Innovative human resource practices and ...

Int. J. of Human Resource Management 14:2 March 2003 175-197

Innovative human resource practices and organizational commitment: an empirical investigation

Tanuja Agarwala Abstract In the contemporary business environment, human resource (HR) is an indispensable input for organizational effectiveness. Hence, an effective management of human resources has an important role to play in the performance and success of organizations. Competitive pressures have encouraged organizations to be proactive in diagnosing HR problems and to adopt more innovative HR practices since these were no longer a matter of trend, but rather of survival. The present study attempted to explore the relationship of three dimensions of innovative human resource practices (IHRPs): that is, the extent of introduction of IHRPs, their importance for organizational goal achievement and satisfaction with implementation of IHRPs, with organizational commitment (OC). Regression analyses showed that the perceived extent of introduction of innovative human resource practices by the organizations was the most significant predictor of organizational cotnmitment. Keywords

Organizational commitment: HR effectiveness: innovative practices.

Introduction In an era of heightened competitiou, effective human resource management (HRM) can no longer be content v^'ith simply executing a statidard set of practices. There is a need constantly lo develop and implement new and improved HR practices so as to remain competitive. Available literature suggests that business environment changes have brought about profound changes in the management of human resources (Stroh atid Caliguiri, 1998). Tannenbaum aud Dupuree-Bruno (1994) also found a very strong relationship between the external environment and HR innovations. A favourable external environment reduced innovation. A prevailing universal assumption also maintains that there are always some humati resource activities that are better than others and, therefore, organizations should adopt new and innovative hutiian resource activities (Ulrich, 1997; Harel and Tzafrir, 1999). However, very little research had addressed innovation within the HRM futiction (Wolfe, 1995). In both the theoretical literature and the emerging conventional wisdom, there is a growing consensus tbat organizational HR practices must ultimately contribute to the firm's financial performance. Though research focusing on the firm-level impact of HR practices has become popular in recent years (Delaney and Huselid, 1996), several probleuis with this type of research have been pointed out (Hiltrop, 1996). Theoretical evidence on the relationship of HR practices with organizational effectiveness indicates that HR practices influence employee commitment and other HR performance measures, which then lead to organizational effectiveness (Rao. 1990; Tiintija Agarwala, Faculty of Managemeni Studies. University of Delhi, Delhi I 10 007, India. The Internulionul Jimrnal of Human Resource Maiui};emfiit ISSN 0958-5 192 prinl/lSSN 1466-4399 online © 2(M).l Taylor & l-rancis Ltd

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Yeung and Berman, 1997). Therefore, it is impottatit to elaborate on the black box (employee attitudes, behaviours and perceptions) between a firm's HR system and the firm's financial performance. However, empirical research on the relationship of IHRPs with employee attitudes was still sparse. The purpose of this study was to address empirically the relationship of three dimensions of IHRPs, that is, importance, introduction and satisfaction, with organizational commitment (OC). Theoretical framework The term innovation has been used to refer to two related concepts. Some researchers have used the term to refer to the process of bringing new products, eqtiipment, programmes or systems into use (Damanpour, 1991) while others have used it to refer to the object of the innovation process, that is, the new product, equipment, programme or system (Rogers, 1983). The latter use of the term is adopted in the present research, following Wolfe (1995) who defined innovative HR practices as ideas, prograrmnes, practices or systems related to the HR function and new to the adopting organization. Use of the term innovation has also differed in respect of whether 'objective newness' is considered an important criterion of innovation. While some researchers consider objective newness to be an important criterion, others consider an innovation to be a product, programme or system which is new to the adopting organization (e.g. Damanpour, 1991), arguing that whether an idea is objectively new matters little so far as human behaviour is concerned (Rogers, 1983). The present research adopts the latter position. The adoption of innovative/progressive HR practices can be considered similar to the adoption of other administrative innovations, Evan (1966) and Knight (1967) were the first to differentiate between technical innovations and administrative innovations. Technical innovations refer to ideas for a new product or service or changes in production processes. Administrative innovations are the organizational or people innovations. Progressive/ innovative HR practices are considered similar to administrative innovations, as they occur within the social system of the organization and are designed to improve organizational effectiveness by influencing employee attitudes and behaviour (Johns, ! 993). Innovative human resource practices in context According to Kochanski and Ruse (1996), the HR function has been under pressure to reduce costs, to improve its services, to increase its impact and to provide a more satisfying work experience for its own employees, even as the proven ways of organizing the people prove insufficient to meet the new challenges facing human resources. McMahan (1996), in his study of 130 large companies, found that, as corporations adopted new strategies and redesigned themselves to deal with the competitive pressures they were feeling, their HR functions were also redesigning themselves to support the changing business. Kossek (1987) offered six propositions that identify factors associated with the adoption of innovative HRM practices: 1 external environmental forces distinguish HRM innovations across industries; 2 structural organizational characteristics may be related to HRM innovations; 3 HRM innovations that are easily packaged and marketed by consultants may be the most widely diffused; 4 organizations often adopt HRM innovations in order to appear more legitimate; 5 strong culture firms may adopt HRM innovations for different reasons than weak culture flrms;

