How Top Management HR Beliefs and Values Affect High‐Performance Work System Adoption and Implementation Effectiveness

• Author: Jaewan Yang,Andrew O. Herdman,Jeffrey B. Arthur
• DOI: http://doi.org/10.1002/hrm.21672
• Published date: 01 May 2016
• Date: 01 May 2016

Human Resource Management, May–June 2016, Vol. 55, No. 3. Pp. 413–435

© 2014 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI:10.1002/hrm.21672

Correspondence to: Jeffrey B. Arthur, Associate Professor, Virginia Tech University, Department of Management

(0233), 880 West Campus Drive, Blacksburg, Virginia 24061, Phone: 540-231-5695, E-mail: jearthur@vt.edu

HOW TOP MANAGEMENT HR

BELIEFS AND VALUES AFFECT

HIGH-PERFORMANCE WORK

SYSTEM ADOPTION AND

IMPLEMENTATION EFFECTIVENESS

JEFFREY B. ARTHUR, ANDREW O. HERDMAN,

ANDJAEWAN YANG

What explains why high-performance work systems (HPWSs) are not adopted

more widely by fi rms that would appear to benefi t economically by adopting

them? We address this question by drawing on the upper-echelons perspective

to consider the role of the top managers’ beliefs concerning the fi nancial payoffs

from investments in HR (“HR cause-effect belief”) as well as their employee-

centered value-based beliefs (labeled “HPWS values”). We propose a concep-

tual model in which top management HPWS values moderate the relationship

between HR cause-effect beliefs and the intensity of HPWS programs reported by

managers as well as the relationship between HPWS programs and employees’

perceptions of implemented HPWS practices. We test our model using a unique

multisource data set collected from 120 hotel franchisees that includes survey

responses from 648 managers and 1,293 employees. We fi nd that fi rms’ ability

to translate top managers’ cause-effect beliefs about the economic value of HR

investments into adoption of HPWS programs, as well as their ability to effec-

tively implement these HPWS programs, is signifi cantly affected by the value-

based HR beliefs held by top managers. ©2014Wiley Periodicals, Inc.

Keywords: strategic HR, top management teams, strategic decision making

Introduction

To date, an impressive body of empiri-

cal research has demonstrated a positive

relationship between the extent to which

firms report using high-performance

work system (HPWS) programs and vari-

ous firm-level performance outcomes (Combs,

Yongmei, Hall, & Ketchen, 2006; Huselid, 1995;

Subramony, 2009). For example, in his highly

influential study, Huselid (1995) found that a one

standard deviation change in the HPWS index

score was associated with substantially higher

sales, market value, and profits. These empirical

findings have raised a number of issues among

strategic HRM researchers including the mea-

surement of HPWS programs (Gerhart, Wright,

414 HUMAN RESOURCE MANAGEMENT, MAY–JUNE 2016

Human Resource Management DOI: 10.1002/hrm

If HPWSs are as

universally effective

in contributing

to improved

performance as they

appear, then why

haven’t we seen a

broader diffusion of

these HR systems

across firms? In

other words, why

do some firms adopt

HPWS while other

(seemingly similar)

firms don’t?

future research” (Becker & Huselid, 2006, p. 905).

In a recent critique of strategic HRM research,

Kaufman (2010, p. 297) concludes that the inabil-

ity of strategic HR researchers to fully explain the

lack of HPWS diffusion “casts considerable doubt

on the intellectual robustness and explanatory

power of the mainstream SHRM model.” We pro-

pose to contribute to the strategic HR literature by

addressing this important gap in the research.

In this study, we develop a conceptual model

that draws from “upper-echelons theory” found

in the strategic management literature (Hambrick

& Mason, 1984). Upper-echelons theory empha-

sizes that the strategic context faced by top man-

agers can most often be characterized as involving

significant ambiguity and uncertainty (March &

Simon, 1958). Under these conditions, the cogni-

tive structures (i.e., “cause-effect beliefs”) and per-

sonal values of top management decision makers

provide critical insights for understanding how

and why firms look and behave the way they

do (Finkelstein, Hambrick, & Cannella, 2009).

Applying upper-echelons theory to HPWS adop-

tion, we propose that top managers will vary in

their implicit and explicit cause-effect beliefs

about whether investments in HR programs will

lead to improved organizational performance.

These beliefs are expected to have a direct effect

on the level of HR program investments found

in firms. In addition, the extent to which orga-

nizational leaders hold employee-centered values

(in which employees are viewed as assets to be

developed as opposed to costs to be minimized) is

expected to significantly influence the intensity of

HPWS programs adopted by the firm.

Going further, we expect that top manage-

ment values will also significantly affect the

extent to which “intended” HPWS programs

are actually implemented and experienced by

employees. Bowen and Ostroff (2004) labeled the

extent to which employees experience a firm’s HR

system in a uniform manner, consistent with the

intent of organizational leaders, as the “HR system

strength.” They argued that HR system strength

is affected by the distinctiveness, consistency, and

consensus with which the HR system is imple-

mented. We add to this explanation by propos-

ing that top management’s employee-centered

values can affect HPWS strength and thus have a

significant moderating effect on the relationship

between the use of HPWS programs reported by

managers and employees’ experience and percep-

tions of these programs.

We test our proposed model using a unique

data set that consists of detailed, intra-indus-

try, firm-level, and multisource survey data col-

lected from a sample of 648 managers and 1,293

McMahan, & Snell, 2000), the order of causal-

ity between HPWS programs and performance

outcomes (Wright, Gardner, Moynihan, & Allen,

2005), and mechanisms that explain the rela-

tionship between HPWS programs and firm-per-

formance outcomes (Takeuchi, Lepak, Wang, &

Takeuchi, 2007). Although theories and evidence

addressing these issues continue to be developed,

another basic question in this literature has

remained largely unaddressed: If HPWSs are as

universally effective in contributing to improved

performance as they appear, then why haven’t

we seen a broader diffusion of these HR systems

across firms? In other words, why do some firms

adopt HPWS while other (seemingly similar) firms

don’t?

We are not the first to consider

the theoretical and practical impor-

tance of addressing the gap between

evidence of economic success of

HPWSs and yet a lack of diffusion

across a broader number of firms

(Kaufman & Miller, 2011; Pfeffer,

1998; Wright, Dunford, & Snell,

2001). Several authors have proposed

various forms of “market failure” to

explain the gap. In one early exam-

ple, Pfeffer (1998, p. 29) proposed

a “one-eighth rule.” He speculated

that about one half of organizations

wouldn’t invest in HPWSs because

they don’t believe that there is a con-

nection between investments in HR

and financial performance. Of the

remaining one half, only 50 percent

would engage in the kind of sys-

tematic and comprehensive invest-

ments in HPWS required for success.

Finally, only one half of these firms

are expected to “persist with prac-

tices long enough to actually derive

economic benefits” (Pfeffer & Viega,

1999, p. 47).

Nearly 10 years later, Becker and

Huselid (2006) noted that results showing persis-

tent large effects of HPWSs on firm performance

may be related to heterogeneity in “managerial

quality” across firms (Chadwick & Dabu, 2009).

They suggested that differences in the ability of

managers to successfully implement HPWSs may

help explain why the market for HPWSs has failed

to reach equilibrium (and thus eliminate competi-

tive advantage derived from the use of these sys-

tems): “Whether this market failure is due to lack

of knowledge, a lack of managerial competence, or

an inability to execute (or more likely some com-

bination) is open to conjecture and, it is hoped,