The impact of human resource management practices on manufacturing performance

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  • .Journal of Operations Management 18 1999 120www.elsevier.comrlocaterdsw

    The impact of human resource management practices onmanufacturing performance

    Jayanth Jayaram a,), Cornelia Droge b,1, Shawnee K. Vickery b,2a Department of Decision Sciences, Charles H. Lundquist College of Business, Uniersity of Oregon, Eugene, OR 97403, USA

    b Department of Marketing and Supply Chain Management, N370 North Business Complex, Eli Broad Graduate School of Management,Michigan State Uniersity, East Lansing, MI 48824-1046, USA

    Received 2 January 1997; accepted 13 April 1999


    .A human resource management HRM analysis framework is proposed and tested using data from first tier suppliers tothe Big 3 in North America. Relationships among underlying dimensions of human resource management practices andmanufacturing performance are examined. The study found support for the proposed framework, suggesting that humanresource management practices can be grouped into five distinct factors, four of which are associated with specific

    .manufacturing competitive dimensions quality, flexibility, cost and time . The remaining HRM factor is generic. The fourpriority-specific HRM factors are strongly related to their respectie manufacturing performance dimensions. q 1999Elsevier Science B.V. All rights reserved.

    Keywords: Automotive supplier industry; Human resource management; Manufacturing performance; Factor score regression

    1. Introduction

    Global competition, shorter product life cycles,and volatile product and market environments havecontributed to the complexity faced by businessesand industries as the new millennium approaches.Traditional competitive mechanisms have becomeless effective as competitors meet or copy each

    .others corporate initiatives Ulrich, 1987 . In re-sponse, firms constantly search for newer sources of

    ) Corresponding author. Tel. q1-541-346-3407; fax: q1-541-346-3341; e-mail:

    1 Tel.: q1-517-353-6381; fax: q1-517-432-1112.2 Tel.: q1-517-353-6381; fax: q1-517-432-1112.

    competitive advantage, one of the most important . being human resource management HRM Schuler

    .and MacMillan, 1984 . Recent conceptual and empir-ical articles have examined the impact of humanresource management on the oerall competitive

    .performance of a firm Arthur, 1994; Huselid, 1995 .However, given the importance and complexities ofhuman resource decisions, the existing body of workstill falls short of comprehensively examining keyresearch questions in human resource management .Becker and Gerhart, 1996 .

    Despite claims that innovative human resourcepractices can boost firm-level performance and na-tional competitiveness, few studies have been able toconfirm this relationship empirically, and still fewerhave been able to systematically describe the manner

    0272-6963r99r$ - see front matter q 1999 Elsevier Science B.V. All rights reserved. .PII: S0272-6963 99 00013-3

  • ( )J. Jayaram et al.rJournal of Operations Management 18 1999 1202

    in which human resource practices influence perfor-mance. Innovative HR practices are often studied ina vacuum with more attention paid to isolating theeffects of individual practices than to understandinghow different HR practices interact to reinforce oneanother or how they are linked to business and

    .functional strategies MacDuffie, 1995 . Moreover,prior work has shown that examining the impact ofindividual practices on performance is misleadingbecause individual practices obviate the effect of agroup of HR variables that comprise the system .Ichniowski et al., 1997 . Other researchers havesuggested that a bundle of inter-related, overlap-ping HR practices provides several non-exclusive

    modes of influencing performance Hackman, 1985;.MacDuffie, 1995 .

    We examine the impact of sets or bundles ofhuman resource practices on strategic dimensions ofmanufacturing performance. The purpose of the re-search is three-fold. First, we identify key dimen-

    .sions of human resource management HRM prac-tices from the literature and propose a conceptualmodel for analyzing the deployment of HRM prac-tices within firms. Second, we examine the effects ofindiidual HRM items on individual manufacturing

    performance dimensions i.e., cost, quality, flexibil-. ity, and time . The unit of analysis is at the firm unit level, and thus it is appropriate to

    select these four competitive priorities because theyhave been described in the literature as key mea-sures. While there is merit in investigating the im-pact of HRM items on finer details of manufacturing

    performance such as, conformance quality, design.quality, and durability instead of overall quality , we

    have chosen not to do so because our research intentis to determine what affects strategic dimensions ofmanufacturing performance. Finally, we test our con-ceptual model and examine linkages between HRM

    dimensions or bundles i.e., groups of inter-related.HRM items and manufacturing performance.

