Introduction
Human resource development (HRD) and human resource management (HRM) practices have increased in importance (Alagaraja, Reference Alagaraja2014), moving from ancillary functions to a collective central component of a firm’s strategic objectives. Much research now focuses on the human capital of an organization as a source of competitive advantage (Wright & McMahan, Reference Wright and McMahan1992; Lado & Wilson, Reference Lado and Wilson1994; Barney & Wright, Reference Barney and Wright1998; Wright, Dunford, & Snell, Reference Wright, Dunford and Snell2001; Liu, van Jaarsveld, Batt, & Frost, Reference Lewin2014). This is amplified by the migration of business from manufacturing to service or more human capital-intensive enterprises. The crucial role of human resources has resulted in the evolution of reliance on employee relations for the achievement of strategic objectives and firm performance (Deadrick & Stone, Reference Deadrick and Stone2014).
Although HRD and HRM practices overlap, they are distinct in that HRD practices focus on employee, organization, and career development, whereas HRM includes practices aimed at acquiring and maintaining human resources in addition to developing them (Werner, Reference Werner2014). It is the effective and efficient implementation of particular HRD and HRM practices that cultivate a strategic edge. This combination of human capital elements can be equated to what has been termed high-performance work systems (HPWS). HPWS are HRD and HRM practices working synergistically to enhance employees’ skills, commitment, and productivity (Datta, Guthrie, & Wright, Reference Datta, Guthrie and Wright2005; Gerhart, Reference Gerhart2012). Some of these practices are standardized across competitors while others are unique in their implementation in firms.
Viewing these practices through two lenses, institutional theory and resource-based view (RBV), we better understand the commonalities and differences of these practices, which collectively form HPWS. Both institutional theory and RBV have received extensive attention among other scholars; however, the two theoretical perspectives have not been used in combination to serve as a hybrid lens for viewing HPWS. Our purpose is to use both of these perspectives to explain the isomorphic and inimitable HRD and HRM practices that systematically make up a HPWS. Therefore, the research question we propose is, ‘How can institutional theory and RBV explain the homogeneity and differentiation of HPWS?’ Furthermore, we answer the charge by Posthuma, Campion, Masimova, and Campion stating, ‘More theory-based research is needed on the processes and pressures that induce organizations to adopt and change their own configuration of HPWPs’ (Reference Pearce2013: 1203).
HPWS Practices and Firm Performance
There is little consensus among researchers as to the specific practices that configure HPWS (Huselid, Reference Huselid1995; Delaney & Huselid, Reference Delaney and Huselid1996; Becker & Huselid, Reference Becker and Huselid1998; Datta, Guthrie, & Wright, Reference Datta, Guthrie and Wright2005; Takeuchi, Lepak, Wang, & Takeuchi, Reference Takeuchi, Lepak, Wang and Takeuchi2007; Posthuma, Campion, Masimova, & Campion, Reference Pearce2013). Takeuchi et al. (Reference Takeuchi, Lepak, Wang and Takeuchi2007) approach HPWS from a broad perspective, arguing that social exchange explains why HPWS are effective. However, Becker and Huselid (Reference Becker and Huselid1998) suggest that it is specific practices such as selection, reward systems, and training and performance management that lead to effective HPWS. Other practices included by researchers concerning HPWS are selective staffing, general skills training, competitive compensation, extensive benefits, employee participation, job rotation, and promotion from within, to name a few (Sun, Aryee, & Law, Reference Sun, Aryee and Law2007). According to Posthuma et al. (Reference Pearce2013: 1189):
The products of high-performance systems are the competencies that the organizational and HR architectures have created for the organization. Organizations will often develop rather extensive competency models and then design their recruiting, selection, training, performance management, and reward systems around these models (Campion, Fink, Ruggeberg, Carr, Phillips, & Odman, Reference Campion, Fink, Ruggeberg, Carr, Phillips and Odman2011).
We narrow our focus to eight HRD and HRM practices that are involved in the above-mentioned systems designed to develop organizational and human resource competencies. Thus, despite the fact that the HPWS literature consists of many individual practices, our choice of practices for this paper reflects the consistency of particular practices in the literature and the connection of these practices linked synergistically to competency development.
The broad importance of HPWS and the synergistic effect of individual HRD and HRM practices within HPWS has been validated through a review of 92 studies spanning 19,000 organizations (Coombs, Liu, Hall, & Ketchen, Reference Conger and Kanungo2006). Prior research has demonstrated a positive relationship between HPWS and organizational performance (Huselid, Reference Huselid1995; MacDuffie, Reference Manroop1995; Becker & Huselid, Reference Becker and Huselid1998; Batt, Reference Batt2002; Fu, Flood, Bosak, Rousseau, Morris, & O’Regan, Reference Fu, Flood, Bosak, Rousseau, Morris and O’Regan2014; Mahdi, Liao, Muhammed, & Nader, Reference MacDuffie2014). For example, HPWS has been linked to higher levels of return on investment (Ivars & Martinez, 2015) and increased customer satisfaction (Suess, Weller, Evanschitzky, & Wangenheim, 2014). Despite numerous studies linking HPWS to organizational performance, the mechanism of this relationship is considered somewhat of a ‘black box.’ Still, the relationship itself often serves as an indicator that HPWS can serve as a lever for sustained competitive advantage.
