HR system
Human resource (HR) management has traditionally focused on how employment-related policy decisions, such as selection, development, training, compensation, and work design, influence organizational effectiveness. Until the last decade or so, effectiveness was almost exclusively studied at the individual level of analysis (e.g., using individual performance ratings as the dependent variable). However, the field of HR has evolved such that significant emphasis is now placed on also understanding linkages between HR practices and effectiveness at the aggregate level (Becker & Gerhart, 1996), including facility level outcomes such as cost, productivity, quality, as well as firm level outcomes such as total shareholder return, profitability, and survival. The term, HR system, refers to the fact that different combinations of individual HR practices are possible and a key question is whether the effects are additive or, as hypothesized by several perspectives, is the effect of any one HR practice dependent on the nature of other HR practices? A second key question is whether the specific effect of any particular HR practice or HR system depends on contextual factors, such as organizational strategy. These two questions have to do with the issues of horizontal (or internal) fit and vertical (or external) fit, respectively.
Although my focus is primarily on the business performance dependent variable, I recognize that effectiveness can be defined more broadly, for example, using a stakeholder perspective where, at a minimum, shareholder, customer, and employee outcomes are considered. Clearly, HR systems can differ in how favorable their consequences are for different stakeholders. Some HR systems may be of the mutual gains nature (Kochan & Osterman, 1994), while others may create more of a zero-sum situation. I operate under the assumption that that some minimally competitive level of business performance is typically good for everyone. Without it, there will not only be less money to be made by investors and less satisfied customers, but also fewer jobs to be had by workers. For a discussion of how HR systems may affect worker outcomes, see Godard and Delaney (2000) and the following comment by Kochan (2000). Several recent empirical studies are now also available (Godard, 2001; Handel & Gittleman, 2003; Hunter & Lafkas, 2003; Parker, 2003).
Our goals in this chapter are to (a) review the conceptual basis and measurement of HR systems in the literature and their evolution, (b) consider evidence on the consequences for effectiveness of horizontal and vertical fit of HR systems, and (c) provide suggestions for future research on these issues, as well as a model of HR systems and business performance. I begin with a survey of models and measurement of HR systems and its conceptual basis.