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Human Resource Management Review 25 (2015) 126–137

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Human Resource Management Review

journal homepage: www.elsevier.com/locate/humres

High performance work systems and organizational effectiveness: The mediating role of social capital☆

Jane Yan Jiang a, Chi-Wei Liu b,⁎ a School of Management, Nanjing University, China b School of Management, Department of Hospitality Management, Hung Kuang University, Taiwan

a r t i c l e i n f o

☆ This research is supported by grants from the Natio ⁎ Corresponding author.

E-mail addresses: [email protected] (J.Y. Jiang),

http://dx.doi.org/10.1016/j.hrmr.2014.09.001 1053-4822/© 2014 Elsevier Inc. All rights reserved.

a b s t r a c t

Most early work on high performance work systems (HPWSs) examines only the direct relation- ship between a set of management practices and performance outcomes and seldom investigates the “black box” between them. Although recent studies tried to examine the mechanism, the main perspective was to discuss individual outcomes, or simply aggregated individual outcomes. On top of the previous individual approach, this conceptual work takes a group level approach and inves- tigates how the HPWS may change the organizational effectiveness through changing the organization's intra-organizational social capital. Implications and contributions are also discussed.

© 2014 Elsevier Inc. All rights reserved.

Keywords: HPWS Social capital Organizational effectiveness

1. Introduction

During the last twenty years, the notion of best practices in human resource management (HRM) has received a lot of attention. Researchers proposed that some HR practices (e.g., high performance work system — HPWS) have a significant impact on organiza- tional performance. For example, HPWS was found to favorably affect turnover (Guthrie, 2001; Huselid, 1995), labor productivity (Huselid, 1995), firm productivity (Guthrie, 2001) and firm financial performance (Guthrie, 2001; Huselid, 1995). These findings sup- port that a certain bundle of HR practices could be a potential source of competitive advantage (Becker & Huselid, 1998). Among the arguments on this relationship, most scholars took a resource-based view from the strategic perspective and argued that the organization's employees (i.e., human capital) can be a source of competitive advantage when they add value to the organization (Delery & Shaw, 2001; Huselid, 1995). Given the difficulty to imitate them, these human resources uniquely contribute to the organization's success. From this view, continual investments in firm-specific human capital may differentiate a firm's employees from others by their improved knowledge, ability, skills, commitment and so on, thereby decreasing the likelihood of imitation (Huselid, 1995). In spite of such types of arguments, some researchers still noted a need to develop better theories explaining how HPWS functions (Bowen & Ostroff, 2004; Delery & Shaw, 2001).

While the individual human capital perspective sheds light on the understanding of HR practices' effects, some researchers also suggested exploring another line of HR research with a focus on interpersonal relationships within the firm (Delery & Shaw, 2001; Wright, Dunford, & Snell, 2001). The main reason is that recent studies found that social relationships are a latent but important or- ganizational resource (e.g., Collins & Clark, 2003; Hansen, 1999; Nahapiet & Ghoshal, 1998; Uhl-Bien, Graen, & Scandura, 2000). Em- ployee social relationships add value to the organization by facilitating timely access to greater sources of information (Collins & Clark, 2003), reducing the need for formal controls (Adler & Kwon, 2002), facilitating collective action (Ghoshal & Moran, 1996), allowing more flexible work organizations (Leana & Van Buren, 1999) and enhancing organizational intellectual capital (Nahapiet &

nal Natural Science Foundation of China (Grant Number: 71102034, Principle Investigator: Jane Yan Jiang).

[email protected] (C.-W. Liu).

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Ghoshal, 1998). Overall, these benefits point to the aggregated intra-organizational social capital as a contributor to organizational ef- fectiveness. However, without directly examining the mediating effect of internal social capital on the relationship between HPWS and organizational performance, the understanding of how HR practices function is still limited (Bowen & Ostroff, 2004). Therefore to fill this void, the main purpose of this conceptual paper is to investigate how HR practices contribute to firm performance by im- proving intra-organizational social capital.

This paper presents a social capital perspective and argues that a system of HR practices can support the sustainability of the com- petitive advantage created through intra-organizational networks. It develops a framework to explain the influences of HRM practices on several key indicators of organizational effectiveness, especially for those knowledge-intensive organizations. The assumption is that the effectiveness is not a simple summation of individual performances. Some important processes that lead to final performance, such as firm innovation, are incubated in a social context. In other words, employees' behaviors are shaped not only by their own char- acteristics and attitudes, but also by their social relationships with other organizational members. Based on this assumption, if HR practices could affect the internal relationship theoretically, one should be able to observe that different HR practices would lead to different interpersonal behaviors among employees, as well as to different collective outcomes.

To conceptualize what happens between HR practices and organizational performance, this paper follows Nahapiet and Ghoshal's (1998) framework for the social capital function in the creation of intellectual capital and analyzes HR practices' role in this process. Based on that framework, it is proposed that HR practices influence the intra-organizational social relationship through affecting the density of interaction among employees, cooperative or competitive nature of the relationships, and the shared cognitive code, all of which may contribute to organizational effectiveness.

