Int. J.

of Human Resource Management 14:4 June 2003 680–699

Strategic human resource management

and its effects on firm performance:
an implementation of the competing
values framework

Leda Panayotopoulou, Dimitris Bourantas

and Nancy Papalexandris

Abstract Based on the literature of the competing values framework, this paper develops
a new HRM model and attempts to clarify what type of HRM (in terms of the orientation
of the function) is linked with various aspects of firm performance. In order to acquire
a better view of this much researched issue, three more factors that influence this
relationship have been added to the equation: competitive strategy, external environment
and organizational size. The empirical research was carried out in Greece among a sample
of 104 organizations. The research findings show that when HRM is consistent with the
competitive strategy it has significant effects on financial performance. Another important
finding is that market performance is positively influenced by HRM flexibility and
negatively influenced by HRM control, unless the external environment is complex, when
the most successful combination is control-internal orientation.

Keywords Competing values framework; HRM; strategy; performance; environment;

Greece.

Introduction
Nowadays, it is a common belief in both the business and the academic world that the
human resources of an organization can be a source of competitive advantage, provided
that the policies for managing people are integrated with strategic business planning and
organizational culture (e.g. Delbridge and Lowe, 1997; Khatri, 2000; Poole and Jenkins,
1996). During recent years, organizations have focused on developing human resource
management systems that will enable them to achieve their strategic goals. In order for
these systems to be successful, they should be accompanied by the relevant culture,
philosophy or mentality of managing people. It is the reflection of this mentality of
managing people that is the scope of the present study.
The study aims at a different view of the HRM function. It does not attempt to
measure the implementation of specific practices in the firms of the sample, but rather
focuses on the outcomes of HRM by measuring its contribution to the overall
organizational function. More specifically, it aims at the development and validation of
a new model for measuring the HRM orientation that will serve at examining: (1) the
orientation of the HR function and (2) the fit between HRM orientation and external

Leda Panayotopoulou, c/o Professor Nancy Papalexandris, Athens University of Economics and
Business, 76 Pattssion Street, Athens, 104-34 Greece.

The International Journal of Human Resource Management

ISSN 0958-5192 print/ISSN 1466-4399 online © 2003 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/0958519032000057781
 Panayotopoulou et al.: SHRM and its effects on firm performance 681
factors, like the environment, size and strategy of the firm, as well as their effects on firm
performance.
According to the above, the following objectives of the present study attempt:
1 To develop a new theoretical HRM model that will integrate some of the major
ambiguities and trends that can be found in the literature. The new model will be based
on existing international literature, a fact that will render it appropriate for application
in different contexts, therefore allowing for international comparisons.
2 To link HRM orientation with external and internal organizational factors that affect
the function, like environmental characteristics, organizational size and business
strategy, and to examine their effect on firm performance.
3 To verify current findings of the international literature on the relationship between
HRM and firm performance. Those findings are based primarily on research carried
out in North America, as both Hiltrop (1996) and Guest (1997) note, and it would be
useful to confirm them against data from Europe, and especially Greece, where there
have been limited studies on this field.
4 To provide HRM professionals with some insight into the factors that they would have
to take into account when shaping the HRM function of their organization, as well as
on its effect on their firm’s performance.

Theoretical background
Strategic HRM literature is primarily concerned with the relation between (1) business
strategy and HRM and (2) HRM and firm performance.

Link between strategy and human resource management

The link between strategy and HRM is presented in the literature using various types of
research. One way to distinguish the body of research is on the basis of models used, that
is, HRM typologies and HRM taxonomies. Meyer et al. (1993: 1182) make the distinction
between the two. Typologies are conceptually derived and taxonomies are empirically
derived. Based on this definition, in the typology category the following HRM models can
be included: utilization, accumulation and facilitation (Schuler, 1989; Schuler and Jackson,
1987), based on Porter (1980, 1985); organizational life cycle (Baird and Meshoulam,
1988; Milliman et al., 1991); craft or job structure, organizational career structure and
unstructured market (Mahoney and Deckop, 1986), based on Kerr (1954); growth readiness
(Lengnick-Hall and Lengnick-Hall, 1988). The taxonomy category includes the following
HRM models: buy and make (Miles and Snow, 1984b), based on their strategy typology of
defenders, prospectors, analysers and reactors (Miles and Snow, 1978); Walton’s (1985)
control and commitment; control theory (Snell, 1992; Snell and Youndt, 1995).
The notion of strategic fit has an essential part in the SHRM literature. More
specifically the following are examined: (1) the types of fit: internal and external (e.g.
Baird and Meshoulam, 1988; Huselid, 1995; Miles and Snow, 1984a; Venkatraman and
Camillus, 1984), (2) the approaches to strategic fit: universalistic, contingency and
configurational (e.g. Delery and Doty, 1996; Youndt et al., 1996) and (3) the various
perspectives for the operationalization of fit (e.g. Drazin and Van de Ven, 1985; Guest,
1997; Venkatraman, 1989).

