Issues in People Management

The Impact of People Management Practices on Business Performance: A literature review

Dr Ray Richardson Marc Thompson

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Titles in the Issues series: Employee Motivation and the Psychological Contract Fairness at Work and the Psychological Contract How Dissatisfied and Insecure Are British Workers? A survey of surveys The Impact of People Management Practices on Business Performance The Impact of People Management Practices on Business Performance: A literature review The Impact of People Management Practices on Business Performance: Practical case studies Knowledge Management: A literature review Managing Learning for Added Value Performance Management through Capability The State of the Psychological Contract in Employment Workplace Learning, Culture and Performance These titles can be ordered from Plymbridge Distributors Tel: 01752 202301

The Institute of Personnel and Development is the leading publisher of books and reports for personnel and training professionals, students, and all those concerned with the effective management and development of people at work. For full details of all our titles please contact the Publishing Department: tel. 020-8263 3387 fax 020-8263 3850 e-mail publish@ipd.co.uk The catalogue of all IPD titles can be viewed on the IPD website: www.ipd.co.uk

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Issues in People Management

The Impact of People Management Practices on Business Performance: A literature review

Dr Ray Richardson London School of Economics Marc Thompson Templeton College University of Oxford

INSTITUTE OF PERSONNEL AND DEVELOPMENT

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 Institute of Personnel and Development 1999 First published 1999 All rights reserved. No part of this publication may be reproduced, stored in an information storage and retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the written permission of the Institute of Personnel and Development, IPD House, Camp Road, London SW19 4UX

Typeset by Paperweight Printed in Great Britain by Short Run Press, Exeter

British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0 85292 832 7

INSTITUTE OF PERSONNEL AND DEVELOPMENT

IPD House, Camp Road, London SW19 4UX Tel: 020-8971 9000 Fax: 020-8263 3333
Registered Charity No. 1038333. A company limited by guarantee. Registered in England No. 2931892. Registered office as above.

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- Contents -

Preface Executive summary Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Appendix 1 Appendix 2 The background to this report The theory of human resource strategy The empirical literature Practitioner perspectives Future research Detailed reviews of key texts Current and planned research on HR strategies and business performance in the UK Analysis of key empirical studies

vii xi 1 3 17 25 30 33

51 53 75

Appendix 3

References and further reading

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Ray Richardson is Reader in Industrial Relations at the London School of Economics. He has taught and done extensive research for a number of years in the area of Human Resource Management. His recent research focus has been on performance related pay (for example the forthcoming IPD survey report no. 9, UK Performance Pay Trends) and HR strategies where, apart from the present report, he is working with Marc Thompson on a survey of HR strategies in the UK. Marc Thompson is Research Fellow at Templeton College, University of Oxford. His principal research interest is in strategic human resource management (SHRM). He is currently conducting a two year programme of work on high performance work systems in the UK aerospace industry (particularly the diffusion of lean production methods). Marc is also directing an ESRC research project that looks at the reward practices of innovative organisations in the knowledge sectors of the economy. He has been working with the IPD on human resource management and business performance issues for the last two years.

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Preface
Angela Baron Institute of Personnel and Development
There is a new and exciting area of research emerging which marks an important phase in the development of our understanding of the relationship between people management and organisational performance. Managers know that the way people are managed and developed affects the bottom line, but the difficulties of evaluation have, until now, limited the arguments that can be made in favour of more sophisticated, systemic approaches to people management. In the last few years the situation has begun to change, and a body of hard evidence is now emerging which demonstrates that the way people are managed is a crucial factor in predicting business performance. This report reviews the most significant literature currently available. It analyses the evidence in an objective, structured way identifying what we can be confident of, and where we need more data to prove the case. In particular, the researchers have studied the range of methodologies used and the way in which data have been analysed and interpreted to identify gaps in the research and hitherto unexplored sectors and industries. What we do know is that there is a range of independent studies conducted both in the UK and overseas which broadly demonstrates that good people management practices equate to better business performance. Indeed, by 1995 research by the IPD was able to present a model that indicated that when people management policies are integrated into a coherent philosophy and where this fits the business strategy, superior performance results. But, although the IPD has come further than ever before in proving the link between people management and development practices and business performance, the evidence is not yet complete. In particular, we need to develop a much better understanding of how this relationship works in practice. We need to understand the impact of context, both economic and geographical. We need to be confident that the methodology and analysis is robust enough to combat even the most sceptical, and we need to be able to understand it all within a coherent set of arguments and theory. As the professional body representing those concerned with the management of people, the Institute of Personnel and Development also needs to be able to support people managers engaging with these issues. We must establish frameworks within which they will be able to make informed and reliable choices on what to do and how to do it. We need to demonstrate to managers that there is a body of knowledge and understanding that can be applied in the real world and that will enable them to develop a people management strategy that will both fit with and drive their business strategy.

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Work and research programme

To improve the evidence available and develop our understanding of this area, the IPD has embarked on an ambitious programme of work. This programme includes new research, collaborative work and consultation among members and other interested agencies and individuals. The programme is, therefore, multi-faceted and aimed at all levels of our profession as well as the wider business and economic communities. However, there is one overall research hypothesis that is guiding the entire programme of work: that a coherent framework can be developed within which organisations can make informed choices about which people management practices and combinations of practices are most likely to lead to better performance. The IPD programme of work has its origins in the mid-1990s. From the research available then, including the extensive work carried out at Cranfield School of Management, it was apparent that little was known about the causal links between people management and business performance. The studies that are currently in progress should add to this understanding, but there is a need to develop a theory of causality and to identify a form or forms of evaluation to determine how and why certain practices make a difference. In 1997 the IPD commissioned the Institute of Work Psychology at Sheffield University to analyse the individual elements of management activity and measure their contribution to performance. The results are based on data collected as part of a ten year longitudinal study (1991-2000) examining market environment, organisational characteristics and managerial practices in over 100 UK manufacturing companies. This study forms part of the Sheffield Effectiveness Programme. The findings are remarkable. They show decisively that people management practices exert an extremely powerful influence on performance; more powerful than all the other practices hitherto believed to be the most important, such as business strategy, technology and research and development. These results are supported by work carried out in the USA by Mark Huselid and others, which demonstrates a consistent positive relationship between people management practice and current and subsequent performance. In addition to the survey data available, a wealth of best practice evidence is beginning to emerge. Both David Ulrich and Jeffrey Pfeffer put forward frameworks to analyse the role that the personnel function needs to adopt to help deliver organisational excellence. Their evidence has been refined from observations over a number of years in many different organisations and from the literature that already exists. The Institute is tapping into this evidence to inform our research programme, and for the 1999 IPD National Conference programme and consultation purposes. In 1998 we commissioned this report from Marc Thompson and Ray Richardson to help us in developing our plan of action. We asked them to review the available evidence from an academic standpoint, identifying the strengths and weaknesses. We hoped from this process to be able to develop a way forward that would enable us not only to contribute to and develop the academic debate but to bring the views of practitioners and academic researchers together in a meaningful and useful dialogue.

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An action plan for the future

A number of initiatives have already resulted from this strategy A group of senior people management practitioners, together representing 12 per cent of the UK workforce, met in February 1999. This group confirmed that while the practitioner community is aware of the evidence that is becoming available, it needs hard proof and accessible tools to enable it to apply it in the workplace. It also confirmed that the research evidence must recognise the impact of market forces on the choices that organisations are able to make if is to achieve any credibility in the business community. In particular, the group emphasised the need to develop mechanisms to integrate people management with strategy, and equip personnel practitioners with the necessary competencies to manage in a climate of uncertainty. Feedback from other practitioner groups indicates that practitioners are both able and willing to take a lead in this area in the further development of our programme. In particular, there is a strong belief that practitioners must be proactive in the development of diagnostic tools and engage in meaningful dialogue with academics if any of the academic efforts are to have real impact and benefit in the day to day process of managing business. Of course, the IPD is catering for the needs of a number of different audiences. These range from practitioners who want advice on the design and choice of practices, to business leaders who need definitive evidence and explicit understanding to adopt strategies that will both achieve higher business performance and satisfy the needs of all the stakeholders in their business employees, shareholders and customers. The Institute has therefore developed a plan of action designed to build upon the achievements to date in this field of research, which we believe represents a major breakthrough in the understanding of the value of good people management. We intend to focus out efforts on two major areas: extending and developing the data and supporting the development of a theory to underpin the evidence that exists in this area developing understanding of the process or processes by which people management practices have an impact on business performance and by which policy intention is turned into action. In addition it is vital that our programme of work ensures that the debate is carried out among as wide a group as possible. It is not just the people management specialists who have a stake in this field, but everyone concerned to develop business success. We also need to engage the business leaders and those responsible for shaping the competitiveness agenda. In addition, there is an urgent need to develop better ways of accessing the considerable body of academic research that already exists and using it as a basis for developing usable tools for managers. Without this, much valuable work will be wasted simply because managers have no means by which to apply it in their own business situation. The literature search has itself thrown up a number of issues. It is evident that although there may be some guiding principles, it is unlikely that there will ever be one way to business success that will work in all organisations in all circumstances. Organisations need to develop strategies, which are rooted in their particular environment and business position. This report provides a critical focus

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for understanding more about the important relationship between the management of people and business performance. We do not intend or expect to achieve all of our aims and objectives alone. We shall take every opportunity within our work programme to operate in partnership with other agencies and interested organisations. We also do not want to reinvent the wheel, and are consulting as widely as possible to be aware of all the initiatives that are taking place under this broad heading of people management and business performance. In particular, we intend to look at some of the sectors that, hitherto, have been untouched by the research that has been carried out. Despite the multi-faceted approach we are taking, the aim is singular: to demonstrate unequivocally that better people management makes the critical difference to organisational performance.

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Executive Summary
This report summarises some of the key themes emerging from an on-going review of the theoretical and empirical work in the area of people management strategies and business performance. There are in the region of 30 empirical studies that have sought to address the relationship between HR practices and business performance. This research field has been pioneered in the USA and the bulk of the articles report on studies conducted in North America. However, there are also a growing number of UKbased programmes of work. The published research generally reports positive statistical relationships between the greater adoption of HR practices and business performance. In a review of some of the better research in this area, Pfeffer (1998) cites evidence that HR practices can raise shareholder value (ie stock market value) by between $20,000 and $40,000 per employee. A study by Huselid and Becker (1995) suggested that market value per employee was strongly correlated with the sophistication of the HR practices adopted. In other words, businesses got above average returns when they used a broader range of practices for more employees and also integrated these practices within the business. In the UK, researchers at Sheffield University (Patterson et al, 1997), while unable to put a market-value on the business impact, found that changes in profitability among a panel of over 60 small to medium sized single-site manufacturing businesses was significantly correlated with the adoption of certain HR practices. Thompson (1998) reporting findings from an establishment-level survey of the aerospace industry found that firms reporting higher levels of value-added per employee used HR practices for a greater proportion of their employees and were also more likely to have a board-level personnel director. As the work in the area has developed, researchers have begun to delineate three broad perspectives on the way in which HR practices contribute to business performance: 1 Best practice one set of HR practices can be identified which when implemented will raise business performance Contingency business performance will be improved only when the right fit between business strategy and HR practices is achieved Bundles specific combinations of HR practices can be identified which generate higher business performance but these combinations will vary by organisational context.

Overall more positive effects have been ascribed to the best practices perspective. However, the claims that a universal best practice HR strategy has been identified are premature. It is unlikely that adopting a specified set of HR policies is the high road to organisational success. Even the large amount of empirical work that has been done has not identified all the general components such a set of policies would contain. However, this is not to say that the best practice literature is without

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interest and they give a checklist of policy combinations which organisations should actively consider adopting. Virtually all the statistical analysis defines and measures strategy by a statistical procedure rather than a principled argument. There is a need to start to identify strategies by their intrinsic theoretical and real world properties. We need to move away from a concentration on the analysis of two end points and pay more attention to the intervening steps, for example looking at what mediates the two variables strategy and performance. We need to understand why particular combinations of policies might work and what discretion managers might have within their ability to affect these mediating variables. How something is done is often more important than what is done, and we need to pay much more attention to how clusters of HR polices are adopted and implemented as well as to the specific contexts in which policy innovation is attempted. A good deal of the research work in this area has progressed with very little engagement with the practitioners who are important customers for this research and whose behaviour is the most likely to be influenced by convincing research findings. If this situation continues, the studies may not provide enough policy precision and little guidance for personnel and development managers on the content and form of strategy. It is clear that there is a need for process-based research which can also lead to the development of learning tools that can help practitioners make better decisions about personnel and development investments.

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Chapter 1 The background to this report

In his book, The Human Equation, Jeffrey Pfeffer argues that the way in which organisations treat their employees is at the heart of their success (Pfeffer, 1998). Pfeffer is highly prescriptive. He claims that virtually all organisations, commercial and non-profit organisations alike, will be more successful if they follow a particular Human Resource strategy, comprising a specified number of people management policies. He supports this position with a wealth of anecdotes and illustrative cases but, in contrast to other books in this mode, his message is also firmly grounded in a growing number of well-thought-out research studies which use heavyweight statistical analysis. For example, he quotes Huselid, who looked at a large sample of firms from across the whole of the US economy and concluded that the heavy use of a number of specified HR practices was associated with a level of sales revenue that was on average $27,000 per year per employee. The corresponding increase in shareholder value was put at $18,500, while the increase in profits was estimated at nearly $4,000 per year per employee (Huselid, 1995). Subsequent and more refined studies by Huselid suggest that the gains are even larger. These are very impressive numbers but they are not unique. Other studies by a variety of authors, whether in automobiles, steel, clothing, oil refining or in the service sector, point to similarly impressive outcomes, usually measured by productivity gains. So, Pfeffer claims, there is powerful evidence to suggest that deploying certain high performance management practices makes bottom line sense. Findings like these excite both the academic and the practitioner, and they promise to move the personnel or HR function away from being seen as a peripheral administrative activity and put it at the centre of the organisations activities. The key purpose of this report, therefore, is to look hard and critically at the body of academic work that underpins Pfeffers analysis. Like him, we see these studies as having very important implications. They stimulate thought, they cannot be lightly dismissed, and they point to something that deserves sustained attention. Where we differ from Pfeffer is that we do not see them as being quite so authoritative a basis for firm and detailed prescription. The studies have their weaknesses and these should not be underestimated. They are neither absolutely conclusive nor do they address all the relevant issues. So this report explores both the strengths and the frailties of the research to see where we stand at present. As a prologue, and to provide a context for what is to come, we set down a little more detail from Pfeffer. He concludes that a set of seven people management policies seem to characterize most if not all of the systems producing profits through people (p.64). He specifies these policies as: an emphasis on providing employment security putting in a lot of resources to recruit the right people in the first place an extensive use of self-managed teams and decentralisation

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 wage levels that are high and are strongly linked to organisational performance a high expenditure on training attention being paid to reducing status differentials a willingness to share information. Pfeffers HR strategy then becomes, at its core, these seven people management policies, each of which may be embodied in a variety of concrete and detailed people management practices (eg there are many techniques that might encourage the sharing of information within an organisation). Pfeffer does not suggest that the practices have to be the same in every organisation. Even so, however, his conclusions go some way beyond the academic research. First, the empirical support for each of the seven policies is of variable strength it is clearer for some than for others. Second, there is even less agreement on the merits of the different practices that might be used to achieve any one policy for example, are all methods of linking pay to organisational performance equally effective? Third, not all of the studies he relies on include all of the seven policies when they relate HR strategies to business performance. This means that the empirical support for Pfeffers particular combination of policies is less secure than he implies. Many modern managers will agree that his seven policies are worth taking seriously, though some may also feel that he has omitted some important candidates. And Pfeffer is to be applauded for making his case so clearly and with such enthusiasm. Nevertheless, matters have not been resolved as completely as his advocacy claims. The management literature has seen too many prescriptions which seem persuasive, but turn out to be premature or misleading or simplistic. More caution, and more knowledge about the underlying scientific work, is appropriate at this stage. Chapter 2 discusses the meaning of HR strategies and considers the theory underpinning this area of research. Chapter 3 looks at the available empirical evidence and reviews the problems and issues with this body of evidence. Chapter 4 reports the key themes from practitioner consultations and their implications for the future research agenda. Finally, Chapter 5 pulls together the main findings from the research review, identifies the main research gaps and suggests where IPD resources might be best allocated.

