The process of selective imitation was found to be the pervasive mind-set in Singapore, encouraged by government and professional organizations. The authors al.so observed that similarities between local and foreign firms in Singapore are likely to be a product of firms conforming to local government standards and to the mutual imitation processes operating between Singapore and foreign firms.
HR managers in Singapore and many other Asian countries are facing difficult challenges. However, with challenges come opportunities. For example, MacLachlan (1996) noted that East Asia is the be.st place in the world to be a personnel or developmental professional because of the focus on recruiting, development and retaining staff. However, we believe that, at present. HR managers in Singapore and other Asian countries iire not up to the challenge because of the lack of strategic approach to HRM and lack of HR competencies (Cunningham and Debrah. 1995; Debrah, 1994; Khatri. 1998; Khatri and Chong, 1999). For example. Debrah (1994) found that the ad hoc nature of HRM policies and practices of companies in Singapore contributes significantly to the job-hopping phenomenon. Cunningham and Debrah (1995) reported that line managers and executives take over some of the functions of HR managers because HR managers lacked the skills necessary to perform their duties competently. Khatri (1998) noted that companies in Singapore under-utilize strategic HR activities in two important areas; recruitment/selection and training/development. Companies were found to use employment tests rarely and give little emphasis, if any. to the validity of selection instruments. The most common approach to .selection was the use of unstructured interviews and unstructured interviews have very low validities, if any. The author concluded that job-hopping in Singapore could be attributed to a significant extent to poor recruitment and selection practices. Further, the author found
342 The International Journal of Human Resource Management
that companies in Singapore neglect some critical aspects of training and development, such as evaluation of training programmes, training needs analysis and cost-benefit analysis. In another study, Khatri and Chong (1999) found that poor management practices had much greater influence on employee turnover than bad attitude of employees. Factors under the control of management contributed a unique variance of 37.6 per cent and uncontrollable factors (bad attitude and labour sht>rtage) a meagre 5 per cent of (he unique variance to the turnover model. All the above studies suggest that HRM in Singapore is not a particularly well-managed function. We think that, given the competitive environment companies in Singapore face now. they will contribute to their own extinction by ignoring the vital role of strategic HRM.
Hypotheses
We propose two sets of hypotheses. The first set contains three broad/macro hypotheses based on both universal and contingency perspectives. The second set contains nine micro hypotheses (involving individual HR practices) based on the contingency perspective.
Many authors have found evidence suggesting that HR practices have a direct and positive effect on firm performance (Arthur. 1994; Huselid. 1995; Huselid and Becker, 1996; Gerhart and Milkovich, 1990; Ichniowski et al.. 1994; Koch and McGrath. 1996; Pfeffer, 1994; Terpstra and Rozell, 1993). Many of these practices revolve around work involvement and participation in decision-making processes of front-line employees in the organization. The research literature has largely argued for the universality of such practices and their impact. However, as most of these studies have been done in the United States, there is a need to test the universality of effects of HR practices using samples of organizations in other countries. Therefore, our first hypothesis is;
Hypothesis I: HR practices are positively associated with organizational perform- ance in Singapore companies.
Youndt et al. (1996) argued that on the surface the universal and contingency perspectives appear to be competing but they are. In fact, complementary. Further, they noted that while the universal approach helps researchers examine the benefits of consistent HR practices across all contexts, the contingency perspective helps us look more deeply into organizational phenomena that have their roots in situationally specific circumstances and management practices. In addition, when we consider the different theoretical perspectives of Miles and Snow (1984), Schuler and Jackson (1987) and others, and empirical studies by Arthur (1992), Youndt et al. (1996) and Deiery and Doty (1996). we could argue that high-performance practices vary across strategies. Thus otir second and third hypotheses are as follows;
Hypothesis 2: The extent of HR practices is dependent on organizational strategy.
Hypothesis 3: The link between HR practices and performance is moderated by organizational strategy.
Our next set of hypotheses considers specific HR practices and their relationship with strategy. Miles and Snow's typology (1978) of four strategic archetypes has been used very often in previous research (e.g. Hambrick, 1983; Namiki, 1989; Zahra and Pearce, 1990). Further, the same authors wrote an influential article (1984) specifically linking the strategy archetypes with HR practices. In this study, we have used their typology to
Khatri: Managing human resource for competitive advantage 343
examine the moderating influence of business strategy on the link between HR practices and organizational performance.
Defenders
Defenders operate in a narrow domain and protect it aggressively. They achieve this with high degree of efficiency. A defender strategy calls for centralized decision making with an emphasis on formalization and standardarization of jobs and tasks. Defenders are usually found in matured industries. The basic strategy of defenders is to 'build' human resources (Miles and Snow. 1984; Hiltrop, 1996). This means that a defender company typically engages in little recruiting above entry level, but has extensive training and development programmes. Moreover, the tasks are standardized, narrow and routine to achieve efficiency. As a result, participation of employees in decision making is not encouraged. Defenders operate in a stable industry and protect the niche they occupy. Consequently, they do not need any elaborate HR planning exercises. Compensation is position- or seniority-based and performance appraisal is process- oriented (Miles and Snow, 1984). Moreover, the role of HR may be limited to proper file maintenance/record keeping. Golden and Ramanujam (1985) characterize this as an administrative linkage between business strategy and human resource management. In view of the above :u-guments, we propose the following hypotheses:
For companies pursuing a defender strategy: Hypothesis 4\ The amount of training will be positively associated with
peribrmance. Hypothesis 5: The amount of HR planning will be negatively associated with
performance.
