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Research indicates that strategic HRM practices bring higher levels of organizational performance in Singapore.
competitiveness in the current turbulent environment also accelerated the importance of human capital.1 Careful management of this important resource calls for a strategic focus on human resource management (HRM) in the organization. Strategic HRM involves designing and implementing a set of proactive HR policies/practices that ensures that an organizations human capital contributes to the achievements of its corporate objectives. Fundamental to this perspective is an assumption that organizational performance is influenced by the set of HRM practices in place. This article investigates the relationship between strategic HRM practices and organizational performance in Singapore and looks at the implications of the findings for both managers and practitioners.
message frequently found in corporate mission statements, annual reports and plaques on office walls is that people are a firms most valuable resource. Having the right personnel at the right place and at the right time is of utmost importance to the survival and success of any organization. The 1990s saw the emergence of a new generation of workers who are characterized by decreased loyalty to their company and increased expectations for autonomy, self-development and greater involvement in company decision making. Simultaneously, in Singapore and in many parts of the world, the increasing emphasis on knowledge-based
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results were consistent across diverse measures of firm performance after corrections for selectivity and simultaneity biases. Using 590 profit and nonprofit firms from the National Organizations Survey, Delaney and Huselid8 found positive associations between HRM practices such as training and staffing selectivity, and perceptual firm performance measures. In a subsequent study of 293 U.S. firms, Huselid, Jackson and Schuler9 evaluated the impact of human resource managers capabilities on HR management effectiveness and the latters impact on corporate performance. Their findings showed that large firms in the United States are more proficient in their technical HRM capabilities than in their strategic HRM capabilities. As time goes on, however, a ceiling effect may begin to constrain the ability of the U.S. firms to gain competitive advantage through continued improvement in technical HRM activities. In addition to this finding, they noted significant correlation between HRM effectiveness and employee productivity, cash flow and market value. All of these studies generally reveal a positive relationship between HRM policies/practices and firm performance. We decided to test six strategic HRM variables that have been consistently identified in the literature as proactive HRM practices. First, we tested each strategic HRM variable against firm performance. Second, we examined how this bundle of strategic HRM variables together affect firm performance. It is the combination of these practices, rather than individual ones, that shapes employee relations and firm outcomes. We tested the following specific hypotheses: 1. Extensive training is positively related to firm performance (financial and HR). 2. Selective staffing is positively related to firm performance. 3. Empowerment is positively related to firm performance. 4. Performance appraisal is positively related to firm performance. 5. Broad job design is positively related to firm performance. 6. Performance-based pay is positively related to firm performance. 7. A bundle of strategic HRM variables are positively related to firm performance.
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Measurements
The prime objective of this study is to ascertain the relationship between strategic HRM and firm performance. The various variables used to measure these two constructs are described as follows.
tive in our firm. Five items were used to assess performance-based pay. This variable reflects the degree of the linkage of performance and pay level. A sample item is, Pay for non-managerial employees is closely tied to individual or group performance in our firm. Finally, the bundle of strategic HRM variables is obtained by summing the factor scores of the various strategic HRM variables as derived from exploratory factor analysis.
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Ownership Sector Local Japan United States Europe Other Asia Total
16 11 9 4 4 18 62
29 2 4 1 1 16 53
11 2 3 1 1 15 33
10 1 6 1 1 10 29
2 4 1 1 2 4 14
68 20 23 8 9 63 191
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The Sample
A mail survey approach was used in the study. A questionnaire was administered to the person in charge of the human resource department in the company. Each questionnaire was accompanied by a cover letter explaining the purpose of the study. Units of observation for this study are subsidiaries of multinational companies (MNCs) and local firms operating in Singapore. Each firm included in the sample had at least 50 full-time employees. The sample comes from different sectors of the economy. In the case of subsidiaries, both wholly owned MNC subsidiaries and joint ventures were included. A total of 2,160 companies compiled from the Singapore 1000 and Singapore Exchange Directory were targeted as the initial respondents. These companies were used because they fulfilled the requirements for this study. Companies in the Singapore 1000 are either public limited or private limited companies with at least two full years of operation. These companies are the topperforming companies in Singapore in terms of sales turnover and profits. Firms in the Singapore Exchange Directory are generally the large, local companies in Singapore. To pretest the questionnaire, five human resource executives from Singapore-based companies were chosen. The questionnaires were first administered to these respondents. Issues assessed during the pilot test were face validity, instructions and statement clarity, questionnaire layout and length. Improvements were made to the questionnaire based on the respondents comments. We are aware of the possibility of common-source bias as we only surveyed the HR manager. To reduce this problem, scale items were deliberately intermingled with one another. In addition, we left the organizational perfor-
mance section toward the end of the questionnaire so as to limit the possibility of respondents rationalizing their answers.