One lens with which researchers can view HRD and HRM is through the perspective of the RBV of the firm (Clardy, Reference Clardy2008b; Manroop, Reference Mahdi, Liao, Muhammed and Nader2015). Barney’s (Reference Barney1991) seminal article states that certain characteristics are necessary for a firm to have a sustained competitive advantage. He suggests that competitiveness is sustained over time and is focused on the heterogeneity and immobility of the resources the firm possesses and the inability of competitors to replicate these resources. Wright, Dunford, and Snell argue that sustained competitive advantage is a ‘combination of human capital elements such as the development of stocks of skills, strategically relevant behaviors, and supporting people management systems’ (Reference Wright, Dunford and Snell2001: 706).
Due to the linkage of HPWS to firm performance and sustained competitive advantage, it is no surprise that firms will attempt to imitate the HRD and HRM practices of successful firms, concentrating efforts toward the mastery of ‘best practices.’ Institutional theory helps to explain why firms attempt to mimic the behaviors and adopt similar practices of other firms within the industry (Slocum, Lei, & Buller, Reference Slocum, Lei and Buller2014) in order to achieve legitimacy and stay competitive (Oliver, Reference Offermann and Basford1997; Murphy & Garavan, Reference Murphy and Garavan2009). Thus, given the RBV stressing heterogeneity of resources and practices, there is a dichotomy, or a ‘push–pull effect’ of firms adhering to institutional pressures of isomorphism to stay competitive while also attempting to differentiate practices to achieve sustained competitive advantage.
Institutional Pressures and HPWS Practices
Review of institutional theory
Institutional theory is an open–natural systems model, which emerged as a major area of study with regards to organizations in the 1970s. The premise of the theory is that organizations are strongly influenced by their environments; furthermore, socially constructed belief and rule systems exercise great control over organizations in terms of how they are structured and how they carry out their work (Scott, 2001). Organizational structures and practices arise as reflections of rationalized institutional rules. Scott provides the following definition for institutional environments:
Institutions are composed of cultural-cognitive, normative, and regulative elements that, together with associated activities and resources, provide stability and meaning to social life (2001: 48).
Fields develop due to this ‘structuration’ or institutionalism (DiMaggio & Powell, Reference DiMaggio and Powell1983), and firms within fields engage in activities or routines, which are stable and socially accepted as right (Oliver, Reference Offermann and Basford1997). Many of these activities may not result in efficiency gains nor improved organizational performance. These routines are often habit based, performed simply because such activities are the norm for the field and are approved by the external environment. Staw and Epstein (2001) acknowledge this acceptance of externally driven norms as a ‘bandwagon effect’ in the logic of institutional theory, suggesting that firms adopt HRD and HRM practices as they become popular, ‘fashionable,’ or legitimate (DeNisi, Wilson, & Biteman, Reference DeNisi, Wilson and Biteman2014).
DiMaggio and Powell (Reference DiMaggio and Powell1983) argue that companies become more homogenized even as they attempt to change; they claim that organizations go through isomorphism due to institutional pressures. The authors define isomorphism as ‘a constraining process that forces one unit in a population to resemble other units that face the same set of institutional conditions’ (DiMaggio and Powell, Reference DiMaggio and Powell1983: 149). Meyer and Rowan (Reference Meyer and Rowan1977) and DiMaggio and Powell (Reference DiMaggio and Powell1983) claim that isomorphism is the master bridging process in institutional environments whereby organizations incorporate institutional rules into their own structures, and over time, these organizations become more and more similar or homogenous. Such processes are expected to occur only within a particular institutional sphere or organizational field (Scott, Reference Scott1983). DiMaggio and Powell (Reference DiMaggio and Powell1983) identify three mechanisms of isomorphism: coercive (pressure to conform due to external laws, mandates, etc.), normative (pressure to conform due to professional standards and networks), and mimetic (imitation of a successful firm’s structure or practices). These mechanisms relate to Scott’s elements of institutions. Regulatory institutions use coercive tactics such as rules, laws, and codes to legitimize behavior. These forces, such as government regulation or a large supplier’s quality control requirements that are imposed on each contract, create isomorphic pressure. As an organization grows larger, the firm more resembles the rules and norms of the government (Meyer & Rowan, Reference Meyer and Rowan1977). Normative institutions reflect the morally governed normative framework or social values created within organizational fields or through professionalization and accepted in the institution. Thus, the presence of similarly trained employees in a given field (i.e., physicians, accountants, etc.) produces firms with homogeneous practices. Finally, the cultural-cognitive view relates to mimetic practices whereby organizations imitate other organizational practices since those practices are culturally supported by the external environment (Scott, 2001). When organizations are faced with circumstances that are complex and unclear, they look at cues from other organizations in similar contexts and copy their behavior (Mizruchi & Fein, Reference Mizruchi and Fein1999). Further, firms are more likely to take action to copy firms that the mimicking firm admires or aspires to be (Galaskiewicz & Wasserman, Reference Galaskiewicz and Wasserman1989). Taken together, we see that institutional pressures explain how isomorphism can arise between competitors. Isomorphism provides a simple explanation as to why firms tend to adopt the HRD and HRM practices of their competitors.
Isomorphic HPWS practices
In order to survive in a competitive environment, firms must adopt certain practices that are ‘standardized’ across an industry (Meyer & Rowan, Reference Meyer and Rowan1977; Staw & Epstein, 2001; DeNisi, Wilson, & Biteman, Reference DeNisi, Wilson and Biteman2014). What at one time may have been a practice that was unique to one or a few firms, slowly becomes an expected and necessary practice over time for all firms to adopt just to compete (Paauwe & Boselie, 2005). Thus, as firms become more institutionalized, HPWS practices become homogenized through isomorphism (Oliver, Reference Offermann and Basford1997). Norms and rules of the industry begin to dictate a certain profile that is expected of all firms in the industry. Practices that may have been exceptional for a firm at one time become the expectation for all firms over time as competitors see the success of those practices, which eventually becomes agreed upon ‘best practices’ (Leggat, Reference Lippman and Rumelt2012; Offermann & Basford, Reference Nazila and More2014; Therious & Chatzoglou, Reference Theriou and Chatzoglou2014). The question is ‘what are the practices that isomorphically become required practices of a HPWS?’