Prospectors
Prospectors are virtually the opposite of defenders. They continually search for new products/markets and create new goods and services. A prospector's domain is thus broad and unstable. It is in a continuous state of development because with additions of new products or markets come retrenchments in some of the existing products or markets. A good degree of flexibility needs to be incorporated into the technological .system to ensure a good fit with the changing domain. The technological system is not contingent only upon the organization's current product mix but also the future mix. The solution appears to be the creation of multiple technologies with a low degree of standardization, routinizatlon and mechanization. Thus, prospectors need a decen- tralized market-based design with low specialization and a lot of participation from the employees. A prospector strategy requires much support from the HR department to be able to meet the ever-changing need for talent/professionals. The HR department needs to be proactive and involved in all major strategic decisions. Prospectors typically seek to buy in talent - a strategy that should involve sophisticated recruitment/selection, including extensive psychological testing at all levels of the organization but limited training. Compensation practices of prospectors tend to be outcome-based (Miles and Snow, 1984). Hence the following hypotheses:
For companies pursuing a prospector strategy: Hypothesis 6: The greater emphasis on selection tests and structured interviews in
the selection process will be positively associated with pertbrmance.
344 The International Journal of Human Resource Management
Hypothesis 7; The amount of training will be negatively associated with performance.
Hypothesis 8: The greater participation of employees in decision making will be positively associated with perfonnance.
Hypothesis 9: Performance-based compensation will be positively associated with performance.
Analysers
Analysers are a hybrid of defenders and prospectors. It means that they operate in stable as well as changing markets. For their products in a stable market domain, they operate efficiently. They watch their competitors for new ideas in their turbulent market domain. Analysers are tnoderately decentralized. Consistent with hybrid nature of overall strategy of analysers, their HR practices are likely to be hybrid of HR practices of defenders and prospectors.
There is one unique feature of analyser strategy, that is, analysers make much use of planners and analysts, and organizations pursuing analyser strategy need to be large enough to be able to maintain the duality in their structtire and their broad domain. An analyser strategy may also require a lot of emphasis on HR management like a prospector strategy.
For companies pursuing analyser strategy: Hypothesis JO: The amount of HR planning will be positively associated with
perfonnance. Hypothesis IT. The amount of training will be positively associated with
performance. Hypothesis 12: The greater employee participation/involvement in decision making
will be positively associated with pertbrmance.
Reactors
Reactors lack a consistent strategy. As a result. HR practices of reactor companies are likely to lack consistency too. We propose no hypotheses here, although all analyses performed on other three strategic archetypes have also been performed on companies pursuing reactor strategies to discern any patterns in their HR practices.
Methods
Sample and data collection
Singapore, being small, presents problems of sample size in most of the studies. In this research, we would have liked to select a small number of industries to be able to control for industry effects on organizational strategies, HR practices and firm performance. However, none of the industries had a sufficiently large number of companies with the result that we had to include companies from all of the industries in Singapore. The 'Singapore 1000' directory provided the sampling frame for the study. Based on our discussions with HR managers and other practitioners, we excluded the construction industry of Singapore from the sample because of highly unorganized HR departments and practices in that industry. In addition, companies having a turnover
Khatri: Managing human resource for competitive advantage 345
of less than S$ 15 million (1 US$ equals approximately S$1.70) and employing fewer than forty employees were e.xcluded. This was done because companies too small do not have a full-fledged HR department. After applying the above selection criteria, we were left with a total sample of 915 of the largest companies in Singapore.
Firm-level data on organizational strategy, HR practices and firm performance were collected with a questionnaire. The questionnaire had two sets. Set I was to be completed by the Chief Executive Officer (CEO) and contained a measure of organizational strategy and subjective financial and non-financial measures of firm performance. Set 2 was to be completed by the head of HR function. It included measures of HR practices.
The tirst wave of the questionnaires was mailed to the CEOs in July 1997. The CEOs were requested to complete Set I, enclose it in an envelope provided for the purpose, and seal the envelope. They were then to pass on the sealed envelope along with incomplete Set 2 to the head of HR function in their companies. The heads of HR function were to complete Set 2, enclose it in an another envelope and seal the envelope. They were then to enclose the two sealed envelopes in a bigger business reply envelope to retum them to us.
Thanks-cum-reminder cards were mailed after about two weeks. Usually, the ihanks- cuni-reminder cards work best if sent within a week. However, since the questionnaire had two sets to be completed by two different individuals, a gap of two weeks was con.sidered more appropriate. The second wave of the questionnaire was mailed six weeks after the ihanks-cum-reminder card. The cover letters in the second wave were addressed to the head of HR function in.stead of the CEO. We mailed the third wave of the survey after another six weeks. The cover letters in the third wave were addressed to the CEO with similar instructions as above. All our data were collected before the onset of the present Asian economic crisis.
Of the total 915 companies in Singapore selected for the study, 222 responded. Six questionnaires were non-usable. Ten companies responded with only set 1 and another twelve companies sent only set 2. The remaining companies (194) returned both completed sets. The first wave yielded a response rate of 13 per cent, the second wave ne\t 7 per cent, and the third wave the remaining 4 per cent with an overall response rate of 24 per cent. Considering that two different respondents were involved, we find the response rate satisfactory. Typically, the response rate for such surveys in Singapore hovers around 15 per cent. The higher than normal response rate can be attributed to the Total Design Method (Dillman, 1978). We succeeded in conveying to respondents that this was an important study and questionnaires were presented well, using colours and extra envelopes.
In all, fifteen industries were represented in the sample. The bulk of the companies were from four main industries in Singapore: industrial/engineering, manufacturing, electronics and banking. Each of these industries had twenty or more companies.
Measurement of strategy
Gibbons (1994) used Conant et ai's measure of strategy successfully in his study of Singapore companies. This prompted us to adopt Conant et o/.'s (1990) measure of Miles and Snow's four strategic archetypes; defenders, prospectors, analysers and reactors. Conant et ai operationalized organizations into above four strategic types using eleven close-ended questions. Each question had four response options which characterize the four generic strategies of the Miles and Snow typology. The
346 The International Journal of Human Resource Management
categorization of organizations into strategic types was based on the 'majority rule' in that the organization was classified as pursuing the strategy if the number of response options for a particular strategy was high. For example, if the majority of the response options selected were defender type, then the organization would be classified as a defender. Conant et al. also provide guidelines for classification of companies into strategic types in case of a tie. According to these guidelines, if there is a tie between the reactor and one or two other strategies, the organization is classified as a reactor. If there is tie between or among non-reactor strategies, the organization is classified as an analyser, a hybrid strategy.
