Motivation

Int. J. of Human Resource Management 14:4 June 2003 511-529 •'

^

D Routiedge B ^ ^ Taylor & Francis Group

High-involvement practices in human resource management: concept and factors that motivate their adoption

Monica Ordiz-Fuertes and Esteban Ferndndez-Sdnchez Abstract Using data on 250 Spanish firtns, we examine the incidence of high-involvement practices and investigate what variables are associated with the adoption of these practices. Particularly, we analyse the influence of size, age, competitive advantage, activity sector, the existeoce of a recent crisis, culture, leadership style and the competitiveness of the environment on the adoption of high-involvement work practices. With all this, we try to offer an exploratofy view of nature of the contexts that condition the adoption of such practices, with the aim of motivating future research more thoroughly. Keywords Human resource practices; age; size; competitive strategy; organizational culture; management style; activity sector; environment. Introduction The concept of best practices in hutnan resources is a critical theme that dominates the humaa resource managemetut literature (Sheppeck and Militello, 2000). These practices are also called liigh-iiwolvemetit practices', 'innovative' or 'flexible', and refer to those non-traditional HR practices that have become widespread in companies (Ichniowski et al., 1996). These practices have been defined in various ways, but generally include three dimensions: high relative skill requirements, jobs designed to provide the opportunity to use those skills in teams or in collaboration with other workers and an incentive stnicture to induce discretionary effort (Appelbaum et al., 2000). The central assurnption is that managements, through designing high-commitment work systems, are creating the conditioriS for employees to become highly involved in the organization and identify with its overall goals. This new way of thinking has become a preferred focus of attention nowadays and, therefore, this paper seeks to contribute to this research area by testitig hypotheses concerning influences on the adoption of high-involvement work (HIW) practices in Spanish firms. Literature reyiew and hypotheses The issue of selection of certain contingent variables from the long list of available factors as possible deterrninaats of HIW practices needs serious attention (Budhwar and Khatri., 2001). The problem is the huge difficulty in modelling all the factors that Mooica Oixliz-Fuertes, Facultad de Ciencias Economicas y Empresariales, Avda. del Cristo, s/n 33071 Oviedo, Spain (tel: +34985104970; fax: +34985103708; e-mail: [email protected]); Esteban Fernandez-Sanchez, Facultad de Ciencias Econoirdcas y Empresariales, Avda. del Cristo, s/n 33071 Oviedo, Spain (tel: +34985103919; fax: +34985103708; e-mail: [email protected]). The International Journal of Human Resource Management ISSN riQSR-S109 tirintASSN 1/lfifi-AlOQ onT.np la nV\tr\ Tuwlrvr RT Cro^^ir 1 tA

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influence the adoption of HIW practices. For example, Osterman (1994) confirmed that a number of variables are positively associated with the adoption of HIW practices: a market with international competition; a high-skill technology; a strategy emphasizing service, quality and variety of products rather than low cost; and being part of a larger organization. Roche (1999) studied the turbulence in organizations, strategic integration and the presence of unions; and Budhwar and Khatri (2001) analysed the influence of a number of contingent variables, such as age of the organization, size, life-cycle stage, ownership and presence of unions. These works, and a review of the mainstream literature, will enable us to formulate a set of hypotheses referring to the independent variables which might influence the adoption of HIW practices in the Spanish context. Specifically, we shall analyse whether size, age, competitive strategy, activity sector, existence of a recent crisis, organizational culture, management style and environment rivalry have an influence on their adoption. As a preview, our argument is summarized in Figure 1, which presents the conceptual framework for this study. Influence of size The size of the organization has been shown to affect HR practices, but the direction of the effect is ambiguous (Osterman, 1994). Some authors (Geary, 1999; Smith and Hayton, 1999) have shown a lack of conclusive results with this variable. Other studies (Terpstra and Rozell, 1993; Godard, 1991) reveal that the larger organizations make significantly greater use of HIW practices: smaller firms face many pressures, so they have fewer resources to invest in HIW practices, so the notion that systems of HRM which involve employee participation are more likely to be found in larger organizations is supported (McNabb and Whitfield, 1999). In the same vein, we can cite Newton (1998, 2001) and Youndt et al. (1996) who stated that large companies are more likely to implement HIW practices effectively. Thus, Newton (1998, 2001) observed that smaller companies were less likely to use rewards based on teams, arguing that the benefits associated with their adoption did not compensate the cost involved. On the other hand, some authors have tested the opposite argument: Osterman (1994) observed that smaller firms, which are not weighed down by bureaucracy, are more agile and more likely to adopt HIW practices. Sheppeck and Militello (2000) also agree with this argument. The authors, in their study drawn from companies in different activity sectors, observed that the likelihood of adopting HIW practices did not depend on size.

SIZE RECENT CRISIS AGE COMPETITIVE STRATEGY I ACTIVITY SECTOR

CULTURE LEADERSHIP STYLE ENVIRONMENT

Figure 1 Conceptual framework

^ ^ ^ ^ ^ - ^ ^ ^ ^

\-^—^'7^--''^^

HIGH-INVOLVEMENT WORK PRACTICES

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The first argument is the more common thesis of the mainstream literature; thus we can put forward the following hypothesis: Hypothesis 1:

Size influences the adoption of HIW practices. The largest companies are more likely to adopt HIW practices.

