The International Journal of Human Resource Management

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The International Journal of Human Resource

Management
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The effect of human resource practices on

organizational performance: evidence from Greece
a
Ilias Vlachos
a
Agricultural University of Athens, Dept. of Agricultural Economics and Rural , Greece
Published online: 14 Feb 2008.
To cite this article: Ilias Vlachos (2008) The effect of human resource practices on organizational performance: evidence
from Greece, The International Journal of Human Resource Management, 19:1, 74-97, DOI: 10.1080/09585190701763933
To link to this article: http://dx.doi.org/10.1080/09585190701763933
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The International Journal of Human Resource Management,
Vol. 19, No. 1, January 2008, 74–97
The effect of human resource practices on organizational

performance: evidence from Greece
Ilias Vlachos*
Downloaded by [University of California, San Francisco] at 10:53 02 March 2015
Agricultural University of Athens, Dept. of Agricultural Economics and Rural, Greece

The present study addresses a central research question: how do human resource
management practices contribute to organizational performance? We examined the
following HR practices: (1) job security; (2) selective hiring; (3) self-managed teams
and decentralization of decision making; (4) compensation policy; (5) extensive
training; and (6) information sharing. We surveyed food managers in Greece and
recorded their perceptions on HR practices and their relation to firm performance.
Results provide overall support for all HR practices except of job security. Selective
hiring was found to be a key practice that improved organizational performance.
Compensation policy, information sharing, decentralization of decision making and
extensive training were significant predictors for all performance variables. Directions
for further research are provided.
Keywords: human resource practices; organizational performance; selective hiring;
compensation policy; food sector; Greece
Introduction
Human resources (HR) are considered the most valuable asset in an organization but they
make a better bottom line only for a few organizations (Pfeffer 1998; Wimbush 2005).
The extent to which, if any, human resource management (HRM) impacts on
organizational performance has emerged as the central research question in the personnel/
HRM field (see Becker and Gerhart 1996; Guest 1997 for reviews). Although initial results
indicate that some human resources practices may have a positive effect on organizational
performance, most scholars suggest that more conceptual and empirical work is required
(Brewster 2004; Cardon and Stevens 2004; Givord and Maurin 2004; Zhu 2004).
At the conceptual level, according to the resource-based view of the firm, which poses
that superior performance is the result of the idiosyncratic mix of corporate resources,
HR practices may lead to higher firm performance and be sources of sustained competitive
advantage because these practices are often unique, causally ambiguous and difficult to
imitate (Barney 1991; Wright, Dunford and Snell 2001; Voss, Tsikriktsis, Funk, Yarrow
and Owen 2005). Essentially, as confirmed by a growing body of empirical evidence, not
every HR practice can be a source of sustained competitive advantage (Guest 1997;
Ahmad and Schroeder 2003; Cardon and Stevens 2004; Givord and Maurin 2004;
Barringer, Jones and Neubaum 2005). Research has begun to isolate a few critical HR
practices that seem to have a significant contribution on firm performance.
*Email: ivlachos@aua.gr
ISSN 0958-5192 print/ISSN 1466-4399 online

q 2008 Taylor & Francis
DOI: 10.1080/09585190701763933
http://www.tandf.co.uk/journals
The International Journal of Human Resource Management 75
At the conceptual level, virtually all extant research has been conducted in North America
on the operations of domestic firms. Hence, there is a need to conduct empirical research
about various effects of HR practices in other contexts. The food sector plays an increasingly
important economic role in most countries, and relies heavily on the skills and abilities of its
people to deliver food with safety and quality at competitive prices. Although there are many
recent technological advances and product innovations in the food sector, recent food crises
demonstrated that human capital may be the sole resource in safeguarding quality and safety
adequately, thus indirectly improving firm competitiveness and performance.

