Will the strategic fit between
business and HRM strategy
influence HRM effectiveness and
organizational performance?
Abstract
Purpose – The purpose of this research is to examine how the fit between the strategy of business
and HRM would affect HRM effectiveness and organizational performance. The paper aimed to find
whether a better fit between firm’s strategy and HRM strategy would strengthen HRM effectiveness
and organizational performance.
Design/methodology/approach – The literature was reviewed from both the theoretical and
empirical perspectives. Four hypotheses were formulated. Top 1,000 manufacturing companies in
Taiwan were sampled, yielding valid questionnaire data and objective performance indexes from 181
firms. Multiple regressions and LISREL was employed to test the four hypotheses empirically.
Findings – The main findings were: the strategy fit between a firm’s business and HRM strategy has
a positive and direct impact on HRM effectiveness and labor productivity after analyzing by
hierarchical multiple regression. HRM effectiveness could directly increase labor productivity while
strategy fit strengthened the relationship between HRM effectiveness and labor productivity.
Practical implications – This study found that the alignment between the business and HRM
strategy was the key factor of success for organizations. When the HRM strategy and business
strategy were aligned, the effectiveness of HR practices and organizational performance were better
than “that of not aligned” by contingency perspective. This study also estimated the practical
significance through calculating the impact of HRM effectiveness and strategy fit on labor
productivity by each standard deviation increase, respectively.
Originality/value – This study confirmed that a firm’s competitive advantage can be enhanced by
HRM practices and strategy fit. Strategy fit could also moderate the relationship between HRM
effectiveness and labor productivity.
Keywords Human resource management, Management strategy, Human resource strategies,
Organizational performance
Introduction
In recent years, human resource management (HRM) has been integrated as the
process of strategic management, through the development of a new discipline
denominated strategic HRM (Wright and McMahan, 1992). Linking HRM to
organizational strategy was accentuated with the rise of resource-based view of the
firm currently (Amit and Schoemaker, 1993; Barney, 1995; Grant, 1991; Peteraf, 1993).
The growing interest produced in this domain was owing to the idea that human
resource should be considered as a strategic factor, not only for the role it plays in
putting managerial strategy into effect, but also for the potentiality it becomes a source
of sustainable competitive advantage. So, there was a growing consensus about the
idea that HRM strategy operated appropriately could increase organizational
performance significantly.
The impact of HRM strategy and practices on organizational performance was an
important topic in the field of HRM, industrial relations, and industrial and
organizational psychology (Boudreau, 1991; Jones and Wright, 1992; Kleiner, 1990).
Human resource management practices can help to crate a source of sustained
competitive advantage, especially when they aligned with organization’s competitive
strategy (Begin, 1991; Butler et al., 1991; Cappelli and Singh, 1992; Jackson and Schuler,
1995). While organizational human resource strategy is properly configured, it will
provide a direct and economically significant contribution to organization performance.
The aim of this study was to examine the impact of strategy fit between firm’s
business and HRM strategy on HRM effectiveness and organizational performance.
Simultaneously, the impact of interaction of HRM effectiveness and strategy fit on
organizational performance was also examined.
Literature review
Wright and McMahan (1992) defined strategic human resource management (SHRM)
as “the pattern of planned human resource deployments and activities intended to
enable an organization to achieve its goals”. SHRM studies had focused on explicating
the strategic role that HR could play in enhancing organizational effectiveness.
Therefore, fit and integration were the important issues in SHRM. The concept of fit
had received considerable attention in the field of strategy.
Strategy fit and HRM
The concept of strategy fit began with the research of Skinner (1969). He suggested
that companies should tailor their production systems to perform the tasks that were
vital to corporate success and consistent with the corporate strategy. A variety of
authors had claimed that consistency between business strategy and HRM practices
was an important component in the success of organization (Buffa, 1984; Fine and Hax,
1985; Kotha and Orne, 1989; Miller and Roth, 1994; Wheelwright, 1984).
Competitive strategy implies a series of systematic and related decisions that gives a
business a competitive advantage relative to other businesses (Schuler and Jackson,
1987). The concept of business competitive strategy was derived primarily from Porter’s
(1985) classifications of generic strategies: cost leadership, differentiation, and focus.
