On the Relationships among Strategy, Labor Union, Employment Flexibility, and Firm Performance

Eul-Teo Lee

(School of Business, Kunsan National University, S. Korea)

Introduction

Organizations can sustain their competitive edge only when they maintain the functionality of their inner workforce while at the same time ensuring their numerical flexibility. This implies that organizations are advised to reduce their labor cost through numerical adjustment, and to look to boost their market competitiveness by realizing human resource functionality (e.g., Knox and Walsh, 2005). In other words, organizations are required to realize employment flexibility based on the ambidexterity concept, which signifies that organizations are required to strive for the realization of both efficiency and effectiveness in the workforce.

In this study, the ambidexterity concept deals with how organizations should configure and manage their HR system to enable numerical adjustment, as well as how best they could configure and manage their HR system to realize its functionality. Thus, this study focuses on numerical adjustment of labor force and human resource functionality. Numerical adjustment is to arranging or adjusting number of labor force in organization. HR functionality is to improve employee’s expertise, capability and their motivation on performance. Particularly, this paper discusses two concepts in terms of configurational of human resource (HR configuration) and managerial dimension of human resource (HR management).

The two concepts are derived from numerical flexibility and functional flexibility as traditional typologies of employment flexibility. By the way, the concept of numerical flexibility puts weight on the share of non-regular employees (e.g., Whyman and Petrescu, 2015) and the concept of functional flexibility tends to be measured with a high-performance work system (Appelbaum et al., 2002) or ‘high-road’ practices (Michie and Sheehan-Quinn, 2001; Knox and Walsh, 2005). In this paper, the two concepts shall be incorporated into the HRM domain (HR configuration and HR management dimensions) for further analysis. For example, in this paper, numerical adjustment will be measured by the percentage of non-regular workers, employment of experienced workers at the configurational dimension of HR and will be measured by the stipulation of redundancy and layoff rules, implementation of workforce restructuring at the managerial dimension of HR. HR functionality will be measured by the percentage of regular workers, meritocracy-based employment of new hires at the configurational dimension of HR and will be measured by the investment in training, management by objectives, performance-based annual pay system at the managerial dimension of HR. It will be discussed in detail in the part of research framework.

The another point that this study stress is to suggest antecedents and consequence of employment flexibility. The previous studies have focused on typologies and constructs of employment flexibility. Studies on the antecedents and consequence of employment flexibility have not been actively conducted. This study suggests antecedents of employment flexibility such as business strategy (cost reduction strategy and innovation strategy), organization size, labor union and identifies the relationships between employment flexibility and performance at the firm level.

The survey was performed targeting the top management or HR managers of 186 companies with less than 100 full-time workers in region A in South Korea. In this paper, the need for employment flexibility that is based on the con-cept of ambidexterity particularly for small and mid-sized companies will be stressed.

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Theoretical Background

Previous studies

Many researches have stressed numerical flexibility and functional flexibility as main typologies of employment flexibility (Atkinson, 1987; Grenier, Giles, and Belanger, 1997; Michie and Sheehan-Quinn, 2001; Whyman and Petrescu, 2015). They also have argued other constructs of employment flexibility such as outsourcing (Atkinson, 1987; Grenier, Giles, & Belanger, 1997), working time flexibility (Grenier et al., 1997), wage and reward flexibility (Michie & Sheehan-Quinn, 2001). For example, Atkinson (1987) classified employment flexibility into numerical flexibility, functional flexibility and outsourcing. The concept of numerical flexibility signifies an adjustment of the man/hour (M/H) in accordance with the demand for labor as well as the use of the external labor market. The concept takes diverse forms depending on the given labor type and man/hour, such as non-regular, part-time, or seasonal workers. The concept of functional flexibility signifies the maximization of productivity through the reshuffling of the internal employees and their job descriptions, whereas outsourcing signifies the use of diverse labor types outside the boundary of the conventional employment structure within an organization, such as the employment of dispatched workers. Grenier, Giles, and Belanger (1997) argued four flexibility strategies based on typology of flexibility and strategical focus. The type of flexibility deals with the adjustment of the man/hour as well as organizing the labor method, whereas the strategic focus is on the use of the internal labor or the external labor market. According to criteria for classification, they discussed working time flexibility, numerical flexibility, functional flexibility, and outsourcing as four flexibility strategies. Michie & Sheehan-Quinn (2001) suggested wage or reward flexibility as well as numerical and functional flexibility. Numerical flexibility, which is the ability of firms to change the number of people they employ by making use of part-time, temporary and seasonal employees, and short fixed-term contracts, freelance work, and homework or outwork. Functional flexibility is the ability of firms to vary the amount of labor they use without resorting to the external labor market, and is accomplished primarily by having a labor force that is able to carry out a wide range of tasks-that is, the ability to move workers from one task to another. Wage or reward flexibility is the ability of pay and payment systems to respond to labor market conditions and to reward and encourage improved performance (for example, performance-related pay). Whyman & Petrescu (2015) argued workplace flexibility as employment flexibility and referred cost flexibility as well as numerical and functional flexibility. Numerical flexibility is home or mobile work, family friendly practices, part-time working, flexitime. Functional flexibility is team working, employee involvement in decision making, job autonomy, employee initiative, training, job enrichment, job security, and job sharing. Cost flexibility is management pay cut, management pay freeze, bonus cut, staff pay freeze, individual performance related pay, and profit related pay.