In summary, the contribution of this conceptual framework is threefold. First, the social capital perspective may be an important lens to understand the influence of HR practice on organizational effectiveness, which seems to be overlooked in previous studies and practice. Second, the proposition that HR practice could shape the intra-organizational social structure is novel compared with the widely discussed social exchange perspective in social network literature. This is because the latter one asserts that social structures are an incidental byproduct of the everyday activities of individuals. Third, this paper introduces Nahapiet and Ghoshal's (1998) three- dimensional framework to operationalize social capital and proposes a specific proposition about the relationship between each prac- tice of HPWS and the three dimensions of social capital, which provides a basis for future empirical study.

2. High performance work systems (HPWSs)

Human resource management (HRM) practice, which is a new research strand that emerged in the 1990s, was found to be related with firm performance. While early research on HRM practice and performance tended to focus on the impacts of separate HR prac- tices on firm performance, the later work looked at the combined effect of integrated sets of practices, which are called certain types of “bundles”, “systems” or “configurations” of HRM practices. Examples of such investigations can be found in the studies of Arthur (1992, 1994), Batt (2002), Becker and Gerhart (1996), Delery and Doty (1996), Den Hartog and Verburg (2004), Guthrie (2001), Huselid (1995), Ichniowski and Shaw (1999) and MacDuffie (1995).

One of the several streams among them is “best practice perspective”, which holds that a bundle of human resource practices may universally exert positive impacts on the group or firm performance. For example, Arthur (1994) found that steel mills operating commitment-centered HRM systems have higher productivity, lower scrap rates and lower employee turnover than those with control-centered HRM systems. Huselid (1995) found that HRM practices such as employee recruitment and selection procedures, compensation and performance management systems, employee involvement and employee training have a significant impact on employee turnover, productivity and short and long term corporate financial performance. Similarly, Huselid, Jackson, and Schuler (1997) showed that HRM effectiveness is associated with increased financial performance as indexed by productivity, cash flow and market value.

Some of these studies integrated a bundle of HRM practices and labeled them “high involvement work systems” or “high perfor- mance work systems” (HPWSs). Therefore, HPWSs, sometimes known as high involvement or high commitment organization man- agerial systems, are a bundle of HR practices that enables high performance. Organizations that implement HPWSs make significant investments in their pools of human capital so that employees are well trained, skilled and empowered to conduct their jobs (Becker & Huselid, 1998). Although different HRM authors emphasize slightly different features and management practices in describ- ing HPWSs, the essential practices in common include selective staffing, self-managed teams, decentralized decision making, exten- sive training, flexible job assignments, open communication and performance-contingent compensation (Becker & Huselid, 1998; Guthrie, 2001; Pfeffer, 1998). These practices are found to be interdependent, so the inclusion of one practice often necessitates the inclusion of others (Becker & Huselid, 1998; Pfeffer, 1998; Zacharatos, Barling, & Iverson, 2005).

Researchers tried different ways to classify these practices into several categories. For example, Posthuma, Campion, Masimova, and Campion (2013) analyzed 193 peer-reviewed articles published over the past 20 years (1992–2011) and classified 61 specific practices into nine categories. This paper employs the more concise framework of Evans and Davis's (2005) summary of seven main practices as the operationalization of HPWSs (Table 1).

Overall, the main understanding of HPWS is that it operates an organization by employee involvement, commitment and empow- erment, rather than by employee control. In these high involvement organizations, employees “feel responsible for and involved in its success” (Lawler, 1992, p. 3); they “know more, do more, and contribute more” (p. 5). They have power, information, knowledge and rewards to perform at the highest level (Lawler, Mohrman, & Ledford, 1995). In actual practice in the field, among the successful com- panies making use of this approach are Norwest, Men's Wearhouse, ServiceMaster, Southwest Airlines, USAA, Procter and Gamble, Wal-Mart and Virgin Atlantic Airways (Pfeffer, 1998: 293–296).

Table 1 HPWS practices and examples.

HR practice Category description Examples

Staffing Extensiveness of procedures to evaluate relevant knowledge, skills, and abilities for job fit

Selective screening Assessment of technical and interpersonal skills, attitudes, and/or personality Performance-based promotions

Self-managed teams

Redistribution of power downward by granting authority and responsibility to team structures

Employee participation programs Teams with task and decision-making authority Extensive use of teams throughout the organization

Decentralized decision making

Empowering employees via greater responsibility and access to resources Less well defined tasks Authority to make decisions Employee involvement Participative management

Training Extensiveness of formalized programs to develop knowledge, skills, and abilities Training for current and future skills; including technical and interpersonal Cross training Training for both new hires and experienced employees

Flexible work assignments

Opportunities to broaden individual knowledge, skills, and abilities Job rotation; rotation across teams Ability to perform +1 job Job enrichment

Communication Open vertical and horizontal communication channels providing access to information and opportunities to express viewpoints

Access to all levels of operating results Employee suggestion systems Explanation of business strategy

Compensation Performance-contingent pay, group-based pay, and above market pay policies Profit/gain sharing Employee ownership Comparatively high level of pay Performance-contingent pay Team-based pay

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Although there are lots of criticisms about HPWS, such as the tautology problem of the concept (which is actually grounded in the whole resource-based view), the inconsistent measures among different studies and so on, the strong predictive power of HPWS in firm performance keeps it attractive to researchers to seek understanding of what happens in the “black box”.