Link between human resource management and performance

There is empirical evidence for the link between HRM and firm performance. First, there
are research studies that focus on a single or several HRM practices and examine their
682 The International Journal of Human Resource Management
effect on various performance measures (e.g. Abowd, 1990; Banker et al., 1996; Delaney
and Huselid, 1996; Delery and Doty, 1996; Gerhart and Milkovich, 1990; Harel and
Tzafrir, 1999; Khatri, 2000; Koch and McGrath, 1996; Leonard, 1990; Terpstra and
Rozell, 1993). There are also some equivalent studies examining the effect of bundles of
HRM practices on performance (e.g. Arthur, 1994; Becker et al., 1997; Hoque, 1999;
Huang, 1998; Huselid, 1995; Ichniowski et al., 1997; MacDuffie, 1995; Youndt et al.,
1996). A final group of studies is concerned with the characteristics or orientation of the
HRM function and their link to performance (e.g. Boxall and Steeneveld, 1999; Cook
and Ferris, 1986; Guest and Hoque, 1994; Huselid et al., 1997; Snell and Youndt, 1995;
Stroh and Caligiuri, 1998).
The main conclusion one can draw from reviewing the literature is that, although the
issue of strategic fit and its link to firm performance has been extensively examined,
‘research has failed to consistently support the efficacy of fit’ (Wright and Sherman,
1999: 54). Some of the factors that contribute to this ambiguity are the following:
1 Different approaches and models of operationalizing fit have been adopted.
2 There are three main categories of variables that describe the strategy–HRM fit. Those
are: strategy and HRM practices fit, strategy and HR skills fit and strategy and HR
behaviour fit (Wright and Sherman, 1999; Wright and Snell, 1998).
3 Different measures of firm performance have been used in order to examine the results
of the link between strategy and HRM. Most of the studies focus only on
a couple of them, thus not adopting a more holistic view.

Research framework
In the search for a research framework for the study of the relationship between HRM and
firm performance, there were two main targets. The first was to find a framework that
would be appropriate for clarifying some of the issues mentioned above. The second was
to incorporate in the framework the new challenges that HRM has to face in the modern
environment. A most important challenge has to do with the outcomes of the HR function.
What is important, says Ulrich (1998), is not so much what HR does, but its ‘deliverables’,
or else its contribution to the overall organizational outcomes. By examining why every
HR practice is being carried out, HRM specialists can focus on solving real business
problems and adding value to the firm (Becker et al., 1997; Ulrich, 1997).
The competing values framework (CVF) developed by Quinn and Rohrbaugh (1981,
1983) seemed appropriate as a basis for developing a new model for HRM. The central
point of the CVF is that organizational effectiveness depends on the organization’s ability
to satisfy multiple performance criteria based on four value sets that comprise a
combination of two dimensions: flexibility vs control and internal focus vs external
focus. Therefore, since it measures outcomes, the CVF is consistent with the notion of
‘deliverables’ mentioned above. Moreover, as it successfully reflects the conflicting
demands of the organizational context, it has been applied to the study of organizational
issues ranging from culture to leadership (Denison and Spreitzer, 1991). Finally, CVF
was selected because, according to Denison and Spreitzer (1991), it does not attempt to
highlight unique qualities of an organization (in our case HRM practices), but rather
groups them into broad categories based on general characteristics shared by all
organizational systems. This is why it seems more appropriate for measuring the
orientation of the HRM function.
By adopting the notion of orientation in measuring HRM, this study attempts to
include all three main categories of variables that describe the strategy–HRM fit. This is
achieved by measuring the contribution of the HRM function to several aspects of the
 Panayotopoulou et al.: SHRM and its effects on firm performance 683
organizational function. What are of interest here are the deliverables of the HRM
function, as is suggested by Ulrich (1997, 1998), and not the HRM practices per se.
Consequently, the respondents to the research questionnaire were asked to rate the
contribution of the HRM function in developing and maintaining organizational practices
(e.g. ‘use of benchmarking’, ‘development of the company’s annual plan’), employee
skills (e.g. ‘developing team spirit and co-operation’) and employee behaviours (e.g.
‘increasing commitment’).
Based on the competing values framework and on its application to HRM, as was
described by Cameron and Quinn (1999), a new framework can be developed for HRM.
This includes the following four models:

