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This article was downloaded by: [University College Dublin]On: 04 August 2012, At: 01:26Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK
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The roles of implementation andorganizational culture in theHR–performance linkIrene Hau-Siu Chow aa Department of Management, The Chinese University of HongKong, Hong Kong
Version of record first published: 10 Jan 2012
To cite this article: Irene Hau-Siu Chow (2012): The roles of implementation and organizationalculture in the HR–performance link, The International Journal of Human Resource Management,23:15, 3114-3132
To link to this article: http://dx.doi.org/10.1080/09585192.2011.639553
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The roles of implementation and organizational culture in theHR–performance link
Irene Hau-Siu Chow*
Department of Management, The Chinese University of Hong Kong, Hong Kong
This article attempts to (1) explore the process by which a high-performance worksystem (HPWS) affects firm performance and (2) demonstrate the mediating role ofimplementation and organizational culture in the HPWS-performance link.The proposed model was tested using a sample of 243 Hong Kong and Taiwanesefirms operating in Guangdong, China. The results from the present study supportedthe hypothesized mediation of implementation and organizational culture on theHR–performance relationship. This study offers important insights into the mediatingmechanism of the HPWS-performance research. Implications for research andmanagerial practices are provided.
Keywords: China; firm performance; HPWS; implementation; organizational culture;Taiwan & Hong Kong firms
Introduction
In the last two decades, a growing number of studies have been conducted to test the
relationship between human resource (HR) systems and firm performance (Huselid 1995;
Delaney and Huselid 1996; Delery and Doty 1996; Youndt, Snell, Dean and Lepak 1996;
Guthrie 2001; Purcell and Kinnie 2007). Despite a growing awareness of the importance of
research on the HR–firm performance relationship, more studies are needed to focus on
how HR management contributes to firm performance – for instance, the process and
mechanism through which HR systems impact on firm performance. It is not just the
content but also the process that are important for understanding how HR systems lead to
performance outcomes. It is difficult, if not impossible, to fully understand how the HR
system influences firm performance without considering the mechanisms through which
that influence occurs.
Takeuchi, Lepak, Wang and Takeuchi (2007) posited that a high-performance work
system (HPWS) affects business performance in both direct and indirect ways. An
increasing number of studies indicate that HR systems do not lead directly to performance.
Instead, researchers propose to consider the intermediate linkages between HR systems
and performance (Katou and Budhwar 2006). Most of the prior studies found that
employee attitudes (satisfaction and commitment) and climate (shared perception of HR)
were the key mediating factors. Boselie, Paauwe and Jansen (2001) found that employee
satisfaction, motivation, retention, social climate and involvement mediate the
relationship between HR practices and firm performance. Park, Mitsushashi, Fey and
Bjorkman (2003) in their study provided support for employee skills, attitudes and
ISSN 0958-5192 print/ISSN 1466-4399 online
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http://dx.doi.org/10.1080/09585192.2011.639553
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*Email: [email protected]
The International Journal of Human Resource Management,
Vol. 23, No. 15, September 2012, 3114–3132
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motivation as being the mediating variables between HR systems and firm performance.
More recently, Macky and Boxall (2007) found that employee attitudes (job satisfaction,
trust in management and organizational commitment) mediated the HR–performance
link. Bowen and Ostroff (2004) assert that climate constitutes a key mediating factor in the
HR–performance relationship. There seems to be a general consensus that HR contributes
to organizational performance through a number of intermediate linkages.
Continuing this stream of research, the present study focuses on the process or
mechanism through which HR enhances firm performance. First, it considers to what
extent the successful implementation of HR systems leads to better performance. The
effectiveness of the HRM-performance relationship is driven by the quality of HR systems
as well as the success of HR implementation. The mere presence of an intended HR system
may not result in high performance. No doubt, effective implementation is critical in the
HR–performance link. Second, the influence of an HR system on a firm’s performance
occurs largely through the establishment of the appropriate culture (Hartog and Verburg
2004). This study attempts to gain further insights into such analyses by identifying the
intervening variables through which HR systems foster organizational culture and
the degree to which HR systems directly impact the culture, which in turn affects the firm
performance. Thus, HR implementation and organizational culture should be included as
mediators which may explain the process through which HR leads to firm performance.
Hitherto, there has been relatively little research which simultaneously investigates
HR systems, implementation, organizational culture and firm performance. Previous
studies recommend the inclusion of mediating variables between HR and organizational
performance. Building on the existing research, this article attempts to explore more
systematically the relationships between HR systems, organizational culture and firm
performance. In addition, the mediation effects of implementation on the HR–
performance link were examined. One of the objectives of this study was to investigate the
HR implementation as a mechanism by which HPWS affects firm performance. Another
objective was to assess the degree to which organizational culture mediates the
relationship between HR systems and organizational effectiveness. The proposed model
advocates that HR systems lead to higher levels of performance through some
intermediate variables. It is interesting to find out how culture actually mediates the HR–
performance link as well as the way HR systems are implemented. Figure 1 presents the
constructs of organizational culture and HR implementation within the conceptual
framework of a mediating model that connects HR systems and firm performance. This
study contributes to theory and to practice. From the theoretical point of view, the
Organizational culture
Bureaucratic
Supportive
Competitive
Firmperformance
HPWS
HRimplementation
Figure 1. Conceptual framework.
