The International Journal of Human Resource

Management

ISSN: 0958-5192 (Print) 1466-4399 (Online) Journal homepage: http://www.tandfonline.com/loi/rijh20

Training and firm performance in Europe:

the impact of national and organizational
characteristics

Irene Nikandrou , Eleni Apospori , Leda Panayotopoulou , Eleni T. Stavrou &

Nancy Papalexandris

To cite this article: Irene Nikandrou , Eleni Apospori , Leda Panayotopoulou , Eleni T. Stavrou &
Nancy Papalexandris (2008) Training and firm performance in Europe: the impact of national
and organizational characteristics, The International Journal of Human Resource Management,
19:11, 2057-2078, DOI: 10.1080/09585190802404304

To link to this article: http://dx.doi.org/10.1080/09585190802404304

Published online: 17 Nov 2008.

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 The International Journal of Human Resource Management,
Vol. 19, No. 11, November 2008, 2057–2078

Training and firm performance in Europe: the impact of national

and organizational characteristics
Irene Nikandroua*, Eleni Aposporia, Leda Panayotopouloua, Eleni T. Stavroub and
Nancy Papalexandrisa
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a
Department of Marketing and Communication, Athens University of Economics and Business, Athens,
Greece; bDepartment of Public and Business Administration, University of Cyprus, Nicosia, Cyprus
This study focuses on the relationship between training and development and performance.
It expands existing research on the subject by combining national and organizational factors
through a hierarchical linear model to explore the training and development and performance
relationship in 14 European countries. The main findings point out the importance of cultural,
institutional and organizational factors in analysing the relationship between training and
development and performance.
Keywords: Cranet; EU; firm performance; GDP; humane orientation; performance
orientation; training and development

Introduction
In a rapidly changing global marketplace, characterized by increased technological advancement,
organizations demand a more flexible and competent workforce to be adaptive and to remain
competitive. Thus, the demand for a well qualified workforce becomes a strategic objective. In turn,
an organization’s human resource training and development (T&D) system is a key mechanism in
ensuring the knowledge, skills and attitudes necessary to achieve organizational goals and create
competitive advantage (Peteraf 1993). The intensification of global competition and the relative
success of economies that give an emphasis to investing in training have resulted in the recognition
of the importance of training in recent years (Holden 1997). Indeed, at the turn of the twenty-first
century HR managers reported that one of the main challenges they faced involved issues of T&D
(Stavrou, Brewster and Charalambous 2004).
Many studies have found connections between various T&D practices and different
measures of organizational performance (for example, Delery and Doty 1996; Becker and
Huselid 1998). However, the majority of these studies have been conducted within single
countries (Tregaskis 1997; Ashton, Sung and Turbin 2000). Among the few studies that
highlight the importance of examining T&D practices in a European cross-national context are
Stavrou et al.’s (2004) and Apospori, Nikandrou, Brewster and Papalexandris’s (2008). In these
studies, however, T&D is not the focus but rather a small part of a large array of possible HR
practices used as a competitive tool. Differently from these studies, Cunha, Cunha, Morgado and
Brewster (2003) were the only ones who failed to support the significant impact of training on
firm performance, suggesting that a more detailed analysis of the relationship is needed.
Moreover, Apospori et al. (2008) found that there is a significant impact of training on firm
performance only in the southern European countries’ cluster.

*Corresponding author. Email: nikandr@aueb.gr

ISSN 0958-5192 print/ISSN 1466-4399 online

q 2008 Taylor & Francis
DOI: 10.1080/09585190802404304
http://www.informaworld.com
 2058 I. Nikandrou et al.

From the above discussion we can infer that extant research has hitherto ignored the possible
importance of national and organizational context combined to the T&D – performance
relationship. Yet, organizational, national or even supra-national factors can be key to the way
T&D is applied and its connections to performance: to illustrate, globalization and the increasing
interconnections among nations present new challenges for companies to expand, making T&D
very valuable. Also, culture is important because it influences the ways people work, think and
operate. Awareness of cultural dimensions can help HR managers in international business
develop and effectively manage T&D practices.
Therefore, in this study, we go a step deeper than extant research in examining specifically
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the relationship between T&D and firm performance directly and whether different national and
organizational environments make a difference: the objective of this study is not only to explore
whether the T&D – performance relationship is significant in the EU, but also whether it is
moderated by certain national and organizational factors. We construct a multi-level model in
which the relationship between T&D activities and performance is examined, taking into
account the role of organizational and national factors among 14 European countries.

T&D activities and firm performance

It can be argued that the quality of management contributes to explaining the performance of
a firm. To the extent that a training and development system contributes to producing ‘good’
managers, it can have a positive effect on performance. Different aspects of training have
been associated with firm performance. A number of studies have looked at the effect of
training on productivity and found evidence of a direct link between the two (Bartel 1994).
Furthermore, a direct correlation has been reported between increased training activities and
improvement in employee productivity, firm profitability and shareholder value in both the
short and long term. The percentage of trained employees has been found to affect
performance (Russell, Terborg and Powers 1985). However, other studies have failed to find
support for their hypotheses that spending on training, per se, has a significant impact on
organizational performance (Cunha et al. 2003).
In this study we examine the following T&D activities: training formalization, involvement
of HR department in T&D, emphasis on training (in terms of number of training days), training
needs analysis (TNA) and training evaluation. For training to be effective it must be used as a
strategic tool. In turn, training formalization, devolvement of training decisions to line managers
and emphasis on training are important elements reflecting the strategic role of the T&D function
(Schuler 2000; Mabey and Gooderham 2005). Moreover, according to Noe (2005), effective
training practices involve a systematic approach for developing training programmes with the
use of a training design process that starts with a training needs assessment and ends with
training evaluation. In this process, training needs analysis and training evaluation are significant
elements of effective training.

