High Performance Work System

soaring Per melodyance Work SystemExploring the Performance Impact of High Performance Work Systems in nonre baseal Service houses A practices-Re authors-Uses go onABSTRACT. In the present study, we scram a practices- choices-uses approach to corpseati conjurey excuse the mediate effect of high execution of instrument reckon systems (HPWS) on besotted performance in oerlord operate context. We show that HPWS result in the creation of kind-hearted fully gr own(p), complaisant top nonch and organisational expectant resources. These resources in turn bring about re cherish for riotouss when they ar impellingly explored and ill-used. Our abridgment of the indirect fuck off-to doe with of HPWS on tight performance contri only ifes to the makeing of how and wherefore HPWS furbish up fast(a) performance by identifying valuable resources and run acrossing out the track to efficaciously use them in victor dish besotteds (PSFs). We besides leave alone abstractive support for the arguments of the resource-based view of trusty (Barney, 1991), the intimacy-based theory of firm (Grant, 1996a, 1996b) and the energising capabilities (Teece, Pisano Shuen, 1997) perspectives.Key words High Performance Work System professional Service Firms Resource- ground View of FirmINTRODUCTIONResearchers on strategic homo resource circumspection (SHRM) cope for a rivet on the amass of HR practices rather than person practices, as a primary election whole of analysis when examining the impact of HR systems on individual and shapingal performance (Huselid, 1995 MacDuffie, 1995). For example, high performance lend systems (HPWS) (Datta, Guthrie, Wright, 2005) ca-ca been ensn ar to optimisticly restore to firms outcomes especially in manufacturing firms, such(prenominal) as financial performance (Guthrie, 2001 Huselid, 1995), employee disturbance (Richard Johnson, 2001), firm productiveness (Guthrie, 2001), efficiency and flexibili ty (E avant-gardes Davis, 2005), and organisational commitment (Youndt, Snell, doyen Jr, Lepak, 1996).However, the race between HPWS and firm performance is indirect and many an(prenominal) scholars call for deeper and more(prenominal) theoretical approaches to understand how and why high performance add systems (HPWS) match firm performance (Bowen Ostroff, 2004 Combs, Liu, Hall, Ketchen, 2006 Delery Shaw, 2001), especially in assistant organizations (Combs et al., 2006). Based on the vivacious search, we argue that HPWS results in the creation of kind-hearted peachy (Wright, Dunford, Snell, 2001), societal nifty (Leana Van Buren III, 1999) and organizational expectant resources (Koch McGrath, 1996). Only when these resources be effectively managed and utilized, firms can buzz off superior profit above that which returns to competitors in perfectly warlike milieu (Schultz, 1961), progress to sustainable emulous receipts and piddle respect (Barney Ari kan, 2001 Sirmon, Hitt, Ireland, 2007). The causal chain between resource endowment fund and firm performance is unclear and is in need of theoretical explication and experimental investigation (Leana Van Buren III, 1999). Thus, we pursue two research questions (1) How do HPWS affect firm performance in the professional services context? (2) What atomic number 18 valuable resources and how are they utilized by firms?Guided by the fortuity theory, the resource-based view of the firm (RBV) (Barney, 1991), the familiarity-based theory (Anand, Gardner, Morris, 2007 Grant, 1996a, 1996b Teece, 2003 Winch Schneider, 1993) and dynamic capabilities theory (Teece et al., 1997 Eisenhardt Martin, 2000), we purpose a practices-resources-uses performance approach to add insight to our understanding of the value creation-exploitation process in the professional service firm (PSF).The paper is coordinate as stick withs. First, we briefly introduce the literature on PSFs and explain wh y we chose these organisations to conduct our research. We whence propose a model that highlights how HPWS affect firm performance. We argue that HPWS affect firm performance done two steps. First, HPWS work firm resources, i.e., merciful capital, social capital, and organizational capital. And then these resources are exploited to ramp up better firm performance in the short run or are explored to improve firm performance in the longer run. indoors the HPWS and firm performance relationship research, our model draws on the practices-resources-uses perspective, and issues of the essence(p) theoretical open upations for understanding how and why HR practices affect firm performance. We then controvert the further implications of the study for practitioners and explore the say-so areas for future research.CONTEXTProfessional Service Firms (PSFs) are those whose primary assets are a exceedingly improve (professional) workforce and whose outputs are intangible services enc oded with multiform cognition (Greenwood, Li, Prakash, Deephouse, 2005). Examples of professional services include accounting, engineering consulting, management consulting and legal services (De Brentani Ragot, 1996). PSFs are companionship-intensive (Morris, 2001 von Nordenflycht, 2007, 2010) with fellowship encoded in services as outputs (Empson, 2007 Morris Empson, 1998 von Nordenflycht, 2007, 2010). PSFs are different from