Discussions related to main typologies of employment flexibility are as follows. Numerical flexibility signifies the adjustment of the workforce size. Organizations can react nimbly to the changing demand for products/services or labor through the adoption of numerical flexibility; can reduce the labor cost, including the employee welfare and benefits; and can minimize the legal burden associated with employment. The employment of non-regular workers is one of the key examples of numerical flexibility.

The concept of functional flexibility, on the other hand, stresses the importance of expanding the scope of duty of the current members of the organization without setting up boundaries between different work types (multiple duties), as well of flexible work organization based on teamwork that promotes cooperation among the members. The concept is also understood as being similar to the high performance work system (Appelbaum et al., 2002) or ‘high-road’ approach (Michie and Sheehan-Quinn, 2001; Knox and Walsh, 2005) because it seeks to encourage employee commitment.

Representative studies on the relationships between employment flexibility, human resource, and firm performance are as follows. Michie & Sheehan-Quinn (2001) surveyed over 200 manufacturing firms in the UK and analyzed the relationships between firm’s use of flexible work practices, human resource systems, industrial relations, and firm performance. The results showed that ‘low-road’ practices – short-term contracts, a lack of employer commitment to job security, low levels of training and low levels of human resource sophistication – are negatively correlated with corporate performance. In contrast, it was found that ‘high-road’ work practices – ‘high commitment’ organizations or ‘transformed’ workplaces – are positively correlated with good corporate performance. Knox & Walsh (2005)

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classified employment flexibility into numerical/temporal flexibility and enabling flexibility. Numerical and temporal flexibility means increased number of part-time or temporary employees in response to increased demand, reduced number of part-time or temporary employees in response to decreased demand, employees doing shift or on-call work. Enabling flexibility means semi-autonomous work groups, quality circles, team building, total quality management, staff appraisal/evaluation scheme, formal training scheme. They surveyed and interviewed on the hotel industry in Australia and found that the larger hotels were adopting more systematic employee management techniques and strengthening their internal labor markets through functional flexibility initiatives. Also they showed that the larger hotels were also pursuing numerical and temporal flexibility strategies, although in rather ways. Michie and Sheehan (2005) studied the relationships between business strategy, human resources, labor market flexibility, and firm performance through survey and interview in the UK. They suggested positive relationships between HR policies and practices and performance; that the relationship between HR and performance is dependent upon business strategy; and that companies pursuing an integrated approach to HR coupled with an innovator/quality-enhancer focus within their business strategy perform best.

In South Korea, two papers are representative studies related to employment flexibility. Kim and Lee (2005) conducted an empirical study to determine whether functional and numerical flexibility foster a substitutive or a complimentary relationship among the regular employees. They concluded that the relationship type may vary depending on the situation. Jung & Lee (2004) analyzed panel data of 379 Korean companies and explored the effect of organization’s HR policies for labor market flexibility on its labor turnover and investment in training. The results showed that numerical flexibility is positively associated to turnover and identified movement of labor force and hiring part-time workers reduce organizational investment for training.

Research Framework and Hypotheses

This study redefines employment flexibility as numerical adjustment of labor force and HR functionality and considers two concepts in terms of configurational dimension and managerial dimension of HR. I suggest this approach in figure 1.