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empirical results from this study add to the current studies of HPWS and provide a better
understanding of how HR systems contribute to firm performance through effective
implementation and organizational culture. From the practical point of view, it offers
important insights for business executives in formulating and implementing effective
HPWS.
The following section starts with a brief review of the existing research on the
relationship between HR and organizational performance, followed by the mediating roles
of implementation and organizational culture on this relationship. Based on the literature
review, hypotheses are developed and tested with empirical data collected for this study.
The article concludes with a discussion of the managerial implications and future research
direction.
Theory and hypotheses
HPWS and firm performance
The last two decades have documented the increasing popularity of HPWS which are
designed to provide selective staffing, extensive training, developmental performance
appraisal, performance linked rewards, participation and empowerment in decision-
making, and a stable employment relationship (Snell and Dean 1992; Pfeffer and Veiga
1999; Wright, Gardner, Moynihan and Allen 2005; Combs, Liu, Hall and Ketchen 2006).
HPWS refers to a group of HR practices designed to enhance employees’ skills and effort
(Huselid 1995). There is growing empirical evidence that HPWS affects organizational
performance. Bae and Lawler’s (2000) involvement-enhancing HR incentives include
highly selective staffing, extensive training, empowerment, performance-based pay and
broad job design. These attributes elicit greater productivity, creativity and performance,
and they ultimately lead to profits, growth and higher market value (Neal and Tromley
1995). Other HR initiatives include information-sharing and the provision of
communication channels, life-long learning, extensive benefits, formal dispute resolution
procedures, training and retraining instead of redundancies during a period of economic
crisis (Hiltrop 1996). In the architecture of HPWS, a pool of highly competent human
capital is developed through a rigorous selection process and extensive training.
There is no agreement on what constitutes HPWS. HPWS serves as a means of
maximizing employee contributions toward firm performance. Previous studies also
showed that HR practices, which are applied as a coherent system, have a greater effect on
organizational outcomes than the sum of the individual effects from each practice
separately (Delaney and Huselid 1996). The concept of bundling with complementary
relationships among HR policies resulted in positive interactions and a synergistic effect
that go far beyond the effects of the individual practices (MacDuffie 1995). The bundling
concept posits that HR practices need to be highly integrated if they are to have maximum
efficiency and effectiveness. The accumulated research evidence consistently shows that
mutually reinforcing HR practices, bundled in the form of HPWSs, can have a substantial
impact on firm performance (Huselid 1995; MacDuffie 1995). An integrative approach to
HR systems is generally considered to be effective in realizing the synergistic effects.
HPWS is positively related to firm performance through human capital (Youndt and
Snell 2004; Takeuchi et al. 2007; Yang and Lin 2009). A high-performance HR system
affects organizational performance by increasing the employees’ knowledge, skills and
abilities, empowering them to act and motivating them to do so. Huselid (1995) asserts that
the adoption of high-performance HR practices will improve workers’ skills and
motivation. These high-performance HR systems include training which enables the
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acquisition of new skills and knowledge, rigorous selection techniques which guarantee
talent and capability in hired workers, incentives which encourage workers to find new
skills, competitive pay which promotes the retention of the most suitable workers, job
design which proves to be challenging and favors continuous learning, job security which
is viewed by workers as an indication of the organization’s commitment, and information-
sharing in fostering knowledge transfer within the organization. Human capital can be
fully utilized by providing challenging jobs and internal promotion. Performance appraisal
is an important development tool. Discretionary efforts can be encouraged through
providing feedback, empowerment, participation and information-sharing. Equitable
rewards and secure employment elicit employee motivation and commitment toward
higher performance.
The relationship between HR systems and firm performance has been widely
researched. The extensive literature consistently shows that HR systems are associated
with positive performance outcomes and higher financial success (Lawler, Mohrman and
Ledford 1995; Delaney and Huselid 1996; Bae and Lawler 2000; Yu and Egri 2005).
Levering and Moskowitz (1993) surveyed the 100 best companies to work for in the
United States, and Lawler et al.’s (1995) survey on Fortune 1000 companies found that
the companies which promote employee involvement reported significantly higher
financial success. Empirical results from Singapore, Taiwan and Korea support the notion
that high-commitment and high-involvement work systems have a positive effect on
organizational performance (Bae and Lawler 2000; Huang 2000; Khatri 2000). These
findings confirm that the use of HPWS leads to improved organizational performance.
Following the conventional studies, HR systems are hypothesized to have a positive
relationship with firm performance.
Hypothesis 1: HR system is positively associated with firm performance.