Training formalization
To ensure training effectiveness, training needs to be integrated with the strategic planning
of a business (Schuler 2000). The formalization of training and development is an indicator
of the relative importance of training within the organization (Garavan 1991), and it suggests
a systematic, rather than an ad hoc approach to T&D (Mabey and Gooderham 2005).
Moreover, companies with formalized strategic management emphasize and invest in
employee training and development activities (Arthur 1994; Jackson and Schuler 1995;
Tregaskis 1997).
 The International Journal of Human Resource Management 2059

HR involvement in T&D activities

If training is to be considered a strategic investment, line managers should be involved in policy
decisions for training and accept their responsibility in this area. T&D cannot be disconnected
from the business activities of the organization. On the contrary, this is the area that clearly
illustrates the decentralization and devolvement of human resource management responsibility
to line managers (Larsen 1994).

Training needs analysis (TNA) and training evaluation

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With high investments and allocation of resources to training, the need for documenting
the training needs and the return on investment in training costs has accelerated. Thus, analysing
training needs and measuring the effectiveness of training are important in ensuring that
strategic and training objectives are aligned. Further, with increased concern about costs in
organizations today, it is important that training justify expenses. A TNA provides a benchmark
(pre-measure) of the skills trainees have before training. This can be compared to a measure of
the skills acquired in training (post-measure). With pre- and post-measures, it is possible to
demonstrate the cost savings or value added as a result of training (Cascio 1991). TNA ensures
that training focuses on skills the trainees really need. When training is perceived as relevant, it
is more likely to create interest. In contrast, employees who are sent for training but do not need
it are not going to take the training seriously. A good TNA not only ensures that only those who
need the training are included, it also provides the data to show why the training is needed
(Blanchard and Thacker 1999).
In addition to the above, training evaluation provides the data needed to demonstrate the
benefits that training provides to the company. It is suggested that if an organization invests in
strategically oriented T&D, then some effort should be made to assess the results of T&D
interventions (Mabey and Gooderham 2005).
Thus, we propose that:
Hypothesis 1: T&D activities will be positively related to firm performance.
Training and development does not take place in a void, but within specific contexts. Many
studies highlight the importance of context in understanding human behaviour (for example, see
Ronen and Shenkar 1985; Whitley 1999; Hofstede 2001; Ignjatovic and Svetlik 2003; House,
Hanges, Javidan, Dorfman and Gupta 2004). In HRM, practices that are considered appropriate
in one context may be less appropriate in another (Youndt, Snell, Dean Jr. and Lepak 1996;
Ferris, Hochwarter, Buckley, Harrell-Cook and Fink 1999). One can distinguish different levels
to be included in the analysis. At the national level, cultural features, educational systems, legal
frameworks, institutional factors, economic structure and the political context are factors that
contribute to distinctive forms of HRM. At the level of sector of activity, characteristics such as
market growth, environmental complexity and dynamism affect organizational characteristics,
corporate and HR strategy and practices and thus firm performance. At the organizational level,
ownership, size, technology, cultural orientation and structural features are some of the factors
that influence HR activities and performance (Fombrun, Tichy and Devanna 1984; Delery and
Doty 1996).
Our model places HRM within the national context. We examine the interactions between
organizational level factors such as strategy formalization and T&D activities and firm performance
located within the external environment and interacting with it. In turn, the two levels of analysis in
our study include national and organizational-specific characteristics in 14 EU countries. When it
comes to national characteristics, we include two culture variables, namely performance and
humane orientation, and one institutional variable, the percentage of GDP spent for education. At the
 2060 I. Nikandrou et al.
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Figure 1. Variables and relationships used in the model.

organizational level, strategy formalization and strategic HRM are included to examine their
influence on T&D activities and firm performance. Size and sector of activity are used as controls to
firm performance. This multilevel model is presented in Figure 1.

National characteristics
Although cross-national studies on the HRM-performance relationship are few, scholars have
highlighted the importance of national culture when studying these issues (Sparrow and Hiltrop
1997; Brewster, Mayrhofer and Morley 2004). According to Jackson (2002), some cultural
assumptions underlie HRM: a prevailing example is the distinction between the hard and soft
approach appearing in the strategic HRM literature. The hard approach sees people in the
organization as a mere resource to achieve the goals of the organization, while the soft approach
views people more as valued assets capable of development (Tyson and Fell 1986; Hendry and
Pettigrew 1990). Jackson (2002) argues that this proposition rests on the concept of locus of
human value, and presents the instrumental and the humanistic view of the value of people in
organizations. He explains that, in the former view, human resources are seen as a means to an
end and are used to meet the objectives of the firm, while in the latter people are seen as having a
value for being who they are and the development of their potential is an end in itself.
The concept of locus of human value seems especially relevant when we discuss T&D. In this
study we use the results of the GLOBE project (House et al. 2004) to measure national culture.
We have used GLOBE because it is one of the most recent studies on culture and organizations
covering 62 societies. Out of the nine cultural GLOBE dimensions, we have chosen to examine
performance orientation and humane orientation, as possible moderators of the T&D and
firm performance relationship, because they are closer to the concept of locus of human value.
More specifically, performance orientation is similar to the instrumental view, and humane
orientation to the humanistic view.

Performance orientation
Performance orientation has been included as an important characteristic associated with
training in a number of studies (for example, Aycan 2003; House et al. 2004; Javidan 2004).
 The International Journal of Human Resource Management 2061

Table 1. Distribution of sample by country and performance, humane orientation and % of GDP on
education country rankings.
Performance Humane
Number of Percent of orientation orientation
organizations organizations % of GDP
Country (N) (%) Bands Means Bands Means on education
Austria 230 4.4 A 4.47 C 3.77 5.66
Denmark 520 10.0 B 4.40 B 4.67 8.39
Finland 290 5.6 B 4.02 C 4.19 6.12
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France 400 7.7 B 4.43 D 3.60 5.83

