Models of Strategic Human Resource Management

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The SAGE Handbook of

Human Resource Management

Models of Strategic HumanResource Management

Contributors: Saba Colakoglu & Ying Hong & David P. LepakEditors: Adrian Wilkinson & Nicolas Bacon & Tom Redman & Scott SnellBook Title: The SAGE Handbook of Human Resource ManagementChapter Title: "Models of Strategic Human Resource Management"Pub. Date: 2010Access Date: October 19, 2013Publishing Company: SAGE Publications Ltd

City: LondonPrint ISBN: 9781412928298Online ISBN: 9780857021496


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DOI: http://dx.doi.org/10.4135/9780857021496.n3

Print pages: 31-51

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Page 3 of 40 The SAGE Handbook of Human ResourceManagement: Models of Strategic Human Resource

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Chapter 3: Models of Strategic HumanResource Management

Introduction

The field of strategic human resource management (HRM) has been defined as thepattern of planned human resource deployments and activities intended to enable an

organization achieve its goals (Wright and McMahan, 1992: 298), or organizational

systems designed to achieve competitive advantage through people (Snell et al., 1996:

62). Both definitions reinforce the notion that HRM practices create valuable resources

within the firm that are capable of producing competitive advantage through people.

Indeed, more than two decades of research has accumulated a vast body of knowledge

which suggests that HRM practices that impact the motivation, knowledge, skills, and

behaviors of employees lead to better employee, organizational, and financial outcomes

(e.g., Arthur, 1994; Batt, 2002; Boselie et al., 2005; Collins and Clark, 2003; Dyer and

Reeves, 1995; Datta et al., 2005; Huselid, 1995; Youndt et al., 1996).

In order to explain such linkages between HRM practices and various dimensions

of organizational effectiveness, strategic HRM researchers have drawn on theories

that originated in fields as diverse as strategy, sociology, psychology, and economics,

reflecting, in part, the multi-disciplinary nature of this field (Schuler and Jackson, 2005;

Wright and McMahan, 1992). In this chapter, we first review an organizing logic of

theoretical perspectives related to the universalistic, contingency, and configurational

perspectives. Second, we briefly review two of the dominant theoretical frameworks

used to inform the HRM firm performance linkage: the resource-based view and the

behavioral perspective. Third, we highlight emerging perspectives in strategic HRM

research, zooming in to the employee cognitive and social dimensions. Finally, we

examine the burgeoning research [p. 32 ] models focusing on international aspects of

strategic HRM.
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Modes of Theorizing in Strategic HRMResearch

Conceptually, one of the pervasive questions in strategic HRM literature focuses

on understanding the ways and conditions under which HRM practices contribute

to firm performance. A taxonomy approach, first proposed by Delery and Doty

(1996), has been widely taken to categorize and organize strategic HRM research into

universalistic, contingency, and configurational perspectives (Delery and Doty, 1996;

McMahan et al., 1999). These three alternate perspectives guide most thinking and

research in this field up to this day.

Universalistic Perspective

The universalistic perspective suggests that there is a set of practices which are

regarded as best practices in HRM and work in all organizations regardless of context.

Essentially, this perspective suggests that some HR practices are simply good practices

and all firms should use them. Practices such as selectivity in recruiting and selection,

employee involvement, teams, flexible work assignments, job security, training and

development, and incentive programs are argued to be beneficial for any organizationthat uses them. Selective recruiting, for example, conveys the message that the

company values outstanding employees and contributes to the attraction and retention

of strategic talent in firms (Koch and McGrath, 1996; Pfeffer, 1995). According to the

universalistic perspective, such intermediary outcomes benefit all organizations, despite

differences in strategy, technology, industry, and the like.

In line with this thinking, empirical research that examines the universal effects of

HRM practices study their individual and direct linkages with organizational outcomes.

Researchers have shown that certain staffing practices such as conducting validation

studies, structured interviews and intelligence tests are positively related to company

profit (Terpstra and Rozell, 1993). Similarly, certain practices associated with training

(Russell et al., 1985) and compensation (Gerhart and Milkovich, 1990) are associated

with important organizational outcomes across different contexts.
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Contingency PerspectiveThe contingency perspective holds that the impact of HRM practices on firm

performance depends on their fit, congruence, or alignment with firms respective

internal (i.e., business strategy, life cycle/developmental stages, culture, technology,

structure) and external (i.e., industry) contingencies (Baird and Meshoulam, 1988;

Jackson and Schuler, 1995; Jackson et al., 1989; Lado and Wilson, 1994; Lepak et al.,

2002). The guiding logic in this perspective is that HRM practices can elicit needed role

behaviors for given organizational contingencies (Jackson et al., 1989; Schuler and

Jackson, 1987) and affect firm performance through manipulating employees attitudes

and behaviors (Jackson and Schuler, 1995). Organizations therefore need to focus ondesigning HRM systems that develop employee skills, knowledge, and motivation such

that employees behave in ways that are aligned with such contingencies.

Strategy

Within the field of strategic HRM, it is proposed that a firm's strategy has important

implications for its HRM practices. To find support for this proposition, strategic HRM

scholars have typically drawn from generic strategy typologies such as that of Miles

and Snow (1984) who differentiate between prospector, defender, and analyzercompanies and that of Porter (1990) who differentiates between a cost leadership

and a differentiation strategy. These different types of strategies are often matched

with varying degrees of emphasis on HRM practices that foster either reliable or

creative employee behavior and competencies (Jackson et al., 1989; Lado and

Wilson, 1994; Tsui et al., 1995). For instance, Arthur (1992) reported the matching

of a control or cost reduction [p. 33 ] HRM system with cost leadership strategy

and the linkage of a commitment HRM system with differentiation/flexibility strategy

in steel minimills. Jackson et al. (1989) examined the pursuing of a differentiation

strategy through an HRM system that supports employee innovation. They found

that in order to encourage innovation, companies tend to provide less incentivecompensation and more job security so that failures will not be punished and tend to

provide more training to meet both current and future needs. Similarly, Osterman (1994)
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found that companies undertaking a high road strategy are more likely to implement

innovative work practices such as quality circles, job rotation schemes, and team-based

production, compared to companies with a low road strategy.