However, Bird and Beechler (1995) borrowed the name and ideas from the viewpoint of
Miles and Snow (1984). They classified the business strategies as the following three
types: defender, prospector, and analyzer. In the perspective of Bird and Beechler (1995),
defenders cerate a secure market share with moderate, steady growth, narrowed its
product-market domains, and limit their search for new opportunities and, instead, focus
on internal ways to enhance organizational effectiveness. Given a narrow product
market domain and an orientation toward efficiency, organizational requirements
gravitate in favor of maintaining stability and focusing on internal operation. As a
consequence, central control, high degrees of formalization, and elaborate control
systems are hypothesized to promote organizational effectiveness (Bird and Beechler,
1995). Basic strategies have been aggressively maintained prominence within its chosen
market segment, and ignored developments outside of this domain, not penetrated
deeper into current markets, and growth occur cautiously and incrementally. Therefore,
these firms tend to focus on cost leadership.
The second strategy is the prospector. Firms employing this type of strategy are
characterized by rapid growth and continue resource deployment/redeployment,
particularly of management and technical personnel. These firms almost continually
search for market opportunities, and they regularly experiment with potential
responses to emerging environmental trends. They often are the creators of change and
uncertainty. Constant product-market innovation reflects a response to this dynamic
domain, requiring the capacity to closely monitor external events (Bird and Beechler,
1995). Additionally, the ability to develop new products and enter new markets
requires creativity. Decentralized control system and rapid deployment of resources
further characterize firms employing Prospector strategies. Hence, these firms focus on
innovation and the introduction of new products and services.
The third strategy is the analyzer. Firms with this strategy can compete not only in
the early phase of product development when the emphasis in on uniqueness, but later
on as well, when efficient mass production becomes necessary to be competitive. In the
stable domains, they operate routinely and efficiently through using formalized
structures and processes. Consequently, these firms must identify and pursue new
product-market opportunities while simultaneously maintaining a presence in existing
domains. The pursuit of effectiveness in both areas necessitates an ability to be
efficient yet flexible in production technologies. Accommodation of both stable and
dynamic areas of operations requires similar differentiation with regard to human
resources (Bird and Beechler, 1995). Finally, these firms tend to share characteristics of
both prospectors and defenders.
Since the 1980s, HRM strategy has become an increasingly important HRM topic
(Terpstra and Rozell, 1993) because it provides a means by which firms could enhance
their competitiveness and promote managerial efficiency (Dyer, 1984). Effective HRM
strategy systematically coordinate all individual HRM measures and implement them so
as to directly influence employee attitude and behavior in a way that help a business to
achieve its operational goal. Dowling and Schuler (1990) integrated the HRM strategies
as utilization, facilitation, and accumulation. Dyer (1984) reclassified them as
inducement, investment, and involvement, respectively. Firms adopt the accumulation
strategy have been found to fill their job vacancies internally, to adopt multiple methods
for promotion, and to offer a broader career path. Furthermore, they pay careful attention
to employee training and all-around development, stress internal pay equity, and provide
many types of employee incentives. On the other hand, firms adopt the utilization
strategy have been found to assess performance on a short-term and individual basis,
and to provide lower base pay and poorer job security. As for companies adopt the
facilitation strategies, their HRM practices are mostly midway between those of firms
adopting a utilization strategy and those of firms pursuing an accumulation strategy.
In the field of strategy fit, Bird and Beechler (1995) combined business strategy of
Miles and Snow (1984) and HRM strategy of Dowling and Schuler (1990) and Dyer
(1984), they indicated business should combine its competitiveness and HRM strategy
to increase operational performance. In their paper, they suggested the appropriate
match between business strategy and HRM strategy type as: prospector business
strategy with utilizer HRM strategy, defender business strategy with accumulator
HRM strategy, and analyzer business strategy with facilitator HRM strategy.