Influence of a recent crisis There are opposing views on the influence of a crisis on companies. Huselid and Becker (1997) and Youndt et al. (1996) noted that more profitable flrms can afford more HIW practices, because the first premise is that the adoption of HIW practices can entail substantial expenditure. Although the authors recognize that the alternative bias is equally plausible, less profitable firms have a greater need for HIW practices and are therefore more likely to pursue them. This argument is supported by Terpstra and Rozell (1993), who considered it more plausible that the causal arrow runs from adoption to profitability, rather than from profitability to adoption. In the same vein, Pil and MacDuffie (1995) and Dunlop and Weil (1996) examined the links between past performance and the decision to pursue an innovative work practice strategy. Founding evidence on the fact that establishments often introduce innovative work practices during the periods the establishment is facing severe problems. The cost of change relative to maintaining the status quo is less for poorly performing organizations, and change is more likely, so this may cause plants with poor levels of performance to opt first for flexible production and HIW practices (Pil and MacDuffie, 1996). Thus, Wright et al. (1998), in a sample of petro-chemical refineries, observed that those companies that had experienced worse retUims during the previous three years were the ones to recognize the need to involve human resources in the decision-making process. By contrast, the companies that had obtained good returns did not change their current practices, claiming the philosophy of 'if it isn't broken, don't fix it'. In short, under low return conditions companies consider their organization inefficient; therefore, although the application of changes may imply a loss of competitiveness for a while, the differential will not be too big and these companies will tend to promote changes. Resulting from the above argument, the following hypothesis will be tested in this paper: Hypothesis 2:

The existence of a recent crisis conditions the adoption of HIW practices. Poor performers are more likely to implement HIW practices.

Influence of age Population ecology (Hannan and Freeman, 1977) suggests that the age of an establishment shodd inversely influence its rate of adoption of innovations due to the rigidity problems that appear when any type of change is proposed in established structures. Natural selection forces companies with inadequate organizational forms out of the market. This rigidity or structural inertia (Hannan and Freeman, 1977) may endanger a company because, if it does not adapt to the new conditions, it will not be able to survive in a turbulent environment. Failure to apply HIW practices is often due to resistance to change and the difficulty of unlearning the old way of doing things (Pil and MacDuffie, 1996). These routines provide a potential source of advantage to the firm (Nelson and Winter, 1982) but, when trying to adopt HIW practices, the less experience accumulated by workers with existing practices and the less fixed their expectations of

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how things should be done, the easier it will be to apply HIW practices. Therefore, a lot of studies argue that 'greenfield sites' are more likely to adopt HIW practices than are firms that have been operating for longer periods of time (Ichniowsky et al., 1996). Consequently, the following hypothesis will be tested: Hypothesis 3:

Age influences the adoption of HIW practices. New start-ups are more likely to implement HIW practices.

Influence of the competitive strategy Closely related to the nature of human resource management practices is how an organization seeks to compete in the marketplace. Some authors consider it necessary that there should be some coherence between the human resource strategy and the business strategy, as the results obtained will depend directly on this alignment (Wright et al, 1995; Delery and Doty, 1996; Youndt et al, 1996). This affirmation is based on Porter's (1985) assumption that different strategies require employees with different abilities. The author points out the existence of a strong correlation between human resource policies and competitive advantage, and proposes to combine generic strategies with the most suitable resource policies for each particular case. The usual categorization of strategy that HR researchers use is that developed by Porter (1980) and Gomez-Mejia et al. (1997). Thus, in order to reach a solid position, three generic strategies may be followed: cost leadership, differentiation and focus. HR strategies that fit a low-cost approach foster adhesion to rational and highly structured procedures to minimize uncertainty, and discourage creativity and innovation. Where management seeks to compete on the basis of producing customized goods and services, the requirement to introduce HIW practices that permit employees more flexibility and autonomy to respond to the particular concerns of customers may be compelling (Piore and Sabel, 1984). Conversely, firms competing on the basis of price are less likely to adopt HIW practices (Youndt et al, 1996; Guthrie et al, 2002). The evidence likewise shows an association between the competitive strategy companies actually apply and the choice of HIW practices: for example, Arthur (1994) observed that mills pursuing a cost leadership strategy were more likely to have control human resource systems, and mills with differentiation strategies were more likely to have commitment human resource practices.' The author deduced that competitive strategies creating greater levels of discretion are conceptually and empirically more consistent with HIW practices. Guthrie et al (2002) found the use of HIW practices was positively associated with performance in firms competing on the basis of differentiation. Batt (2000), in her study in the service industry, observed that companies use HIW practices when clients demand a high value-added product. Sanz-Valle et al (1999), in the Spanish context, provided evidence to support the theory that the HR practices that companies developed could be explained partly by their strategy. Therefore, the evidence does suggest that the likelihood of adoption is greater in higher value-added markets where cost constraints are not as great and where efficiencies on rationalization are difficult to realize (Batt, 2000). The more intensive use of HIW practices depends on the competitive strategy being pursued. Therefore, the following hypothesis will be tested: Hypothesis 4:

Competitive advantage influences the adoption of HIW practices. Firms competing on the basis of differentiation are more likely to adopt HIW practices.

