Farndale & Paauwe - SHRM and context: why firms want to be as
different as legitimately possible
Harvard model of HRM (= Beer et al):
● Describes how context (= stakeholders interests + situational factors)
influence → HRM policy choices → HRM outcomes → long term consequences
for firms, individuals, society
● Situational factor: aspects of the firms operating context
○ Eg: workforce characteristics, business strategy, management philosophy,
technology, labor markets, unions, societal values and legislation
Strategic balance theory:
● Balance between external + internal environment → need for leaders to
establish what they can and cant control in their environment
○ Need to be perceived as legitimate to access essential resources
○ Need to differentiate themselves to achieve sustainable competitive advantage
Strategic HRM SHRM:
● Organizational context, exists in:
○ 1) external environment (in which firm is operating = unions, market conditions,
labor markets, regulations, technologies)
○ 2) internal environment (= strategy, culture, prior history, structure)
Predicting performance + wellbeing:
● Mutual gains approach: both employees + employers benefit from HRM
○ By defining performance in a holistic concept of: firm financial performance +
employee wellbeing
○ Optimizes positive employment relationship
● Conflicting outcomes approach: HRM pays off in terms of firm performance but has
no/negative impact on employee wellbeing
○ So only outcome worked on is firm financial performance
● High performance work practices HPWP: increased return on assets,
decreased employee turnover → makes this managerially relevant
● Mediators: human capital + employee motivation
Contextually based human resource theory CBHRT:
● HRM cannot be understood as a stand-alone phenomenon → HRM is part of a
firm and the broader society/operating context
● Context: series of situational opportunities and constraints; what has preceded the
development of this system
Contextual strategic HRM framework:
● Model of interrelationships between HRM systems + the firms in which they are formed
, ○ 1) balance of performance outcome measurement of firm financial performance +
employee well-being
○ 2) context-centric perspective on origins + outcomes of systems
● Macro-level context: influences the formation of the SHRM system
● mezzo-/micro-level process: SHRM system is translated into various outcomes
at the employee level → affect macro-level through organizational + societal
level outcomes
● 3 broad contextual mechanisms:
○ 1) competitive mechanism: how a firm positions itself in the marketplace based
on it's products or services, competitors in the market and technology
■ Resource based view RBV: how firms build unique resources that lead to
the creation of valuable internal organizational capabilities (eg speed,
efficiency, innovation)
○ 2) institutional mechanism: based on social, political, cultural, legal,
regulatory aspects in the environment in which the firm is operating (=
norms + values + institutionalization) → these alter outcomes of
competitive mechanisms because they are part of the externalized
context
■ Neo-institutional theory: HRM system embedded in firm needs to
be legitimate within it's context in a specific organization → so
theres no one best way to do something in all contexts
● → need for external legitimacy: being compliant with
appropriate regulations + as a fair employer → to gain
access to necessary resources
○ 3) heritage mechanism: path dependency associated with the way in which a firm
has operated in the past, determining future activities
■ Can constrain or facilitate organizational activities
○ → in ideal situation all three mechanisms are aligned to be mutually
reinforcing
■ Open systems perspective: input-transformation-output (= if you think that
only these three mechanisms are prior to the outcome)
■ However: firms have multiple actors with their own desires,
abilities and agendas → creates the leeway
● Organization fit:
○ = achieving a stable link between one system and another
○ However: due to the world being dynamic → SHRM system needs to
balance fit + flexibility → to achieve sustained competitive advantage
■ So: achieving fit = short term success; dynamic fit = to cope with changes
to achieve long term success
Paauwe & Richardson:
● HRM outcomes: satisfaction, motivation, turnover
● Organization outcomes: productivity, customer satisfaction, sales, profit
,Black box:
● Definition: what are the mechanisms that help to explain the link between HRM practices
and policies on the one hand and organization performance on the other?