The mediating role of HR implementation
Nishii and Wright (2008) linked HRM and performance via a causal chain, that is,
intended HR practices ! actual HR practices ! perceived HR practices ! employee
reaction ! firm performance. This model provides the basis for understanding the
mediating mechanism through which HPWS is hypothesized to affect organizational
performance. Actual HR practices may differ from intended HR practices as a function of
the way that HR practices are implemented (Khilji and Wang 2006). Often a gap exists
between the intended HR practices and those which are implemented. Intended HR
practices, when implemented effectively, result in higher organizational performance.
Thus, HRM plays an important role in helping a company to achieve its strategic goals by
contributing to strategy formulation and implementation. The mere presence or imitation
of HPWS is not enough. HPWS needs to be effectively implemented in order to attain high
performance. More attention should be focused on the extent to which HPWS has been
used, or the way in which it has been implemented. A high level of implementation
minimizes the gaps between intended and implemented HR. This study examined
differences between intended and implemented HPWS in testing the HR–performance
relationship and it then proposed that minimizing the gaps between these aspects of HRM
results in higher organizational performance.
Successful implementation involves ensuring that the HR practices actually do what
they are designed to do. Good intention needs to be supported by translating it into action.
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A well-designed HR system that is consistently implemented should make a significant
improvement in firm performance. It is very likely that senior management recognizes the
importance of HR policies but ignores the implementation of these HR practices.
Implemented HPWS may be substantially different from intended HPWS. Thus, a gap
exists between the HR practices intended and those actually implemented. Very often a
seemingly effective HR system fails to do what it intended to do because of the
implementation difficulties arising from structural problems (such as bureaucratic
obstacles) and inadequate personal competence (Bonoma 1984). Nehles, Riemsdijk, Kok
and Looise (2006) identified some constraints on effective HRM implementation. These
constraints are desire, capacity, competencies, support, policy and procedures.
Minimizing the gap between intended and implemented HR leads to higher organizational
performance (Khilji and Wang 2006).
The process is how the HRM system can be designed and implemented effectively in
the form of shared meaning about the content that ultimately leads to organizational
performance. Consistency in implementing the intended HR practice builds a shared
perception of fair treatment of employees and articulation of organizational goals and
policies. In such a way, HPWS can be designed to facilitate implementation which in turn
drives firm performance. In other words, HPWS is related to firm performance through
effective implementation (Mirvis 1985). Implementation will reinforce or amplify the
positive effect of an HR system on firm performance. Consistent implementation increases
employee satisfaction with such a system, which in turn is positively related to
organizational performance. Implementation serves as a mechanism through which
to explore the HR–performance relationship. Based on such a line of reasoning, it is
hypothesized:
Hypothesis 2: HR implementation mediates the HR system-performance link.
Organizational culture as a mediator
Organizational culture is a system of shared values and beliefs that shapes a company’s
people, structure and control system to produce behavioral norms (Schein 1992). It
refers to the symbols, rituals, social patterns and shared understandings that govern
behavior in the organization. These beliefs, values and norms determine how things are
done and define expected standards of behavior from every individual (Ulrich 1984;
Deal and Kennedy 1992). It helps individuals understand organizational functioning and
thus it provides them with the norms for behavior within the organization (Schein
1992).
Wallach (1983) identified three distinct organizational cultures, viz. bureaucratic,
supportive and innovative. Bureaucratic cultures are power-oriented, regulated,
procedural and hierarchical. The work is organized and systematic. It is suitable for
well-trained staff but is not likely to attract and retain creative and ambitious people.
A bureaucratic culture is not the most conducive to the creation of employee commitment
(Odom, Boxx and Dunn 1990). Supportive cultures are trusting, encouraging, relationship-
oriented and collaborative. They provide an open, harmonious and reassuring place to
work. People are friendly and helpful. Employees working in a supportive environment are
more satisfied and have a greater degree of organizational commitment (Silverthorne
2004). An innovative culture is exciting and dynamic. It provides a creative place to work,
and it is filled with challenge and risk. Innovative cultures encourage competition and
develop an entrepreneurial environment.
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Cooke (2008) performed a similar study into the dimensions of organizational culture,
namely employee welfare and entertainment, bonuses, subsidized housing, health care,
sport events, holiday trips, etc. These cultural dimensions can be classified under:
(1) competitive culture – productivity enhancement, technical skills, competence,
continuous improvement and quality-enhancement scheme;
(2) supportive culture – employee welfare, entertainment and development; and
(3) formalization or bureaucratic culture – workplace procedures and rules including
job analysis and description, disciplinary procedures, operational guides and other
specifications of behavioral norms.