Ordiz-Fuertes and Fernandez-Sanchez: High-involvement practices in HRM 515 Influence ofthe activity sector To understand the use of HIW practices in services, it is particularly important to disaggregate the data into different industries. A country's economy may be divided into various activity sectors; however, the distinction between manufacture and services is the one most frequently used. Service companies differ from manufacturing companies in three aspects (Bowen and Schneider, 1988): (1) services are intangible, (2) the client's presence is necessary for rendering the service and (3) services are produced and consumed at once. The intangible nature of services implies that it is difficult to supervise workers' performance. The fact that clients are deeply involved in giving service means that workers must be aware of their needs. The simultaneousness between production and service rendering has implications in HR practices to the effect that quality control cannot be carried out in the same way as in a manufacturing company, because in service companies this control takes place at the specific moment when such service is given and falls on the person in charge of it. Hofstede (1991) emphasized the key importance of the sector as determinant of the HR practices a company undertakes. Terpstra and Rozell (1993) observed that the number of HIW practices employed by organizations differed significantly according to the industry. It is possible that manufacturing firms focus relatively more attention on materials, equipment and technology than on human resources. Conversely, service organizations are expected to focus more on their primary resource: their employees. In fact, they observed that the service industry employed more of the five practices considered than did the manufacturing industry. Recent studies (McNabb and Whitefield, 1999; Batt, 2000; Hunter, 2000) analysed HIW practices in service companies and concluded that the practices used vary according to the activity sector. Thus, it is possible that service companies may consider human resources as key competitiveness factors and, under such circumstances, implement practices to increase their involvement in the company to a larger extent. Hence, we shall test the following hypothesis: Hypothesis 5: The activity sector influences the adoption of HIW practices. Service companies are more likely to adopt HIW practices. Influence of the organizational culture Schein (1990) points out that culture is what a group learns over a period of time, as that group solves its problems of survival in an external environment and its problems of internal integration, and Duncan (1989) highlights the three characteristics of organizational culture: it is learned, it is shared and it is transmitted. The need to achieve sustainable competitive advantages requires not only founding them on the product and process technology - easily replicable - but also resting them more on strategies based on the potential cultural development, that is, on the values and ways of ttiinking that will constitute differentials difficult to replicate in the short term^. Thus, HR practices are inextricably bound to organizational culture. As Lawrence and Lorsch (1987) point out, culture may facilitate the adoption of a certain strategy if there exists a strong coherence between them, or, on the contrary, it may become 'an invisible barrier' which impedes and delays change. Dismantling an organizational structure and a management style is very difficult because they reinforce each other, there are communication networks and informal processes which make it very

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difficult or impossible to change one without modifying the other. Cultural characteristics foster aspects such as efficiency, differentiation, innovation and adaptation and reflect an orientation towards clients, suppliers and/or dealers. In a company where managers keep their distance from workers, problems are hidden, or change is not considered something natural and necessary, HIW practices are not applied and human resource potentialities are not taken advantage of. From such lines of argument it seems reasonable to think that culture may have an influence on the type of human resource practice the company designs and implements. In fact, Erez (1995) argued that human resource practices will generate a certain pattern of behaviour in workers only when they are appHed in a specific context, defining this as the nature of the tasks and the company's cultural characteristics. And Sheridan (1992) noted that, if a culture encourages interpersonal relations it will generate greater employee retention rates. So, HIW practices are more likely to be found in organizations characterized by a high degree of strategic integration, that is, organizations which view their employees as stakeholders or valuable assets (Roche, 1999). From such arguments we can formulate the following hypothesis. Hypothesis 6:

Organizational culture influences the adoption of HIW practices. Firms with an innovative culture are more likely to adopt HIW practices.

Influence of the management style The role of management becomes a subject of interest every time a new issue acquires some relevance. Research has been focused on multiple perspectives: for example, the influence of CEO characteristics on performance (Moussa, 2000) and the organizational structure (Hambrick and Mason, 1984). In the same vein, Kochan et al. (1986) introduced the idea that management values are an important determinant of HR practices. Management strategies and HIW practices constitute a continuum: the formulation and implementation of the strategy is an integrated process, so there is a strong interdependence between managers, environment and employees (Mintzberg, 1978). Managers adopt those practices expected to be profit rational (Godard, 1991), so if top-line executives believe that the attraction, selection, retention and motivation of employees are critical to the firm's competitive advantage (Wright et al., 2001) the probability of adoption of HIW practices increases. In fact, HIW practices are more likely to be found where human resource concerns assume major priority at top management level (Osterman, 1994). Daily activities of managers are inherently heterogeneous and fragmented (Mintzberg, 1978). Managers face opportunities to cut costs or to enhance customer loyalty through customization and relationship management. However, there are several recognized taxonomies that attempt to classify managers' practices into coherent categories (Yulk, 1989). Those taxonomies delineate the content and scope of the usual practices of any manager when dealing with subordinates and peers (Mintzberg, 1978). For example, an autocratic management style cannot lead to employee commitment, loyalty and productivity. We therefore deduce that managers' influence on the adoption of HIW practices is crucial. It is, therefore, under flexible leadership that HIW practices are adopted. Thus, the following hypothesis will be tested: Hypothesis 7: Leadership style influences the adoption of HIW practices. Firms with flexible leadership are more likely to adopt HIW practices. Influence of the environment Although HIW practices are not a simple response to environmental changes (Wood, 1995), how HR practices evolve is likely to depend on managerial responses to environment.

