2. Explain the links between HR strategy/policy and national/organizational culture. Recent research suggests that the management of human resources has become increasingly important for business success. Employees are said to be one of the most valuable assets to an organization; as a result the effective management of these employees is essential. Management literature has had a tendency to associate human resource management (HRM) with firm performance. It is this link which has been the underlying cause for the abundance of research regarding HRM practices and their effects on a firm.
However, there is a substantial debate within the literature that argues that HRM practices do not directly impact organizational performance (Boxall & Purcell, 2000), with claims that there is a missing link between the two. In regards to this ‘black box’ the concept of organizational culture has emerged. It is said that organizational culture is manifested in the behavior of its employees (Ngo & Loi, 2008), and is entrenched in the everyday working lives of cultural members (Martin, 2004).
Culture is claimed to affect employee’s job attitudes, efficiency and productivity (Mahal, 2009), and can impact the ability to carry out an organizations plans and meet strategic goals (Chan, Shaffer & Snape, 2004). With these assertions, organizational culture could in fact influence a firm’s productivity and their overall performance. This paper examines the relationship between HRM, organizational culture and firm performance. The next section of this paper defines and explains the organizational culture concept.
I then investigate the relationship between HRM and organizational culture by exploring the overarching themes which emerge from the literature regarding this link. Finally, I explore the relationship between HRM, organizational culture and firm performance. The Link between HRM and Organizational Culture Previous literature has identified and focused around two common sources of organizational culture: (1) founders of the organization, and (2) national culture. Barney (1986) claimed that firms are historically bound. In line with Schein (2004) he argued that a firm’s culture reflects the unique personality of its founders.
Along with these unique personalities a number of scholars have alleged that culture originates in the values and assumptions articulated by top management, which in turn, play an important role in shaping cultural views and employee’s behaviours (Chew & Sharma, 2005; Mahal, 2009). These values are then reinforced in a number of ways. Smircich (1983) articulated that top managers mould organizational cultures, and thus the values and beliefs held by employees, to suit their strategic ends; in turn the corporate culture should reflect the vision of the firm (Ngo & Loi, 2008).
Values are also reiterated in hiring employees with similar priorities to top management as well as thoroughly socializing new employees to elicit those desired behaviours (Martin, 2004). Furthermore, national culture plays a prevailing role in shaping organizational culture. National culture refers to the culture specific to a national group (Chew & Sharma, 2005), and is entrenched deeply within individual’s everyday lives. These ingrained values will subconsciously affect how management practices are both carried out and received in an organization, and therefore how employee’s will behave within the firm (Chew & Sharma, 2005).
Consequently, acompany’s culture is said to be linked to the founders of the organization and the values which they demonstrate, as well as the National culture in which the organization was first founded. A third relationship has begun to emerge out of management literature. There have been claims by a number of scholars (Bowen & Ostroff, 2004; Cabrera & Bonache, 1999; Lau & Ngo, 2004; Wilkins,1984) that organizational culture is related to HRM and the human resource practices which are implemented by the organization.
HRM has become an increasingly important activity within an organization. Its function is to attract, develop, motivate and retain employee’s who ensure the effective functioning of the organization (Jackson & Schuler, 1995). Relatively little is known about the link between organizational culture and HRM, as few empirical studies testing this relationship have been conducted (Platonova, 2005). However, a few overarching themes emerge from the literature regarding this HRM-culture relationship. HRM Practices Influence Organizational Culture
Within the HRM-organizational culture link lays a belief that firm’s HRM practices will motivate employees to adopt certain attitudes and behaviours, and will therefore elicit a certain corporate culture (Bowen & Ostroff, 2004; Cabrera & Bonache, 1999; Chow & Liu, 2009; Lau & Ngo, 2004; Ngo & Loi, 2008; Wilkins, 1984). One of the earliest views on this HRM-organizational culture link was from Peters (1978), who suggested that management systems (e. g. HRM systems) could be thought of as mechanisms to transmit values and beliefs of the organization which, as a result, help to shape its character.
With organizational culture comprising a range of social phenomena there are certain situations in which organizational norms are not the result of shared values among employees; rather, they are determined by the rules and practices an organization implements (Cabrera & Bonache, 1999). Tichy (1983) thought that the way in which HRM systems are designed can communicate important and useful information about the organizations culture to employees. Schwartz & Davis (1981) also argued that HR practices provide information to employees.
They convey standardized information to employees about expected patterns of activity and acceptable behaviours which allow the firm to achieve its objective. Lewicki (1981) argues that HRM practices answer three questions for employees, providing information to staff about the acceptable behaviours: (1) what does the organization expect from its employees? (2) What kind of behaviour does the organization reward? And (3) what are the dos and don’ts of proper social conduct within the system? (p. 8). Ulrich (1984) iterates this view using an example of socialization programs.
