Strategic human resource research paper
QUINCY1010
Lecture5RBV.ppt- Organisational Performance, Strategic HRM and RBV
“The idea that the human resources of a firm can play a strategic role in the success of an organization has led to the formation of a field of research often referred to a strategic human resource management … the resource-based view has become the guiding paradigm on which virtually all strategic HRM research is based” (Allen and Wright, 2007: 88 and 90)
- HRM and Performance
Following Huselid (1995) researchers have consistently found a strong (positive) relationship between HR systems – or “bundles” of HR practices – and organisational performance, but …
if the returns are so high ($20,000-$30,000 per employee p.a.) why do so few firms adopt HPWS?
correlation ≠ causality
what’s inside the “black box” – “the complex set of attitudes and behaviours inside a firm that make it productive” (Boxall and Purcell, 2016: 26)
- HRM and Performance
RBV = dominant theoretical frame
Psychology = dominant disciplinary frame
Note: box 3 often relabelled “AMO” (ability, motivation, opportunity)
- The AMO Framework
P = f(A,M,O)
Employees perform (P) when they have:
the Ability (A) to perform (they can do the job because they possess the necessary knowledge, skills and aptitudes)
the Motivation (M) to perform (they will do the job because they want to do it or feel that they must do it); and
the Opportunity (O) to perform (their work structure and its environment provide the necessary support and avenues for expression)
*
- RBV, Strategic HRM and Organisational Performance
Generic business strategies and HRM
“Best fit” or “best practice” models of HRM?
Resource-based view (RBV) (or theory?)
RBV vs. industrial relations
- Generic Business Strategies
Cost reduction (e.g. Walmart, Ryanair, McDonalds)
High quality (e.g. BMW, Singapore Airlines, John Lewis)
Innovation (Google, Huawei, Sony)
- Linking HR Practices to Competitive Strategy
Source: based on Schuler and Jackson (1987)
- Generic Business Strategies and HRM
Accumulation - careful selection of good candidates based on personality rather technical fit
Utilization - selection of individuals on the basis of technical fit
Facilitation - the ability of employees to work together in collaborative situations
cost-reduction strategy – utilisation (emphasise short-run relationships, minimise training and development and highlight external pay comparability)
quality strategy - combination of accumulation and facilitation (acquire, maintain and retain core competencies)
innovation strategy - facilitation (bring out the best out of existing staff)
Source: Schuler and Jackson (1987) and Schuler (1989)
- Competitive Strategies and Key HR Practices – Cost Reduction
Relatively fixed (stable) and explicit job descriptions that allow little room for ambiguity
Narrowly designed jobs and narrowly defined career paths that encourage specialization, expertise, efficiency
Short-term, results-oriented performance appraisals
Close monitoring of market pay levels for use in compensation decisions
Minimal levels of employee training and development
Source: Schuler and Jackson (1987: 213)
- Competitive Strategies and Key HR Practices – Quality Enhancement
Relatively fixed and explicit job descriptions
High levels of employee participation in decisions relevant to immediate work conditions and the job itself
Mix of individual and group criteria for performance appraisal that is mostly short-term and results-oriented
Relatively egalitarian treatment of employees and some guarantees of employment security
Extensive and continuous training and development
Source: Schuler and Jackson (1987: 213)
- Competitive Strategies and Key HR Practices – Innovation
Jobs that require close interaction and coordination among groups of individuals
Performance appraisals that are more likely to to reflect longer-term and group-based achievements
Jobs that allow employees to develop skills that can be used in other positions in the firm
Compensation systems that emphasise internal equity rather than external market-based equity
Pay rates that tend to be low but allow employees to be stockholders and have more freedom to choose the mix of components (salary, bonus, stock options)
Broad career paths to reinforce development of a range of skills
Source: Schuler and Jackson (1987: 213)
- “Best Fit” vs. “Best Practice(s)”
“Best fit” – contingency theory, adapt HR strategy and practices to other elements in the business environment (vertical and horizontal fit)
“Best practice(s)” – theoretical universalism, downplays the role of context
- “Best Fit” to What?
Organisational fit (e.g. employee behaviours and HR outcomes)
Industry fit (e.g. Porter’s five forces and the ‘industry recipe’ or ‘table stakes’)
Societal fit (e.g. varieties of capitalism)
- Strategic Goals of HRM
Source: Boxall and Purcell (2016: 17)
| Economic | Socio-Political | |
| Static | cost effective labour | social legitimacy |
| Dynamic | organisational flexibility; human resource advantage | managerial power |
- “Best Fit” HRM
External fit – business environment, market conditions, etc. (political, economic, social, technological, legal, environmental)
Internal fit – consistency of HR policies (complementary not contradictory)
- Best Fit (Harvard) HR Strategies
Bureaucratic – ‘control and efficiency’, traditional authority (job descriptions and job evaluation provide order and equity), suitable for markets with stable technology and employment levels
Market – employees as ‘sub-contractors’, short-term exchanges, performance-related pay systems, suitable for fast-changing markets (e.g. high-fashion merchandising, advertising, professional sports)
Clan – diffuse kinship links, shared values, teamwork, strong commitment for ‘long-term adaptability’, suitable for quality and innovation
- “Best Practice(s)” HRM
Best for whom – shareholders, managers, employees, customers, community, environmentalists, trade unions, government?
