Hpwp Essay

2006, 59, 501–528 HOW MUCH DO HIGH-PERFORMANCE WORK PRACTICES MATTER? A META-ANALYSIS OF THEIR EFFECTS ON ORGANIZATIONAL PERFORMANCE JAMES COMBS, YONGMEI LIU Department of Management Florida State University ANGELA HALL Department of Risk Management and Insurance, Real Estate, and Business Law Florida State University DAVID KETCHEN Department of Management Auburn University Although there is growing evidence that high performance work practices (HPWPs) affect organizational performance, varying sample characteristics, research designs, practices examined, and organizational performance measures used has led extant ? dings to vary dramatically, making the size of the overall effect dif? cult to estimate. We use metaanalysis to estimate the effect size and test whether effects are larger for (a) HPWP systems versus individual practices, (b) operational versus ? nancial performance measures, and (c) manufacturing versus service organizations. Statistical aggregation of 92 studies reveals an overall correlation that we estimate at . 20. Also, the relationship is stronger when researchers examine systems of HPWPs and among manufacturers, but it appears invariant across performance measures.

We use our ? ndings as a basis to offer 4 suggestions intended to shape research practices such that future meta-analyses might answer today’s emerging questions. Human resources can be an organization’s largest and most dif? cultto-control expense, but it can also be central ingredients affecting organizational performance (Pfeffer, 1998). Thus, a key task for researchers has been to understand how human resources can be managed to maximize productivity and enhance creativity while controlling costs.

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Rising to this challenge is a body of research labeled strategic human resource management (SHRM), which is devoted to understanding how human reWe are grateful to John Delery, Jerry Ferris, Jack Fiorito, Mark Huselid, and Micki Kacmar for their assistance and insight. Correspondence and requests for reprints should be addressed to James Combs, Florida State University–Management, College of Business, Tallahassee, FL 32306-1110; [email protected] edu. COPYRIGHT C 2006 BLACKWELL PUBLISHING, INC. 501 502 PERSONNEL PSYCHOLOGY ource management practices affect organization-wide outcomes (Ferris, Hochwarter, Buckley, Harrell-Cook, & Frink, 1999; MacMillan & Schuler, 1985). Human resource practices that SHRM theorists consider performance enhancing are known as high-performance work practices (HPWPs— Huselid, 1995). HPWPs include, for example, incentive compensation, training, employee participation, selectivity, and ? exible work arrangements (Huselid, 1995; Pfeffer, 1998). SHRM theory asserts that these practices increase employees’ knowledge, skills, and abilities (KSAs), empower employees to leverage their KSAs for organizational bene? , and increase their motivation to do so (Becker & Huselid, 1998; Delery & Shaw, 2001). The result is greater job satisfaction, lower employee turnover, higher productivity, and better decision making, all of which help improve organizational performance (Becker, Huselid, Pickus, & Spratt, 1997). HPWPs also operate through organizations’ internal social structures to increase ? exibility and ef? ciency (Evans & Davis, 2005). Researchers have devoted signi? cant empirical effort toward understanding the HPWP–organizational performance relationship. Indeed, our literature search uncovered 92 studies that report relevant statistics on the link.

As suggested by this volume of research, the question of how much HPWPs affect organizational performance is important to both managers and researchers. Understanding the degree to which HPWPs affect organizational performance and the conditions that moderate the relationship helps researchers build contingencies into SHRM theory and aids practitioners seeking to justify investments in HPWPs. Studies have attempted to synthesize the literature via narrative review. Several conclude that published research provides support for the notion that HPWPs positively affect organizational performance (e. g. Becker & Huselid, 1998; Becker & Gerhart, 1996; Wright & Boswell, 2002). However, varying sample characteristics, research designs, practices examined, and performance measures used has led extant ? ndings to vary dramatically, making the size of the overall effect dif? cult to estimate (Becker & Gerhart, 1996; Ferris et al. , 1999; Wood, 1999). A logical next step is to statistically aggregate the evidence using meta-analysis. When research streams are meta-analyzed, methodological artifacts (such as sampling and measurement error) are often found to be the drivers of variance in results across studies (Hunter & Schmidt, 1990).

