essay

Industry sector: Automobiles.

Location: USA

No. of companies in study: 70 automobile plants

Theoretical background: MacDuffie’s starting position was in the Walton (1985) tradition. He argued that innovative HR practices are the way to secure employee commitment to the organization and such commitment is essential if employees are to apply the amount of discretionary effort required for high performance. In addition, he was interested in establishing the extent to which a specified ‘bundle’ of HR practices would be more effective than such practices implemented individually.

Research strategy and method: MacDuffie studied flexible production systems in the auto industry. Flexible production systems are characterized by the reduction of stock inventories and the elimination of ‘buffer’ areas such as those concerned with product repair space which create ‘slack’ in the production process. MacDuffie reasoned that these characteristics would have three major consequences:

(1) the increase of interdependencies within the production process;

(2) the highlighting of production problems;

(3) searches for improvements to the production process to solve these problems.

His hypothesis was that innovative HR practices have an important role to play in such flexible production systems. MacDuffie argued that workers in flexible production systems need a good grasp of the production process and analytical skills to diagnose problems.

The data were collected by questionnaires and interviews with plant managers. The study sought to assess the effect upon labor productivity and quality of three variables: (1) the use of ‘buffers’; (2) work systems (e.g. the use of work teams and employee involvement groups); and (3) HR policies, relating to those involved in the production process, of selection, performance-related reward, status differences and training and development.

MacDuffie developed two specific hypotheses: (1) that innovative HR practices affect performance not individually but as interrelated elements in an internally consistent ‘bundle’ and (2) the HR ‘bundle’ is effective in contributing to manufacturing plant productivity and product quality when they are integrated with flexible production systems.

Results and conclusions: MacDuffie argues that the evidence from his study supported the hypothesis that assembly plants using flexible production systems which use HR ‘bundles’ that are integrated with the production strategy outperform plants using traditional mass production systems on both measures of productivity and quality.

Study strengths: (1) Treats HR practices as integrated ‘bundles’ rather than separate practices. (2) Uses contextually relevant measures of organizational performance. (3) Study rooted in specialist knowledge of manufacturing production process.

Study limitations: (1) Employee commitment and competence are theoretical principles which are important to the study but they are not measured. One would expect the HR ‘bundle’ to promote high levels of commitment and competence which in turn would yield high productivity and quality measures.

(2) It is not clear how the components of the HR ‘bundle’ were chosen. It seems that important elements (e.g. job security) may have been omitted (Richardson and Thompson, 1999). (3) The study is industry specific and may not generalize to other employment contexts. (4) The data are gathered from plant managers so there is no input from employees or HR specialists.

Research Study 2 - Huselid (1995)

Industry sector: All major industries

Location: USA

No. of companies in study: 3,452 companies with more than 100 employees

Theoretical background: Huselid’s position was that HR practices can affect HR performance in terms of their levels of skill and motivation and through adjustments to organizational structures which allow better job performance. Increased levels of employee skill and motivation will lead to lower employee turnover and higher productivity. As long as the expenditure on the HR practices designed to yield lower employee turnover and higher productivity does not exceed their true costs then lower employee turnover and higher productivity should lead to enhanced corporate financial performance. Furthermore, Huselid argued that the concept of strategic fit was important. Enhanced organizational performance will follow if HR practices complement and support one another. Similarly, enhanced organizational performance will be the consequence if the system of HR practices is aligned with the organization’s competitive business strategy.

Research strategy and method: Huselid sought to test four specific hypotheses: (1) systems of high-performance work practices will reduce employee turnover and increase productivity and corporate financial performance; (2) employee turnover and productivity will be the link between systems of high-performance work practices and corporate financial performance; (3)complementarities or synergies between high-performance work practices will reduce employee turnover and increase productivity; (4) alignment of a firm’s high-performance work practices with its competitive strategy will reduce employee turnover and increase productivity.

Questionnaires were sent to 12,000 US firms which yielded 3,452 replies, a 28 per cent response rate. The questionnaire was sent to the senior HR manager in each firm. The questionnaire asked about13 high-performance work practices which Huselid grouped into two main categories, which he called employee skills and organizational structures’ and ‘employee motivation’. The former category included practices designed to enhance employees’ knowledge and skills and thereafter a structure in which those knowledge and skills could be applied in job performance. These practices included: job design; sophisticated employee selection; training and development; employee participation programs, including profit-share schemes. The category he called ‘employee motivation’ included practices to recognize and reinforce the desired employee behaviors developed by practices in the first category. These included: performance appraisal; individual performance-related pay; and merit-based promotion.