Results
Because there are 36 statements representing the six strategic HRM variables, factor analysis was conducted to reduce the number of statements to a more manageable set. Internal consistency of all the scales was then assessed using Cronbachs reliability alpha. The interitem correlation results, available in exploratory factor analysis, were used to test the bivariate relationship between the strategic HRM variables and firm performance. This provides a first test for the six hypotheses. We next analyzed the data by hierarchical regression, which incorporates all explanatory and control variables. Two regression models were built. In the first model, the control variables were used as independent variables against firm performance (both financial and HR). In the second model, in addition to all the control variables deployed in the first model, the various strategic HRM factors identified in the exploratory factor analysis stage were added to the model, one factor at a time. The significant factors were then grouped together to form a bundle of strategic HRM variables and tested in the same manner. The change in F ratio assesses any statistical difference between the two models. Hierarchical multiple regression provided a confirmatory test for Hypotheses 1 to 6 and the test for Hypothesis 7.
General Findings
A total of 191 companies responded to the survey. The organizations were classified into six different industries: manufacturing, construction,
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Factor Loadings Questionnaire Item Training: = 0.8194 Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6
Amount of money spent on training Availability of different kinds of training Opportunities for training High priority on training Systematically structured training process Extensive training for general skills Extensive transference of task and responsibilities
Selection: = 0.8324
0.790 0.788 0.650 0.636 0.578 0.542 0.433 0.292 0.274 0.089 0.371 0.059 0.337 0.361 0.060 0.093 0.199 0.155 0.293 0.257 0.311
0.384 0.322 0.366 0.249 0.105 0.242 0.088 0.760 0.724 0.639 0.581 0.570 0.417 0.400 0.036 0.392 0.163 0.221 0.343 0.405 0.032
0.101 0.150 0.148 0.346 0.054 0.118 0.408 0.191 0.118 0.234 0.114 0.008 0.012 0.028 0.654 0.650 0.621 0.603 0.562 0.538 0.315
0.003 0.108 0.146 0.148 0.091 0.058 0.003 0.147 0.272 0.041 0.029 0.131 0.247 0.300 0.237 0.102 0.129 0.323 0.115 0.103 0.175
0.018 0.040 0.027 0.179 0.241 0.166 0.394 0.058 0.002 0.018 0.466 0.173 0.259 0.141 0.049 0.094 0.220 0.067 0.137 0.136 0.306
0.181 0.138 0.108 0.099 0.019 0.450 0.218 0.117 0.027 0.087 0.006 0.171 0.351 0.127 0.059 0.144 0.099 0.061 0.260 0.212 0.048
High selection criteria Much efforts in appraisal performance Much efforts to select the best person Great importance on staffing process Extensive selection process Participation in wide range of issues Amount of money spent on selection
Empowerment: = 0.7867
Permitting enough discretion in doing work Providing chances to use personal initiative High pay level compared to same industry Focus on long-term potential of candidates Participation in very wide range of issues Engagement in problem solving and decisions Require multitasking
Performance appraisal: = 0.7867
Pay raise and promotion tie to performance appraisal Pay tie to group performance Emphasis on personal development
Team-based work: = 0.5402
0.102 0.062 0.417 0.028 0.130 0.449 0.137 0.109 9.678 33.374
0.223 0.068 0.162 0.062 0.165 0.333 0.122 0.130 2.144 7.393
0.048 0.035 0.316 0.341 0.140 0.099 0.142 0.148 1.544 5.323
0.816 0.774 0.466 0.029 0.155 0.025 0.020 0.059 1.356 4.677
0.070 0.172 0.043 0.709 0.665 0.461 0.210 0.005 1.305 4.502
0.021 0.079 0.041 0.084 0.252 0.089 0.797 0.786 1.189 4.099
Minimum status differentials for egalitarianism Coordination and control based on shared goals Clearly defined jobs and duties
Performance-based pay: = 0.7396
Employee financial participation Provide employees ownership plan Eigenvalue Percentage of variance explained
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Variable
1.00 0.663*** 1.00 0.562*** 0.531*** 1.00 0.426*** 0.490*** 0.393*** 1.00
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5. Team-based work 0.455*** 0.481*** 0.473*** 0.255** 1.00 6. Performancebased pay 7. Financial performance 8. HR performance 0.387*** 0.390*** 0.382*** 0.98*** 0.327*** 1.00 0.320*** 0.294*** 0.276*** 0.243** 0.187** 0.246** 1.00 0.480*** 0.452*** 0.456*** 0.393*** 0.410*** 0.370*** 0.605*** 1.00
Note: The numbers in the exhibit represent the correlation coefficients of the variables. **p < .01. ***p < .001.
commerce, transport and communication, financial and business services and other services. Firms in the manufacturing sector accounted for most of the respondents (35.6%). The breakdown of industries is shown in Exhibit 1 below. In terms of ownership, local firms comprise the highest proportion (32.5%).
tistical support to the positive relationship between the specific strategic HRM variables and firm performance stipulated in Hypotheses 1 to 6. In particular, all the strategic HRM variables have consistently higher correlations with a firms HR performance than financial performance.