Accepted “good practice” (e.g. recruitment and selection, performance appraisal) and “bad practice” (e.g. poor communication, discrimination)
Seven practices “for building profits by putting people first” (Pfeffer, 1998) (1) employment security, (2) selective hiring, (3) self-managed teams/team-working, (4) high pay contingent on company performance, (5) extensive training, (6) reduction in status differences, and (7) sharing information
Huselid (1995) thirteen “high performance work practices”
- Best Practices Higher Performance
“all else being equal, the use of high performance work practices and good internal fit should lead to positive outcomes for all types of firms” (Huselid, 1995: 644)
“in broad form ‘more HRM higher firm performance’ and in narrower form ‘more HPWPs higher firm performance’, with the arrow denoting causality and ‘more’ capturing the positive effect from investment in additional HR quantity, quality and sophistication” (Kaufman, 2015: 110)
- The Nike Approach to HRM – “Just do it!”
“irrespective of business strategy and context, there is a strong association between the adoption of more ‘progressive’, ‘high-performance’ or ‘high commitment’ HR practices and organizational performance … we can generally recommend that a full use of HRM is good for organizations”
Source: Paauwe, et al (eds) (2013) HRM and Performance, pp. 197-8 and 204 (emphasis added)
- HRM and Performance - Causality
Empirical methods – regression analysis
Empirical puzzle – low take-up of HPWS
Theoretical roots – RBV/AMO
Theoretical challenges – economics and IR
- Empirical Estimation
Ever more “sophisticated” multiple regression analysis
Cross-sectional data on firms and/or individuals
Context as a “control” or “mediating” variable
Model specification problems (the “black box”) have “generated innumerable studies laden with innumerable boxes and arrows designating ‘mediating’ variables that are argued to account for variation in the effectiveness of practices and innovations that may, most simply, not work … this research is not just positivist … but also scientistic or ‘hyper-positivist’, and as such directed at prediction and control rather than understanding … I-O [industrial and organisational] psychologists seem to view human beings as if they are billiard balls, subject to rather simple laws of behaviour and with no capacity for independent thought and action (or at least, there is no interest in this capacity” (Godard, 2014 :7 and 10)
- The Low Take-up of HPWS
Lack of knowledge
Managerial incompetence
Inability to execute
Source: Becker and Huselid (2006)
- Pfeffer’s “one-eighth rule” …
Half the people will be unaware/not believe the connection between high commitment management and profitability
Half of those who are aware/believe will try a single (one-shot) solution rather than a systematic approach
Only half the firms who adopt a systematic approach will persist long enough to see the difference
½ x ½ x ½ = 1/8
Note: some US studies find only 1% HPWS, WERS in UK ≈12%
- Theoretical Roots of SHRM
Market power/industry structure (the structure-conduct-performance paradigm) (Porter)
Efficiency/internal factors (resource-based view) whereby the resources a firm already controls are more likely to be sources of economic rents than resources that the firm acquires from external sources (Barney)
“For resource-based theorists, transaction-specific or firm-specific investments can be thought of as resources that are among the most likely to have the ability to generate economic rents” (Barney and Clark, 2007: 15)
Economic rent = payment to an owner of a factor of production in excess of the minimum required to induce that factor into employment (returns to a factor in excess of opportunity cost)
- Questions for the RBV …
Value – do a firm’s resources and capabilities enable the firm to respond to environmental threats or opportunities?
Rarity – is a resource currently controlled by only a small number of competing firms?
Imitability – do firms without a resource face a cost disadvantage in obtaining or developing it?
Organization – are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly to imitate resources?
- VRIO Framework
Source: Barney and Clark (2007: 70)
| Is a resource or capability … | |||||
| Valuable? | Rare? | Costly to Imitate? | Exploited by Organisation | Competitive implications | Economic performance |
| No | - | - | No | Competitive disadvantage | Below normal |
| Yes | No | - | Competitive parity | Normal | |
| Yes | Yes | No | Temporary competitive advantage | Above normal | |
| Yes | Yes | Yes | Yes | Sustained competitive advantage | Above normal |
- The VRIO Framework
Source: Barney and Clark (2007: 69)
- Focus on Organization
Unique history and/or culture
HR systems (internal fit)
General and specific skills
Team-working (synergies, causal ambiguity and social complexity)
Superior management talent
- VRIO “without V”
V – bounded by the maximum price the consumer is willing to pay and the minimum price for the firm to cover the cost of resources purchased in strategic factor markets (SFMs)
V is therefore determined exogenously: “the question of value is exogenous to resource-based theory … the theory’s predictions focus on the relationship between certain attributes of resources and how long a firm is able to maintain its competitive advantages” (Barney and Clark, 2007: 253). Is performance due to price and therefore V?
