In this chapter I will draw upon the behavioral perspective of SHRM , social exchange theory and organizational support theory to provide a framework for examining the mediating process between human resource practices and organizational performance.
2.2 Evolution of Strategic Human Resource Management:
The history of Human Resource Management, as we know it today, may be traced back to the "Human Relations" approach which is based on well-known "Hawthorne Studies". These studies, conducted by the researchers from Harvard Business School and the Western Electric Company suggested that positive employee attitudes can be better achieved through communication and recognition. Human relations perspective called on managers to go beyond fulfilling just economic needs of the workers and show their interest in employee welfare.
The first use of term 'Human Resource' is attributed to Peter Drucker . It emphasized the investment in employees and argued that such investment will benefit both employees and the organization . Based on the 'Theory Y' of McGregor , and the work of Argyris and Maslow, it was thought that organizational actions taken to develop employee skills would help employees meet their higher level needs which would, in turn, result in positive work outcomes . Current human resource practices such as High Involvement Work Practices (HIWS), job enrichment, etc. are still influenced by these theoretical arguments.
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Though, in the early part of the 1980s the term 'Human Resource Management' was used as a synonym to 'Personnel Management' and was more concerned about administrative tasks of recruitment, selection, and performance appraisal, the later part of it witnessed a rise in interest to use HR as one of the key sources of competitiveness . As noted by Wright and McMahan the decade of 1980s "has seen an increasing interest in the "strategic management" of organizations â€¦"
Strategic human resource management (SHRM) has been defined as "the pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals". Strategic HRM theorists assert that a firm's competitiveness can be improved by effective use of its human resources. In the last two decades a commendable mass of such studies have gathered which demonstrated significant gains from efficient use of people resources. Such gains include increase in productivity, profitability and customer satisfaction . Different theoretical frameworks are proposed by various researchers in an effort to explain the relationship between an organization's resources, including human resources, and its performance. Wright and McMahan proposed a conceptual model (figure 2-1) depicting various relationships which may occur within strategic HRM framework. These include resource based view , behavioral perspective , cybernetic systems , transaction cost theory , and resource dependence/power models among others.
Figure 2-1: A Conceptual Model of Theoretical Frameworks for Studying Strategic Human Resource Management adopted from Wright and McMahan
Firm-Level Outcomes (Performance, Satisfaction, etc.)
HR Capital Pool
The model depicts relationship between various firm level variables including strategy, human resource practices, HR capital and employee behavior and proposes that their interaction leads to the performance. It is an effort to put together the major theoretical frameworks for understanding the nature of SHRM. It is important to note that despite various organizational factors working on each other, all the firm-level outcomes including performance, satisfaction and absenteeism leads from HR or simply employees' behavior. Thus, the role of employee behavior cannot be undermined in any discussion linking HRM practices with firm performance.
2.3 Behavioral Perspective
While some other strategic theories of HRM, e.g. resource-based view or agency/transaction cost theory have their roots in fields like organizational economics, transaction-cost economics and strategic management, the 'behavioral perspective', put forward by Schuler and Jackson and Jackson, Schuler, and Rivero , "is one of the original and more popular theoretical models used in the 'SHRM' literature." . Rooted in contingency theory , the behavioral perspective emphasizes the mediating role of employee behavior between strategy-performance relationship. This perspective views human resource practices as the tools to control and guide employees' behavior in order to achieve desired organizational objectives. As the nature and type of behavior required from employees differs among the organizations depending upon their goals so will be the HR practices required to elicit those behaviors.
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Schuler and Jackson's model linking human resource practices with organizational strategies is a classic example of behavioral perspective. Building on Porter's competitive strategies, they argued that different type of strategies, e.g. innovation, quality enhancement, and cost reduction, need different types of employee behavior. They noted that "there must be a rationale" for linking HR practices and strategy, and that the 'rationale' is employee role behavior. For any strategy to be successfully implemented it must be preceded by specific desired employee behavior, thus desired employee behavior for innovation strategy will be different from one required for cost reduction strategy, so on and so forth.
Schuler while differentiating between HR philosophy, HR policies, HR programs, HR process and HR practices proposed that while all former expresses the objectives, values and culture of the organization, it is only the later, i.e. HR practices, that motivate employees to elicit role behaviors needed to implement various organizational strategies.
A second example of behavioral perspective may be found in the work of Miles and Snow who provided a description of different types of behaviors required for different types of strategies. They stated that different types of employee behavior will be required for strategy types of defenders, analyzers and prospectors and that these different types of behavior entails different types of human resource practices. Although they do not highlighted the exact nature of role behavior required for different types of strategies, nevertheless, they assumed depending upon the skills and knowledge required to implement different strategies, different employee behavior will be required for each strategy.