< Insert here Figure 1 >

Numerical adjustment is to arranging or adjusting number of labor force in organization. It can be achieved from two different dimensions: (1) the HR configuration dimension, which incorporates non-regular and experienced workers; and (2) the HR managerial dimension, which incorporates the stipulation of redundancy and layoff rules as well as the restructuring of the workforce. Even though numerical adjustment is based on the existing concept of numerical flexibility, it went beyond the simple calculation of numerical flexibility with the measurement of the percentage of the non-regular workers by incorporating the employment of experienced workers, which is one of the key types of workforce inflow, the reason being that organizations should be able to sustain their production activity with only a limited number of people because this will allow them to minimize the costs associated with the employees’ adaptation to the organization as well as their training compared to the alternative option of hiring junior employees. Numerical adjustment can be applied at HR managerial dimension. For example, organizations can adjust the number of their employees by firing the low performers through the stipulation of the layoff option and the implementation of workforce restructuring.

The human resource functionality is to improve employee’s expertise and capability and their motivation on performance. In the past, the functional flexibility was measured mainly with the high-performance work system practices when approaching the issue. In this paper, investment in training, management by objectives, and the performance-based annual pay system shall be proposed for the elements belonging to the HR managerial dimension to enable HR functionality. In particular, HR functionality usually starts with the employment of new hires and is eventually realized through the refinement of the hired workforce. Therefore, the percentage of regular workers and

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the meritocracy-based employment of new hires shall be incorporated in the HR configuration dimension. The meritocracy-based employment of new hires was included considering the unique situation of South Korea because the South Korean companies have traditionally valued employees who can seamlessly assimilate the given organizational culture. Recently, large corporations started to place increasing importance to performance and job capability, but small and mid-sized companies have a strong tendency to value assimilation of the organizational culture and harmony with one’s colleagues more due to their high employee turnover rates. For all such challenges faced by small companies in retaining their employees, they can still pursue HR functionality by focusing on professional expertise and job skills when hiring junior employees, and through the refinement of their workforce by raising the percentage of regular workers.

Studies on the antecedents of employment flexibility have not been actively conducted. In this study, it was assumed that the antecedents of employment flexibility are closely related to the business strategy. Organization size and labor union were proposed as situational factors of employment flexibility.

Discussions on antecedents of employment flexibility and the relationship with performance at the firm level are as follows.

A frame of reference for decision-making that has a direct influence on the diverse behaviors of organizations, strategy may have an association with employment flexibility. Porter describes competitive advantage as the 'essence of competitive strategy' and proposes three strategies that companies can use to achieve this advantage: innovation, quality enhancement, and cost reduction. Schuler & Jackson (1987) linked strategies with the associated behaviors of employees and HR practice that a firm should adopt. They argued that HR practices will prove effective only where the firm emphasizes the importance of either quality enhancement or innovation with its business strategy.

In companies pursuing a cost based strategy, the logical approach to HR strategy would be to emphasize numerical flexibility and wage cost minimization: ‘In such a situation, the values and goals imbued within HR would be consistent with the organization’s primary cost reduction goals (Hoque, 1999: 421). Therefore, cost reduction strategy may be directly related with numerical adjustment of labor force.

Innovation strategy is a business strategy that values new production processes and methods as well as the creation of a new market so that the organization would be able to maintain its competitive edge by renewing its policy on the production process and market. Therefore, an organization’s adoption of an innovation strategy is deeply related with its investment in training as it seeks to create new products and services. For instance, organizations are likely to invest more in education and training because they will need to obtain associated knowledge and creative technologies to create new products and services and to exploit new customers and markets. Keskin (2006) studied that market orientation of organization is a positive correlation with learning orientation such as investment in training.

Given that the innovative behavior of organization members is essential for innovation, organizations can encourage the innovative behavior from their employees and incentivize them through functional HR management, such as training, management by objectives, and the performance-based annual pay system, as discussed earlier. In addition, innovative organizations are more likely to employ new hires based on meritocracy rather than people who are prone to assimilating the organizational culture in Korea, and to raise the percentage of their regular workers in terms of the HR configuration dimension for innovation, thereby seeking to realize HR refinement. Based on this, innovation strategy may be directly related with HR functionality.

Organization size will have an association with HR functionality. Large organizations generally more actively engage in training and education and strive to manage HR performance systematically because they consider HR as an investment target. Large organizations may also have a positive attitude towards HR investment in training because they have extensive business experience, are full-grown organizations, and have the necessary financial resources. Also, as large organizations have many employees, they tend to manage them by employing scientific HR methods. Moreover, they are likely to value HR functionality because they are likely to have many HR professionals. It thus follows that the larger an organization is, the more likely it would invest in employee education and training and attempt to manage its employees systematically to raise their work performance. The key methods of performance management include management by objectives and the performance-based annual pay system. As these are popular

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HR practices in large corporations, small and mid-sized firms with a relatively large organization size can utilize them handily.