Paauwe & Farndale - Strategy, HRM, and performance
Chapter 5 - HRM and performance
Goal of article: can a focus on well-being + financial performance be achieved simultaneously or
are they competing goals
HRM = human resource management
● Two original models:
○ Harvard model:
■ Considered more of a broader stakeholder approach
○ Michigan school model:
■ Considered more functional, managerial approach to HRM
● HRM outcomes: eg satisfaction, motivation, turnover
● Organization outcomes: eg productivity, customer satisfaction, sales, profit
Association HRM + performance:
● Links how people are managed with organizational goals
● Linking HRM and performance according to Guest 1997:
HRM HRM HRM Behavior Performan Financial
strategy practices outcomes outcomes ce outcomes
outcomes
Differentiati Selection Commitme Effort/ High: Profits
on nt motivation Productivit
(innovation Training y, quality,
) innovation
Focus Appraisal Quality Cooperatio Return on
(quality) n investment
Rewards (ROI)
Cost (cost- Job design Flexibility Involveme Low:
reduction) nt absence,
labour
Involveme Organizati turnover,
nt onal conflict
citizenship customer
Status and complaints
security
● Performance outcomes (Dyer and Reeves 1995):
○ a) financial: eg profit, sales, market share, Tobins q, GRATE
■ Problem:
, ● Financial indicators can be influenced by many internal/external
organizational factors that have nothing to do with employee and
related skills, or human capital pool
● Distance between eg market value/profit and HRM can
bee too large, could be subject to other business
interventions (eg research and development, marketing
strategies, economic trends) → thats why we need HRM
indicators which are closer to the HRM practice
○ b) organizational: eg output measures such as productivity, quality, efficiency
○ c) HRM: eg employee attitudes and behaviors, such as satisfaction, commitment,
intention to quit
■ Objective: employee turnover + absenteeism
■ Subjective:
● Positive: commitment, trust in management, job satisfaction
● Negative: stress and job-home spillover
● Moves away from ‘personnel management’ → to managing people closer to
corporate strategy + business priorities
○ Requirements: more line management + more focus on HRM outcomes
(commitment, quality, flexibility → better job performance, less
absenteeism, less turnover → more cost-effective + competitive
advantage)
● Perspectives to study it from (individual-organizational levels):
○ Organizational behavior
○ Sociology
○ Economics
○ Industrial relations (IR)
● Challenges in studying field:
○ Missing elements
○ Inappropriate theorizing, regarding HRM & performance concepts
○ Lack of insight in underlying mechanisms/processes explaining why HRM
systems contribute to performance (= black box phenomenon)
■ Black box problem (Paauwe, 2015): what are the mechanisms that help
explain the link between HRM practices and policies on the one hand,
and organization performance on the other (or: an unclear mechanism
going on between the input and output of a relationship)
●
different as legitimately possible
Harvard model of HRM (= Beer et al):
● Describes how context (= stakeholders interests + situational factors)
influence → HRM policy choices → HRM outcomes → long term consequences
for firms, individuals, society
● Situational factor: aspects of the firms operating context
○ Eg: workforce characteristics, business strategy, management philosophy,
technology, labor markets, unions, societal values and legislation
Strategic balance theory:
● Balance between external + internal environment → need for leaders to
establish what they can and cant control in their environment
○ Need to be perceived as legitimate to access essential resources
○ Need to differentiate themselves to achieve sustainable competitive advantage
Strategic HRM SHRM:
● Organizational context, exists in:
○ 1) external environment (in which firm is operating = unions, market conditions,
labor markets, regulations, technologies)
○ 2) internal environment (= strategy, culture, prior history, structure)
Predicting performance + wellbeing:
● Mutual gains approach: both employees + employers benefit from HRM
○ By defining performance in a holistic concept of: firm financial performance +
employee wellbeing
○ Optimizes positive employment relationship
● Conflicting outcomes approach: HRM pays off in terms of firm performance but has
no/negative impact on employee wellbeing
○ So only outcome worked on is firm financial performance
● High performance work practices HPWP: increased return on assets,
decreased employee turnover → makes this managerially relevant
● Mediators: human capital + employee motivation
Contextually based human resource theory CBHRT:
● HRM cannot be understood as a stand-alone phenomenon → HRM is part of a
firm and the broader society/operating context
● Context: series of situational opportunities and constraints; what has preceded the
development of this system
Contextual strategic HRM framework:
● Model of interrelationships between HRM systems + the firms in which they are formed
, ○ 1) balance of performance outcome measurement of firm financial performance +
employee well-being
○ 2) context-centric perspective on origins + outcomes of systems
● Macro-level context: influences the formation of the SHRM system