As noted earlier, the definition of what practices constitute a HPWS is not consistent among researchers. However, there are four practices that are consistent among the various studies on HPWS and tend to show homogeneity in their implementation across competitors: intensive recruitment and selection practices, generalized skills training, performance-based compensation systems, and employee engagement initiatives (Huselid, Reference Huselid1995; Jackson & Schuler, Reference Jackson and Schuler1995; Batt, Reference Batt2002).
Intensive recruitment and selection
One traditional way a firm can create and enhance its stock of human capital is through efficient recruitment and selection practices. New hires are a critical element of whether internal human resources can be a source of competitive advantage (Sackett & Wanek, Reference Sackett and Wanek1996). In an article by Posthuma et al. (Reference Pearce2013), the authors synthesize the high-performance work practices literature, and offer a taxonomy of 61 HPWS practices. Of these practices, ‘multiple tools used to screen applicants’ and ‘employment tests or structured interviews’ are listed as broad HPWPs across numerous studies and stable or growing practices over time (Posthuma, Campion, Masimova, & Campion, Reference Pearce2013: 1192). Firms will often recruit potential employees through the same outlets, and select candidates via common selection tests and procedures.
Organizations within a certain field will adopt similar recruitment and selection procedures even when the imitated practices are ineffective. Wright and McMahan (Reference Wright and McMahan1992) offer the example of how institutional pressures urge organizations to continue using preemployment interviews in selection despite substantial research evidence that demonstrates the questionable results that come from the traditional job interview (Janz, Hellervik, & Gilmore, Reference Janz, Hellervick and Gilmore1986). There are selection practices that are linked to increased job performance, such as work sample tests, cognitive ability tests, personality assessments, physical ability tests, and biographical data assessments (Hunter & Hunter, Reference Hunter and Hunter1984; Sackett & Wanek, Reference Sackett and Wanek1996; Arvey, Landon, Nutting, & Maxwell, Reference Autor1997; Huffcutt, Conway, Roth, & Stone, Reference Huffcutt, Conway, Roth and Stone2001). Use of any type of assessment is often field specific; however, institutional pressures suggest that the employment of any particular practice will be consistently used among competitors within a field.
In an article by Williamson and Cable (Reference Williamson and Cable2003), the authors empirically examine the top management team hiring patterns of Fortune 500 firms. Their results indicated that top management team hiring patterns were shaped by mimetic isomorphism. Specifically, they found that firms hired from the same sources due to frequency-based imitation and trait-based imitation. Frequency-based imitation is the mimicking of practices and actions taken by many other competitors in the field. Trait-based imitation is the mimicking of actions of other competitors with certain characteristics, such as being a similar sized company (Williamson & Cable, Reference Williamson and Cable2003).
Mimetic isomorphism is one of three pressures listed by DiMaggio and Powell (Reference DiMaggio and Powell1983) that can lead a firm toward conformity to an institutional pattern. Adopting similar recruitment and selection patterns can serve as ‘standardized responses to uncertainty whereby in an attempt to adapt to uncertainty, organizations respond by duplicating the patterns of other successful organizations’ (Mellahi, Demirbag, Collings, Tatoglu, & Hughes, 2013: 2342). Firms rely on similar tools that have been deemed as effective and legal (job-relevant and nondiscriminatory in regards to Equal Employment Opportunity guidelines). For example, the Wonderlic Personnel Test is a cognitive ability test that has been given to more than 200 million people across various industries. It is currently used by competing teams in the National Football League to identify top draft picks (Wonderlic.com, 2015).
By implementing similar recruiting and selection procedures of top firms, competing firms reduce uncertainty by increasing the likelihood of attracting and selecting similar talent as that of top firms. This homogeneity of recruiting and selection practices among competitors can be explained by the isomorphic facet of institutional theory.
Generalized skills training
Training is consistently regarded as a HPWS practice (Huselid, Reference Huselid1995; Kuvaas & Dysvik, 2010; Mellahi, Demirbag, Collings, Tatoglu, & Hughes, 2013; Posthuma et al., Reference Pearce2013). According to Gist, Bavetta, and Stevens (Reference Gist, Bavetta and Stevens1990), training is a traditional focus of human capital theory. With a greater focus on services, there are increasing needs for generalized skills ‘including learning, reasoning, communicating, general problem-solving and behavioural skills’ (Carnevale & Smith, Reference Carnevale and Smith2013: 493). Research has established that training which increases generalized skills has a positive impact on performance when the skills are transferred to the job (Gist, Bavetta, & Stevens, Reference Gist, Bavetta and Stevens1990; Hatala & Fleming, Reference Hatala and Fleming2007). Furthermore, Ellis, Bell, Ployhart, Hollenbeck, and Ilgen (Reference Ellis, Bell, Ployhart, Hollenbeck and Ilgen2005) found that training on generic teamwork skills increased individuals’ cognitive and skill-based outcomes.
Due to the generalized nature of the skills developed, the individual is able to use these skills in multiple settings, which lends itself to job rotation (Gist, Bavett, & Stevens, Reference Gist, Bavetta and Stevens1990). Because of the link between training and increased employee performance, organizations are very likely to continue to invest substantially in training (Snell & Dean, Reference Snell and Dean1992; Huselid, Reference Huselid1995; Burke & Hutchins, Reference Burke and Hutchins2007; Carnevale & Smith, Reference Carnevale and Smith2013). The particular method for generalized skills training tends to be similar among competing organizations that require the same general skills for employees to be effective.