However, empirical support for the performance benefits relating to the contingency

perspective that the alignment between strategy and HRM practices result in

enhanced organizational performance remains mixed (e.g, Huselid, 1995; Rodriguez

and Ventura, 2003, Youndt et al., 1996). Yet, several researchers found support for the

crux of the strategic contingency argument. For example, MacDuffie (1995) showed that

flexible HRM systems contribute to productivity and quality when coupled with a flexible

production strategy. Youndt et al. (1996) reported that the use of administrative HRM

systems for a standardized production strategy reduces cost and controls behaviorwhile the use of human-capital-enhancing HRM systems for a quality manufacturing

strategy results in higher operational performance. Delery and Doty (1996) found

that companies using a prospector strategy received greater financial performance

from using results-oriented appraisals and providing internal career opportunities,

while companies adopting a defender strategy performed better with more employee

participation in decision making. At the same time, however, Huselid (1995) failed to

find support for a contingency perspective. Nevertheless, the alignment between HR

practices and business strategy retains a considerable spot in much of strategic HRM

theorizing.

Industry Sector

Significant distinctions between manufacturing and service industries have been noted

by researchers and practitioners with service industries being characterized by their

intangible nature, involvement of customers in the production of services, as well as the

simultaneity of their production and consumption (Bowen and Schneider, 1988). Such

industry characteristics have substantial implications for managing service employees

(Jackson et al., 1989). For example, employees should be self-committed to quality,

attend closely to customer needs, and possess appropriate discretion to deal with

customer problems. Indeed, Jackson et al. (1989) found that service sector companies

were more likely to utilize customer input as part of the performance appraisal process

and use the results to determine employee compensation, compared to companies


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in the manufacturing industry. In relation, Baron et al. (1988) examined the divisions

between mass-production, service, and other sectors and found that mass-production

industries tend to follow scientific management procedures and use centralized

personnel functions with formal job analysis and employee record keeping.

Industry characteristics, such as capital intensity, industry growth, industry product

differentiation, and industry dynamism were also shown to impact the relationships

between HRM practices and firm outcomes (Datta et al., 2005). Datta et al. (2005)

suggested that industries that are capital-intensive, have a high demand growth, and

have more differentiated products, tend to require highly-skilled employees and reported

that the impact of high-performance HRM systems on labor productivity is especially

salient in these types of industries.

Technology

Technology may be defined as a system's processes for transforming inputs into

usable outputs (Jackson and Schuler, 1995: 244). Corresponding to the standardization

and customization product typologies, the technology used for manufacturing those

[p. 34 ] products can be categorized into mass production (i.e., for standardized

products) and flexible specialization (i.e., for customized products). Research shows

that organizations using flexible specialization or advanced manufacturing technologiesrequire highly-skilled employees, more diverse employee skills, tend to link performance

appraisal results with compensation and training needs, and use innovative work

practices such as teams, job rotation, and quality circles. Possibly due to the complexity

involved in managing flexible specialization technology, companies that utilize

such technologies were also found to be more willing to pay managerial employees

premiums in order to attract and retain them (Jackson et al., 1989; Osterman, 1994;

Snell and Dean, 1992).

Organizational Structure

Organizational structure refers to the allocation of tasks and responsibilities among

individuals and departments (Jackson and Schuler, 1995: 244). One categorization


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of organizational structure is to differentiate between centralized (i.e., decisions made

by upper management) and decentralized (i.e., decisions made by lower levels)

organizations (Tsui et al., 1995). Tsui et al. (1995) argue that centralized organizations

tend to use job-focused employment relationships defined as having explicit tasks

and requirements whereas decentralized organizations are more likely to use

organization-focused relationships that are geared towards broadly-defined tasks

and employee involvement. In relation, Jackson et al. (1989) noted the inferences

for HRM that are derived from an organization's structure of departmentalizing by

product or departmentalizing by function. They reason that compared to functional

departmentalization, product-based departmentalization requires more emphasis on

result-orientation, external-orientation, and integration-orientation. Their findings confirm

that companies that are structured along product lines are more likely to provide stockoptions and bonuses based on firm-level productivity.

Configurational Perspective

It is not sufficient, however, to address the vertical fit of HRM practices with

contingencies internal and external to the organization. The congruence of HRM

practices within the system is equally important (Baird and Meshoulam, 1988; Delery

and Doty, 1996; Wright and McMahan, 1992). Such an inter-practice alignment

is also referred to as horizontal fit, internal fit, complementarity, or bundling.This perspective suggests that it is the overall configuration of a set of internally

aligned HRM practices that impact organizational outcomes rather than single HRM

practices taken in isolation (Delery, 1998). The guiding logic in this approach is that

complementary clusters of HRM practices create multiple paths and opportunities that

impact the skills, abilities, behaviors, and motivation of employees, which in turn results

in increased firm performance (McDuffie, 1995; Ichniowski et al., 1997).

Conceptually, there are two forms of configurational approaches. First is the traditional

configurational approach. This configurational approach extends the universalistic

perspective and suggests that the combination of HRM practices, rather than any

single practice, is what drives organizational performance. The central tenet of the

configurational perspective is that a bundle of HRM practices must be adopted that

complement each other to achieve greater performance. The degree of this internal or


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horizontal alignment among HRM practices influences whether or not companies realize

a synergistic effect on firm effectiveness (Baird and Meshoulam, 1988).

For example, Huselid (1995) found that high-performance work systems were

related with turnover rate and labor productivity, which in turn, were related to two

financial indicators of firm performance. Way (2002) and Batt (2002) found significant

relationships between high performance work systems and labor productivity and

turnover rate for small companies and service companies, respectively. Similarly,

Ichniowski et al. (1997) found a positive relationship [p. 35 ] between innovative work

practices and labor productivity for steel-finishing lines. Similarly, McDuffie's (1995)

results support the synergistic effects of HRM practices on organizational outcomes.