Once such effects are removed, the size of a relationship can be more accurately estimated. Furthermore, meta-analysis permits examination of whether study attributes, such as the type of organizations sampled or measures used, affect studies’ outcomes. Given the importance of human resources to organizations, the considerable interest in understanding the effects of HPWPs on organizational performance, and the wide variance JAMES COMBS ET AL. 503 among extant ? ndings, there is a need to take advantage of meta-analytic procedures. Accordingly, we use meta-analysis to offer ? ve contributions.

First, we statistically aggregate extant evidence concerning the claim that HPWPs affect organizational performance and offer a conservative point estimate of the relationship’s size. In so doing, we also report the effects of individual HPWPs on organizational performance. Second, we test a central assertion of SHRM theory stating that HPWPs reinforce and support each other when used in coordinated systems of HPWPs (Huselid, 1995). Third, we investigate whether the relationship varies based on the distance between performance measures and employees’ daily work (i. e. , operational measures vs. ?nancial measures).

Fourth, we develop and test theory suggesting that HPWPs are more important in manufacturing than in service settings. Finally, we offer four suggestions to guide future research. The goal of these suggestions is to ensure that subsequent efforts to accumulate research ? ndings will answer today’s emerging questions. 1 Theory and Hypotheses SHRM researchers point to three mediators through which HPWPs affect organizational performance. HPWPs operate by (a) increasing employees’ knowledge, skills, and abilities (KSAs), (b) empowering employees to act, and (c) motivating them to do so (Becker & Huselid, 1998; Becker et al. 1997; Delery & Shaw, 2001; Huselid, 1995). Broad recruiting and selectivity in staf? ng bring KSAs into organizations (Hoque, 1999). KSAs are further advanced through practices such as training, job design, and compensation tied to skill development (Hoque, 1999; Russell, Terborg, & Powers, 1985). Bailey (1993) argued that employees often perform below their potential because they possess discretionary use of their time and talent. Thus, employees must be motivated to leverage their KSAs.

HPWPs such as incentive compensation, performance appraisal, and internal promotion policies are thought to offer incentives to aid motivation (Delery & Shaw, 2001; Huselid, 1995). HPWPs such as employment security, ? exible work schedules, procedures for airing grievances, and high overall compensation can also increase motivation by increasing employee commitment (Pfeffer, 1998; Youndt, Snell, Dean, & Lepak, 1996). Finally, even knowledgeable, skilled, and motivated employees will not deploy their discretionary time and talent unless the organizational structure and job designs offer the latitude to act (Bailey, 1993; Huselid, 1995). There is at least one important moderator in SHRM theory that meta-analysis is ill equipped to address. HPWPs should work best when aligned with organizational strategy (Delery & Doty, 1996; Wright, Smart, & McMahan, 1995; Youndt et al. , 1996). Unfortunately, as we explain in the discussion section, data are not available to test whether HPWP-organizational strategy alignment affects organizational performance. 504 PERSONNEL PSYCHOLOGY The needed latitude can be enhanced by HPWPs such as participation programs, self-managed teams, information sharing, and employment security (Delery & Shaw, 2001; Pfeffer, 1998).

Overall, HPWPs improve organizational performance by increasing KSAs, empowering employees to leverage their KSAs for organizational bene? t, and motivating them to do so. In addition to building KSAs and unlocking employees’ discretionary effort through increased motivation and empowerment, Evans and Davis (2005) argue that the effect of HPWPs on organizational performance is furthered by their impact on organizations’ internal social structures. For example, HPWPs such as self-managed teams and ? exible job designs link people who do not typically interact with each other, which facilitates information sharing and resource exchange.