Her belief is that socialization and induction programs play a significant role in transmitting corporate culture to individuals entering into the organization. They ensure that acceptable behaviours and cultural norms are passed down to new employees, thus keeping organizational culture consistent. It is through this shared information as well as the experiences of employees that behavioural norms are established, thus becoming the means through which culture is created and sustained within the firm.
Building on the HRM-organizational culture link, Ulrich (1984) advocates that procedures and practices implemented by HR executives become rituals within the company. Ulrich deems rituals to be customary and repeated actions within a firm. They take on a meaning within the organization. As we identified earlier, rituals are a symbolic tool in which values are manifested. These rituals, which include evaluation and reward procedures, help guide the behaviour of employee’s as they establish boundaries and behavioural norms within the firm.
Wilkins (1984) asserts a different view; that HR systems can create career paths for employees as well as groupings of people who remain in the firm for a long enough time for a company culture to form. This outlook suggests that firms can implement HR practices that foster job security and internal career development in order to keep turnover low, and maintain those social phenomena that comprise organizational culture (values, beliefs, norms, assumptions) within the organization, and therefore forming a strong organizational culture.
While a number of scholars claim that HRM practices lead to organizational culture, few studies have been conducted on the relationship. Lau and Ngo (2004) studied 332 firms HR and organizational development practices in Hong Kong. The board purpose of this study was to explore the link between culture, HR systems and outcomes. The research found that HR practices which emphasize training, performance based reward as well as team development help to create an organizational culture that promotes innovation.
Organizational culture was said to play a mediation role between the HR system and the firm’s outcomes. That is, the HR practices implemented by the firm had an effect on the organizational culture, which in turn had a direct impact on employee’s behaviours and outcomes. This study demonstrated that a company’s culture was significant in affecting employee’s outcomes; regardless, the culture needs to be supported by an HR system that elicits those behaviours needed to achieve the desired outcomes.
High Commitment Management Practices Influence Organizational Cultures Following on from the view that human resource practices can influence employee’s behaviour is an argument that only certain practices will be beneficial to an organization’s culture. Corporate culture will only be an advantage when it is seen as appropriate in order to achieve a certain objective or organizational goal (Chow & Liu, 2009); not all practices will elicit an appropriate culture.
High Commitment Management (HCM), or best practice, is a theory that has outlined a number of HRM practices which are believed to help a firm achieve competitive success from its workforce (Pfeffer, 1995). It is a common held belief within the literature that “systems of high commitment HR practices increase organizational effectiveness by creating conditions where employees become highly involved in the organization and work hard to accomplish the organization’s goals (Whitener, 2001, p. 516).
Pfeffer (1998), the founder of best practice, believed that there were seven core practices which characterized the most successful organizations: employment security; selective hiring of new personnel; self managed teams; high compensation contingent on organizational performance; extensive training; reduced status distinction and barriers; and extensive sharing of information throughout the organization. When implemented these practices would lead to high levels of job satisfaction, retention and motivation of employee’s, which in turn influence a firm’s effectiveness and performance.
It is thought that these HCM practices shape work force attitudes and values by framing employee’s perceptions of what the organization is like and help to influence their relationship with the organization. Employee behaviours and attitudes are said to reflect their perceptions and expectations about the organization; their behaviours respond to the treatment they receive from the firm (Whitener, 2001). Accordingly, HCM practices are said to act as a culture embedding mechanism (Hartog & Verburg, 2004), playing an important role in reinforcing certain behaviours within employees and therefore shaping corporate culture.
Kerr & Slocum (1987) demonstrate this relationship. They state that some organizations have cultures emphasizing the value of teamwork and security. These values foster loyalty to the organization and give employees a long term commitment. They iterate that other organizations consist of cultures which emphasize personal initiative and individual rewards. These values reinforce norms where organizational members do not promise loyalty and where the company does not provide job security. These authors point out that the practices, specifically HCM practices implemented by an organization, bring out certain behaviours from employees.
For that reason, a firm can manipulate its culture by implementing practices which foster the behaviours they want to achieve from employees, and those behaviours that will help the company achieve their strategic goals. A small number of studies have been conducted exploring the relationship between certain best practices and organizational culture. In her study of 170 individuals views on compensation systems, Kuhn (2009) found that a bonus being rewarded on the basis of individual outcomes, compared to team or organizational performance led to the organizational culture being regarded as relatively more individualistic.