Second, some researchers adhere to a contingent configurational approach.

Essentially, researchers may extend the configurational perspective and examine

whether or not the benefits of internally aligned systems or bundles of HRM practices

depend on some contextual factor (Lepak et al., 2006). For example, in one of the

earliest strategic HRM studies, Miles and Snow (1984) proposed three different HRM

systems that are internally aligned: building, acquiring, and allocating. Moreover, these

three distinct HRM systems were argued to be used within companies pursuing different

strategies. Essentially, within each system, HRM practices tend to have a coherent

pattern corresponding to the major theme or objective of the organizational system

(McMahan et al., 1999). Baird and Meshoulam (1988) proposed six major components

of the HRM system: management awareness, management of the function, portfolio of

programs, personnel skills, information technology, and awareness of the environment.

They posit that the six components should be consistent with each other and aligned

with developmental stage in order to reach maximal effectiveness and efficiency (Baird

and Meshoulam, 1988). Lepak and Snell (1999; 2002) identify four configurations of

HRM practices: commitment-, productivity-, compliance-, and collaborative-based HR

systems corresponding to four different employment modes. Lepak and Snell (2002)

found support for the matching of employee modes and HR configurations. In their

study, a commitment-based HR configuration was matched with knowledge-based

employees; a productivity based HR configuration was used for job-based employees;

and a compliance-based HR configuration was used for contract employees.


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Despite differences in the terms used to denote which practices comprise an HRM

system, a consistently positive relationship between high performance work systems

(Becker and Huselid, 1998; Huselid, 1995), high involvement (Guthrie, 2001), human

capital enhancing (Youndt et al., 1996), commitment-based HRM systems (Arthur,

1994), or innovative employment practices (Ichniowski et al., 1997) and aggregate

performance measures such as plant (e.g., Arthur, 1994; Ichniowski et al., 1997; Youndt

et al., 1996), business-unit (e.g., Delery and Doty, 1996; Koch and McGrath, 1996) and

corporate performance (e.g., Becker and Huselid, 1998; Huselid, 1995) has been found.

Summary

To date, these distinct modes of theorizing have and continue to dominate strategic

HRM research. Our review shows that there is empirical support for all the three

perspectives, albeit at varying degrees. While the universalistic perspective tends to

have gained considerable empirical support, the support for the contingency perspective

can be described as mixed at best. The configurational perspective remains widely

accepted and adopted in strategic HRM research in which researchers tend to examine

systems of HRM practices rather than single and isolated ones.

One final note on the mixed support for the contingency perspective is warranted. This

perspective continues to keep its conceptual allure for strategic HRM scholars. Thus,some researchers have shifted their attention to finding alternative conceptualization of,

especially, the strategy HRM fit. For example, it is suggested that HRM systems that

researchers study should be targeted toward more specific strategic objectives such

as service, innovation, or safety rather than generic strategy typologies (Bowen and

Ostroff, 2004; Lepak et al., 2006). That is, these scholars argue, the focus and content

of HRM practices researchers study can be derived from more concrete strategic

objectives that firms might have rather than the generic strategy typologies that are

readily available. Thus, we expect a trend in this direction in future studies.

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Theoretical Frameworks in Strategic HRMResearch

While the previous discussion highlights different modes of theorizing researchers have

emphasized in the study of the HRM firm performance relationship, Figure 3.1 reflects

a review by Wright and colleagues of various theories that have been used to provide

greater insights into the different theories and their focus and assumptions of how

HRM systems operate. Because there have been numerous reviews of the traditional

theories that are available to strategic HRM scholars (e.g., McMahan et al., 1999;

Jackson and Schuler, 1995; Schuler and Jackson, 2005), in this section we will only becovering two of the more established or at least most widely used theories that have

been highly influential in this field of research: 1) the resource-based view of the firm

that equips strategic HRM research with a strategic orientation; and 2) the behavioral

perspective which offers a more psychological insight to understanding the impact

of HRM on firm performance. These perspectives have also been categorized under

strategic theories (Wright and McMahan, 1992) or proactive theories of strategic HRM

(McMahan et al., 1999) which we believe are better aligned with the raison d'trefor

this line of research (Becker and Huselid, 1998). A detailed description of other theories

of strategic HRM can be found in Schuler and Jackson (2005), Wright and McMahan

(1992) and McMahan et al. (1999).

Resource-Based View

The resource-based view (RBV) of the firm has undoubtedly dominated strategic HRM

research in recent years as the main theoretical foundation that explains the linkage

between HRM and firm performance. Two main assumptions underlying this view are

that first, firms are heterogeneous with respect [p. 37 ] to the strategic resources

(i.e., physical, organizational, or human) that they control and second, that these

resources are imperfectly mobile within factor markets (Barney, 1991). Based on these

assumptions, companies that control valuable, rare, imperfectly imitable, and non-


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substitutable resources are able to generate sustained competitive advantage (Barney,

1991).

Figure 3.1 Sources: McMahan et al. (1999); Wright andMcMahan (1992); Wright and

Snell

In strategic HRM research, the RBV has mainly been used to establish the rationale for

empirical research rather than directly testing the theory (Boselie et al., 2005; Wright et

al., 2001). Strategic HRM researchers have based their research on arguments derived

from RBV, that the knowledge, skills, and abilities of a firm's workforce are instrumental

in creating strategic value. Assuming that human resources are normally distributed in

the labor market, this theory suggests that firms which possess rare human resources

are more advantaged competitively compared to other firms. Such rare and valuablehuman resources can be developed through, for example, selective hiring and extensive

training practices, that serve as key foundations for high investment HRM systems.