In addition, respondent views were sought on the extent to which there was consistency between the HR practices and between the HR practices and the firm’s competitive strategy.

Employee turnover equated to the firm’s average annual turnover rate and productivity was measured as sales per employee. Corporate financial performance was assessed in two ways: gross rate of return on capital and the market value of the firm divided by the costs of its assets.

Results and conclusions: Huselid found broad support for the hypothesis that systems of high performance work practices will reduce employee turnover and increase productivity and corporate financial performance. This applied across industries and firm size. Indeed, the strength of the association was substantial. However, he found only modest support for the third and fourth hypotheses: that higher levels of internal and external fit will lead to better firm performance.

Study strengths: (1) Huselid adopts an explicitly strategic perspective in that he seeks to measure the effect of both internal and external fit. (2) He attempts to overcome one of the main methodological problems with this type of research, the problem of reverse causality. This means that, in this study, it is a concern that the firms may introduce high-performance work practices because they are successful rather than such practices causing organizational success. Huselid does this by introducing the intermediate measure of employee turnover and higher productivity rather than measuring directly the effect on firm performance of high-performance work practices. (It is difficult to imagine firms introducing high-performance work practices because they have low employee turnover and high employee productivity.) (3) Large sample size and breadth of industrial coverage.

Study limitations: (1) The data are gathered from HR specialists with no input from employees. (2) Data are collected at company level which does not allow for differences in separate workplaces in multi-workplace organizations (Richardson and Thompson, 1999). (3) The fact that this is a ‘snapshot’ piece of research rather than longitudinal (over a period of time) weakens any claim that high performance work practices cause enhanced organizational performance.

Research Study 3- Patterson et al.

Industry sector: Manufacturing

Location: UK

No. of companies in study: 67

Theoretical background: Patterson et al.’s point of departure was similar to that of other similar studies. They assumed that: (1) employees are the organisation’s valuable resource; and (2) that the management of employees makes a difference to company performance. More specifically, they devised four research questions:

(1) Is there any relationship between employee attitudes (i.e. job satisfaction and employees’ commitment to their organisations) and company performance?

(2) Does organisational culture predict subsequent organisational performance?

(3) Do human resource management practices make a difference to organisational performance and, if so, which of these practices are the most important?

(4) How do other management practices (i.e. competitive strategies, quality emphasis, research and development investment, investment in technology) compare with human resource management practices in terms of their influence upon organisational performance?

Research strategy and method: This was part of a ten-year study which began in 1991 aimed at establishing the factors that affect organisational effectiveness. Organisations’ economic performance data were collected annually from 1990. Senior managers in the companies were interviewed every two years from 1991 and 36 of the companies’ employees participated in employee attitude and organisation culture surveys in the early stages of the research. The companies were predominantly single-site, single-product operations with less than 1,000 employees.

Interviews were carried out with four or five senior managers in each of the 67 organisations, organisational documentation was gathered and observational tours of production plants were undertaken. In 36 of the organisations, employee attitude and culture survey questionnaires were sent to employees.

Company performance was measured by productivity (sales per employee) and profitability (profit per employee). For each company, performance data for two time periods were collected:

(1) the average of the company’s performance for the three years prior to the measurement of HRM practices,culture and employee attitudes;

(2) the average of the company’s performance for the year following the measurement of HRM practices, culture and employee attitudes.

Job satisfaction was measured by 15 items ranging from relations with fellow team members and managers; to job autonomy, variety and responsibility; physical work conditions; pay; hours; recognition; job security; attention paid to suggestions; opportunities to use abilities; and promotion opportunities. Organisational commitment was measured by three components: identification with, involvement in and loyalty towards the company.

The HR practices measured were grouped under two headings which reflect the interrelated nature of the practices which Patterson et al. wished to portray: ‘acquisition and development of employee skills’ (selection, induction, training and appraisal) and ‘job design’ (skill flexibility, job responsibility, job variety and use of formal teams).

Two data analysis strategies were employed: (1) the HR practices culture and employee attitude data were related to the average of the company’s performance for the year following the measurement of HRM practices, culture and employee attitudes; and (2) the researchers investigated whether higher levels of HRM practices, culture and employee attitudes were positively related to an increase in organisational performance by controlling for prior performance when predicting subsequent performance.