Autor (Reference Arvey, Landon, Nutting and Maxwell2001) found that the majority of temporary employment agencies provided free general skills training, usually in the areas of data entry, word processing, and computer programming. He explains that ‘Manpower, Inc., the nation’s largest THS employer, estimates that it trains more than 100,000 temporaries per year in the use of office automation software’ (Autor, Reference Arvey, Landon, Nutting and Maxwell2001: 1409). Often times, firms will rely on existing training packages supplied by third parties to hone generalized skills. For example, Dale Carnegie has trained eight million employees worldwide on leadership skills (Dalecarnegie.com, 2015). In an article by Mellahi et al., the authors examine MNEs and domestic firms, suggesting the following:
The need to learn more about the host country, its markets and its institutional framework, coupled with a need to shape competitive advantages against incumbent domestic firms, suggests that training should be adapted to the local environment context because the external and internal institutional pressures to do so are great. In a form of isomorphism, the MNE subsidiary will need to shape training programmes that bear close similarity to local high-performing firms in order to embed the knowledge and skills needed to operate effectively in the host country (2013: 2348).
Isomorphic generalized skills training programs are indicative of institutional pressures of firms to reduce uncertainty of the skill sets developed in employees. Generalized skills can be transferred across many contexts, and firms will adopt the same generalized skills training practices used by the top firms in a particular field. In order to cultivate robust and updated skills, ‘there are competitive and institutional pressures for local firms to professionalize their training practices’ (Mellahi, Demirbag, Collings, Tatoglu, & Hughes, 2013: 2349.)
Performance-based compensation
Performance-based compensation plans, also known as pay-for-performance plans, exist when financial rewards are linked to the performance of the entire firm. As part of a HPWS, these types of pay systems have been linked to performance (Mahdi, Liao, Muhammed, & Nader, Reference MacDuffie2014). There is a large motivational factor attached to performance-based compensation plans since employees are paid based on the success of their firm. Consequently, the organization benefits since employees’ pay is tied to performance such that employees will not make as much when the firm performs poorly, but employees will be paid more when the firm does well (Miceli, Jung, Near, & Greenberger, Reference Miceli, Jung, Near and Greenberger1991). Becker and Huselid (Reference Becker and Huselid1998) found that compensation strategies that focused on the pay-for-performance linkage accounted for nearly 75% of the HPWS–firm performance relationship.
A number of studies indicate that high-performing individuals are more likely to join and stay with a company that offers pay for performance than those that do not, illustrating the importance of exchange theory in HRD and HRM practices through pay (Shaw, Dinnen, Fang, & Vellella, Reference Shaw, Dineen, Fang and Vellella2009). From an HRD perspective, pay for performance enhances employee development by offering direction to desired behaviors and job skills. Gerhart and Fang (Reference Gerhart and Fang2014) classify pay-for-performance programs on three dimensions: results oriented, behavior oriented, and incentive intensity. It is the behavior-oriented dimension of pay that contributes to the HRD dimension of pay. These behaviors can be rated and monitored by supervisors and others, such as peers and customers, for employee development and improvement in performance.
Not only do firms benefit by implementing performance-based compensation plans, but in order to stay competitive, firms should offer competitive pay. In other words, organizations will need to ensure external equity for employees to be attracted to and stay with the organization. External equity refers to the degree to which a firm pays employees the equivalent price the employees would command in the external labor market (Snell & Dean, Reference Snell and Dean1992). Klaas and McClendon state that many organizations argue ‘that the costs of providing competitive or even above-market wages are offset by the benefits of a more qualified workforce’ (Reference Klass and McClendon1996: 121). Consequently, institutional pressures lead organizations to imitate the pay policies and pay levels of their competitors.
Performance pay ‘has long been considered a socially legitimized practice (according to the principle of Taylor’s scientific management) (Poutsma, Ligthart, & Dietz, Reference Penrose2013)’ (Kang & Yanadori, Reference Kang and Yanadori2011: 1838). One study found that pay-for-performance systems are adopted for legitimization purposes when institutional pressures are modest or high and align with economic rationality of the adoption (Kang & Yanadori, Reference Kang and Yanadori2011). Another study found performance-based pay to be a ‘core’ practice in HPWS, due to its prevalence, stability, and position in the top 30 most frequently cited practices in several regions of the world (Posthuma et al., Reference Pearce2013). Thus, performance-based pay is an HRM practice that is linked to HRD, part of HPWS consistently, and shows isomorphic institutionalization across multiple fields and global regions.
Employee engagement initiatives
In HRD, employee engagement has been thought of as the ‘cognitive, emotional, and behavioral energy an employee directs toward positive organizational outcomes’ (Shuck & Wollard, Reference Shuck and Rose2010: 103). This is summed up by Kahn’s (Reference Kahn1990) notion that engaged employees are fully present in their work roles in terms of cognition, emotion, and physical inputs. Employees who take part in HRD activities have been shown to have higher levels of overall engagement (Czarnowsky, Reference Czarnowsky2008). Employee engagement results in higher productivity, shareholder returns, and overall satisfaction (Rich, LePine, & Crawford, Reference Rich, Le Pine and Crawford2010). Additionally, employee engagement has been linked to competitive advantage (Kim, Kolb, & Kim, Reference Kim, Kolb and Kim2013; Shuck & Rose, 2013). Conversely, companies with an engagement ‘gap’ or high disengagement report higher levels of negative financial performance due to a loss of productivity (Bates, Reference Bates2004). Employee engagement initiatives increase motivation by creating a sense of importance and providing voice for the employee (Conger & Kanungo, Reference Coombs, Liu, Hall and Ketchen1988). Part of the broader contribution of highly engaged employees is that their efforts stem from high levels of enthusiasm and excitement concerning their work (May, Gilson, & Harter, Reference May, Gilson and Harter2004).