Sheridan’s (1992) longitudinal study of 904 college graduates hired in six public accounting firms found that the firm’s organizational culture had a significant effect of the retention rates of these employees. Those firms that had a culture fostering the interpersonal relationship values of teams and respect for people stayed 14 months longer than those hired in firms whose culture emphasized the work task values of detail and stability. These two examples, in which both show the implementation of HCM or best practice, illustrate that organizational culture is contingent upon the HRM practices implemented.
Practices will elicit different behaviours from employees. In addition claims are made that these behaviours will facilitate or hinder performance and efficiency within a company. Strategy Shapes HRM Practices which in turn Shape Organizational Culture In accordance with the view that HRM/HCM practices influence organizational culture, employee’s behaviours are said to be indirectly affected through a company’s strategy (Bowen & Ostroff, 2004; Chow & Liu, 2009).
The term Strategic Human Resource Management (SHRM) has emerged within recent management literature to cover the relationship between a firm’s strategy and their HRM system. This perspective of HRM is commonly seen as comprising integrated functions which are linked to organizational strategy (Macky, 2008). The guiding logic behind this view is that a firm’s human resource practices must, “develop employees’ skills, knowledge and motivation such that employees behave in ways that are instrumental to the implementation of a particular strategy” (Bowen & Ostroff, 2004, p. 05). Given a certain strategic goal, a set of HRM practices should be implemented to help the organization attain these goals. Different business strategies will therefore require the implementation of a varied set of HRM practices in order to elicit certain behaviours from employees’. Attention should be paid to designing an HR system that is best able to link the desired culture and business strategy. For innovation-oriented firms, HR must implement innovation-enhancing practices to obtain the desired behaviours associated with innovation (Lau & Ngo, 2004).
With strategy affecting HRM practices, culture is indirectly affected. This culture will be an asset for an organization if it encourages the behaviours that support the organizations intended strategy (Cabrera & Bonache, 1999). Organizational Cultures Influence HRM Practices There is a belief, held by a small number of scholars, which challenges the previous, more widely accepted view that HRM practices (and HCM practices) influence organizational culture. While this view appears within some industrial psychology literature, it is a less common perspective among management scholars.
These scholars find that prominent core values within an organizational culture have a strong influence on management practices and in shaping HRM systems (Ferris et al. , 1998; Aycan, Kanungo, & Sinha, 1999). This view asserts that firstly values and other social phenomena form within the organization, while HRM practices occur because of the organizational culture already entrenched within the firm. The social context model, developed by Ferris et al. (1998) claims that the attitudes, beliefs, and values which make up the corporate culture drive the development of HRM policies, practices, and systems.
These scholars profess that a well-defined culture within a firm should drive the development of consistent HRM policies, as employees values are reflected in the formation of these policies. Furthermore, these policies should drive the design of a set of mutually supporting and integrated HRM practices which form a cooperative system. Bowen and Ostroff (2004) expand on this view. They allege that organizational assumptions and values shape HRM practices, which, in turn reinforce cultural norms and routines which shape individuals performance. Aycan et al. (1999) as well as Aycan et al. (2000) advocate the model of culture fit.
This model contends that managers implement HRM practices based of their assumption about the nature and behaviour of employees. There needs to be a rationale behind the practices which HR implements; they do not evolve within a vacuum. For this reason HR practices are there to reinforce the values, behaviours and assumptions which already exist within the organization, and to further develop these social phenomena. The Link between HRM, Organizational Culture and Performance Scholars have long asserted that the way in which an organization manages its employees can influence its performance (Delaney & Huselid, 1996).
HRM is therefore an organizational issue which firms cannot afford to ignore. Much of previous HRM and organizational culture literature is based on this assertion that human resource practices and corporate culture are linked to organizational performance (Platonova, 2005). The underlying assumption of the link between HRM, organizational culture and performance is that HRM practices lead to employee knowledge, skills, and abilities, which in turn are said to influence firm performance at the collective level (Bowen & Ostroff, 2004).
While a small number of empirical studies have tested the relationship between HRM and organizational culture a copious amount of research exists on the HRM-firm performance link. In addition, a number of empirical studies have also focused on the organizational culture-performance relationship. The relationship between comprehensive sets of HR practices and firm performance has been frequently demonstrated within the literature. Becker and Gerhart (1996) explain that HR decisions can influence organizational performance through increased efficiency or revenue growth.
Barney (1986) notes that increased firm performance is often attributed to higher profitability, while Bowen and Ostroff (2004) argue that increased motivation from employees leads to higher firm performance. A large number of empirical studies have been conducted on the relationship between HRM practices and firm profitability. Pfeffer (1995) identified a certain set of best practices which companies can implement to manage their employees. He argues that these practices are universal in nature, and will have a positive effect on organizational performance.