traditionalistic firms. They generally exploit intangible assets to produce customized solution for invitees (Greenwood et al., 2005 Hitt, Shimizu, Uhlenbruck, Bierman, 2006 Lwendahl, 2005 von Nordenflycht, 2007, 2010). Their human resources constitute the critical asset of the PSFs because they personify expertise and create firm-specific familiarity which can be translated into client solutions. Indeed clients whitethorn often follow professionals if they change firms (Groysberg Lee, 2009). Because PSFs differ from an other(a)(prenominal) fi rms, to apply theories from other forms of organizations is not simply inapplicable but may be dangerously wrong (Maister, 1993 xvi). Our analysis will represent a unattackable site to examine SHRM because human resources constitute the critical asset and therefore a strong political campaign of the practices-uses-resources model which is what we need to justify.THERETICAL BACKGROUND AND PROPOSITONSStrategic kind-hearted Resource worry (SHRM)Strategic human resource management (SHRM) is getd as the var. of planned human resource deployments and activities intended to enable an organization to extend to its goals (Wright, McMahan, McWilliams, 1994 298). Because firm performance stands out as a major organizational goal, many studies check been conducted that examine the linkage between human resources management practices and firm performance (Arthur, 1994 Becker Gerhart, 1996 Datta et al., 2005 Delery Doty, 1996 Guthrie, Flood, Liu, MacCurtain, 2009 Huselid, 1995 MacD uffie, 1995 Richard Johnson, 2001 Terpstra Rozell, 1993 Youndt et al., 1996).The researchers in this field argue that the bundle of HR practices rather than individual practices should be localizeed as a primary unit of analysis when examining the impact of HR systems on individual and organizational performance (Huselid, 1995 MacDuffie, 1995). Following the above argument, researchers have been encouraged to take a system perspective in examining the performance impact of HRM on germane(predicate) organizational outcomes (Wright Boswell, 2002). For example, the study by Youndt et al. (1996) demonstrated that human capital-enhancing HR system was directly related to multiple dimensions of operational performance, i.e., employee productivity, machine efficiency, and node conglutination the results of Collins and Clark (2003) indicates that the network-building HR practices positively related to the organizational performance, i.e., growth in sales and stock return the research by Huselid (1995) illustrates a positive relationship between high performance work practices and organizational turnover, productivity and financial performance the research on high performance work systems (HPWS) conducted by Datta et al. (2005), Guthrie et al. (2009) and Combs et al. (2006) finds that HPWS positively affected firms labour productivity, employee absenteeism and turnover. HPWS include HR practices that are designed to enhance employees skills, commitment, and productivity (Datta et al., 2005).Most front literature on the relationship between HRM practices and firm performance has looked at the direct relationship. However, many scholars agree that there are probably mediating variables finished which HRM practices affect firm performance. As Wright and Gardner (20004) write, One of the first issues that must be settled in the effort to understand how HR practices impact performance is to theorize the manner through which this relationship occurs, in essence spe cifying the intervening variables between the legal profession of HR practices and the measure of firm performance.In the living research, whatever scholars found human capital as one of intermediarys between SHRM and firm performance. Human capital refers to the stock of skills and familiarity embodied in individuals (Becker, 1964 OSullivan Sheffrin, 1998). Guest (1997) argues that SHRM improve employees woodland, i.e., skills and abilities. Snell and Dean (1992) withal argue that HRM should ideally work to enhance the firms competitive position by creating superior human capital skills, start and acquaintance that contribute to firm economic value. Wright et al. (2001) assert that HPWS might have resulted in the creation of a high quality human capital pond that cannot be easily imitated because of period compression diseconomies (e.g., Mercks RD qualification). Becker and Huselid (1996) state that human resource activities are thought to entice to the reading of a skilled workforce and one that engages in functional behavior for the firm, thus forming a source of competitive reinforcement. This results in higher operating performance, which translates into increased favorableness, and consequently results in higher stock prices (or market values).There are overly some scholars found that many human resource management practices have a significant bureau to play in creating social capital. fond capital is a resource which is imbed in the relationship among individuals (Loury, 1977 Coleman, 1988, 1990 Bourdieu 1985 Burt, 1992 Putnam, 1993 Nahapiet Ghoshal, 1998 Lin, 2001). For example, Wright et al. (2001) argue that HPWS may promote and maintain socially complex relationships characterized by trust, knowledge sharing, and police squadwork (e.g., souwest Airlines unique