Results and conclusions: Patterson et al. showed that:

1. Job satisfaction and organisational commitment each explained 5 per cent of the variation between companies in change of profitability. For productivity, job satisfaction explained 17 per cent and organisational commitment 7 per cent of the change in performance.

2. Organisational cultural factors explained 10 per cent of the variation between companies in change of profitability. In relation to productivity, organisational cultural factors explained 29 per cent of the change in performance over three to four years. The most important aspect of the organisational cultural factors was employee welfare.

3. HRM practices explained 19 per cent of the variation between companies in change of profitability.For productivity, job satisfaction explained 17 per cent and organizational commitment 7 per cent of the change in performance. For productivity, HRM practices explained 18 per cent of the change in performance.

4. Management practices other than HR (i.e. competitive strategies, quality emphasis, research and development investment, investment in technology) accounted for a very small proportion of the variation between companies in terms of their profitability and productivity.

Study strengths: (1) This is a longitudinal study with a before–after measurement and therefore does allow attempts to measure the effect of the introduction of HR practices over time. (2) The study does include employee as well as managerial interview data. (3) Mixed data collection methods were used which added to the validity of the data. (4) The single-site and single-product nature of the sample makes comparison more valid.

Study limitations: (1) The study was restricted to manufacturing companies, raising the question of generalisability. (2) Although the study is confident in its assertion that a link exists between HR and company performance, it does not explain why this link exists, i.e. what it is about the HR practices which cause enhanced company performance.

Research study 4- Guest et al. (2000)

Industry sector: Various

Location: UK

No. of companies in study: 237

Theoretical background: The study is based on a model developed by Guest (1997). In this model Guest argues that the financial performance of companies is influenced by four factors: business and HR strategies; effectiveness of HR departments and HR practices; HR outcomes; and productivity coupled with product and service quality. Put simply, the model contends that business and HR strategies will point to the appropriateness of certain HR practices. The extent to which the HR practices are conducted effectively together with the effectiveness of the HR department will influence the achievement of the HR outcomes which Guest specifies: employee competence, commitment and flexibility. These three HR outcomes will in turn affect productivity and product and service quality which will have a significant influence upon the company’s financial performance.

Research strategy and method: The study concentrated upon the private sector, both manufacturing and service. The respondents were heads of HR and CEOs. The research report is based upon interviews with 835 companies and over 1,000 managers. In 237 companies there were matched responses from both the head of HR and the CEO.

Two separate questionnaires were sent: one to CEOs and the other to heads of HR. The head of HR questionnaire asked questions about: the workforce, HR strategy and practices, HR outcomes and performance outcomes. The CEO questionnaire covered: HR strategy, a limited amount of HR practices, HR outcomes and performance outcomes, and additional questions on the business strategy and the state of the market in which the company operated.

Results and conclusions: (1) The most important factor in the defining of business strategies was responsiveness to customers (74 per cent) and high service quality (59 per cent), whereas beating competitors on price was rated lowly (10 per cent). (2) Only 10 per cent of managers thought issues concerning people were more important than finance or marketing. (3) Only one-quarter of organisations had more than 50 per cent of a list of 18 typical HR practices in place. (4) The most highly rated areas of HR activity were internal labour market practices (promotion from within) and employment security. (5) Managers rated employee flexibility and performance outputs highly.(6) Approximately one-half of CEOs rated their company’s productivity and financial performance as above average for their industry. (7) Overall responses led the researchers to conclude that there was link between HR practices and HR department effectiveness, employee attitudes and behavior and corporate performance.

Study strengths: (1) The sample size was one of the biggest in all the studies linking HR with corporate performance. (2) There was an attempt to measure the effectiveness, rather than simply the presence, of HR practices. (3) The clarity with which the research is based upon the variables which link HR and organisational performance.

Study limitations: (1) Interviews were by telephone, which limited the degree of ‘insight’ which could be developed by researchers (particularly when contrasted with, for example, the observational tours of production plants undertaken by Patterson et al.). (2) The absence of employee data. (3) The self-report nature of the managerial responses which raises questions about respondent objectivity. This is particularly relevant where questions about such items as organisational performance in relation to competitors are concerned. (4) Although the study points to the relationship between certain key variables it is less helpful in explaining the reasons for certain associations between variables.