HPWS plays an important role in shaping culture. Empirical studies suggest that
managing HR and organizational culture brings positive returns in firm performance
(Hartog and Verburg 2004). Hartog and Verburg (2004) assessed the relationship between
HPWS and organizational culture using the FOCUS (a competing values model). Their
study found that innovative culture correlated positively with five out of eight HPWS
measures (employee skills and direction, pay for performance, profit-sharing, frequent
performance evaluations, and use of job evaluation and task analysis). Supportive culture
correlated only with employee skills and direction. Rule culture did not correlate with any
of the HPWS measures. Further, HPWS explained a substantial variance in culture
orientations using regression analysis (3.5% for supportive, 11% for rule, 21% for
innovative and 25% for the goal orientation). Autonomy was a significant negative
predictor for rule culture. More emphasis on rules and procedures implies less discretion
for employees, while pay for performance-predicted goal orientation, extensive use of job
evaluation and task analyses improved productivity for innovation culture. The innovative
culture (and to a lesser extent the supportive culture) was positively related to several of
the HPWS initiatives.
Managers implement HR systems based on their assumptions and beliefs on the nature
of the task and the employees (Aycan 2005). A strong and well-designed HPWS produces
greater homogeneity of perception which in turn gives rise to shared meaning in terms of
organizational culture. Consistent and coherent HR systems shape organizational culture
as part of the HR–firm performance causal chain (Ostroff and Bowen 2000). Prior study
conducted by Silverthorne (2004) found that a supportive organizational culture appeared
to work better in Taiwan than other types of cultures. A culture that is basically supportive
in nature is likely to have the highest level of employee job satisfaction and organizational
commitment, whereas a bureaucratic organizational culture resulted in the lowest levels of
job satisfaction and organizational commitment.
Earlier studies offered support for the positive effects of organizational culture on
organizational performance (Barney 1986; Kotter and Heskett 1992). Ogbonna and
Harris’ (2000) study on competitive and innovative culture and organizational
performance shows direct, strong and positive associations, accounting for about 25%
of the variance in organizational performance. Bureaucratization reduced short-term
profitability, impeded long-term growth and might even affect the survival of an
organization. In another study (Ogbonna and Harris 2000), competitive culture, market
orientation, innovative culture and strategic HRM significantly differentiated between
high-performing and poor-performing organizations. According to Peters and Waterman
(1981), strong cultural norms make an organization more efficient because culture guides
the behaviors that ultimately influence performance. Organizational culture facilitates
communication and co-operation among employees, helps them work more productively
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and make better decisions. This provides strong evidence that organizational culture
affects firm performance.
A number of studies (Ostroff and Bowen 2000; Chuang and Liao 2010) posit that
climate (shared perception of HR system) is a mediating link between HRM and firm
performance. The argument is that a progressive HR system fosters a positive work
climate, which increases employee competence and motivation, and this, in turn, leads
to enhanced organizational performance. Moreover, Collins and Smith (2006) examined
the causal chain from HR practices, social climate and knowledge exchange to firm
performance. Their results showed that a commitment-based HR system was indirectly
related to firm performance through organizational social climate and knowledge
exchange in the context of high-technology firms. In another study of retail banks,
Gelade and Ivert (2003) found that the effects of HRM practices on business
performance are partially mediated by the service climate. HRM practices designed to
improve productivity also increase the dimensions of the work climate. A recent study
by Chuang and Liao (2010) investigated the mediating role of organizational climate
between HPWS and business performance from front-line employees in retail stores in
Taiwan. HR practices shape employees’ shared perceptions about the organizational
climate, which in turn influence employee collective behaviors that contribute to
organizational performance. A previous study by Ferris et al. (1998) found that climate,
culture and political considerations serve to mediate the linkages between HR systems
and organizational effectiveness. Organizational climate viewed as a shared perception
has been posited as a mediator of the relationship between HR practices and
performance (Ostroff and Bowen 2000). Sanders, Dorenbosch and de Reuver (2008)
hypothesized a positive relationship between climate strength and affective
commitment. Bowen and Ostroff (2004, p. 204) further elaborated on the mediating
effect of climate strength on the relationship between HRM system and organizational
performance.
Extended from the above studies, organizational culture is one of the important
mediators in the high-performance HR system and organizational performance link.
Organizational culture not only facilitates a firm’s superior performance but strengthens
the impact of the HR system on organizational performance (Chan, Shaffer and Snape
2004). Organizational culture is purported to be the mediating mechanism that links
HPWS and firm performance. Thus, it is logical to suggest that culture is a mediator
driving the HPWS and organizational performance relationship.
Hypothesis 3: Organizational culture mediates the HPWS-firm performance
relationship.
Methods
Research setting
China has become the largest recipient of foreign direct investment (FDI) among
developing countries. Most FDI into China came from Hong Kong and Taiwan (HKT).
For the first 8 months of 2008, the actual use of foreign investment, Hong Kong
contributed US$29.85 billion (ranked number 1) and Taiwan provided US$1.3 billion
(ranked number 9). The cumulative Hong Kong–Taiwan direct investment (HKTDI)
constituted 56% of the total FDI into China for the period 1979–2001; whereas the
combined share of European Union, US and Japan was only a quarter (Zhang 2005).