culture). Youndt, Subramaniam and Snell (2004) state that attentive selection of people who fit with the organizations culture, or intensive training programmes tha t not only socialize incoming employees but also indoctrinate ballpark values among exist employees, may have a strong impact on the social capital of organizations. Leana and van Buren III (1999) introduce the construct of organizational social capital and let a model that makes its components and consequences. They suggest that employment practices strongly affect the take aim of organizational social capital within a firm. They also describe the potential benefits and costs of organizational social capital for the firm and state the contingent nature of organizational social capitals relationship with performance. In other words, organizational social capital mediates the HR practices and organizational performance relationship. Evans and Davis (2005) reserve a theoretical framework illustrating how the internal social structure of the organization can mediate the relationship between HPWS and organizational performance.The third mediator between SHRM and firm performanc e is found as organizational capital. Subramaniam and Youndt (2005) and Youndt et al. (2004) define organizational capital as the institutionalized knowledge and systematize experience residing within and utilized through databases, patents, manuals, structures, systems, and processes. Wright et al. (2001) argue that HPWS might play a office in creating cultures or mindsets that enable the maintenance of unique competencies. They celebrate that HR is not limited to its direct make on employee skills and behavior. HRs effectuate are more encompassing in that they help weave those skills and behaviors within the broader fabric of organizational processes, systems and, ultimately, competencies. Other strategists who embrace the RBV point out that competitive wages (vis core competency) comes from aligning skills, motives, and so forth with organizational systems, structures, and processes that master capabilities at the organizational level (Hamel Prahalad, 1994 Peteraf, 1993 T eece et al., 1997). Koch and McGrath (1996) take a similar system of logic in their study of the relationship between HR planning, recruitment, and staffing practices and labor productivity. They argue that a highly productive workforce is possible to have attributes that make it a peculiarly valuable strategic asset, (p. 335). They suggest firms that develop effective routines for acquiring human assets develop a stock of talent that cannot be easily imitated.The human capital, social capital and organizational capital are defined as terce components of intellectual capital. One systematic research conducted by Youndt et al. (2004) find that a relatively small group of superior performing organizations exhibit high levels of human, social, and organizational capital. Most firms, however, tend to focus primarily on only one form of intellectual capital, and a small group of underperforming organizations have very low levels of all three types of intellectual capital. Another re search by Subramaniam and Youndt (2005) suggest that an organizations efforts at hiring, training, work design, and other human resource management activities may need to focus not only on shoring up their employees functional or specific technological skills/expertise, but also on developing their abilities to network, collaborate, and assign information and knowledge.To summarize, although the relationship between SHRM and firm performance has been found positive, it is indirect. cost-efficient SHRM could improve employees knowledge, skills, strength the relationships between employees, and also create superior databases, processes and then help firms achieve higher performance. In the pursuit section, we analyse how HPWS create firm resources in PSFs.HPWS and Firm ResourcesThere is a positive relationship between HPWS and firm performance. But how HPWS affect firm performance rest to be understood.The resource-based view of firm (RBV) argues that a firms competitive advantage s lie primarily on the application of valuable resources, skills and capabilities that the firm already control (Barney, 1991 Penrose, 1959 Wernerfelt, 1984).The knowledge based theory of firm (Grant, 1996a, 1996b) considers knowledge as the most strategically significant resource of the firm. This knowledge is embedded and carried through multiple entities including individuals, relationships and organizational culture, identity, routines, documents, systems.Guided by the resource-based view of firm (Barney, 1991) and the knowledge-based theory of firm (Grant, 1996a, 1996b), we argue that HPWS affect firm performance by creating valuable, rare, imperfectly imitable, and non-substitutable resources (Barney, 1991), i.e., human capital, social capital, and organizational capital. And these resources can also be understood as the places where knowledge is embedded.Human capital. In PSFs, the human capital is defined as the knowledge and skills of their professionals that can be used to produce high quality professional services (Hitt, Bierman, Shimizu, Kochhar, 2001 Hitt et al., 2006 Pennings, Lee, Van Witteloostuijn, 1998). Human capital plays a strong role as the PSFs key resource in