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Chapter 2 The theory of human resource strategy

Strategy in general
This report is concerned with the effectiveness of human resource strategies, so an obvious first step in a theory section is to discuss what, in general terms, an HR strategy is. Having done this one can then turn to the theoretical issues raised when assessing the effectiveness of the human resource strategies. Defining strategy is no easy matter. For the purposes of this report, however, a strategy, whether an HR strategy or any other kind of management strategy, must have two key elements: there must be strategic objectives (ie things the strategy is supposed to achieve), and there must be a plan of action (ie the means by which it is proposed that the objectives will be met). However desirable it may be to have a strategy, it is not an automatic passport to organisational success. Strategies can be good or bad. A bad strategy would either specify inappropriate or inconsistent objectives, or propose a plan of action that was seriously deficient. A strategy is often taken to imply a long-term perspective. This is often, but not quite always, true. It might be entirely sensible for an organisation knowingly to pursue a short-term strategy, or indeed simultaneously to have both a short-term and a long-term strategy that were not identical. A further quality a strategy is often thought to have is breadth. In some sense, it reflects the whole rather than part of the picture. What this means is that, to be a success, the plan of action should somehow capture all, or nearly all, of the different elements of the situation. Organisations do not necessarily have strategies, certainly not in any well-defined or explicit form; or they may have a strategy for one part of their activities but not for all of them. They may, for example, have articulated some form of overall business strategy but not have developed the corresponding strategies for each of the functional areas of management, such as people management. Finally, it is probably true that most organisations arrive at their strategies in a somewhat haphazard way. It is misleading to suggest that senior managers typically engage in a process of thinking through all their objectives and then calmly, rationally and comprehensively go through all the policy options before judiciously choosing the optimal set. On the contrary, most organisations operate on a piecemeal basis, responding to sudden emergent pressures, and are subject to a variety of powerful internal political pressures which contribute to inconsistencies among their policy choices. Most of the literature in the area of human resource strategies ignores the actual process by which the strategies are formed and concentrates instead on the chosen policies and practices. This is an important gap.

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The meaning and content of HR strategies

In line with what has already been said, an HR strategy must specify HR objectives and have an associated plan of HR action. The objectives of an HR strategy could be expressed in a very general way, perhaps as being precisely the same as the organisations overall objectives. The dominant overall objective for commercial organisations is usually taken to be the maximisation of profits or shareholder value. This is sometimes stated explicitly and sometimes left implicit, in which case a firms mission statement may express its business objectives in such terms as becoming the leader in its industry, or delivering an innovative and high quality product range. The presumption is that these other objectives are the concrete way in which the firm believes that it can maximise shareholder value. Non-commercial organisations, such as NHS trusts or government agencies, often have more trouble in specifying their overall objectives in a satisfactory way. They may specify them as a range of service targets, subject perhaps to staying within a pre-assigned budget. These service targets can sometimes cause difficulties because they can be in conflict with one another; they will usually, for example, be competing for the same limited budget, which implies trade-offs between the individual targets. But, after some thought, the trade-offs can be prioritised and overall targets can usually be expressed in a meaningful way. Important as it is to specify overall business objectives, it is necessary to go further when fixing the objectives of an HR strategy. Functional management areas like HR need their own more precise, more specific and more focused objectives. This is illustrated in approaches such as the Balanced Scorecard (see, for example, Kaplan and Norton, 1996), which seek to identify the important concrete implications for the activities and processes of the business that stem from shareholder objectives or mission statements. These complementary objectives should, of course, be consistent with overall objectives, but they need to be spelled out separately.
The objectives of HR strategy

To illustrate this point, one may envisage a chain or sequence of connections, see Figure 1. A commercial firm wanting to increase its profits (its ultimate objective) will see that one way to achieve this is to reduce its unit labour costs (a production objective); one way to reduce unit labour costs is to increase employee productivity (a behavioural objective); one way to increase employee productivity is to make employees more competent (a generic HR objective); one way to increase employee competence is to improve existing training programmes (an HR policy); one way to improve the training programme is to bring in professional trainers and make the process more formal and systematic (an HR practice, part of the firms action plan). So we have a possible sequence: More formal training arrangements better training enhanced competence improved labour productivity lower unit labour costs higher profits. The HR objective could be expressed as being any one of higher profits, lower unit labour costs, higher productivity, or enhanced competence. They are all objectives but they exist at different levels of generality.

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Table 1

HR objectives at four different levels

Generic objectives

Behavioural objectives Productivity Quality consciousness Working smart

Production objectives Unit labour costs Quality levels

Ultimate objectives Profits

Competence Motivation

Correct manning levels

Quit rates

Table 1 implies that there are many possible chains or sequences. It suggests that there may be three generic objectives of human resource policies, all referring to the organisations workforce. All organisations want the right number of employees, the right mix of employee competencies, and the right set of motivations from their workforce. Of course, different organisations seek different numbers of employees, and different bundles of competencies, and different types of motivation, and an important part of a successful HR strategy is bound to be the correct identification of these three elements. The extent to which an organisation achieves its generic objectives will influence how well it achieves its various behavioural objectives. All three generic objectives, for example, will directly affect productivity levels. But firms are not interested purely in output per employee; they increasingly want their employees to pay close attention to quality standards, or to act in an innovative or creative way, or to co-operate and share valuable information with one another; and they will also normally want their employees (or, at least, their effective employees) to stay with the firm rather than leave. Organisations will think that such aspects of employee behaviour are influenced by employee competence and by the extent to which employees are motivated to pursue a variety of behaviours. So the extent to which desired behaviour is achieved will turn heavily on the extent to which an organisation succeeds in reaching its generic HR objectives. The extent to which the behavioural objectives are reached will influence the success the firm has in attaining its production objectives. It is no longer adequate to think of firms being interested solely in unit labour costs, important as these are for competitive advantage. Real and perceived product quality levels are also important. In this respect, much of the service sector is in a distinctive situation because its employees frequently interact directly with customers, so that product quality inherently becomes a matter of direct employee performance (with little or no possibility of subsequent rectification). Achieving the firms ultimate objective, eg profits, will obviously depend on the degree to which its production objectives are reached. Low unit labour costs lead directly to profits via higher profit margins; they can also lead indirectly to higher profits by allowing the firm to cut its product prices and increase its market share. Similarly, high quality levels may allow prices to be raised, thereby raising profit

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margins; equally, they may directly increase market share through customer perception of better value for money. So, to summarise, the objectives of an HR strategy can, with equal validity, be expressed at any one of four different levels of generality, ranging from the generic to the ultimate. If they are expressed at a relatively general level, however, the accompanying strategic plan of action should also reflect the prior sequence of intermediate objectives, as well as the choice of HR policies. So, for example, if the HR strategys objective is expressed as emphasising quality standards, the route by which this is to be achieved should be specified from specific HR policies through generic and behavioural objectives.
The HR strategys plan of action

The HR plan of action is the set of things the organisation intends to do in its attempt to achieve its HR objectives. Most obviously and centrally it includes the various HR policies and practices the organisation chooses to adopt. But, and this is of great theoretical importance, it goes significantly wider than that. Policy intentions are not always translated into action. This means that the way in which policy is implemented must also be recognised as part of the plan of action (and, hence, of the strategy). In addition, and lying behind the set of HR policies, there is some reasoning linking the policies and practices to the objectives; how are they seen to work, and why do they have the effects they are supposed to have? So the action plan reflects a lot more than the formally adopted HR policies. In fact, most researchers in this field measure the firms plan of action purely by its choice of HR practices; indeed, that is typically how they represent the HR strategy itself (ie different HR objectives are very often ignored). In other words, researchers tend to focus exclusively on the combination of individual HR practices that a firm does or does not adopt; it is a particular combination of practices which assigns the firm to one strategy category or another; the specification of strategic objectives, the problems of policy implementation, and the nature of the arguments that might link policies to objectives are usually not explored in any depth. Huselid, for example, in a very widely quoted study (Huselid, 1995) develops two complex measures of so-called high performance work practices which are, in essence, his index of the firms HR stance, or strategy. As Table 2 shows, the first measure, Employee skills and organizational structures, is a conglomeration of nine HR practices; the second, Employee motivation, is a set of four such policies, rules or practices. Huselid has also, however, made some attempt to capture implementation by asking about coverage or intensity of use (eg in his formulation what proportion of the workforce is covered by?). This is not a full measure of implementation. It should capture how widely a firms practices are targeted but it will certainly not capture such matters as the manner in which they are deployed, eg whether they are pursued by managers with consistency, equity, vigour and belief.

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Table 2

An attempt to measure HR strategy

Employee skills and organisational structures 01 What is the proportion of the workforce who are included in a formal information sharing program? 02 What is the proportion of the workforce whose job has been subjected to a formal job analysis? 03 What proportion of non-entry level jobs have been filled from within in recent years? 04 What is the proportion of the workforce who are administered attitude surveys on a regular basis? 05 What is the proportion of the workforce who participate in QWL programs, QCs and/or labor-management participation teams? 06 What is the proportion of the workforce who have access to profit sharing/gain sharing plans? 07 What is the average number of hours of training received by the typical employee over the last 12 months? 08 What is the proportion of the workforce who have access to formal grievance procedures and/or a complaint resolution system? 09 What proportion of the workforce is administered an employment test prior to hiring? Employee motivation 10 What is the proportion of the workforce whose performance appraisals are used to determine their compensation? 11 What proportion of the workforce receives formal performance appraisals? 12 Which of the following promotion rules do you use most often? (a) merit or performance rating alone; (b) seniority only if merit is equal; (c) seniority among employees who meet a minimum effort requirement; (d) seniority. 13 For the five positions that your firm hires most frequently, how many qualified applicants do you have per position (on average)? Huselid (1995)

Huselids approach identifies firms that are more or less heavy users of (some) high-performance work practices. In this case, therefore, only one HR strategy is articulated and explored; firms are arranged on a continuum which ranges from heavy users of high performance practices to those who make no use of them at all. A different way of specifying HR strategies comes from concentrating on the links between the set of HR policies and the three generic objectives, ie how and why HR policies might allow the organisation to achieve its three generic objectives. Some years ago, Walton (1985) compared two different styles of managing people. He talked about a control approach and a commitment approach. Both approaches have active practices in each of the standard HR policy areas, ie all organisations have to make selection decisions, training decisions, work design decisions, etc. But, for Walton, the detailed choice of practices within each of these areas were different for the two HR approaches. What he was essentially distinguishing were two very different underlying employment relationships (these might also be called different psychological contracts or different implicit contracts).

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There are more than two possible employment relationships. Chadwick and Cappelli (1998a) talk about Contract and Investment relationships. At its core, their Contract relationship involves the employer first seeking to hire people who are already more or less fully competent to do the range of tasks they are asked to perform, so that large training expenditures are not required; the employer then seeks to motivate them to perform up to their potential by some kind of performance-related reward system. This particular implicit contract is seen to operate at arms length. The relationship is predicated largely on professionalism and the provision of rewards for performance that both parties find appropriate; in this scenario there is no premium on the employee generating complex attitudes, such as loyalty to the organisation. Chadwick and Cappellis Investment system, by contrast, is based on an attempt to foster among employees a sense of common destiny with the firm over the long term. HR policies are therefore selected in an attempt to boost employee involvement, enrich jobs and develop new skills. The second column of Table 3 suggests that employment relationships can vary on many dimensions. They might, for example, be long term or short term; they might be predicated on the development of high commitment, or loyalty, or they might not; they might place a premium on encouraging what is sometimes called organisation citizenship behaviour (eg encouraging people to go voluntarily beyond their job descriptions and engage in valuable extra-role behaviour), or not; they might rest on the belief that the motivation to perform well is merely a matter of designing the appropriate reward system, or they might think that task is far more complex.

Table 3

The nature of the employment relationship possible links between HR policies and objectives
The nature of the employment relationship Long/short term Commitment or loyalty seen to be important/unimportant OCB seen to be important/ unimportant Competence hired in, or developed in house Trust seen as important/ unimportant Generic objectives

HR policy areas

Selection Training Work design Promotion arrangements Contractual status Reward system Employee involvement Interest representation Communications

Competence Motivation Correct manning levels

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So an HR strategy can be defined as an attempt to develop a specified employment relationship through the choice of particular HR practices. A firm wishing to attack a problem of motivation by basing much of its HR strategy on high levels of employee commitment to the firm must first address the prior question of which HR practices are likely to achieve employee commitment. It might therefore shape its selection policies differently, perhaps by putting more resources into identifying which applicants are likely to have a disposition to be committed; or it might rely on an internal labour market in order to encourage a sense that it is offering greater job security; or it might adjust its reward system towards group performance-related pay; or it might develop complex communications practices in order to make employees feel fully part of the firm. This approach to thinking about strategy puts a premium on exploring the ways in which particular HR practices are likely to create a relationship which, in turn, delivers what we have called the generic HR objectives of competence and motivation. It implies that, to understand an HR strategy, it is necessary to know not only the particular practices the firm adopts but also something about the nature of the employment relationship it is trying to generate. What is crucial here is the surprisingly complex idea of employee motivation. Employee competence is certainly an important generic HR objective for all organisations, because without it little can be achieved. But the more ambiguous or mysterious objective is motivation. For example, changing the England football manager seems sometimes to have a startling impact on the teams performance, even though more or less the same players are involved.
The issue of fit

A key idea in the strategy literature is fit. A set of HR policies is often said to constitute an HR strategy if and only if two forms of fit are achieved. First, the different HR policies must fit together sufficiently (have internal fit); second, the HR policies must fit, or be congruent with, the firms policy choices outside the area of HR (have external fit). The notion of internal fit emphasises the interdependency between individual HR policies and practices. Such fit exists if the use of one HR policy enhances the effectiveness of the others. For example, relying on filling vacancies largely by internal promotion is unlikely to be effective unless the firm also has complementary training and development policies that have been well thought out; the two policies support one another and fit together. If a particular policy works to reduce the effectiveness of the others there will be inconsistency and negative internal fit. More specifically, effectiveness is to be understood as enhancing either the competence or motivation levels of the workforce. So synergy will be achieved (ie internal fit will exist) if the joint impact of a set of HR policies on competence or motivation exceeds the sum of their individual impacts on competence or motivation. What this implies in turn is that the classification of HR strategies, at least as far as internal fit is concerned, might rest on a theory of what motivates employees. It is no accident that some modern writing talks about high commitment management, ie the HR strategy that rests on the notion that it is employee commitment that acts as the motivational glue that binds many of the different policy elements

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together. We might therefore define one HR strategy as consisting of those HR policies that are thought to enhance performance by enhancing employee commitment. Other HR strategies might focus on enhancing motivation through different transmission mechanisms. So one theoretical basis for specifying different HR strategies might be managements view of the relevant motivational glues. The notions of fit can also be explored through the contribution of Delery and Doty (1996) who argue that there are three dominant modes of theorising that characterise current empirical endeavours. They term the modes, the universalistic, the contingency and the configurational and the underlying argument refers to the importance of different notions of fit. Researchers adopting a universalist perspective work from the presumption that a specified set of HR practices will always produce superior results. This best practice approach is most clearly demonstrated in the works of Pfeffer (1994, 1998) and Osterman (1994). Although Pfeffer has not undertaken empirical work in this area, his reviews of existing work in the field have led him to conclude that certain specific practices when adopted will lead to higher business performance, whatever the accompanying circumstances. Interestingly, his list of practices has changed over time. In 1994 he suggested that there were 16 practices that would raise performance, whereas by 1998 he had reduced this list to seven practices (similar to the number explored by Delery and Doty, 1996, see below). Once again, this was justified on the grounds of the growing body of empirical evidence. This approach is basically saying that only internal fit matters, ie that best practices work in all contexts. The contingency perspective builds on the well-established field of contingency theory, which argues that performance is optimised when there is fit between an organisations structure and its strategy. In the field of HR this framework has been used to argue that an organisations set of HR practices must be consistent with other organisational factors if it is to be effective (i.e. that there should be external fit). This perspective has often looked at specific areas of HR such as reward practices (see Gomez-Mejia and Balkin, 1992) and examined how they vary in relation to different types of business strategy as well as how they influence a firms performance. Perhaps the best example of this genre of studies is the work by Schuler and Jackson (1987), which developed the Miles and Snow typology of competitive product strategy to suggest how different market strategies should shape the nature and range of HR practices that a firm should adopt. This configurational mode of theorising draws heavily on developments in the organisational theory and strategic management literatures. In the words of Delery and Doty (1996) configurational theories are concerned with how the pattern of multiple independent variables is related to a dependent variable rather than how individual independent variables are related to the dependent variable (their emphasis). Another way to state this is to claim a strategys success turns on combining vertical or external fit and horizontal or internal fit. This has consolidated the potential importance of bundles of HR practices, and MacDuffie (1995), Arthur (1992) and Ichniowski et al (1997) have all explored the extent to which combinations of practices can be determined and whether organisational performance is related to the adoption of such bundles. They extend this work by suggesting that certain ideal types of employment system can be identified that have characteristics that differentiate them from each other. The two systems

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they identify are the market-type system and the internal system. Both of these systems, it is argued, will deliver higher levels of performance but a firm that is stuck in the middle will by definition have lower levels of performance. Therefore, a firm that has bundles of HR practices that most closely fit one or other of the ideal type systems should have a higher level of performance, providing it also achieves high levels of fit with competitive strategy. Delery and Doty argue that each of these three theoretical perspectives is valuable and that empirical work needs to be clear as to which framework is being deployed. Ideally, they would like to see researchers apply the three frameworks in order to evaluate their power. In their own empirical work (carried out in the US banking sector, and looking at one occupational group) they found the strongest support for the universalistic model.
Final thoughts

The argument so far is that it is difficult to develop a satisfactory taxonomy or classification of HR strategies. It is certainly not theoretically adequate simply to list different combinations of HR practices. This is in part because there is an astronomical number of possible combinations of practices.1 So the mere counting of HR practices is not an adequate basis for defining an HR strategy. A simple list of different combinations of practices is also inadequate because the specification of interesting strategic choices requires a convincing rationale of how and why a particular combination of practices generates internal and external fit. The difficulty here, as so many writers emphasise, is that we are sadly short of such a rationale. Guest and Hoque, for example, were faced with the problem of assigning the firms in their sample to different strategic categories based on whether they had certain combinations of 23 HRM practices; they recognised that some of these practices might be more important than others, but they concluded that we know of no theoretical basis on which to determine this, so they treated each of them as equally important (Guest and Hoque, 1994, p.6). MacDuffie observed that every HR practice has a complex role and that there is no clear conceptual basis for separating practices affecting motivation from those affecting skill (MacDuffie, 1995, p.203). Even worse, the motivational impact of many individual HR policies remains to be established. This last point is very well illustrated in Wright and McMahans (1992) discussion of the role of performance or incentive pay in characterising HR strategies which, as they note, shows some of the dangers arising from a lack of theoretical care when designing empirical research. They start by claiming that there is no theory that can help researchers understand the role of incentive pay in HR strategy and business performance research this is perhaps too sweeping. But a lack of theoretical rigour leads to (some forms of) incentive pay being seen in some studies as central to high commitment or innovative HR systems, and in others as integral to control systems (ie low-skill, low-trust systems). An adequate theory might indicate that a certain form of incentive pay is more likely to form part of a control type system, whereas another type of incentive pay scheme would be part of a commitment system. However, it is also possible that incentive pay schemes may be rewarding different behaviours and outcomes. For example, an incentive pay scheme tied to innovation might be more appropriate for a business pursuing a differentiation strategy, whereas a scheme tied to cost savings might

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work for a business with a cost strategy. Somehow, these possibilities must be reflected in the taxonomy of the strategies, which can be achieved only if the theory is spelled out and fully captured in the measure of the strategy.