Hong Kong alone accounted for 63.3% of the total foreign capital actually utilized in
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Guangdong Province from 1979 to 2006 (Guangdong Statistical Yearbook 2007). The
primary driving forces for HKTDI in China began with HKT’s structural transformation
from labor-intensive to capital-intensive industries during the 1980s. Labor-intensive
manufacturing industries lost their competitiveness because labor and operating costs
rose substantially in HKT. HKT firms captured the opportunities to relocate their labor-
intensive industries to China, motivated by its large pool of cheap labor and low
operating costs. According to Zhang’s (2005) analysis, the dominance of HKTDI in
China also includes China’s export-promotion strategy that encourages an export-
oriented FDI strategy matched with HKT’s specific advantages in this aspect, together
with the incentive policies toward this type of FDI. In addition, the ethnic links with
China (Guanxi or the Chinese connections), consisting of the dialogue, culture and
geographical proximity between HKT and China, promoted HKTDI in China,
especially in Guangdong, Fujian and other coastal areas. HKT firms play a leading role
in transforming enterprise management in South China. HKTFDI are more
homogeneous. Focusing on low cost, labor-intensive operations and cultural similarity
helps to mitigate the endogenous problem potentially caused by unobserved
heterogeneity. With such a background, our research focus is on HKT firms operating
in southern China.
Sample and procedures
Data were collected from HKT firms operating in Guangdong, China. Using the listing
from the Business Directory, questionnaires were sent to the company’s HR
Department by e-mail and follow-up calls were made. Based on the opinion of HR
professionals and experts, together with an extensive review from the current literature,
a list of HR practices was generated for the present study. The standard translation and
back-translation procedures were used to ensure accuracy and equivalence of the
measures in the English and Chinese versions (Brislin 1986). All completed
questionnaires were put in a return envelope addressed to the researcher. Three
hundred and fifty questionnaires were distributed and 243 responses were received from
HKT firms in China – a response rate of 69.4%. The respondents were the middle
(66%) or the top management (20%) of the firm and the rest were front-line managers
and core employees. By using ONEWAY ANOVA, no significant difference was
observed among the respondents in HPWS, implementation, three culture variables and
performance measures. The results demonstrated that their responses were relatively
consistent. The average length of the establishment of the companies surveyed was 10.5
years, and the length of operation ranged from 10 to 41 years. The average number of
employees per firm was 1387. The ratio of managerial to operating staff was 11.87%.
On average, a company’s HR department had 12.2 persons. The labor force turnover
rate was 14.4%. The industries covered in the survey included manufacturing (58.8%),
electronics and telecommunication equipment (31.3%), and a variety of other service
industries, such as utilities, financial/insurance and property. With data collected from a
variety of industries, the participants were not uniformly influenced by the contextual
constraints of a single organization in the same industry. It would be able to capture
and understand some of the issues in a broader setting. The representativeness of the
sample compared to the distribution of industries, as reported by the official Guangdong
Statistical Yearbook, was evaluated using the non-parametric Mann–Whitney Test
(Z ¼ 22.93, p ¼ 0.004). The sample matched well with the overall industry
distribution.
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Measures
Organizational effectiveness
A multi-dimensional, firm-level performance measure based on self-reported ratings
was developed for this study. Combs et al. (2006) provided evidence for invariance to
the choice of organizational performance measure in their meta-analysis of the
HPWS–performance relationship. Overall performance is a composite measure of
productivity, quality of products or services, research and development capability and
market shares. These items were measured on a 5-point Likert scale ranging from 1
(very low) to 5 (very high). The respondents were asked to evaluate how their
companies were performing in comparison with competing organizations in the same
industry. Factor analysis resulted in one single factor accounting for 53.15% of the
variance explained, with an alpha coefficient of 0.75. I recognized the bias which is
inherent in using self-reported measures. Because not all surveyed organizations are
publicly listed companies, objective financial data are sensitive and not available.
Furthermore, the use of objective financial figures turned out to be not directly
comparable in a study covering a wide variety of different types of organizations.
In such cases, managers were in the position to provide the best estimate of firm
performance.
High-performance HR Practices consisted of 9 items (a ¼ 0.70), namely (1) internal
recruitment/promotion; (2) training budget as a percentage of total payroll; (3) quantitative
performance appraisal standard; (4) performance evaluation linked to compensation,
training opportunity and promotion; (5) pay incentives tied to job performance; (6)
internal equity in compensation; (7) competitive pay package in the job market; (8)
employment security; and (9) using communication networks and reporting for
information sharing. These items were measured on a five-point Likert scale ranging
from 1 (very low) to 5 (very high). The respondents were asked to check out the most
appropriate description of their company’s HR practices, while implementation measures
the extent of implementation as planned. Following the current practices in HPWS
(Huselid 1995; Youndt et al. 1996), these nine HR practices were summed to form a
composite index of HR practices. The effects will be much stronger when they are applied
in a coherent set in the form of HPWS (MacDuffie 1995; Combs et al. 2006). Results using
confirmatory factor analysis on the HR practices and firm performance showed a good fit
to the data (x 2 ¼ 88.11, df ¼ 64, p , 0.025, RMSEA ¼ 0.04, NFI ¼ 0.94, CFI ¼ 0.98,
GFI ¼ 0.95).