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6 finally, a company's history of success with past HRM innovations affects the prospects for acceptance of new ones. Kossek concluded that companies adopted new work practices for a variety of, often contradictory, reasons. In another study, Kossek (1990) proposed tbat, by implicitly focusing on quantity rather than quality of innovation, executives may be searching for HR 'fixes' when they should be trying to understand what influences employee acceptance of innovations and what makes for a successful HR programme. Open meetings that allow for signiflcant local input regarding design and implementation will lead to innovations that are both better designed and more fully accepted. Systematic evaluation of the general influence of HR programmes is also critically important. Employers can improve the success rate of their innovative HR programmes by: 1 providing clear, top-level support for HR innovations; 2 ensuring that the HR department is not isolated from other departments; and 3 making the entire company responsible for fair hiring practices and other HR programmes and functions. In his study. Wood (1995) examined why some organizations adopt high commitment practices more than the others, basing the analysis on data from a representative sample of manufacturing plants in the UK. The research revealed a growth in the use of high commitment practices between 1986 and 1990. Through the use of multiple regression analysis, it was shown that organizational factors exogenous to the organization were signiflcantly related to both the levels of high commitment practice and its rate of change between 1986 and L990. A general trend in literature was the recognition of the need to introduce innovations in HR practices that would be more relevant to the changing realities (Towers-Perrin, 1992; Rao, 1994; Ulrich, 1989; Sivasubramaniam and Venkataratnam, 1998). Ulrich (1997) concluded that HR, as we have known it. needs to change and that, if HR does not meet tbe challenge of change, it risks being disbanded. Though the traditional HR practices will not go away, they will become the table stakes for HR, with new practices emerging constantly. In research literature, 'innovative HR practices' were found to be referred to by several other terms too. each having the same connotation. Some of the terms used interchangeably with the term 'innovative HR practices' (Arthur, 1994; Camuffo, 1993; MacDuffie, 1995) were: high commitment practices (Pfeffer, 1994); progressive HR practices (Kravetz. 1988; Huselid, 1995); quality HR (Huselid, 1994). HR practices atid firm performance The measurement of HR effectiveness and impact was the number one topic that HR executives were most interested in exploring, observed Yeung and Berman (1997). But tiiost HR evaluation approaches have been unable to deliver objective data showing the unique contribution of the HR function to organizational effectiveness (Phillips, 1992), There is mounting empirical evidence linking HR practices with various measures of flrm performance (Huselid et al., 1997; Venkataratnam, 1997). However, literature on the relationship of innovative hutiian resource practices and organizational performance still remains sparse. Given the importance of the HRM function to organizational competitiveness, successful HRM innovations can be important determinants of organizational success. The earliest study on IHRPs was done by Schuster (1986), who reported that the greater the number of innovative practices, the more people-oriented the management philosophy and more effective the organization. Other studies have also reported