Measurement of HR practices
HR practices covering four major HR functional areas of recruitment/selection, training/ development, performance appraisal and compensation/benefits were included in the study. In addition, we included relevant HR practices commonly considered to improve company performance from HR planning and employee participation/involvement literature. Thus, the six sets of HR practices form natural bundles (MacDuffie, 1995). Table I summarizes HR practices according to the major HR functions that have been demonstrated, theoretically or empirically, to affect performance positively in the previous research. The exhibit includes four practices under recruitment and selection, six practices under training and development, two practices under compensation and benefits, four practices under employee participation and live practices under perform- ance appraisal. In addition to the practices in Table 1, we identified nine practices under human resource planning.
The HR practices were measured using a six-point Likert scale ranging frotn 1, "strongly disagree', to 6, 'strongly agree' (see Appendix I for details).
The recruitment and selection scale included four items: use of employment tests, performing validation studies on selection methods/instninients. providing realistic job previews and conducting structured and standardized interviews.
The employee relations/participation scale was adopted from Delery and Doty (1996) and included three items: "employees are allowed to make decisions', "employees are asked to participate in decisions', and "employees have open communication with supervisors'.
The perfonnance-appraisal scale was constructed using the following two items: (1) supervisors discussed performance with their subordinates, and (2) appraisal process involved consultation between the supervisor and his or her subordinates.
The compensation scale was made up of four items: (1) performance in the job as important in detennining earnings of employees. (2) promotion based primarily on seniority (reverse-coded), (3) company has comprehensive flexible benefits scheme and (4) company reviews benefits regularly.
Five items comprised the training and development scale: (1) employees of the company go through training programmes every few years, (2) company has formal training programmes to teach new employees skills to perform their jobs, (3) training needs analysis. (4) cost-benefit analysis of training programmes, and (5) evaluation of training programmes.
The HR planning scale included nine items: (I) HR department as integral part of company's strategic planning process. (2) HR activities aligned with overall corporate strategy, (3) HR department has explicit statement of its mission and goals. (4) HR accorded an important role in the company, (5J HR has as much say in corporate
Khatri; Managing human resource for competitive advantage 347
Table 1 Summary of the research studies suggesting/finding link between HR practices and performance
HR practices Authors
Recruitment ami selection Use of etnployment tests
Realistic job previews Structured and standardized interviews
Validation studies on methods used
Training and development Formal training programmes for new
employees Training needs analysis of training
programmes Cost-benefii analysis of training
programmes Evaluation of training programmes Formal on-lhe-job training to enhance
promotability Formal off-the-job U"aining to increase
promotability
Compensation and benefits Performance-based cotnpensation
Employee relations/participation Employees given opportunity to
suggest improvements Employees allowed to make decisions
Employees often asked by supervisors to participate in decisions
Superiors keep open communication
Performance appraisal PerFormance measured with objectively
quantifiable results Performance measurement includes
quality criteria Superiors discuss peformance with
subordinates Performance appraisal includes goal-
setting Promotion bitsed primarily on merit
Huselid (1995); Koch and McGrath (1996); Delaney et at. (1989); TerpsttB (1994)
Not studied previously Terpsu-a and Rozell (1993); Koch and McGrath
(1996) Koch and McGrath (1996); Terpstra (1994)
Pfeffer (1994); MacDuffie (1995); Huselid (1995)
Not studied previously
Terpstra (1994)
Terpstra (1994) Arthur (1992): Hiitrop (1996); Huselid (1995)
Arthur (1992); HiltrDp (1996); Huselid (1995); MacDuffie (1995)
Pfeffer (1994); MacDuffie (1995); Hiitrop (1996); Delany et aL (1989); Huselid (1995)
MacDuffie (1995): Delery and Doty (1996): lchniowski et ai. (1996)
MacDuffie (1995): Delery and Doty (1996); Arthur (1992); Hiitrop (1996): Ichniowski etal. (1996)
Pfeffer (1994): Deianey cf a/. (1989); Delery and Doty (1996); Arthur (1994): Hiitrop (1996)
Pfeftcr (1994); Arthur (1992); Delaney et aL (1989)
Roberts (1995); Kravetz (1988)
Roberts (1995); Ghorpade and Chen (1995)
Youndt et al. (1996); Kravetz (1988)
Gratton (1995): Schuster (1986)
Gratton (1995)
matters as other departments, (6) HR activities fully integrated with each other, (7) the head of the HR department participates in executive/steering committee meetings, (8) the extent of information flow between HR department and other departments, and (9) the treatment of HR function as a specialized ftmction.
348 The Intemational Joumal of Human Resource Management
We assessed internal consistency of the scales by computing Cronbach alphas and determined unidimensionality using factor analysis. The HR planning scale showed good reliability (a = .89) and the principal component analysis extracted a single factor. The three-item employee participation scale and the two-item performance appraisal scale too showed good internal consistency (a = .88 in each case) and single factors in the factor analysis.
Factor analysis using principal component analysis of recruitment/selection, training/ development, and compensation/benefits practices in the study showed two factors in each case. We computed cronbach alphas for each factor and renamed the scales. Using employment tests and performing validation studies on selection methods loaded onto one factor. We labelled it 'use of employment tests'. The Cronbach alpha was .76. The remaining two items {providing realisiic job previews and conducting structured/ standardized interviews) loaded onto the second factor and together had a Cronbach alpha of .70. We named the factor 'u.se of structured interviews'.
Similarly, two items (pertomiance in the job as determinant of earnings and promotion based on seniority (reverse-coded)) were combined into one scale labelled 'performance-based compensation' ( a = . 7 3 ) . The remaining two items (company has flexible benefits scheme and company reviews benefits regularly) were combined into another scale named 'flexible benefits' ( a = . 7 5 ) .