Furthermore, HPWPs such as training, compensation, and selectivity in staf? ng increase generalized norms of reciprocity by helping select and retain people most likely to develop such norms. Reciprocity norms build organizational ? exibility by increasing cooperation in complex problem solving (Tsai & Ghoshal, 1998). Also, HPWPs such as selectivity, training, and information sharing help establish shared mental models among employees. These are similar and overlapping knowledge sets, attitudes, and beliefs regarding tasks, coworkers, and the organization that facilitate cooperation and decision making (Cannon-Bowers & Salas, 2001).

These positive changes in the internal social structure increase organizational ? exibility and ef? ciency (Evans & Davis, 2005). In sum, HPWPs improve organizational performance through two interactive and overlapping processes. First, they give employees the KSAs needed to perform job tasks and both the motivation and opportunity to do so (Delery & Shaw, 2001). Second, HPWPs improve the internal social structure within organizations, which facilitates communication and cooperation among employees (Evans & Davis, 2005).

Jointly, these processes increase job satisfaction and help employees work more productively and make better decisions. These in turn reduce employee turnover and improve organizational performance vis-` -vis competitors (Becker et al. , a 1997). Therefore, we expect that: Hypothesis 1: The use of HPWPs is positively related to organizational performance. 2 Although most studies have examined individual practices, many researchers now direct their attention toward HPWP systems (Wright & 2 This hypothesis is often motivated by the resource-based view from the strategic management literature.

The basic argument is that HPWPs induce behaviors that are valuable, rare, and dif? cult for competitors to imitate, which gives rise to bene? cial performance differences among ? rms using HPWPs (Wright, Dunford, & Snell, 2001). JAMES COMBS ET AL. 505 Boswell, 2002). A HPWP system is de? ned by organizations’ use of multiple, reinforcing HPWPs (Huselid, 1995). SHRM theorists have offered two reasons for why the value of HPWPs increases when multiple practices are combined into a coordinated system (Delery, 1998; MacDuf? e, 1995). The ? rst is that ractices have additive effects (MacDuf? e, 1995). This might occur, for example, when two different selection tools identify unique job skills (Delery, 1998). The second reason is that synergies occur when one practice reinforces another (Delery, 1998; Huselid, 1995). For example, training enhances participation programs because employees are better equipped to make the decisions that participation programs empower them to make. It is possible, however, for multiple practices to reduce organizational performance (Becker et al. , 1997).

This happens when two practices are substitutes, such as when training is provided to develop a skill that, because of a selection device, employees already have. In the case of substitution, the cost of implementing the second practice is wasted (Delery, 1998). Two practices might also produce a “deadly combination” wherein they work against each other (Becker et al. , 1997). This happens to managers who implement teams while leaving compensation focused on individual performance (Delery, 1998). On balance, however, SHRM researchers assert that HPWP systems should out perform individual practices.

More importantly, the particular systems advocated by researchers have been critically studied and thus should theoretically be void of “deadly combinations. ” Higher performance should result. The notion that a combination of interventions should have stronger effects than a single intervention is supported in other research streams (e. g. , Jennings, 2006). However, in this literature, the superior value of HPWP systems is not only a central pillar of SHRM theory (Delery & Shaw, 2001; Huselid, 1995), but research on HPWP systems is largely replacing research on individual practices (Wright & Boswell, 2002).

Yet, we found only two direct tests of this hypothesis (i. e. , Guerrero & BarraudDidier, 2004; Ichniowski, Shaw, & Prennushi, 1997). Meta-analysis offers a unique opportunity to con? rm that extant evidence justi? es researchers’ increasing focus on HPWP systems. Stated formally: Hypothesis 2: The positive relationship between HPWPs and organizational performance is larger for HPWP systems than for individual practices. Because HPWPs increase employee KSAs, empower employees to leverage their KSAs, and motivate them to do so (Delery & Shaw, 2001), they in? ence employee discretionary effort, creativity, and productivity (Becker et al. , 1997). These, in turn, increase operating performance measures such as employee turnover and job satisfaction (Dyer & Reeves, 506 PERSONNEL PSYCHOLOGY 1995), which ultimately translates into increased accounting returns and market value (Becker et al. , 1997; Dyer & Reeves, 1995; Huselid, 1995). Based on this logic, HPWPs should affect operational performance measures, such as retention and productivity, more than ? nancial measures, such as accounting returns, growth, or market returns.