Germany 743 14.3 B 4.42 D 3.30 4.53
Greece 136 2.6 C 3.34 D 3.44 3.79
Ireland 446 8.6 A 4.30 A 4.96 4.36
Italy 79 1.5 C 3.66 D 3.66 4.57
Portugal 169 3.3 C 3.65 C 3.96 5.74
Slovenia 205 4.0 C 3.62 C 3.75 6.00
Spain 294 5.7 B 4.00 D 3.29 4.42
Sweden 352 6.8 B 3.67 C 4.09 7.39
The Netherlands 234 4.5 A 4.46 C 4.02 4.87
UK 1,091 21.0 B 4.16 C 3.74 4.58
TOTAL 5,189 100.0

The performance orientation dimension, according to the GLOBE scale, measures the extent
to which a community encourages and rewards innovation, high standards and performance
improvement (Javidan 2004). According to their performance orientation score, countries have
been assigned to a band. Countries with high performance orientation score have been grouped
in band A, countries with average score have been grouped in band B, and countries with low
score have been grouped in band C. Table 1 presents the country rankings in bands.
Performance-oriented societies tend to value those individuals and groups that produce results
and accomplish their assignments. These societies value training and development, believe that
individuals are in control and view feedback as necessary for improvement; differently, low
performance-oriented societies are characterized by social and family relations, loyalty, tradition
and seniority (Javidan 2004). Aycan (2003) supports that cultures with emphasis on performance
excellence show systematic application of T&D activities and base their training needs analysis
on performance outcomes. Indeed, the GLOBE analyses show a significant and strong positive
relationship of societal and organizational performance orientation practices (House et al. 2004).
Therefore:
Hypothesis 2: Performance orientation will moderate the relationship between T&D activities
and firm performance: the higher the performance orientation, the stronger the
relationship between T&D and firm performance.

Humane orientation
The humane orientation cultural dimension is defined as the degree to which a society
encourages and rewards individuals for being fair, altruistic, friendly, generous, caring and kind
to others (House et al. 1999). Countries with high humane orientation score have been grouped
in band A, while countries with low score have been grouped in band D. Table 1 presents the
country rankings in bands for this dimension. The societal humane orientation dimension is not
significantly related to any of the measures of economic health: economic prosperity, economic
 2062 I. Nikandrou et al.

productivity, societal support for economic competitiveness, and the Competitiveness Index
(Javidan, House and Dorfman 2004). According to the GLOBE findings, economically developed
countries report lower humane orientation (Kabasakal and Bodur 2004). Kabasakal and Bodur
(2004) support the view that the humane orientation construct has important implications for the
international HRM, as multinationals need to understand the level of humane orientation that exists
in various cultures. This may affect the way HRM practices are enacted in each country. In highly
humane-oriented cultures, the emphasis is on relationships; people in authority are expected to
provide social support by taking care of subordinates and employees’ problems (Kabasakal and
Bodur 2004). Thus, training decisions are more likely to be based on more informal developmental
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criteria not connected to performance or formal regulations. In contrast, ‘in the less humane-oriented
societies, social control is based on bureaucratic practices; formal relationships and standardized
consideration such as formalized procedures are common’ (Kabasakal and Bodur 2004, p. 596).
The strong positive relationship of societal and organizational humane orientation scales indicate
that humane oriented societies foster humane oriented organizations (House et al. 2004) and by
extension may place less emphasis on the T&D–performance relationship. Thus:
Hypothesis 3: Humane orientation will moderate the relationship between T&D activities and
firm performance: the higher the humane orientation, the weaker the relationship
between T&D and firm performance.

Expenditure on education as a percentage of GDP

In addition to cultural issues, national spending on training may influence the T&D –
performance relationship at the organizational level. Brewster (1995) supports the view that
GDP expenditure on labour market development programmes helps shape the skill levels in
the labour markets on which organizations rely. As the percentage of GDP on education
increases, it is expected that both the formal educational attainment and the supply of skilled
workers increase. Higher GDP on education may result in less workplace training. For
instance, Sharpe (1990) reports that low levels of workplace training have been attributed to
high levels of public expenditure on education. Moreover, in countries where the formal
education system is not satisfactory to prepare the workforce, there is a substantial investment
in organizational T&D (Aycan 2003). However, the possible effect of expenditure on
education on the T&D – performance relationship is not clear: would this relationship weaken
or strengthen with more expenditure on education and visa versa? Even though such moderation
has not been studied before, it would seem that the T&D–performance relationship would weaken
with increased expenditure on GDP for education since organizational T&D would be less important
and in turn benefits acquired from it, including performance benefits, would be decreased.
Therefore, we propose:
Hypothesis 4: Expenditure on education as a percentage of GDP will moderate the relationship
between T&D activities and performance: the higher the expenditure on
education, the weaker the relationship between T&D and firm performance.

Organizational characteristics
At the organizational level, training has been linked to both corporate strategy and
organizational performance: training must be aligned to corporate strategy in order to result
in high organizational performance (Delery and Doty 1996). The existence of strategic
formalization helps organizations analyse and perform more effective internal and external
 The International Journal of Human Resource Management 2063

environmental scanning. The degree of corporate planning formality has been positively
correlated with organizational performance (Lyles, Baird, Orris and Kuratko 1993): clearly
defined mission statements and corporate strategies are parts of the strategic planning process
that contribute to the development of specific functional strategies needed to achieve business
goals. Strategy formulation affects the development of HR strategies needed to attract and
retain the human capital required for competitive advantage (Poole and Jenkins 1996).
Strategic planning focuses on improving the quality of the decision-making process: giving
greater emphasis to goal formulation, developing distinctive competencies, deploying
resources and monitoring implementation. It is expected that the degree of corporate strategy
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formalization will have a positive influence on the relationship between T&D and
organizational performance:
Hypothesis 5: Strategy formalization will moderate the relationship between T&D activities
and firm performance: The higher the strategy formalization the stronger the
T&D –performance relationship.
Strategy formalization needs to be aligned with strategic HRM: the application of the
adjective strategic to HRM implies a concern with the ways in which the function is critical to
organizational effectiveness (Boxall and Purcell 2000). The relevant literature evolves around
two concepts. The first is the involvement of HRM in corporate strategy, a sign of which is the
participation of the head of the HR function in the main board of the firm. This indicates
involvement in corporate strategy formulation and decision-making, and underlines the
organization’s choice to build competitive advantage through human capabilities (Becker and
Gerhart 1996). The second is the formalization of the HRM strategy. Research shows that
organizations with a formalized HRM strategy have a higher probability of adopting practices in
line with high performance work systems than those with informal HR strategy (Tregaskis
1997). Mabey and Gooderham (2005) found an overwhelming explanation of variance in
performance occurring due to the strategic role of HRM. Our hypothesis is that the strategic role
of the HR function will positively affect the development of T&D activities needed to provide,
obtain and improve the necessary skills to respond to the business needs and in turn
performance. Therefore we propose:
Hypothesis 6: Strategic HRM will moderate the relationship between T&D activities and firm
performance: the more strategic the HRM, the stronger the T&D – performance
relationship.