Researching HR strategies
Three questions

Empirical and theoretical research into HR strategies might focus on three different questions: It might provide a description of HR strategy choices. This involves building up a taxonomy of possible or actual HR strategies, and then discovering which are used, and with what frequency. It has already been suggested that this requires a fair amount of prior theorising on (a) what, in general, is an HR strategy, and (b) in what sense the different strategies are distinct from one another. It might provide an explanation for HR strategy choices. This addresses the question of why different firms make the different HR strategy choices they do (and includes the issue of why so many firms fail to pursue anything that could reasonably be described as an HR strategy). Any attempt to explain these choices relies on having solved the problem of properly describing and enumerating the HR strategies, since explanation presupposes identification. The explanations implicitly or explicitly have to draw on some general theory of the firm (ie a general explanation of why firms make the kinds of decisions they do), and might also distinguish between the strategy-making process and the concrete form the strategy takes. It might provide an evaluation of HR strategies. There are two sub-questions here. The first relates to whether the various HR strategies are successful, ie to their impact on various measures of business performance. The second (which is, in practice, much less frequently considered) seeks to understand why a strategy is, or is not, successful. As with explaining strategy choices, evaluating them presumes that different HR strategies have been clearly identified. An evaluation might be done for an individual firm (eg has firm As HR strategy been a success?), or more generally (eg has a particular HR strategy typically been a success?). Under this heading one might also consider whether there is a universally successful HR strategy, or whether success is highly dependent on the circumstances in which a strategy is used.
The evaluation issue

All three questions are very difficult to answer in a satisfactory way. The main focus in this paper is the third question, the evaluation of HR strategies. The simpler of the two issues here is whether the pursuit of a specified strategy enhances business performance, ie whether it causes or leads to business performance being better than it would otherwise have been. At a minimum, this requires one first to characterise or conceptualise the HR strategy, then to measure it, and finally, in some way or other, to relate its use to a measure of business performance.

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There are many research approaches one might use to do this, but all of them require the researcher somehow to take into account the certainty that many things in addition to the HR strategy will affect business performance. In other words, it is necessary to isolate the impact of the HR strategy on performance from all the other determinants. So one automatically has to develop a very complex evaluation model. To understand these complexities more clearly, it may be useful to make a comparison with the relatively simple problem of evaluating a single HR instrument, for example, performance-related pay policies. Difficult as it is to carry out authoritative evaluations of a single HR instrument, it is much harder to evaluate whole strategies.
Developing a taxonomy of policies/strategies

Evaluation rests on being able to specify clearly the thing being evaluated. The first step when evaluating performance-related pay arrangements is to describe, or classify or provide a taxonomy of them. This is not a simple matter because performance-related pay practices may assume a number of distinct forms along a variety of dimensions (are they group or individual based, do they involve large or small amounts of money, are the payments made in a lump sum or in smaller, more continuous amounts, how old are they, etc?). Each form may have its own degree of success, so one must evaluate them separately. But the number of interesting dimensions is relatively limited, so workable taxonomies based on them can be developed. Performance-related pay taxonomies could also be based on other things; one could, for example, classify performance-related pay arrangements on the basis of what managers want (or say they want) to get out of them, or on the basis of what sort of production arrangements firms chose. So there is more than one possible taxonomic basis. But on any basis, any single policy area has a limited number of dimensions; and the policy being classified is itself intrinsically easy to identify in the first place. As has been shown above, this is not true for HR strategies. There it was suggested that one would like to know about the underlying employment relationship which lay at the core of the strategy, as well as the links between chosen policies and that relationship. Notions of internal and external fit would also be relevant. The pragmatic alternative of specifying an HR strategy just on the basis of a somewhat arbitrary collection of individual HR practices looks theoretically suspect. The problem is, however, that the various employment relationships have only been sketched, while the links between them and individual practices remain, at best, somewhat speculative.
Conceptualising business performance and accounting for other influences on performance

Any evaluation needs evaluation criteria, ie standards or metrics by which outcomes of the process are to be assessed. As was discussed above, these criteria could be relatively narrow HR measures, either of employee behaviour (like absenteeism or quit rates) or of employee attitudes (like trust in management or employee

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commitment). They could alternatively be broader objective measures of performance (like labour productivity, profits or stock market prices). The former could also be seen as the routes by which the latter were achieved (eg productivity goes up because commitment has been enhanced), see Paauwe and Richardson (1997). The broader objective measures are undoubtedly more impressive and authoritative to many observers, and some of the US work that claims to establish a close connection between HR strategies and profits or productivity has undoubtedly made the whole area very sexy. But these indicators of success are relatively far away from the HR intervention, ie they are all very heavily influenced by a whole range of non-HR factors. If these latter factors can be taken into explicit account this may not be a problem, but this is not usually done adequately. A growing number of studies have complex measures of HR practices. These are often used in multi-variate analyses, which also incorporate background variables like capital/labour ratios, firm size, industrial sector, and so on. But they only rarely include other direct measures of managerial effectiveness. This omission might mean that all aspects of managerial effectiveness are being represented just by the HR variables. If so, the results are likely to overstate the contribution of HR to firm success. One might imagine a parallel exercise to evaluate different marketing strategies; in the absence of HR variables it might be concluded that a particular marketing approach paid off handsomely. The reality might be that successful firms tend to be effective in both HR and marketing but if only one policy area is included in the evaluation exercise it will seem that it alone is making the contribution. What this implies is that even highly sophisticated studies may be seriously misstating the impact of the policies they are trying to evaluate.

Further thoughts on the theory

In their review of the theoretical underpinnings of HR strategies, McMahan et al (1999) posed the question as to whether the field was suffering from paradigm proliferation or was enjoying a growing convergence towards one theoretical framework. It must be concluded that, so far, any convergence that is taking place is grounded less in the security provided by rigorous theorising and more in empirical work that is hard to replicate. Guest (1997) in his review of the area argued strongly for the development of sharper theory in order to guide research efforts. He felt that there was a need for a theory of HRM, a theory about performance, and a theory about how they are linked. We strongly agree. His own view is that expectancy theory might provide the vehicle to deliver such a unifying theoretical framework, though others have not yet obviously accepted this view. One of the difficulties, but also perhaps one of the opportunities, within the field of HR strategy is the fact that different researchers come from different disciplines. So there is the prospect of a genuine multi-disciplinary approach developing. This does not make things any easier, but it could eventually be very fruitful. McMahan et al (1999) provide a very useful conceptual framework for understanding the theoretical perspectives influencing the field. They identify a number of broad theoretical approaches that have influenced empirical work in the area. These they group into reactive theories and proactive theories. The proactive perspectives are:

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 behavioural transaction costs theory/agency theory cybernetic systems resource based view of the firm. The reactive theories they cite are: resource dependence institutional theory. Their review of these various perspectives concludes that the field is still relatively new; being in an adolescent phase, it does not have a well-established theoretical or empirical base. They argue that much of the empirical work in the area is datadriven theory application rather than theory-driven research. The first of these is characterised by the rough application of a theoretical framework to data. For example, it could be posited that bundles of HR practices lead to higher business performance using the resource-based view of the firm as a theoretical framework. Most researchers their example is Huselid and Becker (1996) are looking for relationships between these bundles of HR practices and organisational performance, without considering the intervening conditions that may also be important in understanding how one set of variables affects others (eg the importance of changing employee behaviours and attitudes). Thus, much of the research using this approach (and constrained by specific types of data collection techniques) fails to take explicit account of important intervening variables. This failure is almost inevitable given the data demands of so formidable a model, and it is a common feature of the existing empirical literature in the field. It does mean, however, that the results from these partial studies have to be treated with special caution. One of the features of current empirical work is that researchers are seeking to refine both the range and the nature of the measures they include in their models. They are, for example, extending the range of variables in order to control for the effects of other organisational factors on performance outcomes (eg investment in technology) as well as trying to improve the precision and reliability of existing measures (eg as with Huselid, the attempt to gauge policy coverage by asking what proportion of the workforce is covered by particular policies). While these pursuits are laudable and will certainly improve future data collection, there is a risk that as the number of influencing variables grows the only performance that is really being evaluated is that of the statistical programmes manipulating these data. In other words, researchers will be forever adding to the contingencies that could influence performance outcomes. This illustrates the limitations of a research field without a rigorous theoretical framework. McMahan et al (1999) advocate a more theory-driven approach to empirical work. In practice this means giving more thought to the hypotheses that come from an interesting theoretical framework and developing appropriate methodologies and measures to test them. Huselid and Becker, on the other hand argue that theoretical

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development is difficult because of the dearth of empirical research. Thus, there is an emerging fissure between those who see the dynamic of the field being continued through deductive methods and those who see it as developing through inductive methods. An important theoretical criticism made about much of the empirical work in the area (and also some of the emerging paradigms) is that it fails to take account of developments over time. Cross-sectional surveys and one-point-in-time case studies have difficulties in taking proper account of the evolutionary nature of organisational effectiveness and the relative power and influence of HR and other managers within the organisation on the development of HR strategies. This points to the relevance of longitudinal designs (such as the work of West and his colleagues at Sheffield) and the importance of combining both quantitative and qualitative methods. However, longitudinal studies, in and of themselves, will not necessarily address the theory deficit outlined above. Furthermore, longitudinal studies have their own inherent problems. A longitudinal panel survey such as the one being conducted by Huselid et al (1997) will not only suffer many of the problems of a cross-sectional survey but there is also the problem of panel attrition, which reduces the number of valid observations over time. In addition, measurement error can be compounded significantly and problems of covariance magnified. These are all central considerations for developing the IPD strategy in this area and, for us, they underline the need to understand the competing theoretical models and their implications for research design.

End-note
1 If there were only two HR practices (A and B) there would be four possible combinations (both A and B, either A or B, and neither A nor B). In this sense there would be four possible HR strategies. If there were, say, 10 HR practices, there would be no fewer than 1,024 possible strategies.

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Chapter 3 The empirical literature

Our review of the empirical literature has thrown up a number of important problems, some of them to do with the nature of the data that are collected, and some to do with the way the data are used. Our discussion is divided into seven sub-sections.

Measuring HR practices
HR strategies are everywhere measured by HR policies and practices, although theory is usually used (frequently in a relatively sketchy way) in the attempt to justify for which policies data should be collected. Guest and Hoque, (1994), for example, were interested in a particular HR strategy and thought that its presence or absence could be captured in the responses to a set of 23 questions on specific practices. There is, however, only a limited consensus among researchers on the HR practices that should be included when doing this. The available studies include different policy areas, in a way that is often confusing. Becker and Gerhart (1996) looked at the actual practices included by researchers and found a surprisingly low level of overlap in the practices being explored. Furthermore, the practices that were common across the studies were often measured in quite different ways. For example, one study may look at whether a business has performance pay (ie yes or no) while another measures the proportion of employees covered by such practices, and another looks at how much is typically paid. This problem continues to be a serious one. We referred above to a paper by Chadwick and Cappelli (1998) 1 which measures a particular HR style or strategy (the Investment relationship) by the following 10 questions:
The Investment relationship 01 How many different benefits does the firm offer? 02 Does the firm provide/pay for computer training? 03 Does the firm provide/pay for cross-training? 04 What is the percentage of operatives involved in regularly scheduled meetings to discuss work-related problems? 05 What is the employee/supervisor ratio? 06 What is the percentage of operatives currently involved in job rotation? 07 Does the firm have pay-for-skill as a part of its compensation package? 08 What is the percentage of operatives currently involved in self-managed teams? 09 Does the firm offer stock options to at least some employees? 10 Does the firm provide/pay for teamwork or problem-solving training?

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Their second HR strategy (the Contractual relationship) is measured by responses to the following eight items.
The Contractual relationship 1 An index of the relative generosity of the firms compensation 2 The importance of industry credentials as a hiring criterion 3 The importance of communication skills as hiring criterion for new non-supervisory employees 4 Does the firm have flexitime? 5 Does the firm allow job sharing? 6 What is the percentage of employees working part time? 7 What is the percentage of total labour costs spent on recruiting? 8 How many different selection methods are used?

Firms scoring high on the Investment Employment Practices index are judged to be more successful than are those using Contractual Employment Practices. But the detail contained in each of the two strategies looks odd, and neither precisely overlaps with that in, say MacDuffies excellent study (MacDuffie 1995). In the latter, the strategy being examined is captured in two indices, each an amalgam of a set of individual items.
Work system The percentage of the workforce working in teams The percentage of the workforce in EI or QC groups The number of suggestions made per employee The number of suggestions implemented per employee The frequency of job rotation The extent to which responsibility for quality control is decentralised HRM policies The extent to which the firms hiring criteria emphasise openness to learning and interpersonal skills An index measuring the degree to which an individuals pay is influenced by the output of the whole workforce The degree to which status barriers are eliminated The amount of training of new employees The amount of training of experienced employees

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Plants scoring well on both indices are found to have higher labour productivity. Now, there is certainly some overlap between McDuffies specification and that of Chadwick and Cappelli. But the overlap is not total, which means that the components of a winning HR strategy have not been identified. The fact is that different researchers continue to claim great success from rather different HR packages2 . Anyone who is using the various studies to discover best practice (whether contingent on specified circumstances or not) still faces a lot of uncertainty. This is re-enforced by an important related point. Any single HR policy area is measured in a variety of ways by the different studies. So, if HR managers want to know whether they are wise to include in their HR strategy, say, some form of performance-related pay, they might get some very general insight. If they also wanted to know what precise form of performance-related pay to use (eg groupbased versus individual-based) they would get almost no help. But it cannot be presumed that the two different forms are equivalent. So what has been captured in any general finding on performance-related pay? The problem is that the questions are not posed, and the possibilities are not explored, in sufficient detail. So, to take a different example, there might be hints in the empirical work on HR strategies that best practice would involve, say, spending more on selection; but that does not answer the question which precise selection techniques to use? In other words, although there are, rightly, a lot of policy areas captured in each of the HR strategies, none of the components is measured with as much detail as the practitioner would like. Three other general points are illustrated by the lists of items from the studies by MacDuffie (1995) and Chadwick and Cappelli (1998): The precise groupings of the various items into different indices are often puzzling and seem arbitrary; eg why are communication skills important in Chadwick and Cappellis contractual system but not in their investment system? When constructing the indices to measure the different HR strategies, researchers usually give each included item the same weight; so, say, eliminating status barriers is seen to be as important as training arrangements. This would strike many managers as extremely odd. Many indices or surveys simply omit certain HR policy areas; so, for example, communication policies or interest representation practices are often downplayed or ignored.

Measuring strategy
We have already discussed the theoretical difficulties when developing an HR strategy taxonomy, and have said that the notion of fit is a critical building block. One form of fit is external fit, or alignment with the wider business strategy, and this in turn has at least two important dimensions. The first is the fit with the firms product market strategy, eg does the firm emphasise quality or low prices (see, eg Schuler and Jackson, 1987); the second is the fit with the firms choice of production arrangements, eg is there an emphasis on getting quality right first

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time or is there a wide use of rectification (see, eg MacDuffie 1995). The interest of the IPD, and for that matter of most of the researchers in the area, is probably the link to business performance and not strategy. However, an important determinant of the HR practices being adopted may well be the influence of competitive strategy and the ability of firms to develop linkages between strategy and HR systems. It should also be noted that many of the models of business strategy that have been used in the research up to now are thought to be outdated and have their utility questioned within the wider field of strategic management research. This suggests that research designs need to take account of developments in thinking about competitive strategy. Here, notions of dynamic capabilities and resource-based view of the firm may be important to incorporate. This points to a greater need for single-industry studies, with more time spent on developing relevant measures of competitive strategy. In an attempt to respond to some of these problems, Thompson (1998a) in his study of the aerospace sector developed competitive strategy measures through a process of interviewing MDs and senior managers in the sector about their business objectives. However, the ability to capture strategic management objectives through cross-sectional questionnaires typically completed by one respondent (often a personnel manager) does question the reliability of such data. Although the Thompson survey was completed mostly by managing directors or Board-level respondents, there still remain issues about the extent to which strategic objectives can be measured. Indeed, the notion of corporate strategy as emergent and a pattern in a stream of decisions does pose problems for cross-sectional survey designs.