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a relationship between progressive/sophisticated HR practices and various measxires of firm performance (Hiltrop, 1996, 1999; Stroh and Caliguiri, 1998; Varma et al., 1999). According to Hiltrop (1996), these results do not prove that innovative or progressive HR practices cause better financial performance but only that the two may be related. Huselid's (1994) view was that the relationship between HR practices and flrm performance does not make it clear whether sophisticated HR practices caused the higher performance or if higher-performing organizations chose to invest in more sophisticated HRM practices. However, the evidence, according to Hiltrop (1996), is consistent with the view that the HR practices of an organization have a powerful infiuence in motivating employees to exhibit the kinds of attitudes and behaviour that are needed to support and implement the competitive strategy of an organization. HR practices and organizational commitment It is important to demonstrate that HR practices and innovations therein impact on competitive advantage by causing certain employee attitudes, behaviours and perceptions that, in turn, create competitive advantage for the firm. Hiltrop and Despres (1994) proposed that the use of non-financial measures encouraged managers to adopt a long-term view of organizational performance. Non-financial indicators can serve as leading indicators of financial results. Their study suggests measures to evaluate the effectiveness of HR practices and that one way could be via the positive impact of HR on commitment. Zomitsky (1995) described a model indicating that HR practices contributed to the economic success of an organization through enhanced employee commitment and satisfaction. Empirical evidence on the mediating role of employee commitment between HR practices and organizational effectiveness is still not forthcoming. However, Benkhoff (1997) conducted a study to explore the proposed link between HRM characteristics and their relationships to employee satisfaction, intention to stay and organizational performance. Commitment emerged as the central variable that was closely related to work satisfaction and intention to stay and, most important, made a significant contribution to branch performance of the bank. While demonstrating that HR practices make a difference to business results, Yeung and Berman (1997) emphasized that the relationship was more pronounced for those HR practices that built employee commitment. Hiltrop and Despres (1994) proposed that HR bad a positive impact on organizational commitment (OC) and viewed OC as one of the six performance criteria of HR practices. Data suggest that it is important for organizations to examine the practices they implement in order to increase commitment (Meyer et al., 1989). Rodgers (1995) and Cumming (1992) espoused the idea that organizations can use several tools, such as benefits, communication, incentives, etc., to build employee commitment. However, most of the empirical evidence linking HR practices to OC focuses on single HR practices, such as reward systems, selection practices, etc., rather than the HR system as a whole. Evidence for the latter was largely theoretical. Consistent if indirect evidence for the linkage between organizational practices such as reward systems, performance-management systems, family-responsive HR practices, etc., and commitment has been suggested by certain studies. A brief summary of some of these studies is presented in Table 1. An important function of HRM was to foster an appropriate psychological contract since HR practices were major determinants of employees' psychological contracts (Rousseau, 1994). Rousseau and Greller (1994) discussed the rea.sons why HR systems were being adapted to alter the nature of psychological contract. They proposed that the

Agarwaia: Innovative

HR practices

and organizational

commitment

179

Table I Summary of research evidence of the relationship between HR practices and organizational commitment (OC) S. no. 1 2 3

HR practices related to high level ofOC

Author

Strong recruitment and selection practices Socialization and early work experiences High perceived opportunities for career advancement/ professional growth

Caldwellc/«/. (1990)

4

Higher promotional opportunity

5 6

Fairness of promotions Praise for performance, recognition & appreciation Performance management systems Hmployee satisfaction with henefif^ f'lexible benefit plans Family-responsive HR practices Reward systems and the criteria used in reward distribution

7 8 9 10 II

12 13

Organizational communication and information sharing Company provided training

Caldwell et al. (1990); Meyer et al. (I9S9); Heimann and Pittenger (1996) Wallace (1995); De'Coninck and Stilwell (1996); Fenion-O'Creevy el al. (1997); Ouarles (1994); Martin and Hafer (1997); Deery el al. (1994); Mallak and Kurstedt (1996) DeConinck and Bachmann (1994): Ouarles (1994) Ogilvie(i986) Mallak and Kurstedt (1996): Sharma and Singh (1991) Fletcher and Williams (1996) Ward and Davis (1995) Heshi/er(l994) Grover and Crooker (1995); Aryee et al. 11998): Laabs (1998): Rodgers (1995) Caldwell etal. (1990); Quaries (1994); Deery ct al. (\994)\ Wallace (1995); Mallak and Kurstedt (1996) Rodwellcra/. (1998): Russell (1996) Chang (1999)

HR practices used in recruitment, training, performance appraisal, and compensation all contributed to employee beliefs in a psychological contract with their employer. HRM personnel will be challenged throughout the coming years as they strive to assist their organizations in reshaping the new psychological contract by implementing innovative employment strategies, such as flexible compensation packages, team working, new performance management approaches and the like (Sims, 1994). Changes in psychological contracts may have implications for employee attitudes and behaviour, especially organizational commitment (Schalk and Freese, 1997). Theoretical literature suggests that employee commitment leads to improved individual and organizational performance. However, research evidence on the relafionship of IHRPs with employee attitudes is still very limited. Hiitrop (1996) provides some evidence indicating that best practices encouraged employee atfitudes and behaviour towards strengthening the competitive strategy of an organization. Most studies on innovative HR practices, however, imply that these practices, by their very nature, enhance employee commitment. Hence, several researchers have used the term high commitment practices (HCPs) to refer to innovative HR practices (Wood, IQQ,*!; Pfeffer, 1994). Huselid (1995) quotes a study by Osterman (1994) who found that firms valuing employee commitment were more likely to invest in innovative work practices, such as skills training and incentive compensation. Moreover, synergies among high performance work practices will diminish employee turnover and increase productivity

