STRATEGIC HUMAN RESOURCE MANAGEMENT

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synergistic perspective is very sparse (Gerhart, 2007; Wright & Sherman, 1999). .... Greenberg, & Willis, 1980; Lawler, 1971; Sheppard, Lewicki, & Minton, 1992).
STRATEGIC HUMAN RESOURCE MANAGEMENT: A SYSTEMS PERSPECTIVE SVEN KEPES School of Business Virginia Commonwealth University Richmond, VA 23284-4000 JOHN E. DELERY NINA GUPTA University of Arkansas INTRODUCTION The field of strategic human resource management has grown rapidly over the past decade or two. A large body of research points to the fact that the way organizations manage their people can make a difference to their effectiveness (e.g., Arthur, 1992; Delery & Doty, 1996; Huselid, 1995). Theoretical arguments suggest that it is the entire array of HRM practices that account for effect on organizational effectiveness and not individual practices. Specifically, it is proposed that HRM practices that represent a consistent way of managing people and form an internally aligned HRM system that create positive synergistic effects (i.e., “powerful connections”) benefit organizational effectiveness while inconsistent ways of managing people (i.e., internally misaligned HRM practices) create negative synergistic effects (i.e., “deadly combinations”) that are detrimental to effectiveness (Becker, Huselid, Pickus, & Spratt, 1997; Delery, 1998; Delery & Doty, 1996). However, empirical evidence that substantiates this synergistic perspective is very sparse (Gerhart, 2007; Wright & Sherman, 1999). Further, specific theoretical rationales for these effects are virtually absent (Cappelli & Neumark, 2001). With this paper, we attempt to advance the field theoretically by specifying which HRM practices create synergistic effects and affect organizational effectiveness. Many researchers have criticized the field of SHRM for its lack of a strong theory, particularly when it comes to the synergistic effects of HRM practices within a coherent HRM system (e.g., Cappelli & Neumark, 2001; Gerhart, 2007; Wright & Sherman, 1999). The synergistic HRM systems perspective (i.e., “configurational perspective,” Delery & Doty, 1996) assumes that “fit” between practices is critical in affecting organizational effectiveness (Becker et al., 1997; Delery, 1998; Delery & Shaw, 2001). It is proposed that organizations should be able to positively affect their performance through various configurations of HRM practices as long as the practices are internally aligned and “fit” with each other. Hence, the consistent presence or absence of HRM practices may lead to high organizational performance. Although it is intuitively appealing, detailed theoretical arguments that substantiate this perspective are sparse. First, very few studies “present arguments as to how particular practices should interact with each other, instead simply assuming that more practices are better” (Cappelli & Neumark, 2001: 14; see also Delery & Shaw, 2001; Gerhart, 2007). Second, if a configurational systems perspective is used, specific theoretical rationales as to how and why individual HRM practices interact are rare (e.g., Delery, Gupta, & Shaw, 1997). For instance, in a similar study with a different sample in the same industry as our study (trucking industry), Delery et al. (1997) showed that HRM practices interact in predicting firm performance. While illustrating the concepts of positive and negative synergistic effects, their paper had a