Measuring outcomes
The reliable and accurate measurement of HR practices is one of the challenges facing researchers in this area. The other is how to measure performance. We have already raised the issue of how business performance is to be conceptualised, and made the point that financial measures of performance are often quite distant from many of the HR practices being explored.

Unit of analysis
One of the other problems that has dogged the area is the unit of analysis adopted in survey design. A wide number of approaches have been used, and the following breakdown illustrates some of the possibilities as well as examples of existing work that fall into each category: Cross-sectional surveys (postal and telephone based) multi-industry (eg Huselid, 1995; Osterman, 1994) single-industry (eg Delery and Doty, 1996; Thompson, 1998; Guest and Peccei, 1994)

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 Case studies multi-firm, single-industry (eg Arthur, 1992; MacDuffie, 1995; Ichniowski et al, 1997) multi-firm, multi-industry

Mixed method multi-industry cross-sectional survey and case studies single-industry survey and case studies longitudinal survey and case studies (eg West, 1996; Huselid et al, 1997).

Our review of the research in this area found that there was a broad range of designs, techniques and approaches deployed. For example, Huselid (1995) wanted to use financial databases to derive financial performance indicators as his outcome measures. This meant that he needed to collect data on HR practices at the corporate level (to ensure that the outcome and practices data both refer to the same units). A widely recognised problem with this is that the data on HR practices is not necessarily reliable because responses will often come from corporate head offices and fail to recognise the diversity in practices across establishments within multi-establishment firms. In the UK, the work by West et al at Sheffield has concentrated on single-site companies in the manufacturing sector in order to control for variation, and the work by Guest and Peccei (1994) in the NHS and Thompson (1998b) in the UK aerospace industry both use an establishment approach as well as gathering establishment-level performance measures. Establishment-level surveys raise their own problems. Such surveys (eg Huselid, Guest and Peccei, Thompson) tend to ask about employees in a very general way (eg please respond for your non-management employees) and tend to obscure the variations in jobs, skills and occupations that go to make up an employment site. For example, the category non-management employee could cover technical and professional staff as well as semi-skilled workers. Firms may well be operating different types of HR practice for these employee groups. To give an example, engineers in the aerospace sector may be subject to performance pay as would skilled shop-floor workers but the performance measures (ie competency for engineers and output measures for shop-floor workers) may differ significantly in their character and how they fit with the rest of the HR system. In the case of engineers, competency-linked pay might be part of a new career development structure (ie a dual career ladder for technical and managerial staff) whereas for shop-floor employees the output measures might be part of a very flat job structure. The pursuit of perfect measures can in itself be a problem, as any measure can be open to criticism. In the case of level of analysis, there is a strong preference for cross-sectional survey work to work at the lowest possible level (ie the establishment) where more accurate data on HR practices can be captured. The business unit rather than the company should be where data gathering takes place.

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The need to understand rationale and process

One of the limitations of the cross-sectional survey technique that tends to dominate work in this area is that it cannot tell us very much about the processes that organisations use to develop HR strategies and systems. The survey technique allows us to say what organisations are doing (though this too is open to criticism) rather than how they achieved positive or negative outcomes. The issue of process is becoming more central to the strategic management agenda as the competences of firms in areas such as change management are increasingly being seen as differentiating organisational performance. From this scenario it is perfectly plausible that a survey could identify two firms in the same industry with the same HR practices but with different performance levels. The explanation for the success of one organisation over the other may be more to do with its ability successfully to design and implement the appropriate practices. In other words, it is the firms management capabilities that are the source of competitive advantage, not the HR practices it introduces. This perspective has important implications for the HR function. It suggests that not only do HR managers need to display strategic capabilities in order to work through the implications of new strategic management decisions for HR but also that they need to have technical capabilities in the design and implementation of new practices. This area has been partly addressed by Huselid, Jackson and Schuler (1997) in their study on the technical and strategic capabilities within the HR function. They found that firms that had high levels of strategic capability in the HR function tended to have higher levels of financial performance. The need to understand process and rationale is a point taken up by Marchington and Sparrow (1998). They argue that cross-sectional work can arrive at spurious conclusions about what leads to organisational effectiveness, particularly if there is lack of theory informing the research. They argue for more attention to be given to process and suggest that we need to map out the process through which the HRM contribution links to organisational performance. This leads us to the next theme.

Managerial cognition
The research field is currently dominated by positivistic research designs that only partly succeed in capturing managerial views and attitudes about the adoption of new HR practices and their relationship to improved business performance. These designs can help us understand the correlations between HR practices and performance outcomes (close or distant) as well as estimating the size effects of these relationships. They do not help us understand the factors that have influenced firms to adopt these practices (or even whether they are introduced as bundles) or indeed, the other organisational changes that have been introduced alongside these new HR practices. Similarly, the emphasis in the literature on demonstrating that the greater use of high-performance practices does indeed lead to higher business performance often prohibits an examination of examples of where the introduction of new HR practices has failed. Understanding the factors that are associated with such failures is probably as important as understanding stories of success.

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Indeed, cross-sectional and random survey designs may lead to an overrepresentation of successful cases and an underrepresentation of failures (Becker and Gerhart 1996). This imbalance can often lead to a misunderstanding of the factors that may be influencing the successful adoption of HR practices and their influence on business performance. In other words, the reason why organisations introduce (or fail to introduce) HR practices that academic research points to as beneficial to business performance, and that employer bodies (eg CBI and IPD) are increasingly advocating, tends to get overlooked. Furthermore, these research designs are not good at picking up the process dimensions of introducing HR practices which may themselves be an important determinant of successful organisational outcomes. To illustrate the importance of design and implementation issues to business performance we go back to the issue of performance pay. In an important longitudinal case study of incentive pay schemes in UK manufacturing firms in the late 1970s and early 1980s, Bowey and Thorpe (1986) found that the success of schemes could be attributed more to the processes associated with the design and implementation of incentive pay arrangements than the presence of a scheme itself. In other words, higher business performance (as measured by employee productivity) was not the result of adopting a particular incentive scheme, but the way in which it was adopted and implemented its not what you do, its the way that you do it that counts. To extend this example, a cross-sectional survey would pick up firm A and firm B, both of which have adopted the same incentive scheme. However, firm A has low relative organisational performance despite using, on the surface, the same incentive scheme. We may be able to explain this by other contingency factors covered in a survey, but it may also be because of much softer process issues that the survey approach cannot grasp. And herein lies one of the great risks of the research endeavour on HR practices and business performance. Policy and employer bodies may advocate the adoption of so called best practices in HR without understanding the complementary circumstances and factors that are needed for the optimal performance outcomes for the business. Managers acting upon such guidance may find themselves introducing new HR practices without fully understanding the risks involved or even if the practices are appropriate, given their organisational circumstances. This problem was recognised by Becker and Gerhart (1996) in their review of the research in the field when they concluded that there appears to be no best practice magic bullet short of organising a firms HR system from a strategic perspective. What we now need to understand is how firms achieve this strategic approach to the management of the HR system and what internal process factors account for success or failure. This suggests that a wider set of research techniques may need to be adopted and that future studies should consider more interdisciplinary research designs and methods. For example, Marchington and Sparrow (1998) allude to various psychological methods that can be used to explore managerial decision-making (eg cognitive mapping, scripts, schema) which may help researchers understand the causal linkages and paths that explain why organisations adopt, or fail to adopt new HR practices.

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Through using such methods (in combination with other econometric methods) researchers might be able to address more confidently the extent to which managers consciously and deliberately introduce special bundles of HR practices or whether they think that organisational performance is going to be improved by such approaches. At this point in time, we have less than satisfactory answers to these questions.

Intermediate measures of performance outcomes: employee motivation and commitment

The point was made earlier in the report that much of the empirical work (particularly the pioneering studies in the US) has tended to use company-level financial performance data and mix them with establishment-level measures of HR practices. Such an approach raises important questions about causality and the extent to which other organisational factors influence these performance outcome measures (eg currency hedging, acquisitions, technology). These measures are too distant from the scene of the action. Although there have been some detailed case studies of industries and companies that have sought to limit these methodological problems, little if any of the current literature looks at both strategic fit ideas as well as performance outcomes in terms of employee motivation and commitment. The only study (that we are currently aware of) that has attempted to combine both measures of organisational performance, measures of strategy and measures of impact on motivation and commitment is the work of Patterson et al (1997) at Sheffield. Their work concentrates on SMEs in the manufacturing sector and found that 18 per cent of the variation between companies in productivity could be accounted for by certain HR practices (namely, job design and skill acquisition and development). The Sheffield study, although under way for several years, has not reported any subsequent findings and there is little detailed information available on methodology and measures used.

End-notes
1 Our reviews of this paper and the MacDuffie paper which form the basis of the discussion in this section are given in the appendix. A number of other papers are also reviewed. The extent to which such findings give support to the emerging bundles orthodoxy is also open to question given the observed lack of theory in the field.

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Chapter 4 Practitioner perspectives

Introduction
An important part of the current review involved consulting with practitioners and involving them in the development of the next stage of the IPD research programme. A number of events have taken place, including a one-day event hosted by the IPD in London in February, 1999, which brought together senior HR managers and academics. This chapter aims to bring together the main themes and issues arising from this meeting, as well as separate discussions held with practitioners across the UK co-ordinated by the IPD. The focus is on practitioner views that are relevant to HR strategies and business performance, and not necessarily on the wide range of views expressed. In that sense the task has been to narrow down the contributions to reflect the on-going interest in the relationship between HR strategies and business performance, but not to the extent of excluding relevant and pertinent research questions a difficult balance.

General comments
It was clear from the discussions that practitioners are not generally aware of the growing body of evidence on HR strategies and business performance. While HR directors in larger international businesses tend to have a more informed view, the bulk of the HR profession could be said to be reasonably uninformed. This is, in large part, due to the highly quantitative nature of the existing work (which makes severe demands on the reader and also limits its wider appeal) and the fact that most published research is of US origin (and both more difficult to access and relate to). In meetings with practitioners in the IPD regions it was clear that few had read or heard of even the more accessible work of writers such as Pfeffer (either Competitive Advantage through People or The Human Equation). Not many were aware of the Sheffield study or articles published in People Management on the topic. This is not to say that practitioners are unaware of the importance of these issues, just that they seem rarely to read research-based evidence. Furthermore, as the discussions with practitioners revealed, even if they were aware, many are sceptical of such research and remain to be convinced of its merits. This raises a number of questions about how knowledge and learning takes place among senior managers and how research findings can be effectively diffused. It has been suggested that social learning processes such as forums, seminars and short programmes where reading is minimal may be of more relevance1 . These are clearly important concerns for the IPD and third-level institutions providing CPD; however, in the context of this research review they are of secondary importance. We are interested in understanding the practitioners agenda what do they feel they need to know in order to make HR strategies deliver better bottom line performance. From this perspective, practitioner interest tends to be more heavily weighted in favour of process-based research. In other words, understanding how organisations develop HR strategies, implement them and how this works right the way through to
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business performance, rather than on establishing correlations between measures of practices and measures of organisational performance. To them, the argument that HR makes an impact on the bottom line is not in dispute, their interest is in knowing the best means to make an impact. These interests have clear ramifications for preferred research designs and suggest that a greater emphasis be placed on longitudinal case studies that explore the processes of HR strategies, organisational change and performance over time.

Understanding process
A common theme from the practitioner discussions was that the process of developing HR strategies differs considerably, depending on a number of specific contextual factors. Indeed, although the London meeting did not seek to develop data that could be content analysed as a step towards understanding the relative weight of these various factors, the issues that did emerge are important in shaping our thinking about some of the terrain that process-based research should encompass.
Political coalitions and HR capabilities

An important dimension in the development and implementation of HR strategies that can improve business performance was the significance of relationships with other management functions or groups. A number of participants stressed the importance of developing coalitions of common interest across management areas in order to provide the bedrock on which HR strategies could be developed. In some cases this was explicit, as with Siemens where HR managers are building cross-functional management capabilities because the business recognises that old structures do not deliver system-wide solutions. In other contexts, it was recognised that the lack of coalitions, and in particular the ability of HR to be a player in such networks, could determine the success or failure of HR strategies. The importance of building partnerships with business leaders was also identified as a key attribute, and this opened up a range of issues around the skills, competencies and behaviours that are required of senior HR managers to shape and develop effective relationships at this level of the business. These sets of issues link very strongly to the work of Ulrich (1998) and others on the changing nature of HR and the new skills and abilities now being demanded. Although Ulrichs work can be criticised on a number of grounds, particularly its strong prescriptive tenor and the lack of rigorous empirical evidence to support his models of the new HR role, it provides one of the few insights into these areas. Clearly, there is a demand for research that explores these dimensions in the UK context.
Good v bad processes

Another important theme was the importance in understanding what processes were most important for ensuring the effective development and implementation of HR strategies. Managers recognised that not only did they need some way of determining which HR strategies to prioritise and sequence, but they also needed to understand what design and implementation processes were the best ones to adopt. These concerns were at the level of system-wide HR strategies as well as at the level of single practices (such as payment system design).

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Business performance models

A strong and recurrent theme in discussions was the importance of wider business performance metrics and methodologies. Two in particular were mentioned. First, a growing number of organisations are using the Business Excellence Model (BEM) developed by the European Foundation for Quality Management (EFQM) to understand how a wide range of business processes impact on performance. This model is built explicitly on the assumption that people processes account for 12 per cent of total business performance processes. The model (and the audit tool that accompanies it) is helpful in encouraging organisations to develop a broad range of metrics to understand the impact of various business processes. However, the criticisms that practitioners levelled at the extant research on HR strategies and business performance also hold true for this model. It does not help to resolve practitioner concerns about which HR strategies and processes should be adopted in which contexts and why. A second framework that is gaining currency, and also includes an element of people measurement, is the Balanced Scorecard (Kaplan and Norton 1996). This management control process requires the development of a number of performance indices across various dimensions of business performance. The idea is that the senior management team is forced to manage the organisation using a much broader set of performance indicators such as customer and employee satisfaction rather than the traditional narrow set of primarily financial metrics. Given the growing numbers of organisations adopting this methodology, practitioners felt that the Balanced Scorecard could be developed to include a richer set of HR metrics. Practitioners, particularly in larger private and public sector organisations, are increasingly exposed to these business models (as well as others such as Economic Value Added, which is being widely deployed in the manufacturing sector) and this raises issues for them in terms of what HR metrics they should be developing to link with these models.

Strategic choices
Two major constraints face senior HR managers time and resources. These featured prominently in debates, and practitioners wanted methods or criteria for making decisions on the allocation of time and resources to various HR strategies. Their issues were not so much which practices they might want to adopt (ie. Pfeffers seven practices) but understanding which ones were best in their own particular organisational context. The discussions revealed that practitioners generally worked very much from a contingency or configurational perspective. Furthermore, they also wanted to know if there was a sequence that should be followed did they need to introduce a certain set of changes prior to putting in place a new HR strategy, or was there a pattern to the introduction of HR strategies? There is a risk, as became apparent in some of the group discussions at the London seminar, that practitioners may still be thinking in terms of discrete practices (such as performance pay) rather than in terms of HR systems. Understanding what an HR system consists of and how it can be developed to meet business needs, is a clear challenge.
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There was considerable interest in the bundles approach, which had considerable intuitive appeal to practitioners, and raised questions about what particular bundles of HR practices are relevant in different organisational settings. Bundles pointed to the possibility of HR systems with distinctive properties, which some of the research evidence that we have reviewed is beginning to indicate. This raised further issues as to whether industry-level bundles could be differentiated, pointing to the need for the possible development of sector-based research designs, such as the work by Thompson in Aerospace and that of Guest and Peccei in health. In other words, can we talk of broad based-industry HR practices (which might appear contrary to the notion of SHRM) rather than organisational-specific bundles of practices? Practitioner interests pointed to the need to develop heuristic devices or diagnostic tools that could help them make resource allocation decisions at key times in the business cycle.

Time-based element of change

While the need to make fast and informed decisions in the context of rapidly changing business environments is recognised as one of the key challenges, practitioners also recognised that there is a time-based element to the development, introduction and acceptance of new HR strategies in an organisation. For example, Peugeot reckoned it took nearly five years for their communication processes to become embedded and start to pay returns (based on employee attitude survey data). This time lag between policy deployment and impact becomes an important tension in businesses that are looking for quick wins, and practitioners felt they needed some rules of thumb to guide them on the time-period for HR investments to start making a payback.

The importance of intermediate measures

A fair amount of scepticism was apparent concerning studies that sought to relate HR practices to company financial performance outcomes. Practitioners recognised that many other factors complicated this relationship, such as product strategy and technology. Many felt that it made more sense to look specifically at those intermediate measures that are most meaningful in terms of employee performance (motivation, commitment, absence, turnover, etc). However, it was also recognised that these intermediate measure needed to be taken seriously at board level, and some work needed to be done on developing metrics that had legs at that level.

