Internal Commitment or External Collaboration? The Impact of Human Resource Management Systems on Firm Innovation and Performance

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  • INTERNAL COMMITMENT OR

    EXTERNAL COLLABORATION? THE

    IMPACT OF HUMAN RESOURCE

    MANAGEMENT SYSTEMS ON FIRM

    INNOVATION AND PERFORMANCE

    Y U Z H O U , Y I N G H O N G , A N D J U N L I U

    Complementing previous research that showed a positive effect of general human resource management (HRM) systems on general rm performance, this article undertakes an integrative approach to compare the main effects and examine the interaction effects of two particular HRM systems on in- uencing rm innovation and performance. Using data from 179 organiza-tions in China, we found that both the commitment-oriented system, which emphasized internal cohesiveness, and the collaboration-oriented system, which was intended to build external connections, contributed to rm innova-tion and, subsequently, bottom-line performance. We also found an attenuated interaction between the two HRM systems in predicting rm innovation. We employed a mediated-moderation path model to extricate the relationships. Results suggested that organizations that implemented both HRM systems to promote innovation might face ambidexterity challenges. Ideas for future research and practical implications are discussed.

    Keywords: human resource management, innovation, performance, china

    Correspondence to: Yu Zhou, Department of Organization & Human Resources, School of Business, Renmin University of China, Zhongguancun Avenue 59, Haidian District, Beijing, 100872, China, Phone: +86 10 62513473, Fax: +86 10 82509169, E-mail: zhouyuhr@ruc.edu.cn. Yu Zhou and Ying Hong contributed equally to this paper.

    Human Resource Management, MarchApril 2013, Vol. 52, No. 2. Pp. 263288 2013 Wiley Periodicals, Inc.

    Published online in Wiley Online Library (wileyonlinelibrary.com).

    DOI:10.1002/hrm.21527

    T raditional research in strategic human resource management (HRM) has taken a systematic approach to understand the bundle of high- performance HRM practices in im-

    pacting bottom-line business performance (e.g., Boselie, Dietz, & Boon, 2005; Huselid,

    1995). To unravel the black box of HRMfirm performance linkage, recently Becker and Huselid (2006) recommended introduc-ing differential HRM systems to target various organizational capabilities. This consider-ation extends a direction to focus HRM research on specific intermediate outcomes,

  • 264 HUMAN RESOURCE MANAGEMENT, MARCHAPRIL 2013

    Human Resource Management DOI: 10.1002/hrm

    Much is still

    unknown with

    regard to which and

    how HRM systems

    will contribute

    to organizational

    innovation in

    particular. The

    current study

    attempts to address

    this issue.

    rather than general financial performance. For example, the strategic capabilities of knowledge exchange (Collins & Smith, 2006; Smith, Collins, & Clark, 2005), production quality (Gibson, Benson, Porath, & Lawler, 2007), and customer service (Batt, 2002; Liao, Toya, Lepak, & Hong, 2009) have all been considered as intermediate outcomes of HRM. The impact of HRM on innovative ca-pabilities of organizations, however, has not been well understood.

    In an era characterized by rapid techno-logical change, innovation has increasingly been considered as a critical competitive advantage of organizations (Spender & Grant, 1996). In his early conceptualization of what constituted firm competitive advantage,

    Porter (1985) suggested that inno-vation in technology could con-tribute to both cost reduction as well as product differentia-tion. Interest in innovation has also been reflected in the recent emerging research in dynamic capabilities (Rothaermel & Hess, 2007), absorptive capacity (Zahra & George, 2002), and innova-tive capabilities (Subramaniam & Youndt, 2005) of organizations. Although researchers have gen-erally agreed on the importance of human resources for innova-tion for more than two decades (Schuler, 1986; Schuler & Jackson, 1987; Schuler & MacMillan, 1984; Van de Ven, 1986), the synergy between HRM practices and orga-nizations innovation has received

    little attention until recently (Shane & Ulrich, 2004) when the empirical research focusing on innovative HRM systems just began (Agarwala, 2003; Beugelsdijk, 2008; Jimnez-Jimnez & Sanz-Valle, 2008; Laursen & Foss, 2003; Shipton, West, Dawson, Birdi, & Patterson, 2006). However, these initial efforts to under-stand the HRM-innovation relationship tended to borrow general high-performance work practices as predictors. Little research has been done to understand the effects of specific HRM systems in predicting innova-tion. Thus, to date, much is still unknown

    with regard to which and how HRM systems will contribute to organizational innovation in particular. The current study attempts to address this issue.