solving client problems (Morris Snell, 2008). Professionals possessing large amounts of experience, education, and training should be able to effectively create ideas on their own in response to the complexities of unique client needs. Their localized experience helps them to understand the needs of local clients and markets, which allows them to develop solutions that are unique to each contextual environment and hence heterogeneous across the firm. Professionals who draw the most upon human capital tend to rely on the experimentation, inspiration, and experience of individuals to solve a problem (Morris Snell, 2008). To build high human capital, PSFs need to identify, soak up and contain superior professionals, which can be achieved through HR practices such as selection, r ecruitment and training. HRM should ideally work to enhance the firms competitive position by creating superior human capital skills, experience and knowledge that contribute to firm economic value (Guest, 1997).Thus we propose that HPWS result in the creation of a high quality human capital pool that cannot be easily imitated because of time compression diseconomies, e.g., Mercks RD capability (Wright et al., 2001). For example, the professionals in PSFs gain verbalized knowledge through their formal education and tacit knowledge through learning on the job. HR practices are thought to speck to the development of a skilled workforce and one that results in functional behavior for the firm, thus potentially forming a source of competitive advantage (Becker Huselid, 1998). These arguments lead to the hobby proposition.Proposition 1a The PSFs human capital mediates the relationship between HPWS and firm performance.Although human capital has many positive benefits, it represents c osts to firms as well. For example, PSFs commonly try to recruit the best graduates from top institutions. To attract them, firms need to provide compensation which is more than their marginal productivity early in their careers (Hitt et al., 2001). Furthermore, professionals revolutionary skills must be developed since they gain tacit knowledge through learning on the job (Bierman Gely, 1994). Although they are learning spick-and-span skills, they may be less effective at the beginning. The cost for them may pass their capital (Hitt et al., 2001). These arguments lead to the following proposition.Proposition 1b There is a curved relationship between the PSFs human capital and firm performance. The relationship is cast out early in the professionals tenure but becomes positive.Social capital. Social capital is a resource which is embedded in the relationships among individuals (Loury, 1977 Coleman, 1988 Bourdieu 1985 Burt, 1992 Putnam, 1993 Nahapiet Ghoshal, 1998 Lin, 2001). It is different from human capital. Social capital is embedded within, available through, and derived from the network of relationships possessed by an individual or social unit (Nahapiet Ghoshal, 1998) while human capital is embedded in individuals head (Becker, 1964 OSullivan Sheffrin, 2003).Social capital plays an important role in PSFs. The firms ability to attract and retain clients depends not only on its competence to provide high quality services produced by the professionals human capital but also on their connections to potential clients (Maister, 1993 Smigel, 1969).Pennings et al. (1998) analysed firm-level and individual-level social capital in PSFs. The firm-level social capital can help PSFs attract potential clients because the potential clients will choose a firm as a service provider on the origination of previous interpersonal relationship with the firms professionals when other things are equal. Within PSFs, the fact is that a set of clients are handled or loo ked after by an individual professional who is the key person. Their results show that social capital of owners (partners) contributed more to firm survival than those of employees (associates). Pennings et al. (1998)s study produced major essay for the contention that a firms human and social capital have important implications for performance.The service delivered by PSFs suffers from an opaque quality because of PSFs knowledge intensity (von Nordenflycht, 2010). This refers to situations where the quality of an experts output is hard for non-experts (i.e., customers) to evaluate, even after the output is produced and delivered (Broschak, 2004 Empson, 2001 Levin Tadelis, 2005 Lwendahl, 2000 cited in von Nordenflycht, 2010). In this situation, personal relationships and ambiguity reduction through personal spot take on extra significance. As clients and customers often have problems estimating the value of the product/service offered, establishing close social links between the PSFs and the customer/ client becomes vital (Alvesson, 2001). Other things equal, the potential clients will choose a firm as a service provider on the basis of previous interpersonal relationship with the firms professionals (Pennings et al., 1998). In addition, PSFs typically make investments in relationships with clients and make efforts to generate social attachment (Fichman Levinthal, 1991).Some research also demonstrates that social capital mediates the HR practices and firm performance relationship. For example, Youndt et al. (2004) state that thoughtful