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and corporate financial performance. For example, returns from the use of valid seleetion procedures are likely to be greater when a firm's performance appraisal and incentive compensation systems can recognize and reward good employee performance. Examining the impact of HR practices on OC. Dillon (1992). found the evidence on the link between OC and HR practices to be, at best, inconclusive. There are similarities with Herzberg's (1959) view that personnel practices can only reduce the dissatisfaction of employees but never raise job satisfaction levels. By extension, if personnel practices do not increase job satisfaction levels, they cannot be expected to affect OC. However. Zomitsl^ (1995) presented a new model that links specific HR practices to employee eonunitment. The model was based on the hypothesis that an effective organization was one that had capable, satisfied and committed employees. Committed employees eontribute to better organizational performance. Using this model, the value of human resources and HR practices to the ultimate economic success of a company is demonstrated. However, Iverson and Buttigieg (1999) found that not all facets of commitment enhanced organizational effectiveness, with the affective aspect being the most beneficial. On the basis of their study. McElroy et al. (1995) concluded that progressive HR practices enhanced OC. Assertions in the literature point out that it was not practiees per se, but employee perception of fairness of practiees that affected OC (DeConinck and Stilwell. 1996). Ogilvie (1986) conducted a study to examine the suggestion that the HRM praetices of an organization have a direct infiuence on commitment. It was observed that perceptions of the accuracy of the merit system and the fairness of promotions accounted for the most variability in commitment. Kinicki et al. (1992) hypothesized that an organization's actual HR programmes affect employee perceptions of the organizations' commitment to HR efforts, which, in turn, affect general work attitudes. The results supported the hypothesized relationship that it was employee perception of the organization's commitment to HR efforts, rather than the actual HR programmes, which affect employee attitudes. Guzzo and Noonan (1994) assumed that an organization's HR practiees infiuenced employee commitment since they were eommunications from the employer to the employee. How employees interpreted and made sense of their employer's HR practices affected their psychological contract with their employer and, ultimately, their commitment to that employer. Therefore, the present study focused upon the pereeption of three dimensions of IHRPs, that is, the extent of introduction of IHRPs, their importance for organizational goal achievement and satisfaction with implementation of IHRPs. Method A dynamic business environment and growing expectations and aspirations of the workforce require that organizations modify their HR practices on an ongoing basis in order to foster employee commitment, wbieh may be manifested in the form of improved performance for the organization and also improved well-being and development of the employees. The primary purpose of the present field study was to explore the relationship of perception of IHRPs with OC, where OC was a human resource outcome measure. The study focused on the pereeption of IHRPs along the following three dimensions; 1 extent to which managers believed that innovative HR practiees were important for achieving the goals of the organization; 2 extent to which employees believed that innovative HR praetices had been introduced in the organization; i

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3 extent to which the managers were satisfied with the implementation of innovative HR practices in the organization. The tentative hypothesis formulated for the study stated that there will be a significant relationship between one or more dimensions of employee perception of IHRPs, that is. the importance, introduction and extent of satisfaction with IHRPs, with organizational commitment (OC). The research study was conducted in India in two phases. Phase I: preliminary investigation Twenty-one HR experts from across industry were interviewed in-depth during this phase. The purpose was to understand the use of the term innovative in the context of human resource practices, to identify HR practices to focus upon, to obtain examples of innovative practices and to select the sample for phase two. The researcher personally conducted the interviews. The duration of the interviews ranged from 45 minutes to 2 hours, with the average being 82.5 minutes (1 hour, 22.5 minutes). A summary of the demographic information about the experts interviewed during the preliminary investigation is presented in Table 2. Based on the opinion of experts interviewed, it emerged that the term 'innovative human resource practices' refers to a modification in the existing or established human resource practices of the organization, which is new to the organization as well as improved, even if the modifieation is by way of adopting or adapting the human resource practices of other organizations. It is this meaning of the term IHRPs that has been adopted in the present study. The experts identified a broad range of HR practices that, according to them, form a major focus area for modification and improvements for a majority of organizations in the contemporary business environment. Of all the innovative HR practices identified by the experts, fourteen HR systems/practices, which covered the whole gamut from employee recruitment to employee exit, were focused upon in phase two of the study. Each HR practice selected for the study was labelled as an 'HR practice category'. The fourteen HR practice categories were: 1 2 3 4

Employee acquisition strategies Employee retention strategies Compensation and incentives Benefits and services

Table 2 Summary of demographic profile of experts interviewed in preliminary investigation S. no.