The factor analysis of five items on training and development also revealed two factors. Two items (employees go through training programme.s every few years and company has fonnal training pmgrammes to teach new employees skills to perfbrm their jobs) were consistent and loaded on one factor which we named "amount of training" ( a = . 8 2 ) . Three items (training needs analysis, cost-benefit analysis of training programmes and evaluation of training programmes) loaded on the second factor labelled 'training effectiveness' ( a = . 9 t ) .
Mea.surement of performance
Delaney and Huselid (1996) have noted that the examination of altemative dependent variables should provide important confirmatory information on the a.ssociation between HR practices and firm perfomiance. It is quite likely that various HR practices affect different measures of pertbrmance differently. In this study, we use two financial indicators: percentage growth in sales in the last three years (labelled 'sales growth' for convenience) and percentage profit margin in the last three years (labelled 'profitabil- ity') (see Appendix II). In addition, perfonnance included three non-financial indicators: public image and goodwill, quality of services and efficiency of operations. Since the three non-financial indicators showed good internal consistency ( a - . 7 4 ) and unidimensionality (single factor in factor analysis), they were combined into one scale termed 'non-financial performance" (see Appendix II).
The firm perfonnance using the above indicators was measured subjectively. Thai is, the performance indicators in the study were included in Set 1 of the survey to be completed by the CEOs. All HR practices were included in Set 2 of the survey to be completed by the HR managers. The use of two respondents served two purposes. First, it helped minimize the self-report biases (possible attribution effect). Second, it also enhanced objectivity in another way. The CEOs are much more knowledgeable about company performance and thus more accurate in reporting it. Similarly, HR managers know more about HR practices and thus likely to be more accurate in reporting HR practices.
Khatri: Managing human resource for competitive advantage 349
Results
Strategic archetypes
The companies in the sample were classified into four types - defender, prospector, analyser and reactor - using the scheme provided by Conant et al. (1990). The classification suggests that, while analyser strategy was by far the most commonly used business strategy in companies in Singapore (ninety companies, 41.7 per cent of the total sample), the reactor strategy was the least common (twenty-five companies, 11.6 per cent). The number of defenders and prospectors was fifty (23.1 per cent) and 39 (18.1 per cent), respectively.
Descriptive statistics
Table 2 provides the zero-order correlations of HR practices and performance measures. The table shows significant positive correlations between HR practices, suggesting that HR practices are not independent of each other. HR practices also show significant correlations with profitability, sales and non-financial perfonnance. For example, while performance-based compensation had significant positive relationship with all three types of performance, flexible benefits show only a marginally significant positive relationship with non-financial performance ( r ^ . 1 1 , p<.10). Employee participation showed a highly positive relationship with non-financial performance ( r = . 2 1 , p<.01), but insignificant correlations with profit and sales. The ratio of HR employees to the total number of employees in the organization had insignificant correlation with sales, but negative and significant correlations with profit and non- financial performance (r^-.I,*^. p<.05 and r ^ - . U . p < . 1 0 , respectively). Consultative performance appraisal had positive and significant correlations with profit and non- financial performance (r=.19, p<.OI and r = . 1 3 , p < . 0 5 . respectively), but no correlation with sales. Use of structured interviews showed positive correlations with profit and non-financial performance. Use of employment tests had no significant correlations with any of three peribrmance measures. Amount of training and training effectiveness/ evaluation had positive and significant correlations with profit (r=.17, p<.01 and r = . I 4 , p<.O.'i, respectively) and non-financial performance ( r = . I 8 , p<.01 and r = . 1 4 , p < . 0 5 , respectively) but no significant correlations with sales.
Hypotheses testing
We performed moderated regression to test Hypotheses 1 and 3. Strategy was measured as a categorical variable in this study. As a result, we used dummy variables for each strategy type and performed three moderated regressions, one each for three dummies of defenders, prospectors and analysers. Results are presented in Tables 4 to 3c.^ In the first step, we entered the two control variables, size of the organization (number of employees) and the dummy variable for the correspi^nding strategic type. All HR practices were entered in the second step. The third step included all the interaction terms involving HR practices and the corresponding strategy. For companies pursuing defender strategies, while the main effect of HR practices on the profitability was significant at p < . 0 5 , it was only marginally significant lor sales and non-financial peribrmance (p<.10). The main effect of HR practices for prospectors on profitability was highly significant (p<.01), but insignificant for sales and non-financial perform- ance. Analysers showed a somewhat similar pattern. Main effect of HR practices was significant on profitability (p<.05), marginally significant on sales (p<.lO) and
350 The Intemational Journal of Human Resource Management
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insignificant on non-financial performance. In sum, HR practices had a significant direct effect on profitability of companies of all strategic types, but marginal or insignificant direct effects on sales and non-financial performance, Thu.s. Hypothesis 1 that high performance HR practices would be positively associated with performance in Singapore companies received only a modest support.
Hypothesis 2 posits that HR practices in companies vary according to the strategies pursued by them. We performed a one-way ANOVA to compare the means of HR practices across four strategic archetypes. Results are presented in Table 3. Results show that flexible benefits in companies pursuing prospector and analyser strategies were significantly higher than companies pursuing either defender or reactor strategies. While defenders used performance-based compensation significantly less than other three strategy types, there was no significant difference in the use of performance-based compensation between prospectors, analysers and reactors. Prospectors and analysers made use of significantly higher consultative performance appraisals than reactors, and analysers showed significantly greater emphasis on the effectiveness of training programmes than did defenders.
There were insignificant differences between four strategy types for the remaining HR practices such as employee participation. HR planning, use of structured interviews, use of employment tests and amount of training. On the whole, findings provide a weak support for Hyp<Jthesis 2.
Hypothesis 3 states that the relationship between HR practices and performance is moderated by organizational strategy. This hypothesis received strong support. The interaction terms of HR practices and strategic types in step 3 (see Tables 4a to 4c) showed highly significant effects across three performance measures and across three strategic archetypes, with one exception, the profitability of prospectors.