The present study addresses a central research question: how do human resource
management practices contribute to firm performance? In order to answer this question,
we surveyed food managers and recorded their perceptions on HR practices and their
relation to organizational performance. We anticipate that this study will generate many
‘lessons to be learned’ for managers across many food environments.
The next section reviews the relevant literature on HR practices and firm performance.
A discussion of the methodology employed for data collection follows. The last two
sections illustrate the data analysis, discuss the key results and possible avenues for future
research.
Literature review
A growing body of empirical research has examined the effect of certain HRM practices
on firm performance. Although there is a long list of best HR practices that can affect
either independently or in bundles on the organizational performance, results are hard to
interpret. In order to examine the effect of HR practices on firm performance in the Greek
context, we chose to examine HRM practices initially proposed by Pfeffer (1998) which,
according to the literature, can be expected to influence the firm performance.
In his seminal work, Pfeffer (1998) proposed the following seven HRM practices:
(1) employment security; (2) selective hiring; (3) self-managed teams and decentralization
of decision making; (4) comparatively high compensation contingent on organizational
performance; (5) extensive training; (6) reduced status distinctions and barriers, including
dress, language, office arrangements and wage differences across levels; and (7) extensive
sharing of financial and performance information throughout the organization. A growing
quantity of empirical evidence suggests that the HR practices proposed by Pfeffer (1998)
have a significant effect on various settings. For instance, Ahmad and Schroeder (2003)
attempted to generalize the findings of the impact of seven HRM practices, proposed by
Pfeffer (1998), on operations management across countries and industries. The findings
provide overall support for Pfeffer’s HR practices.
The following sections will develop hypotheses concerning the relationship between
HRM practices and firm performance.
Compensation policy
Performance-based compensation is the dominant HR practice that firms use in order to
evaluate and reward employees’ actions (Collins and Clark 2003). There is a consensus
that performance-based compensation has a positive effect upon employee and
organizational performance (see for reviews: Brown, Sturman and Simmering 2003;
Cardon and Stevens 2004). Employee motivation, based on perceived expectations, can
provide the link between compensation and performance. Expectancy theory posits that pay
level will influence employee performance when (a) employees perceive that a relationship
exists between their efforts and performance and (b) employees gain specific benefits if they
76 I. Vlachos
perform well (Ngo, Turban, Lau and Lui 1998). Empirical studies on the relationship
between performance-related pay and company performance have generally found a
positive relationship, but a growing body of empirical evidence suggests that it is not just
pay level that matters, but also pay structure (Singh 2005; Wimbush 2005).
Delery and Doty (1996) identified performance-based compensation as the single
strongest predictor of firm performance. Both performance-based compensation and
merit-based promotion can be viewed as ingredients in organizational incentive systems
that serve to encourage individual performance and retention (Uen and Chien 2004).
Widener (2006) developed a binary logit model of the relationship between two human
resource practices (reliance on human capital and the firm’s pay structure) with the use of
non-financial measures in top managers’ bonus compensation contracts. Results showed
that this relationship is moderated by the firm’s pay structure. In particular, the relationship
was stronger in firms that had employed a hierarchical pay structure. These firms also have
had a higher probability of relying on human resource measures.
In a study of multiple hospitals, Brown et al. (2003) examined pay at different levels
and structures and its impact on resource efficiency, patient care outcomes and financial
performance. Findings showed that higher pay was associated with greater performance;
however, the effects appeared to be curvilinear. The researchers emphasized the
importance of an integrative approach to making decisions regarding compensation policy.
Tosi, Misangyi, Fanelli, Waldman and Yammarino (2004) examined the relationships
among CEO perceived charisma, CEO compensation packages and firm performance in
a sample of Fortune 500 companies over a 10-year period. Findings indicated that
charismatic CEOs seem able to influence their own compensation packages and stock
prices but not other firm performance indicators.
Barringer et al. (2005) conducted a quantitative content analysis of the narrative
descriptions of 50 rapid-growth firms and a comparison group of 50 slow-growth
companies. Results demonstrated that employee incentives differentiated the rapid-
growth from the slow-growth firms. Firms that were eager to achieve rapid-growth
provided their employees financial incentives and stock options as part of their
compensation packages. In doing so, firms managed to elicit high levels of performance
from employees, provide employees the feeling that they have an ownership interest in
the firm, attract and retain high-quality employees and shift a portion of a firm’s business
risk to the employees.
In their study of foreign firms operating in Russia, Fey,Bjorkman and Pavlovskaya
(2000) found that salary level was revealed to be significantly associated with firm
performance for both managers and non-managers. In addition, promoting managers based
on merit was positively associated with firm performance. To be effective, compensation
practices and policies must be aligned with organizational objectives. While performance-
based compensation can motivate employees, sometimes employees perceive it as a
management mechanism to control their behaviour (Lawler and Rhode 1976; Ahmad
and Schroeder 2003). In such a case, employees are less loyal and committed, thus
compensation plans have the opposite effect to the desired outcome (Ahmad and
Schroeder 2003; Rodriguez and Ventura 2003).
Ngo et al. (1998) found that retention-oriented compensation was related to various
measures of firm performance. Collins and Clark (2003) studied 73 high-technology firms
and showed that the relationships between the HR practices and firm performance (sales
growth and stock growth) were mediated through their top managers’ social networks.
Executive compensation played an important role for affecting the composition and
interactions of top executive teams (Gerhart and Milkovich 1990). Incentive pay based on
firm performance was found to increase commitment to organizational goals, employee

cohesiveness and a collective orientation (Collins and Clark 2003).
Cardon and Stevens (2004) pointed out that compensation is particularly important for
small firms because it affects recruiting and retention efforts as well as it signals legitimacy
to external stakeholders. Cho, Woods, Jang and Erdem (2006) suggested that incentive
plans are effective in decreasing staff turnover rates. Banker, Lee, Potter and Srinivasan
(2001) conducted a longitudinal study of the effectiveness of incentive plans in the hotel
industry and found that incentive plans related to increased revenues, increased profits and
decreased cost. Paul and Anantharaman (2003) found that compensation and incentives
directly affect operational performance.
Therefore, we propose this hypothesis:
Hypothesis 1: Compensation policy is positively related to firm performance.
Decentralization and self-managed teams

More and more, employees are required to work in teams and make joint decisions and to
undertake common initiatives in order to meet the objectives of their team and
organization. Effective team working requires professional people skills as well a deep
understanding of aptitudes, abilities, temperaments, idiosyncrasies and personal traits of
fellow employees (Ahmad and Schroeder 2003).
Teamwork and decentralization of decision making promotes employee commitment
participation and create a sense of attachment, thus indirectly affecting firm performance
(Tata and Prasad 2004). Several studies identified self-managed teams and decentraliza-
tion as important high-performance HRM practices (Wagner 1994; Pfeffer 1998; Yeatts
and Hyten 1998; Singer and Duvall 2000). Jayaram, Droge and Vickery (1999) found that
decentralized teams have a positive effect on two dimensions of the performance: time and
flexibility. Collins and Clark (2003) examined the role of HR practices in creating
organizational competitive advantage and found that top management team social
networks (practices such as mentoring, incentives, etc.) mediated the relationship between
HR practices and firm performance.
Tata and Prasad (2004) found that a company with micro-level centralization is a
receptive environment for self-managed teams. In a study of differential outcomes of team
structures for workers, supervisors and middle managers in a large unionized
telecommunications company, Batt (2004) found that participation in self-managed
teams is associated with significantly higher levels of employment security and
satisfaction for workers and with the opposite effect for supervisors.
Black, Lynch and Krivelyova (2004) examined the impact of organizational change on
workers and found evidence that self-managed teams are associated with greater
employment reductions. Nicholis, Lane and Brechu (1999) studied how easily self-
managed teams can be applied in an uncommon research setting like Mexican business
culture. Study results demonstrated that applying self-managed teams would be feasible,
but the process of implementation would last longer than initially expected. Furthermore,
employees will need training to acquire basic skills such as holding meetings, setting goals
and solving problems. Further, top management commitment is necessary to legitimize
changes, even those involving a participatory style of work design.
Therefore, we propose this hypothesis:
Hypothesis 2: Decentralization is positively related to firm performance.
78 I. Vlachos
Information sharing
Sharing of information may have a dual effect: First, it conveys to employees the positive
meaning that the company trusts them. Second, in order to make informed decisions,
employees should have access to critical information. Communicating performance data
on a routine basis throughout the year help employees to improve and develop. Employees
presumably want to be good at their jobs, but if they never receive any performance
feedback, they may perceive to have a satisfactory performance when in fact they do not
(Chow, Harrison, McKinnon and Wu 1999). Furthermore, information sharing fosters