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In fact. Dual op and Weil (1996) found evidence in the apparel industry that the organization's environment affects who adopts HIW practices. Stace and Dunphy (1991) assume that companies must develop different strategies to adapt to the dynamism of the environment. Under conditions of change, turbulence or growth, the organization can use HIW practices to produce needed changes (Snow and Snell, 1992). Firms that compete in such markets are more likely to be exposed to new ideas and practices, and to be pressured to adopt them (Osterman, 1994). The relatively higher the competitive dynamism or turbulence in organizations, the greater the emphasis that is placed on HIW practices (Roche, 1999). So, bundles of HIW practices are commonly viewed as a response to unstable, fragmented markets and dynamic competitive conditions. Miller and Lee (2001) notice that in a stable environment, where products, customer tastes and technologies change very slowly and predictably, fewer complex decisions are needed to adapt the firm to its environment, so companies in stable environments put little emphasis on HIW practices (Sheppeck and Militello, 2000). Two important exceptions to this theoretical trend are, however, the normative theory of Lengnick-Hall and Lengnick-Hall (1988) and the lack of conclusive results with respect to environment rivalry obtained by Geary (1999). From the main argumentations, the following hypothesis will be tested: Hypothesis 8:

The environment influences the adoption of HIW practices. Firms in very competitive environments are more likely to adopt HIW practices.

Empirical research A brief description of the Spanish context and the methodology is provided next, followed by a discussion of our empirical results. The limitations of the study and implications for future research are examined in the final section. The cultural context Before beginning the presentation of our empirical reseai'ch, it will be useful to make brief reference to previous work on this subject dealing with the Spanish context. A review of the studies made of HR practices reveals that little has been done on this topic in the Spanish context (for a detailed comparison with other European countries, see Gill and Rrieger, 1999). Most studies are focused on alignment of HRM practices and performance. There is also a prevalence of studies based on the resource-based view. The most remarkable are those by Sanz-Valle et al. (1999), Romero and Valle-Cabrera (2001) and De Saa-Perez and Garcia-Falcon (2002). The earniogs of most Spanish companies are generated by a single main product. Most of them suffer from production inefficiencies and costly manufacturing and distribution systems. Some systemic factors account for the limited diffusion of some of HIW practices, including management 'short termism', models of corporate governance which emphasize maximizing financial returns and adversarial industrial relations traditions. Studies focused ia the Spanish workplace indicate that the set of practices associated with the commitment model are seldom encountered in practice and their incidence has not irxreased very much in recent years. The internal labour market is composed of a stable base of professional employees buffered by temporary contract labour. There is also a great deficiency in professional training. Employers may have been in great need of recruiting skills from outside the domestic labour market. Moreover, the recognitio:! of qualifications plays an important role in the selection criteria when

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applicants do not have previous work experience. Finally, innovators face the potential opposition of trade unions. Sample Questionnaires with an accompanying letter were sent to the human resource managers of firms operating in Spain in the fiscal year 1998. The sampling universe was the Duns & Bradstreet establishment file of companies operating in Spain, and the sampling frame was set to include only companies whose personnel count exceeded 100 employees. Companies with fewer than 100 employees were not included in the sample, since it is known that they usually do not have a formal organizational unit dealing with human resources (Huselid, 1995). Thus, the size of target population was 5,972 companies. Questionnaires were completed and returned by 250 of the 5,972 companies. The response rate of 4.18 per cent is not as high as in US or UK studies. However, it is not out of line with comparable survey-based studies of HR practices in Spain. Whereas most previous studies have evaluated HR practices for the entire firm, the study of effective implementation of HIW practices must consider the types of capabilities of human resource staff (Huselid et al., 1997). We therefore decided to study HIW practices separately for core employees. The global research project was started in November 1998 with the design of the questionnaire, which comprised four sections: 1) the company's profile, 2) result indicators, 3) human resource practices and 4) management profile. With the purpose of testing the validity of the questionnaire designed, experts were consulted about conducting a survey and, furthermore, during the month of February, the questionnaire was pretested on a small sample of companies. Table 1 shows the technical record of the research undertaken, which includes the target population, the geographical domain, the temporal reference, the unit of analysis, the sampling size, the duration of the fleldwork and the profile of the managers polled. The data in Table 2 reflect the reasonably representative nature of the sample analysed as regards size and activity sector of the target population. Likewise, following Osterman (1994), we estimated a logit model in which the dependent variable was the probability of response and the independent variables were size and activity sector - a dummy equal to one if the establishment was manufacturing. The results confirmed that no significant correlation was found between respondents and non-respondents regarding number of employees and activity sector. Methodology In order to describe the factors that condition the adoption of HIM practices, we must define the specific practices to be analysed. Several researchers have studied the effect of HIW on firm performance (Huselid, 1995; Koch and McGrath, 1996). Unfortunately, to Table 1 Background data on study and respondents Characteristics