It is pertinent to note that 'behavioral perspective' theorists are not concerned about the role of employees' knowledge, skills and abilities (SKAs) required for the implementation of organizational strategies as they focus only on their behavior. Nevertheless, it is not to say that they assume SKAs of the employees irrelevant to the achievement of the organizational objectives, rather "the rationale developed is based on what is needed from employees apart from the specific technical skills, knowledges, and abilities (SKAs) required to perform a specific task" . The behavioral perspective, "assumes that the purpose of various employment practices is to elicit and control employee attitudes and behaviors" . Figure 2-2 depicts the role of behavioral perspective in understanding the mediating process between an organization's HR practices and its performance.
Figure 2-2: Behavioral Approach to Strategic Human Resource Management
Human (Employee) Behavior
Human Resource Practices
Although researchers like Schuler and Jackson , Jackson, Schuler and Rivero and Miles and Snow have advocated that different set of HR practices are required to elicit different role-behaviors, their discussions fell short of describing the mechanism through which personnel practices are supposed to transform into employee-behavior. Social exchange theory provides us an appropriate framework to understand such mechanism.
2.4 Social Exchange Theory
Social exchange theory (SET) is one of the most important theoretical perspectives for examining why employees' behave in a particular manner in any organizational settings. Put forward by Blau , social exchange theory asserts that employer and employee not only transact tangible resources as money and service rather they also exchange intangible resources as respect and support . Thus any model building effort aimed at explicating the HRP-Behavior-Performance mechanism shall integrate the social exchange theory into its model. Taking individual member of organization (i.e. single employee) as level of analysis Gouldner analyzed the reciprocation of perceptions that takes place between employees and employers. Gouldner called such reciprocation of perceptions 'norm of reciprocity', a notion due to which organizational treatments (care, rewards etc.) met an equitable response (work-behavior) from the employee. As Wayne, Shore, and Liden noted, "employees seek a balance in their exchange relationships with organizations by having attitudes and behaviors commensurate with the degree of employer commitment to them as individuals."
Although variation exists in emphasis upon exact focus of social exchange phenomenon a common theme underlying all these variables is that organizational performance is influenced by the equity perception of employee about his/her input into and output from organization and that this input/output may not be necessarily exclusively measurable in terms of money. These variables include perceived organizational support , leader-member exchange and psychological contract . In addition to above constructs which are used as proxy for 'social exchange', variables like organizational citizenship behavior and organizational commitment have been used to measure the affective reactions of employees towards the organization. In a nutshell social exchange theory is a dominant theoretical framework used to understand that how organizational human resource practices translates into its performance. Following figure highlights the role of social exchange theory as a mediating mechanism between a firm's HR practices and its performance.
Figure 2-3: HR Practices-Performance relationship from Social Exchange Perspective
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Variables Used to Capture Notion of 'Norm of Reciprocity' felt by employee
Perceived Organizational Support
Organizational Citizenship Behavior
Employee tries to Balance Input from Organization and Output to Organization
(Contribution by Employee)
(Commitment to Employee)
2.5 Conceptualization of the Organizational Performance
Organizational performance outcomes may be categorized as employee outcomes (e.g. commitment, absenteeism), organizational outcomes (e.g. service quality, customer satisfaction), financial outcomes (e.g. return on assets) and market outcomes (e.g. Tobin Q) . These researchers suggested a causal chain within these outcomes such that human resource practices shall first influence employee attitudes and behavior before we could expect to notice their impact on more distant organizational, financial and market outcomes of the firm. It further suggests that organizational outcomes must precede financial and market outcomes.
However, while financial (e.g. return on assets) and market (e.g. market value of the stock) outcomes of the firm are much affected by surrounding economic, legal and political environments, the organizational outcomes like customer satisfaction is to a greater degree dependent upon employee attitudes and behavior per se than on surrounding conditions. Furthermore, the failure of firms like Enron, WorldCom, Railtrack and Parmalat signals extreme caution about the use of financial and market measures while ascertaining firm's sustainability. In fact Boxall and Purcell very rightly suggested the use of other than financial and market indicators for measuring organizations' long-term health. It has been argued that the 'use of more 'proximal' outcome indicators' in investigating HR-performance relationship is 'theoretically more plausible.' Thus, keeping in view the recent recommendations of the researchers and turbulent economic and political environment of the globe today it makes much more sense to investigate more proximal relationship between human resource practices and customer satisfaction than trying to investigate the more distant link between HR practices and firm's financial or market performance which is very much bound to be affected by the organization's external environment.
Nevertheless, despite the calls from researchers about the plausibility and usefulness of investigating the relationship between human resource practices and more proximal organizational outputs, such as customer satisfaction (CS), to date very few empirical studies are conducted to answer such calls. Boselie, Dietz, & Boon in their review of 104 articles linking HR practices and firm performance observed that, "given HRM's supposed business driven focus, it was surprising to find outcomes from customers' point of view very much a minority concern, featuring in just two articles (Gelade and Ivery, 2003; Rogg et al, 2001)". Both these articles have focused on 'climate' as the mediating mechanism between human resource practices and customer satisfaction. Although most of the theoretical models put forward to explain the HR-performance linkage have recognized employee attitudes and behaviors as mediating variables , such mediatory mechanism was not tested in the context of human resource practices-customer satisfaction relationship until recent.
