Boundary Conditions of the High-

Investment Human Resource Systems-

Small-Firm Labor Productivity Relationship

Chadwick, Way, Kerr, & Thacker (2013)

How Are Small Firms impacted by HIHRS?

Presenter: Samuel E. Dunham

Literature Review Possible positive influence of HIHRS on small-firm labor productivity

Acquiring, training, retaining, and motivating

Possible negative influence of HIHRS on small-firm labor productivity

Managerial Attention

Fit between HIHRS and small firms

Current Empirical Evidence of HIHRS and Objective Firm-Level Labor Productivity Positive relationships have been reported between systems of HIHRS

practices and objective firm-level labor productivity (e.g., Guthrie, 2001)

Other studies have reported nonsignificant associations

Could because the moderating influence of contextual factors haven't been examined in these studies

Accurate, observable small-firm performance is difficult to obtain because these firms tend to not be publicly traded

Subjective measures of performance tend to be used in small-firms (some as the only measure and in some studies as an addition to objective measures of performance

Internal Boundary Conditions Differentiation Strategy

Niche strategies are prevalent for small firms

More distinctive niches are easier for small firms to defend

Differentiation is normally best for small firms

Continuous adaptation

Requires greater demands of managerial attention

Inconsistent with HIHRS

H1: Differentiation strategy moderates the relationship between HIHRS and small-firm labor productivity, such that the influence of HIHRS on small-firm labor productivity is negative for small-firms that pursue a differentiation strategy and is nonsignificant for small firms that do not pursue a differentiation strategy.

Internal Boundary Conditions Firm Capital Intensity

Capital equipment imposes greater structure on a firm’s value creation processes

Positive correlation between small-firm capital intensity and the appropriateness of mechanical forms of control (like HIHRS)

HIHRS makes greater unique demands on managerial attention for small-firms with fewer capital

H2: Firm capital intensity moderates the relationship between HIHRS and small-firm labor productivity such that the influence of HIHRS on small-firm labor productivity is negative at low levels of firm capital intensity and is positive at high levels of firm capital intensity.

External Boundary Conditions Industry Dynamism

Dynamic industry – typified by rapid change and high variability in competitive demands

Firms who operate in a dynamic industry require flexibility

Dynamic industries make greater demands for managerial attention

HIHRS place more importance on standardization and reliability than for flexibility

H3: Industry dynamism moderates the relationship between HIHRS and small-firm labor productivity, such that the influence of HIHRS on small-firm productivity is negative at high levels of industry dynamism and is positive at low levels of industry dynamism.

External Boundary Conditions Industry Growth

Sustained growth gives small firms a relatively predictable competitive environment

Increases the suitability of mechanistic forms of control (like HIHRS)

Suitability of HIHRS

Greater with less liabilities for small firms operating in high growth industries

H4: Industry growth moderates the relationship between HIHRS and small-firm labor productivity, such that the influence of HIHRS on small-firm labor productivity is negative at low levels of industry growth and is positive at high levels of industry growth.

Variables Independent Variable - Firm-Level HIHRS Additive INDEX

Made up of 7 HRM practice variables

Extensive recruitment, extensive screening, selection tests, continuous training, promotion-from-within, employee ownership, and performance-based pay (each score was standardized)

Dependent Variable - Objective Small-Firm Labor Productivity

The ratio of firm sales to employees

Alternative Firm-Level HIHRS Use Measure

The 7 HRM practice variables were reset to a common scale (0 to 1) and the mean of the variables was taken

HIHRS use among small-firms in this study was moderate (M = .44, SD = .14)

Statistics were compatible to other studies using larger firms

Suggests that small-firms may use HIHRS to a similar extent as larger firms

Variables Moderator Variables

Differentiation Strategy (from senior managers)

Firm Capital Intensity (from senior managers)

Industry Dynamism (from Statistics Canada)

Industry Growth (from Statistics Canada)

Control Variables

Industry Sector

Unionization

Firm Size

Firm Age

Written Strategic Plan

HRM Owner/Top Management Responsibility

Culture Management

Industry Munificence

Availability of resources in a firm's competitive environment

Industry Capital Intensity

Method Small firms = firms with fewer than 100 employees

Data obtained from 3 sources

Dun and Bradstreet Canada

Used to create the small-firm labor productivity dependent variable, as well as industry sector, firm size, and firm age control variables

Statistics Canada

Used to create the industry dynamism and industry growth moderator variables, as well as industry munificence and industry capital intensity control variables

Data from 96 senior managers

Used to create the independent variable (HIHRS additive index), differentiation strategy moderator variable, and firm capital intensity moderator variable, as well as unionization, written strategic plan, HRM owner/top management responsibility, and culture management control variables

906 for-profit, private sector Canadian small firms from a variety of industries were drawn from a database