1 Human relations model, which is characterized by flexibility and internal focus. It

emphasizes teamwork and employee commitment through the development of a strong
value system that promotes corporate identity. The main target is to sustain high morale
that is based on friendly, almost family-like relations and employee support in personal
and work issues. Good relations are a result of meritocracy, equal opportunities,
participation and involvement. Motivation is based on empowerment, development and
communication, and success is defined in terms of concern to people.
2 Open system model, which is characterized by flexibility and external focus. It
encourages innovative initiatives and development of novel services to the employees.
The dominant culture fosters utilization of employees’ ideas, creativity,
entrepreneurship and risk taking and aims at creating a vision of the organization’s
future. The main HR responsibility is to follow environmental changes in order to be
able to adapt to them by continuous improvement, acquisition of new resources and
adoption of new processes and methods. Success is defined in terms of adaptability to
change and flexibility.
3 Internal process model, which is characterized by control and internal focus. It is
characterized by close process and employee control, adherence to procedures,
standardization of procedures, information management, maintenance of stability and
hierarchy. Job analysis, rules and regulations, and process improvement through
methods such as re-engineering facilitate the HR task. Predictability and process
efficiency are criteria of success.
4 Rational goal model, which is characterized by control and external focus. The basic
characteristic of this model is its achievement orientation. To achieve this, HR
emphasizes planning, goal-setting, achievement of measurable goals and targets,
productivity measurement and competitiveness. Also of great importance is the
relation of the function with external stakeholders. The main HR role is being a
strategic partner by aligning its policies with business strategy. In this attempt, the
tools that are available to the function are productivity and goal-achievement
measurement, development of performance standards and linking rewards to appraisal.
Profitability, efficiency, productivity, fame and competitiveness are criteria of success.
Figure 1 presents the competing values framework.

Research hypotheses
One of the aims of this research, as mentioned above, was the examination of the
relationship between HRM orientation and firm performance. In other words, the study
attempts to examine which dimensions of the competing values framework (in terms of
the orientation of the function) are linked to various aspects of firm performance, in
684 The International Journal of Human Resource Management
FLEXIBILITY

HUMAN RELATIONS MODEL OPEN SYSTEM MODEL

HR role: Employee champion HR role: Change agent

Means: Responding to employee needs
Ends: Cohesion, commitment, capability
Competencies: Morale assessment,
management development, systems
improvement
Means: Facilitating transformation
Ends: Organizational renewal
Competencies: Systems analysis,
organizational change skills,
consultation and facilitation

INTERNAL EXTERNAL
FOCUS FOCUS

HR role: Administrative specialist HR role: Strategic business partner

Means: Re-engineering processes
Ends: Efficient infrastructure
Competencies: Process improvement,
customer relations, service needs
assessment
Means: Aligning HR with business strategy
Ends: Bottom-line impacts
Competencies: General business skills,
strategic analysis, strategic leadership

INTERNAL PROCESS MODEL RATIONAL GOAL MODEL

CONTROL

Source: adapted from Cameron and Quinn (1999)

Figure 1 Competing values framework for HRM

relation to external environment, strategy and size. In order to acquire a better view of
organizational performance, we have collected not only financial measures (profitability,
market share), but also indicators of operational and organizational performance (sales
growth, product quality, harmonious industrial relations, etc.). This allows for a more
holistic view of the notion of firm performance and its links to various HRM types. In
order to examine this link fully, we have adopted the contingency approach to fit and we
have formed the following hypotheses.

Environmental characteristics
Dynamism refers to the lack of stability and predictability in a firm’s external
environment caused by rapid change (Dess and Beard, 1984; Duncan, 1972).
Environmental dynamism is one of the factors affecting the HR practices that are adopted
by an organization. This is due to the fact that, in a dynamic setting, a critical factor
determining effectiveness is the workforce capability to adapt to specific external
demands (Wright et al., 1994). Lengnick-Hall and Lengnick-Hall (1990) argue that
a changing environment calls for constant adaptation of the HR function. Under such
 Panayotopoulou et al.: SHRM and its effects on firm performance 685
circumstances, the achievement of dynamic fit depends on the level of flexibility of the
HR system (Wright and Snell, 1998). It is empirically proven that, in a dynamic
environment, information exchange between managers has a positive relation to
performance (Ketchen et al., 1996). Thus, the need for communication and co-ordination
increases and HR practices covering this need are developed (Schuler et al., 1993). This
emphasis on employee communication is a characteristic of the Human Relations Model.
In a dynamic environment planning is difficult and decision making is uncertain. In such
cases, a most effective way of co-ordination is the development of a set of shared values,
beliefs and objectives, as is the practice of the human relations model (Cameron and
Quinn, 1999). Moreover, one can say that a dynamic environment provides organizations
with the opportunity to respond to frequent change in an innovative way (Ketchen et al.,
1996), a fact that is consistent with the open system model. This is also supported by
Cameron and Quinn (1999: 38), who note that the open system model is suitable for the
turbulent conditions present in many industries, as it provides the organizations adopting
it with the opportunity to ‘reconfigure themselves’ whenever is needed.

Hypothesis 1: Environmental dynamism is expected to moderate positively the

relationship between the adoption of a flexible HRM orientation and
firm performance.

