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S Y E D A K H TA R , D A N I E L Z . D I N G , A N D G L O R I A L . G E
This study examined the factorial validity of strategic human resource management practices and their effects on company performance in a sample of 465 Chinese enterprises. Data were collected through two questionnaire surveys among general managers and HRM directors on product/service performance of their companies and a range of strategic HRM practices. Our findings indicate that a valid set of strategic HRM practices (training, participation, results-oriented appraisals, and internal career opportunities) affect both product/service performance and financial performance. Employment security and job descriptions contribute uniquely to product/service performance, whereas profit sharing contributes uniquely to financial performance. © 2008 Wiley Periodicals, Inc.
esearchers have argued that human resources may be seen as a source of sustained competitive advantage for organizations (Barney, 1991, 1995; Becker & Gerhart, 1996). The underlying assumption is that human resources are unique to the extent that competitors cannot imitate them. This research has led to the identification of a number of human resource management practices that contribute to company performance across different organizations (Huselid, 1995). In a literature review, Delery and Doty (1996)
identified seven such practices that have been consistently considered strategic HRM practices. They defined strategic HRM practices as those that are “theoretically or empirically related to overall organizational performance” (p. 805). These practices include internal career opportunities, formal training systems, results-oriented appraisals, employment security, participation, job descriptions, and profit sharing. This approach has come to be known as the “best practices” or universalistic approach. Within the best practices approach to strategic HRM, the first practice, internal career opportunities, refers to the organizational
Correspondence to: Syed Akhtar, Department of Management, City University of Hong Kong Phone: (852) 27887870, Fax: (852) 2788-7220, E-mail: email@example.com.
Human Resource Management, Spring 2008, Vol. 47 No. 1, Pp. 15–32 , © 2008 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hrm.20195
organizations may have either an implicit or an The present study explicit policy. It contributes to the extant literature in three ways. This will shed some light on how Western HRM concepts and practices are adapted in the newly emerging market economy of China. performance. The configurational approach builds on the two previous approaches and synthesizes them into a highorder system in which researchers are interested in identifying the unique patterns of strategic HRM practices that are optimally effective. size. Of particular interest are the changes that have taken place in people management because traditionally. we discuss in some detail how the seven strategic HRM practices currently are applied in Chinese enterprises and their development trends. Other approaches to strategic HRM research include contingency and configurational approaches. Although compelling theoretical arguments have been made in favor of the contingency and configurational approaches. industry sector. Second. has emerged as a strategic to examining HRM practice. which is in transition from a centrally planned economy to a form of a free market economy. First.. This will help identify a set of strategic HRM practices that influence both these performance indices. Fifth. Second. employment security reflects the degree to which employees feel secure about continued employment in their jobs. job descripstrategic HRM tion refers to the extent jobs are tightly and clearly defined so that practices and their employees know what is expected of them. Third. cost. a particular HRM practice may influence company performance positively in combination with one strategy and negatively in combination with another strategy. & Akhtar. Fields.16 HUMAN RESOURCE MANAGEMENT. employee participation. In other words. and location of the enterprise.g. training systems refers to whether organizations provide extensive training opportunities for their employees or whether they depend on selection and socialization processes to obtain required skills. The contingency approach implies that organizational strategy (e. ownership. Fourth. we argue that currently there is relatively weak empirical support for these approaches. Spring 2008 preference for hiring primarily from within (Delery & Doty. appraisals are conceptualized in terms of outcome-based performance ratings and the extent to which subordinate views are taken into account in these ratings. it examines the factorial validity of the previously outlined seven strategic HRM practices in the context of Chinese enterprises using a large sample that cuts across firm age. innovation) moderates the relationships between strategic HRM practices and company performance. we examine how these strategic HRM practices impact a firm’s product/service performance and financial performance. Human Resource Management DOI: 10. quality. profit sharing reinfluence on flects the concern for overall orgacompany nizational performance on a sustainable basis. Although formalized employment security is generally on the decline. 1996). The present study adopts the best practices approach to examining strategic HRM practices and their influence on company performance. Third. this area is one in which large differences have existed between communist and advanced market economies (Ding.1002/hrm . Sixth. We expect that our results will help to determine whether or not measures of strategic HRM practices can be generalized across organizations and countries with a view to facilitating comparative research. Finally. Literature Review and Research Questions How valid is the use of strategic HRM practices in Chinese enterprises? Have these practices been adapted when applied in the Chinese context? Do these practices matter in terms of their influence on company performance? These questions need to be raised in the context of the Chinese economy. Progress in this area of research would seem to depend on the emergence of new techniques to measure HRM configurations. both in terms of takadopts the best ing part in decision making and practices approach having opportunities to communicate suggestions for improvement.