In the SHRM field, one major issue concerns whether HRM practices were
universally superior to traditional, bureaucratic practices or if, rather, the employment
system should be contingent upon organizational operating strategy or other
contextual conditions (Huselid, 1995). The universalism perspective has taken a “best
practices”, the central argument is the contemporary environment confronting most
organizations is turbulent and uncertain. As a consequence, such a highly competitive,
globalize marketplace and rapidly changing technologies make the contributions of
motivated and empowered employees at all levels of the firm critical to its ability to
cope with environment hostility. In contrast, the contingency perspective argued that it
was important that there would be an appropriate fit between HRM strategy and the
external environment in which the organization operated. The absence of external fit
would lead, in this perspective, to sub-optimal performance. In order to manage human
resources effectively, firms nurture the type of employee behavior that was essential to
the success of their competitive strategy (Dowling and Schuler, 1990; Grundy, 1998;
Schuler, 1987; Schuler and Jackson, 1987). HRM strategy facilitated the development of
a work force that meets the requirements of business strategy, so that organizational
goals and missions would be achieved (Guest, 1987).
In addition, another theoretical model, the “behavioral perspective” (Jackson et al.,
1989) also supports the contingency perspective linking competitive strategy and
HRM. It believes that behaviors of employee role are the fundamental to the effective
implementation of competitive strategy. Firm’s business strategy must be matched
with the specific HR policies and practices, which will elicit particular sets of employee
attitudes and behaviors to foster success. For example, organizations attempt to be
more innovative than their competitors in the marketplace. Their employees must be
willing to experiment with new ideas and take risk. Hence, the innovative
organizations would be expected to own necessary personnel practices to supply the
required behavioral styles. No wonder Guthrie et al. (2002) indicated that business
strategy had a significantly impact on HRM practices. Besides Jackson et al. (1989)
explored the relation between business strategy and HRM practices. They found that
firms pursuing an innovation strategy tended to use compensation practices consistent
with these needs (e.g., less reliance on incentives, more employment security) for the
hourly employees, although no significant finding for their managerial employees.
Besides, Arthur (1992) explored the relation between business strategy and
workplace industrial relation system in a sample of American steel minimills. He found
that the type of industrial relations system adopted by the mill is related to the mill’s
business strategy. Consistent with the strategic choice perspective, these results
suggest that understanding diversity in industrial relations practices and outcomes
requires a broader and deeper understanding of business strategy in firms. The type of
industrial relations policies and practices in place is strongly related to the business
strategy choices made by different minimills. He also indicated that strategy fit
between firm’s business strategy and industrial relations policies would increase its
operation performance.
In addition, the results suggest how unions in the steel industry and elsewhere that
have bargained for influence over some aspects of these business strategy choices
might use this influence to encourage the type of business strategy that fits with their
membership’s interest in increased shop-floor discretion, participation, training, and
relatively high wages.
According to contingency theory (Miles and Snow, 1984; Porter, 1985; Schuler and
Jackson, 1987) and behavioral perspective (Jackson et al., 1989), HRM strategies must
be combined with specific business competitive strategies, if they were then this
alignment will enhance organizational performance or HRM effectiveness. The concept
of the strategic fit refers mainly to the close linkage between HRM and business
strategy will help retain and motivate employees. As stated previously, we used the
contingency approach to obtain our first hypothesis:
H1. The better fit between a firm’s competitive strategy and HRM strategy would
increase the firm’s HRM effectiveness.
HRM and organizational performance
Many studies had discussed the relationship of HRM effectiveness and organizational
performance (Arthur, 1994; Dalton, 2005; Datta et al., 2005; Gollan, 2005; Huselid, 1995;
Whicker and Andrews, 2004). They discovered that HRM could be a source of
sustained competitive advantage. HRM influences employee skills through the
acquisition, development of a firm’s human capital, and contributes to the achievement
of business objectives. Thus, the second hypothesis is:
H2. HRM effectiveness had a positive and direct impact on organizational
performance.
Strategy fit and organizational performance
A firm’s HRM practices encouraged employees’ behavior consistent with its business
strategy was able to achieve superior performance (Delery and Doty, 1996). Moreover,
application of the strategic fit concept help firms to manage their resources more
efficiently, so that they can reduce operational costs as well as respond effectively to
environmental threats and new opportunities (Bird and Beechler, 1995). In addition,
Guthrie et al. (2002) based on behavioral perspective to examine the different
organizational performance impact on the differentiation competitive strategy aligned
with greater use of high involvement work practices (HIWPs) and misalignment. They
found a moderate association between an orientation toward competing on a
differentiation basis and the use of HIWPs. They also indicated that utilizing higher
levels of HIWIPs was particularly beneficial to firms pursuing a differentiation
strategy and less so far firms competing more on the basis of cost and a strong
association between HIWPs and firm performance for the differentiators and no such
relationship for the cost leadership group. It means strategy fit between business and
HRM strategy could affect organizational performance. Consequently, according to
contingency theory and behavioral perspective, effective linkage between business
strategies and HRM strategies may enhance organizational performance. Thus, the
third hypothesis is:
H3. The better fit between a firm’s competitive strategy and HRM strategy would
increase the firm’s performance.
