Transcript Defining Strategic HRM: An Overview of the Field

The HR Practice - Performance
Relationship: Theoretical and
Empirical Challenges
Patrick M. Wright
Cornell University
HR Practices and Performance:
Seminal Studies
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Arthur (1992; 1994)
Huselid (1995)
MacDuffie (1995)
Delery and Doty (1996)
HR Practices and Performance:
Some Additional Studies
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Welbourne (1996) +
Youndt et al. (1996) +
Delaney & Huselid (1996) +
Lee & Chee (1996) ?
Huselid, Jackson, & Schuler (1997) +
Shaw, Delery, Jenkins, & Gupta (1998) +
Lee & Miller (1999) ?+
Guthrie (2000) +
Ostroff, (2000) +
Bae & Lawler (2000) +
HR and Firm Performance:
Summary
• Numerous Studies Demonstrate
Relationship between HR Practices and
Firm Performance
• 1 SD increase in HR practices results in
20% increase in profits per employee
• While promising, there are a number of
theoretical and empirical problems with this
stream of research
Theoretical Challenges
• Theoretical Frameworks
– Resource Based View
– Real Options Theory
• Specific Theory - Black Box
– How Many Boxes?
– How Many Variables in each Box?
– What’s the Causal Direction?
HR and Sustainable Competitive
Advantage (VRIO Framework)
How do we drive SCA with HR Practices?
The Question of Value
The Question of Rareness
The Question of Imitability
The Question of Organization
The VRIO Framework
Is a resource . . .
Valuable? Rare?
Difficult Supported
to
by
Imitate? Organization?
Competitive
Implications Performance
No
----
----
Competitive
Disadvantage
Below
Normal
Yes
No
----
Competitive
Parity
Normal
Yes
Yes
No
Temporary
Competitive
Advantage
Above
Normal
Yes
Yes
Yes
Sustained
Competitive
Advantage
Above
Normal
Application of Resource-Based
View - Conceptual
• Wright et al. (1994) – focus on human
capital
• Lado and Wilson (1994) focus on practices
• Boxall (1996) - HRA = HCA + HPA
• Lepak & Snell (2000) – HR Architecture
Application of Resource-Based
View - Summary
• Human Capital Pool
• Employee Relationships and Behavior
• People Management Practices
Application of Resource-Based
View - Empirical
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Huselid (1995)
Koch & McGrath (1996)
Boxall & Steeneveld (1999)
Wright, McMahan & Smart (1994)
Lepak & Snell (in press)
Richard (2001)
Application of Resource-Based
View - Summary
• Empirical work has not directly tested the theory
– Path dependence of HR systems?
– HR practices impact on skills/behaviors?
• Weakness of Cross-sectional attempts
• Future focus on competencies and capabilities
• Assess constructs (causal ambiguity, social
complexity, etc.)
Convergence of SHRM and
Strategy within the RBV
• Core Competencies
• Dynamic capabilities
• Knowledge-based theories of the firm
Change
Processes to integrate, reconfigure, gain, and
release resources—to match and even create
market change.
Renewal
Learning and Innovation
Flow
Knowledge
Creation
Knowledge
Transfer
Knowledge
Integration
Valuable
Intellectual Capital
Systems
Stock
Inimitable
Organized
People
Human
Capital
Rare
Social
Capital
Organization
Capital
...a bundle of skills and technologies that enables a company to
provide a particular benefit to customers. It represents the sum of
learning across these resources. ( Hamel & Prahalad)
Strategic Capability
Core Competence
Staffing, training, work design, participation, rewards, appraisal, etc.
People Management Practices
Model of Strategic HRM (Wright, Dunford & Snell, 2002)
Other Theoretical Perspectives
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•
•
•
Transaction Costs
Population Ecology (inertia)
Institutional Theory
Real Options
Real Options – A Quick Look
• Most SHRM Theory advocates People as a
strategic Asset
• Real Assets have both upside value, and
downside risk
• Virtually no SHRM research has addressed
the downside risk of the human asset
• Currently working on Application of Real
Options Logic to SHRM
From Broad to Specific in
Theory
• We have talked about broad organization
theories to help us understand the strategic
role of HR
• Now we transition to specific theory about
the HR – Performance relationship as these
relate to empirical studies
Theoretical Challenges
• Theoretical Frameworks
• Black Box
– How Many Boxes?
– How Many Variables in each Box?
– What’s the Causal Direction?
How Many Boxes?
Strategy
Firm
Performance
HR
HR
Practices
Practices
How Many Boxes?