we expect that the conceptual strucnational settings is ture of these practices. 2004). Warner. 619). In view of recent developments in strategic organizations and HRM in Chinese enterprises. as It is clear to us that both local and global competitive pressures conceptualized in are at work in a move toward a convergence in strategic HRM the Anglo-American practices in China. will be reflected in question that we an empirically valid structure. 1997. 2004). and contributory social security (Warner. will address in this How Are Strategic HRM Practices Applied? study. of Whether or not course. have to adapt their practices to Chinese conditions” measures of these (Warner. recruitment and selection have become more market-oriented. However.000 new foreign-invested enterprises. These economic reforms have brought about unprecedented changes in human resource management practices. remuneration is increasingly tied to performance. strategic HRM practices have been introduced in giant SOEs that It is clear to us that have gone through reforms and have become publicly listed comboth local and panies (Ding & Akhtar. an increase of 13. Fields. $60 billion. These managers are fatoward a miliar with modern management language and are expected to folconvergence in low the “best practices” in strategic HRM. “as exemplified by their strategic HRM own corporations internationally practices in China.3% over the previous year (China State Statistics Bureau. and “cradle-to-grave” welfare (Ding. and the total amount of foreign direct investment reached more than U. Strategic human resource management often is viewed as a set of decisions regarding the acquisition. or in other MNCs operating in Mainland China. can conceptualized in the AngloAmerican HRM literature. we present an overview of the literature that has raised these questions and has sought their answers. China approved the opening of more than 43. performance-related reward systems. 2005).Strategic HRM Practices and Their Impact on Company Performance 17 1997. practices. 2004). 2004. Benson. On revisiting human resource management in China. utilization. and development of human . Compared with the pre-reform era. Whether or not measures of these practices. China has experienced phenomenal growth in foreign direct investment (FDI). They may.1002/hrm stantial changes were taking place with respect to HRM in large FIEs and wholly owned foreign enterprises. an increase of 6. 1996). subHuman Resource Management DOI: 10. p. The personnel reform legislation of 1992 and the 1994 Labor Law have guided the “three systems reform” that involved the introduction of labor contracts. as exan empirical plained in Delery and Doty’s work (1996). Warner (2004) observed that whereas in many SOEs conventional people management continued to be the norm. China’s state-owned enterprises (SOEs) virtually dominated industrial production. & Akhtar. In addition. & Warner.29% over 2003. and lifetime employment is being phased out (Rowley. How Valid Are Strategic HRM Practices? It must be said that before the economic reforms began in 1978. In the following sections. lifetime employment. 2004). foreign-invested enterprises (FIEs). and subsidiaries (Warner. human resource managers are usually expatriates or local pressures are at Chinese who have gone through prestigious business education work in a move programs. HRM practices among these enterprises were embedded in the socalled “iron rice bowl” (tie fan wan) that ensured centrally planned job allocation. In global competitive FIEs. A new HRM terminology has emerged in joint ventures and multinational corporations that seems to be distinguished from the personnel management terminology of the pre-reform era.S. as HRM literature. egalitarian pay. In 2004. allocation. over the last two decades. Warner. 2001). can be be considered to be considered to be valid with applivalid with cability across different organizations and national settings is an applicability across empirical question that we will different address in this study.
the ization of top and senior managers. In the large. The abolition of the “iron rice bowl” is believed to have contributed to the increased labor productivity in Chinese firms. we discuss the prevalence of Delery and Doty’s (1996) seven strategic HRM practices applied in the Chinese context. out of 25 department years. professional skills. However. In FIEs. which developed from the reward system reform in Chinese enterprises (for a detailed discussion of the evolution and reform of the reward system in Chinese enterprises.18 HUMAN RESOURCE MANAGEMENT. It has now become a popular practice in Chinese firms that each employee has clearly defined duties. the “post wage system” has increasingly added elements of skills and capabilities. In a cross-cultural study of managerial attitudes about HRM practices. see Ding & Warner. for example. Lowe. with the most important strategic HRM practice by managers. with trade unions as executive agents. such as publicly listed firms (PLFs) and joint-stock companies. training is the keystone for localHowever. Performance appraisal in China has been undergoing significant changes since the economic reforms began in 1978 (Shen. This system is accompanied by clear job descriptions and a strict performance appraisal system. & Warner. Frayne. and it emphasizes clear job responsibilities. It is not used just for managers’ promotions Human Resource Management DOI: 10. 2004). 2001). submajor issues related stantial amounts have been spent on training employees. 21 are Chinese managers (Wenmi Net. the amount of investment in training employees executive agents.07). and service quality and standards. $1 = RMB¥8. 2007). In SOEs. Job descriptions are the centerpiece for the socalled “post wage system” (gangwei gongzizhi). nine are local Chinese. job security has become very important for all employees. the significance of workers’ congresses has declined in recent years. representing workers and managers in the major corporate decisions. Warner.. & Warner. 2001). 2001). out of 12 senior managers at the cordeclined in recent porate level. 1998). However.S. 2001. reformed SOEs. Spring 2008 resources that affect organizational performance (Dyer. Workers’ congresses. Zhao (1999) noted that about half of disapprove of the SOEs in his sample allocated companies’ a negligible amount of annual expenditure on training. workers’ congresses are traditionally the primary channel for employee involvement in management activi- ties. & Geringer. The “post wage system” is composed of two parts: a basic wage (determined by the intensity and complexity of job duties) and a supplementary wage (determined by the accomplishment of job duties). and their current status and development trends. directors. In multinational corporations. and qualifications. it is recommended that local managers need to be consulted as the company strives to integrate its corporate culture with Chinese traditions and customs (Yang. the ability to innovate. 1995). to approve or In his empirical study. Cyr. less strategic plans and than RMB¥30 per employee (U. The system is called ganwei jineng gongzizhi. varies widely across firms with are entitled by law different ownership types (Drost. Also. In recent years. In the following sections. which are evaluated regularly to determine his/her level of compensation. since to the welfare of training is seen as a critical and effective tool to ensure product workers (Ding. are entitled by law to approve or disapprove of companies’ strategic plans and to have a say in major issues related to the welfare of workers (Ding. in FIEs. 2002). and Moore (1995) found that training Workers’ and development is perceived as congresses. In trade unions as China. 1984). In Ericscongresses has son China Ltd. Ge. Trained Chinese managers significance of have successfully replaced expatriate managers at the corporate workers’ and department levels. to have a say in On the contrary. and results-based performance appraisal (Ding & Warner. Jennings. employee representatives are elected to participate in the meetings of the boards of directors.1002/hrm . Ge. in an environment where almost all welfare benefits come with full-time employment and where the newly established social security system provides only minimal protection.