3. HPWS and organizational effectiveness

Human resource management practices can only be a source of competitive advantage when they support unique resources that provide value to a firm (Wright et al., 2001). Huselid and Becker (2011) proposed that the most significant task facing HR research is the development and evaluation of a more complete and comprehensive causal model linking HR management systems with firm performance. They also suggested integrating the micro- and macro-domains in future HR strategy research. Similarly, Snell, Youndt, and Wright (1996) and Wright et al. (2001) suggested that research on HR practices should identify resources that are critical for organizations and can be built and supported by HR practices.

In prior literature to explain how HR practice or specifically HPWSs influence firm performance, most researchers employed Bailey's (1993) view as a main argument. It holds that HRM practices improve employees' competence through the acquisition and development of a firm's human capital, affect employees motivation by encouraging them to work both harder and smarter, and in- fluence firm performance through provision of organizational structures that encourage employees to involve themselves in work and allow them to improve how their jobs are performed. For example, HR practices can improve organization performance by 1) increas- ing individual knowledge and skills (Becker & Gerhart, 1996); 2) sustaining performance advantages resulting from leveraging em- ployee knowledge (Evans & Davis, 2005); 3) making human capital take the form of firm specific idiosyncratic skills resulting in increased employee problem solving (Snell & Dean, 1992); 4) having HPWss enhance motivation and commitment of workers be- cause it requires involving and empowering employees (Caspersz, 2006; Whitener, 2001); and 5) using HR practices that can increase control and involvement (Ichniowski, Shaw, & Prennushi, 1997; Tomer, 2001). Lepak, Liao, Chung, and Harden (2006) also suggested that a HR system provides opportunities for employees to contribute to the organization. Some studies included a firm level variable as a mediator to explain the relationship between HR practices and individual outcomes, such as Takeuchi, Chen, and Lepak's (2009) study that suggested the relationships between establishment-level HPWS and employee job satisfaction and affective commitment were fully mediated by establishment-level concern for the employees' climate.

However, HWPS is an organizational level practice and its organizational level outcomes need to be examined and explained, but most of the prior studies stop at the individual level outcomes. For this reason, some recent studies go further to aggregate individual level outcomes to group level outcomes, but most of them take the way of simple summations or averages. For example, Nishii, Lepak, and Schneider (2008) showed that employees make varying attributions for the same HR practices, and that these attributions are differentially associated with commitment and satisfaction. In turn, they showed that these attitudes become shared within units and that they are related to unit-level organizational citizenship behaviors and customer satisfaction. Sun, Aryee, and Law's (2007) study suggested that the aggregated service-oriented organizational citizenship behavior partially mediates the relationship between

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HWPS and firm performance indicators in terms of turnover and productivity. Finally, some moderators such as layoff rates were also proposed as a boundary that constrains the positive relationship between HR practice and firm performance (e.g., Zatzick & Iverson, 2006).

In spite of the contribution of the human capital perspective to view HPWS, an organization consists of a group of people who are interdependent and interactive rather than independent and isolated. Employees need to interact with each other, cooperate with each other, as well as share their information, knowledge and opinions in formal or informal occasions. If one only focuses on the ef- fects of HRM practices on individuals, it may be incomplete to capture the overall effects of HRM practices on firm performance.

This paper proposes that the HRM practices can help organizations build up core competitive advantage not only through improv- ing human capital, but also through enhancing another important resource: intra-organizational social capital. Some prior research on this issue provided meaningful implications. For example, Collins and Clarks (2003) found that firms may systematically develop and sustain social networks among top management team members through supportive HR practices, and these networks will in turn en- hance firm performance. What this paper tries to complement from this previous perspective is to examine the role of HR in the re- lationships and interactions among employees.

4. Social capital perspective

Social capital is the contextual complement to human capital. The social capital perspective is centrally concerned with the signif- icance of relationships as a resource for social action (Baker, 1990; Bourdieu, 1985; Burt, 1992; Coleman, 1988, 1990). Drawing on so- cial capital, Evans and Davis' (2005) framework was a good attempt of illustrating how the internal social structure of the organization can mediate the relationship between HPWS and organizational performance. They argued that HPWS positively influences the inter- nal social structure by facilitating bridging network ties, generalized norms of reciprocity, shared mental models, role making, and or- ganizational citizenship behavior. However, although they hoped to use “social structure” to explain the relationship between HPWS and performance, their five theoretical models have not been integrated into a social structure model and the relationships among them are not clear. In a general sense, the term social structure refers to relatively enduring patterns of relationships within social sys- tems (Abercrombie, Hill, Turner, et al., 2000). While Evans and Davis' five theories provide some possible factors that affect relation- ships, it is still difficult to combine them together to arrive at conclusions about the change in social capital or make a precise proposition. This paper aims to provide an alternative framework to conceptualize the social capital function of HWPS.