Another path by which human resources can contribute to competitive advantage is

their in imitability (Lado and Wilson, 1994; Wright and McMahan, 1992). Inimitable

human resources often arise from unique historical conditions, where the events that

shape a firm's culture and norms do not happen in other firms. Also, causal ambiguity

that the causal relationship pertaining to the firm's competencies is intangible

can render human resources inimitable. Related, human resources can be inimitable

because of their socialcomplexity/interconnectedness the idiosyncratic social

relations among human resources or among the tacitness, complexity, and specificity

of assets (Dierickx and Cool, 1989; Reed and DeFillipi, 1990). Finally, for human

resources to create sustained competitive advantage, they should be non-substitutable


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by other strategic assets (Barney, 1991). This may be more applicable in knowledge-

intensive industries than labor-intensive industries, where it is very hard to replace the

innovative nature of human resources by other assets (Jackson and Schuler, 1995;

Wright et al., 1994).

Empirical research drawing from RBV has typically placed emphasis on examining

the impact of a configuration of internally and externally aligned HRM practices,

assuming that it is the complexity of alignments that makes human resources a source

of competitive advantage. Based on this logic, researchers have demonstrated that

high performance work systems (Huselid, 1995), innovative employment practices

(Ichniowski et al., 1997), commitment HRM systems (Arthur, 1994), or high involvement

HRM practices (Batt, 2002) have direct effects on market based performance (Huselid,1995), productivity (Ichniowski et al., 1997), lower scrap rates (Arthur, 1994), lower quit

rates (Arthur, 1994; Batt, 2002), and higher sales growth (Batt, 2002).

While these findings provide strong evidence for the HRM-firm performance relationship

within the RBV framework, we would argue that it is not the system of HRM practices

that have the qualities of a resource capable of generating sustained competitive

advantage. Rather, it is the human and social capital that they create which may be

valuable, inimitable, rare, and non-substitutable (Boselie et al., 2005; Wright et al.,

2001). For example, Hitt et al. (2001) found a positive, curvilinear relation between

the quality of education and tenure of a firm's workforce and financial performance as

measured by return on sales. Similarly, Hatch and Dyer (2004) found that investments

in firm-specific human capital (education requirements and screening) increased

learning-by-doing performance as measured by the lowering of manufacturing costs as

manufacturing experience increases.

Yet, research that explicitly examines whether or not certain HRM systems are

associated with valuable, rare, inimitable, or non-substitutable resources is lacking.

Rather, researchers often invoke this logic but limit their empirical examinations to a

direct relationship between HRM systems [p. 38 ] and relevant outcomes. Moving

forward, we would argue that strategic HRM research grounded in RBV needs to shift

its focus from testing the linkages between a set of HRM practices and performanceto testing its core concepts as well as contributing factors associated with time


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compression diseconomies, causal ambiguity, and social complexity (Wright et al.,

2001).

Behavioral Perspective

Complementing the previous theory, the behavioral perspective argues that although

human capital is essential, employees need to exhibit appropriate role behaviors in

order to contribute to the achievement of organizational goals. The central tenet of

behavioral perspective, therefore, is that HRM practices affect firm outcomes through

managing employees displayed behavior (Jackson and Schuler, 1995; Schuler

and Jackson, 1987). There are, in fact, different types of behaviors that are moreappropriate depending on organizational strategy and other relevant contingencies.

For instance, behaviors vary along repetitive versus innovative, risk taking versus

risk averse, flexible versus inflexible, or competitive versus cooperative. The role

for organizations is therefore to determine which behaviors are appropriate for their

strategy, and which HRM practices are effective in eliciting these behaviors (Schuler

and Jackson, 1987; Wright and McMahan, 1992). For instance, different types of rent

sharing practices (organizational-, group-, and individual-level) that correspond to

different strategic focus can elicit fundamentally different employee behaviors (Coff,

1997).

By placing emphasis on needed role behaviors, the behavioral perspective

complements the human capital theory by recognizing that employee behaviors are

also instrumental in organizational effectiveness in addition to employee knowledge and

skills. However, despite the obvious importance of how employees actually act while at

work, direct empirical tests are limited that examine the role of behaviors in the HRM-

performance relationship.

Emerging Perspectives

Having reviewed the theoretical underpinnings of the HRM-performance relationshipand the dominant theories and their empirical evidence, we now explore more recent

attempts to uncover the mediating mechanisms through which HRM practices impact


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performance. We believe that the current developments around the cognitive and social

domains take the field one step closer to developing strategic HRM-specific models.

A Cognitive Perspective in Strategic HRM

While the traditional perspectives summarized above have focused on the rationales

and different paths through which HRM can influence organizational performance,

one limitation they have in common is that they implicitly assume universality and

predictability of employee behaviors and attitudes that stem from exposure to HRM

practices. In other words, they do not explicitly recognize subjective and natural

human processes such as cognitions mental processes of perceiving, recognizing,conceiving, judging, and reasoning as processes that employees go through before

reacting to those practices. Thus, the cognitive paradigm, which focuses on how people

structure their experiences and how they make sense of them (Cacioppo et al., 1981),

may inform strategic HRM research further.

Taking a cognitive strategic HRM perspective suggests that employees are not merely

passive responders to events but make active judgments regarding the causes of

events which they observe or are exposed to (Heider, 1958). For example, Bowen

and Ostroff (2004) pointed out that the effect of HRM practices depends on the ways

in which employees interpret and respond to them. They suggest that the HRM-firmperformance linkage can be best understood by analyzing the psychological and

collective climates that HRM systems create as the mediating mechanisms in this

relationship.

[p. 39 ]

Accordingly, when employees share a common interpretation of what behaviors are

important, expected, and rewarded, such a strong organizational climate collectively

guides the behaviors of individuals towards the objectives of the firm resulting in firm

performance. These scholars also propose that the strength of the HRM system is

what creates such shared interpretations. That is, unless the HRM system stands outin the organizational context, sends consistent massages, and results in agreement


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among employees about its meaning, employees will go though different cognitive

cycles, inhibiting the intended effects of the HRM system.