Survey

Target universe or population Geographical/temporal domain Sampling unit Sampling size/response rate Sampling error/level of confidence Date of fieldwork Respondent

Spanish companies with more than 100 employees All the national territory/financial year 1998 Firm 250 valid surveys/4.18% 6.16%/95% 14 March to 1 July 1998 Human Resource Manager/CEO

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Table! Sample's representativeness

Size Fewer than 500 employees More than 500 employees Total lndust)y Manufacturing Services •Non-financial * Financial

Population

Sample

4,995(83.64%) 977 (16.35%) 5,972 (100%)

191(76.4%) 59 (23.6%) 250 (100%)

2,308(38.64%) 3,664(61.35%) 3,491(95.27%) 173 (4.72%)

116(46.4%) 134(53.6%) 110(82.0%) 24 (17.9%)

date, the debate about what practices should be considered remains inconclusive, so there is no clear list of HFW practices (Guest, 2001). In fact, no standard measure of HR practices is currently being used and authors have varied considerably in the way in which they have measured HR practices (Rogg et al., 2001). Assuming that what is desirable is a brief selection of easily quantifiable practices (Guest, 2001), we have adopted a series of items most consistent with prior theoretical and empirical research, especially those that characterize organizations that put people first (Pfeffer, 1998). These practices included aspects such as training, promotion, job security, self-managed teams, reduction iri status differences, contingent remuneration, shared information and so on. The variables included cover the range of areas commonly viewed as HIW practices. The descriptive statistics for all variables are reported in Table 3. Correlation tables are not shown due to limited space. The approach taken here is similar to those of Osterman (1994) and Budhwar and Khatri (2001). Given the ordinal and truncated nature of responses, conventional regression analysis was inappropriate, so data were analysed using binomial logit regression. The effect of these independent variables was estimated by the following regression: HIW practices •= a -h a:(size) + /3(age) + ^(crisis) + ^(competitive strategy) + e(sector) + (^(culture) + ^(leadership style) + T](environment) + residua!

Table 3 Human resource practices: descriptive statistics

Training expense with respect to the sector average Extensive rraining Employment security Internal promotion Utilization of teams to solve specific problems Utilization of teams in new product development Utilization of TQM teams Self-managed teams on the main tasks Stock options for employees Decentralization Shaiing information Co-operation among different departments Reduction in status differences Increase in the worker's responsibility

Mean

Standard deviation

3.4515 3.9256 3.9665 3.3306 3.2958 3.1957 3.4081 3.4444 2.1048 2.5500 3.1456 3.8119 3.1637 4.0500

0.9083 1.0076 0.8387 1.0732 0.9724 1.2860 1.1738 1.0680 1.2012 1.0048 1.0375 0.8382 0.8831 0.7777

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From the approach of Wood and de Menezes (1998), who suggested that organizations with medium or high levels of HIW practices are prevalent,^ we deduce the dependent variable by the construction of a typology of companies by means of cluster analysis to differentiate between companies on their emphasis on HIW practices. The Euclidean measure for distance between cluster centroids and the within-group average method of forming clusters was used to derive two clusters. In order of size, the largest group was the 'high-involvement cluster' (the highest scoring in HIW practices) that comprised 114 firms (45.6 per cent) followed by the 'weak cluster' (the poorest scoring ones) that comprised 96 firms (38.4 per cent). A univariate analysis of variance was conducted to test that there were significant differences between the two clusters. The results are shown in Tables 4 and 5. With this information, we created, as a dependent variable, a dummy that took value 1 if the firai belonged to the highest scoring cluster and 0 otherwise. As independent variables we take the following: size, age, competitive strategy, activity sector, existence of a recent crisis, sector rivalry, culture and leadership style. The specific measurement Table 4 Standardized question means by cluster

Training expense Extensive training Utilization of teams to solve specific problems Utilization of TQM teams Utilization of teams in new product development Self-managed team in the main tasks Employment security Stock options for employees Decentralization Sharing information Co-operation among different departments Reduction of status differences Increase in the worker's responsibility

Cluster 1 Weak cluster (N = 96)

Cluster 2 Highinvolvement cluster (N = 114)

ANOVA F/(sig)

3.35 3.64 2.98

3.66 4.17 3.62

6.426 (0.012) 16.536 (0.000) 23.319(0.000)

2.80 2.38

4.04 3.82

27.259 (0.000) 84.468 (0.000)

2.89 3.06 1.51 1.99 2.58 3.35

3.89 3.42 2.57 2.98 3.65 4.23

93.125 (0.000) 62.574 (0.000) 6.238 (0.013) 50.953 (0.000) 64.981 (0.000) 80.591 (0.000)

2.68 3.67

3.57 4.35

78.156(0.000) 71.790 (0.000)

Table 5 Variables in the equation

Age

Size Recent crisis Competitive strategy Activity sector Organizational culture Leadership style Environmental rivalry Constant

