Selected Journal Publications

25.09.2019

How to Measure the Impact of HR Management on Firm Performance

Validation of a Multi-dimensional HR Flexibility Measure
WAY, Sean A | TRACEY, J Bruce | FAY, Charles H | WRIGHT, Patrick M | SNELL, Scott A | CHANG, Song | GONG, Yaping
Journal of Management, Vol. 4, No. 41, May 2015

A firm’s ability to respond quickly to changes in customer demand, competition and emerging market threats and opportunities is essential to its success. Scholars have argued that flexible human resources (HR) policies may be instrumental in fostering this capacity and thus improving firm performance.  But the theory underpinning this work has been incompletely applied, resulting in findings that may not stand up to hard scrutiny.

“Without careful consideration to the operationalization of the HR flexibility construct, it is extremely difficult to advance understanding of its role and influence,” say Yaping Gong and his collaborators. So they have responded by developing a new model that is more effective in both explaining and measuring HR flexibility and its impacts.

Their model is based on the idea that firms need HR flexibility in two dimensions: first, in acquiring and improving their human resources; and second, in co-ordinating the use of these resources.

On the first dimension of resources flexibility, the authors suggest that companies should pay attention to two areas – flexibility in their HR practices, such as a cognitive ability test that can be used across a variety of jobs (versus a work sample test focused on a single activity), and flexibility in employee skills and behaviors (what employees are capable of doing and what they are willing to do, respectively).

On the second dimension of co-ordination flexibility, companies have three areas where flexibility is important. One is in their HR practices (for instance, providing general training that enables employees to acquire broad skills applicable in a variety of work activities), another is employee skills and behaviors (for example, having employees who can be assigned a variety of activities and who are willing to work in different circumstances, such as with clients from other cultures), and the third is in paying attention to the management of contingent employees as well as regular ones.

These parameters are much more extensive than other models, which do not consider the resources and co-ordination dimensions nor contingent employees.

The authors confirmed the validity of their approach in several analyses using data from 655 firms in Canada, the US and China. They found that their HR flexibility showed a positive relation between both firm market performance and firm financial performance – confirming that HR flexibility plays an important role in improving firm performance.

“Our results indicate that resource and co-ordination flexibility in HR practices, as well as in employee skills and behaviors, are distinct dimensions of HR flexibility. This finding is important because extant measures of HR flexibility have not captured this resources versus coordination distinction, which appears to be central to understanding the nature of the HR flexibility construct,” they said.

“Furthermore, our construct may allow managers and management scholars to gain a better understanding of the process through which human resources management can influence firm performance.’


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