496 senior managers were successfully contacted with a 20% response rate

4 small forms were omitted from the initial 100 small firm sample because of missing data

Method Final Sample - 96 for-profit, private sector Canadian small firms

Wholesale trade sector – 14%

Services sector – 27%

Manufacturing sector – 30%

Retail trade sector – 15%

Transportation/ utilities sector – 9%

Finance/insurance sector – 5%

Mean firm size of final sample – 36.9 employees

Binary logistic regression comparisons (2)

Assessed whether the small firms included in the final sample were an unbiased representation of the for-profit, private sector Canadian small firms from multiple industries included in the database

1st Regression - Sample’s 96 firms were not significantly different from the other firms in the database (n = 810) in terms of size, age, sales, labor productivity, or industry sector

2nd Regression - 100 firms that responded (n = 100) were not significantly different from the nonrespondent firms (n = 396) in terms of size, age, sales, labor productivity, or industry sector

Results The correlations generally ran in directions consistent with the

study’s description of small-firms

Ordinary least squares-moderated multiple regression was used to test the hypotheses

H1 was supported

H2 was partially supported

H3 was not supported

H4 was partially supported

Discussion Study’s results suggest that the influence of HIHRS on small-firm

labor productivity depends on internal and external boundary conditions

The moderators and mediators in strategic HRM are not necessarily incompatible

Some mediators are more appropriate in certain contexts than

Specifying how contextual factors can affect analytic findings in strategic HRM research is important

This study in comparison to Data et al. (2005)

Different contexts

Data et Al (2005) used publicly traded manufacturing firms with more than 100 employees, had annual sales of at least $50 million and only focused on external boundary factors

Practical Implications (H1) When firms pursue a differentiation strategy, the model estimates

that a 1 SD increase in HIHRS is associated with a decrease of $53,118 in firm sales per employee

When firms do not pursue a differentiation strategy, the model estimates that a 1 SD increase is associated with a decrease of $5,635 in firm sales per employee

H1: Differentiation strategy moderates the relationship between HIHRS and small-firm labor productivity, such that the influence of HIHRS on small-firm labor productivity is negative for small-firms that pursue a differentiation strategy and is nonsignificant for small firms that do not pursue a differentiation strategy.

Practical Implications (H2) When small-firm intensity is low, the model estimates that a 1 SD

increase in HIHRS is associated with a decrease of $22,869 in firm sales per employee

When small-firm intensity is high, the model estimates that a 1 SD increase in HIHRS is associated with a increase of $13,742 in firm sales per employee

H2: Firm capital intensity moderates the relationship between HIHRS and small-firm labor productivity such that the influence of HIHRS on small-firm labor productivity is negative at low levels of firm capital intensity and is positive at high levels of firm capital intensity.

Practical Implications (H3) When industry dynamism is high, the model estimates that a 1 SD

increase in HIHRS is associated with an increase of $16,581 in firm sales per employee

When industry dynamism is low, the model estimates that a 1 SD increase in HIHRS is associated with a decrease of $17,727 in firm sales per employee

H3: Industry dynamism moderates the relationship between HIHRS and small-firm labor productivity, such that the influence of HIHRS on small-firm productivity is negative at high levels of industry dynamism and is positive at low levels of industry dynamism.

Practical Implications (H4) When industry growth is low, the model estimates that a 1 SD

increase in HIHRS is associated with a decrease of $38,982 in firm sales per employee

When industry growth is high, the model estimates that a 1 SD increase in HIHRS is associated with a increase of $23,067 in firm sales per employee

H4: Industry growth moderates the relationship between HIHRS and small-firm labor productivity, such that the influence of HIHRS on small-firm labor productivity is negative at low levels of industry growth and is positive at high levels of industry growth.

Limitations and Future Research Opportunities Future Research Opportunities

Look into the finding that the HIHRS small-firm labor productivity relationship is either not significant or positive for small firms that do not pursue a differentiation strategy, that are capital intensive, that operate in dynamic industries, and operate in high growth industries

Look into the relationship between the industry dynamism*HIHRS interaction term and small-firm labor productivity

The interaction term may be picking up contextual effects and/or those of industry dynamism itself

Limitations

Common Method Bias

The role of administrative costs could not be directly examined through the study

Discussion Questions In the study, small-firms were typically characterized as flexible,

“laid-back” users of subjective information. Has this generally been true in your own experience?

Which of the following do you believe is more important for small-firms to consider (generally) before possibly implementing a HIHRS: internal boundary conditions or external boundary conditions?

“It depends” probably holds true, but do these two types of boundary conditions generally hold equal weight for a small-firm considering a HIHRS?

The benefits of lower voluntary turnover and higher profitability were not examined in this particular study. Should these exclusions cause us to look at the results cautiously?