The company with no labor union will have an association with numerical adjustment. The reason is as follows. The traditional role of labor union is to improve working conditions for union members. For this reason, it is difficult for labor unions to manifest a friendly attitude towards their employers at the bargaining table. As the wage level and manpower restructuring are very sensitive issues, the management and labor can hardly assume an accommodative attitude in the collective bargaining. If an organization stipulates a redundancy provision and attempts to implement numerical adjustment through workforce restructuring, the labor union would fight such moves fiercely.

Labor unions in Korea tend to be more accommodative towards the government and employers in the wake of the continuous economic downturn since 2000. In the past, however, they used to take an extremely hardline position, thereby making it nearly impossible for them and their employers to arrive at a compromise or deal. The labor unions in the country’s manufacturing sector, in particular, used to be extreme hardliners, banding together with industrial unions. For this reason, the South Korean companies did their utmost to prevent the establishment of labor unions in their own backyard. In particularly, the South Korean workers do not regard labor movements that compel them either socially or economically, unlike in the past. For instance, the union membership rate in South Korea has largely remained at the 10% level since 2000.

Decision-makings in non-unionized companies are made easily and speedily, thereby making two most confrontational issues (wage level and workforce restructuring) steer the organizational direction. Labor unions may veto the employment of non-regular and experienced workers, but the employment of such workers is freely allowed in non-unionized companies. Accordingly, the numerical adjustment of HR (employment of non-regular and experienced workers, stipulation of redundancy and layoff rules, and implementation of workforce restructuring) can be more easily realized in non-unionized companies.

Employment flexibility (numerical adjustment and HR functionality) will have an association with performance at the firm level. If an organization adjusts its HR configuration and management numerically, it may undermine the trust between the management and labor, and may create a sharply confrontational structure. Workforce restructuring, however, allows companies to overcome their financial difficulty and fire incompetent workers, thereby pushing up the overall productivity. Organizations can cut various costs associated with employment, including medical insurance, pension, and unemployment insurance payment, whereas the employment of experienced workers will allow them to minimize their training expenses and eliminate job vacancies.

In company pursuing a HR functionality can increase employee’s expertise, capabilities and motivational drive for performance, so that it improves firm performance. Education and training enhances the professional skills and functionality of organizations’ members (multifunctional skill), expands the scope of their members’ performance beyond the conventional vocational barriers (multiple tasks), and promotes cooperation among their members, thereby making the work organizations more nimble and flexible. Management by objectives and the performance-based annual pay system are closely related with the incentivization of the members because they encourage the members to perform better and to continue to do so by allowing them to set clearly defined and challenging goals and by guaranteeing the fair assessment of and compensation for their job performance. Many researches have showed that performance-based reward increases employee’s motivational drive for performance, so that it improves performance at the firm level.

Based on the discussions, hypotheses are as follows.

Hypothesis 1: Numerical adjustment and HR functionality will be positive relationships with different business strategy.

Hypothesis 1-1: There will be a positive relationship between cost reduction strategy and numerical adjustment such as the percentage of non-regular workers, employment of experienced workers, stipulation of redundancy and layoff rules, and implementation of workforce restructuring.

Hypothesis 1-2: There will be a positive relationship between innovation strategy and HR functionality such as the 6

percentage of regular workers, meritocracy-based employment of new hires, investment in training, management by objectives, and the performance-based annual pay system.

Hypothesis 2: There will be a positive relationship between organization size and HR functionality.

Hypothesis 3: There will be a positive relationship between the companies with no labor union and numerical adjustment.

Hypothesis 4: Both numerical adjustment and HR functionality will be a positive relationship with firm performance.

Hypothesis 4-1: There will be a positive relationship between numerical adjustment and firm performance.

Hypothesis 4-2: There will be a positive relationship between HR functionality and firm performance.

Measures

The survey was performed targeting the top management or HR managers of 500 companies with less than 100 full-time workers in region A in South Korea. The survey was conducted from May to June 2015, during which survey slips were mailed to the target companies. The total 191 questionnaires were collected, 186 out of which, those with insincere answers excluded, have been analyzed. At the total 186 companies, 132 companies are manufacturers and 54 companies are non-manufacturers. The manufacturing companies run the business such as electronics, food, automobile parts, ship parts and non-manufacturing companies are in the business of publication, bank, transportation, and education and so on.

Measurement on numerical adjustment is as follows.