selection of people who fit with the organizations culture, or intensive training programmes that not only socialize incoming employees but also indoctrinate common values among existing employees, may have a strong impact on the social capital of organizations. Collins and Smith (2006)s found that commitment-based HR practices were indirectly related to firm financial performance through their do on organizational social c limate and knowledge exchange and conclave Thus, HPWS improve the internal social structure within organizations, that assists communication and cooperation among employees (Evans Davis, 2005) which in turn has been found to be linked to organizational performance. These arguments lead to the following proposition.Proposition 1c The PSFs social capital mediates the relationship between HPWS and firm performance. organizational capital. Organizational capital is defined as the institutionalized knowledge and codified experience residing within an organization and utilized through databases, patents, manuals, structures, systems, and processes (Youndt et al., 2004 Subramaniam Youndt 2005). The organizational routines and processes which embody organizational knowledge are a source of organizational competitive advantage (Teece, 2000)In PSFs, organizational process of the typical professional service firm (PSF) is highly institutionalized because of the knowledge-based nature of th e work and ultimately, in the historic evolution of relatively autonomous professions (Freidson, 1986 Greenwood, Hinings, Brown, 1990 cited in Morris, Gardner, Anand, 2007). The organizational routine of PSF is open work understandings and practices built up by colleagues as they collaborate over time, like an accumulated short hand of work (Morris, 2000 822). Morris and Snell (2008) emphasize the importance of organizational capital for PSFs. They state that organizations tend to draw on organizational capital for many aspects of learning, including knowledge creation, sharing, and integration, but this resource may provide more value for specific types of learning. Based on the basis of previous literature and their own experience with PSFs, organizational capital is most possible to create more value when individuals in the organization are toilsome to integrate knowledge. In terms of integration, then, organizational capital helps to create value through the implementation and reuse of knowledge across affiliates, which allows professionals to deliver solutions more efficiently to clients.Besides facilitating knowledge integration, organizational capital also shapes professionals regard and identity (Empson, 2001) which plays an important role in attracting new clients.Many scholars have found that SHRM improve organizational capital. For example, Wright et al. (2001) argued that HPWS might play a role in creating cultures or mindsets that enable the maintenance of unique competencies (e.g., the safety enroll of DuPont). The HR is not limited to its direct effects on employee skills and behavior. HRs effects are more encompassing in that they help weave those skills and behaviors within the broader fabric of organizational processes, systems and, ultimately, competencies. Other strategists who embrace the RBV point out that competitive advantage (vis core competence) comes from aligning skills, motives, and so forth with organizational systems, str uctures, and processes that achieve capabilities at the organizational level (Hamel Prahalad, 1994 Peteraf, 1993 Teece et al., 1997). Koch and McGrath (1996) took a similar logic in their study of the relationship between HR planning, recruitment, and staffing practices and labor productivity. They argued that a highly productive workforce is likely to have attributes that make it a particularly valuable strategic asset, (p. 335). They suggested that firms which developed effective routines for acquiring human assets develop a stock of talent that cannot be easily imitated. They also found that these HR practices were related to labor productivity in a savour of business units, and that this relationship was stronger in capital intensive organizations. These arguments lead to the following proposition.Proposition 1d The PSFs organizational capital mediates the relationship between HPWS and firm performance.The Uses of Firm ResourcesThe resource-based view of firm (RBV) and knowle dge-based theory of firm contribute to identifying the existing resources that have the potential to constitute a source of sustainable competitive advantage (Hitt et al., 2006). However, merely possessing such resources does not guarantee the development of competitive advantages or the creation of value (Barney Arikan, 2001 Priem Butler, 2001 cited in Sirmon et al., 2007). These valuable resources must be effectively managed and utilized to achieve superior profit (Schultz, 1961) and a competitive advantage (Barney Arikan, 2001 Sirmon et al., 2007).The vehemence on the use of resources is consistent with the dynamic capabilities perspective (Teece et al., 1997) which includes considerations such as how resources are developed, how they are integrated within the firm and how they are released.Using these resources is the same as using the knowledge which is embedded in the individuals, the relationships and the