The implementation of HRM practices can contribute to firm performance by motivating employees to adopt desired attitudes and behaviours. They tend to unify people around shared goals which will shape and guide employee behaviour. In addition HCM practices are said to create an internal atmosphere where employees become highly involved in the organization and work hard to accomplish goals the firm sets. In his study of steel minimills, Arthur (1994) found that reward systems provided considerable motivation for employees, which in turn contributed to an increase in productivity.
His study also found that higher rewards contribute to a decrease in turnover among staff. Merit or incentive pay systems provide rewards for meeting specific goals; in turn employees will be motivated to achieve these goals (Delaney & Huselid, 1996). Koch and McGrath (1996) found that investment in recruitment and selection procedures was positively related to labour productivity. Their findings suggest that labour productivity is related to those proactive firms, those firms who plan for their future labour needs, and those that make investments in getting the ‘right’ people for the job.
In addition a number of claims have been made alleging that HRM practices can influence performance by impacting employees’ knowledge, skills and abilities. Practices fostering extensive training can be considered a source of competitive advantage, as they involve keeping employee’s skills and knowledge up to date. Training is said to have a positive impact on performance (Delaney & Huselid, 1996) by impacting dimensions such as product quality. In their study of 590 firms, Delaney and Huselid (1996) found positive associations between practices such as training and firm performance measures.
Pfeffer (1998) also conveys a link between training of employee’s and profits. Some scholars assert that HRM practices will lead to increased performance when there is a high level of fit between the practices and the organization’s strategy. This is commonly known as the configurational perspective of SHRM. This perspective maintains that an organization should implement HRM practices that are congruent with the firm’s strategy, and are consistent with one another. Two practices can work together to enhance each other’s effectiveness; consequently a powerful connection is formed (Delery, 1998).
The implementation of firm specific training programs combined with highly selective staffing practices can work together to generate a talented pool of employees with high productivity. It is therefore thought that HR practices which complement each other and the firm’s strategy will have a positive effect on organizational performance (Lengnick- Hall, Lengnick-Hall, Andrade, & Drake, 2009). Overall, there is a strong view in the literature that certain HRM practices lead to increased organizational performance.
However, studies on this relationship often differ as to the extent a practice is likely to be positively or negatively related to performance (Becker & Gerhart, 1996). Some scholars also express concern regarding the causality between this relationship; do empirical studies actually prove that HRM practices cause increased performance? It has been said that HRM practices are not the only factor which could affect a firm’s performance; many other organizational and environment factors could in fact be attributed to performance (Boxall & Purcell, 2000).
Barney (1986) developed the Resource Based View of the firm (RBV). He argued that certain organizational resources and capabilities can lead to a sustainable competitive advantage for the firm, and therefore can increase organizational performance through superior financial performance. Barney (1986) affirmed that a firm’s organizational culture can in fact be one of these resources. However, he asserts that not just any culture will lead to a competitive advantage; corporate culture must be valuable, rare, imperfectly imitable, and be of value to the entire organization.
If a company’s organizational culture meets these four criteria it has a better opportunity to be a source of sustained competitive advantage. In addition an appropriate HRM system can create and develop organizational capabilities which themselves become sources of competitive advantage (Lau & Ngo, 2004). For example, one of America’s most successful retailers, Nordstrom, attributes their success to its culture of customer service. This culture is seen as a unique, valuable and hard to imitate resource and has become a source of competitive advantage for the company (Carmeli & Tishler, 2004).
Since organizational cultures and HRM systems can be a valuable resource for companies they have a key role to play in the firm performance link. Conclusion This paper has focused around the concept of organizational culture. It has primarily explored the relationship and different views between HRM and culture. While a number of challenging views exist in regards to the HRM- culture link, it is commonly found that HRM practices influence organizational culture, by providing information to employee’s that impacts their assumptions, values and attitudes.
In addition, certain HCM practices are said to shape work force attitudes by framing employee’s perceptions about the organization; in turn leading to higher levels of job satisfaction, retention and motivation; all of which influence a firm’s performance. Furthermore, an organization’s strategy has been alleged to influence corporate culture indirectly through the implementation of HRM practices that help the organization attain their goals. Organizational culture has been considered a valuable resource for companies and could in fact lead to a competitive advantage for the firm.
While HRM has been argued to affect organizational culture, and in turn lead to firm performance we need to be wary of arguing that current evidence proves this relationship. There could, and probably are, a number of other organizational elements that provide a link between HRM and firm performance. More studies regarding the organizational culture and performance link need to be conducted before we can deduce this causality relationship. In saying this, organizational culture has been shown to be an important aspect of a firm, as it can, and does affect employee’s behaviours, motivation and value.