To explore HWPS' effects on firm performance through a social capital perspective, this paper investigates the mechanism of how HWPS shapes the aspects of social capital. Among the existing frameworks about the social capital function within an organization, Nahapiet and Ghoshal (1998) had a sound framework with a strong theoretical base and clear conceptual dimensions. Therefore, this paper first summarizes Nahapiet and Ghoshal's framework of social capital. Based on their framework, it then analyzes how each specific practice of HWPS influences the dimensions of social capital.

Nahapiet and Ghoshal (1998) suggested that it is useful to consider the facets of social capital in terms of three clusters: structural, relational, and cognitive dimensions. They analyzed them independently in the original paper, but also admitted that these three di- mensions should be interrelated, although the specific relationships were not identified in their paper.

4.1. Structural dimension

Structural dimension of social capital refers to the overall pattern of connections between actors, which is who you reach and how you reach them (Burt, 1992). This dimension is similar to some concepts that have been proposed in other forms, such as the presence or absence of network ties between actors (Scott, 1991; Wasserman & Faust, 1994); network configuration (Krackhardt, 1989), which describes the pattern of linkages in terms of such measures as density, connectivity and hierarchy; and appropriable organization, which is the existence of networks created for one purpose that may be used for another (Coleman, 1988). Contact is a precondition of any communication.

In a social context, people interact with each other with different kinds of reasons and motivations, while it is comparatively simple and work-oriented in the organizational context. The formal working relationship should be the main reason to explain why a person contacts another in the organization and interpersonal attractiveness would be the reason for initiating further interaction. Some of the HR practices may increase the interaction opportunities among employees through affecting work relations and interpersonal at- tractiveness, which in turn increases the ties among employees. This paper defines the density of ties at the whole group/organiza- tional network level, which can be computed by the number of contacts in a group/organization divided by the total number of possible contacts. Denoted in a mathematic formula:

where

L max ¼ S � S−1ð Þ 2

Density ¼ L L max

¼ 2L S � S−1ð Þ

S is the number of members in a group; Lmax is the maximum contacts in this group; and L is the true contacts in the group.

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4.2. Relational dimension

Relational dimension of social capital refers to the nature and characteristics of relationships. Among the key facets in this cluster are trust and trustworthiness (Fukuyama, 1995; Putnam, 1993), norms and sanctions (Coleman, 1990; Putnam, 1995), obligations and expectations (Burt, 1992; Coleman, 1990; Granovetter, 1985; Mauss, 1954) and identity and identification (Hakansson & Snehota, 1995; Merton, 1968). Even though employees have opportunities to contact with each other, it is not necessary that they have motivation to further interact with each other, understand each other's need, help each other, as well as find out the best way they can work together to achieve a best result.

This paper proposes that although the kinds of relationships may activate employees' motivation in communication, the compet- itive or cooperative working relationships are the most salient factor that shapes the nature of employees' relationships. Two meta- analysis studies (Johnson, Maruyama, Johnson, Nelson, & Skon, 1981; Qin, Johnson, & Johnson, 1995) showed the important role of cooperative vs. competitive relationships in individuals' different behaviors in accomplishing tasks. Cooperative relationships produce higher-quality problem solving and better achievement and productivity than do competitive relationships on a wide variety of prob- lems and tasks that require different cognitive processes. Qin et al. (1995) proposed that cooperative relationships facilitate several behaviors: exchange of information and insights among cooperators, generation of a variety of strategies to solve problems, increased ability to translate problem statements into simple forms and the development of a shared cognitive representation of the problems.

This study follows Deutsch' (1949a, 1949b) suggestion to define competitive social situation as one in which there is a negative cor- relation between group members' goal attainments and a cooperative social situation as one in which there is a positive correlation. In the cooperative relationship, all the parties' interests are related together, which is affected by every party's efforts and their collab- oration in the process. To decrease the cost and increase their cooperation effectiveness, they tend to and try to trust each other, build up a common norm and sanctions, take on their own role obligations and fulfill the expectations from other members, as well as iden- tify with their relationship or the identity they share.

On the contrary, the competitive relationship means that all the parties' interests are competitive and exclusive with each other. In this situation, it is difficult for the related parties to trust each other and share norms in long-term social exchange. They do not have expectations and obligations related with other parties. Moreover, although they may belong to the same organization, this identity may be weakened in the competition, while their own identities as a competitive unit become salient. Obviously, the former relation- ship may facilitate social relationship building and encourage information and knowledge sharing and exchange, while the latter re- lationship may be destructive in the social relationship building.