Tautology of RBV: “A firm attribute, whether tangible or intangible, is valuable when it enables a firm to develop and implement a strategy that someway generates value” (Barney et al, 2012: 122)
- Strategic Factor Markets (SFMs)
“the market where firms acquire or develop the resources they need to implement their product market strategies”
Perfectly competitive SFMs – resources are homogeneous, equally available and identically priced
RBV predicts ΔPerformance/ΔHRM > 0
but in a perfectly competitive SFM … ΔPerformance/ΔHRM = 0
- The Optimal Mix of External Labour Markets and Internal Labour Markets in Neo-classical Labour Economics, HRM and Industrial Relations
NLE predicts “more competition (ELM) higher performance”
HRM predicts “more cooperation (ILM) higher performance”
B = Walrasian corner solution (omniscient auctioneer)
A = Lenin/Taylor corner solution (omniscient planner/manager)
With positive transaction costs, the “mixed” or “industrial relations” economy features both ELM and ILM (point C)
Source: Kaufman (2010: 99)
- VRIO without SFM
Consider the impact of more intense competition in product and labour markets …
VRIO predicts more HPWS (e.g. “Firms facing high levels of competition … are more likely to implement high-performance HRM systems” Jackson et al, 2014: 16)
SFM predicts less HPWS
Therefore need a decision rule for HR: the “Nike rule” or MRPHRM = MRCHRM
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- Economic and IR Critique of RBV
Management centric (internal focus) and normatively driven
Oriented toward a commitment/ILM type of employment model
Over-emphasis on psychological factors and intrinsic/humanistic forms of motivation
Under-emphasis on external environmental contingencies and extrinsic/coercive forms of motivation (neglects conflicts of interest and “harm” to employees caused by HPWS)
“Better people management pays” is true but vacuous (not a sufficient guide to choice of HRM system/practices)
At best explains Pfeffer’s one-eighth
Source: Kaufman (2010)
- Managing Human Resources to Generate Economic Rents
Labour as a source of value …
Inherent uniqueness
Non-depletion with use (reproduction)
Free will/creativity
Managerial dilemmas …
Labour turnover
Work-life balance
Labour power vs. actual labour
- Generating Rent from Human Assets
“human assets alone cannot be the source of a sustainable advantage. Rather, firms can only generate rent if they also have systems to cope with the associated dilemmas” (Coff, 1997: 385)
Firms are more likely to generate rent from human assets when they …
adopt retention strategies (e.g. firm-specific knowledge and skills)
adopt rent-sharing strategies (e.g. profit-sharing, group incentives, performance-based compensation)
adapt organisational design strategies (e.g. shared governance, organic structures, strong culture)
obtain high quality internal and external information to build social networks or causal ambiguity
- Competitive (exploitation) Strategies Compared
Porter – monopoly power in product markets (seller power – exploiting consumers)
Barney – monopsony power in factor markets (buyer power – exploiting labour)
“Once employees make firm-specific investments, firms can systematically extract wealth from these employees, and employees have few ways they can protect themselves” (Wang and Barney, 2006: 466, emphasis added)
- References
Allen, M. and Wright, P. (2007) ‘Strategic management and HRM’, in P. Boxall, J. Purcell and P. Wright (eds.) Oxford Handbook of Human Resource Management, Oxford University Press.
Barney, J.B. and Clark, D.N. (2007) Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press.
Barney, J., Della Corte, V., Sciarelli, M. and Arikan, A. (2012) ‘The role of resource-based theory in strategic management studies: managerial implications and directions for research’, in G. Dagnino (ed.) Handbook of Research on Competitive Strategy, Elgar.
Becker, B. and Huselid, M. (2006) ‘Strategic human resource management: where do we go from here?’ Journal of Management, 32:(6): 898-925.
Boxall, P. and Purcell, J. (2016) Strategy and Human Resource Management, Palgrave.
Godard, J. (2014) ‘The psychologisation of employment relations?’ Human Resource Management Journal, 24(1): 1-18.
Coff, R.W. (1999) ‘When competitive advantage doesn’t lead to performance: the resource-based view and stakeholder bargaining power’, Organization Science, 10(2): 119-33.
Huselid, M. (1995) ‘The impact of human resource management practices on turnover, productivity, and corporate financial performance’, Academy of Management Journal, 38(3): 635-72.
Kaufman, B.E. (2010) ‘The theoretical foundations of industrial relations and its implications for labor economics and human resource management’, Industrial & Labor Relations Review, 64(1): 74-108.
Paauwe, J., Guest, D. and Wright, P. (eds.) (2013) HRM & Performance: Achievements and Challenges, Wiley.
Pfeffer, J. (1998) The Human Equation: Building Profits by Putting People First, Harvard Business School Press.
Schuler, R. and Jackson, S. (1987) ‘Linking competitive strategies and human resource management practices’, Academy of Management Executive, 1(3): 207-19.
Wang, H. and Barney, J. (2006) ‘Employee incentives to make firm specific investments: implications for resource-based theories of corporate diversification’. Academy of Management Review, 31(2): 466-76.