B

ET

Wald

-0.132 ^0.065 -0.266 -0.151 -0.841 1.644 3.743 0.677 .800

0.211 0.193 0.436 0.299 0.443 0.427 0.542 0.237 1.396

0.391 0.115 0.374 0.255 3.600 14.784 47.699 8.189 0.328

Exp(B) 1 1 1 1 1 1 1 1 1

0.532 0.734 0.541 0.614 0.048 0.000 0.000 0.004 0.567

0.876 0.937 0.766 0.860 0.431 5.174 42.22 0.508 2.225

Ordiz-Fuertes and Fernandez-Sanchez: High-involvement practices in HRM 521 of each independent variable, as well as mean and standard deviation can be found in the Appendix. Correlation tables are not shown due to limited space. Subsequently, the logit regression was mn. We used a binomial logistic regression becaEse a multinomial one requires very large samples, particularly if the number of independent variables involved is substantial. The results are reported in Tables 4 and 5. The regression explains a large percentage, specifically some 46.9 per cent if we take as reference the Cox and Snell coefficient and 62.6 per cent if we consider the Naguelkerke coefficient. The classification table likewise classified correctly 81.8 per cent firms (83.9 per cent for value 0 and 80 per cent for value 1). Results show clear support for hypotheses 6, 7 and 8. The results obtained seem to confirm that firms adopting HIW practices are manufacturing companies (0.048) (which leads us to the partial rejection of hypothesis 5), which belong to sectors with a high level of rivalry (0.004), with an innovative culture (0.000) and with a flexible leadership style (0.000). Conversely, non-significant influence was found with respect to the variables of size, age, recent crisis and competitive advantage. The results of testing the hypotheses are summarized in Figure 2. Discussion of results and conclusions As stated at the beginning, the primary purpose of the present study is to identify the influence factors that condition the adoption of HIW practices. In this respect, the findings are consistent with other research that has documented the influence of certain factors ip the adoption of HIW practices. First, our results concur with the framework suggested by Stace and Dunphy (1991), and seerp to confirm the existing interdependence between management style, environmental dynamism and HR practices. As Collins (1994) states, in environments where competitiveness depends to a larger extent on dynamic advantages,^ companies should focus their attention on human resources as the main generators of such advantages. Therefore, companies in such contexts will emphasize to a larger extent all those practices that increase the workers' motivation. Thus, contrary to the LengnickHaJl and Lengnick-Hall perspective (1988), our results confirm that HIW practices are more likely to be adopted in dynamic or turbulent business circumstances, and are consistent with Roche's (1999) research on Irish organizations. Second, the confirmation of the influence of flexible leadership and an innovative culture as determining factors in the adoption of HIW practices was to be expected. Our findings support the argument of Ogbonoa and Harris (2000), who studied the links between leadership and culture. !n this respect, leadership and culture are strongly linked

Hypothesis 1 The largest companies are more likely to adopt HIW practices

Rejection

Hypothesis 2 Poor performers are more likely to adopt HIW practices

Rejection

Hypothesis 3

New start-ups are more likely to implement HiW practices

Rejection

Hypothesis 4

Firms competing on the basis of differentiation are more likely to adopt HIW

Rejection

Hypothesis 5

Service companies are more likely to adopt HIW practices

Hypothesis

Partial rejection

61 Firms with an inrsovative culture are more likely to adopt HIW practices

Supported

Hypothesis

7 \ Firms with flexible leadership are more likely to adopt HIW practices

Supported

Hypothesis

81 Firms in very competitive environments are more likely to adopt HIW

Supported

Figure 2 Summaiy: results of the hypotheses

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(Ogbonna and Harris, 2000) and so are central to understanding organizations and making them effective (Schein, 1990). Our findings add to these previous studies in that they are also strong predictors of the type of HR practices the firm adopts. Contrary to our expectations, the adoption of HIW practices is not influenced by service industry. Whereas services are not a predictor of the adoption of HIW practices, the significant coefficient confirms the reverse hypothesis, that is, manufacturing firms adopt HIW practices to a larger extent. This does not necessarily imply that services do not apply HIW practices. This interpretation would be clearly unwise. As Osterman (1994) and Hunter (2000) point out, many of the examples and the language describing HIW practices are drawn from manufacturing, but services are clearly different from manufacttiring in their use of a number of HIW practices. For example, problem-solving groups (Batt, 2000) and cross-functional flexibility (Hunter, 2000) are typically associated with HIW systems in manufacturing. So, there are two plausible explanation for our results: first, the practices were defined mainly focused on manufacturing firms; second, most service firms in the sample were characterized by part-time employees, low-skilled work and high lay-off rates. Under these circumstances, firms do not adopt HIW practices because they consider their implementation inaccurate or ineffective. Likewise, the adoption of HIW practices is likely to vary neither on the size nor on the age of the firm. The results obtained do not support either of the two hypotheses, although it is observed that the relationship with the dependent variable is negative in both cases. This may confirm the fact that the new trends in managing HR are not limited exclusively to large companies with path dependence. Conversely, there are a large number of small and medium-size firms that are becoming aware of the importance of people in the success of the company and thus focus their attention on the creation and retention of knowledge. Therefore, we cannot affirm that size or age condition the adoption of HIW practices, since we may encounter young and small companies that implement HIW practices, as well as large companies already consolidated in the market. As in previous studies, such as Pil and MacDuffie (1996), we found little support for the hypothesis that adoption of HIW practices was low-performance driven. Although no causal relationship has been proved, it may seem that successful firms possess the slack resources required to invest in HIW practices. So, the evidence provided shows that HIW practices are not related to poor performers, confirming recent studies, such as Huang (2000), which support the assumption that HR practices are significantly related to organizational performance. That is, HIW practices seem to benefit from profits. Finally, our results reveal that HIW practices do not vary with competitive strategy. These findings are consistent with the empirical research of Sheppeck and Militello (2000) and Sanz-Valle et al. (1999) for the Spanish case. The former observed that the search for excellence in operations was not associated with the adoption of specific HR practices. The latter found a positive correlation, although the lack of statistical signification provides only partial support to validate the hypothesis. This seems to confirm that, although traditionally HIW practices have been attributed exclusively to firms that base their competitive advantage on product differentiation, they are not necessarily the only ones. As Pfeffer (1998) and Batt (2000) state, HIW practices lead to better performance even in lower value-added segments. Limitations and implications Like all research, this study has some limitations which future research can build on. The first, and maybe the most important, is the difficulty in establishing causal relationships between the dependent variable - HIW practices - and the independent variables. The