methodological focus and did not identify how and why HRM practices interact. Also, empirical evidence that supports the configurational perspective is largely absent. According to Gerhart (2007), most empirical studies that seem to support the notion of fit among HRM practices (e.g., Appelbaum, Bailey, Berg, & Kalleberg, 2000; Ichniowski et al., 1997; Laursen & Foss, 2003) actually fail to do so, partly because the applied methodological approaches (e.g., cluster or factor analysis) cannot test the ideas of the systems or configurational perspective. In this paper, we want to advance the SHRM literature by developing specific theoretical rationales pertaining to the “fits” and “mis-fits” of HRM practices. To test the impact of aligned and misaligned HRM practices, we rely on an interactive regression approach, which allows us to overcome the methodological problems mentioned by Gerhart (2007). HYPOTHESES DEVELOPMENT The resource-based view takes an implicit systems perspective and suggests that combinations of complementary HRM practices that fit each other can enable a firm to realize the full potential of their workforce and help in achieving high performance (Barney & Wright, 1998). However, little is known about which individual HRM practices form such a supportive combination. For more than a decade, researchers have argued that HRM systems can foster characteristics in the workforce that lead to improved organizational performance (e.g., Barney & Wright, 1998; Wright & McMahan, 1992). In their detailed literature review, Delery and Shaw (2001) identified a workforce’s knowledge, skills, and abilities, their motivation, and their empowerment as mediators between HRM practices and organizational performance (see also Boxall & Purcell, 2003; MacDuffie, 1995). Three practices that clearly influence these characteristics are staffing, performance-based pay, and participative decision-making (PDM). PDM and selective staffing Staffing represents a contextual effect on an organization’s workforce since all employees within a job category are subject to the same practice (Ployhart, 2004). Over time, this leads to the emergence of macro-level human capital (e.g., Kozlowski & Klein, 2000; Ployhart, 2006), which should enhance organizational performance (Barney & Wright, 1998; Wright & McMahan, 1992). When organizations use PDM, they can take advantage of the human capital accumulation in their workforce. Such a workforce should be able to utilize their human capital to make decisions and take actions that positively affect organizational functioning and performance. To attain the theoretical benefits of using selective staffing techniques, employees need the opportunity to utilize their KSAs. Specifically, KSA enhancing HRM practices “will produce positive returns only if the […] workers are permitted to employ their skills” (Pfeffer, 1995: 61). By contrast, when a workforce is not involved in work-related decisions, KSAs critical to organizational functioning and performance could be forgotten (Anderson, Fincham, & Douglass, 1999; Arthur, Bennett, Stanush, & McNelly, 1998), reducing task and aggregate performance (de Holan & Phillips, 2004; Lance et al., 1998; McCreery & Krajewski, 1999). Under this condition, selective staffing might be little more than expenditures and organizational performance could suffer (Cappelli & Neumark, 2001). Thus, there should be a positive relationship between PDM and organizational performance when selective staffing is used.

When selective staffing is not used by an organization, it may still be able to perform well. Managing a workforce with a people-oriented approach can be quite hazardous (Coff, 1997), and selective staffing can greatly increase an organization’s labor-related expenses (Cappelli & Neumark, 2001). The absence of PDM should preclude an unqualified workforce from making decisions that are harmful to organizational performance. Hence, organizations that do not use PDM and selective staffing could avoid potential costly problems and reduce their labor costs, potentially improving organization performance. On the other hand, not investing in the human capital of a workforce (i.e., selecting highly qualified applicants) and involving it in work-related decisions may have detrimental effects on organizational performance. A workforce without the required KSAs (i.e., human capital) could lack the competence to take matters regarding their job and performance into their own hands. Thus, PDM could be negatively related to organizational performance when selective staffing is not used. Hypothesis 1: The interaction of PDM and selective staffing (SS) is related to organizational performance; PDM is positively related to organizational performance when organizations use SS and negatively when organizations do not use SS. PDM and performance-based pay Extensive evidence supports the notion that individual performance-based pay is positively associated with employee performance as well as organizational performance (Lawler & Jenkins, 1992). The effect of individual incentives on organizational performance might be stronger when organizations use PDM as PDM should provide employees with equal opportunities to perform. Specifically, employees should be likely to have control over their pay through their own actions. They can observe how their decisions, actions, and work effort translates into performance, as well as how their performance relates to financial rewards. This could to lead to strong expectancy perceptions, thereby increasing an employee’s motivation to perform (Lawler, 1971), individual performance (Jenkins et al., 1998; Lawler, 1971), and organizational effectiveness (Lawler & Jenkins, 1992; Shaw, Gupta, & Delery, 2002). At the aggregate level, financial incentives should be positively related to a workforce’s motivation and performance-related work effort, which ought to enhance workforce productivity and organizational performance. Expectancy theory, equity and organizational justice theories, as well as tournament theory support the notion that individual performance-based pay increases aggregate workforce productivity and organizational performance (Kepes, Delery, & Gupta, 2005; Lawler & Jenkins, 1992; Shaw et al., 2002). However, limited PDM could preclude employees from exercising control over their pay, leading to weaker expectancy perceptions (Bartol & Locke, 2000; Lawler, 1971), reducing aggregate performance (Shaw et al., 2002). Having no financial incentives tied to employee performance may not mean that organizational performance will suffer. When PDM is not used, a workforce’s control over work-related outcomes, including their pay, is low (Lawler, 1986, 1992). This limits expectancy perceptions and the motivation to perform (Bartol & Locke, 2000; Lawler, 1971). In such a situation, performance-based pay could create dissatisfied and unmotivated employees. Feelings of unfair treatment and inequity could emerge since employees may lack control over their pay (Gergen, Greenberg, & Willis, 1980; Lawler, 1971; Sheppard, Lewicki, & Minton, 1992). Aggregate work effort and organizational performance could suffer.