Methodology
Sample
The sample came from the 1999 Cranet survey, which provides comprehensive
organizational information on HRM in countries around the world. The survey is organized
around six sections covering the human resource function, staffing, employee training and
development, compensation and benefits, employee relations and communication, and
organizational details (Brewster et al. 2004). The same data collection instrument has been
used in all the participating countries; the response rate, over 22%, is satisfactory according
to research standards for postal surveys. In particular, the present study used data from 14
EU member countries that participated in the Cranet survey (see Table 1); the final sample
consists of 5,189 organizations. The mean size of the firms is 1,180 and the median 450.
The rest of the EU countries in the survey were not included because they have not
 2064 I. Nikandrou et al.

participated in the GLOBE project, therefore we had no indicators of societal culture aspects
for them.

Measures

. Training formalization (TRFORM) is measured by two questions; the first is about the
existence and degree of formalization of training policy in the organization and the second is
about the existence and degree of formalization of management development policy in the
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organization. Both questions were measured on a 3-point scale (0–2). Training formalization
has been formed by adding the answers on the two questions; the new variable ranges from 0
(no policy at all) to 4 (written policies for both training and management development).
. HR involvement in T&D (HRINV) is measured by one variable asking who is primarily
responsible for important policy decisions on training (1 ¼ Line managers and 4 ¼ HR dept).
. Employee training (EETR) is a construct that shows the emphasis of firms on training
measured by the number of days a) managers, b) professional, c) clerical and d) manual
employees spend on training. The EFA formed the construct of employee training (EETR).
The reliability of the scale is very good (a ¼ .798) and the loadings are substantially and
statistically significant (CFA).
. Training needs analysis (TNA) is a construct that shows the overall emphasis of the firm on
the analysis of the training needs. It consists of six variables. A representative sample of the
indicators are the variables that measure how often the firms use: a) analysis of projected
business/service plans; b) training audits; c) line management requests; d) performance
appraisal; and e) employee requests, in order to evaluate their employees’ training needs
(0 ¼ never 1 ¼ some times 2 ¼ often, 3 ¼ always). The exploratory factor analysis (EFA)
performed on the six indicators form the construct training needs analysis (TNA).
The reliability of the scale is very good (¼.870) and the loadings are substantially and
statistically significant (CFA).
. Training evaluation (TREV) is a construct that shows the emphasis of firms on the evaluation
of training programmes. The construct consists of seven observed variables. A sample of the
variables used are those that measure whether or not the systematic evaluation is based on:
a) learning; b) behaviour; c) results; and d) employee reaction to the programme. The EFA
formed the construct of Training Evaluation (TREV); the reliability of the scale is very good
(a ¼ .840) and the loadings are substantially and statistically significant (CFA).
. Performance orientation (PERFOR) and Humane orientation (HUMOR) are two measures
of national context; they are taken from the GLOBE study (House et al. 1999) and measure
society’s practices on performance and relationships; higher scores on performance
orientation indicate cultures with greater emphasis on performance; higher scores on
humane orientation indicate cultures with greater emphasis on relationships. The aggregate
scores (means) used for each of the countries included in the study have been calculated by the
GLOBE study and are based on a number of indicators (House et al. 1999). See also Table 1
for country scores and rankings.
. The percent of GDP spent on education (GDPEDUC) is another measure of the national
context for each of the countries in the study indicating the degree of emphasis a country gives
on education; the measure was taken from Eurostat (UNECE 2005). See also Table 1 for
country scores and rankings.
. Strategy formalization (STRFORM) is measured by two questions; the first is about the
existence and degree of formalization of a mission statement in the organization and
the second is about the existence and degree of formalization of corporate strategy. Both
 The International Journal of Human Resource Management 2065

questions were measured on a 3-point scale (0–2). Strategy formalization has been formed by
adding the answers on the two questions; so the new variable ranges from 0 (no mission
statement and no corporate strategy) to 4 (written mission statement and written corporate
strategy).
. Strategic HR management (STRHR) is measured by three indicators; a sample indicator is the
extent to which the head of HR is involved in corporate strategy (0 ¼ does not participate,
4 ¼ from the outset). The exploratory factor analysis (EFA) performed on the three indicators
form the construct Strategic HRM (STRHR). Since the reliability of the scale was not very
high (a ¼ .669), further confirmatory factor analysis (CFA) showed that the loadings are
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substantially and statistically significant (Long 1983).