Complexity is defined as the heterogeneity and concentration of environmental

elements (competitors, suppliers, customers and other stakeholders) that are related to the
organization and affect the formation of its strategy (Dess and Beard, 1984; Keats and
Hitt, 1988). Heterogeneity requires a diverse set of responses by the organization (Tsui,
1990) as it has to deal with the diverse demands of various stakeholders. According to
Hart and Quinn (1993: 553), the analyser, the leadership role of the internal process
model, ‘focuses on the efficient management of the internal operating system in the
interest of serving existing product-markets’. This means that the HR function should be
able to follow this course by adopting the internal process model. Managing with
complexity also requires specialized knowledge in order to deal with specific
environmental elements (Keats and Hitt, 1988). Lawrence and Lorsch (1967) have found
a high degree of internal differentiation in organizations operating in complex
environments. This is due to the need to recruit, train and develop managers who will
have the ability to manage the complex interrelations of the environment. So, the HR
function is expected to focus on the development of managerial competencies, a
characteristic of the human relations model. As far as performance is concerned, Keats
and Hitt (1988) argue that complexity can restrain organizational growth and that an
environment low in complexity permits firms to invest its resources in external growth,
thus giving it an external orientation.

Hypothesis 2: Environmental complexity is expected to moderate positively the

relationship between the adoption of an internal HRM orientation and
organizational and growth performance.

A munificent environment can provide the organization with plenty of resources, thus
facilitating its growth (Aldrich, 1979; Dess and Beard, 1984). Resource scarcity leads
organizations to risk avoidance and careful maintenance of existing resources, through
the development of a strategy that is characterized by increased levels of analysis and low
innovation (Miller and Friesen, 1983). Hart and Quinn (1993) describe the task master,
the leadership role in the rational goal model, as mainly concerned about achieving
686 The International Journal of Human Resource Management
results, which is done by allocating resources to the highest priority activities. Those
characteristics are similar to the conditions that are most suitable for the rational goal
model, as described by Cameron and Quinn (1999): a hostile environment, where the
major task of management is to drive the organization toward productivity, results and
profits.

Hypothesis 3: Environmental munificence is expected to moderate positively the

relationship between the adoption of the rational HRM model and
firm performance.

Organizational size
According to the literature, larger organizations are characterized by numerous
hierarchical levels, standardized procedures, increased specialization, limited flexibility
and bureaucratic control (Child, 1974; Keats and Hitt, 1988; Lawler, 1997; Mintzberg,
1979). The increase in size brings about an intense need for co-ordination between
various departments, thus resulting in the development of complex control and
co-ordination mechanisms. This fact leads to increased attention to procedures (Lawler,
1997; Miller, 1986). Cameron and Quinn (1999) relate the internal process model to large
organizational size. During the growth stage of the organizational life cycle, the HR
function is mainly administrative (Hendry and Pettigrew, 1992), as the primary concern
of the organization is to grow, thus focusing on short-term economic factors (Gerhart and
Milkovich, 1990; Milliman et al., 1991). On the contrary, a firm at the stage of maturity
has lower growth expectations, paying more importance to effectiveness (Lengnick-Hall
and Lengnick-Hall, 1988) that is achieved by gaining competitive advantage through its
human resources. Therefore, a large organization is expected to have lower growth, but
higher organizational and market performance.

Hypothesis 4: Organizational size is expected to moderate positively the

relationship between the adoption of an internal HRM orientation and
organizational and market performance.

Competitive strategy
A firm is considered to pursue a differentiation strategy when it offers a product/service
that is perceived to be unique along several dimensions that are valued by the customers
(Porter, 1985). The main source of differentiation is product/service innovation
(Homburg et al., 1999; Segev, 1989). Organizations pursuing differentiation through
innovation need to be innovative and adapt to their environment. Certain studies (Jackson
et al., 1989; Schuler and Jackson, 1987) suggest that innovation is fostered when the
organization selects qualified employees and provides them with greater autonomy,
evaluating their performance on the basis of long-term goals, thus permitting trial and
error. Other studies add that, while innovation is restrained by bureaucracy, it is
reinforced by open communication and continuous learning (Arthur and Hendry, 1990;
Beatty and Schneier, 1997; Burns and Stalker, 1961; Sanz-Valle et al., 1999). Cameron
and Quinn (1999) also suggest that the HR function should act as a change agent in
innovative firms, a role that demands a high level of flexibility and corresponds to the
open system model. Another type of differentiation strategy aims at the continuous
improvement of products and processes. In this case, the main concern of the
organization is its intellectual capital and employees are required to become knowledge
workers and be involved in planning, quality control, problem identification and problem
 Panayotopoulou et al.: SHRM and its effects on firm performance 687
solving (Snell and Dean, 1994; Youndt et al., 1996). The core of quality strategy is
competence acquisition and development (Deming, 1982), a characteristic that matches
the human relations model. Since companies pursuing differentiation strategy are based
on flexibility, innovation, quality, customer service and proactiveness (Segev, 1989), they
are expected to show better organizational, growth and market performance. This is
verified by Hart and Quinn (1993) who have found a positive relation between flexibility
and organizational and market performance.

Hypothesis 5: Differentiation strategy is expected to moderate positively the

relationship between the adoption of a flexible HRM orientation and
organizational and growth performance.