Saks and Gruman (Reference Saks and Gruman2006) argue that employee engagement is a tool for managing turnover due to the relationship between engagement and satisfaction. Research supports the proposition that engagement can reduce turnover by increasing employees’ job satisfaction (Warr & Inceoglu, Reference Warr and Inceoglu2012). Because employee engagement initiatives have such positive benefits for both the employee and the organization and have become so common in recent years (Carasco-Saul, Kim, & Kim, Reference Carasco-Saul, Kim and Kim2015), it is likely that more organizations will adopt such initiatives. Organizations are likely to mimic the successful employee engagement practices of competing firms. Given the movement toward viewing employee engagement as a central component of HRD and the push to adopt ‘best practices’ as a strategic measure of developing engaged workers (Mone & London, Reference Mone and London2010), we see increasing standardization of HRD practices concerning employee engagement.
In summary, provided the strong inertial pull created by institutional pressures, we propose that organizations will imitate competitors’ recruitment and selection practices, generalized skills training programs, performance-based compensation plans, and employee engagement initiatives. Given the overwhelming consensus that these four practices are included in HPWS, it seems intuitive that these would be the practices experiencing isomorphism among competing firms. Furthermore, provided the link between HPWS and firm performance, firms must adopt these similar practices to stay competitive. Imitation is not an option, but a necessity for survival.
RBV and HPWS
While institutional theory explains why one firm might feel pushed to try and imitate the HRD and HRM policies of its competitors, it does not explain why, even in an environment with shared ‘best practices’ or ‘standardization,’ we still see dramatic differences in performance in HRD and HRM practices. One lens with which to explain these differences is the RBV of the firm. First, we should review the basic tenants of RBV. According to RBV, sustained competitive advantage occurs through leveraging a firm’s core competencies (Clardy, Reference Clardy2008a). Barney and Wright (Reference Barney and Wright1998) suggest that a firm can attain a competitive advantage by outperforming its competitors in organizational capital, physical capital, or human capital. By building ‘bundles’ of resources, organizations achieve interconnected systems, in which the output is larger than the sum of its parts, and is thus difficult to imitate (Boxall & Purcell, Reference Brin2003). Barney (Reference Barney1991) suggests that a competitive advantage could occur only if a particular strategy is not being used by a competitor, such that resources are rare, valuable, inimitable, nontradable, nonsubstitutable, and firm specific. According to Oliver, this leads to ‘firm heterogeneity and successful firms are those that acquire and maintain valuable idiosyncratic resources for sustainable competitive advantage’ (Reference Offermann and Basford1997: 700). In order for such a competitive advantage to be sustained, competitors must cease copying or duplicating strategic initiatives (Lippman & Rumelt, Reference Lepak and Snell1982). For resources to act as a competitive advantage they must be flexible enough to be levered in different ways and able to be used in varying contexts (Penrose, Reference Ostroff1959). While the inherently heterogeneous and causally ambiguous nature of human capital, as compared with other resources, more readily enables an organization to leverage human resources toward the acquisition of a competitive advantage (Itami, Reference Itami1987), these types of resources – even if difficult to imitate – do not in and of themselves result in having a competitive advantage. The challenge for most organizations is to develop certain capabilities, which makes human capital-based performance outcomes more difficult for competitors to imitate (Lado & Wilson, Reference Lado and Wilson1994; Lepak & Snell, 1999). However, the literature offers little guidance as to the types of capabilities that organizations might develop to facilitate this. Accordingly, we aim to develop an initial taxonomy of HRM capabilities, which provides a basis for future hypothesis development and for informing practitioners. Consistent with Doty and Glick’s (Reference Doty and Glick1994) recommendations, we view each proposed HR capability as an ‘ideal type’ that is intended to provide an abstract model that may provide guidance for the construction of research hypotheses, as well as inform practice.
Differentiated HPWS practices
Lepak and Snell (1999) suggest that not all HRD and HRM investments are strategically enacted to achieve market differentiation. For example, managers often hire employees who fall into the category of being neither particularly valuable to the firm nor unique. These job roles are better viewed as necessities for operations, but not for facilitating competitive advantage. Such skills may be in abundant supply and easy to replace. This stands in sharp contrast to those who are both valuable and unique – individuals who possess skills specific to the firm’s unique capabilities, undergo specialized training, and garner management attention. By focusing on the work systems that can act to differentiate the firm, training initiatives, and other differentiated HPWS build firm-specific skills (Lepak & Snell, 1999). Thus, Lepak and Snell argue that a strategic advantage can be attained when investments are aimed at employees and the development of employees that best promote firm uniqueness. HPWS have been linked to sustained competitive advantage due to causal ambiguity (the cause of firm success is not clear) and path dependency (accumulated effects of previous actions are inimitable) (Lado & Wilson, Reference Lado and Wilson1994; Becker & Huselid, Reference Becker and Huselid1998). Specifically, the nature of HRD and HRM practices is that they are inherently difficult to determine the source of their effectiveness or unique origins (Sun & Pan, 2011). According to Huselid and Becker ‘there is an implementation to benefit lag, especially in the acquisition, development, and deployment of talent, that affords a ‘first-mover’ advantage to firms that effectively align HPWS with strategy’ (Reference Huselid and Becker2011: 423).