Business
and
Strategic
Initiatives
Design of
Human
Resource
Managem’t
System
Employee
Skills
Employee
Motivation
Job Design
and Work
Structures
Creativity
Product’ty
Discret’ny
Effort
Improved
Operating
Perform’ce
Profit
and
Grow
Mkt
Value
How Many Variables in Boxes?
Business
and
Strategic
Initiatives
Design of
Human
Resource
Managem’t
System
Employee
Skills
Employee
Motivation
Job Design
and Work
Structures
Creativity
Product’ty
Discret’ny
Effort
Improved
Operating
Perform’ce
Profit
and
Grow
Mkt
Value
Causal Direction
• Reverse Causation
– Real Relationship, just reversed
• Spurious Relationship
– Real Empirical Relationship, just not causal
• Implicit Performance Theories
– No Real Relationship, only imagined and
reported
Causal Direction?
Reverse
Firm
Performance
HR Practices
Spurious
HR Practices
Firm
Performance
Good
Management
Causal Direction
Firm
Performance
Implicit
Performance
Theories of
Respondents
Respondents’
Reports of HR
Practices
Implicit Performance Theory
Implicit Performance Theories:
Evidence
• Significant support within the groups and
leadership literatures
• Happens when information processing
requirements are high
• Demonstrated by showing:
– Similar Factor structures between real and simulated
targets
– Performance Effects (e.g., knowledge of performance
impacts ratings of behavior)
Information Processing Demands of
Completing HR Practice
Questionnaires
• Executive must attend to and understand the information
provided about company wide and business unit HR practices
• Executive must encode and store the information
• Time delay between the time the information is encoded and
retrieved for survey completion
• Information is subject to memory decay
• HR practice information must be retrieved from memory
• Information must be organized consistent with the scope of
the survey questions
The Study
• Line and HR; Working and Students (2X2)
• Subjects presented with descriptions of high
and low performing companies, then asked
to indicate HR practices and HR
effectiveness
• Compared factor structure to Huselid (1995)
• Expected performance effect, and that it
would be most pronounced for HR/Students
e1
e2
e3
Info.
Sharing
Attitude
Surveys
Pay for
Performance
e4
Training
e5
Grievance
Procedure
Skills and org. structures
Employee motivation
Merit
Pay
Performance
Appraisal
Merit
Promotions
e7
e8
e9
e6
Employment
Test
FIGURE 2
Performance x Experience Interaction for HR
Practice Usage and Evaluation of HR Function
90%
80%
70%
60%
No n-Exp erienced
HR Practice
50%
Us age
Exp erienced
40%
30%
20%
10%
High Perf.
Low Perf.
Performance Scenario
4.5
4.0
3.5
No n-Exp erienced
HR
3.0
Effectiveness
Exp erienced
2.5
2.0
1.5
High Perf.
Low Perf.
Performance Scenario
Implications
• Similar factor structure indicates implicit
theories
• Performance effect indicates that knowledge
of performance CAN impact ratings of HR
• Surprising that greatest effects for working
managers
Theoretical Issues - Conclusion
• Still Greater need for application and testing
of relevant organizational theories in SHRM
• Need for more specific theory development
regarding the process through which HR
impacts performance
• Need for better empirical research that
specifically tests theory
Empirical Issues in SHRM
• Lack of Good Theory testing
• Measurement Issues
– Unreliability of HR Measures
• Levels of Analysis
– Mostly Corporate because there is public
performance information
• Design Issues
– Concurrent, not causal designs
HR and Firm Performance
• Numerous Studies Demonstrate
Relationship between HR Practices and
Firm Performance
• 1 SD increase in HR practices results in
20% increase in profits
• Promising, but…..What about Construct
Validity?
HR Practices and Reliability
• Random vs. Systematic Error
• Random - Attenuates relationship
– .80 rxx ---> rxy*1.25
– .50 rxx ---> rxy*2
• Systematic - May inflate relationship
Measurement Issues
• Are measures of HR practices reliable?
• If not reliable, then why do we find an HRfirm performance effect?
• How can we best measure HR practices to
be reliable and valid?
Generalizability Analysis
• Generalizability analysis seeks to partition
error variance into different sources (rater,
items, time, etc.)
• It provides implications for the best way to
increase reliability (e.g., to add raters or
items)
Analyses
• ICC (1,1) - Estimate of the reliability of a
single respondent measure
• ICC (1,k) - Estimate of the reliability of an
aggregated (across respondents) measure
• Both estimates are essentially interpreted as
a percentage of the variance in the measure
that is true score variance
Are HR Measures Reliable?