organizational transparency which reduces turnover (Ahmad and Schroeder 2003) and
forges synergistic working relationship among employees (Nonaka 1994).
In his study of Japanese consultation committees, Morishima (1991) found a positive
association between information sharing and productivity and profitability, and a negative
association with labour cost.
Information sharing is not as widespread a HR practice as some might have expected it
to be. Many companies are reluctant to share critical information with their employees
because in this way employees can become more powerful and companies may lose
control of them (Pfeffer 1998). Furthermore, information sharing always involves the
danger of leaking important information to competitors (Rønde 2001).
Constant, Kiesler and Sproull (1994) pointed out that attitudes about information
sharing depend on the form of the information. Burgess (2005) studied employee
motivations for knowledge transfer outside their work unit and found that employees who
perceived greater organizational rewards for sharing spent more hours sharing knowledge
beyond their immediate work group. However, a significant percentage of employees
perceived knowledge as a means of achieving upward organizational mobility. They
sought information more often than shared it.
Roberts (1995) studied how HR strategy affects profits in 3000 businesses throughout
the world and found that sharing information was related to increased profitability.
However, Ichniowski and Shaw (1999) compared US and Japanese steel-making plants
and found that employee participation based solely on problem-solving teams or
information sharing did not produce large improvements in productivity. In a study of
Fortune 1000 largest manufacturing and service companies on high-performance
practices, Lawler, Mohrman and Ledford (1995) found information sharing correlated to
firm performance but that the results are inconclusive.
Therefore, we propose the following hypothesis:
Hypothesis 3: Sharing of information is positively related to firm performance.
Selective hiring
This practice can ensure that the right people, with the desirable characteristics and
knowledge, are in the right place, so that they fit in the culture and the climate of the
organization. Moreover, pinpointing the right employees would decrease the cost of
employees’ education and development.
Schuster (1986) argued that selective hiring is a key practice that creates profits.
Huselid (1995) examined HR practices of high-performance companies and found that
attracting and selecting the right employees increases the employee productivity and
contributes to a reduction in turnover. However, for small companies, recruiting is often
quite problematic (Cardon and Stevens 2004). This can be due to several reasons such as
limited financial and material resources and jobs with unclear boundaries responsibilities,
which decreases their potential to hire qualified candidates.
Michie and Sheehan-Quinn (2001) argued that a possible indirect link between
selective hiring and organizational performance can be the forging of internal bonds
between managers and employees that creates the right culture for productivity growth.
Collins (2003) argued that the practice of selective hiring results in sales growth. Paul and
Anantharaman (2003) pointed out that an effective hiring process ensures the presence of
employees with the right qualifications, leading to production of quality products, which,
in turn, improves economic performance.
Cho et al. (2006) examined pre-employment tests as a key component of selective

hiring and found that when employed, these tests can select employees that stay with a
company longer. Passing pre-employment tests may give an applicant a stronger sense of
belonging to the company, resulting in higher degrees of commitment if employed.
Hypothesis 4: Selective hiring is positively related to firm performance.
Training and development

Training and development may be related to firm performance in many ways. First, training
programmes increase the firm specificity of employee skills, which, consecutively,
increases employee productivity as well as reducing job dissatisfaction that results in
employee turnover (Huselid 1995). Second, training and developing internal personnel
reduces the cost and risk of selecting, hiring and internalizing people from external labour
markets, which again increases employee productivity and reduces turnover. Training and
development, like job security, requires a certain degree of reciprocity: A company that
systematically trains and develops its employees tells them that their market value
develops more favourably than in other firms. This increases employees’ productivity,
commitment and lowers turnover. Companies may also assist their employees in career
planning. In doing so, companies encourage employees to take more responsibility for their
own development, including the development of skills viewed as significant in the
company (Doyle 1997).
Cardon and Stevens (2004) reviewed the literature on training in small firms and
suggested that unstructured training, informal job instruction and socialization are the
main components of the training process in SMEs.
Accenture in its High Performance Workforce Study 2004, reported that, despite of a
wide range of human resource and training programmes as well as an increase in training
budgets, only 16% of executives said they were very satisfied with the training function.
Brewster (2004) examined the differences between US and European HR management
systems and found that training and development increase significantly from one side
of the Atlantic to the other. Huselid (1995) found that the education and development of
employees has a significant effect both upon the personnel productivity and the short- and
long-term indicators of organizational performance.
Shah and Ward (2003) examined the role of organizational associations and found that
they influence negatively the application of these policies, as their application requires
often unpleasant changes in the structure and management of personnel, something that
does not always concur with the associations. At the same time, it was strongly suggested
that the age of the organization has a negative role on the application of these practices, an
older organization might find it much more difficult to adopt innovative practices, as
established practises will hold a more powerful place even if the new can promise better
results.
80 I. Vlachos
Ngo et al. (1998) investigated the effects of country origins on HR practices of firms from
the United States, Great Britain, Hong Kong and Japan operating in Hong Kong. Study results
showed that structural training and development and retention-oriented compensation were
related to various measures of firm performance. Paul and Anantharaman (2003), in
searching the links between HR practices and organizational performance, proposed that
career development programmes demonstrate a true organizational interest in the growth of
its personnel, which, in turn, stimulates commitment and devotion, subsequently, raising
personnel productivity and consequently economical output.