Although HPWPs should eventually affect both sets of measures, operational outcomes are much closer to the behavioral improvements employees are expected to make (Dyer & Reeves, 1995). There should be little slippage between the implementation of HPWPs, improved employee behaviors, and the operational performance measures that register these behaviors. In contrast, accounting returns, growth, and market returns re? ect organizational performance dimensions that are further removed from HPWPs (Becker et al. , 1997; Dyer & Reeves, 1995; Huselid, 1995) and are affected by a wide variety of factors such as diversi? ation strategy or recent acquisition activity (e. g. , O’Shaughnessy & Flanagan, 1998). The result is greater variability in accounting returns, growth, and market returns, and HPWPs represent a smaller portion of this variability. Consequently, the relationship between HPWPs and the operational performance measures of turnover or productivity should be stronger than for more remote ? nancial performance dimensions such as accounting returns, growth, and market returns. Accordingly: Hypothesis 3: The positive relationship between HPWPs and organizational performance is larger for operational measures than for ? ancial measures. One way for SHRM research to advance is to identify contexts where the in? uence of HPWPs on organizational performance varies (Delery, 1998). One potentially important moderator that deserves attention is industry context (Batt, 2002; Datta, Guthrie, & Wright, 2005). At ? rst glance, it might appear that service organizations would bene? t most from HPWPs because their employees appear to have more discretion than their manufacturing counterparts (Rosenthal, Hill, & Peccei, 1997), and motivating employees to put forth discretionary effort is an important outcome of HPWPs (Bailey, 1993).

Service employees are also closer to customers, so the effects of HPWPs on employee behavior should more directly affect quality (Batt, 2002). In support of these arguments, Datta et al. (2005) found that HPWP effects on labor productivity were greater in industries having low capital intensity or high growth rates. Such industries are more likely to be services where discretionary behavior is high and customer contact is common. Nevertheless, there are four reasons why we expect the effect of HPWPs to be greater among manufacturers. First, manufacturing jobs often involve complex and potentially dangerous machinery.

In response, organizations develop complex bureaucratic rules and standardized procedures to ensure adequate training JAMES COMBS ET AL. 507 and safety. When technological and environmental change give rise to the need to build new products or use different equipment, these rules and procedures make adapting to change dif? cult and costly (Dunlop, 1958). HPWPs interact with other programs such as total quality management and lean manufacturing to signi? cantly increase manufacturers’ ? exibility and ability to adapt (Lawler, Mohrman, & Ledford, 1995).

Service organizations, such as hotels, restaurants, or call centers, are generally less reliant on complex or dangerous machinery. Accordingly, service organizations are less likely to depend on their employees’ ability to respond to changes in physical infrastructure in order to adapt to environmental change (Lawler et al. , 1995). Because manufacturers depend more than services on their ability to ?exibly adapt to changes in their physical infrastructure and increased workforce ? exibility is a major bene? t of HPWPs (Evans & Davis, 2005), manufacturers have more to gain from HPWPs.

A second reason to expect manufacturing organizations to realize greater gains is because they rely more than service organizations do on their human resource system to deliver two key HPWP outcomes— KSAs and motivation. Service employees can be roughly grouped as either low skilled (e. g. , housekeeping, food service) where broadly applicable KSAs can be honed on-the-job through informal socialization (e. g. , Erickson, 2004), or professional (e. g. , nursing, law) where KSAs are often advanced by external organizations such as professional associations (Konrad & Mangel, 2000).

Motivation is strengthened by direct customer contact (Mills, Chase, & Margulies, 1983). Desire to have a pleasant interaction with customers (Erickson, 2004), fear of negative interpersonal evaluations (Baumeister, 1982), and satisfaction arising from successful co-production (van Dolen, de Ruyter, & Lemmink, 2004) all motivate employees to offer good customer service. Manufacturers, in contrast, do not bene? t from these sources of KSA development or motivation. Because the KSAs needed in manufacturing are often organization-speci? c, generally trained workers usually must receive formal training on machine use and production procedures.