organizational processes, routines, databases, and systems. There a re two streams or approaches of research on using these knowledge or resources (Hargadon Fanelli, 2002). One focuses on how to reuse or replicate existing knowledge, i.e., exploitation (Levitt March, 1988). The other one focuses on how to generate new knowledge, i.e., exploration (March, 1991 Kogut Zander, 1992). The effective use of resources may help a PSF balance the effective exploitation of existing resources with exploration of knowledge to create new capabilities. The following matrix shows how PSFs create value by exploiting and exploring existing resources.The matrix shows that the exploration of resources in PSFs is to deliver new products or service to new clients and to deliver new products or service to old clients. It also shows that the exploitation of resources in PSFs is to deliver existing services or products to the existing clients or new clients as there is no new knowledge/capability required. The exploration process needs to explore the human capital to inv ent new products or services and the social capital to attract new clients and new business and the organic organizational capital (Kang Snell, 2009) that expedite this delivery. The exploitation process needs to reuse or refine the existing products or services and existing clients, which requires the standardized organizational capital (Kang Snell, 2009) to facilitate this delivery.To illustrate exploration and exploitation more detail, four capabilities of PSFs are determine to effectively exploit existing resources with exploration of knowledge to create new capabilities. They are managing team ups, leverage knowledge, combining and exchanging knowledge, and sensing the changes in the external environment capabilities.Managing teams. In professional service firms, most of work is project or program-oriented, serving the needs of the external customers. It requires several professionals work together, and frequently involves client contact, often through co-location at a cli ents place of business. Then team forms the sanctioned unit of work in the professional service firm. Generally, a team consists of partners and associates.The dynamic global economic environment accelerates PSFs work speed. ordinarily the customers assignments are much more compressed in term of time (Morris, Gardner, Anand, 2007). Therefore, to successful serving clients, the team management is vital. Teece (2003) provides a lot emphasis on the coordinating tasks, managing conflict, communicating and cooperating within the team in team management.As with the traditional firm, coordination must be achieved, and conflict must be managed. In the professional services context, raw conflict can lead to mass defections and the destruction of enterprise value, even more assuredly than in an industrial company setting. So conflict management is likely to be especially significant with an expert services context because experts are likely to not only have strong preferences, but are als o likely to be self-confident, possibly egotistical, and possibly lacking in good business sense while already having some degree of establish financial success (Teece, 2003 897). The most critical communication in a professional service context is frequently peer-to-peer. Partners (senior talent) frequently need to entrance money other senior talent in order to meet client needs (Teece, 2003 903).Leveraging knowledge. Leveraging knowledge, that is the transfer of know-how from seniors to juniors in client assignments, sustains the basic division of labor in the professional firm and also underpins its profitability (Hitt et al., 2001 Malos Campion, 2000).All professional firms compete by leveraging knowledge and partners story (Greenwood et al., 2005). In PSFs, partners own the most human capital and social capital in a firm. To meet clients demands, partners need to select other professionals to form a team to possess the appropriate skills, experience and training. In this wa y, the partners knowledge and capabilities are leveraged. Meanwhile, the junior professionals, or associates also acquire intangible knowledge during the long apprenticeship they serve with their senior colleagues before being assessed for a coalition position.Leverage ratios are measured by total number of associates dissever by the total number of partners (Hitt, et al., 2001 Phillips, 2001). High leverage ratios are adequate with highly codified knowledge packages and standardized tools and methodologies which can routinely be applied by junior associates. Lower leverage is associated with experience or expertise models in which knowledge is less routinized and the firm seeks more complex projects in which there is a premium on the experience or special expertise of more senior staff (Maister 1993 Hansen, Nohria, Tierney, 1999).Effective leveraging creates dynamic capabilities whereby the firm is able to renew, augment, and adapt its current capabilities to serve always chang ing and new client needs (Teece et al.. 1997 Tripsas, 1997 cited in Hitt et al., 2001). Hitt et al. (2001) also find the empirical support for the positive relationship between leveraging and firm performance in professional service context.Combining and exchanging knowledge capability