Barringer et al. (2005) compared rapid-growth and slow-growth firms and found that
rapid-growth firms depend heavily on the abilities and efforts of their employees to
maintain their growth-oriented strategies. The fast-growth firms used training programmes
to achieve their objectives and emphasized employee development to a significantly
greater extent than their slow-growth counterparts. Therefore, training and employee
development practices are more common in rapid-growth firms than slow-growth ones.
Zhu (2004) reviewed the changes in the area of HR development in Japan and observed
that some companies and industries have shifted towards a more strategic approach that
emphasizes the impact of effective learning at both individual and organizational levels on
long-term organizational competitiveness.
Storey (2002) examined the relationship between training and firm performance in
middle-sized UK companies and proposed that, in the context of smaller firms, it is
necessary to widen the concept of training to include education, training and development.
Storey (2002) found an association between the concept of education, training and
development and middle-sized performance. Benson, Finegold and Mohrman (2004)
examined the effect of corporate investment in tuition reimbursement programmes on
employee turnover in a large manufacturing company. Study results demonstrated that
tuition reimbursement programmes where employees are able to earn certificates and other
credentials had an overall positive effect on turnover.
De Cerio (2003) examined the manufacturing industry in Spain and found that quality
management practices related to product design and development, together with HR
practices, were the most significant predictors of operational performance.
Hypothesis 5: The extent of training and development will be positively related to firm
performance.
Job security
Job security creates a climate of confidence among employees and reinforces their
commitment to the company. Job security requires a certain degree of reciprocity: first, a
company must signal a clear message that jobs are secure; then, employees believing that
this is true, feel confident and commit themselves to expend extra effort for the company’s
benefit; finally, having learned that job security contributes to its performance, the
company continues to invest in job security (Pfeffer 1998). Probst (2002) has developed a
conceptual model of the antecedents and consequences of job security. Antecedents
include worker characteristics, job characteristics, organizational change and job
technology change. Consequences include psychological health, physical health,
organizational withdrawal, unionization activity, organizational commitment and job
stress. Job involvement, cultural values, and procedural justices moderate job security
perceptions and attitudes.
Buitendach and Witte (2005) assessed the relationship between job insecurity, job
satisfaction and affective organizational commitment of maintenance workers in a
parastatal in Gauteng. Study results revealed small but significant relationships between
job insecurity and extrinsic job satisfaction and job insecurity and affective organizational
commitment. Job satisfaction was also found to mediate the relationship between job
insecurity and affective organizational commitment.
However, today’s business environments are far from providing job security to their
employees. For example, in an analysis of the changes in the risks of involuntary job loss
in France between 1982 and 2002, Givord and Maurin (2004) found evidence that
technological changes contribute to decreasing the incentive to keep workers for long
period of time and works to increase job insecurity.
When companies do provide job security, then empirical evidence suggests that it has a
positive effect on to firm performance. Following Pfeffer (1998), Ahmad and Schroeder
(2003) found that, among others, job security impact operational performance indirectly
through organizational commitment. Delery and Doty (1996) studied the US banking sector
and found some support for a positive relationship between employment security and firm
performance. In their study of 101 foreign firms operating in Russia, Fey et al. (2000) found
evidence that HR practices indirectly improve organizational performance. The results
indicated that not only, was there a direct positive relationship between job security and
performance for non-managers, but job security was the most important predictor of HR
outcomes for non-managerial employees. Results also suggested a direct positive
relationship between firm performance and managerial promotions based on merit.
Michie and Maura Sheehan-Quinn (2001) examined labour market flexibility in over 200
manufacturing UK firms and found that job security was negatively correlated with corporate
performance. In contrast, results showed that ‘high commitment’ organizations are positively
correlated with good corporate performance. Kraimer, Wayne and Liden (2005) used
psychological contract and social cognition theories in order to understand the role of full-
time employees’ job security when temporary workers were employed. As expected, results
demonstrated that job security was negatively related to full-time employees’ perceptions
that temporaries were a threat to their jobs. Furthermore, for those employees with low job
security, there was a negative relationship between threat perceptions and performance. On
the contrary, for those employees with high job security, the study uncovered a positive
relation between benefit perceptions and performance.
Hypothesis 6: The presence of job security is positively related to firm performance.
Table 1 summarizes the construct and item development with its supporting literature.
Figure 1 illustrates the associations between these hypotheses and relevant constructs.
Method
The sampling procedure and sample
While Figure 1 is a model of the firm performance, we chose to examine it as it is
understood by the individuals who must make sense of their organizational settings. To this
end, we operationalize and measure individuals’ perceptions of the model’s variables in
their work situations.
In order to develop a robust model linking HR practices and firm performance, we
drew our sample from food processing or manufacturing companies who had operated in
Greece for a minimum of 5 years. In-depth interviews were conducted with key decision
82
Table 1. Construct/item development and supporting literature.
Construct Statements in questionnaire Literature

Compensation † We reward personnel to reduce turnover Ahmad and Schroeder (2003); Banker et al. (2001); Barringer et al. (2005);
policy † We use incentives to boost individual performance Brown et al. (2003); Cardon and Stevens (2004); Cho et al. (2006); Collins and
† We select and pay employees based on their contribution Clark (2003); Delery and Doty (1996); Fey et al. (2000); Gerhart and
† Employees that care about firm’s objectives are rewarded Milkovich (1990); Huselid (1995); Lawler and Rhode (1976); Ngo et al.
(1998); Paul and Anantharaman (2003); Rodriguez and Ventura (2003); Singh
(2005); Tosi et al. (2004); Uen and Chien (2004); Widener (2006); Wimbush
(2005)
Decentralization † We encourage decentralized decision making Ahmad and Schroeder (2003); Black et al. (2004); Collins and Clark (2003);
and self-managed † We use teams to decide about production problems Jayaram et al. (1999); Nicholis et al. (1999); Pfeffer (1998); Singer and Duvall
teams † We regularly use teams to perform various task (2000); Tata and Prasad (2004); Wagner (1994); Yeatts and Hyten (1998)
† All team members contribute to decision making
† We encourage and reward personnel being team players
Information † Our employees know well our objectives and strategy Ahmad and Schroeder (2003); Burgess (2005); Chow et al. (1999); Constant
I. Vlachos
sharing † We inform personnel about their performance et al. (1994); Ichniowski and Shaw (1999); Lawler et al. (1995); Morishima
(1991); Nonaka (1994); Pfeffer (1998); Roberts (1995); Rønde (2001)
Selective hiring † We use consultants when hiring personnel Cardon and Stevens (2004); Cho et al. (2006); Collins (2003); Huselid (1995);
† We use pre-recruitment tests Michie and Sheehan-Quinn (2001); Paul and Anantharaman (2003); Schuster
† We select personnel that fits our culture (1986)
Job security † We focus on job security Ahmad and Schroeder (2003); Buitendach and Witte (2005); Delery and Doty
† Employees that perform modestly do not get fired (1996); Fey et al. (2000); Givord and Maurin (2004) Kraimer et al. (2005);
Michie and Maura Sheehan-Quinn (2001); Pfeffer (1998); Probst (2002)
Training and † Training is a motive for employees to achieve more Barringer et al. (2005); Benson et al. (2004); Brewster (2004); Cardon and
development † We systematically train and develop our personnel Stevens (2004); de Cerio (2003); Doyle (1997); Huselid (1995); Ngo et al.
† We provide training in one key skill (1998); Paul and Anantharaman (2003); Pfeffer (1998); Shah and Ward (2003);
† We train personnel to gain many skills and abilities Storey (2002); Zhu (2004)
Table 2. Structure of Greek food manufacturing industry in 2004 (N ¼ 1.445).
Characteristic Population % Sample %