The result of effective HRM activities in achieving a competitive edge was broadly
argued in the past (Arthur, 1994; Becker and Huselid, 1998; Gollan, 2005; Huang, 2001;
Huselid, 1995). Scholars of contingency had found both organizational performance
and HRM effectiveness would increase significantly while a firm’s HRM strategy
aligned with its competitive strategy (Guest and Hoque, 1994; Hoque, 1999; Huang,
2001; Rodriguez and Ventura, 2003). However, very few studies had explored the
interactive effect of strategy fit and HRM effectiveness on organizational performance.
Hence, we tried to submit the hypothesis as follows:
H4. The better fit between a firm’s competitive and HRM strategy would
strengthen the relationship between HRM effectiveness and organizational
performance.
The conceptual model of this study could be shown as Figure 1.
Methods
Sample and data collection
In order to test the above four hypotheses, top 1000 manufacturing companies in
Taiwan were sampled. The questionnaires were answered by firm’s HRMexecutives in
2003. Finally, 181 valid questionnaires had returned, the response rate was 18.1
percent. Becker and Huselid (1998) reviewed studies showed that response rates ranged
from 6 to 28 percent with an average of 17.4 percent, our response rate was acceptable
in the survey-based HRM studies. Besides, labor productivity in 2003/2002 and other
organizational characteristics were obtained from the secondary data set by the
Magazine of Common Wealth in 2004 and 2003.
Measurement
Labor productivity. While a number of outcome measures (e.g., turnover, absenteeism,
profits) have been used to ascertain the effectiveness of HRM, we focused on labor
productivity for a number of reasons. First, labor productivity was a crucial
organizational outcome. At a general level, labor productivity, defined as total output
divided by labor inputs (Samuelson and Nordhaus, 1989), indicated the extent to which
a firm’s labor force was efficiently creating output. Second, because connections
between human capital and productivity – especially labor productivity – were
relatively direct, the face validity of this measure of firm success was also relatively
high (Dyer and Reeves, 1995). Finally, productivity has been the most frequently used
outcome variable in a large body of work in the SHRM literature. We measured labor
productivity as the logarithm of the ratio of firm sales to number of employees. In order
to measure labor productivity in 2003, data had been obtained from the Magazine of
Common Wealth in Taiwan in 2004. Besides, in order to increase the accuracy of
inferring the impact of strategy fit on HRM effectiveness and labor productivity, we
controlled their last year (2002) labor productivity in the analytic procedures.
Business strategy. Based on the classification of Bird and Beechler (1995), we divided
competitive strategy into three types: defender, prospector, and analyzer. We used it to
measure responder’s business strategy and classify them into nominal categories. HRM
executives read brief descriptions of strategy types and were asked to identify the one
that closely resembled their firm’s strategy. The descriptive analysis results revealed
that “analyzer strategy” businesses (104 firms, 57.5 percent) accounted for a majority of
our samples. The second largest group was the “defender strategy” (42 firms, 23.2
percent). “Prospector strategy” occupied only 16.6 percent (30 firms) of the respondents.
HRM strategy. This study adopts the theoretical definitions of Dowling and Schuler
(1990), Huang (2001), Schuler (1989), and Schuler and Jackson (1987). This scale
includes 13 items designed to assess the nature of human resource practices followed
by surveyed firms. They included the degree of participation of employees in HRM
planning, content of job descriptions, resources of recruit, the status of employee’s
promotion, the orientation of performance appraisal (focused on individual or team),
the standard of performance appraisal (short-term or log-term), the foundation of
performance appraisal (process or result perspective), the rate of bonus, the tendency of
compensation design (internal or external equity), the orientation of employees training
and development, the rate of employees training, the degree of job security, and labor
relation. Respondents answered this on five-point Likert-type scales ranging from
1 ¼ “very much disagree” to 5 ¼ “very much agree”. The higher score is more tended
to the HRM strategy of accumulation, and lower score is closer to the HRM strategy of
utilization.