• 14 firms
• Average size approx 40,000 employees
• Surveys of HR practices and HR
effectiveness
• Multiple HR respondents for practices
• Also line respondents for effectiveness
Results
• Avg. ICC(1,1) for practices
Best Case
Hourly
.204
.418
Managerial .162
• Avg. ICC (1,1) for Effectiveness
.301
.475 (scale)
Why Not Reliable?
• Respondents Don’t Know
– Corporate is the wrong place to ask because too
much diversity (geography, divisions, business
units, sites, jobs)
– Coverage the wrong way to ask
• Advantage - Objective
• Disadvantage - not the way respondents think/focus
• Misses sophistication, specificity, execution
If no Rxx, then why the Rxy?
• Rxx does not have to be too high
• Respondents’ Implicit Performance
Theories (I.e., systematic error)
Huselid & Becker’s response
• Organization size was too big
• Organizations were too diversified
• Items were different (policies/practices vs.
practices)
• Adding raters with no knowledge is not
useful
• Ultimately, it is an issue for future research
Later Paper (Wright et al. 2001)
• Purpose is to address the call for more
research on this issue
• Used data from three different samples,
varying from large diversified companies to
small work groups
• Examined interrater reliability among HR
respondents, employees, and
correspondence between HR and employees
Studies
• Study 1 - 13 large companies, Senior HR
and Senior Line respondents
• Study 2 - 225 jobs across 94 banks, HR and
incumbent responses
• Study 3 - 190 jobs across 33 business units
within one corporation, 17.75 ee’s per job
and 1 HR respondent per unit
Expectations
• Expected lowest reliability in Study 1 due to
large, diversified nature of the sample, and
highest in Study 3, given close proximity
and small size
Results
• Study 1 Average item ICC (1,1) = .42
Average item ICC (1,k) = .60
• Study 2 Average item ICC (1,1) = .16
Average item ICC (1,k) = .26
• Study 3 Average item ICC (1,1) = .16
Average item ICC (1,k) = .71
Average rpb ee-HR
= .62
Discussion
• Calls into question usefulness of single
respondent measures of HR practices
• Problem with reliability is not sample
specific
• Similar results to groups literature, but that
literature uses multiple respondents for
measures
Implications
• Caution in interpreting effect sizes
• More attention devoted to measurement
error
–
–
–
–
–
More raters
Better measures of HR practices
Different rating scales
Knowledgeable raters
Alternative data collection strategies
Empirical Challenges
• Levels of Analysis (Rogers & Wright, 1998)
• Corporate
– Most Research (56 of 80 effect sizes)
• Business
– Virtually no Research (5 of 80 effect sizes)
• Site
– Some Research (19 of 80 effect sizes)
Why so much research at
Corporate Level?
• Story of the drunk and the lamppost
• Focus at corporate level because that is
where the performance information is
public, and thus, easily available.
Empirical Challenges
• Firm Performance
– Overemphasis on Market Measures (Tobin’s Q)
– Few Organizational or Employee measures in
spite of the fact that these are the proximal
hypothesized variables impacted by HR
Issues in this Relationship
• Missing the mechanisms through which HR
impacts profitability
• Designs have temporal issues that preclude
making causal inferences
Black Box
• Only mediating (moderating) mechanism
usually explored has been turnover
• Numerous authors have called for exploring
the mediating mechanisms
– Dyer and Reeves (1995)
– Wright and Gardner (in press)
• A few models of mediation
– Becker et al. (1997)
Becker et al. (1997)
Business
and
Strategic
Initiatives
Design of
Human
Resource
Managem’t
System
Employee
Skills
Employee
Motivation
Job Design
and Work
Structures
Creativity
Product’ty
Discret’ny
Effort
Improved
Operating
Perform’ce
Profit
and
Grow
Mkt
Value
Temporal/Causal Problems
• Most studies have not used designs to
adequately infer causation in the HRprofitability relationship
–
–
–
–
Guthrie (quasi-longitudinal)
Ichniowski et al (quasi-longitudinal)
Huselid (contemporaneous & predictive)
Delery and Doty (contemporaneous)
Temporal/Causal Problems
• Unable to assess reverse causation
– E.g., are simultaneous correlations reflective of
past performance causing reports of HR
practices or of employee attitudes?
Semi-Contemporaneous
Measure of Performance
Jan 1
Jan 1
?
?
Measure HR
Overall Conclusions &
Recommendations
• Within Industry Studies
• Business and Plant Level Studies
• Reliable Measures of HR Practices
– Multiple Respondents
– More Focused Target (job, site, business)
– More specific measures
• Longitudinal/Predictive Studies
• Qualitative Research