High‐performance work systems and workplace performance in small, medium‐sized and large firms

• Published date: 01 November 2015
• Author: Nicolas Bacon,Juan Carlos Bou Llusar,Kim Hoque,Ning Wu
• Date: 01 November 2015
• DOI: http://doi.org/10.1111/1748-8583.12084

High-performance work systems and workplace

performance in small, medium-sized and large

firms

Ning Wu, Nottingham Business School, Nottingham Trent University

Kim Hoque, Warwick Business School, University of Warwick

Nicolas Bacon, Cass Business School, City University London

Juan Carlos Bou Llusar, Universitat Jaume I

Human Resource Management Journal, Vol 25, no 4, 2015, pages 408–423

This article draws on the Organisational Growth and Development (OGD) life cycle model to explore

the relationship between high-performance work systems (HPWS) and performance in firms of different

size, thereby extending understanding of congruence or ‘best fit’ theory within strategic HRM debates.

With reference to management control theory, economies of scale and the availability of specialist

managerial skills, the article hypothesises that while an HPWS–performance relationship might exist in

small, medium-sized and large firms, the relationship will be stronger in large firms than in both small

and medium-sized firms, and stronger in medium-sized firms than in small firms. Analysis of data from

the British Workplace Employment Relations Survey demonstrates, however, that there is no association

between HPWS and workplace performance in medium-sized firms, in contrast to the positive

relationship between HPWS and performance found in large firms and between HPWS and labour

productivity in small firms.

Contact: Professor Kim Hoque, Warwick Business School, University of Warwick, Coventry

CV4 7AL, UK. Email: kim.hoque@wbs.ac.uk

Keywords: HPWS; small and medium-sized enterprises (SMEs); performance; best fit;

organisational growth and development

INTRODUCTION

Extensive strategic HRM research over the past 20 years has suggested that the HRM

practices a firm adopts play a critical role in determining its effectiveness. Research has

generally supported the ‘best practice’ perspective, which suggests that integrated

high-performance work systems (HPWS) incorporating a range of practices such as selective

hiring, extensive training, employee involvement and teamworking will impact positively on

firm performance (Becker and Huselid, 1998; Combs et al., 2006; Guest, 2011).

The alternative congruence or ‘best fit’ perspective, by contrast, proposes that the

HPWS–performance relationship will be contingent on organisational context (the firm’s

business strategy or industrial sector, see, for example, Datta et al., 2005). Also from the ‘best

fit’ perspective, the Organisational Growth and Development (OGD) life cycle model (Baird and

Meshoulam, 1988) suggests that a further important factor on which the HPWS–performance

relationship might be contingent is firm size. In particular, it suggests that the importance (and

hence performance advantages) of HPWS will become greater as firm size increases, given the

heightened organisational complexity that firms face as they grow from being small firms at

stage 1 (initiation) into medium-sized firms at stage 2 (functional growth) before reaching

maturity as larger firms. This article draws on the 2004 Workplace Employment Relations

Survey (WERS 2004) (DTI, 2005) to explore this issue.

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doi: 10.1111/1748-8583.12084

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 25 NO 4, 2015408

© 2015 John Wiley & Sons Ltd.

Please cite this article in press as: Wu, N., Hoque, K., Bacon, N. and Bou Llusar, J.C. (2015) ‘High-performance work systems and workplace

performance in small, medium-sized and large firms’. Human Resource Management Journal 25: 4, 408–423.

The article contributes to the SHRM literature in a number of ways. First, most of the

research on the HPWS–performance relationship has studied large firms, while small and

medium-sized enterprises (SMEs) have received relatively little attention (Heneman et al., 2000;

Faems et al., 2005: 677; Carlson et al., 2006: 532). This might be considered a significant oversight

given the economic importance of SMEs, which in Britain, for example, account for 59 per cent

of private sector employment and 48 per cent of private sector output (Department for Business

Innovation & Skills, 2013). By adding to the literature on the HPWS–performance relationship

in SMEs, therefore, the article might be viewed as making an important contribution.

A second distinct contribution is that rather than evaluating the HPWS–performance

relationship in the SME sector en masse, the article explores the relationship within small firms

and medium-sized firms separately. Studies of the HPWS–performance relationship in SMEs

have typically combined small and medium-sized firms into a single category (Cardon and

Stevens, 2004; Teo et al., 2011: 2523; Sheehan, 2014), or alternatively have defined small firms as

having fewer than 100 employees (see, for example, Sels et al., 2006; Chadwick et al., 2013).

Hence, there has been little opportunity to date to test the propositions stemming from the

OGD model (Baird and Meshoulam, 1988) that the HPWS–performance relationship will differ

for small firms at stage 1 (initiation) and medium-sized firms at stage 2 (functional growth).

Additionally, by exploring the HPWS–performance relationship in medium-sized firms as a

distinct category, the analysis has particular contemporary policy relevance given recent calls

to recognise the importance of the ‘forgotten’ medium-sized firm sector in delivering national

economic growth (CBI, 2011). In accordance with existing SME size definitions (European

Commission, 2003; OECD, 2005; Department for Business Innovation & Skills, 2013), small

firms are defined in this article as having between 5 and 49 employees, and medium-sized firms

are defined as having between 50 and 249 employees.

THEORISING THE HPWS–PERFORMANCE RELATIONSHIP IN SMALL, MEDIUM-SIZED

AND LARGE FIRMS

As mentioned above, strategic HRM research has generally supported the ‘best practice’

perspective that HPWS incorporating an integrated range of practices has universally positive

effects on firm performance. This research is regarded as supporting the resource-based view

(RBV) of the firm, whereby the internal characteristics of organisations, specifically the manner

in which human resources are managed, are seen as providing a potential source of sustainable

competitive advantage (Becker and Huselid, 1998; Combs et al., 2006: 504; Guest, 2011: 5).

There is, however, significant debate over whether the HPWS–performance relationship

holds in the SME sector. One line of argument is that HPWS are as important for competitive

advantage in SMEs as for larger firms in ensuring the recruitment, development, retention and

motivation of employees (Way, 2002). SMEs are often more labour intensive than larger firms,

hence they might deem employee performance management to be particularly important

(Sels et al., 2006; Patel and Conklin, 2012; Chadwick et al., 2013: 313). Also, the replacement

costs associated with labour turnover might be especially difficult for resource-constrained

SMEs to bear (Patel and Conklin, 2012), hence HPWS may be important to ensure such turnover

is minimised. Furthermore, the resource constraints SMEs experience may mean that

investments in HPWS will be more carefully considered and fully implemented than in larger

firms (Sheehan, 2014). As such, where they are implemented, they are likely to be particularly

effective.

Several studies have provided empirical support for this line of argument, with HPWS

having been found to raise labour productivity, reduce voluntary turnover and increase sales

Ning Wu, Kim Hoque, Nicolas Bacon and Juan Carlos Bou Llusar

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 25 NO 4, 2015 409

© 2015 John Wiley & Sons Ltd.