Ordiz-Fuertes and Fernandez-Sanchez: High-involvement practices in HRM 523 issue of causality can be better addressed in longitudinal designs. In fact, the most reputable researchers on the matter include a final reflection in their studies recognizing it as a limitation inherent in any empirical study. As an example, we can cite the following: Osterman (1994), Wright et al. (1999), Hoselid et al. (1997), Fey et al. (2000), Marchington and Grugulis (2000), Kamoche (2001), Richard and Johnson (2001). Causality can really be tested only with data collected at different points of time. Similarly, the results of this study are limited and constrained by the type of data used. We can resort to objective measures - countable, stock-market, financial results - or, as has been the case in our paper, to qualitative measures based on self-reported questionnaires. We based our decision on Burgeois (1980) and Hitt (1988). The former indicates that the opinion of the CEO about the ratio's meaning and its measure is as important as the informative content itself. The latter points out that objective measures are not enough to grasp the essence of complex concepts. Likewise, several empirical works, especially those carried out by Lawrence and Lorsch (1987), reveal the existing relationships between objective and subjective measures, which allows the justification of self-report studies. In addition, a weakness of this study is that all data are collected from a single source. Nevertheless, and as a possible future extension of this work, we attempt to complete the database with objective information, as well as to include in the model variables such as trade-union influence or the level of intemationai development as determining factors of the adoption of HIW practices. Another limitation is the possible bias in the information provided by those surveyed, which refers both to the positive self-evaluation individuals polled tend to demonstrate and the different views of the ways in which companies implement HR practices. Largescale surveys also run into the problem that top management will not respond to formal requests to disclose HR data. The term 'HIW practices' covers a variety of different schemes. Such heterogeneity can introduce inexactitude into analysis and thereby bias results which are based on it. As Ichniowsld et al. (1996) observed, a majority of businesses have adopted some innovative work practices; however, only a small percentage of businesses have adopted a full system of innovative practices. An iEterpretatioe of this fact is that respondents may tend to exaggerate their actual practices in the direction of socially acceptable responses. This is a risk present in any survey study and may also have biased our,results in some way. A very important limitatioo to which we want to make a direct reference is that :relative to the response rate. Spanish firms have little incentive to reveal their exact HR policies as well as theirfinancial'performance. In this respect, Ichniowski et al. (1996) state that, in order to avoid bias in research, the best thing to do is to employ a large sample and obtain a high response rate. However, they recognize that combining both objectives is very difficult. From this perspective and being avk'are of the problems inherent in a reduced answer rate, we considered it more appropriate to employ a large database, since this characteristic constituted an important contribution of the present work. Tbe main problem derived from this is the difficulty in confirming hypotheses, although there are studies, considered as basic reference in the HR strategic literature, with verj' reduced response rates, among which we can cite Delaney et al. (1989), Delery and Doty (1996) and Huselid (1995) with response rates of 6.5 per cent, 11 per cent and 6.2 per cent respectively. Finally, our hypotheses were developed; based on existing HR management theories, which were primarily developed in the USA and UK, and tested in the Spanish context. ¥/hat are the implications of this study for other countries with distinct national iestitntions and business climates? In spite of these limitations, this paper makes some

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important contributions. First, it offers empirical evidence that some relationships between the independent variables and HIW practices do exist. Furthermore, in comparison with previous empirical research, it tests theoretical assumptions in a larger sample and not only in industrial firms. Thus, the generalizability of results is not limited to a certain sector under study. Third, it proposes to illustrate a series of relations that may constitute a source for the generation of ideas. From this perspective, it must be interpreted as an exploratory study that allows for developing future lines of research, which may be subject to empirical verification in other populations. For managers' interest, the study provides crucial information regarding the contextspecific nature of HR management. We emphasize the main points: 1) Effective deployment of HTW practices should result in a high proportion of committed employees, and HIW practices are well suited to every firm if adopted properly. Commitment of the employees can help ensure that market cost leadership and differentiation strategies will be properly executed. 2) This research emphasizes the limited degree to which HIW practices have been diffused. Unfortunately, many firms are still wary of the cost implied in their implementation. It also implies that firms have opportunities to develop competitive advantages through people when their managers decide to implement HIW practices. Managers should adopt not only those practices that they expect to be successful. HIW practices are suitable in services, as well as manufacturing. More research is needed in the Spanish context to demonstrate the benefits of HIW practices in any context at any moment. Acknowledgements The authors would like to acknowledge the financial assistance provided by Principado of Asturias through the PB-EJSOl-09 project. The authors are also grateful to anonymous reviewers for their helpful comments on early versions of this paper. This study was conducted as part of Monica Ordiz-Fuertes's doctoral research at the University of Oviedo, Spain. Notes 1