4.3. Cognitive dimension

The last dimension of social capital is labeled cognitive dimension, which refers to those resources providing shared representa- tions, interpretations and systems of meaning among parties (Cicourel, 1973). It would be easy to work together when a shared cog- nitive code system exists. Innovation is more likely to occur when diversities of opinions, knowledge and experiences could be combined, so an essential prerequisite is that there is a shared cognitive code between the parties to make such exchange and com- bination possible (Boland & Tenkasi, 1995). Research on shared mental models provided some relevant implications that can be borrowed from team level to group level. Cannon-Bowers, Salas, and Converse (1993) originally proposed four non-independent con- tent domains of group mental models: 1) an equipment model (knowledge about tools and technology); 2) a task model (under- standing of work procedures, strategies, and contingency plans); 3) a team interaction model (awareness of member responsibilities, role interdependencies, and communication patterns); and 4) a team model (understanding of teammates' prefer- ences, skills, and habits). A critical mass of empirical studies and some recent meta-analytic results strongly supported the link be- tween team mental models and performance across a variety of team types (DeChurch & Mesmer-Magnus, 2010). The convergence of group mental models has also been positively associated with various group processes (Mathieu, Heffner, Goodwin, Cannon-Bowers, & Salas, 2005) including back-up behavior quantity and quality (Marks, Sabella, Burke, & Zaccaro, 2002), coordina- tion (Marks et al., 2002), and communication (Marks, Zaccaro, & Mathieu, 2000; Waller, Gupta, & Giambatista, 2004).

Based on these team level findings, one can expect that the shared cognitive system may also enhance the relationships among members within an organization and improve the interpersonal communication and coordination.

Leana and Van Buren (1999) argued that HR practices are the primary means by which firms can manage the set of social relation- ships held by organizational employees. The following section analyzes the influence of HWPS on the three dimensions of social capital.

5. Influence of HPWS on intra-organizational social capital

5.1. Selective staffing

Selective staffing systems often screen applicants on job-related criteria such as knowledge, skills and experience, as well as on contextual criteria such as personality, value and interpersonal skills that affect an individual's capacity to socially integrate and de- velop quality relationships (Judge, Bono, Ilies, & Gerhart, 2002). Therefore, selection procedures may increase the likelihood that in- dividuals will interact with each other. Employees' related but heterogeneous knowledge, specialty and skills increase their interaction possibilities as they need each other for help to resolve the problems in work. In addition, selective staffing procedures may provide the initial basic shared language in communication. As selective staffing includes person–organization fit as a selection criterion and aims to identify the individuals who are most compatible with the organization (Huselid, 1995; Pfeffer, 1998), those who

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are finally selected tend to have similar values as what other members hold. Some special practices also increase such fit. For instance, Rentsch and Klimoski (2001) found that allowing team members to participate in the selection process by choosing their own future colleagues is positively related to team members' schema agreement.

Proposition 1. Selective staffing practice enhances intra-organizational capital in terms of structural and cognitive dimensions.

5.2. Self-management team

Self-managed teams increase the interaction opportunities among team members as they often require members to seek ties with others possessing needed information resources and exchange information and ideas to effectively manage their work process (Hansen, 1999; Nonaka, 1994). Furthermore, for those project teams that are organized for a project, team members also have oppor- tunities to develop weak ties when they move on to different project teams for the next term.

Self-management teams' work design also helps to develop cooperative relationships. These teams focus on team accomplish- ments, and thus increase the prevalence of shared values and goals (Arthur, 1992). People realize that they are personally successful only when their team members are also successful. This encourages team members to cooperate with and help each other to perform effectively (Tjosvold, 1986; Wagner, 1995). As Kouzes and Posner (1987) have noted,

“Shared visions and values bind employees together in collaborative pursuits. Group tasks, complementary roles, and shared rewards also play a role. Tasks that require people to exchange ideas and sources reinforce the notion that participants have cooperative goals. As individuals jointly work together, seeing that they need information from each other in order to be suc- cessful, they become convinced that everyone should contribute and that by cooperating they can all accomplish the tasks suc- cessfully (p. 135).”

Proposition 2. Self-management team practice enhances intra-organizational capital in terms of structural and relational dimensions.

5.3. Decentralized decision making

Participative decision making (i.e., decentralization) appears likely to facilitate the development of overlapping knowledge and infor- mation. Decentralized decision-making practice encourages employees to involve themselves in the organizational activities and allows many minds to work simultaneously on the same problem. Malone (1997, 2004) proposed that decentralized decision-making tends to create less rigidity and flatter hierarchies in organizations. When upper managers delegate decision-making responsibilities, managers' spans of control become wider, creating a more lateral flow of information. Thus there will be more shared information and opinions among employees and more bottom-up directional information flow, which are rare in most organizations. Such a change of information flow will enhance the shared cognitive system among organizational members and make the communication easier. Furthermore, active participation ensures that information is openly exchanged and evaluated collectively among employees. Participation programs increase perceptions of fairness (Konovsky, 2000), leading to greater identification and consensus on the decision.