Diffusion
If the use of more innovative HR strategies is regarded as important in explaining variations in business performance between firms, why are more organisations not adopting these practices? It was felt that we needed to understand why organisations failed to adopt high performance work practices and HR systems.
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By identifying the barriers to the diffusion and uptake of practices we should be in a better position to make HR practitioners aware of the nature of the hurdles that they may face in trying to introduce new HR approaches.

Conclusion
This review of the range of practitioner interests and needs underlines the need for a new departure in the research that currently exists on HR strategies and business performance. The demand is clearly for process-based research and detailed case studies that track the process of change in organisations (perhaps something akin to the study by Pettigrew on ICI) but which can also lead to the development of learning tools that can help practitioners to make better decisions about HR investments and also be more aware of the problems and issues likely to arise.

End-note
1 Management academics and HR professionals at a meeting of the steering group expressed these views.

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Chapter 5 Future research

Introduction
At this stage we should like to flag up a number of points for further consideration. In settling on these we are concerned with the interests not of the academic community but of the practitioner community keen to draw guidance from the frontier work being done by academic researchers. Such people, either directly or via their professional associations like the IPD, are trying to learn what they can do to improve the performance of their organisations. In this respect, the IPD faces a major task in disseminating the existing research findings in a form that can be properly appreciated by its members. Our impression was that the practitioners in the seminars were keen to be involved.

Key points
From what we have already said in this report we would highlight the following six points: 1 The claims that a universal best practice HR strategy has been identified are premature. Managers should not en masse be discarding their present arrangements. This is not to say that the studies on which such claims are based are without interest. Quite the contrary, and they give a checklist of policy combinations which organisations should very actively consider adopting. But there are so many difficult problems still to be resolved that they should not be considered to be a sufficient basis for policy decisions. It is unlikely that merely adopting a specified set of HR policies is the high road to organisational success. From what has already been said, even the large amount of empirical work that exists at the moment has not identified all the general components that such a set would contain; still less have the precise policy variants been identified. We are not clear, for example, what the optimal training arrangements, or selection arrangements, or reward systems, or teamworking arrangements look like. Still less do we know what the optimal combinations of these and other things are. Even if we did have a clear idea of the optimal combinations, we should still have to resolve the formidable problem of whether they were the same for all organisations (as the universalist approach claims) or differed according to different underlying motivational links or wider business strategies. It would be rash to conclude, just because the weight of current evidence seems to support a universalist interpretation, that policy advice should move heavily in that direction too. Virtually all the present statistical analysis, no matter how sophisticated it becomes, operationally identifies HR strategies by adding up a mixture of items from a somewhat arbitrary list of HR policies and practices. This might
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be done in a very rough and ready fashion (eg Guest and Hoques approach of counting as HRM the use of any majority combination of 23 practices) or in a technically very advanced way (eg Huselids use of factor analysis, or Delery and Dotys use of cluster analysis). At some point, therefore, a strategy is defined and measured by a statistical procedure rather than by a principled argument grounded in awkward reality. We need to go beyond this and start to rely on identifying strategies by their intrinsic theoretical and real world properties. 5 We need to turn from so heavy a concentration on analysing the two end points of evaluation, ie from associating strategy with performance. We should pay more attention to the intervening steps, looking at what mediates these two variables. We should look more closely at why a particular combination of policies might work, and how much discretion managers might have in their ability to affect these mediating variables. We should pay much more attention to how clusters of HR policies are adopted and implemented, as well as to the specific contexts in which policy innovation is attempted. We have all heard simple recipes for salvation, whether commercial or personal. We have all witnessed policy fads. Surely we should have learned that how something is done is often more important that what is done existing empirical studies concentrate almost entirely on what is done.

Implications for future research

Our review of the literature and discussions with academics and practitioners point to a number of important research gaps that may attract IPD funding. An interesting feature of the academic and practitioner perspectives is the growing convergence between both. The research agenda being developed by researchers is beginning to reflect many of the themes raised by practitioners. This is particularly evident in the concentration on process and, by implication, the preference for more detailed, process-based case study designs. However, it should be stressed that the field as a whole suffers from a lack of theoretical rigour that can help shape effective research designs and also serve to underpin the transfer of knowledge to practitioners. Without a sound theoretical basis, it will be difficult to translate research into learning materials and processes of benefit to IPD members. This is a crucial area of research and one that is central to the future research agenda. Recognising the importance of theory as a first step, the potential areas for future research are (and this list is neither exhaustive or in sufficient detail): understanding the HR strategy formulation process and the methods that organisations use to prioritise and schedule HR investments understanding the perceptions of non-HR managers in this strategy-forming process and how this influences outcomes mapping out the linkages in the chain from HR strategies through to business performance (and the factors influencing these key linkages)

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 developing intermediate-level performance metrics that are valid measures of HR strategies impact and which are also taken seriously by senior business managers understanding the extent to which bundles of HR practices work at an industry/ sector level and the extent to which they are determined by firm-specific characteristics connected to this, to what extent are bundles mediated by occupational category (ie is the bundle for an IT worker different from that of a customer service worker in the same organisation) how important is time lag in terms of the design and introduction of new HR strategies as well as their impact on organisational effectiveness and, connected to this point, how important are HR capabilities in designing and implementing HR strategies (that may be common across businesses) in ensuring that they have maximum impact on employee and organisational performance. These are just some of the potential areas to which we feel resources could be directed to meet both practitioner and academic needs. These, of course, raise a number of linked methodological issues and here, too, we find considerable convergence of the practitioner and academic agendas. The emphasis on understanding process and the how of effectiveness clearly lends itself to more case study designs. Furthermore, the need to broaden out the range of factors that may shape and influence successful HR strategies suggests a need for greater interdisciplinary designs, and lastly, the recognition of the time-based element between strategy implementation and impact forces us to consider more longitudinal studies (such as the Sheffield programme). Given the growing convergence of practitioner and academic agendas, it may be important for the IPD to consider how it can encourage greater opportunities for debate and discussion on these important areas. This may be through the greater involvement of practitioners not only in the development of research programmes but also through participation on project steering groups. While research is important, it also needs to be recognised that the majority of the IPD practitioner base are mostly unaware of its existence and relevance. This suggests that considerable attention needs to be given to the diffusion of knowledge and research and the ways in which senior HR managers, in particular, learn.

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Appendix 1 Detailed Reviews of Key texts

M AC D UFFIE J. (1995) Human resource bundles and manufacturing performance: organizational logic and flexible production systems in the world auto industry. Industrial and Labor Relations Review. Vol. 48, No. 2. pp197 221.

Broad theoretical background and basic hypotheses

MacDuffie argues that innovative HR practices (ie those usually associated with models of HRM) are likely to work most powerfully when all of the following conditions are met: employees possess knowledge and skills that managers lack employees are motivated to apply their knowledge and skills through discretionary effort, and the firms production strategy can be achieved only when such discretionary effort is forthcoming. Another way to express these propositions is to say that innovative HR practices are the way to secure employee commitment to the organisation. Discretionary effort is seen to be a consequence of commitment, and harnessing the otherwise hidden skills and knowledge possessed by employees is seen to be most easily accomplished when employees are committed. In this sense, an important focus for MacDuffie is commitment-focused HR policies. In addition to that, however, he wishes to investigate explicitly whether there is a synergy among HR practices, ie whether the performance consequences of a carefully specified set or bundle of practices is greater than the sum of their individual consequences. So his basic purpose is to estimate the effect of a particular bundle of innovative HR practices on two measures of organisational performance. That bundle is said to exhibit both external fit (here, in the sense that it is coherent with the production system) and internal fit. MacDuffie can therefore be interpreted as investigating the merits of a coherent HR strategy fundamentally focused on securing both high employee commitment to the organisation and high levels of employee competence.

Context and sample details

The propositions are tested in the particular context of the auto industry. Production there can be organised either under a mass production system or flexibly. A flexible approach is defined, in comparison with the traditional mass production system, as arrangements which reduce inventories and other buffers (like rectification areas), which increase interdependencies within the production
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process, and which highlight production problems and therefore stimulate the search for improvements. In line with his core argument, MacDuffie suggests that this is precisely the context within which innovative HR practices can work most effectively. His hypothesis is that innovative HR has a large potential in flexible systems (and, presumably, little or no payoff in traditional mass production systems). The data come from a survey of, and field visits to, 70 plants in the worlds auto industry.

Basic analytical procedure

MacDuffies basic analytical procedure is to estimate a production function; specifically this means regressing a set of general explanatory variables on two measures of firm performance (ie labour productivity and product quality), and then adding three more variables which are designed to capture the hypotheses of special interest for the particular hypotheses of the study. These three variables are: buffers, an index of the degree to which a plant adopts the flexible production approach work system, an index of work arrangements said to be complementary to the flexible approach HRM policies, an index of HR practices said to be complementary to the flexible approach. Of particular interest for the synergy argument is whether, in combination, these three variables have a larger effect on performance than when they are entered as individual variables.

Measurement issues
Our interest is mostly on the two indices work system and HRM policies. The components of these are shown in Table A1. In spite of their labels, both variables are essentially HR variables. Thus, all of the six items which make up work system would normally be thought of as reflecting HR considerations (cf the items in Guest and Hoque). This is reinforced by MacDuffies claim that the first four will affect employee motivation and commitment (p.203); why the other two might not have the same effect is not made clear. MacDuffie does not make completely clear his basis for choosing the five HRM policy items except that in his field work these were seen to differentiate the two main types of production systems. This index is therefore inductively generated and omits important areas of HR policy. There is, for example, no mention of job security or communication policies. There is also arbitrariness in the precise way in which the HR policies are measured and calibrated (see the notes to Table A1). Also, the five items are given equal weight in the overall index, eg in their effect on performance, policies on training and pay are seen to be no more important than that on status differentials, so the former are seen to have no stronger an impact on motivation or commitment or capabilities.

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The two indices are a product not of factor analysis (the usual statistical technique in this area) but of cluster analysis. MacDuffies use of factor analysis yielded factors that were combinations of items from both work system and HRM policies. He does not provide full details of the cluster analysis, so it is hard to know how reliable his two variables are.

Table A1

Mean values for 11 items, broken down by production system

Whole sample (n=57) Mass prodn. (n=29) Transition (n=14) Flexible prodn. (n=14)

Work system % work force in teams % work force in EI or QC groups Suggestions made per employee % suggestions implemented Job rotation Decentralisation of quality control 22 33 09 36 02 03 05 17 00.2 25 01 03 10 21 0.3 24 02 03 70 77 37 72 03 05

HRM policies Hiring criteria Contingent pay Status differentiation Training of new employees Training of experienced employees Notes to Table A 1 Job rotation: 0 = none; 1 = infrequent rotation within teams; 2 = frequent rotation within teams; 3 = frequent rotation within and across teams in same department; 4 = frequent rotation within and across teams and across departments. Decentralisation of quality control: 0 = functional specialists responsible for quality; 1, 2, 3, and 4 depending on how many of inspection of incoming parts, work-in-process, finished products, gathering SPC data, production workers responsible for. Hiring criteria: low scores for criteria which emphasise fit between applicants existing skills and the job requirements (eg previous experience in a similar job), and high scores for criteria which emphasise openness to learning and interpersonal skills. The metric used is not specified. Contingent pay: 0 = none; 1 = pay contingent on corporate performance; 2 = pay contingent on plant performance, for managers only; 3 = pay contingent on plant performance or skills acquired, for production employees only; 4 = pay contingent on plant performance, all employees. 35 02 02 01.6 01.4 33 01 01 01.0 00.9 36 02 02 01.9 01.6 39 03 03 02.4 02.1

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Status differentiation: 0 = no attempt to break down status barriers; 1, 2, 3 or 4 depending on how many of common uniform, common cafeteria, common parking, and no ties are implemented. Training of new employees (ie in first six months): 0 = less than one week; 1 = one to two weeks; 2 = two to four weeks; 3 = more than four weeks. Training of experienced employees: 0 = average of 0-20 hours per year; 1 = 21-40 hours; 2 = 41-80 hours; 3 = over 80 hours.

Results
Table A1 shows that Flexibility is associated with higher values for all of the items in work system and HRM policies than is mass production, and that this seems to be especially true for work system. This is not surprising because these items have been chosen precisely because they differentiate between the two systems. MacDuffie also reports that the average values of both productivity and quality are much higher for the flexible plants. The formal multiple regression analysis supports these simple findings. First, buffer, work system and HRM policies each works to increase both productivity and quality; second, synergy seems to be present, in that an overall index combining all three elements has a more powerful effect on both dependent variables. On the face of it, the results suggest that, other things being equal, the buffered system, work system and HRM policies all tend to raise productivity and quality levels when used in isolation. This means that (eg) HRM policies are associated with higher productivity in both mass production and flexible systems (and there is no evidence that the marginal effect would be different between the two systems). In that sense, one of MacDuffies propositions, that innovative HR practices are useful only in certain circumstances, seems to be rejected. This seems to be a universalistic conclusion, ie the policies have some beneficial effect whatever the context. But the fit argument seems to be strongly supported, in that the performance consequences of using buffers together with work system and HRM policies seem to be especially notable. So using all three components together does seem to have a distinctively powerful effect.

Doubts and queries

MacDuffie does not attempt to measure levels of either employee commitment or employee competence in his plants. He does not, therefore, know whether they are higher in Flexible plants, and so cannot be sure that he has identified the correct channels through which the HR strategy might work. MacDuffie does not report collecting data on a large number of HR variables, or on different ways of trying to measure any one of them, and then of finding that only some have a powerful effect. So it is by no means clear that the 11 items he focuses on are indeed necessary and sufficient for performance to be enhanced. He does not report, for example, the results of dropping any of his 11 items to see

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whether the impact on productivity or quality would be materially different. It is even less clear that any of the 11 are best captured in the way he does, eg his contingency pay measure includes nothing on pay that depends on collective performance at a more disaggregated level than that of the plant, even though many firms pay according to, say, work group. So the precise policy implications for firms remain in some doubt. The conceptual basis for having the two variables, work system and HRM policies, is still fragile. MacDuffie rejects the argument that these primarily reflect skill/knowledge and motivation/commitment respectively, saying that many items in either variable will have an effect on both of these influences. He dismisses the appropriateness of factor analysis to discover meaningful bundles when he says that that technique is best suited to identifying the interrelationships among a set of items in a scale, all designed to measure the same construct (p.204); he is therefore saying that there are no such constructs in play here. His preferred approach is to use cluster analysis, which he says is appropriate when constructing an index from interrelated items, each of which represents a different construct (p.204). So MacDuffie implies that there is no underlying construct embedded in either work systems or HRM policies; rather, in each case, there is just an index of interrelated items. This is surely an odd position. Most would suggest that these variables would have an underlying theoretical unity that went beyond mere statistical interrelatedness. There is another problem, and it is very important. All that MacDuffies cluster analysis achieves is to distinguish between different production systems by the degree to which they use his 11 items (see Table A 1). The cluster is therefore defined on the production system, not on the work arrangements and HR policies. By itself, it does not allow him to bundle the 11 items into a smaller number of variables. The conceptual basis on which this reduction was done is not explained. So how MacDuffie moves from 11 items to two variables is quite unclear. His factor analysis evidently gives a different assignment from the one presented in the published study. So we are some way short of a convincing specification for these influences. The fact that he subsequently carries out reliability analysis is not terribly useful here. Many different combinations of the 11 items might well have acceptable reliability scores; if this were the case, we should still have the problem of deciding which bundles were best, and why.

HUSELID M. (1995) The impact of HRM practices on turnover, productivity and corporate performance. Academy of Management Journal. Vol.38, No 3.

Theoretical background
This study draws upon the resource-based view of competitive advantage. This theory posits that firm-specific competitive advantage arises when human resources are defined by the following criteria:

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 must add value skills must be rare skills cannot easily be imitated skills cannot easily be substituted by technology. HR practices can influence each of these areas. Therefore, in order to assess the impact of innovative HR practices any study would need to develop appropriate measures in these domains. Huselid contends that the approach in his article has three novel dimensions: He looks at the system of HR in the firm rather than individual practices (seen as a more strategic perspective). The outcome measures used include both intermediary measures (ie absence and turnover) as well as financial performance outcomes. He argues that the intermediary measures provide a check against criticisms of reverse causality (ie successful companies are able to introduce innovative practices because they are successful). The data permit an assessment of both internal and external fit in HR practices and competitive strategy.

Prior work
This is seen as limited because of the range of HR practices covered (partial and not consistent), lack of consistency in the dependent variables used and the industries explored (some are multi-industry and others single industry studies). Huselid also questions the linkages between sets of dependent variables for example, the link between increased productivity and profits is not a given nor is the link between profitability and productivity a given. Other independent factors can explain variations in these measures. In order to get round the partial nature of measures used in prior work, Huselid seeks to develop a fuller range of measures including intermediate and financial performance

Measures
He deploys Delaney, Lewin and Ichniowskis (1989) 10 measures and adds three more. These measures are organised into two broad categories: employee skills and organisational structures, and employee motivation. The questions used are in the tint box below:

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Employee skills and organisational structures

What is the proportion of the workforce: who are included in a formal information sharing programme (eg a newsletter) whose job has been subjected to a formal job analysis who are administered attitude surveys on a regular basis who participate in a QWL programmme, QCs and/or labour-management participation teams who have access to company incentive schemes, profit-sharing and/or gainsharing who have access to formal grievance procedure and/or complaint resolution system administered an employment test before hiring?