    This paper is organized as follows. First, theoperations management and HRM literatures are re-viewed to identify key manufacturing performancedimensions and to specify a set of human resourcemanagement practices that should impact manufac-turing performance. Five major categories of HRMpractices are identified. Propositions are introducedthat focus on the relationship between individual

    HRM practices and manufacturing performance, thedeployment pattern of HRM practices within firms,and the relationship between groups or bundles ofHRM practices and manufacturing performance. Theresearch methodology is described next, includingthe sampling procedure and measurement issues. Re-lationships between individual HRM items and man-ufacturing performance dimensions are explored us-ing correlation analysis. Factor analysis is then usedto reduce to underlying dimensions or bundles thevarious HRM practices identified from the literature.Next, factor score regression analyses are used toexamine the relationships between HRM factors andmanufacturing performance. Last, the results of thestudy are discussed and their managerial implicationsare explored.

    2. Literature review: identification of key con-structs

    2.1. Manufacturing performance dimensions

    The number of dimensions comprising manufac-turing performance has been the subject of much

    .debate over the years. Skinner 1974 described sev-eral, including short delivery cycles, superior qualityand reliability, dependable deliveries, fast new prod-uct development, flexibility in volume changes, and

    .low cost. Wheelwright 1978 focused on efficiency,dependability, quality, and flexibility, and later,

    .Hayes and Wheelwright 1984 changed efficiencyto cost. Three years later, Krajewski and Ritzman .1987 identified five manufacturing competitive di-mensions: cost, high performance design, consistentquality, on-time delivery, product flexibility, and

    .volume flexibility. In a related vein, Hill 1989outlined a set of order-winning criteria that fallunder the broad auspices of manufacturing. These

    criteria included: cost, product quality specifications and reliability, delivery speed, de-

    livery reliability, and volume flexibility ability to.respond to increases in demand .

    In a comprehensive review of the literature, Leong .et al. 1990 contended that five dimensions are the

    most critical: quality, delivery, cost, flexibility andinnovativeness. Around the same time, Ferdows and

    .DeMeyer 1990 focused on four generic manufac-

  • ( )J. Jayaram et al.rJournal of Operations Management 18 1999 120 3

    turing capabilities, namely, cost efficiency, quality,dependability and flexibility in one of the earliestempirical studies of manufacturing competitive di-

    mensions. In two recent studies by the same au-. . .thors , Ward et al. 1995 and Ward et al. 1998

    factor analyzed items relating to manufacturing com-petitive priorities into the four dimensions of cost,quality, time and flexibility. Even more recently,

    .Vickery et al. 1996 found that manufacturing per-formance in the furniture industry consisted of four

    .distinct dimensions: delivery, value qualityrcost ,flexibility, and innovation. However, a related studyalso indicated that while manufacturing had the lionsshare of responsibility for delivery, quality, cost, andflexibility, it had a much smaller degree of responsi-

    .bility for innovation Droge et al., 1994 . Vokurka et .al. 1998 also empirically investigated the impact of

    different manufacturing improvement techniques onthe competitive performance capabilities of cost,quality, delivery flexibility and time. Delivery flexi-bility was meant to tap the firms capability ofmeeting promised delivery dates, which is a functionof timing and variety. In this study, time capturedmanufacturing throughput time or speed. In the hu-

    .man resources literature, Youndt et al. 1996 opera-tionalized dimensions of manufacturing strategy per-formance as cost, quality, delivery flexibility, andscope flexibility. Delivery flexibility was defined interms of the timing performance of releasing newproducts and making on-time deliveries. Scope flexi-bility was defined in terms of variety, such as adjust-ing product mix, handling non-standard items andmaking products in small lots to allow for highervariety.

    The purpose of this research is not to delineate orexamine every conceivable dimension of manufac-turing performance. Rather, we have focused on theones most strongly supported by the literature,namely, the two traditional measures of cost andquality, as well as flexibility and time. It may benoted that this is a single-industry study and in orderto provide comparable data on manufacturing perfor-mance, respondents were asked to provide a rating oftheir firms performance relative to its major com-petitors for each of the four measures of manufactur-ing performance. In the literature review on humanresource management practices that follows, we fo-cus particular attention on those HRM practices that

    impact cost, quality, flexibility, and time perfor-mance.