    One central argument for HRMs contribu-tion to performance is that high-performance HRM develops employee abilities, motivation, and opportunities to perform (AMO model; Delery & Shaw, 2001), which can in turn be translated into financial performance. There are three assumptions underlying this line of research. First, high-performance HRM sys-tems, or variants such as high-investment/commitment systems, often take a generic orientation to improve firm performance. However, there is more than one way to achieve high performance. There may be multiple HRM systems in an organization, and each has a specific anchor to effectively create the important capabilities (Becker & Huselid, 2006; Lepak, Liao, Chung, & Harden, 2006). Second, human resources are often narrowly defined as the traditional employees who are internal to the organiza-tion. Although this focus is justified by the reasoning that internal employees are most valuable and unique to the organization, the increasing flexibility and connectedness of the business arena also demands that HRM be more broadly defined to include all exter-nal entities that contribute business perfor-mance, such as subcontractors and alliances (Lepak & Snell, 1999). Third, prior studies largely assume employees are independent individuals. Yet, individuals are embed-ded in social relationships with supervisors, coworkers, subordinates, clients, and part-ners (Brass, 1995). Social relationship is also an important mechanism through which HRM systems exert influences on innovation and learning (Gittell, Seidner, & Wimbush, 2010; Kang, Morris, & Snell, 2007). How HRM systems can be configured to impact social relationships among individuals for innovation, beyond managing individuals as isolated actors, is less understood.

    The social network literature has not reached a conclusion regarding two proto-types of social dynamics in breeding innova-tion. One perspective, the bonding view, which emphasizes internal social capital,

  • IMPACT OF HRM ON FIRM INNOVATION AND PERFORMANCE 265

    Human Resource Management DOI: 10.1002/hrm

    Although

    researchers often

    compare one

    network prototype to

    another to determine

    its superiority, few

    have taken an

    integrative approach

    to examine the

    complementarity

    between HRM

    systems that

    promote both types

    of relationships

    in contributing to

    innovation.

    originates from the network closure theo-ries (Coleman, 1988). This perspective is echoed by advocates of trust (Leana & Van Buren, 1999) and strong ties (Nelson, 1989) within organizations. It emphasizes build-ing a cohesive work environment in which individuals share knowledge and resources that are critical input for innovation. The other perspective, the outreaching view, is upheld by proponents of structural holes bridging unconnected network (Burt, 1997), diverse network range (Collins & Clark, 2003), organizational embeddedness (Uzzi, 1997), and weak ties (Granovetter, 1973; Hansen, 1999). These researchers value the external connectedness that can bring in nonredundant information and knowledge, which also stimulate innovation. Although researchers often compare one network pro-totype to another to determine its superior-ity (Perry-Smith & Shalley, 2003), few have taken an integrative approach to examine the complementarity between HRM systems that promote both types of relationships in con-tributing to innovation.

    The goals of this article are threefold. First, in response to the call for understand-ing the effects of HRM on influencing spe-cific strategic capabilities (Becker & Huselid, 2006), we introduce innovative capabilities as the mediator in the HRM-performance relationship. Second, in contrast to prior research that often focused on the unitary high-performance work system, we syn-thesize theories of social relationships and employee creativity to examine a dual model of commitment-oriented and collaboration-oriented HRM systems, emphasizing internal cohesiveness and external connectedness, respectively. Third, to extricate the complex moderating relationship between the two HR systems, we use the path decomposition analytical approach to construct a mediated-moderation model.

    Theoretical Background

    Innovation research has gained its momen-tum over the past two decades due to the increasingly critical role that innovation plays in the competitive market landscape

    (Damanpour, 1991). Research using resource-based theory (Barney, 1991), capability-based theory (Teece, Pisan, & Shuen, 1997), and knowledge-based theory (Grant, 1996) all suggest that the successful management of knowledge innovation has become a strategic imperative for organizations to gain competi-tive advantages.

    From an HRM standpoint, both macro research and organizational behavior research have devoted substantial effort to understand human resources as a form of critical capital that supports innovation (Lado & Wilson, 1994; Wright, McMahan, & McWilliams, 1994). Traditional innovation research has focused on the roles of indi-vidual traits, expertise, skills, and motivation to innovate (Amabile, 1998; Taggar, 2002), as well as the contextual factors such as teamwork, rewards, and leadership in influencing creativ-ity (Shalley, Zhou, & Oldham, 2004). Individual creativity then aggregates to group- and orga-nizational-level creativity in an interactive and complex process, subject to contextual enhanc-ers and constraints of creativities (Woodman, Sawyer, & Griffin, 1993). Based on these theorizings, HRM systems can be configured to promote these desirable indi-vidual attributes/behaviors and work context that is conducive to innovation (Delery & Doty, 1996).