Findings on Hypotheses 1 and 3 suggest that business strategy had a highly significant moderating influence on the link between HR practices and performance. Thus, to isolate the specific effects of HR practices on three performance measures (or, in other words, to test Hypotheses from 4 to 12), we ran three regression analyses (three performance measures) for each of the four strategic archetypes, Thus, in all, there were twelve regression models. We developed the best-fit models using forward and backward elimination methods. Results are presented in Table 5.
Hypothesis 4, that the amount of training would be positively associated with performance for companies pursuing a defender strategy, received only a partial support. The amount of training for defenders showed a positive and significant relationship for non-financial performance only. It had no significant effect on profitability and sales. Similarly. Hypothesis 5. that HR planning would have a negative relationship with performance for defenders, received partial support. It had a negative and significant effect on non-financial performance but no significant impact on profitability and sales.
Hypotheses 6 to 9 pertain to prospectors. Hypothesis 9, that performance-based compensation would be associated with firm performance for prospector companies, was supported, as refiected in positive and significant regression coefficients of performance-based compensation on profitability and non-financial performance. Hypothesis 8. that employee participation would be positively associated with the performance of prospectors, was only partly supported. Employee participation showed a positive and significant effect on the growth of sales of prospectors but insignificant effect on profitability and non-financial performance. Hypotheses 6 and 7, on the use of selection tests and amount of training, were not supported.
352 The International Journal of Human Resource Management
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Khatri: Managing human resource for competitive advantage 353
Table 4a Main effects of HR practices on performance and influence of their interaction with strategy on performance (defenders)
Variables
STEP 1: Controls
Size (no. of employees) Strategy (defender)
STEP 2: HR practices
Flexible benelits (CBI) Performance based Compensation (CB2) Employee participation (EP) HR planning (HRP) HR ratio (HRR) Performance appraisal (PA) Use of structured Interviews (SRI) Use of employment tests (SR2) Amount of training (TDl) Training effectiveness (TD2)
STEP 3: HR practices and strategy
CBI X defender CB2 X defender EP X defender HRP X defender HRR X defender PA X defender SRI X defender SR2 X defender TDi X defender TD2 X defender
R=
Overall F
F probability
Non-financial performatice
^ AR^
.099 .014
sm
.000 .095*
.026
.238** - . 0 6 2 -.097
.002
.009 - . 0 4 3
.101
.059
interaction
- . 0 7 2 .095* .414
- . 9 2 7 ^ .865
- . 0 0 9 -.62r
.931-^ - . 5 2 7 *
,773^ - . 0 1 0
. 2 ^
1.84
.02
Profitability
P AR^
.069 .027^ - . 1 4 9 *
- . 1 4 7 * . I I I * -.011
.015 - . 0 9 9 -.187**
.183*
.100 - . 0 2 9
.127
.on
-.173 .122** .807-̂
1.353** -2.014**
.250**
.194
.137 - . 2 5 7 - . 1 5 3
.483^
.260
2.53
.001
Sales growth
/3 AR^
.069 .006 - . 0 4 5
-.159^ .097* .097
.072
.270**
.017 -.154 -.049 -.094
.060 -.028
- . 4 5 9 .118** -1.168* - . 1 7 6 1.409* .068 .390
-1.239** .427*
- . 1 5 3 - . 5 1 2
.221
2.03
.01
Notes + significant at p<.IO; * significant at p < ,05; ** significant at p < . O l ; **• significant at p < . 0 0 1 . N = 194.
Hypotheses 10 to 12 are related to analysers. Hypothesis 10 that the use of HR planning would be positively associated with the perfonnance of analysers received partial support. Results in Table 5 show that the use of HR planning was positively and significantly associated with the sales growth of analysers. Employee participation was positively associated with non-financial performance of analysers but showed no
354 The International Journal of Human Resource Management
Table 4b Main effects of HR practices on performance and influence of their interaction with strategy on performance (prospectors)
Variabtes
STEP 1: Controls
Size (no. of employees) Strategy (prospectors)
STEP 2: HR practices
Flexible benefits (CBl) Performance based Compensation (CB2) Employee participation (EP) HR planning (HRP) HR ratio (HRR) Performance appraisal (PA) Use of structured interviews (SRI) Use of employment tests (SR2) Amount of training (TDl) Training effectiveness (TD2)
STEP 3: HR practices and strategy
CBl X prospectors CB2 X prospectors EP X prospectors HRP X prospectors HRR X prospectors PA X prospectors SRI X prospectors SR2 X prospectors TD 1 X prospectors TD2 X prospectors
R'
Overall F
F probability
Non-flnanciat performance
.070 .012 ,085
- . 0 3 5 .080 .02!
.229* - . 1 2 0 - . 1 0 8 -.037
.001
.009
.149*
.044
interaction
- . 0 5 6 .196** 3.080** -.115 - . 0 9 8
.012 -1.588**
1.752** .166 .148
- . 0 4 2
.288
2.96
.001
Profitability
)S AR^
.078 .008
.044
-.122 .160** .033
.059 -.158*^ - . 1 8 5 * *
.138
.158* -.071
.158*
.114
.462 .039 1.124""
- . 2 2 5 - . 0 8 0 -.129 - . 2 0 9 -.208
.072 - . 0 8 3 - . 3 0 7
.207
1,88
.01
Sales growth
P AR'
.063 .031*
.163**
- . 1 6 0 .076 .102
.033
.241**
.021 - . 0 9 9 - . 0 4 4 - . 0 4 8
.031 -.067
-.517 .093* .224
1.152* -1.123^
.048 -.702
.420 - . 2 5 0
.809*
.410
.200
1.79
.02
Notes + significant at p < . 1 0 ; * significant at p < . 0 5 ; ** significant at p < . O I ; *** significant at p < . 0 0 1 . N = ! 9 4 .
significant relationship with profitability and sales, thus providing only a partial support to Hypothesis 12. Amount of training was significantly positively related to profitability of analysers but its relationship with sales and non-financial performance was insignificant. Thus, Hypothesis 11 received partial support.