Similarly, manufacturers must motivate employees to put forth discretionary effort without the bene? ts of direct customer contact. The third reason we expect manufacturers to bene? t more from HPWPs arises from the co-production of services by employees and customers (Bowen & Ford, 2002). In manufacturing, product quality is determined mostly by people, processes, and equipment under the direct or indirect control of managers. Service organizations additionally depend on the interaction between employees and customers. This means that in addition to managing employees, service organizations must effectively manage customers (Bowen, 1986).

The involvement of customers in production makes productivity and performance more uncertain and complex (Batt, 2000; Bowen, 1986). For example, once manufacturers ensure the 508 PERSONNEL PSYCHOLOGY availability of raw materials (e. g. , JIT, inventory buffering), HPWPs facilitate fast, consistent, high-quality transformations of those materials. In contrast, whereas service managers have tools for queuing customers, considerable variability remains surrounding which customers will show-up at appointed times. This acts as a ceiling on how much HPWPs can affect ? nal outcomes.

Even the most effective HPWP system can only in? uence a range of production outcomes that is limited by customers’ varying levels of ability and willingness to participate (Bowen, 1986; Groth, 2005). Manufacturers confront no such limitation in controlling production outcomes (e. g. , productivity, quality). Consequently, the impact of HPWPs on manufacturing performance can be larger because their in? uence is not capped by a limited ability to control ? nal outcomes. A ? nal reason we expect HPWPs to have larger effects among manufacturers is that some HPWPs appear better aligned with manufacturing work.

Teams, for example, are effective because they help workers solve complex problems arising from high task interdependence among manufacturing stages (Lawler et al. , 1995). Service work, in contrast, is often characterized by low task interdependence (Bowen, 1986), and thus the gain from teams is likely smaller. Furthermore, practices that might be more important in services appear to have garnered less research attention. For example, although direct customer contact increases motivation, it also creates relatively high stress (Hochschild, 1983). However, none of the commonly investigated HPWPs focuses speci? ally on stress reduction, though some indirectly affect stress (e. g. , ? extime). Thus, we assert that at least some of the practices investigated by researchers are better suited to manufacturing work, whereas others that might be important for service workers appear under investigated. Consequently, the level of alignment between HPWPs and the work environment is less in service organizations, and the observed effects are likely smaller. We do expect HPWPs to have a positive and signi? cant effect on organizational performance in service organizations.

In addition to KSAs and motivation, empowerment is the third key outcome of HPWPs (Delery & Shaw, 2001). Empowering HPWPs foster a service climate (Gelade & Ivery, 2003) that enables service workers to offer the best service possible (Schneider, Ehrhart, Mayer, Saltz, & Niles-Jolly, 2006). HPWPs can also increase KSAs among low-skilled workers (Russell et al. , 1985) and give professional workers easier access to KSA development opportunities (Konrad & Mangel, 2000). Finally, HPWPs offer service workers motivational incentives to engage in extra-role activities that lead to higher customer satisfaction (Morrison, 1996; Schneider et al. 2006). However, whereas the bene? ts of HPWPs to service organizations is, we believe, large, their potential to impact organizational performance among manufacturers is even greater. The reasons are that (a) manufacturers bene? t more from the ? exibility wrought by HPWPs, (b) services have alternative JAMES COMBS ET AL. 509 sources for KSA development and motivation that reduce the available HPWP gain, (c) customer participation in service production places a ceiling on the range in which HPWPs work, and (d) some HPWPs align better with manufacturing work. Thus:

Hypothesis 4: The positive relationship between HPWPs and organizational performance is larger for manufacturing organizations than for service organizations. Method Sample and Coding To identify published and unpublished studies that investigate the relationship between at least one HPWP and organizational performance, we searched for the keywords “performance” or “productivity” or “turnover” and “human resource” or “personnel” or “staf? ng” in ABI/Inform, LexisNexis, and Dissertation Abstracts. ABI/Inform and Lexis-Nexis were searched again using the authors’ names from the initial search.