Number of full-time employees
0 – 10 5 23
11 – 250 77 68
251– 1000 16 8
.1000 1 1
Sales
0 – 500.000 e 26 10
500.000 –1.000.000 e 15 10
1.000.000– 2.000.000 e 19 22
2.000.000– 5.000.000 e 21 15
5.000.000– 10.000.000 e 9 25
.10.000.000 e 17 18
makers prior to designing a pretest. The questionnaire was pretested with randomly
selected firms. Based on the results of the pretest instrument, the final questionnaire was
refined. The respondents were mainly HR managers or, in some instances, the managing
directors of the food firms.
In terms of the empirical research, we posted questionnaires to 372 food companies,
which is about a quarter of Greek food companies. We got 71 usable questionnaires
returned. The total response rate was 19.1%. Table 2 provides information about
employees and sales of the firms in the sample and in the Greek food manufacturing
population. To ensure that the respondents were comparable to non-respondents, analyses
of variances were conducted between these groups. The non-response bias was assessed by
comparing early respondents with late respondents (Armstrong and Overton 1977).
We also found no significant differences between HR managers and managing directors.
Figure 1. The association between hypotheses and constructs.

84 I. Vlachos
Measures
Principal component analysis with varimax rotation was conducted to assess the
underlying structure for the 19 HR practices questionnaire. The scales were measured on a
Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree). Six factors were
requested, based on the fact that the items were designed to index the six HR practices.
After rotation, decentralization accounted for 17.53% of the variance, compensation
policy for 12.67%, training and development for 12.24%, information sharing for 8.73%,
selective hiring for 8.61%, and job security for 6.17%. We used the Anderson –Rubin
Method, which ensures orthogonality of the estimated factors, to produce factor scores.
Table 3 contains the items, the scale composite reliability (Cronbach a), and factor
loadings for the rotated factors, with loading less than 0.40 omitted to improve clarity.
The first factor, which included items measuring the firm’s decentralization and
decision making practices was labelled decentralization (seven items, a ¼ 0.906).
The second factor, labelled compensation policy, included items measuring the firm’s
compensation practices and items measuring the firm’s policy and HR practices to reduce
turnover of employees (four items, a ¼ 0.757).
The third factor, labelled training and development, included four items (a ¼ 0.647)
measuring the firm’s emphasis on training and developing its personnel. The fourth factor,
labelled information sharing, included two items (a ¼ 0.713) measuring the firm’s policy
to share critical information and performance data with its personnel.
The remaining two factors’, selective hiring and job security, internal validity was too
low to be included in further analysis. The fifth factor, selective hiring, included three
items (a ¼ 0.556) measuring the firm’s policy to recruit personnel that fits its culture and
objectives. The sixth factor, job security, included two items (a ¼ 0.383) measuring the
ability of the firm to create a trustworthy business climate. The low scale composite
reliability of job security can be attributed to the fact that the respondents, who were
mainly HR managers, may have overrated job security in their workplace.
Firm performance
HRM research has repeatedly relied upon firm performance in order to evaluate the
effectiveness of HR practices (i.e. Becker and Huselid 1998; Rogers and Wright 1998).
Many studies used a mix of financial variables, such as return on assets (ROA) and return
on investment (ROI) (Delery and Doty 1996), and market-based variables such as sales
growth (Huselid 1995; Batt 2002) in order to derive a valid measure of firm performance.
However, as Colakoglu, Lepak and Hong (2006) pointed out, there is no straightforward
way of measuring firm performance when investigating HR practices.
Financial and market-based measures have the advantage of being meaningful to
managers seeking practices and methods to improve firm performance and profitability.
Furthermore, data about financial or market measures are often easily and freely available
to researchers from secondary sources. However, financial and market-based measures
have a significant disadvantage: they also relate to a vast number of firm and industry
factors (Claver, Molina and Tari 2002; Arthur and Cook 2003; Caloghirou et al. 2004).
Further, each firm is unique so, even for firms in the same industry, one set of performance
measures cannot fit them all.
Furthermore, HR practices may take years to materialize into organizational
performance. It can take years for HR practices such as selective hiring and personnel
training to reach peak productivity. Job security requires reciprocity which makes difficult
to investigate a causal relationship between job security antecedents and objective
Table 3. Rotated factor loadings for the six HR practices.
Factor loadings
Compensation Training and Information Selective Job
Decentralization policy development sharing hiring security
The International Journal of Human Resource Management

We encourage decentralized decision making .864
We use teams to decide about production problems .845
We regularly use teams to perform various tasks .725

All team members contribute to decision making .724
We encourage and reward personnel being team players .638 .551
We reward personnel to reduce turnover .784
We use incentives to boost individual performance .608 .543
We select and pay employees based on their contribution .583
Employees that care about firm’s objectives are rewarded .539 .458
Training is a motive for employees to achieve more .700
We systematically train and develop our personnel .635
We provide training in one key skill .410 .436
We train personnel to gain many skills and abilities .549 .427
Our employees know well our objectives and strategy .729
We inform personnel about their performance .778
We use consultants when hiring personnel .747
We use pre-recruitment tests .655
We select personnel that fits our culture .449 .476
We focus on job security .814
Employees that perform modestly do not get fired .446 .619
Eigen value 8.220 2.279 1.610 1.394 1.279 1.043
Initial percent of variance explained 34.249 9.497 6.709 5.810 5.330 4.347
Rotation sum of squared loadings (total) 4.207 3.040 2.937 2.094 2.067 1.480
Percent of variance explained 17.531 12.667 12.238 8.726 8.612 6.167
Cronbach a (sample N) 0.906 0.757 0.647 0.713 0.556 0.383
Notes. Extraction Method: Principal Component analysis. Rotation method: Varimax with Kaiser Normalization.
85
86 I. Vlachos
consequences such as ROI. Management perceptions about concepts like effectiveness