According to Porter (1980), firms pursuing a cost leadership strategy aim at producing
products/services with the lowest cost in the market. Schuler and Jackson (1987: 211)
identify repetitive and predictable behaviours, short-term focus, high concern for output,
primary concern for results, low-risk activity and high degree of comfort with stability as
the ‘needed role behaviours’ for this strategy. Other characteristics suitable to cost
leadership include job organization based on limited and specialized tasks, increase of
repetition and routine tasks, strict adherence to procedures and tight control (Arthur,
1992; Beatty and Schneier, 1997; Youndt et al., 1996). The existence of clearly defined
performance standards forces the HR function to emphasize output control (Snell and
Youndt, 1995), a characteristic of the rational goal model. Segev (1989) notes that the use
of rules, policies, hierarchy and other bureaucratic control mechanisms is related to cost
leadership strategy. Those attributes match the Cameron and Quinn (1999) description of
the internal process model. As far as performance is concerned, a positive relation was
found between cost leadership strategy and market share (Segev, 1989), as well as
between the internal process model and organizational and market performance (Hart
and Quinn, 1993). Also, firms pursuing a cost leadership strategy are characterized by
overhead minimization and economies of scale (Schuler and Jackson, 1987), and
therefore they are expected to show positive financial results.

Hypothesis 6: Cost leadership strategy is expected to moderate positively the

relationship between the adoption of a control HRM orientation and
organizational, market and financial performance.

Focus has been used by Porter (1980) to designate a niche strategy that concentrates
the firm’s attention on serving a specific type of customer, product or geographic region.
The firm uses either a differentiation or a cost leadership strategy (or some combination
of the two) within a specialized part of the industry. Miller and Friesen (1986: 51) define
organizations pursuing a focus strategy based on cost as ‘specialists’ and argue that, due
to their limited target group, they achieve economies in production, marketing and
distribution, while producing attractive products/services. This way they emphasize
resource effectiveness, productivity and performance, all attributes that fit the rational
goal model (Cameron and Quinn, 1999). According to empirical research, organizations
pursuing a focus strategy should adopt some of the characteristics of the human
relations model, like strategic selection and training of their employees, since the
delivery of good service depends, to a large extent, upon personal characteristics (Chew
and Chong, 1999; Heijltjes et al., 1996), empowerment and communication (Beatty and
Schneier, 1997).
688 The International Journal of Human Resource Management
Hypothesis 7: Focus strategy is expected to moderate positively the relationship
between the adoption of human relations and internal process HRM
models and organizational, market and growth performance.

Methodology
Two questionnaires were developed for this study. In order to avoid the common method
bias (Becker and Gerhart, 1996; Miller and Droge, 1986), a different person completed
each one of them. The first questionnaire comprised scales for measuring the company’s
external environment (dynamism, complexity, munificence), competitive strategy
according to Porter’s (1980, 1985) typology (differentiation, cost leadership, focus) and
size as well as firm performance (growth, market, organizational and financial), and it
was filled in by a company’s marketing executive. The scales used for measuring
performance, external environment and strategy have all been published in international
journals (see Tables 1, 2 and 3). After the pilot study and interviews with specialists, they
were slightly altered to fit the Greek environment and were validated in the sample of
analysis using factor analysis (see Tables 1, 2 and 3). Organizational size has been
measured using the logarithm of the number of employees, as is a common practice in
many HRM studies (Delaney and Huselid, 1996; Hart and Quinn, 1993; Huselid et al.,
1997; Snell and Youndt, 1995).

Table 1 Factor and reliability analysis for ‘strategy’ variables

Variables Differentiation Cost Focus Basic
leadership references
New product introduction 0.533 (Dess and
Changes in the existing products 0.516 Davis,1984;
Strict procedures of quality control 0.520 Kotha and
Quality of service before and after 0.617 Vadlamani,
sales 1995;
Creation of brand name 0.784 Miller, 1988)
Marketing innovation 0.859
Organized marketing department 0.860
Advertising and promotion 0.857
expenditure
Product/service innovation 0.784
R&D expenditure 0.649
Strong sales department 0.796
Commercial network coverage 0.693
Lowest cost of raw materials 0.659 (Dess and
Economies of scale 0.678 Davis, 1984;
Price in relation to competitors 0.691 Kotha and
Control of operational cost 0.498 Vadlamani,
Vertical integration 0.548 1995; Miller and
Full utilization of production capacity 0.593 Friesen, 1986)
Focus on specific target groups 0.782 (Dess and
Focus on specific geographical regions 0.840 Davis, 1984;
Production of specialized products 0.585 Miller and
Friesen, 1986)
Cronbach’s
0.9294 0.7781 0.7165
 Panayotopoulou et al.: SHRM and its effects on firm performance 689
Table 2 Factor and reliability analysis for ‘environmental characteristics’ variables
Variables Complexity Frequency Importance Munificence Basic
of changes of changes references
(dynamism) (dynamism)
Differences in competition 0.779 (Miller,
Differences in distribution 0.771 1988)
Differences in market perspectives 0.755
Differences in consumer standards 0.711
Differences in production methods 0.633
Changes in the cost of raw material 0.759 (Achrol and
Changes in consumer preferences 0.714 Stern, 1988;
Price changes 0.694 Miller and
Product technology changes 0.659 Droge,
Changes in new products 0.563 1986)
Changes in promotion strategies 0.466
Changes in distribution channels 0.436
Implications of new competitors’ 0.835 (Achrol and
products Stern, 1988;
Implications of entrance of new 0.733 Miller and
competitors Droge,
Implications of strategic changes 0.612 1986)
Implications of mergers and 0.545
acquisitions
Very dangerous environment 0.776 (Achrol and
Very stressful environment 0.713 Stern, 1988)
Dominant environment 0.598
Cronbach’s
0.8052 0.7933 0.6568 0.5985