HR implementation
This was assessed by two items. (1) To what extent does your company implement HR
planning, including staffing, development and succession planning? The response options
included various ways of HR implementation, ranging from ‘effective implementation’ to
‘implemented in ordinary manner’ and not practiced/not implemented. (2) To what extent
is employee training implemented in accordance with the annual formal plan? The
response options included ‘effectively implemented as planned,’ ‘implemented in
ordinary manner,’ and ‘not implemented.’ These two items measure the degree to which
HR practices are put into action/the extent to which they are implemented. These two
items were significantly correlated (r ¼ 0.29, p , 0.00). They were averaged to form the
measure of implementation.
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Organizational culture
This was measured by 16 items adopted from Wallach (1983), using a five-point scale
ranging from 1 (strongly disagree) to 5 (strongly agree). These items were factor analyzed
to form three cultures, which accounted for 60.63% of the total variance explained. The
factor structure is provided in Table 1. All three factors accounted for 57.84% of the total
variance explained. Examples of bureaucratic culture included ‘explicit rules/regulations,
orderly operations procedural’ and ‘follow strictly established systems and operational
procedures.’ An example of supportive culture was ‘focus on employee participation and
sharing.’ An example of competitive culture was ‘employees display extremely high
levels of competitiveness.’ The alpha coefficients for the bureaucratic, supportive and
competitive culture were 0.80, 0.78 and 0.88, respectively. Further analysis from CFA was
used to verify the factor structure. Results using confirmatory factor analysis fitted the data
well (x 2 ¼ 137.52, df ¼ 101, p , 0.01, RMSEA ¼ 0.04, NFI ¼ 0.97, CFI ¼ 0.99,
GFI ¼ 0.93).
Control variables
Firm characteristics, such as size and the number of years of operation, are determinants of
firm performance. Larger organizations are more likely to use better developed or more
sophisticated HR systems. Because firms with superior resources will be able to formulate
and implement unique and costly innovative strategies, firm size and years of operation are
controlled for the prediction of organizational performance. Firm size was measured by
Table 1. Factor structure of organizational culture.
Factor
Organizational culture 1 2 3
Bureaucratic cultureExplicit rules/regulations, orderly operational procedures 0.34 0.64 0.26Strong emphasis on the process of getting things done 0.27 0.68 0.11Follow strictly established systems and operational procedures 0.35 0.73 0.11Despite different opinions, absolute importance being placed onrespect for collective decisions
0.04 0.70 0.20
Communication through formal channels among employees 0.22 0.54 0.38
Supportive/sharing cultureFrequent use of task group to solve problems 0.07 0.19 0.67Focus on employee participation and sharing 0.29 0.28 0.67Full empowerment for managerial decision, clear delegation 0.31 0.03 0.72Flexibility in managing 0.10 0.33 0.51Emphasis on learning process, exchange and sharing learningoutcomes
0.38 0.16 0.70
Competitive cultureEmployee’s job-related skills surpass other organizations’ 0.64 0.03 0.20Employees display extremely high level of competitiveness 0.76 0.31 0.21There are highly skilled work teams in this company 0.76 0.30 0.18Employee behavior helps to improve organizational performance 0.78 0.26 0.15Employees contribute positively to organizational performance 0.72 0.25 0.21Employees’ work motive is very strong compared to other companies 0.73 0.16 0.26
Eigenvalue 4.20 2.9 2.7% Variance explained 24.64 17.12 16.08
Note: Bold values represent high factor loadings grouped under each cultural factor.
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the number of full-time employees. We used natural logarithmic transformation to
normalize the distributions and to make the measure more consistent with the previous
studies. Industry was broadly classified into manufacturing, electronics/telecommunica-
tions and services. Combs et al.’s meta-analysis (2006) found that HPWS had stronger
effects among manufacturers than among service organizations. Following Datta, Guthrie
and Wright (2005), industry dummy variables were created to control for potential
industry effects. Services served as the reference group.
Results
Table 2 presents the descriptive statistics and correlations among variables. The
correlations among variables were highly significant in magnitude (from r ¼ 0.33 to
r ¼ 0.4). These correlations support the hypothesized linkage between HR practices,
organizational culture and outcome measure.
Table 3 summarizes the regression analyses results testing the mediating effect of
implementation. When the control variables were first entered, years of establishment
showed a significant impact on firm performance (b ¼ 0.17, p , 0.05). All other control
variables did not show significant effects on firm performance. Control variables as a
group explained only 4% of the variance in firm performance. I followed the procedures
suggested by Baron and Kenny (1986) to test the mediation of implementation. First, the
predictor variable (HPWS) should be significantly related to the outcome variable as well
as the mediator (implementation). When HPWS and implementation were entered
separately in models 2 and 3, these two predictors had a significant effect on firm
performance. Second, the predictor (HPWS) should be related to the mediator
(implementation). HPWS significantly predicts implementation, as shown in model 5.