Then, we applied the K-means cluster method to classify the responding firms into
different HRM strategy groups. Next, discrimination analysis was employed to
examine the results of the classification. The cluster analysis results indicated that the
HRM strategy of accumulation (92 firms, 50.8 percent) accounted for a majority of the
samples. The second largest group was the HRM strategy of utilization (52 firms, 28.7
percent), “HRM strategy of facilitation” accounted just 17.1 percent (31 firms) of the
respondents. The results from discrimination analysis revealed that 13 HRM practices
were significantly different across the three strategies (Wilks’ L values among 0.395 to
0.920), and the correct discrimination rate was 93.1 percent (163/176). It means our
classification had a sufficient discriminative effect.
Strategy fit. Strategy fit had occurred when firm’s HRM strategy aligned with its
competitive strategy. According to the theoretical model of Bird and Beechler (1995),
when a firm adopts a prospector competitive strategy and HRM strategy of utilization,
a defender competitive strategy and HRM strategy of accumulation, or a analyzer
competitive strategy and HRM strategy of facilitation, firm’s HRM strategy and
competitive strategy were consistent (the above 3 strategy matches were strategic fit,
other matches were not fit). The results indicated that 40.6 percent (71 firms) of the
firms were strategic fit, and 59.4 percent of firms were not fit. We also found “defender
competitive strategy vs. HRM strategy of accumulation” accounted for a majority of
the strategy fit firms (32 firms, 45.07 percent), “analyzer competitive strategy v. HRM
strategy of facilitation” accounted for second largest group (25 firms, 35.21 percent).
“Prospector competitive strategy v. HRM strategy of utilization” firms occupied just
19.72 percent (14 firms) of the respondents.
HRM effectiveness. Based on intellectual capital perspective, HRM effectiveness was
recognized as organizational intellectual capital management practices in this study.
After reviewing the relevant literature, we concluded structural capital and relation
capital as two dimensions of intellectual capital. The 23-item scale was developed and
revised by Huselid et al. (1997), Huang (2001), Lee (1999), Wang and Gau (2004). The
structural capital of HRM effectiveness was measured by 14 items to assess the
effectiveness of performance appraisal, employee skill, training and development of
employee, job performance, status of HRM rule, the design of team corporation, the
degree of endowment, HRM activities, management development, job rotation, job
descriptions and rules, the design of employee appeal, information management of
HRM, and the control mechanism of the labor cost that facilitate to build up human
capital of the organization. And the relation capital of HRM effectiveness (9 items)
measured the procedure of recruitment and selection, labor relation management,
career development of employee, job environment, compensation and incentives
management, the degree of jib security, employee benefit, job orientation, and training
and development of employee that facilitate to remain and increase human capital of
the organization. All items of HRME were used five-point Likert-type scales. The
composite reliabilities of this scale were 0.94 and 0.90 in two dimensions which were
estimated based on confirmatory factor analysis (CFA). According to the standard of
Wortzel (1979) and Fornell and Larcker (1981), the internal consistent within these two
dimensions were acceptable.
In order to assess the convergent and discriminate validity, we also performed CFA
on these scales. The results of CFA indicated that value of the x
2/df, goodness of fitindex (GFI), comparative fit index (CFI), and the root mean square error of
approximation (RMSEA) were 2.53, 0.92, 0.94, and 0.65, respectively. They were fit and
consistent with the standard of Bollen (1989), Browne and Cudeck (1993), Joreskog and
Sorbom (1993), and Medsker et al. (1994). Factor loading of each item were above 0.50.
The t values of factor loading of each item were above 2 and greater than twice its
standard error. Thus, the convergent validity of HRM effectiveness was very sound.
Besides, we also assessed the discriminate validity by testing the x
2 difference for theconstrained (estimated correlation parameter was constrained to 1.0) and
unconstrained (correlation parameter was estimated free) model (Anderson and
Gerbing, 1988). The results indicated that x
2 difference between 2 models wassignificant (ex
2 ¼ 177:64, edf ¼ 1, p , 0.001). Moreover, the confidence interval(^2 standard errors) around the estimated correlation was not included 1.0 (between
0.49 and 0.61). Thus, the discriminate validity of this scale was good enough.