Proposition 3. Decentralized decision-making practice enhances intra-organizational capital in terms of cognitive dimension.

5.4. Formalized training

Internal cross-training facilitates the development of shared language among employees by exposing them to the language and jargon used by other colleagues, as well as the perspectives used by different levels of the firm. Furthermore, training can be consid- ered as a type of organizational investment in individuals' development. Individuals are also more likely to develop firm-specific skills such as shared knowledge and language when they perceive such kinds of investments (Rousseau, 1995). Extensive training that fo- cuses on employee knowledge and skills may result in greater fit and adjustment to the prevailing organizational climate (Cable & Parsons, 2001).

Research also suggests that training can enhance employees' motivation to involve themselves in work. For example, Gomersall and Myers (1966) found that employees who participated in a day-long orientation session had better job attendance than employees who did not take part in the orientation. Louis et al. (1983) found that newcomers' ratings of the helpfulness of off-site residential training were significantly related to positive job attitudes (i.e., job satisfaction, commitment and tenure intention). Such active in- volvement and commitment may facilitate employees' assimilation to the organization culture and climate and to other members in the organization.

Proposition 4. Formalized training practice enhances intra-organizational capital in terms of cognitive dimension.

5.5. Flexible work assignment

Flexible work assignment involves the relatively frequent rotation of individuals to job assignments that require different skill sets and different relationships. In such a work design, people have more opportunities to know others in different departments and areas.

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Many organizations, particularly large firms, frequently use rotation to develop managers (Saari, Johnson, McLaughlin, & Zimmerle, 1988). On top of enriching potential managers' working experience (Campion, Cheraskin, & Stevens, 1994), this paper proposes that flexible work assignment such as work rotation also helps to develop relationships with colleagues in different departments, with whom they may not have opportunities to interact without rotation.

Proposition 5. Flexible work assignment practice enhances intra-organizational capital in terms of structural dimension.

5.6. Open communication

An open pattern of communication is also helpful in facilitating information sharing about business strategy, performance and goals (Lawler, 1992; Pfeffer, 1998) because it makes sure that employees will be informed of what new things happen and come out. Open communication also facilitates quick transmission of new knowledge and innovative opinions about the new information and knowledge brought or created by individuals, which will keep a high level of shared cognition among individuals.

Proposition 6. Flexible work assignment practice enhances intra-organizational capital in terms of cognitive dimension.

5.7. Group-based and performance-contingent compensation

Compensation is one of the most direct factors that determine whether the relationship between two parties such as individual or group is competitive or cooperative. Reward contingencies have the potential to encourage either cooperation or competition among employees (Tjosvold, 1986). In HPWS, performance-contingent performance systems align individual goals with organizational goals in different extents according to their different responsibilities (Aggarwal & Simkins, 2001). Group-based pay correlates all the mem- bers' rewards with the whole group performance, which is more likely to encourage team cooperation. DeMatteo, Eby, and Sundstrom (1998) reviewed the empirical research on team-based rewards and summarized that the most obvious merit of team-based rewards is that it fosters cooperation among team members and promotes team productivity, especially under the work interdependence sit- uation. When tasks are interdependent, performance would be more accurately and reliably measured at the group level, rather than the individual level (Gómez-Mejía & Balkin, 1992). The assumption about group-based pay is that team rewards will do something qualitatively different from individual rewards. Specifically, individual-based rewards motivate and reinforce individual performance, while group-based rewards encourage the occurrence of cooperative group-level behavior. These behaviors are found to be critical to the group process as well as ultimately lead to organizational effectiveness (e.g., Deutsch, 1949a, 1949b).

Proposition 7. Group-based and performance-contingent compensation practices enhance intra-organizational capital in terms of coop- erative dimension.

6. HPWS influences on organizational effectiveness through intra-organizational social capital

Most prior studies on HPWS used the human capital perspective to explain the relationship between HPWS and organizational performance. An assumption here is that the summation of individual performance leads to the whole organization performance. The reason that this paper proposes social capital as another critical mechanism is based on the widely accepted assumption in social network literature that there are kinds of resources embedded in social relationships among individuals that could be part of organi- zational competitive advantage.

The notion of social capital has been defined in two main ways (Adler & Kwon, 2002; Seibert, Kraimer, & Liden, 2001). In a broad definition of social capital, the actual and potential resources provided by and derived through social relations among members con- stitute the collective social capital. In a narrow view, the social capital simply refers to social relations among actors, and the resources that are accessed via these relations are not included in the notion of social capital. To discuss how organizational social capital func- tions, this paper follows the broader definition.

To understand how intra-organizational social capital functions, this section discusses the role of interpersonal relationships in carrying on and transferring several key resources for organization. These unique roles in the intra-organizational network lead to or- ganizational effectiveness manifested as a favorable interpersonal relationship environment, knowledge transfer and innovation.

