The evolution of high performance strategy


The character of HR systems is more complex. Firms systematically emphasize certain elements of a HR system. Whether this kind of emphasis has any effect on firm performance? In other words, if we believe that different HR systems will have different effects on firm performance, we ought to see some evidence that there are systematically different approaches to how firms structure their HR systems. If different HR systems are indeed present in our data, the next question is whether these different approaches have different effects on firm performance. Or, perhaps there are simply different approaches to the same objective, and no single High-Performance Work System really exists. The results are briefly summarized.

To examine this question, we compared our sample of firms on forty characteristics. Twenty-four of these characteristics focused specifically on the HR system (selection, appraisal, development, compensation, communication, etc.). Another sixteen measured other characteristics of the firm that would be expected to facilitate the implementation of a High-Performance Work System. These included the ability of HR professionals to effectively manage different elements of the HR system, the alignment between the HR system and larger firm strategy, the clarity and communication of the firm’s mission, and the leadership style of the senior management. We described these latter characteristics as implementation alignment.

Using a technique called cluster analysis the firms in the sample were compared based on how they structured these forty characteristics into an overall HR strategy. This approach was appropriate, given emphasis on the importance of systems. In effect, this type of analysis will indicate whether the firms in our sample can be categorized by the way in which they structure their HR architecture. Four such systems were discovered

* High-Performance Work System: Firms in this group score well above average on both the HR system and implementation alignment dimensions.

* Compensation-Based Systems: Firms in this group score above average on the HR system index but below on implementation alignment. We refer to this group as compensation-based because the only reason they score well on the HR system index is their very high ratings on the compensation dimensions.

* Alignment System: These are an unusual set of firms. They are slightly above average on implementation alignment, but they score among the lowest on the HR system. These firms approach strategic HR from the top down but don’t finish the job. Senior managers say the right things, and HR is considered to be part of the strategic planning process, but managers have never made the investment in the infrastructure of a High-Performance Work System.

* Personnel Systems: These firms are characterized by scores that are well below average on both the HR system and implementation alignment dimensions. Such organizations approach their HR systems in a very traditional way and appear to make no effort to exploit HR as a strategic asset.

The data show very clearly controlling for other firm and industry characteristics, a firm pursuing a High-Performance strategy had a 65% higher market value (for a given book value) than a firm using either the Personnel or Alignment strategy. Firms using only the Compensation strategy had a 39% higher market value than similar firms using the Personnel strategy. There was no statistically significant difference between the experience of firms using the Alignment strategy and the Personnel strategies.

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