Differentiation moves beyond a series of best practices or standardization, in that it leverages crisscrossing and overlapping sets of inputs whose combined effect is larger than the sum of its parts. They can act to significantly impact firm performance when they are aligned with the broader firm competitive strategy (Huselid, Reference Huselid1995). The end result is that HR differentiation correlates positively with profitability and higher stock prices (Becker & Huselid, Reference Becker and Huselid1998).
Given that we have proposed that firms often imitate certain HRD and HRM practices to survive and be efficient, we explore how RBV explains when firms use HRD and HRM practices that are implemented uniquely in the firm. In accordance with RBV, we argue that firm-specific training, strong climate, incremental compensation and benefits, and work–family balance contain high levels of specificity and are inherently complex – thus, likely to lead to competitive advantage.
Firm-specific training
As the threat of turnover is high in many industries, some researchers believe that general skills cannot be a source of sustained competitive advantage (Coff, Reference Coff1997). Thus, it is human assets with firm-specific skills and knowledge that creates an advantage (Dittman, Juris, & Revsine, Reference Dittman, Juris and Revsine1976; Nag & Gioia, Reference Nag and Gioia2012; Sheehan, Reference Sheehan2014). Firm-specific training aids in creating tacit knowledge, that knowledge which is hard to codify and imitate (Itami, Reference Itami1987), especially during times of uncertainty (Kim & Ployhart, Reference Kim and Ployhart2014). Firms often use extensive training initiatives to codify institutional knowledge and transfer skills from a training experience to skills that are needed on the job (Browns, McCracken, & Hillier, 2013), and they frequently do so to differentiate themselves from their competitors (Becker, Reference Becker1976). A recent study by Lecuona and Reitzig (Reference Lecuona and Reitzig2014) found that firm performance can be increased even if the firm overinvests in employee tacit knowledge. Practices such as team-based production and unique operational procedures lead to social complexity and causal ambiguity as well as the development of tacit knowledge (Lepak & Snell, 1999).
Firms should ‘sponsor career development and mentoring programs to encourage employees to build on idiosyncratic knowledge that is more valuable to the firm than to competitors’ (Lepak & Snell, 1999: 37). Firm-specific skills are developed via formal training, mentoring, and intensive on-the- job training geared toward a mastery of knowledge and skills only applicable at a particular firm (Nazila & More, 2012). Firm-specific training usually requires a larger time commitment compared with generalized skills training. For example, mentoring requires one-on-one interaction and can take the form of supervisor–subordinate or peer-peer mentoring (Kram & Isabella, Reference Kram and Isabella1985). The exchange of information from one organizationally embedded employee to the other occurs over the course of time, during which tacit knowledge as well as technical knowledge is exchanged. Mentoring relationships lead to increased job satisfaction, reduced role ambiguity, and reduced turnover intentions as well as reduced actual turnover (Lankau & Scandura, Reference Lankau and Scandura2002).
Nazila and More note that firm-specific knowledge ‘is more useful with the firm, less applicable across the boundaries of an organization, tacit knowledge, immobile, and cannot be traded outside an organization’ (2012: 23). This knowledge has greater economic value to the specific firm in which it is created than to any other business context (Helfat et al., Reference Helfat, Finkelstein, Mitchell, Peteraf, Singh, Teece and Winter2007). Consequently, employees with firm-specific knowledge are less likely to leave due to the unattractiveness of their firm-specific skills to the external labor market (Hausknecht, Reference Hausknecht2014).
Strong climate
Organizational climate draws its original ideas from the concept of social climates (Lewin, Reference Litwin and Stringer1951). However, climate eventually became an important bedrock of the management literature through Litwin and Stringer’s (Reference Liu, van Jaarsveld, Batt and Frost1968) seminal book that examined the way in which employee motivation was impacted by organizational climate. The authors show the broad impact that climate variables such as conflict, warmth, support, responsibility, structure, identity, and risk have on individual behavior. On the whole, organizational climate is ‘a shared perception of what the organization is like in terms of practices, policies, procedures, routines, and rewards’ (Bowen & Ostroff, Reference Boxall and Purcell2004: 205).
Evans and Davis (Reference Evans and Davis2005) argued that the internal social structure of a firm mediates the HPWS–firm performance relationship. Internal social structure consists of elements such as bridging weak ties, organizational citizenship behaviors, shared mental models, and norms of reciprocity. These elements are the underpinnings of an organization’s internal climate, and successful development of these elements lead to increased organizational efficiency and flexibility. Climate is typified by affective, cognitive, and instrumental components, which result in employees feeling a part of the decision-making process, positive attitudes toward coworkers and the workplace, an environment that promotes innovation, and the opportunity for employees to strive for growth and development (Ostroff, 1993). For example, organizations that are in the ‘retirement home industry will be most likely to emphasize a climate of caring’ (Manroop, Reference Mahdi, Liao, Muhammed and Nader2015: 188).
HRD and HRM practices play a large role in cultivating strong climate by sending signals about which strategic goals are paramount and what employee behaviors are expected, supported, and rewarded relative to those goals (Bowen & Ostroff, Reference Boxall and Purcell2004). Further, James and Jones (Reference James and Jones1974) suggest that a consistent climate, which does not fluctuate over time, is predictive of higher overall performance (Hoffmeister, Gibbons, Schwatka, & Rosecrance, Reference Hoffmeister, Gibbons, Schwatka and Rosecrance2015). This has been further tested by other researchers, indicating a strong relationship between organizational climate and firm performance (Van De Voorder, Van Veldhoven, & Paauwe, Reference Van De Voorder, Van Veldhoven and Paauwe2010; Avery, Reference Avery2011). Collins and Smith (Reference Collins and Smith2006) found that strong climate, characterized by trust, cooperation, shared codes and language, cultivated knowledge creation and exchange, which in turn predicted firm revenue and sales growth. In a cyclical manner, while HRD and HRM practices impact climate, climate also impacts HRD and HRM. For example, organizational identification is a strong predictor of training performance (Kim, Hahn, & Lee, Reference Kim, Hahn and Lee2015).