HR Performance
The regression results for the firms HR performance are shown in Exhibit 5. The finding reveals that all the strategic HRM variables have a positive impact on HR performance. As measured by the change in F, empowerment exhibits the
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Financial Performance Variable Equation 1 Equation 2a Equation 3a Equation 4a Equation 5a Equation 6a Equation 7a Equation 8a
Constant Joint ventures Union dummy Industry: manufacturing ln size United States Japan Europe Singapore Training Selection Empowerment Appraisal Team-based work Performance-based pay Bundleb Adjusted R 2
3.325*** 2.849*** 2.435*** 2.262*** 2.348*** 2.823*** 3.225*** 2.265*** (0.352) (0.404) (0.483) (0.508) (0.476) (0.475) (0.362) (0.504) 0.337 (0.330) 0.093 (0.179) 0.004 (0.157) 0.330 (0.325) 0.123 (0.181) 0.058 (0.158) 0.391 (0.326) 0.154 (0.179) 0.029 (0.155) 0.253 (0.325) 0.103 (0.181) 0.032 (0.156) 0.325 (0.322) 0.151 (0.176) 0.019 (0.154) 0.344 (0.329) 0.102 (0.179) 0.029 (0.159) 0.313 (0.331) 0.108 (0.180) 0.003 (0.158) 0.306 (0.325) 0.112 (0.184) 0.022 (0.157)
0.195*** 0.153*** 0.176*** 0.195*** 0.195*** 0.191*** 0.188*** 0.161** (0.054) (0.056) (0.054) (0.054) (0.053) (0.054) (0.055) (0.056) 0.525 (0.329) 0.381 (0.317) 0.546 (0.330) 0.113 (0.298) 0.508 (0.324) 0.301 (0.315) 0.5420 (0.326) 0.003 (0.297) 0.167* (0.073) 0.247** (0.092) 0.283** (0.980) 0.227** (0.076) 0.122 (0.077) 0.059 (0.052) 0.321** (0.107) 0.153 0.175 0.186 0.189 0.192 0.156 0.153 0.188 0.481 (0.324) 0.319 (0.313) 0.542 (0.325) 0.046 (0.297) 0.381 (0.326) 0.379 (0.311) 0.414 (0.327) 0.111 (0.293) 0.440 (0.322) 0.331 (0.310) 0.590 (0.323) 0.094 (0.292) 0.502 (0.328) 0.332 (0.318) 0.527 (0.332) 0.059 (0.300) 0.468 (0.333) 0.354 (0.319) 0.489 (0.335) 0.126 (0.299) 0.403 (0.326) 0.290 (0.314) 0.470 (0.330) 0.054 (0.296)
F df
adjusted R 2 F
4.783*** 4.928*** 5.211*** 5.290*** 5.437*** 4.438*** 4.348*** 5.181*** 168 0.022 4.453 167 0.033 6.730 166 0.036 7.369 166 0.039 8.109 168 0.003 0.594 167 167 0.035 6.983 162
Note: Numbers in parentheses are standard errors. a. Statistics refer to the comparison of Equation 1. b. Excluding team-based work and performance-based pay. p < .10. *p < .05. **p < .01. ***p < .001.
largest incremental contribution (F = 35.868). Second is training (F = 35.165), followed by selection (F = 31.389). Performance appraisal,
which contributes the most to firm financial performance incrementally, is ranked fifth in its contribution to HR performance.