    Another thread among HRM-innovation studies is an emphasis on social relation-ships in contributing to inno-vation (Collins & Smith, 2006; Kogut & Zander, 1996). As Burt (1997) pointed out, the value of human capital is meaningless without social capital. Drawing from both perspectives, we differentiate between two innovation-enhancing HRM architectures: commitment-oriented and collaboration-oriented HRM systems. Both systems exert influences on innovation outcomes through

  • 266 HUMAN RESOURCE MANAGEMENT, MARCHAPRIL 2013

    Human Resource Management DOI: 10.1002/hrm

    Empirical research

    has demonstrated

    the important

    impact of a high-

    commitment

    HRM system on

    performance

    outcomes such as

    higher productivity,

    higher quality, lower

    scrap rate, and

    lower employee

    turnover.

    managing employee AMO (Delery &Shaw, 2001; Lepak et al., 2006), as well as cultivating desirable social relationships (Evans & Davis, 2005; Gittell et al., 2010) that are conducive to innovation.

    Commitment-Oriented HRM System and InnovationCommitment-oriented HRM system refers to the configuration of HRM practices that value employees and build a relational environ-ment in which employees are committed to the organization. This philosophy originates from traditional strategic HRM research, which emphasizes a high-investment/

    performance philosophy to de-velop internal idiosyncratic knowl-edge and skills, cultivate employee motivation, and empower employ-ees to utilize discretion to perform (Lawler, 1992; Walton, 1985). This philosophy is realized by practices such as selective hiring, extensive training, performance appraisal, performance-based pay, job en-richment, teamwork, internal ca-reer opportunities, information sharing, employment security, and job rotation (Delery & Doty, 1996; Pfeffer, 1995). Empirical research has demonstrated the important impact of a high-commitment HRM system on per-formance outcomes such as higher productivity, higher quality, lower scrap rate, and lower employee turnover (e.g., Arthur, 1994; MacDuffie, 1995).

    A high-commitment philoso-phy is also beneficial for achieving inno-vation outcomes. According to the AMO model, practices such as employment secu-rity not only establish employees psycho-logical commitment to organizations, but also develop their motivation to take risks (Jackson, Schuler, & Rivero, 1989). Selective hiring and extensive training for creativity not only create a valuable talent pool, but also convey a value for innovation (Koch &McGrath, 1996); employee involvement,

    teamwork, and flexible job assignment pro-grams motivate employees as well as ensure employee discretion and opportunities to innovate (Batt, 2002; Ichniowski, Shaw, & Prennushi, 1997). This evidence is aligned with innovation research that shows that a healthy environment for innovation is one in which employees have encouragement and autonomy, and are free of impediments to innovate (Amabile, Conti, Coon, Lazenby, & Herron, 1996).

    Aside from developing the creativity of employees as individuals, social relation-ship is another critical source of innovation that could be developed through commit-ment-oriented HRM practices. As noted by Subramaniam and Youndt (2005, p. 459), unless individual knowledge is networked, shared, and channeled through relation-ships, it provides little benefit to organiza-tions in terms of innovative capabilities. A commitment-oriented HRM system may cul-tivate innovation through creating a cohe-sive internal environment in which employees trust and share knowledge with each other (Kang et al., 2007). First, a work environment that values teamwork and job security is more likely to cultivate a sense of public good or collectivity (Ibarra, Kilduff, & Tsai, 2005), which invites individuals to trust the organi-zation, share knowledge, and innovate with-out private concerns (Moran, 2005). Second, the internal career ladder, cross-functional teamwork, and information sharing may develop internal knowledge and commu-nication protocols that serve as a common cognitive basis for effective communication and knowledge sharing (Gittell et al., 2010; Nahapiet & Ghoshal, 1998). Third, practices such as teamwork, job rotation, and internal career ladder create structural connectedness among employees (i.e., strong ties or norms). These enable the exploitation of more fine-grained, complex knowledge to facilitate innovation (Reagans & Zuckerman, 2001; Reagans, Zuckerman, & McEvily, 2004). As such, commitment-oriented HRM practices also create a cohesive environment for inno-vation, which is characterized by relational, cognitive, and structural...

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