and managerial staff. ownership reform increased the efficiency of SOEs and reduced their financial debt (Deng. An important part of the ownership reform was employee ownership (i. Do Strategic HRM Practices Matter? It is one thing to have strategic HRM practices in place.Strategic HRM Practices and Their Impact on Company Performance 19 and transfers.. Do these significant institutional forces for firm performance imply that strategic HRM practices do not matter in developing and securing competitive advantage? Law. and political institutions remain decisive in how firms operate in the country (Peng. Tse.1002/hrm the China State Council. including human resource management. the majority reported that appraisal had positive impacts on employee performance ranging from moderately effective to very effective. the choice of local partners is crucial in establishing networks of stakeholders (Beamish. Some researchers have argued that China’s economic. enterprises seeking competitive advantage must increasingly rely on internal management processes. 2001). especially in the high-tech sector. Realizing the heavy burden of loss-making SOEs on the country’s nascent financial system. some company stock is sold to employees). The main purpose of the ownership reform was to improve the efficiency of SOEs through clarification of property rights and relationships with government agencies to reduce day-to-day government administrative intervention in the operations of SOEs. “China’s situation is changing rapidly” (p. and Zhou (2003) have argued that while this may be the case in formerly centrally planned economies that are severely distorted by institutional forces. 2000). Of 1. As Chinese society gradually moves toward becoming a knowledge society. marketing.3% of the sampled firms utilize performance appraisal. The deteriorating performance of SOEs prompted the Chinese government to shift the focus of SOE reform to ownership and corporate governance restructuring in the mid-1990s. social. while the mode of entry is constrained by institutional environments and firmgovernment relations. China’s entry into the World Trade Organization (WTO) has further . uncooperative attitudes by employees arising from a sense of being monitored and controlled. More and more companies provide opportunities for development and continuous learning in return for high performance and productivity during an employee’s stay (Larkin. and the lack of a corresponding reward and punishment system to match appraisal results (Guo & Suo.2% of the sampled firms asserted that performance appraisal is not as effective as expected. banking. thus linking the benefits of the employees with company performance. 1993). Also. even in regulated sectors such as telecommunications.e. 2005). providing opportunities for career and personal development plays an important role in attracting young Chinese holding graduate and postgraduate degrees (Caplan. career management has become an increasingly important part of human resource strategies. but for line workers as well.044 enterprises. the lack of feedback and two-way communication. About 37. According to a recent report by Human Resource Management DOI: 10. These indicators of changing situations imply that even though institutional forces may remain potentially influential. The reasons for the unsatisfactory results of performance appraisal include unclear performance objectives and evaluation criteria. 2003). The small SOEs are left out and encouraged to seek privatization on their own. Also. 2005). 257). Recent research conducted by the Development and Research Center of the China State Council reported that 67. In recruiting and retaining qualified professionals. For FIEs to operate successfully. 2005). and insurance. such as technical. it is another to have such practices make a difference to company performance in the presence of strong institutional influences. China is actively reforming large enterprises in the state sector with the slogan “grasping the large” (Nolan. China’s entry into the World Trade Organization (WTO) has further removed barriers to competition. This change is a big step forward in the direction of a free market economy.
to cover the manufacturing and service sectors. we examine organizational the influence of strategic HRM practices relating to managerial settings in Angloand professional employees on two indexes of company performAmerican samples. These indicators of changing situations imply that even though institutional forces may remain potentially influential. difindicate that ficult to imitate.20 HUMAN RESOURCE MANAGEMENT. they concluded that “good HRM does matter to firm performance in a transitional economy” (Law et al. qualified engiperformance across neers and technicians. Delery & Doty.. Bjorkman and Fan (2002) conducted a study of 62 manufacturing FIEs and wholly owned foreign subsidiaries. 1997. and insurance. & Sheehan. compiled by the China State Statistics Bureau. a large-scale questionnaire survey was conducted in three major cities. and competent marketing staff” (Ding & different Akhtar. Conway. 948). Spring 2008 removed barriers to competition. among other things. Ichniowski & Shaw. Similarly. 2001. in this study. Reporting positive effects on both indexes. and company performance was measured by managerial assessments of satisfaction with profitability and overall performance. Shanghai. They created an HRM system index based on average standardized scores on 11 strategic HRM practices. lead to this empirical support to end result equally. 1998). The Human Resource Management DOI: 10. even in regulated sectors such as telecommunications. 263). Nanjing is less developed in terms of GDP per capita. 2003. MacDuffie. enterprises seeking competitive advantage must increasingly rely on internal management processes. 1995. In comparison with the other two cities. Accordingly. ance: product/service performance and financial performance. These three cities were selected based on their level of economic openness and development. Human resources that are valuable. Benefiting from its proximity to Hong Kong. Guangdong province is one of the top destinations for FDI in the country. infrastructure. Although several studies have explained developments and trends in the HRM field in Chinese enterprises over the past two decades (Warner. (2003) conducted a study of 122 firms across nine cities to test. Method Sample To investigate strategic HRM practices and their impact on firm performance in Chinese firms. however. banking. household consumption. Huselid. 1995). and Nanjing. Guangzhou. Michie. Barney’s (1991) resource-based theory of the firm often has been used to support the contention that strategic HRM practices may create distinctive competencies as a source of sustained competitive advantage. these resources include “experienced and taleffects on company ented managers. located in Southern China. In the practices have context of a transitional economy positive and additive such as in China. Guest. 2003. 2001. For instance. 2004). Guthrie.1002/hrm . Guangzhou is the capital city of Guangdong province. 1994. Law et al. 1996. The present study extends these previous studies by way of examining individual effects of these strategic HRM practices on firm performance. Not all human capital There is now resources. and human resource development. p. only a few recent studies have examined the linkage between HRM practices or systems and company performance. Shanghai is China’s economic and financial center and has the highest per capita GDP among all Chinese cities. and supported by the organization can lead to strategic HRM sustained competitive advantage (Barney & Wright. including human resource management. the effect of the strategic role of HRM on firm productivity and return on equity. rare. There is now empirical support to indicate that strategic HRM practices have positive and additive effects on company performance across different organizational settings in Anglo-American samples (Arthur. p. Delaney. They reported significant positive effects of the HRM system and HRM-business alignment on company performance. We based the sample frame on the China Industrial Enterprises Database. Nanjing is the capital city of Jiangsu province. 1999. located along the lower Yangtze River.