Closely related to the psychological and collective climate view (Bowen and Ostroff,

2004), other researchers examined the role of attributions in the HR-employee

outcome relationship. For example, Koys (1988; 1991) distinguished between internal

attributions of HRM practices made by employees (i.e., viewed as within the control of

the company) and external attributions of HR practices (i.e., viewed as out of control

of the company). Internal attributions were argued to be more strongly related to

employee attitudes and behaviors than external attributions. Extending this argument,

Nishii (2003) distinguished between positive and negative internal attributions. Positive

internal attributions that is employee beliefs that their company uses HR practicesbecause employees are viewed as an asset or because their company cares about

their well-being were argued to be related to positive attitudes and behaviors such as

satisfaction, commitment, and organizational citizenship behaviors.

Other theories and constructs such as social exchange theory, perceived organizational

support, and psychological contracts can also be categorized under a cognitive

perspective since they deal with subjective and idiosyncratic perceptions or interpretive

processes that employees go through to make sense of their relationship with

their organizations. For example, social exchange theorists (e.g., Gouldner, 1960)

examine the exchanges that take place between employers and employees regarding

perceptions of reciprocity. According to the norms of reciprocity, employees feel obliged

to respond equitably to organizational inducements. These feelings of obligation, in turn,

are associated with positive attitudes and more productive behaviors (Eisenberger et

al., 1986; Shore and Wayne, 1993).

Closely related to social exchange theory and perceived organizational support,

psychological contracts are expressed or implied promises made by the organization

i.e., job security, benefits, and pay and the subjective perceptions of these promises

by employees that lead to feelings of either their fulfillment or breach (Rousseau, 1995).

Consistent with this perspective, Takeuchi et al. (2007) found that the relationship

between high-performance work systems and establishment performance was mediatedby both the level of human capital among employees as well as the quality of the

organization's social exchange relationships with employees.


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Based on these emerging developments in the cognitive domain, at least from a

strategic HRM standpoint, we argue that this perspective is necessary to contour the

strategic HRM picture. In fact, recent research has started to integrate the macro HRM

research with the more micro perspectives such as industrial/organizational psychology

and organizational behavior literature (Wright and Boswell, 2002). Thus, we encourage

additional and multi-level research that examines the role of various cognitive processes

in the HRM-performance relationship.

The Role of Social Capital

Our previous discussion centered on how HRM affects human capital, cognitiveprocesses, and behaviors of individuals as isolated entities in an organization. However,

employees do not exist in isolation; instead, they are embedded in social relationships

with supervisors, coworkers, subordinates, clients, and the like (Brass, 1995). The

growing field of social capital research, in turn, centers on [p. 40 ] how these

relationships among individuals affect employee and work outcomes and has recently

started to receive attention from strategic HRM scholars (e.g., Youndt et al., 2004;

Collins and Clark, 2003).

Social capital is a perspective that targets the linkages between actors, rather than

the actors themselves (Brass, 1995). As opposed to human capital which resides inindividuals, social capital is defined as the sum of the actual and potential resources

embedded within, available through, and derived from the network of relationships

possessed by an individual or social unit (Nahapiet and Ghoshal, 1998: 243). There

are three pivotal dimensions of social capital in the literature. The structural dimension

concerns the patterns or configurations of relationships among a group of individuals

(Nahapiet and Ghoshal, 1998). Two types of social structures, strong ties and weak

ties, for example, have been noted to contribute to different types of knowledge transfer

and learning. Strong ties among individuals enable the transfer of fine-grained and

tacit knowledge; whereas weak ties are more amenable for gathering non-redundant

information and stimulating novel knowledge creation (Hansen, 1999). The relational/

affective dimension of social capital addresses the motives, expectations, and norms

of the actors in the network (Coleman, 1988; Kang et al., 2007; Nahapiet and Ghoshal,

1998). Trust, for example, is a key element in the affective relations among networking


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parties. Trust embedded in social relationships is essential for interaction efficiency

because it not only saves times from decision-making processes but also provides

access to otherwise unattainable information and resource (Uzzi, 1997). Finally, the

cognitive dimension of social capital refers to the shared understanding, language,

culture, and norms among individuals (Nahapiet and Ghoshal, 1998). The common

understanding of norms and sanctions are particularly useful for groups to motivate

members to act for the interests of the collective entity instead of private interests

(Coleman, 1988).

A switch of focus from the actors to their relations has meaningful implications for

strategic HRM research. Burt (1997), for example, posits that the value of human capital

is meaningless without social capital. He states that (w) hile human capital refers toindividual ability, social capital refers to opportunity (p. 339). In other words, social

capital acts as a catalyzer of human capital. As noted by Subramaniam and Youndt

(2005: 459), unless individual knowledge is networked, shared, and channeled through

relationships; it provides little benefit to organizations in terms of innovative capabilities.

Thus, it may be appropriate to move beyond traditional definitions of human capital

that revolve primarily around educational and functional skills to include competencies

surrounding interpersonal skills and networking and examine the ways in which HRM

practices can build those competencies (Collins and Clark, 2003).

Indeed, attributes of social capital have significant implications for facilitating individual,

group, and organizational performance. As mentioned above, social capital is a critical

facilitator of the development and utilization of human capital the benefits of human

capital can not be unleashed without the opportunities provided by social capital

(Coleman, 1988). Besides, there are numerous benefits that could be brought in by

social capital. The most immediate benefits are facilitating fast and fluid information and

resource exchange (Uzzi, 1997), encouraging exploitative and exploratory learning and

innovation (Kang et al., 2007, Subramian and Youndt, 2005, Lepak et al., 2007), and

cultivating individual members attitudes and behavior (Leana and Van Buren, 1999).


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Cultivating Social CapitalGiven the potential benefits of social capital, it is important to understand how social

capital emerges within organizations. As Leana and Van Buren (1999) noted, three

major ways that organizational practices can develop social capital are building stable

relationships among organizational members; developing organizational reciprocity

norms; and defining specified roles and establishing bureaucracy to a certain extent.