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HR Performance Variable Equation 1 Equation 2a Equation 3a Equation 4a Equation 5a Equation 6a Equation 7a Equation 8a
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Constant Joint ventures Union dummy Industry: manufacturing ln size United States Japan Europe Singapore Training Selection Empowerment Appraisal Team-based work Performance-based pay Bundle Adjusted R 2
4.331*** 3.474*** 2.959*** 2.764*** 3.029*** 3.103*** 4.091*** 2.335*** (0.267) (0.284) (0.344) (0.360) (0.347) (0.331) (0.362) (0.329) 0.020 (0.251) 0.271* (0.137) 0.060 (0.120) 0.040 (0.040) 0.250 (0.252) 0.432 (0.245) 0.251 (0.252) 0.320 (0.228) 0.002 (0.228) 0.197 (0.127) 0.064 (0.112) 0.035 (0.284) 0.227 (0.229) 0.304 (0.223) 0.233 (0.229) 0.149 (0.209) 0.302*** (0.052) 0.373*** (0.066) 0.414*** (0.070) 0.227*** (0.056) 0.300*** (0.054) 0.156*** (0.038) 0.321** (0.107) 0.119 0.270 0.257 0.274 0.246 0.256 0.196 0.381 0.121 (0.232) 0.147 (0.128) 0.025 (0.111) 0.021 (0.038) 0.191 (0.232) 0.339 (0.226) 0.234 (0.232) 0.176 (0.212) 0.122 (0.229) 0.210 (0.128) 0.004 (0.110) 0.045 (0.038) 0.052 (0.231) 0.439* (0.222) 0.039 (0.231) 0.355 (0.207) 0.002 (0.233) 0.202 (0.127) 0.036 (0.111) 0.042 (0.037) 0.131 (0.234) 0.384 (0.227) 0.306 (0.233) 0.293 (0.211) 0.046 (0.232) 0.233 (0.126) 0.149 (0.112) 0.030 (0.037) 0.193 (0.233) 0.323 (0.226) 0.286 (0.234) 0.197 (0.212) 0.038 (0.240) 0.237 (0.131) 0.062 (0.115) 0.017 (0.039) 0.115 (0.243) 0.364 (0.234) 0.138 (0.243) 0.358 (0.218) 0.031 (0.211) 0.134 (0.120) 0.037 (0.102) 0.000 (0.036) 0.043 (0.213) 0.266 (0.206) 0.189 (0.214) 0.199 (0.193)
F df
adjusted R 2 F
3.885*** 7.970*** 7.505*** 8.049*** 7.211*** 7.503*** 5.593*** 12.205*** 171 170 0.151 35.165 169 0.138 31.389 168 0.155 35.868 171 0.127 28.803 170 0.137 31.304 170 0.077 16.281 164 0.263 69.682
Note: Numbers in parentheses are standard errors. a. Statistics refer to the comparison of Equation 1. p < .10. *p < .05. **p < .01. ***p < .001.
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In addition, the HR bundle (rather than individual HR components) contributes the most explanatory power to HR performance. Hence, all the hypotheses are supported here. On the whole, our finding suggests that strategic HRM has a more positive role in explaining a firms HR performance than financial performance.
mance as well as use multiple channels of data collection and consider longitudinal analysis.
Acknowledgment
The authors would like to acknowledge financial support of the study from a research grant (RP991007) by the National University of Singapore.
Notes
1. Business Times, Singapore, July 23, 1999. 2. Tichy, N. M., Fombrun, C. J., & Devanna, M. A. (1982). Strategic human resource management. Sloan Management Review, 23, 47-61. 3. Ferris, G. R., Russ, G. S., Albanese, R., & Martocchio, J. J. (1990). Personnel/human resources management, unionization, and strategy determinants of organizational performance. Human Resource Planning, 13, 215-227. 4. Cutcher-Gershenfeld, J. (1991). The impact on economic performance of a transformation in workplace relations. Industrial and Labor Relations Review, 44, 241-260. 5. Arthur, J. B. (1994). Effects of human resource systems on manufacturing performance and turnover. Academy of Management Journal, 37, 670-687. 6. MacDuffie, J. P. (1995). Human resource bundles and manufacturing performance: Organizational logic and flexible production systems in the world auto industry. Industrial and Labor Relations Review, 48, 197-221. 7. Huselid, M. A. (1995). The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal, 38, 635-670. 8. Delaney, J. T., & Huselid, M. A. (1996). The impact of human resource management practices on perceptions of organizational performance. Academy of Management Journal, 39, 949-968. 9. Huselid, M. A., Jackson, S. E., & Schuler, R. S. (1997). Technical and strategic human resource management effectiveness as determinants of firm performance. Academy of Management Journal, 40, 171-188.
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10. Snell, S. A., & Dean, J. W., Jr. (1992). Integrated manufacturing and human resource management: A human capital perspective. Academy of Management Journal, 35, 467-504. 11. Bae, J., & Lawler, J. J. (2000). Organizational and HRM strategies in Korea: Impact on firm
performance in an emerging economy. Academy of Management Journal, 43, 502-517. 12. Khandwalla, P. (1977). The design of organizations. New York: Harcourt Brace Jovanovich.
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David Wan is an assistant professor of management in the Faculty of Business Administration at the National University of Singapore. He earned his Ph.D. in business administration from the University of Manchester, United Kingdom. His research interests include the industrial relations climate, unionization, international HRM, interlocking directorates, strategic compensation and innovation management. He is also actively involved in the teaching of industrial relations modules at the Singapore Institute of Labor Studies. Chin Huat Ong is a research fellow at the Centre for Business Research & Development in the Faculty of Business Administration at the National University of Singapore (NUS). He has a masters degree from the NUS and is now working on his doctoral thesis on board of directors and corporate governance. His research interests include HRM, industrial relations, innovation management, industry studies, economic forecasting and strategic management. Victor Kok is an honors graduate from the Faculty of Business Administration at the National University of Singapore.
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