The service sector includes enterprises in insurance and banking.4% were older than 15 years.1 60.2 35.4 10.9 15.2 10.1002/hrm . Small firms with fewer than 100 employees accounted for 28.000 employee > 2.7% of the sample were medium firms with 100 to 500 employees.8 93 39 54 88 74 117 20. 25.6 175 122 168 37.000 employees.0%. and pharmaceuticals. and retailing (department stores) and advertising.6 26.9 25.6 18. engineering and chemicals. we contacted the enterprises by telephone and through our interpersonal networks at local universities.2% were 6–15 years old. import and export trading.2%.4 131 166 118 50 28. We then mailed 600 questionnaires to these enterprises with the promise that their individual responses would remain confidential. and the remaining I Sample Characteristics Frequency Percent 160 196 109 34. 42. garments. 35.Strategic HRM Practices and Their Impact on Company Performance 21 manufacturing sector includes a broad range of businesses in electronics.2 36. and 23.1% were large firms with 501 to 2. Some enterprises have multiple operations.0 08. a response rate of 78.000 Sector Electronics Garment Engineering Chemical and pharmaceuticals Service Mixed Ownership State-owned Publicly-listed Foreign-invested Location Nanjing Shanghai Guangzhou industry.2 23. To solicit participation from the selected enterprises.1 Human Resource Management DOI: 10. Firms with an age of 3–5 years constituted 34. we replaced it with another enterprise in the same TABLE Category Age 3–5 years 6–15 years > 15 years Size employee < 100 employee 101–500 employee 501–2. We received 465 usable questionnaires. If a particular enterprise declined our invitation.4 42.4 11.2 136 47 282 29.4% of the sample.7 25. Table I shows the characteristics of the sample.
questionnaire.8% were giant firms with more than 2. sales growth. Of these enterprises. This factor accounted for 12. while originally prepared in English and then translated into Chinese by a human resource professional translator and backdirectors responded translated into English by another professional.81). 37. Of all the firms in our sample. It explained 11. the general managers were asked to compare the performance of their company to the performance of their competitors for the previous three years. which measures implicit and explicit policy on employment security. Factor II contains items on employee participation in decision making. job descriptions. Table II shows that this analysis resulted in the seven dimensions of strategic HRM practices accounting for 64. Human Resource Management DOI: 10. Items on product/service quality. participation. This was managers or their done to match the nature of indeputies responded quiry with the relevant source of information on the one hand. Data Collection We collected data from multiple sources in each enterprise. 26.” Responses to scale items ranged from 1 (not accurate at all) to 4 (very accurate). ranging from 1 = very low to 5 = very high. superior-subordinate communication. and returns on investment measured financial performance. We adopted Delery and Doty’s (1996) survey instrument to measure these practices. The questionnaires were performance. foreign-invested enterprises accounted for 60.2% were from Shanghai.22 HUMAN RESOURCE MANAGEMENT. and the rest were from Guangzhou. employment security. formal training systems. 1996) using principal component factor analysis followed by varimax rotation. Factor III.2%.000 employees. while human resource directors reThe general sponded to the strategic HRM practices questionnaire. and publicly listed firms were 10. and profit sharing. The instrument contains multi-item scales on seven strategic HRM practices except for profit sharing.1%. and opportunities for suggesting improvements. The back-translated to the strategic HRM versions were compared with the originals to ensure accuracy. The practices two questionnaires are briefly described below.1002/hrm . The general managers or their deputies responded to the survey on company performance.36% variance. customer satisfaction. which is based on a single item. accounted for 9.6%.24% of the variance (α = . state-owned enterprises were 29.6% were from Nanjing. Spring 2008 10.83). and to the survey on to overcome the simultaneity bias in the survey responses on the company other. and technological innovation measured product/service performance. Survey of Company Performance Consistent with Dyer and Reeves’s (1995) proposed dimensions of company performance. results-oriented appraisals.73). it a multi-item scale.77 in the present study. Factor I consists of items that reflect frequency and extensiveness of training programs and the prevalence of programs that relate to skill development among new hires and promotability among existing employees. On each item. The item was “individuals receive ownership shares as incentive pay.17% of the variance (α = . Responses were obtained on a five-point scale. Strategic HRM Practices Questionnaire This questionnaire elicited information from human resource directors on background characteristics of the organization and seven strategic HRM practices related to internal career opportunities. We added one item to the profit-sharing scale to make Results Factorial Validity of Strategic HRM Practices We factor-analyzed the items measuring strategic HRM practices (Delery & Doty. Each dimension had a coefficient alpha of . whereas items on profitability. we used three items each to measure product/service performance and financial performance.94% of the variance (α = .