2 3

However, Pfeffer (1998) explains that what exists is not necessarily the best. In fact, it is not clear whether the steel mills that applied a cost strategy could not have obtained better results using HIW practices instead. This argument is not part of the work we are presenting here, since this work is aimed exclusively at determining the factors that condition the adoption of such practices and not at analysing their effectiveness depending on their context. That is, most firms adopt at least a certain proportion of HIW practices. We understand by such environments those where competence intensity is high, technological change is frequent and barriers to imitation are reduced.

Appendix The independent variables in the logistic regression are described below: 1 The existence of a recent crisis was measured by a dichotomous variable that scored from 1 if the company had undergone a crisis in the last five years and scored 0 otherwise. 2 The age of the firm was calculated from the log of the company's age. 3 The activity sector was determined from the Duns & Bradstreet database. 4 Firm size was determined through the item 'company's size with respect to the sector average' (5 = much lower than the mean and 1 = much higher than the mean). We

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analysed its possible influence both by means of objective measures, like 'number of fulltime employees' or 'number of total employees', and by means of subjective measures, like 'company size related to sector average'. We have taken the latter as reference because, in the first place, the heterogeneity of the companies that make up the sample could bias the results and, in the second place, to avoid the problems associated with existing collioearity between the number of workers and the age of the companies. 5 We identify the competitive strategy following the categorization developed by Porter (1980), To provide an estimate of a firm's competitive strategy each respondent indicated what was the basis of its competitive advantage derived from each of the three generic strategies. Since most Spanish companies' earnings are generated by a single main product and the survey was focused on the main business ofthe firm, the study is not biased due to multi-product organizations. 6 The environment rivalry was determined from the item 'level of intensity of competition in the sector' scored from zero 'very high' through to five 'very low'. 7 To assess organizational culture and leadership style, respondents were given instructions to mark with an 'x' the particular position on each item's five-point semantic differential rating scale that best represented their position. The scales exhibited a coefficient alpha reliability of 0.713 and 0.826 respectively. Figures Al and A2 present the items considered. To validate our multi-item scales empirically, we performed confirmatory analysis using maximum likelihood extraction. Separate factor analyses were performed for culture and leadership style. The construction of meaningful indices was initiated by the use of principal component analysis with varimax rotation. Factor analysis was deemed necessary since it was considered prudent statistically to ascertain whether the adopted measures of organizational culture and leadership style captured differing dimensions of culture and leadership style. The principal component analysis of items pertaining to organizational culture (see Table Al) and items relating to leadership style (see Table A2) were conducted individually. Factor solutions exhibited an eigenvalue greater than one. As expected, the factor analysis led to the extraction of one factor that, cumulatively, explained nearly 54 per cent of the variance in both cases. The scales exhibited a coefficient alpha reliability of 0.826 for leadership style and 0.713 for organizational culture. The Euclidean measure for distance between cluster centroids and the within-group average method of forming clusters were used to derive two clusters to differentiate firms with autocratic leadership (value 0; N = 111) and flexible leadership (value 1; N = 139). The same process - cluster analysis - was followed with organizational culture.

Cult!

The firm is mainly concerned about people.

The company's relationships have an interpersonal character.

Z!u!t2

"When the staff have problems they tum to their superiors to solve them.

When the staff have problems they try to hide them.

Cu!c3

The main strength of the firm is the people,

The main strength of the firm lies in products or services.

Cult4

Change is something natural and necessary.

It is not important to meet nev/ challenges.

Figure A l Organizational culture measures

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Dirl

The management is firm in its decisions.

The management listens to the workers' and trade unions' opmion.

Dir2

The management defines formal rules and policies.

There are no established procedures to govern what people do.

Dir3

The management must control information because it is a strategic asset.

The management must share important information with the workers.

Dir4

The management considers that the key to success lies in strong leadership.

The management uses motivating leadership so that workers take part in problem solving.

Dir5

The management thinks workers' autonomy implies a loss of power for the management.

The management thinks responsibility stimulates the staff to work more and better.

Dir6

The management thinks that higher levels of supervision and control get better results.

People are willing to take risks.

Figure A2 Leadership style measures

Table A l Principal components analysis Factor loading Cultl Cult2 Cult3 CuM Eingenvalue % variance explained

0.804 0.714 0.763 0.763 2.179 54.475

Table A2 Principal components analysis of measures of leadership style Factor loading Dir5 Dir2 Dir3 Dir4 Dir5 Dir6 Eingenvalue % variance explained

0.600 0.690 0.786 0.778 0.755 0.771 3.234 53.902

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