    2.2. Human resource management practices

    Several human resource management practiceshave been touted as key factors affecting both manu-facturing performance and competitive advantage.

    .Our research focuses on: 1 top management com- . .mitment; 2 communication of goals; 3 employee . .training; 4 cross functional teams; 5 cross train-

    . .ing; 6 employee autonomy; 7 employee impact; . . .8 broad jobs; 9 open organizations; and 10effective labor management relations. There is con-siderable consensus in the HRM literature for identi-

    fying most of these items as best practices Freundand Epstein, 1984; Delaney et al., 1989; Arthur,1994; Pfeffer, 1994; Huselid, 1995; and MacDuffie,

    .1995 . Note that the first four are closely linked withspecific manufacturing performance goals e.g., top

    management commitment to flexibility; for quality , while the other HRM practices

    listed above are less tightly linked with specificperformance objectives e.g., broad jobs, labor man-

    .agement relations . This critical distinction framesthe literature review that follows.

    2.2.1. HRM practices linked to specific manufactur-ing performance goals Top management commitment. MacDuffie .1995 observed that firms with flexible productionplants consistently outperformed firms with standardmass production plants on the measures of productiv-ity and quality performance. This suggests that a topmanagement commitment to flexibility affects multi-ple dimensions of manufacturing performance. Simi-larly, top management commitment to quality was

    significantly related to quality performance Powell,.1995 . In a meta analysis of 70 management by

    .objectives MBO studies, Rodgers and Hunter .1991 reported that the most essential success factorfor implementing MBO programs was top manage-ment commitment. The results showed that when topmanagement commitment to specific performanceobjectives was high, firms experienced an averagegain in productivity of 56%. When top management

  • ( )J. Jayaram et al.rJournal of Operations Management 18 1999 1204

    commitment to organizational objectives was low,the average gain in productivity was only 6%. Ansari .1986 found that top management commitment toJIT purchasing implementation was critical for JITpurchasing success. Finally, Cooper and Klein-

    .schmidt 1995 found that top management commit-ment to new products was significantly related tonew product lead time performance. Communication of goals. In a case study of .Dow Corning, Seward 1992 identified communica-

    tion of quality goals as critical for the successful .implementation of total quality management TQM .

    .Zhu et al. 1994 conducted a critical review ofpublished studies of key success factors in JIT im-plementation and found that communication of JIT-related goals was included in several articles. In thenew product environment, Rosenthal and Tatikonda .1993 reported that clear communication ofproject-related goals significantly reduced productdevelopment lead times.

    . Employee training. Bartel 1994 establisheda link between the use of training programs andproductivity growth. In a randomized cross sectionalsurvey of 747 managers of manufacturing firms,

    .Dreyfus and Vineyard 1996 found that employeetraining and education was significantly related to

    .product quality performance. Magnan et al. 1995reported that employee training was significantlyrelated to flexibility performance in the furnitureindustry. Employee training in the form of JIT train-ing was one of the critical factors of JIT program

    .success Im et al., 1994 . Kinnie and Staughton .1991 examined the role of HRM in implementingmanufacturing strategies in 7 batch manufacturing

    firms. They found that employee training e.g., edu-cational programs, technical training and role change

    .training was one of the three critical HRM practicesthat significantly contributed to success in imple-menting manufacturing strategy. Quality relatedtraining has been emphasized in the literature as akey human resource element of total quality manage-

    .ment TQM and also facilitates the effective use ofadvanced manufacturing technologies Snell and

    .Dean, 1992 . Similarly, The Malcolm Baldrige Awardcategory of human resource deployment and man-agement, emphasizes employee education and

    training in quality as a critical enabler of quality .success Award Criteria, 1994 . Cross functional teams. High performancework teams were significantly related to quality per-formance as measured by defect rates even after

    controlling for the learning effect Banker et al.,.1995 . While the use of quality circles is most often

    associated with quality improvement, Katz et al. .1983 found that the use of cross functional teamsin the form of quality circles increased productivity.Cross functional teams were also found to be signifi-cantly related to flexibility performance and new

    product performance Cooper and Kleinschmidt,.1995; Magnan et al., 1995...


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