. Firm performance (PERCPERF) is measured by five variables measuring perception of
performance. A sample of representative indicators are the variables that measure perception
of profitability and rate of innovation of the organization (1 ¼ among lower 50%, 2 ¼ among
higher 50%, 3 ¼ among top 10% of organizations). The EFA formed the construct of firm
performance (PERCPERF). The reliability of the scale is very good (a ¼ .816) and the
loadings substantially and statistically significant (CFA) (Table 2). The concept of
organizational performance has been operationalized in different ways in the relevant
empirical research. Both objective and subjective indicators have been used to measure the
concept (Paauwe 2004). However, using objective indicators of firm performance in a cross-
cultural/cross-national study runs the risk of giving biased estimates. Cultural differences
between national long-term and short-term orientations and different tax and fiscal regimes
may bias objective firm performance measures such as financial statements and make them
non-comparable (Lahteenmaki and Vanhala 1998). Finally, Pearce, Robbins and Robinson
(1987) validated measures of perceived firm performance finding they were correlated with
objective measures.
. Organizational size (SIZE) is a single indicator measuring the log of the total number of
employees of the organization (to reduce the skewness) and along with sector (SECTOR)
(1 ¼ manufacturing, 2 ¼ services) are used as controls for firm performance at the
organizational level.
The descriptives of all the measures just described are shown in Table A1, and the results of
factor analyses conducted are reported in Table A2 of the Appendix.

Method of analysis
The present study uses hierarchical linear modelling for the analysis of the multi-level
data. The general idea behind this method is that organizations in the same country are more
similar than organizations from different countries. Thus, organizations are nested in groups, in
terms of some measures. Hierarchical linear models (HLM) use nested regression equations to
investigate associations between variables at different levels. HLM describes relationships
between variables within a hierarchically different data set. To draw a parallel between ‘traditional’
moderation and HLM, both consider the effect of a predictor variable on the outcome variable
under the different level of a moderator; however in HLM, the moderators are not in the same
level with the predictors (Hofmann and Gavin 1998; Raudenbush and Bryk 2002).
Please refer to the Appendix for a detailed description of the HLM model used. Because in
Level 2 analysis (national level) the number of observations is small (only 14 countries)
estimates with the p values equal or less than 0.20 are considered acceptable as statistically
significant (Sun, Aryee and Law 2007)
 2066 I. Nikandrou et al.

Table 2. Perceived performance as a function of T&D practices with national and organizational level
moderators.
Coefficients
Fixed effects
Intercept g00 1.42#
Performance orientation g01 20.04
Sector g10 20.33***
Size(log) g20 0.00
Strategy formalization g30 0.25†
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Strategy formalization £ Humane orientation g31 20.06†

Strategic HRM g40 0.24
Training formalization g50 20.16
Training formalization £ Humane orientation g51 20.07
Training formalization £ Performance orientation g52 20.06
Training formalization £ GDP on education g53 0.03#
HR involvement g60 20.39
HR involvement £ Humane orientation g61 0.07
HR involvement £ Performance orientation g62 0.01
HR involvement £ GDP on education g63 0.01
Training Needs Analysis (TNA) g70 20.30
TNA x Humane orientation g71 20.02
TNA x Performance orientation g72 0.15†
TNA x GDP on education g73 0.01
Training evaluation g80 0.71
Training evaluation £ Humane orientation g81 20.06
Training evaluation £ Performance orientation g82 0.04
Training evaluation £ GDP on education g83 20.03
Employee training g90 20.78
Employee training £ Humane orientation g91 0.12†
Employee training £ Performance orientation g92 0.01
Employee training £ GDP on education g93 20.04#
Strategy formalization £ Training formalization g10.0 0.01
Strategy formalization £ HR involvement g11.0 0.00
Strategy formalization £ TNA g12.0 20.02
Strategy formalization £ Training evaluation g13.0 0.05#
Strategy formalization £ Employee training g14.0 0.04*
Strategic HRM £ Training formalization g15.0 20.05†
Strategic HRM £ HR involvement g16.0 0.01
Strategic HRM £ TNA g17.0 20.01
Strategic HRM £ Training evaluation g18.0 0.05
Strategic HRM £ Employee training g19.0 0.02
Random effects
Intercept t0 0.05***
Strategy formalization t3 0.04*
Strategic HRM t4 0.06 þ
Training formalization t5 0.08*
HR involvement t6 0.01#
Training needs analysis (TNA) t7 0.02*
Training evaluation t8 0.18*
Employee training t9 0.02
Strategy formalization £ Training formalization t10 0.01#
Strategy formalization £ HR involvement t11 0.00
Strategy formalization £ TNA t12 0.00#
Strategy formalization £ Training evaluation t13 0.01#
Strategy formalization £ Employee training t14 0.00
 The International Journal of Human Resource Management 2067

Table 2 – continued

Coefficients
Strategic HRM £ Training formalization t15 0.00
Strategic HRM £ HR involvement t16 0.00
Strategic HRM £ TNA t17 0.01#
Strategic HRM £ Training evaluation t18 0.01#
Strategic HRM £ Employee training t19 0.00
Residual s1 0.79***
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Notes: ***p , 0.001; **p , 0.01; *p , 0.05; †p , 0.10; #p , 0.20.

Results
First we conducted Pearson correlations (see Tables A3 and A4 of the Appendix) in order to
acquire a broad idea of the bivariate relationships between the variables of our study. We found
significant relationships between firm performance and sector, strategic formalization, strategic
HR, training evaluation and employee training. Therefore, we proceeded to the HLM analyses
reported below.
We have used sector and size as controls for firm performance. Sector was found to be
significantly related to firm performance (g10 ¼ 2 .333); that is the service sector reports lower
levels of performance than the manufacturing sector. Size does not seem to be associated with
firm performance.
None of the T&D activities were found to have any significant relationship (g50, g60, g70, g80,
g90) with firm performance (see Table 2); in that sense the data do not support Hypothesis 1.
However, performance orientation moderates the relationship between training needs analysis
(TNA) and firm performance (g72 ¼ .150). The higher the performance orientation, the stronger
the relationship between TNA and firm performance; this finding partially supports Hypothesis 2.
For none of the other T&D activities does performance orientation have a moderating role.
Humane orientation was not found to moderate any of the relationships between T&D
activities and firm performance (g51, g61, g71, g81, g91); therefore, the data do not support
Hypothesis 3. Expenditure on education moderates the relationship between training
formalization and firm performance, but not in the hypothesized direction (Hypothesis 4): the
higher the expenditure on education, the stronger the training formalization – firm performance
relationship (g53 ¼ .034). On the other hand, expenditure on education moderates the effect of
employee training on firm performance as expected in a negative way: in countries that spend
more on education, employee training has a negative effect on firm performance, while in
countries that spend less on education, employee training has a positive effect on firm
performance (g93 ¼ 2 .037).
With regard to the moderating effect of strategy formalization on the T&D – performance
relationship (Hypothesis 5), we observe that for two of the T&D activities the data support the
hypothesis. Training evaluation has a stronger positive effect on firm performance in
organizations with higher levels of strategy formalization than in organizations with lower levels
(g13,0 ¼ .050). Also, employee training has a stronger positive effect on firm performance in
organizations with higher levels of strategy formalization than in organizations with lower levels
(g14,0 ¼ 0.044).
With regard to the moderating effects of strategic HR on the T&D –firm performance
relationship (Hypothesis 6), the data showed that in organizations with more strategic HR,
the relationship between training formalization and firm performance is negative
 2068 I. Nikandrou et al.