What proportion of non-entry level jobs have been filled from within in recent years? What is the average number of hours training received by a typical employee over the last 12 months?
Employee motivation

What is the proportion of the workforce: whose performance appraisal is used to determine their compensation that receives formal performance appraisals?

Which of the following decision rules do you use most often: (a) merit or performance rating alone, (b) seniority only if merit is equal, (c) seniority among employees who meet a minimum merit requirement, (d) seniority? For the five positions your firm hires most frequently, how many qualified applicants do you have per position (on average)?

These practices were measured for both managerial and non-managerial employees and the responses weighted by the proportion of employees in each category. From these measures, two scales of HR practices were created and then tested for convergent validity by testing against two independent external measures: ratio of HR staff to total staff references in the annual report to the importance of people.
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A number of financial measures were also derived from the annual reports: Tobins q (market value of firm divided by book value of assets), and GRATE (gross rate of return on capital). The questionnaire was sent to the senior HR manager in firms with more than 100 employees. Firms were excluded if they were foreign owned, holding companies or publicly held divisions or business units of larger firms. His response rate was 28 per cent (ie 986 firms).

Hypotheses
His review of the literature provided several research hypotheses: Systems of high performance work practices will diminish employee turnover and increase productivity and corporate financial performance. Employee turnover and productivity will mediate the relationship between systems of high performance work practices and corporate financial performance. Complementarities or synergies among HPWPs will diminish employee turnover and increase productivity and corporate financial performance. Alignment of a firms system of HPWPs with its competitive strategy will diminish employee turnover and increase productivity and corporate financial performance.

Findings
Main finding is that 1 standard deviation increase in HR practices index is associated with 7.05 per cent decrease in labour turnover and $27k more in sales, $18.6k more in market value and $3.8k more in profit. In terms of the internal and external fit models, the evidence was not convincing. There was no support for internal fit and modest support for external fit.

Comments
The unit of analysis is the company level, and data on both HR practices and financial performance are reported at this level. A problem with this level of response data is that they encompass a wide number of multi-establishment enterprises. We know that both performance and HR practices can vary considerably between establishments in a company. This heterogeneity may be diffusing the results and weakening both internal and external fit models through the reporting of average scores across establishments with diversity in HR practices and performance outcomes. Therefore, it is possible that fit may exist in some of the establishments and not in others, and performance may be better or worse in some establishments than others. The averaging out of responses that happens at the company level in multi-establishment enterprises does not help us understand the cases in which fit and performance are occurring. The study would
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need to have controlled for centralisation of HR policy as well as single/multiestablishment features. For example, in the aerospace study one of the authors (MT) received replies from several BAe sites as well as the company HO. There is considerable diversity in the reporting of both HR practices and in evaluations of firm performance. Some establishments conform to the high-performance work practices/business success model, whereas other sites do not. This may suggest that there is an element of strategic choice in the employment models being used, and this dimension is not considered in the Huselid article. Overall, a dense and sophisticated article that excels in the art of measurement.

ARTHUR J. B. (1994) Effects of human resource systems on manufacturing performance and turnover Academy of Management Journal. Vol. 37, No. 3.

Theoretical framework
Strategic choice from the organisational theory field (revisionist contingency theory arguing for a mediation between actor-centred theories of organisational change and structural determinism). Strategic HRM: drawing on typologies developed by Dyer and Reeves (1995), Miles and Snow (1984), Schuler and Jackson (1987), etc).

Model tested
Commitment and Control typology developed in HR/IR literature. Study expects to find different HR practices associated with these broad approaches and also different performance outcomes. Hypothesised that commitment model will lead to higher performance than control model.

Methodology
Cross-sectional survey of 54 steel mini-mills employing 460 people on average (sd 318). Establishment-based responses, completed by HR manager and top line manager (for business strategy information); 29 usable replies from both respondents.
Measures

HR system 10 indicators (developed from literature):

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 Decentralisation: level of discretion of non-management employees over a range of production decisions (eg quality, work flow, investment in kit, product development) Participation: percentage of non-management employees involved in problem-solving groups, trained in such activities or involved in joint union-management committees

General training: proportion of training given to areas that are not task/job focused Skill: Supervision: proportion of maintenance and craft workers number of production workers per supervisor

Social interaction: number of social events organised Due process: Wages: Benefits: percentage of grievances dealt with formally average total employment cost per production worker percentage of average hourly compensation cost accounted for by benefits percentage of total average employment cost accounted for by bonus/incentive payments.

Bonus:

Measure of firm performance used: Labour efficiency: number of labour hours required to produce one tonne of steel Scrap rate: tonnes of steel melted

Labour turnover: voluntary and involuntary.

Statistical techniques
Cluster analysis used to differentiate HR systems. Six clusters identified but reduced to two because of degrees of freedom problems (ie small number of cases) in subsequent analysis. Hypotheses tested using regression analysis. Unionisation the main control variable a wider set (thus enabling more complex contingency tests) could not be used because of small sample size.

Main findings
Mills that conformed to the commitment model demonstrated higher productivity, lower levels of employee turnover and lower scrap rates.

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The study also found that control and commitment HR systems moderated the relationship between employee turnover and firm performance.

Limitations
The cross-sectional survey does not permit understanding of causality in development of HR systems and firms better performance. It also fails to take account of process issues and managers as strategic actors. No idea of employee or managerial impact of these models strong normative underpinning to commitment model. The measures developed and used my not be comprehensive enough to understand the full impact of HR systems on performance.

CONYON M. (1998) Human Resource Management Systems and the Productivity of British Firms. (mimeo) This is a very welcome addition to the UK literature on HR strategies. Like all such papers, however, it has its more debatable points. Essentially, Conyon seeks to estimate the association between firms sales levels and the degree to which they use a variety of so-called innovative HR policies. He deploys a standard production function approach and concludes that, after taking certain other conditions into account, a more intense use of innovative HR policies is associated with a significantly higher level of sales; given that he controls for the size of the labour force, this means that innovative HR is also associated positively with labour productivity (ie output per employee). He suggests that a unit increase in HR innovation may raise productivity by 8 per cent. He uses data from the 139 respondents to a survey sent to the HR director of the largest 1,000 UK firms with a stock market quotation (excluding investment trusts). He is centrally concerned with the issue of complementarities among HR practices, and his review of the theoretical literature is relatively wide ranging in this respect. However, his way of operationalising complementarities is perhaps not so well developed. This is done in the following way. First he has data on six HR areas: incentive pay systems communications work teams employment security

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 job flexibility skills and training. For each of these areas he has more than one indicator, ranging from two indicators for employment security to nine for incentive pay systems (not eight as is stated in the text, page 18). There are 32 indicators in total. Each indicator is measured as a yes/no dummy; ie do you make any use of policy X? For each of the six areas a firm is said to make intensive use of innovative practices if it answers yes to at least 75 per cent of the indicators (this presumably implies that for a firm to be an intensive user in those areas with only a few indicators, it has to answer yes to all the questions). Conyon then sums up the number of intensive HR areas to form his measure of the HR system; (on page 19 he says that this can range from a value of 1 (least innovative) to 6 (most innovative); in fact, the lowest possible score is surely 0; see also page 23). High values on this scale are said to imply greater HR complementarity, ie the practices are not seen to be possible substitutes for one another. This procedure and the findings raise a number of issues: Within any of the six HR areas, all indicators are given the same weight. So, for example, when measuring the intensity of incentive pay, the use of executive share options is deemed to have the same importance as, say, individual pay being linked to skills. Further, all six areas are given the same weight; so that a firm which is an intensive innovator in incentive pay, work teams and skills and training gets the same HR system score as one stressing communications, employment security and job flexibility. Are all these indicators/areas really of equal importance for productivity? Do communications policies have as strong an impact on productivity as pay systems? There is no theorising here. If very different combinations/bundles of the six have the same score, is Conyon saying that it doesnt matter which bundle a firm goes for? This seems odd; it certainly sits oddly with notions of internal and external fit. There are potentially important problems in measuring HR policies (a) at corporate level (recall that these are all large firms, often with complex divisional structures), and (b) by dummy variables (which does not allow one to know how extensively any practice is used). Conyon estimates the regressions for a set of years, 1989 to 1995. But the HR measures mostly refer to arrangements in a single year, 1996. If HR arrangements change significantly over time (as eg Huselid claims), its not quite clear how one interprets Conyons associations, which are between past productivity and current practices. Conyon wishes to explore complementarities further by seeing whether there is more explanatory power if the individual HR practices are added to the equation (which means that he runs an additional 32 equations). When doing this he finds that most of the individual practices are not significant (but no fewer than eight one quarter are!). This looks like an odd procedure, and it is not clear what it shows. First, the individual practice is already represented in the overall HR index (though its impact may be pretty dilute); to have it a

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second time in the same equation at least raises the possibility of multicollinearity and, therefore, possibly bogus non-significance. Second, the same problem might well come through if there are high correlations among the components of each of the six sub-indices. In all, this might be a weak test of anything interesting. The incidence of the indicators looks to be pretty high. Nearly one-third of the 32 practices are used by more than 90 per cent of the sample, 19 of the 32 are used by more than 80 per cent of the sample, and all but one is used by a majority of the sample. I would guess that the wider population values were much smaller. In Table 3 Conyon reports that there are 991 observations; given that he has data for seven separate years on 139 companies, its not easy to see why there are quite as many as 991 observations. Has Conyon investigated whether the relationship between HR and productivity is linear? Is there an 8 per cent rise in productivity associated with each unit increase in the HR index, or is it the case, as eg Huselid suggests, that there is a complex pattern of increasing and diminishing returns to HR innovation?

GUEST D. and HOQUE K. (1994) The good, the bad and the ugly: employment relations in new non-union workplaces. Human Resource Management Journal. Vol. 5, No. 1. pp.1-14.

Objectives of the study

The authors claim that they have three objectives: to present a new, four-fold classification of HR arrangements, and relate these to background characteristics to assess a variety of consequences of using each of the four types, and to provide a test of the impact of a high utilisation model of HRM.

Sample characteristics and research method

The usable data relate to a sample of 119 new non-union establishments in the UK employing more than 50 people; the great majority of these were in manufacturing industry and were contacted in 1993. New means first that establishments which were set up only after 1979 were included, and second that establishments were either greenfield sites or had recently experienced a major change of business and ownership. Managers at all these establishments were therefore said to be unconstrained by any local history or tradition in the workplace.

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Data were collected by postal questionnaire. The parent study collected data on 347 establishments (from 1000 originally contacted), but this study is confined to the non-unionised establishments.

A fourfold classification of HR arrangements

Guest and Hoque divided the establishments by (a) whether they had an HR strategy, and (b) the content of their HR practices.
Was there a strategy?

In deciding whether there was an HR strategy Guest and Hoque relied on the answers to a single survey question Do you have a human resource strategy formally endorsed and actively supported by the top management team at the establishment?; 64 said yes, 55 said no.
The content of the HR practices

In assessing this, Guest and Hoque seem to have used the yes/no answers to all of 23 questions, each of which had the form of Do you have? A list of these is shown in the appendix. Two points may be made. First, the last two of these 23 items do not refer to practices as such but to policy coherence (ie external and internal fit); they might have been better used to measure the existence of strategy. Second, the other 21 items all refer, in some sense, to modern HR practices; ie they are often linked to a philosophy of HRM. So a high score on the practices measure is taken to mean that the establishment is closer to practising HRM. These data were used in a somewhat crude way. Guest and Hoque say that It might be argued that some practices are more important than others, but we know of no theoretical basis on which to determine this (page 6). If this is true it might also be true that there is no clear theoretical basis for specifying the original list certainly, other research specifies somewhat different lists. The decision was taken to count high HRM practice where establishments used more than half the practices, whatever precise combination was employed; low HRM practice establishments used a minority of the practices. We therefore have the following fourfold classification, using Guest and Hoques somewhat tendentious labels:
Table A2 Four HR classifications

HRM strategy High High HRM Policy and Practice Low Good n=56 Ugly n=8 Low Lucky n=27 Bad n=28

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Of the 64 establishments judged as having a strategy, all but eight used more than half the practices; of the 55 judged to be without a strategy, roughly half used more than half the practices. It should be noted that the cell sizes are not always big enough for some of the subsequent analysis.

HR type and performance

Guest and Hoque have three sets of outcome variables. They have eight so-called HR outcomes (eg employee commitments levels, staff flexibility, etc), three socalled IR outcomes (industrial dispute incidence, labour turnover rates and absenteeism), and six organisational outcomes (eg quality and productivity measures, and economic health). All but the IR variables and one of the organisational variables come from questions that ask for respondent judgements on five-point scales. Guest and Hoque follow two different procedures. First, they look to see whether the average score on each of these 17 measures differs as between the four HR types; second, they carry out a limited multivariate analysis to see whether, certain other things held constant, outcomes vary by HR type. Their own conclusion is that The goodconsistently report the best results for[organizational] performance outcomes. In contrast, the badconsistently report the poorest outcomes (page 11). This seems to be an over-statement, certainly if one wishes to employ tests of statistical significance. We concentrate here on the six organizational outcomes. The results of the simple comparisons is shown in Table A3. There is little to distinguish the four types as far as their organizational outcome is concerned. Good firms tend to have slightly higher scores, but the differences are not statistically significant except (weakly) in the case of quality benchmarked against the UK. The multivariate analysis suffers from the limited number of interesting variables that could be controlled for (establishment size, type, parent organisation, region and national ownership). Good certainly does not do worse than the others but there is no clear tendency for it to do better than each of the other three types, or for Lucky and Ugly to do better than Bad, which is what one version of the theory might predict.
Table A3 Organisational performance outcomes by HR type
Good Percentage of quality targets attained How well was the recession weathered Productivity benchmarked against UK Quality benchmarked against UK Productivity benchmarked against world Quality benchmarked against world 90 4.1 4.2 4.5 3.7 4.0 Lucky 84 3.9 3.9 4.1 3.5 3.8 Bad 90 3.9 3.7 4.0 3.5 3.7 Ugly 79 4.1 4.1 4.3 3.9 3.9 0.20 0.46 0.08 0.78 0.87 Prob.

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Conclusions and discussion points

There is at best a weak and inconsistent link between HR type and organizational outcomes. The measure of whether an establishment has an HR strategy is rather weak, but at least the question is explicitly posed. The measure of practices is weakened by the use of dichotomous measures (Do you/dont you have?) rather than more continuous measures. The use of the practices data, simply adding up any combination of 23 practices see Table A4 , regardless of whether they fit together, is questionable. Can we do better than just bundle together any possible combination of practices? Specifically, can we develop some theory which says these must be present for a certain strategy to exist, while these others are optional extras (and get a lower weight)?
Table A4 The incidence of HR practices
Policy/practice Harmonised terms and conditions Single status Internal promotion the norm No compulsory redundancy Trainability as a major selection criterion Use of psychological tests for all selection Realistic job previews System to communicate values to new staff Deliberate development of a learning organisation Minimum annual training requirements for all Flexible job descriptions Jobs designed to make full use of skills Teamworking for majority of staff Staff involved in setting performance targets Staff responsible for own quality Majority involved in QCs Regular use of attitude surveys Team briefing/information cascades Information of market position/company performance Merit pay for all Formal appraisal at least annually HR policy integrated with business strategy HR policies integrated with each other % use 71 59 88 41 71 21 56 71 63 12 72 56 77 62 85 49 22 66 79 69 72 62 59

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HUNTER LARRY W. (1998) What Makes for a High-Performance Workplace? Evidence from retail bank branches. Unpublished paper, Wharton Business School, University of Pennsylvania.

Theoretical framework
Adopts high-performance/high-involvement workplace model to inform research design. Also draws upon manufacturing strategy and notions of underlying production logics. Piores crisis of regulation idea is also alluded to. Customer service logics are seen as highly relevant in understanding HR approaches. A distinction is made between encounter-based and relationshipbased customer service activities. All banks provide a mix of both, but one may be more dominant than the other in how work is organised.

Objective
To understand whether flexibility (through task cross-training) and autonomy (devolution of decision-making) are related to the business performance of retail banks. The paper hypothesises that both will lead to superior performance outcomes and moreover that there will be a synergistic relationship between autonomy and flexibility (ie the sum is greater than the whole).

Methodology
Survey of technology, work practices and performance of 135 large US retail banks. Questionnaire surveys were sent to branch manager. These were combined with independent measures of customer behaviour and census data on local demographics. 241 branches were included in analysis from 101 banks.

Measures
Work organisation: eight items used to measure branch flexibility. Seventeen items used to assess autonomy (data derived from bank manager reports about employees). Performance of branches: uses operationally based rather than financially based measures because of comparability difficulties across banks. Productivity measured by mix of employment and output indices at branch level. Effectiveness measured by cross-sell rate of other financial products to same customers. Quality measured by level of mistakes in this case accounts out of balance. Control variables: local demographics to control for customer base (income, population size, etc); level of technology by the number of terminals and software programme complexity. HR practices education levels of employees; use of variable pay; share of part-time workers; de-skilled tellers.