Control variables. Reviewing the previous studies, we used firm’s age, firm’s capital,
scale of firm, number of employees in HR department, industrial sector, and market
competitive degree as control variables in our analysis. Firm’s age was measured as
the number of years the firm had operated. Firm’s capital was measured by the
logarithm of the firm’s total capital. Firm scale was measured by the logarithm of the
total employees. Besides, we used dummy variables to treat both variables of industrial
sector and market competition. We classified our sample into traditional sector (as the
reference group) and high tech sector; the lower and middle market competitive degree
(as the reference group), high, and very high degree of competitive market.
Analyses and results
Table I presents the means, standard deviations and zero-order correlations among all
variables in this study. Hierarchical generally least squares (GLS) regression analysis
was used to test 4 hypotheses mentioned previously. Table II presents the analyzing
results. In the analysis, strategy fit was dummy-coded as 1 for fit and 0 for not fit. The
dependent variable was HRM effectiveness in model 1 and 2, and was 2003 labor
productivity in model 3-6. Because HRM effectiveness, strategy fit, and labor
productivity might exist relationships causally. We tested these causal relationships
by analyzing the impact of HRM effectiveness and strategy fit on labor productivity in
2002. Findings indicated that HRM effectiveness, strategy fit, and interaction between
HRM effectiveness and strategy fit had no significant impacts on labor productivity.
Thus, we controlled 2002 labor productivity in model 3-6, while not controlled it in
model 1 and 2.
In model 1, which included the control variables, explained nearly 12 percent of the
variance in HRM effectiveness ( p , 0.01). We added the strategy fit into model 2.
Consistently with the past research (e.g., Bird and Beechler, 1995; Porter, 1985; Schuler
and Jackson, 1987), results indicated that strategy fit had a positive and direct impact
on HRM effectiveness (t ¼ 4:41, p , 0.001). This has supported our first hypothesis.
The variable of strategy fit variable could explain an additional 11.9 percent of the
variance in HRM effectiveness. In model 3-6 (dependent was labor productivity in
2003), we found control variables explained nearly 14 percent of the variance in labor
productivity ( p , 0.001). The strategy fit variable could explain an additional 12.9
percent; HRM effectiveness variable would explain an additional 9.9 percent of the
variance in labor productivity ( p , 0.001). We also found both the strategy fit and
HRM effectiveness had positive and direct impact on labor productivity (t ¼ 4:89, 3.47;
p , 0.001). This provided strong support for the hypothesis 2 and 3.
We used moderated multiple regression to test for the expected interaction between
strategy fit and HRM effectiveness. The effect of interaction was plotted by separate
equations for the high and low (1 SD) conditions of HRM effectiveness, as
recommended by Aiken and West (1991) and showed in Figure 2. To test for statistical
significance, we examined both the beta weight of the interaction term and theeR
2 ofthe cumulative mod suggested by Aiken and West (1991). To address the issue of
multicollinearity arising from the interactive terms being highly correlated with its
original variables. Thus, we assessed whether multicollinearity was a problem by
computing the variance inflation factors (VIFs). None of the VIFs in this study
approached the threshold value of 10 suggested by Myers (1990). So there is no serious
multicollinearity problem for the study data.
As indicated in Table II, the beta weight for the interaction of strategy fit and HRM
effectiveness was significant in the regression model (t ¼ 2:11, p , 0.05), theeR
2 wasalso significantly (t ¼ 2:01, p , 0.05). It suggested that strategy fit moderated the
relationship between HRM effectiveness and labor productivity. Firm’s HRM strategy
aligned with business strategy would strengthen the relationship between HRM
effectiveness and labor productivity, which support our fourth hypothesis.
Conclusions and discussion
In this study, our findings have also supported by the previous research findings which
suggested that firm’s competitiveness can be enhanced by HRM practices (Arthur, 1994;
Bracken, 2006; Dalton, 2005; Datta et al., 2005; Gollan, 2005; Guthrie, 2001; Huselid, 1995;
Ozcelik and Ferman, 2006; Whicker and Andrews, 2004). Although there were few studies
explored the impact of strategy fit between firm’s business and HRM strategy on HRM
effectiveness and organizational performance. And, most often, previous researches
explored the fit effect might be in one out of six or eight different analyses in a study. The
impacts of strategy fit on HRM effectiveness and organizational performance were
ambiguously.We tried to examine this effect based on contingency perspective.We found
strategic fit would increase both the HRM effectiveness and organizational performance
that consistent with the previous findings as summarized in Table III.We have also found
the impact of strategy fit on labor productivity was higher than the impact of HRM
effectiveness on labor productivity.