and performance may actually be more valid indicators than objective data such as
profitability, market share and sales, since these measures are directly related to a vast
number of variables, such as trends in the economy, industry factors, and other
environmental factors. Therefore, self-reported measures may, in some cases, represent
more accurate descriptions than more objective measures (Podsakoff and Organ 1986; Day
2003). Based on these arguments, we chose to measure firm performance using the reported
perceptions of managers instead of the actual performance indicators such as ROI and
market sales.
We chose five different measures of firm performance, classified in three categories:
(1) firm-specific: perceived product quality, perceived production cost, (2) market-related:
perceived market share, perceived sales, and (3) overall firm performance.
Respondents were asked to indicate their firm’s performance as compared to the
industry’s average in the above five items. For perceived items, a 5-point scale ranging
from bad (1) to very good (5) was used.
Although we believe the firm effectiveness measures are appropriate, they have some
limitations which should be discussed. The first is that they are self-reported responses
from managers, who may have a stake in seeing positive relationships between their
decisions about personnel recruitment, training, development and compensation with
achievement of firm’s objectives. However, the responses from the sample contain ample
variance and this does not reflect an extremely strong positive bias (see Table 4, variables 1
to 6). If the respondents had greatly inflated their responses, there may have been more
consistently positive results than were seen. Second, as in all self-reported studies, the
possibility of common method variance should be addressed. When both the outcome
measure (i.e. firm performance) and the predictor variables are self-reported on the same
survey instrument, both measures share common methods variance. There are a number of
techniques that can be used to minimize common method variance (Podsakoff et al. 2003).
We used the Harmon’s factor test to examine whether or not common methods
variance in the predictor and outcome variables inflates the empirical relationships among
the variables. Harmon’s test consists of a factor analysis of all relevant variables. If a large
degree of common method variance is present, one factor will emerge. Such an analysis
was conducted on the firm performance and HR practices variables of this sample. Seven
factors emerged, with the first factor (which, in cases of common method variance, would
account for a majority of the variance) only accounting for 18.472% of the variance. Thus,
common method variance is unlikely to bias this sample.
Finally, since we were interested in assessing the separate factors of a successful
collaboration, we were limited in the number of objective measures that were available
within the scope of this study. Because of the previously stated arguments, we concluded
that the expert opinions of HR managers would be valid and appropriate for this study.
The results of data analysis should be acceptable if adequate controls, such as Harmon’s
one factor test, are reported for the data. While we anticipate that further research into
these firm performance constructs, using multiple measures from multiple constituents
are essential, we believe that they are acceptable for this initial research study.
Results
We conducted univariate analysis and hierarchical multiple regression to assess the effect
of HR practices on firm performance variables. We report the findings from both analyses
in the following sections.
Table 4. Means, standard deviations and correlation matrix.
Mean SD 1 2 3 4 5 6
Control variables
1. Sales 2910 960 1 0.077 0.047 2 0.116 2 0.265* 0.092
Firm performance
2. Perceived product quality 3.52 1.04 1 0.559** 0.529** 0.419** 0.528**
3. Perceived cost 3.55 0.96 1 0.587** 0.429** 0.528**
4. Perceived market share 3.58 0.96 1 0.515** 0.398**
5. Perceived sales 3.59 0.88 1 0.667**
6. Perceived firm performance 3.69 0.87 1
HR practices variables
7. Compensation policy 0.005 0.193 0.419** 0.105 0.284* 0.271*
8. Decentralization 2 0.046 0.112 0.232 0.265* 0.328** 0.323**
9. Information sharing 2 0.023 0.145 0.128 0.510** 0.252* 0.233
10. Selective hiring 0.077 0.480** 0.337** 0.274* 0.241 0.346**
11. Training & development 2 0.166 0.259* 20.033 0.063 0.282* 0.345**
12. Job security 2 0.171 2 0.112 0.173 0.106 2 0.016 20.009
Notes. **Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed). Since the HR practices variables are factor scores, produced by the
Anderson-Rubin Method, the scores produced have a mean of 0, a standard deviation of 1, are uncorrelated, the correlations with each other are .00, and thus are not included in this
table. Sales: thousands of euros.
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88 I. Vlachos
Univariate analysis
Table 4 presents the Pearson’s correlation analysis. Control variables (sales and number of
full-time employees) showed low correlation with performance variables (perceived
product quality, production cost, market share, perceived sales, perceived firm
performance) as well as with every single HR practice. On the contrary, almost all
firm performance variables were associated to some extent with HR practices.
Decentralization had significant association with perceived market share (r ¼ 2 .265,
p , .05) perceived sales (r ¼ .328, p , .01), and perceived firm performance

(r ¼ 2 .323, p , .01). Compensation policy had significant association with perceived
cost (r ¼ 2 .419, p , .01) perceived sales (r ¼ .284, p , .05), and perceived firm
performance (r ¼ . 271, p , .05). Training and development had significant
association with perceived product quality (r ¼ 2 .259, p , .05) perceived sales
(r ¼ .282, p , .05), and perceived firm performance (r ¼ . 345, p , .01). Information
sharing had significant association with perceived market share (r ¼ 2 .510, p , .01)
and perceived sales (r ¼ .252, p , .05). Selective hiring had significant association
with perceived product quality (r ¼ 2 .480, p , .01) perceived cost (r ¼ 2 .337,
p , .01), perceived market share (r ¼ 2 .274, p , .05), and perceived firm performance
(r ¼ 2 .346, p , .01). Job security, which had low internal validity, showed no
significant correlations with any permanence measure.
Hierarchical regression
We conducted hierarchical multiple regression to determine the best linear combination of
HR practices for predicting firm performance. We entered variables in three steps.
Initially, we entered the control variable (firm size) in Step 1 of the regression equation.
Based on the resource-based view, HR practices will be a competitive advantage if they
are difficult to emulate. Similarly, large firms may have a resource advantages over
smaller firms. Therefore, we included firm size as a control variable, measured by the
number of employees. In Step 2, we entered the five HR practices (perceived product
quality, perceived cost, perceived market share, perceived sales, perceived firm
performance) into the regression equations. Finally, in Step 3, we entered the ten
interactions of the five factors into the regression equations. Tolerance tests showed no
significant collinearity among variables. We used five measures of firm performance:
perceived quality improvement, perceived cost reductions, perceived increase of firm’s
market share, perceived overall of sales, and perceived improvement of overall firm
performance.
The results are reported in detail in Table 5, while Figure 2 shows the results of the
associations between the research hypotheses and the researched constructs.
The combination of HR practices in Step 2 significantly predicted firm performance,
F ¼ 8.292, p , .001, with all five variables significantly contributing to the prediction.
The beta weights, presented in Table 5, suggest that selective hiring, training and
development and decentralization, contribute most to predicting perceived overall firm
performance. The change in adjusted R square value was .475, p , .001. This indicates
that 47.5% of the variance of firm performance was explained by the model. According to
Cohen (1988) this is a large effect.
For most measures of firm performance, HR practices showed a significant effect. More
specifically, in Step 2, the changes in adjusted R square value were: for perceived quality
R2 ¼ .350, p , .001 (F ¼ 4.865, p , .001), for perceived cost R2 ¼ .368, p , .001
(F ¼ 5.404, p , .001), for perceived market share R2 ¼ .426, p , .001 (F ¼ 6.806,
Table 5. Hierarchical regression results of HR practices on five performance measures.
Perceived product quality Perceived production cost
Step 1 Step2 Step 3 Step 1 Step2 Step3