Managerial hierarchy

1

No. of experts

Years of experience ill HR field

No. of experts

Top level

16

>.^0 years

02

Private sector

08

2

Senior level

01

21-30 years

02

Public sector

07

3

Middle level

04

11-20 years

13

ConstiltaiUs

04

4

F-ntr\ levi'l

00

01-10 years

04

Academics

02

Total

21

Total

21

Tolal

21

Type of organization

No. of experts

182 5 6 7 8 9 10 11 12 13 14


Rewards and recognition Technical training Management development Career planning and development practices Performance appraisals Potential development Succession planning Employee relations with a human face Employee exit and separation management Adopting responsibility for socially relevant issues.

The panel of experts interviewed was also requested to generate examples of HR practices/activities that could be termed as innovative for each of the HR practice categories. Tannenbaum and Dupuree-Bruno (1994), in their study of innovative HR practices had followed the same method for generating a list of innovative/progressive HR practices. Each HR praetice category was. therefore, broad enough to include a range of HR activities/practices, and henee formed a cluster, incorporating a number of innovative teehniques. The complete list of the HR praetice categories and examples of innovative practices for each of these is presented in Appendix 1. In order to identify the organizations to be studied in phase two of the present investigation, the experts who were interviewed in the preliminary investigation were asked to give examples of organizations that they believed were following innovative HR praetices. The experts identified a total of thirty-seven organizations. The final sample of seven organizations for phase two of the study was seleeted from this list of organizations, after a follow-up with the same experts. In the follow-up, a list of these thirty-seven organizations was mailed back to the experts enclosing a self-addressed stamped envelope. From this list, they were requested to again identify those organizations that, in their opinion, followed innovative HR practiees. Of the twenty-one experts who were mailed this hst. responses were received from nineteen, the response rate being 90.46 per cent. For each organization, the frequency with which it was identified as having innovative HR practices was tabulated. The organizations mentioned by at least 50 per eent of the experts interviewed as having the reputation of being innovative in their HR praetices were short-listed. Out of a total of thirty-seven organizations, eighteen organizations fulfilled the criteria. Due to practical limitations of collecting data from geographically dispersed organizations and expressed unwillingness to participate in the study on the part of some firms, the seleetion of organizations for the second phase narrowed down to seven. All the firms selected for the study were based in India. A brief description of each of the selected organizations is presented in Appendix 2. Phase 2: questionnaire survey In the second phase of the study, questionnaire data were collected at all partieipating organizations seleeted on the basis of the preliminary investigation. The Perception of Innovative HR Practices Questionnaire and Organizational Commitment Questionnaire were personally administered to the executives and managers of these organizations. A brief deseription of these questionnaires is provided below. Perception of Innovative HR Practices Questionnaire This questionnaire was designed by the researcher to assess employee perception of the innovative HR practices


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of the selected organizations along the three dimensions, that is, importance, introduction and satisfaction. The final version of the scale consisted of three parts, A. B and C. eacb having fourteen items, the total number of items being forty-two. The fourteen items in each part of the questionnaire referred to fourteen HR practice categories, each HR practice category being broad enough to incorporate a number of innovative techniques. These techniques were given as examples for each respective category (see Appendix 1). Each part of the questionnaire used a 4-point rating scale with 1 indieating a poor perception and 4 indicating a good perception for each dimension of innovative HR practice. The range of scores possible for each part (dimension) of the scale was 14 to 56. In order to determine the reliability of the questionnaire, it was administered to eighty managers, forty each from public- and private-sector organizations. The majority of the respondents {n = 36, 45 per cent) were in the age group -35 years, while only two respondents were in the age range 46-55 years. Of the total sample, 64 per cent (n ^ 51) were at the middle management level. There was just one manager at the top management level out of a total of eighty. Average work experience was 10.07 years, with the mode value of 14 years. The mean of the tenure with the present organization was 7.07 years, the maximum tenure being 24 years. The mode value for tenure was I year. However, for both the total work experience and tenure with the present organization, multiple modes existed; the smallest value has been cited. The split-half reliability coefficient for Part A (introduction). Part B (importance) and Part C (satisfaction), using the Speannan-Brown formula, was found to be 0.80, 0.85 and 0.81 respectively. Organizational Commitment Qnestionnaire (OCQ) The OCQ was developed by Porter and Smith (1970). This questionnaire consists of fifteen items, six of which are negatively phrased and. hence, reverse scored. The scale has been used extensively in research and has acceptable psychometric properties (Allen and Meyer, 1990). Reliability and validity evidence for the scale is highly positive. Coefficient alpha has been found to be consistently high in all the studies that have used the scale and ranges from 0.82 to 0.93 with a median of 0.90. Additional evidence about internal reliability comes from several other studies wherein the Kuder-Richardson coefficient ranges from 0.84 to 0.91. Evidence for the convergent validity of the questionnaire comes from significant negative correlations with stated intention to leave the organization. The questionnaire has demonstrated both convergent and discriminant validity (Cook et al., 1981). The reliability of the questionnaire was re-established by the researcher. The split-half reliability coefficient was found to be 0.89 using the Spearman-Brown fonnula. The range of scores possible on the scale was 15 to 75. A high score on the questionnaire was indicative of a high commitment to the organization. Sample The sample comprised 422 executives and managers from across the seven organizations that participated in phase two of the study. The majority of the respondents were in the age group 25-35 years {n = 242, 57.35 per cent) and at the middle management level in the organizational hierarchy (n ^ 288, 68.25 per cent). Only thirty-nine of the 422 respondents were at the senior managerial level. And only two eaeh were at the top management level and over 55 years of age. Largely, the sample consisted of employees who had a degree in a professional course (/; -= 230, 54.50 per cent). The range of the tenure with present organization was between 4 months and 33 years with the mode value