At the HR configuration, the percentage of non-regular is ratio of part-time, causal, and seasonal workers in a given company. The average was 17.7%.

Employment of experienced workers is defined as the hiring by a given company of experience worker(s) within the past 3 years (0 if NO; 1 if YES). The average was .67.

At the numerical adjustment, HR management is defined as the establishment by a given company of rules on redundancy and layoff within the past 3 years, and the company’s actual implementation of such redundancy plan (workforce restructuring) within the past 3 years (1 if it was stipulated, and 0 if it was not; 1 if the redundancy plan was implemented, and 0 if it was not implemented). The average of the stipulation of redundancy and layoff rules was .19 and the implementation of workforce restructuring was .20.

Measurement on HR functionality is as follows.

At the HR configuration, the percentage of regular workers is ratio of full-time workers in a given company. The average was 82.3%.

Meritocracy-based employment of new hires is defined as the valuing by a given company of individual expertise and capability more than teamwork when hiring junior employees (0 if NO; 1 if YES). The average was .75.

At the managerial dimension of HR, investment in training is total amount of training two years ago in a given com-pany and standardization value was applied to the analysis. The average was 7,610,229 won ($6,680) (Median was 3,000,000 won, $2,712)

Management by objectives and performance-based annual pay system are defined as the conduct by a given company of two practices within the past 3 years (0 if NO; 1 if YES). The average of management by objectives was .33 and performance-based annual pay system was .35.

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The seven questions on business strategy were used by Chow & Liu (2003). Respondents were asked to rate each item on a 5-point Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree). The questions related to cost reduc-tion strategy were that the company focuses on cutting general expenses to maintain competitiveness; the company surpasses competitors by enhancing operational efficiency or lowering production costs; the company enforces strict labor cost control. The questions related to innovation strategy were that the company is persistently innovative in pro-ducing goods and services; the company frequently develops new products and technology; the company invests a large amount of capital to carry out innovative production process and service process innovation; the company is usu-ally the first to introduce new products or services in the market. These items were factor analyzed using principal fac -tor with varimax rotation method, resulting in two factors. All factors accounted for 59.24% of the total variance ex-plained. The alpha coefficients for cost reduction and innovation strategy were .645 and .759 respectively.

Organization size was defined as the total number of employees and the standardization value was applied to the analysis. The average was 21.9.

With regard to labor unions, the respondents were asked to mark “1” if there is a labor union in their company, and “0” if there is none. Non-unionized businesses were 178 cases (95.7%) in the sample.

Firm performance was measured by total sales revenue of last year in a given company. The average was 8,114,790,502 won ($7,336,398) (median was 2,120,386,500 won, $1,916,993).

Results

A correlation analysis was conducted. As shown in Table 1, HR functionality, innovation strategy, and firm performance were significantly correlated each other (between the p<0.05 and p<0.01 levels). For example, investment in training, management by objectives, and performance-based annual pay system were positively correlated to sales revenue; and meritocracy-based employment of new hires, MBO, performance-based annual pay system were positively correlated to innovation strategy. Otherwise, there was no correlation between numerical adjustment and cost reduction strategy. At the situational variables, the companies with no labor union were positively correlated with the stipulation of redundancy and layoff rules and implementation of workforce restructuring. Organization size was positively correlated to variables on HR functionality.

< Insert here Table 1 >

For testing hypotheses, ordinary least squares (OLS) regressions were conducted and analyzed by manufacturing and non-manufacturing sector respectively as well as total sample.

As shown in Table 2 and Table 3, hypothesis 1-2 was supported at the analysis on hypothesis 1. Hypothesis 1 predicted that cost reduction strategy will be a positive correlation with numerical adjustment and innovation strategy will be a positive correlation with HR functionality. As a result, cost reduction strategy was significantly correlated to the percentage of non-regular workers (β=.126, p<0.1), whereas it was not significantly correlated to other variables (<Table 2>). As shown in Table 3, innovation strategy was significantly positive correlated to meritocracy-based employment of new hires (β=.228, p<.001), the amount of investment in training (β=.177, p<.01), management by objectives (β=.159, p<.01) and performance-based annual pay system (β=.195, p<.01). Innovation strategy was not correlated only to the percentage of non-regular workers.

The results by different industry sectors were that innovation strategy was correlated with the meritocracy-based employment of new hires, the amount of investment in training in small and mid-sized manufacturing companies. Whereas innovation strategy was correlated with management by objectives and the performance-based annual pay system in the case of small businesses in the non-manufacturing sector.