Strategic HRM Practices and Their Impact on Company Performance Stocks/Profit sharing 23.33 .16 .09 . There are formal training programs to teach new hires the skills they need to perform their jobs. Job descriptions contain all of the duties performed by individual employees.73* . Employees can expect to stay in the company for as long as they wish.03 –.10 –. Formal training programs are offered to employees in order to increase their promotability in this organization. (R) 20. Employees have very little future within the company.01 . 7 Employees are allowed to make many decisions.19 .07 . Extensive training programs are provided for employees.17 . 2.25 .30 –. Employees are provided the opportunity to suggest improvements in the way things are done.24 –.08 . quantifiable results.81 . 21.07 .06 . .29 .40 or above.04 .28 .06 –.05 .71* .33 II Factor 2 Factor 3 Factor 4 Factor 5 Factor 6 Factor Structure of Strategic Human Resource Management Practices Factor 7 . .74* .08 8.11 –.77* .23 .03 .12 .03 –.11 Participation 5. 18.19 –.16 .13 . .25 . . 4.05 .05 .01 .07 .01 .06 .04 Job descriptions 13.19 .16 .22 .11 .24 –.01 .19 .71* .71* .81* .06 .06 .08 .86* .66 .77* .21 –.82* .11 .02 .02 –.14 .71* .13 .13 .01 –. Employees' career aspirations within the company are known by their immediate supervisors. The duties of jobs are clearly defined.16 .00 .22 .08 –.12 –.09 .81* .00 .73 .14 .62* .13 7. Each employee has performance objectives.15 .67 . Superiors keep open communications with employees.35 . employees would be the last to get downsized.00 .83 .11 .11 .04 . N = 406 (after listwise deletion of missing data). Employees will normally go through training programs every few years.01 . .03 –.64 . *Factor loadings of .29 . 8.16 .07 .07 .02 .06 11.21 .25 .57* .70 Percentage of variance accounted for Coefficient alpha 23 Note. Job security is almost guaranteed to employees in the company.30 .67* . Job descriptions are normally up-to-date.22 .01 9. It is very difficult to dismiss an employee.66* .06 .TABLE Factor 1 .06 .04 –.10 Results-oriented appraisal 17 Performance appraisals are based on objective.18 –.03 .20 . 24. Except for the item on ownership shares.06 .01 . Employees have clear career paths within the company.31 .29 . If the company were facing economic problems.10 Scale It Human Resource Management DOI: 10.14 .13 . 14.04 .82* .13 .33 .12 –.16 .01 .14 .20 . 3.06 Employment security 9.05 .58* .07 .83 –.49* . 6.17 .01 –. 11.04 .07 . Employees are often asked by their supervisor to participate in decisions.12 . (R) 15.10 .46* –.02 . .10 .12 .24 . Internal career opportunities 19.12 .25 .66* . 12. 16.88 .17 . .24 .19 .05 .1002/hrm Training 1.31 . 10.23 . all other items were adapted from Delery and Doty (1996).14 –.86* 6.09 12.94 .16 –. The actual job duties are shaped more by the employee than by a specific job description.16 .66* .04 .23 . Individuals receive ownership shares as incentive pay.07 . 22. Individuals receive cash bonuses based on the profit of the organization. R indi- .06 .03 .00 .19 .14 .75* .02 8.13 –.02 . Employees who desire promotion have more than one potential position they could be promoted to.06 .27 .19 .07 .15 .
59 0.24 — .01 .56.42 . product/service performance and financial performance had nonsignificant correlations with profit sharing and employment security.85 SD 0.30 . Training III Descriptive Statistics and Correlations M 2. respectively. which measures the prevalence of stock ownership and profit sharing.46 .69 and 2.19 .52 .48) was higher than the mean score on financial performance (M = 2.68 0. Also. It can be observed that job descriptions and result-oriented appraisals obtained relatively high mean scores of 2. ranging from 1 = not at all accurate to 4 = very accurate for the dimensions of strategic HRM practices and on a five-point scale. The two dimensions of company performance had a moderate correlation of .01 to . Main Effects on Company Performance We used multiple regression analysis to examine the main effects of the seven HRM practices on financial and product/service performance of the company.03 to .27 — .82 0. N ranged from 406 to 465.13 . specific.15 or more are significant at the .41 2. Also.57 2.88% of the variance (α = .31 .70 2. Spring 2008 TABLE Variables 1.57 0.80 0. Factor IV includes items that indicate the extent to which job descriptions are comprehensive.24 HUMAN RESOURCE MANAGEMENT.13 .85).75 0.67% of the variance (α = . whereas those for financial performance ranged from . whereas profit sharing and employment security obtained relatively low scores of 1.64).14 . explaining 8. respectively.42 . accounting for 8. correlations between strategic HRM practices ranged from –.46 .39 –. Internal career opportunities 7.56 .27. and up-to-date.59 2. Factor VI contains items that reflect the extent to which supervisors recognize career aspirations of their subordinates and the extent to which employees are provided with clear career paths and promotional opportunities. whereas training had a substantial correlation.11 .16 .42.43 . and correlations of .10 or more are significant at the .15 — . Employment security 4.80 and 2.46 — 2 3 4 5 6 7 8 9 2.19 . Table III further shows that the mean score on product/service (M = 3. Trends of Mean Scores and Correlations Table III presents descriptive statistics on the dimensions of strategic HRM practices and company performance and the zero-order correlations between them.16% of variance (α = .17 — .20 .68 1 — .20 — . Profit sharing and employment security had either weak or nonsignificant correlations with other strategic HRM practices.30 .82 0. Financial performance Note.66).70.03 . respectively. This factor includes an item on stock ownership that was added by the authors to turn Delery and Doty’s (1996) original single-item scale into a multi-item scale.69 3. Job description 5. Factor V represents outcome-based performance appraisals.74 0.1002/hrm .83). Correlations of product/service performance with strategic HRM practices ranged from .01 to .64 1.01 level. accounted for 6.05 . clear. Responses were obtained on a four-point scale. Profit sharing 8.40 . Participation/voice 3.10 .48 2. In the process Human Resource Management DOI: 10. Results-oriented appraisal 6.22 — . This factor explained 7.40 .31 .01 — . ranging from 1 = very low to 5 = very high for the dimensions of company performance.26 .05 level.46.30% of the variance (α = . Correlations of .41. The last factor.70).80 2. Product/service performance 9.53 .