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The International Journal of Human Resource

Management

of 3 years. However, for tenure with the present organization, multiple modes existed, 3 years being the smallest value. The mean of the tenure with present organization was 6.67 years. Total work experience ranged from 8 months to 33 years with an average of 9.21 years, the mode value being 14 years. Analysis In order to identify the significant predictors of organizational commitment, Stepwise multiple regression analysis vfas conducted. Results and discussion Table 3 summarizes the mean scores for each of the three dimensions of IHRPs and for organizational commitment. The mean values of the variables indicated that the respondents of the seven organizations believed that innovations in HR practices were important for achieving the goals of these organizations to a moderately high extent (mean = 46.44). However, the perception of the extent to which HR innovations had been introducedm these organizations (mean = 36.18) and level of satisfaction with the implementation of IHRPs (mean = 35.86) was lower. Mean score of 53.57 for OC indicated that commitment in these organizations was moderately high. On the basis of the correlational analysis between predictor variables for all the organizations taken together (Table 4), it was found that none of the background variables included in the study, except quahfications, had a significant relationship with any of the three dimensions of innovative HR practices. However, it was observed that the more qualified the employees were, the lower was the extent to which they believed that HR innovations had been introduced by their organization (Table 4: r — - 1 8 ; p < .001). This group of employees was also less satisfied with the implementation of Table 3 Means and .standard deviations of the variables Organizations

Total N = 422

Mean SD

Dimensions of innovative human resource practices ' Introduction Importance Satisfaction 36.18 7.55

46.44 6.65

Criteria . ,, variable Organizational commitment

35.86 7.88

53.57 7.36

Table 4 Correlations of background variables with three dimensions of innovative human resource practices (IHRPs) and organizational commitment Background variahles Age

Qualifications Managerial level Salary Work experience Tenure Jobs changed

Dimensions of IHRPs Introduction

Importance

Satisfaction

Organizational commitment

-.07 -.18"*

-.03 -.08 -.08

-.01 -.15**

-.16***

.01

.02

.04

-.07 -^.07 -.12

-.02 -.06

-.04 -.03 -.08

.00

.07

.02

.001.