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The results related to hypothesis 2, organization size was partly supported. As shown in Table 3, at the full sample, organization size was correlated with variables related to HR management dimension such as the amount of investment in training (β=.425, p<.001), management by objectives (β=.145, p<0.1), and performance-based annual pay system (β=.178, p<.05), whereas it was not significantly correlated with variables related to HR configuration dimension such as percentage of regular workers, meritocracy-based employment of new hires.

At the manufacturing business samples, organization size was correlated to variables in the HR management and the percentage of regular worker in the HR configuration. The results suggest that small manufacturing firms with a relatively large organization size seek functionality in terms not only of HR management but also of HR configuration. At the non-manufacturing samples, organization size was positive correlated with the amount of investment in training, whereas it was not significantly correlated with other variables.

Although it was not predicted by the hypothesis, the correlation between the organization size and numerical adjustment was also analyzed. As shown in Table 2, the results were that organization size was correlated to the stipulation of redundancy and layoff rules (β=.133, p<0.1) and the implementation of workforce restructuring (β=.186, p<.01). At the results by industry, organization size was positively correlated with the implementation of workforce restructuring in the non-manufacturing sector, whereas organization size was positively correlated with employment of experienced workers in the manufacturing sector.

Hypothesis 3 was partly supported by the relationship between the companies with no labor union and HR management variables of numerical adjustment. As shown Table 2, the companies with no union were positive correlation with the stipulation of redundancy and layoff rules (β=.141, p<0.1) and the implementation of workforce restructuring (β=.183, p<.01). Whereas non-unionized companies were not significantly correlated with HR configuration variables such as the percentage of non-regular workers and employment of experienced workers.

The results show that the companies with no labor union were implementing workforce restructuring more easily than the non-unionized companies were, as predicted by the hypothesis. The results by industry show that the companies with no union were only correlated to the stipulation of redundancy and layoff rules in the manufacturing sector, whereas there was correlation with the companies with no union and the implementing workforce restructuring as well as the stipulation of redundancy and layoff rules in the non-manufacturing sector. Additionally, this study analyzed the correlation between the companies with no union and HR functionality. As shown in Table 3, there was no significant correlation between two variables. When this result is interpreted in relation to the result of hypothesis 3, it implies that the non-unionized small businesses would implement workforce restructuring rather easily but have no interest in HR functionality.

< Insert here Table 2 >

< Insert here Table 3 >

The result of hypothesis 4 is shown in Table 4. The analysis was performed by creating standardized coefficients for the variables associated with numerical adjustment and HR functionality, and then inputting the average values of such standardized coefficients to a regression model (Model 1). Also, the independent variables such as organization size, the companies with no union, cost reduction strategy, and innovation strategy were inputted to a regression model (Model 2, Model 3).

As the results were shown in Model 1 ~ 3, HR functionality was positively correlated with sales revenue (Hypothesis 4-2 was supported) (β=.358, .336, .358, p<.001), whereas numerical adjustment was not significant with sales revenue.

Model 4 shows the results of the analysis of the specific HR functionality variables correlated with firm performance. Among the HR functionality variables, investment in training and sales revenue were found to be correlated with each

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other according to the results (β=.569, p<.001). This implies that HR functionality, particularly training, plays a key role in improving the firm performance of small businesses. The companies with no labor union as a situational factor also showed a positive correlation with sales revenue (β=.211, p<.01).

The results by industry were that HR functionality was a positive correlation with sales revenue in the manufacturing sector, whereas there was not significant between each variable in the non-manufacturing sector. This result shows the positive relationship between HR functionality and firm performance is confined to small and mid-sized manufacturing business. On the other hand, the companies with no union, particularly manufacturing sector, were positively correlated with sale revenue (Model 2~4).

< Insert here Table 4 >

ConclusionsThe analysis results can be summarized as follows.

First, the small and mid-sized businesses that adopted an innovation strategy tend to value employee’s expertise and job capability more than assimilation of the organizational culture when hiring new employees, invest proactively in education and training, and attempt to incentivize their members by establishing management by objectives and the performance-based annual pay system. They did not go further, however, to also pursue functionality in HR configuration by increasing the percentage of regular workers as part of their innovation strategy.

The results by industry were different. The small manufacturing companies that adopted an innovation strategy value meritocracy when hiring new employees, and invest in education and training, but the non-manufacturing firms would adopt only management by objectives and the performance-based annual pay system as part of their innovation strategy.