Table 3 Factor and reliability analysis for ‘firm performance’ variables

Variable Growth/ Organizational Market Financial Basic
innovation references
New product development 0.825 (Hart and
Entrance in new markets 0.773 Quinn, 1993;
Innovativeness 0.748 Venkatraman
Operational innovation 0.700 and
Market share growth 0.647 Ramanujam,
Sales growth 0.612 1986)
Employee relations 0.838 (Delaney and
Product quality 0.769 Huselid,
Maintain job positions 0.687 1996; Hart
Investment realization 0.599 and Quinn,
1993)
Market share 0.865 (Harel and
Sales volume 0.847 Tzafrir, 1999;
Fame 0.658 Huang, 1998)
Strong brand name 0.540

Profit margin 0.776 (Dess and

Return on investment 0.713 Davis, 1984;
Profits 0.598 Huang, 1998)
Cronbach’s
0.8987 0.7681 0.8482 0.9063
690 The International Journal of Human Resource Management
The second questionnaire contained an exploratory scale for measuring HRM
orientation, that is, its contribution to various aspects of the organizational function, as
discussed above. This was filled in by the company’s HR specialist. This questionnaire
included around sixty items, but not all of them were finally used for the scale. The
process of purification of the exploratory scale measuring HRM orientation consisted of
three stages: (1) use of a panel of experts, according to Dess and Davis’ (1984) method,1
(2) use of multi-dimensional scaling (MDS), as is suggested by scholars using the
competing values framework (e.g. Denison et al., 1995; Quinn and Rohrbaugh, 1983)
and (3) validation of the MDS using a multi-sample comparison (Hair et al., 1995). The
final scale that was developed is presented in Table 4. A reliability analysis was
performed for all scales and the Cronbach alpha indices were within the range proposed
by Van de Ven and Ferry (1980).
The sample frame used for this survey was a random sample of 229 Greek and
multinational industrial companies of different sectors, which are listed in the ICAP
Directory and employ more than forty employees. Personal contact was made with all
firms, as is the common practice in Greece, and the rules set by Roth and BeVier (1998)
were followed. This resulted in the collection of 104 usable questionnaires and a
response rate of 45.4 per cent.
For the data analysis the statistical method employed was multivariate analysis of
variance with use of covariates (MANCOVA). The four indices of firm performance
(growth, market, organizational and financial) were used as dependent variables, since
there is a specific relationship between them (Hair et al., 1995). Groups were formed
according to the HRM combinations present in the sample, since the CVF scholars claim
that it is rare to find a company with emphasis on only one of the four models (Quinn
and Spreitzer, 1991). We tested the moderating effects of the external factors on the link
between HRM orientation and firm performance. Therefore, we examined the
interactions of the various factors with different HRM models using dummy variables
(that is 1 for the firms belonging to the specific group and 0 for the others).

Results
Table 5 shows the statistically significant relationships that occurred from the
multivariate analysis of variance.

Table 4 Reliability analysis for ‘HRM model’ variables

Model Variables Cronbach’s

Human relations • Enhancement of employee commitment 0.7406
• Development of team spirit and co-operation
• Equal opportunities for all employees
• Line management support in people management issues
Open system • Development of an entrepreneurial climate 0.7673
• Benchmarking
• Introduction of modern methods of management
Internal process • Maintenance of employee discipline 0.7825
• Respect of hierarchical status
• Reduction of employees’ absences
Rational goal • Formulation of strategy and long-range goals 0.7920
• Development of the company’s annual plan
• Productivity measurement
• Ensuring company profitability
 Panayotopoulou et al.: SHRM and its effects on firm performance 691
Table 5 Results for the contingency approach
HRM Dynamism Complexity Munificence Factors Differentiation Cost Focus Performance
models size
HRM † Growth
flexibility †† *** Organizational
* * Market
Financial
HRM * Growth
control †† ** Organizational
† † Market
†† ††† *** Financial
HRM * Growth
flexibility – *** *** Organizational
external Market
focus Financial
HRM *** Growth
control– ** † Organizational
internal ** Market
focus * Financial