one-tailed) for results-oriented appraisals to .14.Strategic HRM Practices and Their Impact on Company Performance 25 of this analysis. and all the dimensions were internally consistent. size. enterprises located in Guangzhou (β = –.05. The apparent conceptual convergence in strategic HRM practices can be explained by the phenomenal change that has taken place in the personnel practices in Chinese enterprises since the economic reforms began in 1978. Significant effects on financial performance were limited to training. They deperformance and fined strategic human resource practices as those that have a theexplained 14.01. oneHuman Resource Management DOI: 10. Compared with both SOEs and publicly owned enterprises. Although they did not report factor analyses in their study. Older enterprises (β = –.0% of the variance. 2002).15 (p ≤ . accounting for 7. FIEs (β = . FIEs (β = –.05. 805). overall organizational performance. However. It is observed that joint ventures experience a high failure rate in the competitive Chinese market (Shenkar & Yan. enterprises with combined product and service operations had significantly lower profitability compared with enterprises that were in a single line business (β = –. ownership. p ≤ . two-tailed) for training.01. whereas profit sharing contributed uniquely to financial performance.05. As we explained in the literature review. Results presented in Table IV show that except for profit sharing. size. It must be noted here that in our sample. most of the FIEs were joint ventures.0% of oretical or empirical bearing on the variance.09 (p ≤ .08 (p ≤ . These findings indicate that the strategic HRM practices utilized in the present study can be used with confidence in future studies of Chinese enterprises. Results presented in Table IV further show that the size of the enterprise and location did not significantly contribute to financial performance. However. and location. resultsoriented appraisals.01. These findings indicate that a set of strategic HRM practices (training. Age and ownership also significantly influenced this dimension. The significant beta coefficients ranged from .18.01.05. two-tailed) had better product/service performance. and profit sharing.14. and sector) had a significant effect on product/service performance. sector.0% of the variance. two-tailed) were likely to be outperformed by SOEs in financial performance. p ≤ . participation. participation. two-tailed) were likely to have lower financial performance than were younger enterprises.12. all other of strategic HRM practices has an strategic HRM overall factorial validity. internal career opportunities.1002/hrm Table IV show that Results obtained from the exploratory factor analysis shown except for profit in Table II suggest that Delery and Doty’s (1996) conceptualization sharing. . Discussion About the Factorial Validity Results presented in Findings Relating to Control Variables Table IV shows that except for ownership and location.28 (p ≤ .01. observing that “we identisignificant effects fied seven practices that are conon product/service sistently considered as strategic HR practices” (p. The significant beta coefficients ranged from . twotailed) for training. p ≤ . onetailed) for employment security and internal career opportunities to . There were no item overlaps. results-oriented appraisals. p ≤ . Delery and Doty (1996) derived these practices had practices from the extant literature.20. items measuring these practices in the present study resulted in seven dimensions that clearly reflected the original conceptualization. p ≤ . Employment security and job descriptions contributed uniquely to product/service performance. and internal career opportunities) affects both financial and product/service performance. none of the other covariates (age. two-tailed) had significantly lower product/service performance than did those located in Shanghai. tailed). we controlled for the effects of company age. all other strategic HRM practices had significant effects on product/service performance and explained 14.
02 .12** .03 .01 (two-tailed). † p ≤ .05 Model 2 –.05 –.08† .00 –.08 .33** 2 .05 (two-tailed).12** .15** .13** .03 .91** .02 –.26 HUMAN RESOURCE MANAGEMENT.23 .12† .03 .11* 3.04 .10* –.01 Independent Variable Control variable Age (log) Size (log) Sector Service (referent) Electronic Garment Engineering Chemical and pharm.22** .13* .96** .05 –.06 –. Mixed Ownership State-owned (referent) Public-owned Foreign-invested Location Shanghai (referent) Nanjing Guangzhou Main effect Training Participation/voice Employment security Job descriptions Result-oriented appraisals Internal career opportunities Profit sharing .09 — — 3.01 –.08 –.06 –.09 –.09* .09† . *p ≤ . N = 406 (after listwise deletion of missing data).07 4.22** .01 .05 (one-tailed).02 .02 .07 Financial Performance Model 1 –.1002/hrm . Spring 2008 TABLE IV Standardized Regression Weights for Company Performance Product/Service Performance Model 1 Model 2 .04 –.02 3.09 — — F for R2 change Note.10 –.20** .03 –.11 –.05 .14* .18** .14* –.04 .01 . **p ≤ .28** .06 –.14 9.05 –.06 .06 –.14* .58** .04 –.00 .24** F R cumulative R2 change 6. Human Resource Management DOI: 10.16 .03 .01 .15** .08 .21** .