We want to make more observations on the study findings that are not related to any
Khatri: Managing human resource for competitive advantage 355
Table 4c Main effects of HR practices on performance and infiuence of their interaction with strategy on performimce (analysers)
Variables
STEP 1: Controls
Size (no. of employees) Strategy (analyser)
STEP 2: HR practices
Flexible benefits (CBl) Performance based Compensation (CB2) Employee participation (EP) HR planning (HRP) HR ratio (HRR) Perlormance appraisal (PA) Use of structured interviews (SRI) Use of employment tests (SR2) Amount of training (TDl) Training effectiveness (TD2)
STEP 3: HR practices and strategy
CB! X analyser CB2 X analyser EP X analyser HRP X analyser HRR X analyser PA X analyser SRI X analyser SR2 X analyser TDl X analyser TD2 X analyser
R̂
Overall F
F probability
Non-financial performance
fi AR^
.077 .006 - . 0 0 8
- . 0 0 3 .086 .062
.244** - . 1 3 2 - . 1 0 8 - . 0 4 0 - . 0 1 8 -.002
.148^
.004
interaction
- . 2 9 9 .125** - . 4 7 1
.381 2.126**
.034
.426 - . 3 9 6
.180 -1.112** - . 1 9 8
.217
Z03
.01
Profitability
/3 AR"
.058 .034**
.174*
- . 1 3 4 .105* .026
.047 -.138 -.154*
.119
.106 -.031
.142^
.075
-.237 .092* - . 7 9 0
.305 -.451
.107 -.562 1.269** .133 .498 .424
.231
2.17
,003
Sales growth
fi AR'
.071 .018 - . 1 1 3
-,144^ .096"̂ .117
.000
.291**
.039 - . 1 0 5 - . 0 8 7 - . 0 5 9
.032 - . 0 0 6
.756* .112* - . 3 5 9 -.071
.537
.092 - . 0 6 2
.473
.184 - . 6 3 9 * -.987**
.226
2.07
.01
Notes + significant at p < , l O ; * significant at p < .05; ** significant at p < . 0 ! ; *** significant at p < . 0 0 1 . N = 194.
of the proposed hypotheses but are important and interesting nonetheless. Employee participation, amount of training and the performance-based compensation mostly have a positive influence on performance (see Table 5). Flexible benefits mostly show a negative association with perfonnance. Another interesting result is that the majority of the significant relationships for defenders are negative. The results in Table 5 also show
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Khatri; Managing human resource for competitive advantage 357
that the relationships of HR practices across three performance measures vary significantly. Only occasionally can one find an HR practice which shows a significant relationship for more than one performance measure.
Discussion
The study findings provide interesting insight into three major aspects in the SHRM field: (1) impact of overall strategy on HR practices, (2) direct effect of HR practices on organizational performance, and (3) moderating influence of overall strategy on the link between HR practices and organizational performance.
Results provide a weak support for the hypothesis that the amount of HR practices varies according to the organizational strategy. Performance-based cotnpensation was practised more in companies pursuing prospector strategies than in the other three types. This finding is intuitively appealing and is consistent with Miles and Snow's (1984) framework and assumptions. As prospectors are constantly lotsking for new niches and opportunities, outcome management is especially important to them. It is interesting to note that both prospectors and analysers had greater reliance than defenders and reactors on flexible benefits. Analysers and prospectors also made greater use of consultative performimce appraisal practices than reactors. One possible reason for both analysers and prospectors sharing similar HR practices may be the competitive outlook that is taken by these iwo strategic perspectives. This is seen in their need to identify new niches or test possible opportunities. Under such circumstances, employees in such organizations would have to be committed to the organizations in order to exert greater effort in new situations. The greater effort of analysers in evaluating the effectiveness of their training programmes compared with others is an indication of their emphasis on use of elaborate analysis in strategic decision making.
Despite the above relationships between strategy and HR practices that could be explained as a function of the strategy, there were a number of HR practices that do not seem to depend on the strategy of the firm (out of the ten sets of HR practices examined in the study, significant differences were observed only in four cases). The practices that did not vary with strategy include employee participation, HR planning, use of structured interviews, use of employment tests in the selection process and the amount of training. Why is this so? We believe that institutional theory (Wright and McMahan, 1992; Huselid et aL, 1997) explains the relative homogeneity of these practices across four strategic archetypes in our study (Fisher and Shaw, 1992; Shaw et al., !995). For example. Shaw et al. (1995) observed that Singapore's government has taken an interventionist role not only on broad issues of economic policy but on HRM activities as well. The government also encourages the adoption of the business practices that seem to work well in other countries. The authors found the process of selective imitation to be the pervasive mind-set in Singapore. They also noted that similarities between local and foreign firms in Singapore are likely to be the product of firms conforming to local government standards and to the mutual imitation processes operating between Singapore and foreign firms. The Productivity and Standard Board encourages companies to copy currently popular HR practices from both the East and the West. The uncritical imitation of HR practices is. however, inconsistent with both the resource-based and the contingency perspectives. The resource-based view suggests that a company shotild have unique HR practices that add value to the firm to gain sustainable competitive advantage. By copying from others, firms cannot achieve sustainable competitive advantage. The imitation is not appropriate according to the contingency perspective either. The contingency perspective suggests that companies
358 The Intemational Joumal of Human Resource Management
should identify HR practices that fit their organizational strategies and cultures (more discussion later).
Surprisingly, our findings on the direct influence of HR practices on perfomiance suggest that HR practices have a stronger direct effect on profitability than sales growth and non-financial performance (quality, image/goodwill and efficiency of operations). Intuitively, one would expect more significant effect of HR practices on non-financial performance. In fact, direct effect of HR practices on sales growth and non-financial performance is rather weak. The significant relationship between HR practices and profit is encouraging and is in agreement with findings from other studie.s (Huselid. 1995; Gerhart and Milkovich, 1990). On the other hand, the general lack of relationship of HR practices with sales and non-financial performance is puzzling. Certainly, more work is needed to uncover the reason for this lack of relationship.
