How and when matter: Exploring the interaction effects of high‐performance work systems, employee participation, and human capital on organizational innovation

• DOI: http://doi.org/10.1002/hrm.21950
• Author: Xueqing Fan,Jooyeon Son,Yu Zhou
• Published date: 01 May 2019
• Date: 01 May 2019

ORIGINAL ARTICLE

How and when matter: Exploring the interaction effects of

high-performance work systems, employee participation, and

human capital on organizational innovation

Yu Zhou

1†

| Xueqing Fan

1†

| Jooyeon Son

2†

1

Department of Organization and Human

Resources, School of Business, Renmin

University of China, Beijing, China

2

Department of Management and Marketing,

Faculty of Business and Economics, The

University of Melbourne, Melbourne, Victoria,

Australia

Correspondence

Xueqing Fan, Doctoral Student, Department of

Organization and Human Resources, School of

Business, Renmin University of China,

No. 59 Zhongguancun Street, Haidian District,

Beijing 100872, China.

Email: skye_fan@ruc.edu.cn

Funding information

National Natural Science Foundation of China,

Grant/Award Number: 71372003

Existing research on the relationship between high-performance work systems (HPWS) and

organizational innovation has paid insufficient attention to the boundary effects of employee

participation and human capital. Bridging the human resource management (HRM) and employ-

ment relations literature, this study contributes to the contingency view of HRM and China-

specific research by investigating how human capital and employee participation, direct voice

mechanism, and corporate governance participation jointly moderate the relationship between

HPWS and organizational innovation. We test our three-way interaction model using a sample

of 108 firms and 1,250 employees in China. The results suggest that HPWS are positively asso-

ciated with organizational innovation when employees with relatively less human capital are

coupled with more direct voice mechanism or less corporate governance participation. In con-

trast, HPWS are negatively related to organizational innovation when employees possessing

greater human capital are coupled with more direct voice mechanism. The theoretical and mana-

gerial implications and future research directions are discussed.

KEYWORDS

China, employee participation, high-performance work systems, human capital, organizational

innovation

1|INTRODUCTION

Modern organizations are increasingly emphasizing and supporting

employees' active involvement and participation in the workplace. For

example, recent survey results show that 31% of European employees

work in high-involvement organizations, and 67% of European

employees are at least sometimes involved in the process of influenc-

ing job-related activities and decisions (European Working Conditions

Survey, 2015). Furthermore, in China, more than 90% of companies

implement specific types of employee participation (Office of the

National Coordination Group on Factory Affairs Disclosure, 2016).

The widely adopted high-performance work systems (HPWS), also

referred to as high-involvement work systems, provide job decision

latitude and group problem-solving opportunities (Li, Wang, van Jaars-

veld, Lee, & Ma, 2017) that unleash employees' potential to contribute

to superior organizational performance (Jiang, Lepak, Hu, & Baer,

2012). In addition to HPWS, most organizations also have diverse

employee participation channels, ranging from collective representa-

tion through trade unions to individual voice via intranet (Mowbray,

Wilkinson, & Tse, 2015; Wilkinson, Townsend, & Burgess, 2013). It

has been suggested that participation practices, when implemented

with HPWS, bring synergy to the organization (Mowbray et al., 2015;

Wilkinson & Fay, 2011). Specifically, these practices are likely to

strengthen the effect of HPWS by allowing employees to speak up in

different ways. For example, Blasi, Freeman, and Kruse (2016) note

that when employee ownership, which enhances employee participa-

tion in decision-making and information sharing, is associated with

HPWS, employee ownership and HPWS tend to better facilitate orga-

nizational performance than when utilized separately. However, we

find a gap in the current human resource management (HRM) litera-

ture in that researchers have investigated HPWS in isolation from

coexisting participative mechanisms (Barry & Wilkinson, 2016), such

†

These authors contributed equally to this study.

DOI: 10.1002/hrm.21950

Hum Resour Manage. 2019;58:253–268. wileyonlinelibrary.com/journal/hrm © 2019 Wiley Periodicals, Inc. 253

as employee participation practices. Therefore, this study aims to

examine how, in the context of a variety of employee participation

practices, HPWS contribute to organizational innovation.

We particularly focus on organizational innovation in the Chinese

context because innovation has been strongly emphasized as a driving

force of economic and social development by the Chinese govern-

ment. For instance, at the 18th National Congress of the Communist

Party of China held in 2012, the “Innovation-driven Development

Strategy”was proposed. Moreover, Chinese Premier Li Keqiang called

for “mass entrepreneurship and innovation”at the World Economic

Forum conference in 2014 to encourage people's active participation

in enhancing innovation. With HPWS and employee participation

practices, Chinese companies have achieved remarkable development

in innovation by encouraging employee involvement in the innovation

process (e.g., Kesting, Song, Qin, & Krol, 2016; Liu, Gong, Zhou, &

Huang, 2017; Zhang & Bartol, 2010). Although there are numerous

studies investigating the impact of HPWS (e.g., Chang, Jia, Takeuchi, &

Cai, 2014; Cooke, Cooper, Bartram, Wang, & Mei, 2016; Liu et al.,

2017) on innovation (e.g., Zhou, Gao, & Zhao, 2017; Zhou, Hong, &

Liu, 2013) in the Chinese context, it remains unknown how HPWS

influences organizational innovation in conjunction with employee

participation practices, specifically in Chinese companies. Thus, using

samples from China, the current study aims to gain a better under-

standing of the combined effects of HPWS and employee participa-

tion on organizational innovation among Chinese companies.