Stable relationships [p. 41 ] in organizations are usually established through a long-

term orientation. Time within the organization is important because it creates stable

relationships among members that market transactions could not have created. HRM

practices such as job security, internal labor markets, training, and collaborative workare all contributive to the development of such stable relationships that are essential

for social capital. Second, various motivating mechanisms can be used to establish

organizational reciprocity norms, including the use of selection, promotion, and reward

mechanisms to encourage reciprocity behavior, and the employment of socializing to

foster such an atmosphere.

Employing the framework of development of human capital, Adler and Kwon (2002)

propose that social capital is actualized by employees abilities, motivation, and

opportunities to build social capital. Therefore, HRM practices can be geared towards

a specific function to develop social capital. For instance, recruitment and selection areoften used to select diverse or similar employees according to strategic needs (Brass,

1995). Training and socialization are useful ways to not only build social connections

among employees (Brass, 1995), but also to prepare individuals (such as TMTs)

with relationship-building skills (Collins and Clark, 2003). Performance appraisals

and incentive compensation tied to the development of social capital are useful for

motivating them to display such effort (Collins and Clark, 2003). Indeed, it is shown

that network-building HRM practices affects firm performance through the development

of TMT's social capital (Collins and Clark, 2003), and that HRM investments are

associated with higher general human and social capital of organizations (Youndt et al.,

2004).

Finally, related to the aforementioned organizational structure, bureaucracy and

specified roles are related to the structural aspect of social capital, where the collective


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norms are developed through the positions of members (Leana and Van Buren, 1999).

Interdependence among members through embedded relationships in the organization

may be beneficial for the development of social capital. Moreover, as opposed to

markets, organizations establish network closure where explicit boundaries separate

within-organization members from external entities. Such network closure may enable

social capital to develop (Coleman, 1988; Nahapiet and Ghoshal, 1998).

The actual structure of the organization may also play an important role. Two types

of position arrangement, vertical differentiation (positions are differentiated by

administrative hierarchy) and horizontal differentiation (positions are differentiated

by work flow, job design, technology etc.), are essential in determining the work

relationships of employees (Brass, 1995). The former is often the characteristic ofmechanistic organizations, where rigid structures and rules are set. The later, in

contrast, often exists in organic organizations, where rules and procedures are flexible

and the structure is decentralized (Brass, 1995). Brass argues that social networks

often overlap in mechanistic organizations but are often denser and more connected

in organic organizations. In addition, the physical proximity and on-going interactions

between members in the organization further reinforce the relationships established.

Given this, choices organizations make regarding the organizational structure will

influence the likelihood that they are able to cultivate and capitalize on the benefits of

social capital.

Organizations, consisting of interrelated actors, are conducive to the creation of social

capital in the organization (Nahapiet and Ghoshal, 1998). At the same time, actors

make conscious decisions regarding how to use their social capital in organizations. As

a result, we would encourage research that focuses not only on the creation of social

capital, but how it operates and how employees use their relationships to facilitate (or

hinder) individual and organizational performance.

So far we have elaborated the evolution of the field from those covered in Wright and

colleagues comprehensive model, to the recognition of the unique effect of social

relationship beyond traditional understanding [p. 42 ] of individual human capital and

behavior in isolation, which shines much light on the field of strategic HRM as it was, is,and will be. These perspectives, however, were positioned in a general context, vastly

based on the US experience. Yet, there is increasing attention to the global context and


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its implication for strategic HRM. In what follows, we will extend our vision to a global

context and review the development of strategic HRM in other countries.

Strategic HRM in the Global Context

We focus on two aspects of strategic HRM within the global context. First, we review

some of the studies that were conducted outside the US to look for external validity

evidence for the HRM-firm performance linkage. Second, we review strategic HRM

models pertaining to organizations that are operating globally.

Strategic HRM Outside the US

Since the mid-1990s, the majority of the high-impact developments and research in

the field of strategic HRM have come from North America and in particular, the US

(Arthur, 1994, Batt, 2002; Bowen and Ostroff, 2004; Collins and Clark, 2003; Datta

et al., 2005; Huselid, 1995; Lepak and Snell, 1999). As a result, some researchers

have questioned whether theories of strategic HRM developed in the US generalize

to other regional and cultural contexts that are significantly different from that of the

US (Brewster, 2007; Wright et al., 2005). Although there has been a considerable

amount of strategic HRM related research in other parts of the world (Bae and Lawler,2000; Fey and Bjorkman, 2001; Guthrie, 2001; Li, 2003), these studies have not been

reviewed collectively to increase our understanding of the generalizability of strategic

HRM theories to other national and cultural contexts. Thus, one of the major issues

facing the strategic HRM field remains to be the external validity and the generaliz

ability of the semodels (Wrightetal., 2005). Our purpose in this section is to focus on

research conducted outside the North American context to shed some light on this gap.

In order to come up with a preliminary observation on the external validity of strategic

HRM theories, we reviewed 17 studies.1

Out of the 17 studies we reviewed, three were

conducted in Russia, three in Singapore, three in Korea, two in China, two in Spain, onein Belgium, one in Netherlands, one in New Zealand, one in Taiwan, one in Thailand,

one in Australia, one in India, and one in Hong Kong. According to this distribution, the
http://knowledge.sagepub.com/view/hdbk_humanresourcemgmt/fn1n3.xmlhttp://knowledge.sagepub.com/http://www.sagepub.com/


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regional clusters that were represented in these studies were Southern Asia (India,

Thailand), Confucian Asia (China, Hong Kong, Korea, Singapore, Taiwan), Latin Europe

(Spain, Belgium), Germanic Europe (Netherlands), Eastern Europe (Russia), and

the Anglo cluster (New Zealand and Australia) (House et al., 2004). Thus, while the

number of studies conducted in a single country is low, the empirical evidence that has

accumulated on a regional cluster level is considerable; thus enabling generalizability

inferences for strategic HRM models.