(Control) (HR practices) (Interaction) (Control) (HR practices) (Interaction)

Control variable
1. Firm size 0.07 0.53 2 0.0 2 0.1 2 0.0 20.4 0.05 0.41 20.0 20.4 2 0.0 20.7
HR practices
1. Compensation policy 0.20 1.82* 0.18 1.32 0.42 3.95*** 0.39 3.10**
2. Decentralization 0.12 1.10 0.24 1.75* 0.23 2.18* 0.35 2.77**
3. Information sharing 0.15 1.42 0.24 1.90* 0.13 1.24 0.29 2.54*
4. Selective hiring 0.47 4.16*** 0.46 3.78*** 0.35 3.22** 0.43 3.71***
5. Training & development 0.19 1.75* 0.17 1.30 20.0 20.4 2 0.0 20.4
Interactions 2 0.1 21.0 2 0.1 21.1
1. Compensation policy* decentralization 2 0.2 21.9* 2 0.1 21.0
2. Compensation policy * information 0.01 0.10 2 0.0 20.7
sharing
3. Compensation policy * selective hiring 2 0.1 21.0 2 0.2 21.8*
4. Compensation policy * training & 2 0.2 21.4 2 0.1 20.7
development
5. Decentralization * information sharing 0.15 1.10 0.12 0.93
6. Decentralization * selective 0.04 0.28 0.24 1.63
hiring
7. Decentralization * training & devel- 0.17 1.31 0.24 2.13*
opment
8. Information sharing * selective hiring 2 0.0 20.0 2 0.1 21.0
9. Information sharing *training & 0.00 0.03 0.27 2.22*
development
10. Selective hiring * training &
development
F .290 4.865**** 2.743** .173 5.404*** 3.639***
Adjusted R square 2 .012 .282 .321 2 .014 .302 .409
Change in adjusted R square .005 .350*** .150 .003 .368*** .193*
Notes. Standardized regression coefficients are reported. Within cells, first row figure is beta coefficients and second row the t-test values, significant at: *p ,0.10, **p ,0.01,
***p ,0.001
89
90
Table 5. (Continued)
Perceived market share Perceived SALES Perceived firm performance
Step 1 Step2 Step3 Step 1 Step2 Step3 Step 1 Step2 Step3

(Control) (HR practices) (Interaction) (Control) (HR practices) (Interaction) (Control) (HR practices) (Interaction)
Control variable
1. Firm size 0.02 0.17 20.0 20.4 20.0 20.0 20.1 21.4 20.2 22.3* 20.2 22.3* 0.01 0.11 20.0 20.5 20.0 20.8
HR Practices
1. Compensation policy 0.10 1.02 0.20 1.63 0.29 3.01** 0.29 2.30* 0.27 2.85** 0.14 1.13
2. Decentralization 0.27 2.66** 0.19 1.53 0.35 3.53*** 0.37 2.86** 0.32 3.37** 0.41 3.15**
3. Information sharing 0.51 5.05*** 0.51 4.59*** 0.25 2.57* 0.24 2.09* 0.23 2.43* 0.18 1.57
4. Selective hiring 0.26 2.58* 0.25 2.30* 0.26 2.60* 0.24 2.08* 0.34 3.49*** 0.36 3.08**
5. Training & 0.07 0.74 0.14 1.17 0.29 2.93** 0.22 1.77* 0.33 3.39** 0.33 2.64*
development
I. Vlachos
Interactions
1. Compensation policy 0.03 0.25 20.1 20.9 20.1 21.3
* decentralization
* information sharing
* selective hiring
* training & devel-
opment
5. Decentralization * 20.4 23.2** 0.21 1.57 0.09 0.67
information sharing
6. Decentralization * 0.05 0.43 20.0 20.5 20.0 20.3
selective hiring
7. Decentralization * 0.09 0.67 20.0 20.3 0.09 0.61
training & develop-
ment
8. Information sharing * 0.06 0.59 20.1 21.4 0.00 0.02
selective hiring
Table 5 (continued)
Perceived market share Perceived SALES Perceived firm performance
Step 1 Step2 Step3 Step 1 Step2 Step3 Step 1 Step2 Step3

(Control) (HR practices) (Interaction) (Control) (HR practices) (Interaction) (Control) (HR practices) (Interaction)