Furthermore, although several studies in the employment rela-

tions literature have investigated the interplay of different participa-

tion mechanisms, such as formal and informal participation

(e.g., Marchington & Suter, 2013), high-involvement management

practices and trade union representation (e.g., Bryson, Forth, & Kirby,

2005), and direct and indirect participation (e.g., Gallie, 2013), we find

several gaps in the current research. First, while union representation

has gained much attention, the effects of other types of participative

mechanisms, such as employee representation on the board of direc-

tors, are relatively underresearched. Second, although the innovation

literature highlights employee participation (e.g., Bashshur & Oc,

2015; Wang, Zhao, & Thornhill, 2015), the employment relations liter-

ature remains relatively silent on the influence of participative mecha-

nisms on organizational innovation. Third, the current literature

indicates inconsistency in the interaction effects of HRM and

employee participation on organizational performance. For instance,

Kim and Kang (2013) found that strategic HR function is positively

related to firm performance in the context of strategic union participa-

tion. In contrast, Bryson et al. (2005) found no significant relationship

between high-involvement management practices and financial per-

formance in unionized workplaces.

To fill the gaps, we propose two distinct forms of employee par-

ticipation based on (in)directness and the degree of influence on

decision-making (e.g., Wilkinson et al., 2013) and examine how HPWS,

along with employee participation, affect organizational innovation.

Employee participation refers to any type of mechanism, structure, or

practice that provides employees with opportunities to express opin-

ions or participate in decision-making within their organizations

(Lavelle, Gunnigle, & McDonnell, 2010). The current paper suggests

direct voice mechanism, which refers to suggestion-making practices

that build broad, open channels for employees to directly express con-

cerns and views, and corporate governance participation, which is

conceptualized as decision-making structures that allow employees to

participate in corporate governance indirectly through union and non-

union representation, as two types of employee participation. Specifi-

cally, we argue that direct voice mechanism and corporate

governance participation play different roles when complementing

the impact of HPWS on organizational innovation. While direct voice

mechanism simply broadens the participation avenues by channeling

employees' ideas to management, corporate governance participation

can further involve employees in strategic decision-making and is thus

more influential for gaining resources and management support to

implement innovative ideas.

In addition, it is important to take human capital—defined as the

cumulative knowledge, skills, talent, and know-how of the firm's

employees (Somaya, Williamson, & Lorinkova, 2008)—into consider-

ation when examining the impact of employee participation. A high

level of human capital is believed to increase the benefits of employee

participation (Glaeser, Ponzetto, & Shleifer, 2007; Harrison & Free-

man, 2004; Kerr, 2004). Given the conflicting findings in the current

literature (e.g., Bryson et al., 2005; Kim & Kang, 2013), which suggest

potential contingencies in the interaction effect of HRM and

employee participation on organizational outcomes, we contend that

investigating human capital, along with the association between

HPWS and organizational performance, under various participative

mechanisms will be helpful to address the discrepancy. Consequently,

we investigate the three-way interaction effects of human capital,

direct voice mechanism and corporate governance participation, and

HPWS on organizational innovation. Although prior HRM literature

has highlighted the importance of human capital in the functioning of

HRM, recent studies have focused primarily on the role of HRM prac-

tices but failed to take human capital into account (Wright & McMa-

han, 2011). With notable exceptions that investigate human capital as

a mediator between HPWS and performance (e.g., Jiang et al., 2012),

much still needs to be investigated regarding how employees with dif-

ferent levels of human capital respond to HPWS and employee partic-

ipation and thereby impact organizational outcomes (Gallie, 2013). In

particular, innovation depends heavily on knowledge and expertise as

key inputs throughout the creativity generation process (Chang et al.,

2014). Therefore, we contend that empirically examining human capi-

tal as a contingency provides us with a more comprehensive under-

standing of the interplay between HPWS and employee participation

in their effects on organizational innovation.

The contributions of this study are threefold. First, we extend the

employment relations literature by investigating the interaction

between HPWS and employee participation and extend the employ-

ment relations literature to the innovation domain. Second, we con-

tribute to the contingency view of the HRM literature by focusing on

the boundary effects of employee participation on the HPWS-

innovation relationship. Third, by proposing a three-way interaction

effect in the Chinese context, we contribute to the China-specific

research on innovation and employee participation. Finally, we enrich

the human capital literature by investigating how human capital

shapes the interaction effects of HPWS and employee participation

on innovation.

254 ZHOU ET AL.