Nishii, Lepak, & Schneider is the first study to empirically test the effect of human resource practices on customer satisfaction through their influence on employee outcomes. Further, building on Bowen & Ostroff and Wright & Nishii they argued that employees' perceptions of HR practices play important role in formation of their attitudes and consequent behaviors. Similarly, Pugh, Dietz, Wiley, & Brooks argued that in order to identify drivers of customer-oriented employee behavior, more attention should be paid to the role of 'employees' perception' in "service-profit" chain. However, instead of measuring employee perceptions about organizational HR practices and linking them to employee outcomes, they have taken a different path by analyzing the 'employees' attributions for why the HR practices exist' and the role of such 'attribution' in eliciting employee attitude and behavior. As such, the influence of employees' perception of HR practices on customer satisfaction, as well as the process through which such influence occurs, still remains largely unexplored, and thus a gap in literature exists on this account. This research is an attempt to fill this gap.
2.6 The Role of Employee Perceptions in Social Exchange Process
As already noted in the first chapter, social exchange theorists consider employment a social exchange in which both the parties, i.e. employer and employee, transacts intangible resources like respect and support in addition to the tangible resources of money and service . Further, in an organizational setting the 'norm of reciprocity' will imply that if organizations treat their employees well, they will reciprocate by eliciting attitudes and behavior (collectively referred as employee outcome) required for attainment of organizational goals and objectives. This brings us to conclusion that employee outcomes are result of their perceptions about the extent to which their organization cares about their wellbeing and value their contribution. For instance, researchers have found positive relationship between human resource practices employed by an organization and perceived organizational support (POS) felt by its employees . In this case perceived organizational support (POS) is the variable used to capture the notion of social exchange in employer-employee relationship.
Of all the constructs used by the researchers to capture the notion of 'social exchange' in a work-setting, perceived organizational support (POS) encapsulates the theme better than any other variable operating at individual level of analysis. POS has been defined as employees' perceptions about the degree to which the organization cares about their well-being and values their contribution . Organizations signal their commitment towards employee well-being and recognition through the implementation of various human resource practices. Nevertheless, before an employee responds to a particular HRM practices, it must be first perceived and interpreted by him/her. Nishii, et al noted that,
". . . in order for HR practices to exert their desired effect on employee attitudes and behaviors, they first have to be perceived and interpreted subjectively by employees in ways that will engender such attitudinal and behavioral reactions."
Similarly, Allen, Shore, & Griffeth observed that, "Employees may not always perceive the objective existence of certain practices as the organization intends". While several studies have reported human resource practices to be significant antecedent of POS , very few have studied the role of 'employees' perceptions of HR practices' as antecedent of perceived organizational support. Therefore, it is both necessary and important to incorporate the role of employees' perception in any model trying to examine the relationship between firm's HR practices and its performance.
Figure 2-4: Overall Theoretical Framework --- Explicating Behavioral Perspective of Strategic Human Resource Management through the lens of Social-Exchange Relationship
Social- Exchange Relationship
Organization treating employee
Perceived Organizational Support
Firm's HR activities are first perceived and interpreted by employees before being reciprocated in the form of required role-behavior
Employee Outcome as reciprocation to firm's HR practice
Desired employee behavior resulting in Performance
2.7 Review of Literature related to the Theoretical Framework
No empirical study to date has examined the specific linkages between human resource practices, employee perceptions of HR practices and customer satisfaction as organizational performance indicator in the manner theorized in the framework of this study. Nevertheless previous studies have investigated the relationship between HR practices and employee outcomes like organizational commitment and customer-oriented behavior as well as organizational outcomes like customer satisfaction. For example, Rogg and colleagues have examined the relationship between human resource practices and customer satisfaction and have reported a strong positive relationship between the two variables. Another study by Moynihan et al has also revealed that significant positive relationship exists between customer satisfaction and personnel practices employed by the organization. More recently, Nishi et al have found that employees' attribution of HR practices are strongly related to unit-level customer satisfaction. However, none of the aforementioned studies have examined the mediating role of employee perceptions of HR practices and organizational support as mediating mechanism between HRM practices and customer satisfaction.
Some researchers have investigated the relationship between human resource practices and employee-outcomes. For instance, Peccei and Rosenthal found that employee empowerment is positively related to employees' customer oriented behavior. Another study have found HR practices of participation in decision making, fairness of rewards and growth opportunities to be positively related to the employees' turnover intentions and actual turnover . Similarly, pay level satisfaction and career development opportunities were found to be significantly related to employees' organizational commitment and organizational citizenship behavior . However, these studies did not investigate the role of such outcomes as organizational commitment and customer oriented behavior on the level of customer satisfaction. Thus it is unclear that whether the level of employees' commitment and customer oriented behavior play a mediating role in the HR practices and customer satisfaction linkages or not. Thus, in addition to investigating the mediating role of employees' perception and outcomes of affective commitment and customer oriented behavior, one of the major contributions of this study will be to analyze the relationship between human resource practices and organizational performance through the behavioral lens.