6.1. Favorable interpersonal relationship environment

The huge competitive pressure organizations have to face is usually transferred to individuals in the organization, making the in- terpersonal relationships intensive. Furthermore, interpersonal contacts within organizations also illicit various conflicts and distrust between the people involved, which may stem from disagreements about how the job is to be carried out, multiple demands that can- not be easily met and competition for limited organizational resources. Such a kind of work environment characterized by high levels of role conflict and low levels of trust requires much more effort, which produces a greater level of burnout and exhaustion (Jackson, Schwab, & Schuler, 1986; Schwab & Iwanicki, 1982) and diminished organizational commitment (Cropanzano, Rupp, & Byrne, 2003). Under such situations, human capital cannot produce the best possible results.

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For these reasons, intra-organizational social capital first provides a favorable interpersonal relationship environment for the func- tioning of human capital. More ties provide more potential social support sources. Cooperative relationships and a shared cognitive system reduce the role of conflicts to a low level. Furthermore, a shared cognitive system also increases the possibility of mutual un- derstanding and developing social support relationships, which play a protective and buffering role when individuals face various stresses. The resources brought by the interpersonal ties are expressive benefits and social support (e.g., Umphress, Labianca, Brass, Kass, & Scholten, 2003). Although this kind of resources is often-undervalued, research on the individual level suggests that whether every member has the ability to access emotional support during difficult times is closely related to individual performance, which in total determines the relative effectiveness of the organization.

In addition, general trust and credit embedded in the intra-organizational social capital are also precious resources for an organi- zation, which are also difficult to imitate by other organizations. In an organization in which members have dense ties to each other, one would expect stronger reciprocity norms, greater trust and less self-serving behaviors than would be expected in groups lacking those ties (Granovetter, 1985; Portes & Sensenbrenner, 1993). Mutual trust is more likely to develop in an environment in which norms are well enforced and free riding is opposed by members (e.g., Levine, 1991). Members are more likely to take risks to support others and extend favors to one another because they believe that they will be treated fairly and other members in the group will treat them in the same ways (e.g., Edmondson, 1999). Thus, social capital in these groups diminishes the probability of opportunism, re- duces the need for costly monitoring, reduces transaction costs and results in benefits for all members (Seers, 1989; Uzzi, 1997).

Proposition 8. HPWS positively influences the favorable interpersonal relationship environment through enhancing intra-organizational social capital.

6.2. Knowledge transfer

The most salient resource transferring through the social network within an organization is knowledge. The social capital literature has proposed that the acquisition and transfer of knowledge are key benefits of social capital (Adler & Kwon, 2002).

Moran and Ghoshal (1996) argued that all new resources, including new knowledge, are created through two generic processes: combination and exchange. However, not all knowledge is equally easy to exchange and combine. Spender (1996) combined two di- mensions of knowledge (explicit/tacit and individual/social) and created a matrix of four different elements of an organization's in- tellectual capital: individual explicit knowledge, individual tacit knowledge, organizational explicit knowledge and organizational tacit knowledge. He argued that the difficulty of transferring each type of knowledge is different. How to transfer individual knowl- edge to organization knowledge, and transfer tacit knowledge to explicit knowledge are difficult issues for most organizations. It may influence whether organizations can socialize and mentor newcomers effectively, whether the cost of turnover can be decreased to a low level and whether the knowledge can be well managed and integrated and serve as the base of innovation. Tsai (2001) also agreed that knowledge transfer is an opportunity for organization members to learn and cooperate with each other. Knowledge trans- fer could stimulate new knowledge creation and enhance an organization's innovation capability by virtue of internal knowledge ex- change and flow to share the product-related knowledge with the individuals in need.

An organization functions like a social community that has a shared identity, common norms, general belief, collective vision or joint experiences (Kogut & Zander, 1996; Nahapiet & Ghoshal, 1998). An organization that has more cooperative ties with a common cognitive system will have stronger shared identities and common norms, and the collective cohesion will be enhanced and exempli- fied (Nonaka & Takeuchi, 1995; Grant, 1996). Members in these organizations would be more likely to reduce barriers of communi- cation and opportunistic behaviors (Conner & Prahalad, 1996) and then would accordingly have more motivation and opportunities to share knowledge or resources with each other (Adler & Kwon, 2002).

Proposition 9. HPWS positively influences knowledge transfer within an organization through enhancing intra-organizational social capital.

6.3. Innovation

Firms in rapidly changing industries derive their primary competitive advantage through the ability of their employees to create and manage knowledge (Bettis & Hitt, 1995; Grant, 1996).

Nahapiet and Ghoshal (1998) suggested that social relationships, and the social capital therein, are an important influence on the development of intellectual capital. Simply speaking, intellectual capital includes types of knowledge like explicit/tacit knowledge and individual/social knowledge (Spender, 1996). The direct result of knowledge assets' accumulation, transmission and creation may be the firm's chances of creating and implementing innovations (Hage & Aiken, 1970). This is because innovation requires a firm to have the ability to translate and exploit knowledge into the discontinuous aspects of social, technological and market development (Tushman & Anderson, 1986).