We then culled the reference sections of each of the identi? ed studies as well as six reviews of the SHRM literature (i. e. , Becker & Gerhart, 1996; Becker & Huselid, 1998; Ferris et al. , 1999; Wood, 1999; Wright & Boswell, 2002; Wright, Gardner, Moynihan, & Allen, 2005). Finally, we sent an e-mail requesting help identifying unpublished research to authors who had published relevant studies. To be included in the analysis, (a) a study needed to report bivariate measures of effect size, (b) HPWPs had to have been used broadly in the organizations studied, not only among top managers (e. . , Bloom & Milkovich, 1998), and (c) the study’s measures had to re? ect the use of or emphasis on HPWPs, not the value or effectiveness of the HR function (cf. Huselid, Jackson, & Schuler, 1997). Applying these criteria furnished a set of 92 studies that examined a total of 19,319 organizations. We identi? ed 22 practices that researchers described as HPWPs. However, because there is not unanimity among SHRM researchers as to which practices are HPWPs (Becker & Gerhart, 1996), we eliminated nine practices from consideration that appeared in fewer than ? ve studies.

This was to ensure that we focused only on those practices where some consensus has emerged regarding the practice’s status as a HPWP. Thus, our focus was on 13 practices: incentive compensation (31 effects), training (29), compensation level (18), participation (18), selectivity (15), internal promotion (12), HR planning (10), ? exible work (8), performance appraisal (8), grievance procedures (8), teams (8), information sharing (7), and employment security (6). Thirty-eight studies contained measures depicting the extent to which organizations deployed a system of HPWPs.

The number of practices included in the HPWP systems ranged between 2 and 13. The average and median HPWP system contained 6. 2 and 5 practices, respectively. 510 PERSONNEL PSYCHOLOGY Based on research on the dimensions of organizational performance (Combs, Crook, & Shook, 2005) and the heavy use of productivity and retention measures the SHRM literature (Dyer & Reeves, 1995), we divided organizational performance measures into ? ve dimensions: productivity, retention, accounting returns, growth, and market returns.

Some studies combined two or more dimensions into a single, overarching measure; We placed these in a sixth category labeled multidimensional. Accounting returns were most frequently studied (35 effects), followed by productivity (32), retention (23), multidimensional (22), growth (16), and market returns (8). Following Dyer and Reeves (1995) and Huselid (1995), we categorized productivity and retention measures as operational performance and accounting returns, growth, market returns, and those multidimensional measures that did not include an operational component as ? ancial performance measures. Finally, studies were coded as to whether (a) sampled organizations were manufacturers, (b) services, or (c) a mix of manufacturing and service organizations. Overall, coders agreed on 93% of initial codes. Discrepancies were resolved after discussion among the authors. Table 1 shows the studies included in the meta-analysis and the types of effects reported in each vis-` -vis our moderators of interest. a Meta-Analytic Techniques We began by converting all statistics of relationship (e. g. , t-tests from event studies) to correlations. Many studies reported correlations among multiple measures of HPWPs and organizational performance. Because the “study” is the unit of analysis in meta-analysis (Hunter & Schmidt, 1990), within-study correlations were averaged to derive the overall relationship for each study. Eight studies reported correlations for multiple HPWPs and for the HPWP system; these were averaged to test Hypothesis 1 (overall effects) but separated to test Hypothesis 2 (individual HPWP vs. HPWP systems). Multiple publications from the same data set were treated as one study. Hypothesis tests were based on the mean of the sample size weighted correlations (? among the 92 primary studies. This r estimate offers increased accuracy relative to those obtained from any one 3 Meta-analysis necessarily focuses on bivariate effect size and ignores the role of intervening variables (e. g. , organization size) that can be statistically controlled in primary research. Partial correlation coef? cients from regression models can only be statistically aggregated if all studies use the same set of independent variables (Hunter & Schmidt, 1990). The role of intervening variables can be partially assessed via moderator analysis as we did here.