.07 .06 .02

.ir .05

.10*


185

HR innovations (Table 4: r =-.\5; /J < .01). Qualifications were also significantly negatively correlated with OC (Table 4: r ^ -.\6; p < .001), suggesting that the higher the employees' level of education, the lower would be their cotnmitment to the organization. Support for this result extends from research evidence (Mayer and Schoorman, 1998). Kinicki et al. (1992) pointed out that an organization's actual HR programmes (introduction of HRIs) indicated to the employee the degree to which their organization was committed to efforts focusing on human resources. This perception influenced general employee attitudes, such as OC. More educated individuals were also likely to have high expectations that the organization may be unable to meet, leading them to believe that the organization had not introduced HR innovations to a large extent. That is, the organization's commitment to HR efforts was low. Hence, their identification with the organization may be lower. These results may also be viewed by considering individual attitudes towards career. Individuals enter a company with their own career plans and would be attracted to the current company if the company's practices satisfy their career needs (Chang, 1999). This implies that the attitudes of individuals towards their career may affect their attitudes towards their company because individuals are pursuing their careers in their current organization, and because the current firm does not have to be the only one that they will be working for in the future. Chang (1999) indicated that individuals with a strong degree of career commitment may show higher levels of expectations from their organization. It also implies that highly career-committed individuals may be more motivated when their expectations were satisfied by the organization than those who were less committed to their careers. It may be inferred that more educated employees had a stronger degree of career commitment and also higher expectations from their organizations. Further, it was also likely that more educated employees have a greater number of job options. The significant negative relationship of educational level with the introduction and satisfaction dimensions of IHRPs, as well as OC, may, therefore, demonstrate that the high expectations of this group of employees were not met. The more qualified the employees were, the higher was the likelihood that they believed that the HR practices of their organization did not satisfy their career needs, thereby lowering their commitment to the organization. The total work experience of the employees and tbe total number of jobs changed were found to be significantly positively correlated with organizational commitment. Results suggested that more experienced employees demonstrated greater attachment with their organizations (Table 4: r = .\\, p < .05). One explanation for the higher commitment of more experienced employees may be that employees with more years of total work experience were also likely to be older in age and, hence, might have fewer job alternatives. Perception of fewer alternatives may lead to higher commitment to the present organization. A positively significant correlation between OC and total number of job changes (Table 4: r =^ .10, p < .05) indicated that the higher the number of jobs an employee had had. the higher was the commitment of the employee to the present organization. The present findings, however, appeared inconsistent wifh the generally accepted belief that those who change jobs often would show less commitment to their present organization. However, the results seem plausible when the individual-organization relationship is viewed in terms of a psychological contract. The individual enters into a psychological contract with the organization that rests on reciprocal obligations. By demonstrating high commitment, these employees may be keeping their side of the contract. Employees who have changeil jobs more often were also likely to have a strong

186


need to prove their competence and, therefore, may be more willing to exert considerable effort on behalf of the organization. Regression analysis results are presented in Table 5. For the organizations under study, three variables were found to be significant predictors of OC (Table 5: Step III; F - 44.50; p < .00). These variables were: extent of introduction of IHRPs, extent to which IHRPs were important for organizational goal achievement and total work experience of the employees. These variables had a positively significant correlation with OC. This suggests that higher the extent to which employees believed that innovations in HR practices were important for achieving the goals of their organizations and the higher the extent to which IHRPs had been introduced by their organizations in their opinion, the higher was their identification with the organization. Moreover, employees who had more years of work experience were also likely to show more involvement and attachment with their present organization. The values of adjusted R^ (Table 5: Step I; adjusted R^ = .19) indicate that the maximum amount of variance of OC was attributable to the introduction dimension of IHRPs. The beta coefficient of .44 at Step I of the multiple regression analysis (Table 5) indicated that, for one unit increase in the extent of introduction of IHRPs, the mean value of OC of the employees was likely to increase significantly by .44 units. Hence, it may be inferred from the results that, if the employees believed that their firm was introducing innovations and modifying the human resource practices (HRPs), they were likely to be more committed to their organization. The above findings are consistent with Meyer and Allen's (1991) observation that commitment develops as a result of different experiences in the organization and has different implications for on-the-job behaviour. Employees whose experiences within the organization were consistent with their expectations and satisfied their basic needs, would develop a stronger affective attachment to the organization than those whose experiences were less satisfying. Therefore, a people orientation in the organization increased employee commitment. These results may also be discussed with reference to the nature of exchange relationship between the organization and the employees. Tsui et al. (1997) used the term 'employee-organization-relationship strategy' to refer to the employer's perspective on Table 5 Summary of stepwise multiple regression analysis of organizational commitment (OC) on predictor variables (N = 422)

*"" p < .00.

100.57*'*

1.420

.47

.22

60.08*'*

2.419

.49

.24

44.50"*

3.418

10.03***

.44

.18 .41

4.00**' 9.39""

.03

.14

3.25"*

.44

.00

.42

9.69*"*

.24

.00

.18

4.07**'

.44

III

.19

R^

I

11

DF

Adjusted

R

r

Introduction of IHRPs Importance of IHRPs Introduction of IHRPs Total work experience Introduction of IHRPs Importance of IHRPs