In line with the mainstream strategic HRM studies, studies outside the North American

context have relied primarily on RBV (Barney, 1991) to explain the linkages between

HRM practices and firm performance (e.g., Fey and Bjorkman, 2001; Park et al., 2003).

While all these studies discuss the idiosyncrasies of the national or institutional contextsin which the studies were conducted, few have explicitly incorporated cultural theories

and cultural values that may impede or enhance the impact of HRM practices that were

mainly developed in the US. For example, Bae and Lawler (2000) questioned whether

being high on the cultural dimensions of collectivism and power distance would limit the

ability of firms to implement high-involvement work systems in Korea. They suggested

that in hierarchical cultures, the empowerment aspects of high-involvement HRM

strategies may not be readily accepted by managers or subordinates. [p. 43 ] Further,

they argued that employees may be more fatalistic in collectivist cultures and be less

prone to have the self-efficacy requisite for independent action. Similarly, Ngo et al.

(1998) adopted a cultural values framework and argued that some HRM practices couldbe more acceptable in some countries due to differences in cultural values such as

uncertainty avoidance and power distance (Hofstede, 1980). Given that cultural values

are significant determinants of whether certain organizational practices are accepted

and effective in a given society (Hofstede, 1980; House et al., 2004), we suggest that

future studies further elaborate on the cultural context.

Despite the importance of unique cultural and institutional forces that may dictate

whether HRM-performance relationship holds in different countries, the empirical

studies we reviewed reveal that such practices may indeed be effective regardless

of the national context. For example, Guthrie (2001) found high performance work

systems to be positively related to productivity for firms in New Zealand, De Saa

Perez and Garcia-Falcon (2002) found a positive relation between HRM practices and

managerial, input-based, output-based, and transformational capabilities and overall


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firm performance in the Spanish banking industry, and Bae and Lawler (2000) found

a positive relation between high-involvement HRM practices and subjective measures

of organizational performance in Korea. Collectively, these findings may provide initial

support for the external validity of US born strategic HRM theories and models.

While the main effects seem to be similar across countries, interesting contingency

effects emerge when both local companies and subsidiaries of foreign multinational

enterprises are included in the same study (Bae and Lawler, 2000; Bae et al., 2003;

Ngo et al., 1998). For example, Ngo et al. (1998) argued and found some support that

the relation between HRM practices and firm performance would be stronger for local

firms in Hong Kong compared to the subsidiaries of American, British, and Japanese

multinationals. Their findings indicated that training and development practices andretention-oriented practices were more strongly related to employee retention and

satisfaction levels despite the lower availability of such practices in local firms. Similarly,

Bae et al. (2003) found that the relation between high-involvement work practices

and subjective measures of performance were stronger for local firms compared to

subsidiaries of foreign firms in a sample of companies in Thailand, Taiwan, Singapore,

and Korea. Although such findings are preliminary at best, they may suggest that local

firms are better able to align the delivery of HRM practices with the cultural values and

norms of the local workforce. They may further indicate the liability of foreignness costs

(Zaheer, 1995; Miller and Eden, 2006) related to managing HRM in the subsidiaries of

multinational enterprises; costs that are incurred due to unfamiliarity with the foreignenvironment.

Although there is some evidence that multinational companies respond to pressures for

local isomorphism by tailoring some of their HRM practices to the local context (Myloni

et al., 2004; Rosenzweig and Nohria, 1994), these practices are mostly those that are

in contrast to local employee regulations such as pay and benefit practices. More

strategic practices such as selection methods, performance appraisals, training and

development practices, or participation in decision-making may more closely resemble

the headquarters orientation that may not be perfectly aligned with the cultural context.

Therefore, future studies may try to uncover the subtle differences between the ways

in which certain HRM practices are delivered by local and multinational companies to

understand this contingency effect.


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Models of Strategic International HRMUnderstanding strategic HRM within the context of multinational enterprises (MNEs)

continues to grow in importance (Schuler and Jackson, 2005; Schuler et al., [p. 44

] 2002; Sparrow and Braun, 2007). Due to the complexity and heterogeneity of

the context in which MNEs operate, unique strategic HRM issues emerge in such

organizations; the most salient one being the opposing pressures for global integration

on one hand, and local responsiveness on the other (Rosenzweig and Nohria, 1994;

Schuler et al., 1993; Stroh and Caligiuri, 1998). As such, a common influence in these

models has been Perlmutter's (1969) work that identifies three distinct attitudes of

top managers in MNEs towards building their worldwide operations. The distinctionbetween ethnocentric, polycentric, and geocentric international orientations that differ

on the extent to which global integration and local sensitivity is desired or achieved is a

recurrent theme in most of the strategic international HRM models.

Besides these similarities among the models, they can be categorized under two major

themes: 1) Evolutionary models that were typically introduced during the early years

of the field's development (e.g. Adler and Ghadar, 1990; Edstrom and Lorange, 1984;

Perlmutter, 1969) and 2) integrative models (e.g. Schuler et al., 1993; Taylor et al.,

1996) that are more intricate and that recognize the simultaneous need to integrate and

differentiate international HRM practices (Sparrow and Braun, 2007).

Evolutionary Models of StrategicInternational HRM

Evolutionary models of strategic international HRM are based on the notion that HRM

practices of an MNE depend on the various ways of classifying the evolution of the MNE

such as organizational or product life cycles (Adler and Ghadar, 1990; Milliman et

al., 1991) or the evolution of the strategic management process from local to global

(Edstrom and Lorange, 1984). For example, Adler and Ghadar (1990) examined the

stages in a product's life cycle as the firm advances in to an increasingly global mode

of operation. Their model predominantly focuses on the link between four stages of


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internationalization domestic, internationalization, multinationalization, globalization

and expatriate management practices, such as who will be assigned to expatriate

positions (i.e. parent country nationals and third country nationals), what impact will

international assignments have on individuals careers, and how they will be rewarded

and compensated based on these four stages. Milliman et al. (1991) extended the

Adler and Ghadar (1990) model based on an argument that product life cycles are too

short and that many MNEs have multiple products that go through different stages in

their life cycles. Their model, which represents the transition from evolutionary models

to more intricate integrative models, focused on four organizational life cycle stages

based on Baird and Meshoulam (1988) organizational initiation, functional growth,

controlled growth, and strategic integration. These researchers further argue that,

different from purely domestic organizations, there are essentially two levels of analysisin an MNE within subsidiary/headquarters level of analysis and between subsidiaries

and headquarters and that both need to be paid attention to in strategic international

HRM models.