(g15,0 ¼ 2 0.05), while for organizations with less strategic HR the relationship between training
formalization and performance is positive.
Sigma squared was .805, meaning that the organizational level variables explain almost
20% of the variance of the outcome variable. The residual variability – that is the unexplained
variability of b00 after the introduction of Level 2 variables in the model – of the specified model
at Level 2 was t00.cond ¼ .038; The unconditional variability – that is the unexplained variability
of b00 before the introduction of Level 2 variables in the model – was t00.uncod ¼ .045.
Therefore, the model – Level 2 variables – accounted for ((.045 2 .038)/.045 ¼ .155) 15.5% of
the total parameter variance among the countries in mean levels of the perceived performance
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(Raudenbush and Bryk 2002).

Discussion
We have developed and tested a model of T&D and performance among 14 EU member states,
in order to examine whether the direct relationship between T&D and firm performance is
significant and whether it is affected by national and organizational factors. Contrary to extant
research (Russell et al. 1985; Bartel 1994), our findings fail to support, like Cunha et al (2003),
a direct relationship between T&D and firm performance. Even though at the bivariate level,
firm performance is significantly related with training evaluation and employee training, this
significance no longer holds at the multivariate level, suggesting that when all the other factors
are taken into consideration training and development variables are no longer contributing to
performance over and above the rest.
Several explanations may account for this result. First, this may be due, in part, to the data
used. In particular, our measure of firm performance is an aggregate measure. Individual indices
of firm performance, such as employee productivity, profitability and shareholder value, could
reveal consistently significant relationships. A second explanation may lie in the fact that the
effects of training on firm performance can become more visible and persistent in the long-run
and not in cross sectional studies like ours (Cunha et al. 2003). A third explanation may have to
do with mediating HR variables: horizontal fit, that is internal consistency of HR practices may
reveal an indirect relationship of T&D and firm performance. To illustrate, Apospori et al.
(2008) have found no direct relationship of T&D and firm performance for northern European
countries. However, they report that in northern countries, companies emphasizing performance
management have a significant impact on firm performance, while at the same time they are
more likely to invest in training. Finally, this lack of significance may be also due, in part, to the
inclusion of organizational and national level measures, neglected in other studies, which were
found to moderate the relationship between certain T&D activities and firm performance. In such
a case, our findings support the importance of studying the socio-cultural and organizational
context in which the T&D –performance relationship may take place.
At the national level in particular, performance orientation was found to moderate
the relationship between training needs analysis (TNA) and firm performance: the higher the
performance orientation, the stronger the relationship between TNA and firm performance. This
finding supports the role of TNA in the effective training design process among countries that place
an emphasis on results. Conducting a TNA is used to determine whether training is necessary
(Noe 2005). TNA is the first step in the training design process. The goal of needs assessment is to
uncover the performance problem, who is affected and how, and what results are to be achieved by
training. The deliverables of TNA are important inputs for the design, development, implementation
and evaluation of training programmes (Rothwell and Kazanas 2004). While some researchers
criticize TNA as being time-consuming in an age of dynamic change (Lee and Owens 2001), other
academics and training practitioners emphasize the necessity of needs assessment, especially when
 The International Journal of Human Resource Management 2069

time and resources are at a premium (Rossett 1999). Our findings support the view that the cultural
dimension of performance orientation is significant in identifying and enacting training needs
analysis as an acceptable and effective practice, which contributes to positive firm results.
Furthermore, GDP expenditure on education plays an important role as a moderator in
the relationship between employee training, training formalization and firm performance.
In countries that spend more on education, less employee training results in higher firm
performance. As was expected, in these countries the supply of skilled employees decreases the
need of organizational training, as public institutions assume the responsibility for training to a
great extent (Sharpe 1990). On the other hand, in countries that spend less on education, more
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employee training results in higher firm performance, showing that the gap in skill levels
obtained by the public educational system is expected to be filled by the organization (Aycan
2003). So, if firms want to increase their performance, they need to take into account the national
levels of expenditure on education and align them with organizational-level training. In addition,
expenditure on education moderates the relationship between training formalization and firm
performance: in countries that spend more on education, more training formalization results in
higher firm performance. Possibly, as the supply of skilled employees increases, training needs
to be more formalised, thus strategically aligned, in order to produce results. Therefore, higher
national expenditure on education should go hand in hand with higher training formalization if
firms want to increase their performance.
The only national-level variable that was not a significant moderator to the relationship
between T&D and firm performance was humane orientation. Possibly, no distinction needs to
be made between more and less humane oriented cultures in relation to T&D and performance.
Further investigation is needed to help us better understand the lack of significance in
moderation.
At the organizational level of analysis, the degree of formalization of the organizational
strategy was found to have significant moderating effects on the T&D –firm performance
relationship, in line with previous research findings (Apospori et al. 2008). In particular, more
training evaluation and employee training result in higher firm performance in organizations
with higher levels of strategy formalization. Clearly defined mission statements and corporate
strategies contribute to the development of specific functional strategies needed to achieve
business goals. In this framework, training evaluation seems to be an important tool monitoring
whether the development of the human capital is in line with the strategic needs of the firm,
contributing to firm performance. This result is in accordance with previous findings associating
the degree of planning formality to organizational performance (Lyles et al. 1993).
With regard to the moderating effects of strategic HR on the T&D –firm performance
relationship, the data showed that for organizations with less strategic HR, training formalization
results in higher firm performance. This finding may seem surprising. However, we could offer
two possible explanations. First, it might be that in cases where HRM is not strategic, training
formalization, reinforces training’s strategic alignment, substituting for the strategic role of the
HR function. Second, even in cases where the HRM role is strategic, the need for flexibility in
T&D practices is increasing. This is in part due to the new forms of organizational structures that
are characterized by diversification, divisionalization, decentralization and divestment, causing
difficulties in the implementation of a formalized T&D strategy or achievement of coherence
among different business unit policies (Woodall and Winstanley 1998). In line with the above,
Woodall and Winstanley (1998, pp. 23– 24) argue that ‘tension often arises between the need for
management development identified by the strategic business unit, and those identified at
divisional or corporate level’. Moreover, in more decentralized and diversified structures less
formal T&D procedures are used resulting in quicker adjustment to specific conditions, and thus
higher firm performance.
 2070 I. Nikandrou et al.

