High performance work systems and organizational effectiveness: The mediating role of social capital

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Highlights

  • The social capital perspective is important to understand the influence of HR practice, which has been previously overlooked.

  • The effect of HR practice on social structure is novel, compared with the widely discussed social exchange perspective.

  • The relationships between each practice of HPWS and organizational social capital provide a basis for future empirical study.

Abstract

Most early work on high performance work systems (HPWSs) examines only the direct relationship between a set of management practices and performance outcomes and seldom investigates the “black box” between them. Although recent studies tried to examine the mechanism, the main perspective was to discuss individual outcomes, or simply aggregated individual outcomes. On top of the previous individual approach, this conceptual work takes a group level approach and investigates how the HPWS may change the organizational effectiveness through changing the organization's intra-organizational social capital. Implications and contributions are also discussed.

Introduction

During the last twenty years, the notion of best practices in human resource management (HRM) has received a lot of attention. Researchers proposed that some HR practices (e.g., high performance work system — HPWS) have a significant impact on organizational performance. For example, HPWS was found to favorably affect turnover (Guthrie, 2001, Huselid, 1995), labor productivity (Huselid, 1995), firm productivity (Guthrie, 2001) and firm financial performance (Guthrie, 2001, Huselid, 1995). These findings support that a certain bundle of HR practices could be a potential source of competitive advantage (Becker & Huselid, 1998). Among the arguments on this relationship, most scholars took a resource-based view from the strategic perspective and argued that the organization's employees (i.e., human capital) can be a source of competitive advantage when they add value to the organization (Delery and Shaw, 2001, Huselid, 1995). Given the difficulty to imitate them, these human resources uniquely contribute to the organization's success. From this view, continual investments in firm-specific human capital may differentiate a firm's employees from others by their improved knowledge, ability, skills, commitment and so on, thereby decreasing the likelihood of imitation (Huselid, 1995). In spite of such types of arguments, some researchers still noted a need to develop better theories explaining how HPWS functions (Bowen and Ostroff, 2004, Delery and Shaw, 2001).

While the individual human capital perspective sheds light on the understanding of HR practices' effects, some researchers also suggested exploring another line of HR research with a focus on interpersonal relationships within the firm (Delery and Shaw, 2001, Wright et al., 2001). The main reason is that recent studies found that social relationships are a latent but important organizational resource (e.g., Collins and Clark, 2003, Hansen, 1999, Nahapiet and Ghoshal, 1998, Uhl-Bien et al., 2000). Employee social relationships add value to the organization by facilitating timely access to greater sources of information (Collins & Clark, 2003), reducing the need for formal controls (Adler & Kwon, 2002), facilitating collective action (Ghoshal & Moran, 1996), allowing more flexible work organizations (Leana & Van Buren, 1999) and enhancing organizational intellectual capital (Nahapiet & Ghoshal, 1998). Overall, these benefits point to the aggregated intra-organizational social capital as a contributor to organizational effectiveness. However, without directly examining the mediating effect of internal social capital on the relationship between HPWS and organizational performance, the understanding of how HR practices function is still limited (Bowen & Ostroff, 2004). Therefore to fill this void, the main purpose of this conceptual paper is to investigate how HR practices contribute to firm performance by improving intra-organizational social capital.

This paper presents a social capital perspective and argues that a system of HR practices can support the sustainability of the competitive advantage created through intra-organizational networks. It develops a framework to explain the influences of HRM practices on several key indicators of organizational effectiveness, especially for those knowledge-intensive organizations. The assumption is that the effectiveness is not a simple summation of individual performances. Some important processes that lead to final performance, such as firm innovation, are incubated in a social context. In other words, employees' behaviors are shaped not only by their own characteristics and attitudes, but also by their social relationships with other organizational members. Based on this assumption, if HR practices could affect the internal relationship theoretically, one should be able to observe that different HR practices would lead to different interpersonal behaviors among employees, as well as to different collective outcomes.

To conceptualize what happens between HR practices and organizational performance, this paper follows Nahapiet and Ghoshal's (1998) framework for the social capital function in the creation of intellectual capital and analyzes HR practices' role in this process. Based on that framework, it is proposed that HR practices influence the intra-organizational social relationship through affecting the density of interaction among employees, cooperative or competitive nature of the relationships, and the shared cognitive code, all of which may contribute to organizational effectiveness.

In summary, the contribution of this conceptual framework is threefold. First, the social capital perspective may be an important lens to understand the influence of HR practice on organizational effectiveness, which seems to be overlooked in previous studies and practice. Second, the proposition that HR practice could shape the intra-organizational social structure is novel compared with the widely discussed social exchange perspective in social network literature. This is because the latter one asserts that social structures are an incidental byproduct of the everyday activities of individuals. Third, this paper introduces Nahapiet and Ghoshal's (1998) three-dimensional framework to operationalize social capital and proposes a specific proposition about the relationship between each practice of HPWS and the three dimensions of social capital, which provides a basis for future empirical study.

Section snippets

High performance work systems (HPWSs)

Human resource management (HRM) practice, which is a new research strand that emerged in the 1990s, was found to be related with firm performance. While early research on HRM practice and performance tended to focus on the impacts of separate HR practices on firm performance, the later work looked at the combined effect of integrated sets of practices, which are called certain types of “bundles”, “systems” or “configurations” of HRM practices. Examples of such investigations can be found in the

HPWS and organizational effectiveness

Human resource management practices can only be a source of competitive advantage when they support unique resources that provide value to a firm (Wright et al., 2001). Huselid and Becker (2011) proposed that the most significant task facing HR research is the development and evaluation of a more complete and comprehensive causal model linking HR management systems with firm performance. They also suggested integrating the micro- and macro-domains in future HR strategy research. Similarly,

Social capital perspective

Social capital is the contextual complement to human capital. The social capital perspective is centrally concerned with the significance of relationships as a resource for social action (Baker, 1990, Bourdieu, 1985, Burt, 1992, Coleman, 1988, Coleman, 1990). Drawing on social capital, Evans and Davis' (2005) framework was a good attempt of illustrating how the internal social structure of the organization can mediate the relationship between HPWS and organizational performance. They argued

Selective staffing

Selective staffing systems often screen applicants on job-related criteria such as knowledge, skills and experience, as well as on contextual criteria such as personality, value and interpersonal skills that affect an individual's capacity to socially integrate and develop quality relationships (Judge, Bono, Ilies, & Gerhart, 2002). Therefore, selection procedures may increase the likelihood that individuals will interact with each other. Employees' related but heterogeneous knowledge,

HPWS influences on organizational effectiveness through intra-organizational social capital

Most prior studies on HPWS used the human capital perspective to explain the relationship between HPWS and organizational performance. An assumption here is that the summation of individual performance leads to the whole organization performance. The reason that this paper proposes social capital as another critical mechanism is based on the widely accepted assumption in social network literature that there are kinds of resources embedded in social relationships among individuals that could be

Discussion

This paper reviews previous studies on human resource management practices, and especially the much discussed HPWS. As most researchers have found, the “black box” of the influence of HPWS on firm performance is attractive but insufficiently discussed. While most previous studies examined the influence of HPWS on each individual, and some studies aggregated these individual effects into the group level outcomes, this paper looks at HPWS through a different lens: its influence on the

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    This research is supported by grants from the National Natural Science Foundation of China (Grant Number: 71102034, Principle Investigator: Jane Yan Jiang).

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