Looking at the whole sample, the study findings lend a strong support to the idea that organizational strategy is a major contingency factor affecting the HR practices- performance link. This issue is perhaps the most discussed in the SHRM field, yet with no empirical evidence to support it (Wright and Shennan, 1998; Lahteenmaki et ai. 1998). Our findings thus provide the much needed evidence. In fact, our analysis suggests that the effectiveness of HR practices is perhaps more contingent upon strategy than believed in ihe past (Miles and Snow. 1984). Further, previous .studies which examined only the direct effects of HR practices on performance might have understated the effect of HR practices on performance because of nol taking into account strategy-HR practices interaction which in this study on the whole appears to contribute more to performance than the direct effects.
The role of strategy as a contingency factor Ls strengthened even more by the evidence that HR practices unmatched with the appropriate organizational strategy could have a negative influence on performance. For example, we found that HR planning was positively associated with sales growth of analysers but negatively associated with non-financial performance of defenders. It means that HR planning is not always a gotwl thing. Further, many HR practices had a significant negative effect on performance of defenders and reactors indicating thai more of HR activities/practices do not necessarily lead to better performance. Similarly, flexible benefits schemes are among the latest trends in HR area. However, we found tbem negatively related to performance in many cases. This may mean that the importance of strategy as a contingency bas lo be carefully considered before even taking on the institutional norm of adopting HR practices and expectations that others have adopted in their organizations. In sum. we need to consider carefully the overall organizational strategy before we implement HR practices.
Another Interesting finding Is that direct and interaction effects of HR practices vary a great deal according to the performance measures. For example, employee participation had a more significant effect on non-financial perfomiance than on either profitability or sales growth. Let us t:ike another example. For defenders. HR planning and amount of training had a positive influence on non-financial performance bui no significant effect on profitability and sales growth. On the other hand, performance- based compensation and employee participation had a significant positive effect on profitability of defenders but insignificant, effect on non-financial performance and sales growth. None of the above four practices had any relationship with sales growth of defenders. The same pattem emerged for other three strategies. Similarly, in :i study of HR practices in Taiwan, Huang (1998) found the impact of HR practices to differ by tbe type of performance indicator or outcome. Our findings are also consistent with Guest's (1997) argument thai tiie influence of HR practices Is likely lo vary from one
Khatri: Managing liuman resource for competitive advantage 359
performance indicator to the other and that multiple indicators of performance need to be used in SHRM studies.
The above findings (the moderating influence of strategy and HR practices affecting performance outcomes differently) suggest that the configurational perspective is valid. If more variables, such as age, size and culture of the organization, are included in the analyses, we may find unique configurations of organizational level vju^iables, set of HR practices and performance outcomes (MacDuflie. 1995; Guest. 1997; Sheppeck, 1998).
Another notable finding pertains to the status or importance of HR function in companies in Singapore, Our findings suggest that the role of HR function in Singapore companies still remains secondary. However, there are some encouraging signs. The mean scores on HR planning items suggest that HR activities are increasingly being aligned and integrated with the organization's overall strategy. HR function wa.s an integral part of organizational planning in many organizations and HR managers frequently participated in strategic planning meetings. This may signal the increasing two-way interaction impact between strategic planning and human resource manage- ment (Golden and Ramanujam, 1985). Another evidence of this interaction effect is the significant interactions between the HR function with other departments. Our own observations on the evolution of the HR function in Singapore suggest that the HR function is in transition. Companies have realized the importance of HRM and recent salary surveys show that HR executives are among the best-paid in South. Ea.st Asia {The Straits Times, 1995). Many organizations have changed the title of the personnel function to HRM and have restructured it to tnake it more independent in the last few years. There is also an increasing trend for HR managers to report directly to the CEO and to participate in strategic planning/steering committee meetings. In the next few years, we believe that the status of HR function should get a further boost as the HR role becomes even more crucial in corporations that expand into the turbulent Asian region.
Conclusion
The study reported three important findings; (1) overall strategy affects HR practices, (2) HR practices have a direct effect on organizational performance, and (3) strategy tnoderates the relationship between HR practices and organizational performance. Surprisingly. HR practices were found to have greater impact on profitability than non- financial performance. Thus, strategic posture does influence HR practices.
At a very practical level. HR managers should not copy HR practices from other companies blindly. They need to understand fully the strategies pursued by their organizations. Further, they have to determine the desirable performance outcomes. The interplay of organizational strategy and performance outcomes should detemiine the appropriate bundle of HR practices companies need to pursue.
The logic of the resource-based view suggests that only HR practices that are unique and which add value to the organizational performance can provide sustainable competitive advantage. Thus, HR practices that are adopted in response to the institutional environment are not likely to provide any advantage. The contingency perspective provides a similar prescription. Companies need a unique set or bundle of HR practices to support their unique cultures and strategies.
An important issue that clearly needs more attention is the relative influence of direct effect of HR practices vis-k-vis the effect of HR-Strategy interaction on the company performance. The study findings indicate that the latter has relatively more effect on
360 The Intemational Joumal of Human Resource Management
company perfonnance than the fonner. Thus, previous research that looked only at the direct effect of HR practices on performance might have underestimated the overall impact of HR on the company bottom line.
Dtws status of HRM or integration of HR function with organizational strategy depend on the type of organizational strategy? This is an important research question in SHRM field which remains unanswered. Further, there is not much empirical work on the influence of organizational culture on HR practices. We believe that organizational culture is as strong a contingency variable as organizational strategy, if not more. Thus. scholars need to look into this very important but unexamined research issue.