Second, the percentage of non-regular workers was somewhat high among the small businesses that took cost reduction measures, but the small businesses would not actively engage in the act of numerical adjustment other than raising the percentage of non-regular workers even when they take cost reduction measures. In the case of the small businesses in the non-manufacturing sector, they would attempt to stipulate redundancy rules as part of their cost reduction strategy.

Third, among the small businesses, those with a relatively larger organization size would manage HR functionality through the adoption of education and training, management by objectives, and the performance-based annual pay system but do not give much importance to HR configuration functionality. By industry, the small manufacturing businesses with a large organization size are active in HR configuration functionality as well as in HR management functionality as the percentage of their regular workers is relatively high. On the contrary, the large and small businesses in the non-manufacturing sector do not engage in functionality activities other than actively investing in education and training.

On the other hand, variables on numerical adjustment such as the stipulation of redundancy and layoff rules and the implementation of workforce restructuring were correlated with organizational size. The results of this study show that small businesses with a large organization size are likely not only to strive to realize HR management functionality but to also actively engage in numerical adjustment through redundancy and attrition.

Fourth, non-unionized small businesses actively engage in numerical adjustment in the HR management dimension, including the stipulation of redundancy and layoff rules and the implementation of workforce restructuring. By industry, non-unionized manufacturing businesses are likely to stipulate redundancy and layoff but do not actually embark on workforce restructuring. On the contrary, non-unionized non-manufacturing businesses do not stipulate redundancy and layoff rules but engage in actual workforce restructuring.

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Fifth, HR functionality was correlated with firm performance, but numerical adjustment had no influence on performance at the firm level. The correlation was pronounced only in the case of small manufacturing businesses. Specifically, the HR functionality variable is investment in education and training.

The implications of the study are as follows. First, this paper studied on employment flexibility at the field of human resource management. This study redefined employment flexibility as numerical adjustment and HR functionality and considered two concepts in terms of configurational and managerial dimensions of human resource. With regard to the analysis of the two types of employment flexibility from the perspective of the labor market, the previous studies focused on analyzing the employment flexibility by pairing external numerical adjustment (employment of non-regular workers) and internal functionality (high-performance work system).

Second, this paper studied competitiveness of small and medium-sized businesses in terms of managing for human resources. In general, small businesses are known to raise their competitive edge by slashing costs, particularly the labor costs. This study empirically proved, however, that HR functionality, particularly training, rather than labor cost reduction is more important for boosting the competitiveness of small businesses.

The limitations of the study are as follows. First, for this study, a hypothesis that assumed that the firm performance of small businesses is the outcome of numerical adjustment and HR functionality was established while adopting the concepts of ambidexterity and core-peripheral model in understanding employment flexibility, but no correlation between numerical adjustment and firm performance was observed in the study. This leads to the assumption that the South Korean small businesses are in reality not active in terms of numerical adjustment. For instance, whereas the percentage of non-regular workers among the entire South Korean labor force is about 40%, the percentage of non-regular workers among the sample was quite low (17.7%). In the future, the effect of ambidexterity in employment flexibility must be verified by studying industries with a higher percentage of non-regular workers (e.g., the distribution industry). Also, it is necessary to identify critical level related to numerical adjustment securing small and medium-sized business’s competitiveness.

Second, this study focused on correlation among strategy-employment flexibility-firm performance. It is necessary to stress on causal relationship among variables and to measure for variables strictly in the future. For instance, this paper measured sales revenue as a variable of firm performance and analyzed the correlation between numerical adjustment and HR functionality. When viewed more strictly, it is possible that numerical adjustment may be related more with the net profit than with the sales revenue. In the future, it is necessary to consider measurement tools reflecting net profit concepts such as ROI (return on investment) and ROE (return on equity) as performance variables at the firm level.

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Figure 1. Research Framework

Table 1. Correlations

1. 2 3 4 5 6 7 8 9 10 11 12 13 14

1. 1

2. -.033 1

3. .105 .115 1

4. .180* .047 .191** 1

5. -.911** .033 -.049 -.175* 1

6. -.017 -.141 .092 .043 .012 1

7. .039 .070 -.025 .132 -.044 .073 1

8. .003 -.016 .093 .100 .044 .162* .142 1

9. -.035 .000 .177* .098 .045 .060 .251** .439** 1

10. .126 -.118 .109 .054 -.157* .167* .090 .148* -.024 1

11. .085 -.139 .060 .081 -.101 .287** .092 .151* .183* .309** 1

12. -.117 .114 .167* .222** .124 .014 .374** .099 .160* .007 -.065 1

13. -.004 -.019 .164* .221** .012 .060 -.062 .021 .009 .040 .021 .194** 1

14. -.098 -.052 -.049 .000 .104 .095 .508** .152* .173* .001 -.014 .246** .149* 1