In Table III, we found the previous researches had confirmed the contingency effect
of strategic fit and organizational performance through both direct and interactive
effects. Adopting interactive approach, most research had examined the interactive
effect between HR practices and business strategy on organizational performance.
This approach tended to examine the moderation effect among HR practices, business
strategy, and organizational performance (moderation perspective). They often divide
HR practices and business strategies into n categories before examining the effect of fit.
Therefore, the approach also analyzed the significant difference between business
strategy and organizational performance across HR practices. They would hardly
examine the impact of fit (match effect) on the organizational performance. Same as
Delery and Doty (1996), Guest and Hoque (1994), Smith and Reece (1999), our study
assessed the direct effect that organizations took the appropriate HRM strategy for
their business strategy (match perspective). We examined the actual impact of fit
between HRM strategy and business strategy on organizational performance. Besides,
we also found a significant contingency effect, the strategy fit between a firm’s
business and HRM strategy would moderately increase the relationship between HRM
effectiveness and labor productivity.
Following the advice of the previous SHRM scholars (e.g., Becker and Gerhart, 1996;
Huselid, 1995), we estimated the practical significance of our results by calculating the
impact of one standard deviation (1s) increase in HRM effectiveness on labor
productivity. Holding all controlled variables as their means, the estimated main
effects showed that each 1s increase in HRM effectiveness is associated with 27,772
NTD productivity increase per employee. This represents there is 7.31 percent gain in
labor productivity over the average productivity per employee (379,931 NTD).
Compared with the calculations reported by Huselid (1995) and Becker and Huselid
(1998), their gains were 16 and 4.8 percent, respectively. Thus, our estimation was
reasonable. For the average sized firm in our sample, the effect of HRM effectiveness on
labor productivity would generate an additional 32.85 million NTD in total revenue.
We also found the strategic fit could influence the relationship between HRM
effectiveness and labor productivity. While the strategy between HRM and business
were fit, each 1s increase in HRM effectiveness will increase 47,331 NTD productivity
per employee. This means there is 9.51 percent gain over the average productivity per
employee of 497,701 NTD (it increases an additional 55.99 million NTD in total
revenue). In contrast, while the strategy between HRM and business were not aligned,
each 1s increase in HRM effectiveness will increase just 12,748 NTD productivity per
employee. This tells us that 5.21 percent gain over the average productivity per
employee of 244,691 NTD (it would increase an additional 15.08 million NTD in total
revenue).
A variety of researches had indicated that the alignment between a firm’s business
and HRM strategy was the key factor of success for organizations. HRM practices
could provide a source of sustainable competitive advantage. HRM research has
generally ignored the influence of strategy fit on the relationship between a firm’s HRM
effectiveness and labor productivity. Although we have confirmed when a firm’s HRM
strategy and business strategy were aligned, the effectiveness of HR practices and
organizational performance were better than “that of not aligned” by contingency
perspective. But, we examined the fit effect accord to Bird and Beechler (1995) theoretic
model. Our fit model is not a general and unique way to do the strategy fit between
business and HRM strategies. Further studies might be able to identify and confirm the
robustness of our strategic fit findings. Whenever the enterprises want to promote their
organizational performance, they would better adopt the suitable operating strategy
based on the conditions of their organization structure, environmental, and context
firstly. Then, align their competitive strategy with HRM strategy secondly. Finally,
this better strategic fit will enhance not only HRM effectiveness but also organizational
performance.
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Further reading
Boudreau, J.W. and Ramstad, P.M. (1997), “Measuring intellectual capital: learning from financial
history”, Human Resource Management, Vol. 36 No. 3, pp. 343-56.
Delaney, J.T. and Huselid, M.A. (1996), “The impact of human resource management practices on
perceptions of organizational performance”, Academy of Management Journal, Vol. 39
No. 4, pp. 949-69.
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