Conclusions
In a special issue of Human Resource Management, Pucik (1997) presents the main reasons for
which the HR function is perceived as an obstacle to globalization. He talks about the
ethnocentric and parochial HR systems and policies that focus on a single country, and argues on
the importance of developing a global mindset for HRM, by recognizing and valuing cultural
differences. The present article can add to this understanding by including national and
organizational characteristics in the study of the relationship between T&D and firm
performance. This is the first study to examine the impact of various organizational and country-
level factors on the relationship between T&D and firm performance. Indeed, our model
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attempts to unravel the importance of national and organizational factors, thus providing a more
nuanced explanation of the role of context on the practice of T&D and its relation to firm
performance. It expands on the existing literature by constructing a hierarchical linear model of
T&D and performance in 14 European countries (Brewster 1995; Delery and Doty 1996).
The implications for HR and training managers are associated with the expansion of T&D policy
and practice in foreign subsidiaries of MNCs and the need to recognize the relevance of national
factors affecting their implementation.
From our analysis certain conclusions can be drawn. First, our results point to the importance
of national characteristics for the training process. In particular cultural (performance
orientation) and institutional (percentage of GDP spent for education) factors were found to
moderate the relationship between T&D and firm performance. MNCs operating subsidiaries in
foreign countries, where the quality of the human capital is developed through the national
educational system, should emphasize training formalization which should serve as a guide for
implementing selected training interventions. Moreover, in international contexts where
performance orientation is high, training managers should develop a systematic approach to
training through careful TNA. They should consider all the available TNA tools, such as training
audits, business plans, performance appraisals and employee and management requests.
Certain limitations have been identified in our research. First, the model has examined only
two, among several, culture-specific characteristics, namely performance- and humane-
orientation. Future research should examine the effect of other cultural dimensions to the T&D –
performance relationship. Second, other sector-specific characteristics, such as environmental
complexity, dynamism and munificence can be considered as moderators in T&D – firm
performance relationship. Since non-European countries also participate in Cranet, academic
research and management practice can benefit from the application of the proposed model to
different geographical areas to test for differences and similarities. Third, firm-specific
characteristics may be applied to explore what Wright, Gardner and Moynihan (2003) call, the
number of ‘boxes’ intervening between T&D and performance. Moreover, examining
the alignment of T&D with other HR practices may reveal significant paths to achieve superior
performance. Finally, in our analysis we have not differentiated between internal and external
training. Future research should examine the possibly different effects of internal and
external training on firm performance, as well as the role of cultural characteristics on the design
of T&D activities.
In summary, training and developing human capital is one of the most important challenges
that European organizations face (Stavrou et al. 2004). Employee T&D is of vital importance to
European organizations due to the demand for new and increasingly complex skills, increased
global competition, changes in technology or changes in organizations’ structures (Sparrow and
Hiltrop 1997). Researchers, HR professionals and policy-makers still have a long way to go
before completing the puzzle and ‘proving’ the importance of training and development to
performance, but at least steps are being taken to increase our understanding of this relationship
 The International Journal of Human Resource Management 2071

and what it takes to improve it. Our study has added its own piece to this puzzle, therefore
the valuable insights that such an attempt provides should encourage further investigation of the
issues outlined in this study.

Acknowledgements
This research was supported in part by a University of Cyprus grant on HRM and Competitiveness. We
would like to thank our many Cranet colleagues for allowing us to use their country data, as well as the
anonymous reviewers for their constructive comments on an earlier version of this paper.
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Appendix: HLM: The basic model

The first level (the organization level in our study) of an HLM in its linear form is a simple regression equation,
Yij ¼ b0j þ b1jX þ rij where Yij is the response variable that is observed in a group j. Because the response
variable Y is nested within the j groups, the residuals are correlated and cannot be assumed to be independent.
To correct for this aggregation in HLM, the first level relationships are modelled around the intercept and the
slope of the j ¼ 1 . . . .J level 2 groups; this results in j different regression equations. To obtain an overall
estimate of the relationships between the predictors and the response variable, HLM uses the j level 1
regression coefficients to the following level 2 regressions, b0j ¼ g00 þ g01Wj þ u0j and b1j ¼ g10 þ g11Wj
þ u1j where g00 and g10 are the level 2 coefficients for the intercept and slope respectively of these level 2
regression models. Wj is a level 2 predictor; the level 2 random effects u0j and u1j are assumed to be distributed
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as multivariate normal with zero mean and variances of t00 and t11 (McMahon and Diez, 2007).
In this study the level 1 and level 2 models are described below:

Outcome/response: Perceived performance (PERCPERF)