**: p<.01, *: p<.05

1.Percentage of non-regular workers. 2.Employment of experienced workers. 3.Stipulation of redundancy and layoff rules. 4.Implementation of workforce restructuring. 5.Percentage of regular workers. 6.meritocracy based employment of new hires. 7.Total amount of training. 8.Management by objectives. 9.Performance-based annual pay system. 10.Cost reduction strategy. 11.Innovation strategy. 12.Organization size. 13.Companies with no labor union. 14.Sales revenue

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Table 2. Regression on numerical adjustment

Dep.Var.

Percentage of non-regular workers

Employment of experi-enced workers

Stipulation of redundancy and layoff rules

Implementation of work-force restructuring

Sample Total MA NMA Total MA NMA Total MA NMA Total MA NMA

CRS .126† .081 .192 -.117 -.154† -.031 .102 -.014 .343** .045 -.022 .147

OS .015 -.195** .085 .123 .175** -.063 .133† .123 .193 .186** .125 .344**

NU -.121 .077 -.142 -.038 -.131 .182 .141† .182** -.010 .183** .162* .257**

R2 .030 .047 .053 .029 .067 .029 .056 .056 .164 .084 .045 .281

A-R2 .014 .025 -.004 .013 .045 -.029 .041 .033 .113 .069 .023 .238

F 2.357† 2.116 .933 1.784 3.078** .506 3.632* 2.509† 3.260** 5.576*** 2.417† 6.524**

***: p<.001, **: p<.01, *: p<.05, †: p<.1CRS: cost reduction strategy, OS: organization size, NU: non labor union

Table 3. Regression on HR functionality

Dep.-Var

Percentage of regular workers

Meritocracy based employ-ment of new hires

Investment in training Management by objectivesPerformance-based annual

pay system

Sam-ple

Total MA NMA Total MA NMA Total MA NMA Total MA NMA Total MA NMA

IS -.093 -.055 -.092 .288*** .308*** .174 .177** .213** -.072 .159** .115 .319** .195** .130 .355**

OS .120 .205** -.126 .023 -.033 .183 .425*** .382*** .763*** .145† .165† -.049 .178* .186** .146

NU -.009 -.062 .140 .049 .009 .096 -.119 -.105 -.311** -.004 .093 -.176 -.030 .070 -.242†

R2 .024 .049 .035 .086 .100 .097 .183 .153 .525 .035 .047 .131 .064 .052 .192

A-R2 .008 .027 -.023 .071 .079 .042 .161 .123 .474 .019 .025 .079 .049 .030 .144

F1.498 2.209

†.601 5.710*

**4.740

**

1.783 8.562***

5.005**

10.324***

2.191†

2.110 2.507†

4.146**

2.340†

3.962**

***: p<.001, **: p<.01, *: p<.05, †: p<.1IS: innovation strategy, OS: organization size, NU: non labor union

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Table 2. Regression on Firm Performance

Total Manufacturers Non-manufacturers

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Model 10

NA -.101 -.141 -.133 -.119 -.141 0.134 -.010 -.196 -.163

HRF .358*** .336*** .358*** .385*** .369*** .391*** .227 .092 .117

OS .123 .099 -.057 .070 .041 .574*** .574***

NU .150† .154† .211** .101 .106 .271† .249

CRS -.017 -.055 .006 -.003

IS -.091 -.116 8.104 -.209

NRW -.154

EEW -.122

SRL -.037

IWR -.103

RW -.045

ME .017

TR .569***

MBO .053

PPS .022

R2 .143 .184 .193 .295 .170 .186 .195 .052 .501 .544

A-R2 .128 .154 .149 .236 .150 .145 .133 -.014 .428 .434

F 9.515*** 6.297*** 4.373*** 4.976*** 8.401*** 4.560** 3.149** .788 6.789*** 4.964**

***: p<.001, **: p<.01, *: p<.05, †: p<.1NA: numerical adjustment, HRF: human resource functionality, CRS: cost reduction strategy, IS: innovation strategy, NRW: percentage of non-regular workers, EEW: employment of experienced workers, SRL: stipulation of redundancy and layoff rules, IWR: implementation of workforce restructuring, RW: regular workers, ME: meritocracy based employment of new hires, TR: training, MBO: management by objectives, PPS: performance-based annual pay system

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