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Statistical techniques
OLS regression model. Variance in performance measures (productivity, crosssell rates and branch errors) used to understand contribution of work organisation and HR practices. Use of other independent data sources to assist in building reliable performance measures.

Findings
The analysis found that flexibility and autonomy when used separately are correlated with higher productivity and sales. However, when they are used together they are negatively associated with performance. These results go against the findings of manufacturing-based studies that found complementarity and synergistic results when broad jobs and greater decentralisation of decision-making were combined. This underlines some of the difficulty in studying these issues in service sector firms. Hunter draws attention to the finding that autonomy and flexibility are positively correlated and interprets this as showing that managers are making choices about what work organisation systems they want to use managers who want to minimise loss might chose a different work system than those who want to increase sales. A strategic choice model of HRM may therefore be supported by the data.

Comments
Measures of HR practices appear to be both inconsistent and weak. Few of measures used in manufacturing studies were deployed and the author resorts to human capital measures instead (ie education levels). The study is looking more at work organisation than HR practices in terms of explaining performance. The poor measures of HR practices do not help us understand the relative contribution of these factors to performance.

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Appendix 2 Current and planned research on HR strategies and business performance in the UK
Birkbeck
A number of studies are being co-ordinated by either David Guest or Jonathan Michie. Guest has received top-up funding from the IPD in order to adopt a telephone survey methodology for a wider study being funded by the ESRC. Michie is also running a telephone survey looking at innovative work practices, which is being funded by Leverhulme. Both studies are measuring HR practices as well as gathering data on business performance (both subjective and objective). Guest is also working with Sheffield (Patterson) and Kings College (Peccei) on further analysis of the 10-year longitudinal data set held at Sheffield. It is likely that Birkbeck will also be using WERS to explore HR and business performance issues.

Templeton
Thompson has a number of studies that are of relevance. First, there is an establishment-based survey of the aerospace sector, which captures HR practices as well as value-added per employee performance data. This survey, first conducted in 1997, is being repeated in 1999 and will contain a large panel element, which allows for comparability over time. This was a mono-respondent survey but completed by senior managers (MDs, etc). Second, a number of case studies of aerospace establishments are being conducted that look at HR strategies in practice, particularly their impact on employees. The psychological contract model is being used to compare HR strategies in different organisational contexts. Third, under the ESRC innovation programme, a mixed method design is being adopted to look at HR and reward practices and one dimension of business performance (innovation). This survey is of the knowledge economy, and deals mostly with high technology and pharmaceutical companies. Five years of business performance data have also been captured. A number of case studies are being conducted. Fourth, Thompson is working with Richardson and Peccei on cross-sectoral survey data collected in 1997 that explores HR practices and business performance issues. Thompson is also working with SKOPE at Oxford to develop work in the aerospace sector that looks at skills, training and economic performance. A number of detailed case studies are being developed, and the intention is to look at comparative research designs in other European aerospace establishments. SKOPE will be focusing on high performance work systems as one of their core areas and will shortly be commissioning a critical review of research and theory.

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Warwick
Conyon with funding from PriceWaterhouse Coopers is developing a programme of work in this area. To date a small-scale pilot survey has been conducted of around 120, mostly large, private sector organisations. There are plans to extend and develop this work.

Bath
John Purcell is co-ordinating work on the engineering sector that, among other issues, is looking at HR practices and business performance. This is concentrating specifically on SMEs, which is a neglected area in the current literature, and as well as survey material it also involves detailed case studies.

Workplace Employee Relations Survey (WERS)

A number of Academics are working on the recently released WERS data. These data contain a sample of establishments with Census of Production data, which give measures of firm performance. These findings will be coming out over the course of 1999 and 2000. Key universities working on the data are Cardiff, LSE, Warwick, Strathclyde and Birkbeck.

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Appendix 3 Analysis of key empirical studies

Prepared by Donna Buttigieig, Research Associate, Templeton College, Oxford Author
ARTHUR (1994)

Methodology
The data were collected at 30 US steel mini-mills. The study is cross-sectional and industry specific. OLS regression used.

Independent variables
HR Systems (control or commitment) categorised according to levels of decentralisation, participation, general training, skill, supervisor, social, due process, wages, benefits, bonus (incentive payments). Total turnover. Control variables include age, size, union status and business strategy.

Dependent variables
Labour efficiency (average number of labour hours to produce one tonne of steel) Scrap rate (number of tonnes of raw steel melted to produce one tonne of product).

Findings
A commitment HR system is a positive and significant determinant of both labour hours and scrap rates.

Conclusions
Effectiveness of commitment-type HR systems on performance.

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Authors
GUEST D. and HOQUE K. (1994)

Methodology
Cross-sectional data collected in 119 new non-union establishments (largely in manufacturing) in the UK. Ordered Probit, OLS, or LOGIT analysis used, where appropriate.

Independent variables
Establishments are categorised as good (clear HR strategy and good HR practices full utilisation, high involvement HR model), ugly (efficiency driven model with HR strategy but little use of HR practices), lucky (no clear strategy but use of HR practices) and bad (no HRM strategy and low uptake of HR practices). These categorisations are made on the basis of a question about the existence of HR strategy and the use of 23 practices. Controls include size, national ownership, sector, regional location and degree of independence.

Dependent variables
Percentage of quality targets attained. How well the recession was weathered. Productivity benchmarked against UK. Quality benchmarked against UK. Productivity benchmarked against the world. Quality benchmarked against the world.

Findings
The good claim to have weathered the recession significantly better than the lucky. The bad claim to be doing the best in terms of attainment of quality targets attained. The good organisations claim to perform better on quality when benchmarked against other organisations in the UK.

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Author
MACDUFFIE (1995)

Methodology
Cross-sectional data collected from 62 automotive plants representing 16 countries. Hierarchical regression analysis using Cobb-Douglas production function.

Independent variables
Use of buffers Work systems (index incorporating measures such as per cent in work systems, employee involvement, production-related suggestions, job rotation and quality tasks) HR policies (index incorporating hiring criteria, compensation scheme, status barriers and training) Total automation Production scale Model mix complexity Parts complexity Production design age.

Dependent variables
Labour productivity (hours of actual working effort to build single vehicle adjusted for comparability across plants) Quality (consumer perceived quality, defined as defects per 100 vehicles).

Findings
The three production organisation indices (leaner buffers, more multi-skilled work system and practices) are associated with productivity and quality (except use of buffers for quality) A combination of all three elements in a single index has a significant effect on productivity and quality.

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Conclusions
Assembly plants using flexible production systems, which bundle HR practices into a systems integrated with production/business strategy) outperform plants using traditional mass production systems in productivity and quality.

Author
HUSELID M. (1995)

Methodology
Cross-sectional, multi-industry study of 968 US-owned firms with over 100 employees. Regression Analysis used.

Independent variables
Employee skills and organisational structures index of practices that enhance employees knowledge, skills and abilities, ie formal job design programme, providing training, QWL programmes, quality circles, labour-management teams, information-sharing programmes, formal grievance procedures, profit and gain-sharing plans. Employee motivation index of high performance work practices including formal appraisals and links with pay, merit in promotion. Controls include total employment, K intensity, union coverage, industry union coverage, concentration ratio, sales growth, R&D sales, systematic risk and expenses.

Dependent variables
Turnover Productivity (log of sales per employee) Corporate financial performance (Tobins q & GRATE).

Findings
Turnover determined by employee skills and organisational structures (+). Motivation insignificant. Productivity determined by employee motivation

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 Tobins Q determined by employee skills and motivation (+). GRATE determined by employee skills and organisational structures (+).

Conclusions
One standard deviation increase in each practice reduces turnover by 1.30 raw percentage points. Productivity one standard deviation increase raises sales an average of $27,044 per employee. Per employee effect of increasing practices one standard deviation was $18,641 in profit.

Authors
DELANEY J. T. and HUSELID M. A. (1996)

Methodology
Cross-sectional data were collected in 727 organisations (multi-industry). Multiple regression used.

Independent variables
Staffing selectivity index Training index Incentive compensation Grievance procedure Decentralized decision-making Internal labour market index Vertical hierarchy Control variables include non-profit organisations, subsidiary, total employment, firm age, market competition, product, service, union pressure and percent managers.

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Dependent variables
Perceived organisational performance constructed from seven items assessing performance of organisation over the last three years relative to rest of industry. Perceived market performance constructed from four items examining perceptions of firm performance over three years relative to product market competitors.

Findings
When HR practices are entered simultaneously training (+), incentive compensation (+) and vertical hierarchy (+) are significant determinants of perceived organisational performance. Perceived market performance is determined by staffing selectivity (+) and incentive compensation (+). Tests for complementarities of HR practices through interaction tests were insignificant.

Conclusions
Some HR practices have a positive impact on perceived performance. There is no evidence that complentarities in HR practices enhance performance.

Authors
YOUNDT M. A., SNELL S. A., DEAN Jr J. W and LEPAK D. P (1996) . .

Methodology
Longitudinal study conducted in 97 manufacturing plants. Regression analysis used.

Independent variables
Administrative HR system index (ie selection for manual and physical skills, training, results based performance appraisal, individual equity, individual incentives and hourly pay) Human capital enhancing HR system index (ie selective staffing, selection for problem-solving and technical skills, development and behaviour-based PA, external equity, group incentives, skill-based pay and salaried compensation)

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 Manufacturing strategy (quality) Manufacturing strategy (delivery flexibility) Manufacturing strategy (Scope flexibility) Manufacturing strategy (Cost) Controls: size and industry environment (three factors: munificence, dynamism, complexity).

Dependent variables
Machine efficiency (self-report scale consisting of items such as equipment utilisation, scrap minimisation) Customer alignment (product quality, on time delivery) Employee productivity (employee morale, employee productivity).

Findings
Models that included interaction terms with HR strategies show that HR systems were all significant determinates (main effects) to all independent measures. Interaction terms that were significant Equipment efficiency determined by interaction between cost and administrative HR. An interaction between quality and HK-enhancing HR system predicts customer alignment, employee productivity and equipment efficiency. An interaction between delivery flexibility and administrative HR system predicts customer alignment.

Analysis exploring clusters of manufacturing strategies were not significant. Regressions exploring each HR system on the four manufacturing strategies found that, aside from those companies employing a quality strategy, firms not making a consistent connection between strategy and HR systems.

Conclusions
Broad support for the contingency perspective: Human capital-enhancing HR system important to firms competing on quality

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Administrative HR systems still appropriate in context where need to reduce costs. Negative interaction between scope flexibility strategy and administrative HR explained, as this strategy requires employees with high discretion.

Authors
KOCH M. A. and GUNTHER MCGRATH R. (1996)

Methodology
Data collected in 319 establishments. Multi-industry. Regression used.

Independent variables
Planning investment (two item index dichotomously coded) Hiring investment (index combining number of interviews per placement, recruiting sources and tests used) Investment in employee development (index created by weighting number of formal training programmes and extent to which internal promotions used) Overall HR sophistication (index created by adding the scores on HR planning, hiring and development) Control variables include business unit size, unionisation, industry, technology, and capital intensity.

Dependent variable
Labour productivity (net sales divided by number of employees).

Findings
Labour productivity is determined by HR planning (+) and hiring (+). Labour productivity model including interaction and main effects show HR planning (+), Planning* capital (+), Hiring (+), Hiring* capital (+), development (+) and development* capital (+) (where capital indicates capital intensive industries) are significant. Labour productivity is determined by HR sophistication (+) and an interaction with capital-intensive industries.
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Conclusions
Labour productivity is related to firms that formally plan their HR requirements and where employers evaluate their recruitment and selection policies. Further, this is of more importance in capital-intensive industries.

Authors
DELERY J. E. and DOTY D. H. (1996)

Methodology
Cross-sectional study in the banking industry (114 banks). Information collected from various sources. Analysis limited to core jobs only. Hierarchical regression analysis.

Independent variables
Internal career opportunities Training Appraisal Profit sharing Employment security Employee participation Clearly defined jobs Strategy (scale of six items measuring product/market innovation) Control variables include bank size, age, holding company and Federal Reserve district).

Dependent variables
Return on average assets Return on equity.

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Findings
ROA determined by results-oriented appraisals, profit sharing and employment security. HR practices significantly explained 12.55 per cent of variance above the control variables. ROE determined by results-oriented appraisals and profit sharing. HR practices significantly explained 9 per cent of variance in ROE above the control variables. Model exploring interactions between strategy and each of the practice variables had insignificant results. Post hoc tests revealed some support for the contingency view-links between performance and the practices of performance appraisal, participation and internal career opportunities are contingent on strategy. A model that classifies each bank according to the ideal employment system it closely resembles showed the closer the employment system resembled the market type system the higher the ROA and ROE.

Conclusions
Results provided strong support for the universalistic perspective. Some support for the contingency view banks able to align HR practices with strategy are estimated to have a 50 per cent higher ROA and ROE than those banks whose HR practices were one standard deviation of alignment. The configurational results suggest that some configurations of HR practices are better than others in terms of performance ie the closer the banks system resembles the market-type system the higher its performance.

Authors
HUSELID M. A. and BECKER B. E. (1996)

Methodology
Cross-sectional, multi-industry data collected from 548 firms in 38 industries. OLS estimation technique used.

Independent variables
HRM system index constructed from mean of 24 questions focusing on intensity with which high performance policies and practices have been adopted by the firm.

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 Effectiveness and alignment index constructed from 16 items reflecting alignment of organisational context with principle of high performance work organisation. Controls include prior firm growth in sales, tangible assets, no. of employees, investment in R&D, unionisation, firm systematic risk and industry codes.

Dependent variables
Variation of Tobins q

Findings
Both factors are significant determinants of Tobins q.

Authors
HUSELID M. A., JACKSON, S. E. and SCHULER R. S. (1997)

Methodology
Multi-industry, cross-sectional design. Sample of 293 publicly held firms. Regression used.

Independent variables
Strategic HRM (scale of eight items including teamwork, communications, involvement, enhancing quality and developing talent to serve business in future). Technical HRM (scale of recruitment, selection, training, PAs and compensation administration). Professional HRM capabilities (scale of 11 items that describe expertise and skill relevant to performing excellently within a traditional HR department) Business related capabilities (scale of three items describing amount of business experience HR staff have had outside of HR function) Control variables include capital intensity, union coverage, firm size, industry concentration, sales growth, stock variability, industry and R&D sales. Some models contained control for a previous years performance.

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Dependent variables
Employee productivity (net sales per employee) Employee productivity (GRATE) Employee productivity (Tobins q).

Findings
Labour productivity (model including strategic and technical HRM only) predicted by strategic HRM (+). GRATE (model including strategic and technical HRM only) predicted by strategic HRM (+) Tobins q (model including strategic and technical HRM only) predicted by technical HRM (+) Technical HRM effectiveness is determined by professional HR capabilities (+) Strategic HRM effectiveness is determined by professional HR capabilities (+) and business-related capabilities (+).

Conclusions
On a per employee present value basis, a one standard deviation increase in overall HRM effectiveness corresponds to an increase in sales per employee of 5.2 per cent, valued at $44,380. The impact of a one standard deviation increase in HRM effectiveness on profits yielded an estimated increase in cash flow of 13.3 per cent, valued at $9673 per employee. One standard deviation increase in HRM effectiveness yielded an estimated increase in market value of 6 per cent, valued at $8882 per employee.

Authors
ICHNIOWSKI C., SHAW K. and PRENNUSHI G. (1997)

Methodology
Data collected on 36 finishing lines in 17 US companies matched with 2190 monthly observations of productivity data. OLS regression models.

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Independent variables
Traditional HRM (system 4) (firms identified as having no innovative practices with close supervision, strict work rules, narrow job responsibilities, incentive pay based on quantity, no work teams, no information sharing and no training) System 3 (similar to system 4 except introduced innovative practices through involvement of teams and increased communication) System 2 (similar to three but also includes extensive training and high involvement in teams) System 1 (incorporates innovative practices in all areas) Note: systems are classified on the basis of profit sharing, line incentives, high screening, recruitment, high participation, multiple teams, formal team practice, employment security, job rotation, high training, low training, information sharing, managers meet workers regularly, meet with union, unionised, low grievances. Twenty-five controls that affect uptime (ie capital vintage, learning curve effects, computerisation, etc).

Dependent variables
Productivity (production-line uptime, which is the percentage of scheduled operating time that the line actually runs) Quality (the percentage of total production that met the standards as prime finished steel)

Findings
Lines with HRM system 1 have the highest productivity, followed by systems 2, 3 and 4. The more innovative the HR practices the higher the quality of steel produced on the lines. A model incorporating individual HR practices as well as the four HR systems indicate that the individual practices have no additional impact on productivity.

Conclusions
If one line changed form HRM system 4 to system 2 and maintained these changes over 10 years, it would increase its operating profits by over $10 million strictly as a result of the HRM changes.

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 Evidence also shows that systems of HRM practices determine productivity and quality. Marginal changes in individual work practices have little effect.

Authors
ICHNIOWSKI C. and SHAW K. (1997)

Methodology
Comparative (Japan and US) study exploring steel finishing lines in 36 US production lines and five Japanese production lines. The productivity analysis is based on a panel sample of up to 2,594 monthly observations. The data collected are of both a qualitative and quantitative nature. GLS models.