When both HR systems and implementation were considered simultaneously in model 4,
the HR systems remained significant but the b coefficient was reduced. The results provide
support for partial mediation of implementation on the HR–firm performance
relationship. Hypothesis 1 was supported. To further check for the mediation effect,
Sobel’s (1982) test was also conducted, and the results (t ¼ 4.34, p ¼ 0.00) confirmed the
mediating role of implementation in the relationships between HR and firm performance.
The results are consistent with those from regression analyses.
The same procedures were applied to test the mediating effect of the culture variables.
For testing the mediating effect of organizational culture on the HR–performance link, it
is necessary to establish (1) that HPWS has a significant impact on organizational culture
and (2) that the cultural variables should be significantly related to the outcome with the
predictor included in the equation. First, when the three culture variables were entered
separately, all three culture variables showed a highly significant effect on firm
performance, as given in Table 4, models 3–5. When the mediating variables (culture)
were entered together with HPWS in Table 4, models 6–8, HPWS remained significant
but the b coefficient was reduced. The results provide support for the partial mediation of
organizational cultures on the HR–firm performance relationship. An additional Sobel’s
test was employed to cross-check the mediated effects. The results from using Sobel’s tests
on the mediating effects of bureaucratic (t ¼ 4.09, p ¼ 0.00), supportive (t ¼ 2.96,
p ¼ 0.003) and competitive (t ¼ 4.56, p ¼ 0.00) culture between HPWS and firm
performance were indeed highly significant. These results provide further support for the
mediating effects of three corporate culture variables.
Because of a high correlation between some variables, multi-collinearity may be a
problem, affecting the signs and significance of the regression coefficients. Variance
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Table
2.
Descriptivestatistics
andcorrelationsam
ongvariables.
Predictors
Mean
S.D.
12
34
56
7
1.Perform
ance
3.74
0.55
2.Year
10.52
7.32
0.19**
3.Size(log)
6.54
1.18
0.11
0.39***
4.HPWS
2.99
0.55
0.46***
0.19**
0.18**
5.Im
plement
2.36
0.90
0.39***
0.29***
0.27***
0.49***
6.Bureaucrat
3.61
0.60
0.43***
0.08
0.09
0.48***
0.41***
7.Supportive
3.17
0.60
0.42***
0.16*
0.03
0.57***
0.33***
0.57***
8.Competitive
3.20
0.61
0.50***
0.15*
0.05
0.50***
0.39***
0.62***
0.64***
Note:*p,
0.05,**p,
0.01,***p,
0.001.
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inflation factors (VIF) are commonly used to measure the degree of collinearity in a
regression equation. To check whether this is a serious problem in our specified regression
equation, the VIF statistics were calculated. All VIF collinearity statistics are, however,
below 3. As suggested by Bagozzi (1994), a VIF statistic greater than 10 is considered to
indicate serious multi-collinearity. Thus, multi-collinearity is not a problem in the
specified equations.
Discussion
This study investigated the mediating mechanism through which HPWS is hypothesized
to affect organizational performance. Results from the present study confirmed that the
effect of HPWS on performance may be because of the existence of intermediate
variables that are affected by HR practices, which, in turn, influence organizational
performance. The results on the mediating model demonstrate that implementation and
culture are relevant factors that explain why HR systems enhance organizational
performance.
The findings provide a foundation to study the important HPWS and organizational
outcomes for HKTDI in a Chinese context. Because more multi-national firms are entering
the Chinese market, the results from this study offer implications both for research and for
practice. From the theoretical perspective, this study provides an alternative theoretical
model of the HR–performance linkage. The results have extended the understanding of the
mediating role of implementation through which an HR system affects firm performance.
This study also enriches the literature by adding the mediating effect of organizational
culture on the HR–performance link. Furthermore, this study contributes to the
literature by examining the mediating mechanism and identifying how HR systems
actually impact firm performance. The findings also contribute to helping HR practitioners
to understand the essential role of implementation as mediator in the HR–performance
relationship.Managers need to take amore proactive role in the effective implementation of
HPWS in order to achieve higher levels of performance. Senior HR executives should focus
on the consistency between intended and implemented HR, particularly the role of
successful implementation of a firm’s HPWS and firm performance. Intentionally imitating
the HPWS in the hope of improving organizational performance creates little value. They
Table 3. Regression results mediating effect of implementation.
Dependent variables Firm performance Implementation
Independentvariable or predictors 1 2 3 4 5
Years 0.17* 0.11þ 0.09 0.08 0.15*Size (log) 0.05 20.02 20.02 20.04 0.14*Manufacturing 20.10 20.09 20.09 20.09 0.002Electro/comm 20.09 20.08 20.08 20.07 20.02HPWS 0.46*** 0.38*** 43***
Implementation 0.36*** 0.19**DR 2 0.04 0.20*** 0.11*** 0.22*** 0.17***F 2.36þ 13.77*** 8.00*** 13.04*** 17.29***
Note: þp , 0.1, *p , 0.05, **p , 0.01, ***p , 0.001.