Note
p  0.01, **/†† p  0.05, */† p  0.1.
**

Discussion of results
The research findings support the contingency approach, as well as the existence of the
two dimensions and the four models of the competing values framework for our sample
(see Table 4). The most frequently adopted HRM model in the companies of the sample
is the internal process model. This is consistent with previous international research that
has been carried out in Greece using the CVF (Van Muijen and et al., 1992). This is
followed by the models: human relations, rational goal and open system. This ranking
can easily be explained both by the development phase of the HRM profession in Greece
and by the predominant management style in the Greek organizations (Ball, 1992;
Bourantas and Papadakis, 1997; Papalexandris, 1993).
The most important findings concerning the interaction of HRM orientation with the
other factors will be discussed in this section. Complexity in combination with HRM
seems to have the least relation to performance. HRM control seems to have a role in
managing complexity. More specifically, in a complex environment, high control
orientation of the HR function is positively related to growth. This fact agrees with the
finding that the analyser, the leadership role for the internal process model, is positively
related to product development and increase in sales and market share (Hart and Quinn,
1993). This is due to the fact that managing complexity demands the development of
control mechanisms over various factors that need to be calculated in formulating
strategy. Moreover, in a complex environment, the HRM combination of control and
internal focus is positively related to market performance, in accordance with Keats and
Hitt (1988) who argue that complexity forces the firm into an internal orientation, by
developing either employees who are able to respond to these conditions or internal
processes that deal with complexity.
Apart from the positive relation between HRM control and complexity, we can see
similar findings for the cases of environmental dynamism and non-munificence. This can
be explained bearing in mind that resource scarcity causes frequent changes in the firm’s
strategy and human resources (Koberg, 1987). More specifically, the dynamic environment
692 The International Journal of Human Resource Management
is negatively related to HRM control, as is suggested in the literature (Cameron and
Quinn, 1999; Miller, 1986; Mintzberg, 1979), and positively related to the two
combinations of the human relations and internal process models. This can be explained
as the need for communication, co-ordination, consensus and rational decision making
increases in cases of constant changes (Ketchen et al., 1996; Homburg et al., 1999; Priem
et al., 1995; Schuler et al., 1993). This combination, which focuses on communication
and measuring results, is positively related to organizational performance since it
provides employees with feedback and clear targets (Gonzalez-Roma et al., 1996). When
the environment is not munificent, the HRM combination of control and internal focus is
positively related to financial and negatively related to organizational performance. In
this case, the environment is not able to provide abundance of resources (Aldrich, 1979;
Dess and Beard, 1984), thus forcing the organization to a more rational usage of the
available resources. The different results of organizational performance in the cases of
dynamism and munificence can be explained by the different perception that employees
have of these two environmental conditions. In a dynamic environment, employees feel
more uncertain and insecure about their future, thus showing greater tolerance towards
factors that could negatively influence their work, like bureaucratic procedures and tight
control. On the contrary, in difficult times, employees feel that they are a valuable
resource to the firm, a fact that increases their negotiating power and decreases their
tolerance, thus affecting organizational performance. As a conclusion, we could say that
the rational goal model is a necessary but not sufficient condition for increased
performance.
Size increase in relation with high HRM flexibility has a positive effect on the firm’s
market performance, while, when related to a control HRM orientation, this effect becomes
negative. Large size is usually accompanied by bureaucracy (Child, 1974; Keats and Hitt,
1988; Mintzberg, 1979), and it seems that, if the HRM function of such a firm follows this
pattern it could damage the firm’s market performance, as is also suggested by Lawler
(1997). On the contrary, HRM flexibility could change this course and serve as a tool for
improving market position. This fact is underpinned by recent empirical findings suggesting
a positive relation between organizational size and HR practices emphasizing management
training and internal career development (Fields et al., 2000). Previous research points out
that larger firms make more frequent use of employee involvement, flexible rewards and
elaborate recruiting, selection and training (Jackson and Schuler, 1995).
The results on the interaction between HRM orientation and corporate strategy show
once again the great importance of achieving good external fit. Strong statistical support
was found for the relation between HRM flexibility and differentiation strategy as well
as between HRM control and cost leadership strategy. In the former case, emphasis is
given to quality and innovation, so HRM should create team spirit and skills
development. In the latter case, the most important elements are process and behaviour
control and achievement of quantitative targets. Since organizations pursuing a
differentiation strategy are based on flexibility, proactiveness, innovation and quality of
product and service (Segev, 1989), it is natural to have better organizational and market
performance, as was also found by Hart and Quinn (1993). The fact that no statistical
relation was found between flexible HRM orientation, differentiation strategy and growth
performance show that flexibility alone is not sufficient to influence growth, but should
be combined with some control mechanism ensuring that innovative ideas are realized
and produce results. Another important finding is the strong negative relation between
financial performance and the combination of differentiation strategy and HRM control
orientation, which shows how important the fit between HRM and strategy is in
achieving financial performance.
 Panayotopoulou et al.: SHRM and its effects on firm performance 693
From the three generic strategies studied, focus in combination with HRM seems to
have the least significant relation to performance. The fact that the results for the focus
strategy are similar to those of differentiation leads us to the conclusion that the
companies in the sample are pursuing a focus strategy based mostly on differentiation
and not cost leadership.