By contrast, the absence of performance-based pay may prevent these problems from arising. Then, dissatisfaction, tension, and conflict within the workforce may not emerge since individual employees might be unlikely to relate their individual decisions and actions to their pay (Gergen et al., 1980; Pfeffer, 1994). At the aggregate level, workforce productivity and organizational performance could be positively affected (Pfeffer, 1994, 1998). In addition, by not having financial incentives, organizations could minimize their labor-related costs (Cappelli & Neumark, 2001; Gerhart & Rynes, 2003). Therefore, a minimization of performance-based pay could be beneficial for organizations that do not use PDM and do not involve their workforce in work-related decisions. Hypothesis 2: The interaction of PDM and performance-based pay (PBP) is related to organizational performance; PDM is positively related to organizational performance when organizations use PBP and negatively when organizations do not use PBP. Selective staffing and performance-based pay While the other two combinations have the potential to create synergetic effects, we believe that the combination of selective staffing and performance-based pay does not provide such an opportunity. Although there is a strong possibility of an additive effect (Delery, 1998), positive or negative synergies seem unlikely. The degree to which employees in an organization have a high level of KSAs (i.e., the degree to which an organization’s workforce has accumulated high levels of human capital) should not affect the relationship between performance-based pay and organizational performance. METHOD Sample The sample was drawn from a population of 1890 motor carriers included in the 1997 version of the TTS Blue Book of Trucking Companies (Blue Book). Questionnaires were returned by 326 HRM officers (28.4% response rate). Questionnaire information was supplemented with information from the 1999 Blue Book. Since only 226 respondents were common to the questionnaire and the archival sources, the maximum analysis sample is constrained to these respondents. Information on all predictors was obtained from HRM officers through the survey. Measures Unless otherwise indicated, we used 7-point Likert-type response scales with anchors ranging from “strongly disagree” (1) to “strongly agree” (7). The extent to which a firm uses selective staffing practices was measured as the mean of eight items. Sample items include “We make sure we hire only top notch drivers” and “As far as drivers are concerned, we hire only the ‘cream of the crop’.” Cronbach’s alpha for the scale was .90. The degree to which a firm uses individual performance-based pay was assessed as the mean of six items (e.g., “Our drivers have strong pay incentives to do a good job” and “Drivers’ performance plays a big role in the money they make”). These items were supplemented with one item on a 5-point Likert-type scale with response options ranging from “not at all” (1) to “to

a very large extent” (5). The item asked “To what extent are differences in pay rates across your drivers based on driver performance.” The items were standardized before computing the final scale (α=.83). Participative decision-making was assessed with eight items. Sample items include “We ask for driver input before making important decisions” and “Our drivers have the authority to make critical day-to-day work decisions.” The final scale was reliable (α=.80). Archival measures of financial performance (net profit margin, return-on-equity, returnon-assets) from the Blue Book were used to measure organizational performance. Consistent with the SHRM literature, and to enable generalization beyond the trucking industry, we included several control variables in the analyses (firm size, firm age, unionization, owner/operator, average tractor age, speed-governance). These variables were selected specifically because they have been shown to relate to our predictors and/or criteria and could influence the results, warranting inclusion (Becker, 2005). RESULTS We used hierarchical regression analysis to test all hypotheses. Following Cohen et al. (2003), interaction terms were calculated using mean-centered variables. Mean centering was done separately for each analysis since sample sizes vary. We entered all two-way interactions simultaneously to control for their individual effects (Cohen et al., 2003). We plotted interaction patterns to illustrate the specific effects following recommendations by Aiken and West (1991). The interaction between PDM and selective staffing is associated with all measures of organizational performance (net profit margin: β=.166, p