Independent variables
Japanese model: Japanese HRM system

American model: Innovative HRM practices High teamwork and training US system Low teamwork and communication US system Traditional US system

Categories are determined by scores on seven HRM policy areas: incentive pay, recruiting, teamwork, job security, job flexibility, training and labour management communication. Twenty-five control variables are included. For example, age of the line, technology and quality of supplied steel.

Dependent variables
Productivity (percentage of scheduled operating time that the line actually runs) Quality (prime yield rate the percentage of total production in a month that meets specific quality standards for designation as prime finished steel).

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Findings
Regression estimating the average uptime differential between Japanese and all US lines, independent of effects of controls, indicate that the Japanese lines are significantly more productive than the US lines. Regression exploring the four different HR categories in the USA indicate that compared to the productivity of the traditional US system, the low teamwork and communication system achieves higher productivity (1.5 per cent). Similarly, the high teamwork and training system and the innovative system are higher in productivity (43.6 per cent and 7.3 per cent, respectively). Regressions estimating the relative effects of the US and Japanese HRM systems on the quality measure indicate that, on average, Japanese lines have significantly higher quality. The regression that explores relative differences between the types of US lines shows that quality is substantially higher in the Japanese and innovative US lines compared with the high teamwork or the low teamwork system.

Conclusions
Japanese production lines are more productive that the average US lines (by 6 per cent), however where the US lines have introduced innovative work systems they perform equally as well as the Japanese lines. The lines having innovative HR practices in Japan and the US are on average 7 per cent more productive than the US employing traditional HR practices. Japanese production lines produce better quality products, even in comparison to the innovative US HR system. Qualitative data indicate that the different work practices comprising the Japanese HR system are mutually reinforcing. HR systems that support employee participation enable workers to fine-tune production process with minimal investments.

Authors
PATTERSON M. G., WEST M. A., LAWTHORN R. and NICKELL S. (1997)

Methodology
Longitudinal study of single-site, single-product UK manufacturing firms with less than 1,000 employees. Data collected relate to 67 firms. Data collection is both qualitative and quantitative and multi-level.

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Independent variables
Acquisition and development of employee skills (selection, induction, training and use of appraisals). Job design (skill flexibility, job responsibility, job variety and use of formal teams) Quality improvement teams Communication Harmonisation Comparative pay Incentive compensation systems.

Dependent variables
Labour productivity (ratio of sales over employment in firm, divided by the ratio of sales over employment in the industry). Real profits per employee (profits before tax, deflated by the producer price index of the industry and controlling for size of firm).

Findings
HRM practices account for 19 per cent of variation between companies in change in profitability. Acquisition and development of skills and job design are significant determinants of change in profitability. HRM practices together account for 18 per cent of variation between companies in the change of productivity. Acquisition and development of skills and job design are significant determinants of change in productivity.

Authors
CHADWICK C. and CAPPELLI P (1998) .

Methodology
Cross-sectional, multi-industry (manufacturing and retail) data collected in 3167 private sector US establishments. Structural equation modeling is used.

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Independent variables
Investment HR system (number of benefits offered, computer training, crosstraining, employee involvement meetings, employee:supervisor ratio, job rotation, pay for skill, self-managed teams, stock options teamwork training) Contractual HR system (average compensation compared to market, importance of industry credentials in hiring, flextime, job sharing, part-time workers, recruiting costs and selection techniques). Cost differentiation business strategy. Differentiation business strategy Focus business strategy Union Industry TQM programme Capital intensity Control variables include multi-establishment, size and R&D.

Dependent variables
Total sales of the establishment (natural log of sales) Value added of the establishment (logged) Turnover.

Findings
Investment HR systems are universally more effective than contractual systems in increasing sales and value added and decreasing turnover. Interaction tests show that low cost strategies reduce sales and value added significantly and increase turnover when combined with investment HR systems (by 4 per cent, 4 per cent and 1 per cent respectively) Contractual HR systems combined with cost reduction strategy reduces sales by 2 per cent and turnover by 1 per cent. Interaction tests between differention strategies and contractual HR systems reduce sales by 3 per cent and decrease turnover by 1 per cent. Interaction tests between focus strategies and contractual HR systems show that sales are reduced by 2 per cent and turnover is decreased by 1 per cent.
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Conclusions
Investment systems are associated with a 34 per cent increase in sales compared with contractual systems that decrease sales by 5 per cent Investment systems increase value added by 31 per cent Investment systems decrease turnover by 5 per cent (compared with contractual systems that decrease turnover by 2 per cent) Conclusion investment HR systems are more likely to improve performance than contractual HR systems. Traditional definitions of business strategy may be among the least important contingencies in determining effects of HR systems. Also, that the costs of mismatch between a generic strategy and HR system may be more powerful than the positive effects of good matches. Investment HR systems are associated with better performance in unionised establishments, where there are TQM programmes and establishments that are more capital intensive.

Author
SHEPPECK M. A. (1998)

Methodology
Cross-sectional, multi-industry study of 106 organisations. Hierarchical regression used.

Independent variables
Competitive strategy Employee skills and work policies (ie staffing, training, work design and employee relations policies that foster skill acquisition) Supportive environment (ie diversity, employee assistance, employee voice and benefits) Performance measurement and reinforcement (performance appraisal and compensation practices) Market organisation (work design and compensation practices utilising a contingent workforce)

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 Management support for HRM.

Dependent variables
Perceived organisational effectiveness (self-report measure consisting of six items comparing the raters organisation to competitors in the industry).

Findings
Hierarchical regression results show that HR practices contribute and additional 13.2 per cent to the prediction of organisation effectiveness above the variance accounted for by the control variables, environment and competitive strategy along (although no single practice in itself is significant).

Author
GOMEZ-MEJIA L. R. (1988)

Methodology
Longitudinal study of 388 manufacturing firms. Export performance data collected 30 months after predictor data. OLS regression used.

Independent variables
International HRM strategy (scale incorporating extent to which HR strategies of status and influence, financial rewards, hiring, promotion, training and development and performance appraisal) Controls include age of firm, size, R&D intensity, stage in life cycle, foreign exposure, risk avoidance, international orientation of firms future plans, profitability expectations, attitude towards growth, profit and market development, systematic exploration of marketing opportunities and commitment to foreign advertising.

Dependent variables
Export performance (index created by standardising and adding three measures: changes in international market share; changes in export intensity; and export intensity relative to industry).

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Findings
International HR strategy is a significant determinant (+) of export performance and increases explained variance by 0.09 per cent (after controlling for other factors).

Authors
CONYON M. J. and READ L. E. (1999)

Methodology
Cross-sectional company-level data collected in 135 UK stockmarket companies. OLS regressions employed.

Independent variables
Companies allocated into four categories of HR system based on index containing items related to incentive pay systems, communications, work teams, employment security, job security, skills and training. HRM system 1 (company uses no HR practices) HRM system 2 (company uses 1-2 HR practices) HRM system 3 (company uses 3-4 HR practices) HRM system 4 (company uses 5-6 HR practices) Controls include log of employment, capital use, union, labor relations and competition.

Dependent variables
Productivity (log of real company sales).

Findings
All systems of HRM are significant determinants of productivity in the OLS model. Most variance is explained by the HR system as opposed to individual practices.

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Conclusions
Measures of HR systems are positively correlated with a measure of company productivity. Random effects model indicates that a movement from using no practices to using 1 or 2 yield 28 per cent increase in firm productivity.

Author
HUNTER L. W (1999) .

Methodology
Cross-sectional, single industry study (banking) of 241 US bank branches from 101 retail banks. Survey data were matched with customer behaviour data and census data. Analysis used is OLS regression.

Independent variables
Branch flexibility (8 item scale) Worker autonomy (17 item scale) Use of high skilled employees Pay Share of part-time work Existence of limited function tellers Controls include local market conditions, demographics, and technology.

Dependent variables
Branch productivity Sales effectiveness (cross-sell rate) Quality (extent to which banks are out of balance).

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Findings
HR practices have no impact on branch productivity. Repeated analysis with interaction term between autonomy and cross-training is negatively associated with productivity. HR practices have no impact on the cross sell rate. Repeated analysis with interaction term between autonomy and cross-training is negatively associated with the cross-sell rate. Quality is determined by the interaction of cross-training and autonomy (+).

Conclusion
The study highlights the difficulties in identifying and establishing high performance work organisations in customer service organisations For productivity and sales effectiveness, autonomy and job breadth appear to contradict one another. However, these results should be treated with some caution as autonomy and flexibility are positively correlated.

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References and further reading

ARTHUR, JEFFREY B (1992) The link between business strategy and industrial relations systems in American steel minimills Industrial and Labor Relations Review Vol 45. A RTHUR , J EFFREY B (1994) The effects of human resource systems on manufacturing performance and turnover Academy of Management Journal Vol 37 No 3. BECKER, BRIAN and GERHART, BARRY (1996) The impact of human resource management on organisational performance: progress and prospects Academy of Management Journal Vol 39 No 4. BOWEY, A and THORPE, R (1986) Payment Systems and Productivity. Macmillan Press. BOXALL, PETER (1996) The strategic HRM debate and the resource-based view of the firm Human Resource Management Journal Vol 6 No 3. CHADWICK, CLINT and CAPPELLI, PETER (1998a) Investments or contracts?: The performance effects of human resource systems under different contingencies (unpublished paper). CHADWICK, CLINT and CAPPELLI, PETER (1998b) Alternatives to generic strategy typologies in strategic human resource management in P Wright, L Dyer, J Boudreau and G Milkovich (eds) Research in Personnel and Human Resource Management Greenwich CT: JAI Press. CONYON, M and READ, L (1999) Corporate productivity, complementarities and human resource management systems. (unpublished paper, Warwick Business School) DELANEY, JOHN T and HUSELID, MARK A (1996) The impact of human resource management practices on perceptions of organisational performance Vol 39 No 4. DELERY, JOHN E and DOTY, HAROLD D (1996) Modes of theorising in strategic human resource management: tests of universalistic, contingency and configurational performance predictions Academy of Management Journal Vol 39 No 4 pp 80235. DYER, L and REEVES, T (1995) HR strategies and firm performance; what do we know and where do we need to go? International Journal of Human Resource Management, Vol 6 pp 65670. GERHART, BARRY, WRIGHT, PATRICK M, MCMAHAN, GARY C and SNELL, SCOTT A (1998) Measurement error in research on human resource decisions and firm performance: how much error is there and how does it influence effect size estimates? (paper presented at Academy of Management conference, San Diego 1998)

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GOMEZ-MEJIA, L R (1988) The role of human resources strategy in export performance: a longitudinal study Strategic Management Journal, 9 pp 493505. GOMEZ-MEJIA, L R and BALKIN, D B (1992) Compensation, Organisational Strategy and Firm Performance. Cincinnati: Southwestern. GUEST, DAVID E (1997) Human resource management and performance: a review and research agenda The International Journal of Human Resource Management Vol 8 No3 pp 26376. GUEST, DAVID E and HOQUE, KIM (1994) The good, the bad and the ugly: employment relations in new non-union workplaces Human Resource Management Journal Vol 5 No 1 pp 114. GUEST, D and PECCEI, R (1994) The nature and causes of effective human resource management. British Journal of Industrial Relations 32 pp 219242. GUEST, DAVID E and PECCEI RICCARDO (1997) HR and Organsational Effectiveness in the NHS (mimeo) HUNTER, LARRY W (1998) What makes a high-performance workplace? Evidence from retail bank branches (paper presented to the IRRA World Congress, Bologna) HUNTER, L W (1999) What makes a high-performance workplace? Evidence from retail bank branches (unpublished paper, Wharton School, University of Pennsylvania) HUSELID, MARK A (1995) The impact of human resource management practices on turnover, productivity and corporate financial performance Academy of Management Journal Vol 38 No 3 pp 63572. HUSELID, MARK A and BECKER, BRIAN E (1996) Methodological issues in crosssectional and panel estimates of the human resource-firm performance link Industrial Relations Vol 35 No 3 pp 400422. HUSELID, MARK A, JACKSON, SUSAN E and SCHULER, RANDALL S (1997) Technical and strategic human resource management effectiveness as determinants of firm performance Academy of Management Journal Vol 40 No 1. ICHNIOWSKI, CASEY, and SHAW, KATHRYN (1997) The effects of human resource management systems on economic performance: an international comparison of US and Japanese plants (NBER research paper) ICHNIOWSKI, CASEY, SHAW, KATHRYN and PRENNUSHI, GIOVANNA (1997) The effects of human resource management practices on productivity: a study of steel finishing lines The American Economic Review June. JACKSON, SUSAN E and SCHULER, RANDALL S (1987) Linking competitive strategies with human resource management practices Human Resource Management Vol 23 No 3 pp 24155.

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JACKSON, SUSAN E and SCHULER, RANDALL S (1995) Understanding human resource management in the context of or,ganisations and their environments Annual Review of Psychology Vol 46 pp 23764. KAPLAN, R S and NORTON, D P (1996) The Balanced Scorecard. HBR Press. KOCH, MARIANNE J and MCGRATH GUNTHER, RITA (1996) Improving labor productivity: human resource management policies do matter Strategic Management Journal Vol 17 pp 33554. KOSSEK, ELLEN ERNST and YAKURA,ELAIN K (1998) Opening the black box of fit in strategic human resource management (paper presented at Academy of Management conference, San Diego 1998) LENGNICK-HALL, C A, and LENGNICK-HALL, M L (1988) Strategic human resource management: a review of the literature and a proposed typology Academy of Management Review Vol 13 pp 45470. MACDUFFIE, JOHN PAUL (1995) Human resource bundles and manufacturing performance: organisational logic and flexible production systems in the world auto industry Industrial and Labor Relations Review Vol 48 No 2 pp 197221. MARCHINGTON, M and SPARROW, P (1998) Re-engaging the HRM function: rebuilding work, trust and voice, in Human Resource Management: The new agenda edited by Sparrow, P and Marchington, M, FT:Pitman. MCMAHAN, GARY C, VIRICK, MEGHANA and WRIGHT, PATRICK (1999) Alternative theoretical perspectives for strategic human resource management revisited: progress, problems and prospects in P Wright, L Dyer, J Boudreau and G Milkovich (eds) Research in Personnel and Human Resource Management Greenwich CT: JAI Press (forthcoming). MILES, R and SNOW, C (1984) Designing strategic human resources systems Organizational Dynamics Summer: pp 3652. OSTERMAN, P (1994) How common is workplace transformation and who adopts it? Industrial and Labour Relations Review 47 pp 17388. PAAUWE, J and RICHARDSON, J (1997) Introduction to the special issue on HRM and Performance The International Journal of Human Resource Management Vol 3 No 6. PATTERSON, M, WEST, M, LAWTHORN, R and NICKELL, S (1997) The Impact of People Management Practices on Business Performance. London, IPD. PFEFFER, J (1994) Competitive Advantage through People. Boston, HBS Press. PFEFFER, J (1998) The Human Equation. Boston, HBS Press. ROGERS, EDWARD W and WRIGHT, PATRICK M (1998) Measuring organisational performance in strategic human resource management: problems and prospects (working paper, School of Industrial and Labor Relations, Cornell University)

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SCHULER, R S and JACKSON, S E (1987) Linking competitive strategies with human resource management practices Academy of Management Executive Vol 1 No 3 pp 20719. SHEPPECK, M A (1998) SHRM configurations and perceived organizational performance Academy of Management Proceedings San Diego. THOMPSON, M (1998a) Jet setters People Management April. THOMPSON, M (1998b) What works at work in UK Aerospace? Society of British Aerospace Companies and Department of Trade Industry, Briefing Paper. THOMPSON, M (1998c) Skills, training and business performance in UK Aerospace Society of British Aerospace Companies and Department of Trade Industry, Briefing Paper. TRUSS, C and GRATTON, L (1994) Strategic human resource management: a conceptual approach International Journal of Human Resource Management Vol 5 No 3 pp 66386. ULRICH, D (1998) Human Resource Champions. Boston, HBS Press. VENKARAMAN, N (1989) The concept of fit in strategy research:toward verbal and statistical correspondence Academy of Management Review Vol 14 pp 42344. WALTON, R (1985) From control to commitment in the workplace Harvard Business Review 63 (2) pp 7784. WEST M (1996) Reflexivity and work group effectiveness: a conceptual integration in West M (ed.) Handbook of Work Group Psychology Chichester, Wiley. pp 55579. W EST , M ICHAEL and P ATTERSON , M ALCOLM (1997) The impact of people management practices on business performance IPD Research Paper No 22. WRIGHT, PATRICK M and MCMAHAN, GARY C (1992) Theoretical perspectives for strategic human resource management Journal of Management Studies Vol 18 No 2 pp 295320. WRIGHT, PATRICK M and SCOTT SHERMAN, W (1999) Failing to find fit in strategic human resource management: theoretical and empirical problems in P Wright, L Dyer, J Boudreau and G Milkovich (eds) Research in Personnel and Human Resource Management Greenwich CT, JAI Press (forthcoming). WRIGHT, PATRICK M and SNELL, SCOTT A (1999) Toward a unifying theory for exploring fit and flexibility in strategic human resource management Academy of Management Review (forthcoming). YOUNDT, M, SNELL, S, DEAN, J and LEPAK, D (1996) Human resource management, manufacturing strategy, and firm performance Academy of Management Journal Vol 39 No 4 pp 836866.

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