Conclusion
The main implications of this study for the academic community can be summarized as
follow:
1 Development of a new theoretical HRM model based on the competing values
framework. This attempt (1) tries to deal with the lack of consistency concerning the
notion of fit that can be found in the literature, and (2) expands on the application of
the competing values framework that has been applied so far to the study of various
organizational issues.
2 Association of the HRM orientation with environmental characteristics, organizational
size and business strategy. The majority of existing empirical research on the link
between HRM fit and performance either examines this relationship not taking account
of the environment or focuses only on one industrial sector. The inclusion of external
to HRM factors in the research model increases the comparative power of the model,
making it appropriate for both international and intra-country comparisons.
3 Use of multiple performance indices for measuring firm performance. The
examination of other than purely financial performance gives a more holistic view of
the relation between HRM and performance and shows that this relation has many
facets that may also be conflicting.
4 Finally, the research is important because of:

• The region where it was conducted. As it is noted in the literature, the

verification of US data with European research is needed (Hiltrop, 1996;
Guest, 1997).
• The sample in the study, which included 37 per cent small–medium firms.
According to Welbourne and Andrews (1996), those firms are usually
excluded from empirical research in HRM despite the valuable conclusions
that can be drawn from their study.

Despite its exploratory nature, this research can provide useful data for HRM
practitioners in general, as it measures the orientation of the HRM function and not
specific practices based on the new trends that arise in the field. The conclusions drawn
from it will help managers and HRM practitioners develop an effective HRM orientation
that will maximize the aspects of firm performance on which the organization focuses.
Certain limitations of this study cannot be overlooked. Those are:

1 The research is of an exploratory nature. Therefore, it is impossible to interpret

causality, possible only to define relationships. This is also because of the sample.
Although the size of the sample is satisfactory compared to other similar studies, one
should be cautious in the generalization of the results. However, this fact is not a
problem since the aim of the research is not to generalize the findings, but to examine
relations between the variables.
2 All variables were measured in a conceptual way, that is, using the respondents’
opinions. Although this is a usual method for HRM research, further study could
694 The International Journal of Human Resource Management
incorporate objective measures, at least for the performance indices where these are
available.
3 The exclusive adoption of Porter’s (1980) typology for measuring strategy could be
considered a limitation for two reasons. First, this typology has been criticized in terms
of its suitability for the modern business environment (Chadwick and Cappelli, 1999).
Second, it is argued that organizations can implement a combination of more than one
strategic type at the same time. However, this typology was adopted because (a) it has
served as a basis for the development of other strategy typologies, and (b) it has been
used in similar empirical research.
Since this is an exploratory study, there would be many opportunities for further study
using the same research model. First, this study has emphasized the importance of
external fit for the HRM function. Therefore, further research could expand on this issue
by studying more strategic types that would have more extended application to the
modern business environment. Second, it would be useful to reinforce the present
research findings by examining a larger sample, in order to be able to generalize the
results. Third, the exploratory scale used for measuring HRM could be improved using
more sophisticated statistical methods, like confirmatory factor analysis. Fourth, it would
be interesting to test this research model in other countries in order to test its applicability
and make any necessary modifications.
A second set of suggestions has to do with applying the new HRM model developed for
further research. For example, since the competing values framework has been used for the
study of various organizational issues, it would be interesting to relate those issues to the
HRM function. In other words, one could focus on the relation between organizational
culture and HRM, or leadership roles and HRM and identify a possible gap between the
two and its effects on firm performance. Moreover, one could even look at specific HRM
practices or skills that reinforce an orientation towards one or another HRM model. This
could be achieved using a combination of quantitative and qualitative research methods that
are very popular for studying corporate culture (e.g. Denison and Mishra, 1995; Zammuto
and Krakower, 1991) but have not been fully utilized in the HRM research.
Finally, a further study could build on this model in order to create a system for
measuring HRM effectiveness. As Ulrich (1988) points out, what is essential for the
HRM function today is its deliverables. In the present study an attempt was made to
measure HRM’s contribution to the overall function of the organization. This
contribution could be appraised based on a set of criteria that are considered important
for achieving organizational goals. This could lead to the development of a practical tool
that would be of use to HRM professionals.
Acknowledgement
The authors wish to thank Prof. Chris Brewster for his valuable comments on an earlier
draft of this paper.
Note
1 The group of experts consisted of nine university professors. Three of them were from Greece
and the others from Belgium, France, the Netherlands, Portugal and Slovenia. All are familiar
with the competing values framework, as they were members of the European research team that
developed the focus questionnaire (Van Muijen et al., 1999).
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