Strong climate induces intraorganizational conformity such that individuals who have a strong, shared perception of organizational norms and procedures are less likely to experience variation in their interpretation of situations (Mischel & Peake, Reference Mischel and Peake1982). Strong climate has been linked to more motivated and committed employees who act in the best interest of the firm rather than only in their individual self-interest (Tsui, Pearce, Porter, & Hite, Reference Tsui, Pearce, Porter and Hite1995; Collins & Smith, Reference Collins and Smith2006; Zohar, Huang, Lee, & Robertson, Reference Zohar, Huang, Lee and Robertson2015). Bowen and Ostroff (Reference Boxall and Purcell2004) argue that HRD and HRM practices cultivate a strong climate by being distinct, consistent, and showing consensus, and they are tools for creating a shared sense of direction among employees. Taken together, a strong climate is difficult for other firms to imitate, and the establishment of a strong climate can act as an organizational competitive advantage as is illustrated by the overall impact that climate has on organizational performance (Van De Voorder, Van Veldhoven, & Paauwe, Reference Van De Voorder, Van Veldhoven and Paauwe2010; Avery, Reference Avery2011; Evans & Davis, Reference Evans and Davis2015; Hoffmeister et al., Reference Hoffmeister, Gibbons, Schwatka and Rosecrance2015).
Incremental compensation and benefits
We propose that firms often differentiate their compensation packages both to attract new talent and retain valuable employees. These packages include incremental pay as well as benefits. Given institutional pressures, organizations often match the pay structures and pay levels of competitors in order to stay competitive. However, to achieve sustained competitive advantage, many firms provide incrementally higher pay and benefits compared with competitors. Klaas and McClendon (Reference Klass and McClendon1996) investigate the impact of a firm’s decision to lead, lag, or match pay level policies. External equity issues heavily influence an organization’s attractiveness in the labor market; furthermore, it aids to validate a current employee’s perceived worth (Rynes & Milkovich, Reference Rynes and Milkovich1986). Competitive pay packages often lead to reduced turnover (Jung & Yoon, Reference Jung and Yoon2015) and the ability to attract (Klaas & McClendon, Reference Klass and McClendon1996) and keep top employees (Vandenberghe & Tremblay, Reference Vandenberghe and Tremblay2008).
In order to obtain and maintain highly productive and talented employees, many organizations must offer higher pay than their competitors (Lawler, Reference Lawler1990). Alexander and Hingel (Reference Alexander and Hingel2013) suggest that salary predicts firm performance such that firms that pay more competitive salaries are more likely to have higher firm performance. Hayton (Reference Hayton2005) argued that above-market pay is required for firms to remain innovative. Furthermore, higher pay will motivate employees to take risks and develop efforts toward entrepreneurial projects (Hayton, Reference Hayton2005; Messersmith & Guthrie, Reference Messersmith and Guthrie2010). Though competitors can often imitate this incremental pay, the benefit of a first-mover advantage can be great, particularly if an organization can employ top talent before a competitor employs them first (Coff, Reference Coff1997). The pay can include additional monetary value such as that provided by benefit packages (Lee, Hsu, & Lien, Reference Lee, Hsu and Lien2006). Incremental pay will be a part of the larger synergistic HPWS.
Work–family benefits
Increasingly, employees seek a balance between work and personal life (Kimberly & Lowe, Reference Kimberly and Lowe2003; Butts, Casper, & Yang, Reference Butts, Casper and Yang2013). Additionally, employers continue to look for ways to recruit and retain top talent in their firms (HR Focus, 2004; Kaplan & Rauh, Reference Kaplan and Rauh2013). Telecommuting and flextime offer reasonable solutions for both workers and employers to realize these goals. The International Telework Association & Council defines telecommuters as employees who work from home at least 1 day per month (Smith, Reference Smith2004). In the United States, the study of telecommuting took off during the 1990s when there was a cultural push for organizations to offer family-friendly benefits (Davis & Kalleberg, Reference Davis and Kalleberg2006). Firms began to realize the cost savings of telecommuting adoption due to a reduced need for office space, and organizations likewise found that offering telecommuting could function as a recruiting tool to hire top talent (Blair-Loy & Wharton, Reference Blair-Loy and Wharton2002). Furthermore, many studies found that telecommuters were more productive working from a remote location, and firms saw less turnover and absenteeism with telecommuters (Clark, Reference Clark1998; Raines & Leathers, Reference Posthuma, Campion, Masimova and Campion2001). Because the act of choosing to telecommute is an employment choice often made by the employee, not directed from the employer, such choice can lead to an increase in intrinsic motivation and task performance (Gregory & Milner, Reference Gregory and Milner2009). From the telecommuter’s perspective, benefits of the practice include a more flexible schedule, reduced commute time, and an accommodation to work–family balance (Henke, Benevent, Schulte, Rinehart, Crighton, & Corcoran, Reference Henke, Benevent, Schulte, Rinehart, Crighton and Corcoran2015).