the Labor Law of 1994. A possible explanation is that stock options as in. ties. 2005). and skills to better cope with performance management for professionals in hightech and high-value-added sectors. Similar practices can be observed in giant SOEs that have successfully gone through the reform process. job security is not guaranteed. range of the seven strategic HRM practices. The “post wage system” has been refined to incorporate elements of knowledge. enterprises since the The mean scores for training. Warner. and contributory social security is a good example of the adoption of these HRM practices (Warner. training is almost at the bottom of the priority list in company budgets (Zhao.. China’s open-door economic policy. In Chinese. in which practices in Chinese profit sharing is rarely used to motivate employees. In the post-reform era. 2005). it has become a common practice to demote or to reconvergence in place incompetent and nonperforming managers (Yang & strategic HRM Zhang.phenomenal change centive pay for senior managers has been experimented with in that has taken place only a small number of compain the personnel nies. and the like have created conditions conducive to adopting strategic HRM practices in the relatively developed coastal regions (Warner. In both FIEs and reformed SOEs. such as the electronics and telecommunications industries. 2004). these two practices are key elements of the socalled “post wage system” currently widely used in almost all Chinese enterprises (Ding & Warner. practices can be Our results further show that stock/profit sharing has the lowexplained by the est mean score. The “three systems reform” that involves the introduction of labor contracts. 2001). 2004). and as such. performance-related reward systems. This shows that although Chinese enterprises have recognized the importance of these three practices. 1997. In our sample. Priority has been given to the development of high-tech and highvalue-added industries. capabiliHuman Resource Management DOI: 10..1002/hrm . 1999). It is thus clear that there is internal as well as external pressure toward increasing convergence in strategic HRM practices. respectively. and “cradle-to-grave” welfare (Ding et al. economic reforms participation. and internal career opportunities were in the middle began in 1978. proliferation of foreign-invested enterprises. lifetime employment. Applicants need to have a good track record and show evidence of managerial capabilities and skills in order to remain in or bid for new positions. this phenomenon is called jingzheng shanggang The apparent (Cheng. However. 2004). recruitment and selection have become more market-oriented. In the past few years. huge growth in foreign direct investment. the application of these practices has met with some problems. The application of employee participation in Chinese enterprises may have been hindered by traditional Chinese values.Strategic HRM Practices and Their Impact on Company Performance 27 the pre-reform Chinese economy was dominated by SOEs and personnel practices were characterized by centrally planned job allocation. more than 60% of firms were FIEs. egalitarian pay. As mentioned previously. the Chinese government has been moving toward reducing structural imbalances in its economic sectors by rationalizing and updating its industries. The Confucian doctrine of “maintaining harmony” advises that people not cross their personal About the Application of Strategic HRM Table III shows that the mean scores of job descriptions and results-oriented performance appraisals ranked first and second. Also. Similarly. and lifetime employment is almost a thing of the past (Rowley et al. accession to the WTO. in conceptual many FIEs. HRM managers are well educated in business management. This is reflected in the relatively low mean score on employment security in our sample. 2004). Managers increasingly are under pressure to compete for limited numbers of managerial positions as SOEs streamline their organizational structures to become efficient. For example. training in most Chinese enterprises is constrained by the lack of money.
as SOEs streamline their organizational structures to become efficient. Chinese employees. Therefore. In Chinese enterprises. Therefore. Therefore. The career development of increasingly are local managers is constrained by limited opportunity for promounder pressure to tion and by unclear and blocked compete for limited career paths (Wong & Law. we suggest that firms that adopt profit-sharing programs should base bonuses not only on profitability. streamlining of adminisnumbers of trative structures puts heavy presmanagerial positions sure on Chinese managers to compete for the reduced number of positions. Overall. In our study. 1995. The results-oriented appraisal system provides substantial incentives for employees to work hard to accomplish their performance objectives. the situation may change gradually. The significant impact of training on both product/service performance and financial performance confirms previous studies that training and development is perceived as an important strategic HRM practice by managers (Jennings et al. About the Impact on Performance Although previous studies have used different measures of firm performance (Guthrie. Schmidt. and Birdi (2005).1002/hrm . Patterson. A practical implication of this finding is that enterprises that have institutionalized these “core” practices will have sustainable competitive advantage over the long term. Spring 2008 boundaries of responsibility or interfere in another’s business (yuezudaipao). effective employee participation mechanisms have not been established prevalently in Chinese enterprises. However. relatively low mean tend to embrace the concept of score on employee participation in management. We also found that certain strategic HRM practices have a unique influence on one performance measure or the other. tend to pursue shortterm profitability. 2004. as more In the post-reform Chinese firms recognize the benefits of adopting employee particiera.28 HUMAN RESOURCE MANAGEMENT. & Schmitt. employment It also must be noted that only a proportion of FIEs has security in our achieved a high degree of localsample. motivated by bonuses based on company profits. motivating. a results-oriented appraisal system gradually has replaced the egalitarian pay system that existed in all Chinese enterprises in the pre-reform era. A possible explanation could be that managers.. and internal career opportunities. Managers ization of senior management teams. 1999). this dynamic has led to insufficient investment in new product and service development. but also on other Human Resource Management DOI: 10. Consequently. Chinese managers tend to concentrate their efforts on performing the duties defined in their job descriptions. With the deepening reform of the reward system in China. Profit sharing significantly influenced only financial performance. 1999). involving. West. We consider these practices as the “core” of strategic HRM in Chinese enterprises because they are common in explaining variance in the two performance indices. the four “core” strategic HRM practices provide firm ground for nurturing. It is rare for Chinese employees to cross boundaries and to take the initiative to give critical feedback and suggest improvements. In SOEs. 1995). job security is pation (Wang & Mobley. espeis reflected in the cially those returning from overseas with management education. who reported a positive linkage between strategic HRM practices and product innovation. Our findings on the significance of the four “core” strategic HRM practices for product/service performance also are consistent with the results of a recent study by Shipton. participation. These practices include training. Hartog & Verburg. Schull. Rogg. not guaranteed. 2001. and promoting professional and managerial employees. 2001). it is reasonable to suggest that a results-oriented appraisal system has significant effects on both measures of performance. results-oriented appraisals. Fay. Huselid. the findings of our regression analyses are consistent with the general consensus on a positive linkage between strategic HRM practices and firm performance. This With their increasing education level. we have identified a set of strategic HRM practices that affect both product/service performance and financial performance.