The evolutionary models of strategic international HRM may be criticized on the

grounds that they focus only on one variable that the HRM system needs to be aligned

with i.e., product life cycle and do not take into consideration other possible

variables (Sparrow and Braun, 2007). They also fall short of explaining how an MNE

can implement different international policies and practices while accounting for different

contingencies in multiple host countries (Sparrow and Braun, 2007). The complexityof the context and the integration-differentiation issues are addressed in-depth in the

integrative models of strategic international HRM.

Integrative Models of Strategic InternationalHRM

These models can be distinguished from the evolutionary models by their focus on a

complex set of contingency relationships among the various components of an MNE's

[p. 45 ] structure, environment, and its HRM practices (Schuler et al., 1993; 2002;Taylor et al., 1996). Such a focus on the organizational structure and strategy of the

MNE in these models reflects the developments in the field of ideal-type MNEs such


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as the transnational organization of Bartlett and Ghoshal (1988) and the heterarchy

of Hedlund (1986). These ideal-type structures are presented as a solution to the

global integration-local responsiveness dilemma faced by MNEs. Integrative models in

international HRM posit that HRM practices can simultaneously integrate the various

units of the MNE together based on informal control mechanisms and also differentiate

these different units by tailoring HRM practices according to local needs.

A significant feature of the integrative frameworks has been an explicit recognition

that the multiple alignments between people practices, MNE's structure, and strategy

result in better organizational outcomes such as performance (Carpenter et al., 2001;

Peterson et al., 1996; Schuler et al., 1993; Stroh and Caligiuri, 1998). Schuler et al.

(1993), for example, identified strategic components of an MNE as inter-unit linkagesand internal operations, which have an impact on strategic international HRM issues,

policies, and practices. In their model, exogenous (i.e. type of global industry, nature of

competitors, political, legal, socio-cultural and economic conditions) and endogenous

(i.e. MNE structure, international orientation, experience in running international

operations) factors moderate the relation between strategic MNE components and HRM

issues, functions, policies, and practices having an impact on the goals and concerns of

the MNE such as global competitiveness, efficiency, and organizational learning.

Taylor et al. (1996) extend the previous models by drawing from RBV and the resource

dependence theory. These scholars view MNE's home HRM system as a resource for

building the global HRM system and explicitly explore how the global strategic HRM

system evolves over time. Accordingly, resources may be found at the national, firm, or

the subsidiary level dictating what kind of strengths the resulting HRM system will have

and also which HRM competencies will be context-specific or context-generalizable.

In the Taylor et al., (1996) model, parent's international strategy and top management

beliefs determine the orientation of the HRM system. The orientation of the HRM

system thus can be exportive, adaptive, or integrative, having an impact on the degree

of similarity of the subsidiary's HRM system to the parent's HRM system.

These models have carried the international strategic HRM models to a more advanced

level and the frameworks developed in these models had major impact on futurestrategic international HRM studies (Park et al., 2003; Peterson et al., 1996; Stroh and

Caligiuri, 1998). Yet, these models may be criticized on several grounds (Edwards and


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Kuruvilla, 2005; Kiessling and Harvey, 2005; Schuler et al., 2002; Sparrow and Braun,

2007). First, it is suggested that the accumulation of independent variables makes these

integrative frameworks almost untestable (Sparrow and Braun, 2007). Indeed, studies of

strategic international HRM test only parts of the developed models and use a variety of

measures, limiting our capability to develop consistent and coherent empirical evidence

in this area. Second, the independence of a number of variables in these models can be

questioned (Sparrow and Braun, 2007). The abundance of conceptual categorizations

that refer to the global integration-local responsiveness framework (Perlmutter, 1969;

Bartlett and Ghoshal, 1989; Porter, 1986) makes some of the propositions in these

frameworks and studies tautological. Moreover, the same conceptualizations are used

differentially in different studies to refer to strategy, industry, or international orientation,

contributing to the limitation of developing a coherent body of knowledge. Finally, someargue that the conceptualization of national effects is inadequate culture being an

unsatisfactory catch-all phrase for national differences (Edwards and Kuruvilla, 2005). In

sum, there is still much room for conceptual and empirical development in the study of

strategic HRM in MNEs.

[p. 46 ]

Conclusion

Strategic HRM is a dynamic field, evolving quickly from its early focus on understanding

the patterns of impact of HRM practices and systems on performance to embracing

the mediating mechanisms associated with individuals and the social context in

which HR systems operate. We can view the theoretical models in strategic HRM as

adhering to one of several dominant perspectives the universalistic, contingency,

or configurational perspectives. At the same time, researchers in this area continue

to push the boundaries of what we know and are engaging in exciting research that

delves deeper into the mediating mechanisms of how HRM systems work. And while

most of the dominant strategic HRM theories have been developed and tested in

North America, outstanding research is conducted internationally. Given the increasing

globalization of companies, customers, labor, and stake holders, we encourage more

research into understanding how different facets of the internationalization of business

impact on how people are managed within different cultures, as well as how companies


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balance the simultaneous management of a globally diverse workforce and customer

base.

Note

1 Mainly, we gathered these studies from Academy of Management Journal, Journal

of International Business Studies, and International Journal of Human Resource

Management, for the period of 19952006.

Saba Colakoglu, Ying Hong and David P. Lepak

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Models of Strategic Human Resource Management