9. Information sharing * 20.1 21.3 0.12 0.85 0.19 1.28
training & develop-

ment
10. Selective Hiring* 0.17 1.45 20.0 20.5 20.0 20.6
training &
development
F .030 6.806**** 4.072**** 1.997 7.847*** 3.474*** .013 8.292*** 3.451***
Adjusted R square 2.016 .363 .446 .016 .402 .394 2.016 .418 .391
Change in adjusted .000 .426*** .165* .032 .429*** .091 .000 .475*** .076
R square
Notes. Standardized regression coefficients are reported. Within cells, first row figure is beta coefficients and second row the t-test values, significant at: *p ,0.10, **p ,0.01,
***p ,0.001.
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92 I. Vlachos
Figure 2. Model results.
p , .001) and for perceived sales R2 ¼ .429, p , .001 (F ¼ 7.847, p , .001). Selective
hiring and compensation policy were significant predictors for all dependant variables, thus
supporting hypotheses 1 and 4.
In Step 3, the ten interactions of the five HR practices had a moderate effect only on
the perceived cost (F ¼ 3.639, p , .001 change in adjusted R square ¼ .193, p , 0.1) and the
perceived market share (F ¼ 4.072, p , .001 change in adjusted R square ¼ .165, p , 0.1).
Discussion
The primary purpose of this study was to evaluate the impact of HR practices on
organizational performance in the food manufacturing industry. Based on Pfeffer (1998),
we hypothesized that the following practices are related to firm performance:
(1) Compensation policy; (2) Decentralization and self-managed teams; (3) Information
sharing; (4) Selective hiring; (5) Training and development; and (6) Job security.
We found overall support for all hypotheses except hypothesis 6 on the effect of job
security. The results indicated that, although each of HR practices was significantly
correlated with organizational performance, selective hiring and compensation policy
were significant predictors for all performance variables, adding to our understanding
of the factors leading to improving firm performance. This study contributes to both the
HR practices and firm-performance literatures in a number of ways.
The first (and rather obvious) implication that can be derived from the evidence found
that HR practices are related to firm performance, a finding consistent with a variety of
extant theories and studies. Hence, firm performance depends on human capital: selecting,
developing and rewarding the best people as well as revealing to them critical company
information in order to make informed decisions which they are authorized to take.
Results supported the hypothesis that selective hiring is positively related to firm
performance. Prior research suggested the practice of selective hiring results at sales
growth (Collins 2003) and creates profits (Michie and Sheehan-Quinn 2001). Selective
hiring was found to be a significant predictor to all firm performance measures: perceived
product quality; perceived production cost; perceived market share; perceived sales; and
perceived firm performance. These findings suggest that selective hiring is a key practice
that improves organizational performance.
Similar to previous research (Brown et al. 2003; Collins and Clark 2003; Cardon and
Stevens 2004) compensation policy was a predictor of firm performance. Compensation
policy was correlated with the perceived sales, product quality, production cost and overall
firm performance.
Results also demonstrated that working in self-managed teams can result in the growth
of both sales and market share. Self-managed teams increase worker responsiveness to
problems as well as decrease overhead and management costs through fewer hierarchical
levels. Workers can gain autonomy and personal control. Actually, because each member
is considered to be important to the team’s success, Self-managed teams help to unleash
the untapped potential of each employee.
Evidence suggests that information sharing improves market share and sales. At the
same time there was no significant association of information sharing to product quality or
product cost. We expected the opposite: manufacturing firms to use information sharing in
order to improve production efficiency rather than market-based measures. Morishima
(1991) found a stronger association between information sharing and productivity and
profitability (measured by Return on Assets and Return on Sales) in manufacturing firms
than non-manufacturing firms. This can be attributed to the sharing of tactical rather than
strategic information with employees. Nevertheless, many companies are wary of sharing
critical information with their employees because of the possibility of losing control of
them (Pfeffer 1998).
Although, training and development may be related to firm performance in many ways
(Huselid 1995; Doyle 1997; de Cerio 2003; Paul and Anantharaman 2003; Zhu 2004),
results show that training is only related to perceived sales and overall firm performance.
One would expect a greater relationship between training and development and the cost
and quality of products, because of improved firm specific employee skills and productivity.
However, we argue that this result shows that training practice has an indirect effect to
firm performance. Few studies have been able to establish a clear link between training
practice and firm performance (Newkirk-Moore and Bracker 1998). The same finding
was uncovered by Accenture’s ‘The High Performance Workforce Study 2004’ report:
despite a significant increase in content and budget of training programmes, only 16%
of executives said they were very satisfied with the training function. This result underscores
the effect of effective training content and structure. Training in sales is more structured
thus more productive than training of the manufacturing workforce, which is more
atypical and unstructured, particular in small enterprises (Cardon and Stevens 2004; Ngo
et al. 1998).
94 I. Vlachos
Contrary to the hypothesis 6 the effect of job security on organizational performance

was not supported. One explanation is that job security requires a certain degree of
reciprocity: a company and its employees should exchange signals of confidence,
commitment prior to rewards; finally, a company that has learned that job security
contributes to its performance will invest again in job security (Pfeffer 1998). This long-
term investment is not always the easiest thing to do. In particular, small and medium
enterprises may find it hard to see all the connections between antecedents (such as worker
job characteristics, organizational change and job technology change) and consequences
(such as turnover, organizational commitment and job stress) of job security.
Limitations, direction for further research and conclusions

Although the current research focuses on testing the effects of HR practices on firm
performance, we acknowledge that the present study has limitations.
First, we draw our sample from the Greek food industry, a mature industry, which is
characterized by the proliferation of small and medium enterprises. Results from studies on
a specific industry may have limitations to generalizing to other sectors of the economy
and vice-versa. On the other hand, much of the research on HR practices has been
conducted in US, thus the findings of this study can be useful in future comparative studies.
Second, the use of self-report questionnaires may limit our ability to draw conclusions
about the causal nature of the relationships. In this study, we designed the questionnaire in
a way that minimized the possibility of largely capturing respondents’ implicit
performance theories more than any real phenomenon. For example, we randomly mixed
financial and market based performance questions. Nevertheless, self-report measures of
performance can be reasonably valid. Self-reported measures may, in some cases,
represent more accurate descriptions than more objective measures (Podsakoff and Organ
1986; Day 2003). Wall et al. (2004) have shown that perceived data correlates highly with
the assumed more objective financial performance data.
Despite these limitations, this study provides evidence regarding the effects of HR
practices and suggests that selective hiring and compensation policy are important in the
firm performance.
Future research could clarify the causal relationship between HR practices and firm
performance. Another direction for future research is to examine HR practices in sets in
order to assess their collective effect. The conceptual basis of further research can be
extended. An interesting avenue for future research is the market-based competitive
advantage approach, which declares that the market determines who is competitive or not
(Reed, Lemak and Mero 2000). The market-based approach can provide an alternative
theory to the resource-based view of competitive advantage, in order to examine the effect
of HR practices on firm performance.
Conclusions
We examined a small set of HR practices that seem to have an effect on firm performance.
We used HR managers’ perceptions about HR the constructs we measured. Future
research can examine the extent to which individual perceptions match up with objective
organizational reports.
Acknowledgement
The author would like to acknowledge the constructive feedback provided by one anonymous
reviewer.
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