we performed regres. Future research may ex. Although the perceptual performance Human Resource Management DOI: 10. our data were collected in three main financial cities. Zhang. Second. PLFs on p. Although FIEs are no appraisals. in Chinese enterprises. it would still be worthwhile for future studies to investigate the influences of strategic HRM on objective performance measurements. such as enterprises. Limitations and Future Research Directions Although this study contributes to HRM research. On the contrary. we and return on equity. internal career we should include other owneropportunities. will affect the effectiveness of strategic HRM practices. Specifically.g. especially considering the consider these growing importance of private enterprises in China’s economy. such as the ratio of profit to sales.performance. such as Chongqing. Tseo. our sample firms inparticipation. The financial capital gathered from selling shares to employees provides much-needed investment funding. However. where performance goals are difficult to quantify. job descriptions are the key element in performance appraisal and reward determination. we used managerial perception of the company’s product/service performance and financial performance compared with that of their competitors for the previous three years.have identified a set sion analysis on a cross-section of of strategic HRM data gathered at one time to identify the relationship between practices that affect strategic HRM and performance. thus serving as a basis for accountability and evaluation. and Zhang (2004) found that firms sell company stocks to employees more for new capital financing than for providing incentives to employees. Chengdu. we adopted an organi“core” of strategic zational-level approach in the evaluation of the effectiveness of HRM in Chinese strategic HRM practices. These tend the study to the less-develpractices include oped inland and western regions of China. and doubt the trendsetters for HRM practices in Chinese enterprises. new product development. factors at the micro level. return on assets.. Chinese managers and employees may differ in their understanding of some of . It is important to use some longiboth tudinal data in future studies to product/service examine the causal link between strategic HRM practices and firm performance and performance. clude FIEs.1002/hrm measurement was adopted in previous studies on the HRM and performance relationship (e.. Another explanation is that stock sharing as an important component of ownership reform in China has provided an alternative means for financing enterprises. employees are evaluated by objective and quantified criteria. Finally. Delaney & Huselid. Fourth. its limitations should be acknowledged. employment security has declined considerably in the post-reform era of the Chinese economy. Shanghai. In our study. practices as the Fifth. Finally. and customer satisfaction. which in turn brings potential profitable opportunities to the company. In general. 18. clear job descriptions allow employees to understand where their responsibilities lie. Third.Strategic HRM Practices and Their Impact on Company Performance 29 indices—namely. In organizations where performance goals are quantifiable. Employment security and job descriptions are two other practices that positively affected product/service performance but not financial performance. and Nanjing. and Xi’an. 2005) and are in a better position to employ committed professionals to enhance new product and service development. First. Sheng. 1996). The interactive effects of organizational-level factors. Guangzhou. training. we used a perceptual performance measurement in this study. the level and experience of staff and job poaching. quality of product and services. and the majority of them are FIEs. and results-oriented SOEs. such as industry with strategic HRM practices. We ship types of firms in future studies. also must be investigated in future studies. Firms that provide employment security create a supportive environment for organizational innovation (Shipton et al. such as product/service performance criteria.
international marketing. SYED AKHTAR is an associate professor in the Department of Management at City University of Hong Kong. from their Western counterparts. 1994). strategic HRM practices not only are widespread. GE is a senior lecturer in the Department of Management and International Business. and international HRM. but also to train. He received his MA in psychology from Delhi University and PhD from the Indian Institute of Technology (IIT). making performance appraisals objective and reward systems just and fair. such as participation. Our findings support recent assertions by researchers that economy. We believe that in a decade or two. His research interests include strategic human resource management. have gained momentum to nurture and develop Conclusion The past few years have witnessed dramatic developments in stratehuman capital with gic HRM practices in Chinese enterprises. another important research direction for us is to identify strategic HRM practices with unique Chinese characteristics and The Chinese determine if Chinese strategic HRM practices diverge from or economy seems to converge with Western strategic HRM practices. Her research interests include market orientation. HR departments will have to design systems that enable their organizations not only to attract managerial talent. human resource management. DING is an associate professor in the Department of Marketing at City University of Hong Kong. The Chinese economy seems to have gained momentum to nurture and develop human capital with the purpose of becoming a knowledge economy. A recent trend report issued by a Chinese social science institute (Wang. 2005) observed that future developments in strategic HRM would be characterized by treating human resources as organizational capital. organizational commitment. skills. She received her MA from the Shanghai University of Finance and Economics and PhD from City University of Hong Kong. international strategic alliance. These characteristics of strategic HRM closely reflect HRM trends in advanced economies. strategic marketing management. Not only have FIEs the purpose of adopted these practices. DANIEL Z. emphasizing the management of employee knowledge. becoming a reformed SOEs are also in the forefront of making these knowledge changes. a firm’s success increasingly will rely on the quality of its human capital. Human Resource Management DOI: 10. New Zealand. developing strong corporate culture. foreign direct investment in China. conflict management in joint ventures. Delhi. the University of Auckland. and changing the role of the HR function from one of administrative bureaucracy to one of possessing the strategic role of facilitating and achieving strategic goals. As the HRM practices of a country are heavily influenced by its culture (Satow & Wang. He received his MA in international finance from the Shanghai University of Finance & Economics and PhD in international business and comparative management from the Anderson Graduate School of Management at UCLA. His research interests are in the areas of multinational corporate strategy. and capabilities. motivate. redesigning jobs to facilitate career development. but also are valued by Chinese organizations.1002/hrm . Spring 2008 the practices. To move in this direction. and China business. and employee well-being. GLORIA L. the four core strategic HRM practices identified in our study should be the fundamental constituents in designing these systems. and reward managers in ways that support organizational strategy. In the highly competitive Chinese market.30 HUMAN RESOURCE MANAGEMENT. with some local adaptations. involve. but large. mainstream strategic HRM will prevail in most Chinese organizations.
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