Telecommuting has increased in practice. Telecommuting grew 73% from 2005 to 2011 in the United States (Brin, 2013). Global Workplace Analytics and the Telework Research Network estimated as many as 3.7 million US workers worked at home at least half the time in 2014. Additionally, their study revealed that despite that 50% of US jobs are compatible with at least partial telework, only 20–25% of employees in those jobs actually telework (Global Workplace Analytics, 2016). Despite telework growth, there are still many organizations that do not offer telecommuting options. From a RBV perspective we argue that offering telecommuting as an option differentiates an organization’s benefits and acts as a competitive advantage to recruit top talent. For example, Families and Work Institute conducted a national US study in conjunction with Society for Human Resource Management (SHRM) and determined firms who do not offer telecommuting are missing out on opportunities to diversify and attract disabled workers who may be exceptionally qualified (Families and Work Institute, 2014).
Flextime also accommodates the desire for work–family balance (Scandura & Lankau, Reference Scandura and Lankau1997). Flextime requires workers to be at work during ‘core hours,’ for instance 10 a.m. to 4 p.m., but the employee has flexibility in terms of getting to work and leaving work beyond those core hours (Daft, Reference Daft2006). This flexibility in schedule provides the employee the autonomy to schedule work around the demands of his or her personal life. SHRM’s Strategic Benefits Survey (Reference Shuck and Wollard2015) revealed that while half of the employers in their survey had a flexible work policy, only a third of employees were actually allowed to use it. Thus, despite the desire by employees for more flexible schedules (Gorman, Reference Gorman2014), employers are not necessarily providing this option consistently. This gap between desire and execution presents an opportunity for employers to differentiate by truly allowing employees to take advantage of a schedule that is more conducive to work–family balance.
In general, flextime and telecommuting programs have resulted in reduced turnover and absenteeism, higher employee morale and productivity, and improved worker well-being (Gill, Reference Gill1998; Gale, Reference Gale2001; Lucas & Heady, Reference Lucas and Heady2002). In addition, a recent study on the strategic use of telecommuting by firms has indicated that it can act as a tool for competitive advantage (Bélanger, Watson-Manheim, & Swan, Reference Bélanger, Watson-Manheim and Swan2013). Kossek, Hammer, Kelly, and Moen (Reference Kossek, Hammer, Kelly and Moen2014) detail the intricate and time-intensive design principles necessary for successful work–family practices. They highlight strong organizational and social support as prerequisites for effective work–family practices. By offering telecommuting and flextime, firms are more likely to attract and keep top talent, which in turn acts as a means to differentiate themselves from firms that do not offer such options (Pearce, Reference Paauwe and Boselie2009).
In summary, within a HPWS these four HRD and HRM practices (firm-specific training, strong climate, incremental pay and benefits, work–family balance) are often differentiated in their implementation among competitors. These differences can be explained by the RBV of the firm, considering firms are able to implement uniquely the HRM and HRD practices due to the resources they possess compared with competitors.
Conclusion
Given extensive studies that link HPWS to firm performance, and given the consistency of including certain HRD and HRM practices in the definition of HPWS, we propose that firms will imitate competitors in recruitment and selection, generalized skills training, performance-based compensation plans, and employee engagement initiatives. However, by looking at HPWS through a RBV lens, we show how differentiation is a necessary mechanism for obtaining an edge, or sustained competitive advantage over competitors. We suggest that firms differentiate by offering firm-specific training, cultivating strong climate, offering incremental pay and benefits, and offering work–family balance opportunities. Through these simultaneous homogeneous and heterogeneous HPWS practices, the organization can successfully manage this ‘push–pull’ dichotomy to achieve sustained competitive advantage.
In addition to future testing of arguments we set forth in this paper, we believe that there is a wealth of future research that can be developed in exploring specific moderation effects, which will illustrate that there are times that one form dominates over the other. For example, one interesting moderator could be firm size. There could be ample reasons why smaller organizations might want to invest more aggressively in differentiated practices than larger organizations. Further, research might be interested in testing the impact that declining industries might have on the decision to adopt more standardized or contextualized systems. Another area of interest could be how industry dynamics impact these relationships. For example, firms in an oligopoly might behave differently than firms in a market that is considered pure competition.
Our paper contributes to the human resources literature by applying two divergent theories to explain why some HRD and HRM practices are consistent among competitors and others are unique. While RBV has been used in prior research to explain the competitive advantage created by human capital (e.g., Lado & Wilson, Reference Lado and Wilson1994; Huselid, Reference Huselid1995; Becker & Huselid, Reference Becker and Huselid1998; Lepak & Snell, 1999), our paper is the first that we are aware of to juxtapose the convergent institutional theory with RBV to categorize HWPS practices as standardized versus differentiated. We do not believe that this is an either–or proposition, but rather, that competitive firms are, in fact, likely to draw from both the isomorphic practices as well as firm-specific differentiated practices. Adopting both standardized and contextualized practices can prove to be beneficial for firm performance. It is the effective balancing and synergistic effect of the combined practices that lead firms to sustaining a competitive advantage. Our aim with this paper is to use two theories to untangle the HPWS ‘black box,’ providing guidance for both scholars and practitioners.
Acknowledgements
This manuscript is the authors’ original work and is not currently under review or published elsewhere. All authors have read and approved the manuscript and met the criteria for authorship. This paper looks at specific HR practices commonly included in HPWS that lead to sustained competitive advantage. Specifically, it argues that a firm must balance isomorphic and differentiation pressures to survive and gain an edge over competitors. Using RBV and institutional theory, this paper aligns with the aim of JMO to illustrate how HR contexts shape management theory. Bridging theory and practice, the paper will appeal to scholars and practitioners.