● mezzo-/micro-level process: SHRM system is translated into various outcomes
at the employee level → affect macro-level through organizational + societal
level outcomes
● 3 broad contextual mechanisms:
○ 1) competitive mechanism: how a firm positions itself in the marketplace based
on it's products or services, competitors in the market and technology
■ Resource based view RBV: how firms build unique resources that lead to
the creation of valuable internal organizational capabilities (eg speed,
efficiency, innovation)
○ 2) institutional mechanism: based on social, political, cultural, legal,
regulatory aspects in the environment in which the firm is operating (=
norms + values + institutionalization) → these alter outcomes of
competitive mechanisms because they are part of the externalized
context
■ Neo-institutional theory: HRM system embedded in firm needs to
be legitimate within it's context in a specific organization → so
theres no one best way to do something in all contexts
● → need for external legitimacy: being compliant with
appropriate regulations + as a fair employer → to gain
access to necessary resources
○ 3) heritage mechanism: path dependency associated with the way in which a firm
has operated in the past, determining future activities
■ Can constrain or facilitate organizational activities
○ → in ideal situation all three mechanisms are aligned to be mutually
reinforcing
■ Open systems perspective: input-transformation-output (= if you think that
only these three mechanisms are prior to the outcome)
■ However: firms have multiple actors with their own desires,
abilities and agendas → creates the leeway
● Organization fit:
○ = achieving a stable link between one system and another
○ However: due to the world being dynamic → SHRM system needs to
balance fit + flexibility → to achieve sustained competitive advantage
■ So: achieving fit = short term success; dynamic fit = to cope with changes
to achieve long term success
Paauwe & Richardson:
● HRM outcomes: satisfaction, motivation, turnover
● Organization outcomes: productivity, customer satisfaction, sales, profit
,Black box:
● Definition: what are the mechanisms that help to explain the link between HRM practices
and policies on the one hand and organization performance on the other?
Paauwe & Farndale - Strategy, HRM, and performance
Chapter 5 - HRM and performance
Goal of article: can a focus on well-being + financial performance be achieved simultaneously or
are they competing goals
HRM = human resource management
● Two original models:
○ Harvard model:
■ Considered more of a broader stakeholder approach
○ Michigan school model:
■ Considered more functional, managerial approach to HRM
● HRM outcomes: eg satisfaction, motivation, turnover
● Organization outcomes: eg productivity, customer satisfaction, sales, profit
Association HRM + performance:
● Links how people are managed with organizational goals
● Linking HRM and performance according to Guest 1997:
HRM HRM HRM Behavior Performan Financial
strategy practices outcomes outcomes ce outcomes
outcomes
Differentiati Selection Commitme Effort/ High: Profits
on nt motivation Productivit
(innovation Training y, quality,
) innovation
Focus Appraisal Quality Cooperatio Return on
(quality) n investment
Rewards (ROI)
Cost (cost- Job design Flexibility Involveme Low:
reduction) nt absence,
labour
Involveme Organizati turnover,
nt onal conflict
citizenship customer
Status and complaints
security
● Performance outcomes (Dyer and Reeves 1995):
○ a) financial: eg profit, sales, market share, Tobins q, GRATE
■ Problem:
, ● Financial indicators can be influenced by many internal/external
organizational factors that have nothing to do with employee and
related skills, or human capital pool
● Distance between eg market value/profit and HRM can
bee too large, could be subject to other business
interventions (eg research and development, marketing
strategies, economic trends) → thats why we need HRM
indicators which are closer to the HRM practice
○ b) organizational: eg output measures such as productivity, quality, efficiency
○ c) HRM: eg employee attitudes and behaviors, such as satisfaction, commitment,
intention to quit
■ Objective: employee turnover + absenteeism
■ Subjective:
● Positive: commitment, trust in management, job satisfaction
● Negative: stress and job-home spillover
● Moves away from ‘personnel management’ → to managing people closer to
corporate strategy + business priorities
○ Requirements: more line management + more focus on HRM outcomes
(commitment, quality, flexibility → better job performance, less
absenteeism, less turnover → more cost-effective + competitive
advantage)
● Perspectives to study it from (individual-organizational levels):
○ Organizational behavior
○ Sociology
○ Economics
○ Industrial relations (IR)
● Challenges in studying field:
○ Missing elements
○ Inappropriate theorizing, regarding HRM & performance concepts
○ Lack of insight in underlying mechanisms/processes explaining why HRM
systems contribute to performance (= black box phenomenon)
■ Black box problem (Paauwe, 2015): what are the mechanisms that help
explain the link between HRM practices and policies on the one hand,
and organization performance on the other (or: an unclear mechanism
going on between the input and output of a relationship)
●