The SHRM literature is full of quantitative studies. However, in-depth qualitative studies are so rare. This form of research is very much needed to enable scholars develop more comprehensive and valid models and frameworks (Becker and Gerhart, 1996; Boxal, 1996; Dyer, 1985; Guest, 1997). Qualitative research also shifts focus from content to process which is consistent with the shifting focus of HRM field from planning to strategizing.
Mintzberg's distinction between intended and emergent strategies is also relevant for HR strategy. Although HR strategy is at the heart of SHRM, there are no empirical studies on HR strategies. Do organizations have HR strategies in the first place? If so. are HR strategies intended or emergent? This is an important research question which would be best answered by qualitative studies.
The study has several limitations. First, the .study is based on self-reports and thus susceptible to usual biases, although we tried to overcome the problem by u.sing independent respondents for strategy and HR practices. Second, it is a cross-sectional study. Consequently, it is not possible to establish cau.saUty firmly. Finally, all the companies in the sample are from Singapore. Thus, we really are not sure to what extent these findings are generalizable to other countries in the region.
Acknowledgements
t am grateful to Mark Huselid and Abdul Rasheed for their helpful comments on the earlier version of the paper. Many thanks to the two anonymous reviewers for many constructive comments which were of greai help in improving the manuscript a gcKxl deal. This reseaich was funded by the Academic Research Fund, Nanyang Techno- logical University, Singapore. An earlier version of paper was presented at the Academy of Management Conference, San Diego, California.
Notes
1 In tact. Miles and Snow (1984) include both macro and micro issues in their article. We include this study in micro stream simply because, in addition to macR) discussions, it discusses HR practices specific to each of the lour strutegic archetypes.
2 Empirical studies in SHRM field in other parts of tlie world are slowly emerging. Lahteenmaki et al. (1998) examined the relationship between HR practices and performance in Finnish companies, Lee and Chee (1996) studied the impact of competitive strategy and participative HRM on firm performance in South Korean manufacturing firms, and Huang (1998) investigated the type of the link between HR and strategy (operational, managerial or strategic) in Taiwanese business firms.
3 We included all HR practices and alt their interaction terms with strategic types in the moderated regression analysis to make comparison acn.>ss three performance measures and three strategic types more meaningful. Some of the terms with low regression ciiefficienis in steps 2 and 3 could have been omitted to enhance the Tit of tlie models though.
Khatri: Managing human resource for competitive advantage 361
Appendix 1
We u.sed the following scale: I = strongly disagree, 2 - disagree. 3 = somewhai disagree. 4 = somewhat agree 5 — agree, 6 — strongly agree
For example (1) In the selection of new employees, my company often uses employment tests (e.g. ability tests, personality tests, paper and pencil tests, work sample tests, etc.),
managerial I 2 3 4 5 6 non-managerial I 2 3 4 5 6
Use of Employment Tests (I) In the selection of new employees, my company often uses employment tests (e.g. ability tests, personality tests, paper and pencil tests, work sample tests, etc.), and (2) my company conducts validation studies on instruments/methods used in employee selection.
Use of Structured Interviews (1) in the hiring process, ptilenlial employees are often provided with a realistic picture of the job and the company, including the negative aspects, and (2) my company conducts structured and standardized interviews (as opposed to unstructured interviews) for selection of jobs.
Amount of Training 1I) Employees in my company normally go through training programs every few years, and (2) [here are formal training programs to teach new employees the skills they need to perform their jobs.
'IVaining EtTectlveness/Evaluation (1) My company conducts systematic analysis to determine the needs for training programs, (2) we conduct cost-benefit analysis to assess the effectiveness of our training programs, and (3) we evaluate our training programs to determine whether the training objectives are met.
Performance-based Compensation (1) Job performance of an individual is very important in determining the earnings of employees in my company, and (2) promotion is based primarily on seniority (reverse- coded).
Flexible Benefits (1) My company has elaborate/comprehensive flexible benefits scheme, and (2) my company constantly reviews and updates the range of benefits to meet the needs of employees.
Employee Relation Practices (U Employees are allowed to make many decisions in their job, (2) employees are often asked by their supervisor to participate in decisions, and (3) superiors keep open communication with employees in their job- Consultative Performance Appruisal (1) The superior will normally di.scuss the performance of his/her subordinates with Ihem, and (2) perfonnance appraisal includes the supervisor setting objectives and goals of subordinates for the period ahead in consultation with them.
HR Planning (I) Human Resource Department is an integral part of my company's strategic planning process, (2) the formulation and implementation of human resource activities arc in line
362 The International Jourruil of Human Resource Management
with overall corporate strategy, (3) the Human Resource Department in my company has an explicit statement of its mission and goals, (4) the Human Resource Management function is accorded an important role in my company, (5) the Htiman Resource Department in my company has as much say in corporate matters as other departments such as Finance. Marketing. Production, etc., (6) all human resource activities in my company (selection, training, compensation, appraisal, and employee relations) are fully integrated with one another, (7) does the head of Human Resource Department participate in executive/steering committee meetings? (8) what is the extent of information flow between Human Resource Department and other departments in your organization7 And (9) Engineering. Marketing, Finance and Accounting are considered as specialized functions and employees are placed in these functional areas based on their specialized training/expertise. To what extent is the Human Resource Department in your company treated as a specialized function?
HR Ratio
HR Ratio = Number of HR employees/Total number of employees in the organization
Appendix II
Subjective non-financial performance as reported by the CEO.
Compared to other companies in your industry, please rate your company's performance over the past three years on the following indicators.
Poor Below Average Above Excellent Indastry Industry Average Average
1. public image and 1 2 3 4 5 goodwill
2. quality of services 1 2 3 4 5 3. efficiency of 1 2 3 4 5
operations
Subjective tinancial performance as reported by the CEO. I. Please tick your company's average profit margin over the last three years.
Q
U u •
loss break-even I%_4% 5%-9%
• •
•
a
!0%- 15%^
more
1 growth 1
• 1 4 %
19%
than
over
15^19% 20%~
more
49%
than
25%
the last three years.
100%
2. Please tick your company's average annual
Q declining • Q Q
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