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Table
4.
Regressionresultsonmediatingeffect
ofculture.
Dependentvariables
Firm
perform
ance
Organizationalculture
Independentvariables
orpredictors
12
34
56
78
Bureaucratic
Supportive
Competitive
Years
0.17*
0.11þ
0.15*
0.09
0.10
0.11þ
0.08
0.81
20.01
0.09
0.07
Size(log)
0.05
20.02
0.03
0.08
0.06
20.004
0.02
0.02
20.01
20.13*
20.07
Manufacturing
20.10
20.09
20.12
20.10
20.12
20.11
20.10
20.11
0.02
20.02
0.05
Electro/comm.
20.09
20.08
20.16
20.14
20.10
20.13
20.11
20.09
0.14
0.09
0.02
HPWS
0.46***
0.31***
0.33***
0.29***
0.47***
0.58***
50***
Bureaucratic
0.46***
0.31***
Supportive
0.41***
0.22**
Competitive
0.49***
0.35***
DR
20.04
0.20***
0.20***
0.16***
0.23***
0.27***
0.23***
0.29***
0.22***
0.32***
0.24***
F2.36þ
13.77***
13.93***
10.94***
16.17***
16.30***
13.40***
17.71***
13.81***
23.15***
15.13***
Note:þp,
0.1,*p,
0.05,**p,
0.01,***p,
0.001.
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should focus more into its actual implementation within their organization. They should
make concerted efforts to ensure that intended HR systems are implemented successfully.
Lawler and Mohrman (2003) argue that HR executives must participate in the
formulation and implementation of strategies in order to make them effective. Having
senior HR executives involved in an organization’s top management strategic decisions
helps to ensure that the formulation and implementation of HR systems fully align with the
strategic direction of the firm. Having senior HR executives involved in business decisions
and activities helps to transform the value of HPWS into superior performance. The
findings from this study offer important insights for executives in designing and
implementing effective HR systems in China.
This study also identifies organizational culture as the mechanism through which
HPWS affects firm performance. HPWS enhances firm performance through fostering
organizational culture. It should be noted that the findings revealed provide support for all
three distinct organizational cultures acting as the mediators. However, under the current
business environment in China, competitive culture seems to be the most effective,
relative to bureaucratic and supportive culture, in mediating the HR–performance
relationship. The results could be useful to HR professionals in creating an organizational
culture to enhance organizational performance. It offers practical implications for HR
professionals and business executives in developing an HR system that requires the
nurturing of organizational culture in order to outperform their rivals.
Limitations and future research direction
The findings from this study should be interpreted with caution. This study utilized self-
reporting questionnaires to collect data on all measures from the same source (Schoorman
and Mayer 2008). Common method bias and the use of subjective performance measures
may cause some concerns. HR practices were factual and verifiable, as opposed to
‘attitudinal’ measures. Following the advice recommended by Podsakoff, MacKenzie and
Lee (2003), results from Harman’s one factor test with no rotation yielded seven factors
with eigenvalues greater than one and explained 61.21% of the variance, with the largest
factor explaining 32.19%. A single factor did not emerge and did not account for most of
the variance. The results indicate that common method variance is not a serious problem.
In addition, perceptual measures of firm performance have been extensively used in survey
research (Delaney and Huselid 1996). Wall et al. (2004) made a claim for the validity of
subjective measures of company performance. The subjective and objective measures of
company performance were positively associated at 0.52. In the Chinese context, Gong,
Shenkar, Luo and Nyaw (2005) found a very high level of consistency in the responses to
the performance issues across the foreign parents and the local ventures’ CEOs in
international joint ventures (IJVs). Further, results exhibited a high consistency of
responses to the same items between two different senior managers from the same IJV.
The cross-sectional design cannot exclude the potential problem of casual inference.
High-performing firms are more likely to implement HPWS than the low-performing
firms. Organizational culture, conceptualized as being organizationally embedded
assumptions and values, can function both as an antecedent to the HRM system and as a
mediator of its linkage to firm performance (Denison 1996). Organizational culture causes
both the implementation of high-performance HR practices and organizational
performance. Firm performance may influence the level of HPWS implementation.
Future studies should track the causalities of these variables. Longitudinal and
experimental designs provide greater causal insight and uncover the dynamic influence
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of HPWS on overall performance. Moreover, China is a huge country with great regional
differences. Future studies should extend to other regions and include other types of FDI in
the sample in order to enhance the generalizability of results.
Conclusion
This study addresses the process through which HR systems impact organizational
performance and proposes to consider intermediate linkage between HPWS and
performance. Implementation and organizational culture are explanatory variables that
provide substantive interpretations of the underlying nature of the HR–performance
relationship. Intended HR practice, if implemented effectively, results in higher
organizational performance. Empirical findings from this study also support HPWS
enhances performance through fostering organizational culture. The way HPWS
influences firm performance is through effective implementation and organizational
culture. The mediating effect of implementation and culture is thus confirmed.
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4 A
ugus
t 201
2