Level 1 model

YðPERCPERFÞ ¼ b0 þ b*1 ðSECTORÞ þ b*2 ðSIZEÞ þ b*3 ðSTRFORMÞ þ b*4 ðSTRHRÞ

þ b*5 ðTRFORMÞ þ b*6 ðHRINVÞ þ b*7 ðTNAÞ þ b*8 ðTREVÞ þ b*9 ðEETRÞ

þ b*10 ðSTRFORMÞ* ðTRFORMÞ þ b*11 ðSTRFORMÞ* ðHRINVÞ

þ b*12 ðSTRFORMÞ* ðTNAÞ þ b*13 ðSTRFORMÞ* ðTREVÞ

þ b*14 ðSTRFORMÞ* ðEETRÞ þ b*15 ðSTRHRÞ* ðTRFORMÞ

þ b*16 ðSTRHRÞ* ðHRINVÞ þ b*17 ðSTRHRÞ* ðTNAÞ þ b*18 ðSTRHRÞ* ðTREVÞ

þ b*19 ðSTRHRÞ* ðEETRÞ þ r

Level 2 models
b0 ¼ g00 þ g01*(PERFOR) þ u0
b1 ¼ g10
b2 ¼ g20
b3 ¼ g30 þ g31*(HUMOR) þ u3
b4 ¼ g40 þ u4
b5 ¼ g50 þ g51*(HUMOR) þg52*(PERFOR) þg53*(GDPEDUC) þ u5
b6 ¼ g60 þ g61*(HUMOR) þg62*(PERFOR) þg63*(GDPEDUC) þ u6
b7 ¼ g70 þ g71*(HUMOR) þg72*(PERFOR) þg73*(GDPEDUC) þ u7
b8 ¼ g80 þ g81*(HUMOR) þg82*(PERFOR) þg83*(GDPEDUC) þ u8
b9 ¼ g90 þ g91*(HUMOR) þg92*(PERFOR) þg93*(GDPEDUC) þ u9
b10 ¼ g10.0 þ u10
b11 ¼ g11.0 þ u11
b12 ¼ g12.0 þ u12
b13 ¼ g13.0 þ u13
b14 ¼ g14.0 þ u14
b15 ¼ g15.0 þ u15
b16 ¼ g16.0 þ u16
b17 ¼ g17.0 þ u17
b18 ¼ g18.0 þ u18
b19 ¼ g19.0 þ u19
 The International Journal of Human Resource Management 2075

Table A1. Descriptive statistics for the variables used in the study.

N Mean SD Minimum Maximum

Level 1 variables
Sector 5,088 1.54 0.50 1.00 2.00
Size 5,185 1,791.00 6,784.91 200.00 154,496.00
Strategy formalization 5,189 3.28 1.13 0.00 4.00
Strategic HRM 5,189 0.00 1.00 22.63 1.15
Training formalization 5,189 2.43 0.71 0.00 4.00
HR involvement 5,189 2.53 0.85 1.00 4.00
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Training Needs Analysis (TNA) 5,189 0.00 1.00 23.83 1.92

Training evaluation 5,189 0.00 1.00 21.70 2.00
Employee training 5,187 0.00 1.00 22.30 4.71
Firm performance 5,189 0.00 1.00 22.91 1.61
Level 2 variables
Performance orientation 14 4.04 0.39 3.34 4.47
Humane orientation 14 3.89 0.48 3.29 4.96
GDP on education 14 5.45 1.28 3.79 8.39
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Table A2. Results of factor analyses.

Indicators Construct Loadings T-values

HR head on board Strategic HR 0.54 –
management (STRHR)
HR strategy 0.52 10.31
HR head in corporate strategy 0.68 8.74
Firm analyses employees’ training needs Training Needs Analysis (TNA) 0.81 44.14
Firm uses the following to evaluate their employees’ training needs: 0.57 –
a) analysis of projected business/service plans
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b) training audits 0.48 45.79

c) line management requests 0.52 88.18
d) performance appraisal 0.59 97.47
e) employee requests 0.59 44.75

I. Nikandrou et al.
Firm evaluates the effectiveness of their training programmes Training evaluation (TREV) 0.77 77.79
Firm evaluates training programmes right after the training 0.62 –
Firm evaluates training programmes few months later 0.55 50.58
Evaluation is based on learning 0.46 38.57
Evaluation is based on behaviour 0.62 95.44
Evaluation is based on results 0.59 80.77
Evaluation is based on employees’ 0.67 90.91
reaction to the programme
Number of days managers spend on training Employee training (EETR) 0.77 –
Number of days professional spend on training 0.85 22.45
Number of days clerical employees spend on training 0.77 15.60
Number of days manual employees spend on training 0.59 12.41
Perception of quality of services Firm performance (PERF) 0.72 –
Perception of productivity 0.87 33.58
Perception of profitability 0.80 32.99
Perception of timing of the product in the market 0.61 27.92
Perception of rate of innovation 0.58 23.47
 The International Journal of Human Resource Management
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Table A3. Correlations: Level 1 variables.

1 2 3 4 5 6 7 8 9
1. Sector 1
2. Strategy formalization .026 1
3. Strategic HRM .037** .177** 1
4. Training formalization .062** .028* .058** 1
5. HR involvement .025 .027 .001 2.099** 1
6. Training Needs Analysis (TNA) .006 .000 .084** .112** 2.082** 1
7. Training evaluation 2 .024 .148** .159** .069** 2.100** .054** 1
8. Employee training 2 .004 .028* .070** .018 .025 .009 .047** 1
9. Firm performance 2 .185** .107** .042** 2.008 2.021 .021 .124** .070** 1
10. Size (log) .053** .043** .091** .057** 2.028* .017 .077** .002 .004
Notes: **Correlation is significant at the 0.01 level (2-tailed); *Correlation is significant at the 0.05 level (2-tailed).

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 2078 I. Nikandrou et al.

Table A4. Correlations: Level 2 variables.

1 2 3
1. Performance orientation 1
2. Humane orientation .240 1
3. GDP on education .121 . 462 1
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