On top of knowledge transfer and management, new product or service development also needs a key process of integrating or recombining knowledge and applying it into products (Madhavan & Grover, 1998). An intra-organizational network serves as an im- portant channel here. With common language and cooperative norms, individuals are more likely to learn from each other and inte- grate their knowledge to develop new ideas. Subramaniam and Youndt (2005) directly examined how aspects of intellectual capital influence various innovative capabilities in organizations in a longitudinal study. They found that social capital played a significant role

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in both types of innovation as it positively influenced incremental and radical innovative capabilities. These arguments and evidence all support that social capital may play an important role in facilitating innovation. Therefore, this argument leads to proposing:

Proposition 10. HPWS positively influences organizational innovation through enhancing intra-organizational social capital.

Fig. 1 summarizes propositions 1–10 as previously discussed.

7. Discussion

This paper reviews previous studies on human resource management practices, and especially the much discussed HPWS. As most researchers have found, the “black box” of the influence of HPWS on firm performance is attractive but insufficiently discussed. While most previous studies examined the influence of HPWS on each individual, and some studies aggregated these individual effects into the group level outcomes, this paper looks at HPWS through a different lens: its influence on the intra-organizational network. The foundation of this framework is the idea that HRM practices may facilitate or impede the forming of interpersonal relationships and the nature of the relationships as well as the information and knowledge sharing, exchange and combination. These positive changes of the network, in turn, may positively affect the interpersonal relationship environment, knowledge transfer and organiza- tional innovation. This paper contributes to prior research in several aspects.

First, it introduces a different perspective to analyze the role of HRM practice. The question asked by many researchers is how HRM practices influence the whole firm performance. However, using the simple summation of individuals' attitudinal or behavioral out- comes to explain firm performance obviously misses the important social context in which the individuals work together. Including the changes in interpersonal relationships in the consideration may extend the understanding of HR practices. Specifically through detailed analysis, this paper suggests that HWPS is more likely to facilitate the network formation and its positive functioning. Theo- retically, this supports that HWPS may contribute to firm performance by improving the interpersonal network, and that the direct fruit of this network is the innovative ability of a whole group.

Second, this paper offers an implication that organizational practices may shape the organizational intra-organizational network. This is a new opinion compared with the previous sociological view that this network is gradually developed in individuals' daily in- teractions, which is mainly from social exchange. The discussion suggests that HWPS as an organizational influence may shape the interpersonal relationships within a firm, which will affect the level of organizational social capital. This paper also analyzes how each practice of HPWS affects the dimensions of social capital, which provide the basis for future empirical examination as well as practical implication on how to improve social capital with specific HR practices.

Third, this paper also contributes to organizational trust and innovation literature with a new perspective. Most prior literature on social support and trust focused on the dyadic relationship. Discussion in this paper proposes that social support and trust could be a climate and environment. A social support network provides more stable support than one or two significant others. As for trust with- in a network, general trust is not limited between two persons and mutual reciprocity, but can extend to any members in the network. Reciprocity is not mutual but communal. Some previous studies have also provided evidence that social capital may improve organi- zation innovation, but they seldom explained in detail how it happens. This paper framework could be an angel to investigate the in- novation phenomenon. It also implies that organizations could improve innovation by changing the HR practice.

Staffing

Self-managed teams

Decentralized decision making

Training

Flexible job assignment

Open communication

Compensation

HWPS

Interaction density

Cooperation and

competition

The shared code Organizational

innovation

Social Capital

Knowledge transfer

Favorable

interpersonal

environment

Organization Effectiveness

Fig. 1. Relationship among HWPS, social capital, and organizational effectiveness.

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This paper also provides some implications for practitioners. First, it reminds managers that there are two parallel mechanisms that work together to lead to the collective performance: the individual and the interpersonal. Some practices that are originally de- signed to improve or motivate individuals may also have a certain influence on the interpersonal relationships. Managers should take this into consideration when designing the practices, utilizing the positive influences and avoid the negative effects. Second, while some managers still doubt whether HWPS could indeed help with the firm performance, this paper offers more support for the HWPS' positive side, especially for the highly technical company in which employees' motivation, knowledge transfer and innovation are extremely important.

In spite of these practical implications, one also needs to note the boundaries in actual practice. The investments in human capital and in changing HR practice systems are all costly. Organizations need to compare the benefits and investments in such kinds of de- cisions. As was mentioned in the Introduction, intra-organizational social capital is an important resource for all organizations, but is especially important for those organizations that are knowledge-intensive, which rely on individuals' commitment and intrinsic mo- tivation, which need individuals' close cooperation, and which live on continuous innovation. In these organizations, social capital is extremely critical and cultivating social capital by transforming human resource management practices may be more beneficial for them.

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