F

Multiple

Step Predictor no. variables entered

Standardized beta

t

.00

.44

.24 .44

.00 .00

.11

P


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the employment relationship. The strategy includes the employer's expectations about specific contributions that it desires from employees and the inducements that it uses to effect the desired contributions. The employee organization-relationship strategy differs from a psychological contract in that the latter includes expectations about the nature of the exchange held by both employer and employee. Tsui et al. (1995) described four different employer-defined relationship approaches, two involving largely balanced exchanges and two involving some form of imbalance. In terms of this typology, the employee-organization-relationship in the present study may be viewed as the mutualinvestment balanced exchange relationship. In a purely economic exchange between employee and employer, the employer offers short-term, purely economic inducements in exchange for well-specified contributions by the employee. The employee-organization relationship is a balanced one, and is defined in terms of specified activities for a set compensation. Neither party expects contributions beyond those specified. The exchange is relatively short term and closed ended for both parties. However, such a relationship may be more appropriate for some jobs, whereas, in other jobs, a more open-ended relationship may be desired. In the context of an uncertain environment., an employer may find it advantageous to leave some obligations unspecified and to treat the employment relationship as a combination of economic and social exchange rather than as a purely economic exchange. In a social exchange relationship, the inducements an employer offers go beyond short-term monetary rewards. These include an extended consideration of an employee's well-being as well as an investment in the employees' career within the firm. In exchange, the employees' obligations and contributions include working on job assignments that fall outside prior agreements, assisting junior colleagues and, in general, being willing to consider the units" or the organizations' interests to be as important as core job duties. This approach is referred to as a mutual investment employee-organization relationship approach. This is a balanced exchange relationship because it involves some degree of open-ended and long-term investment in each other by both the employee and the employer. This relationship is analogous to the employee commitment system described by Arthur (1992). The two types of unbalanced employee-organization-relationships described by Tsui et al. (1995) were the over-investment and under-investment approaches. In an underinvestment relationship with employees, the employee is expected to undertake openended obligations, while the employer reciprocates with short-term and specified monetary rewards with no commitment to a long-term relationship. This approach appears to be more favourable to employers than to employees and is characteristic of most competitive industries. In a contrasting type of unbalanced employee-organization relationship, the overinvestment approach, the employer offers open-ended and broad-ranging rewards, while the employee performs only a spccitied set of job-focused activities. This approach is seemingly more favourable to employees. Organizational actions towards improving HR practices may be perceived as part of organizational responsibilities towards the employees and. hence, may not contribute to any significant improvement in organizational commitment. In the context of the findings of the present study, therefore, the employeeorganization relationship tnay be described in lerms of the mutual investment approach. When employees believed that their organization was introducing human resource innovations, they were likely to perceive these actions as investments that the organization was making in the employees. In return then, the employees were also likely to enhance their investment in the organization by increasing their levels of OC. Blau

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(1964) argued that social exchange engendered feelings of personal obligation, gratitude and trust that pure economic exchange does not. The proposition that the introduction of IHRPs may be an important contributor to OC finds support from a study by Hall etal. (1996). They suggested that, in the transactional relationship, organizations do not provide lifetime employment and the relationship is based on short-term contributions. In this situation, it becomes difficult for organizations to expect the same previous levels of attachment from the employees, because individuals become more concerned with their own careers and detached from the current company. Therefore, organizations need to introduce practices linked to developing employees within the organization, which, in turn, may enhance commitment to the organization. The high amount of variability of OC attributable to the introduction dimension of IHRPs may be explained not only in terms of a mutual investment relationship, but also on the basis of individuals' integration into the organization. The degree of individuals' integration into the organization and tbe extent to which an organization has in place mechanisms that give individuals a sense of such integration contribute to the individuals' commitment to the organization (Bacharach et al., 1990). At Step II of the regression analysis, the importance dimension of IHRPs entered the regression equation (Table 5). Along with the introduction dimension, the importance dimension of IHRPs accounted for 22 per cent of the variance in OC (Table 5: Step II; adjusted R^ = .22). However, with the inclusion of the importance dimension at Step II of the regression equation, the beta value for the introduction dimension was reduced (Table 5: Step II; beta = .41), but it was still significant (Table 5: Step II; t = 9.39; p < .00). The decrease in the beta value of the introduction dimension may be due to multi-coUinearity. There was a highly significant positive correlation between the introduction and the importance dimensions of IHRPs ir = .\l;p < .001; Table 6). The importance dimension of IHRPs added 3 per cent to the predictable variability of OC. The perception of importance of HRIs for organizational goal achievement, along with the extent of introduction of IHRPs, was an important factor for enhancing OC. The proposition of 'met expectations' suggested by Porter et al. (1974) may provide an explanation for these findings. The importance of organizational factors in affecting attitudes of employees has been widely advocated. Individuals bring sets of expectations to their employment situation and their attitudes and behaviours are outcomes of a process in which individuals compare tbeir level of expectations with their perceived realities. Employees become attached to tbeir companies when their prior expectations have been met. One of the factors contributing to employee expectations is the HR practices of the organization. When organizations introduce improvements in their HR practices, employees may perceive that as signifying the movement of organizational activities towards fulfillment of their own expectations. Therefore, modifications in HR Table 6 Intercorrelations of three dimensions of innovative human resource practices (IHRPs) Dimensions of IHRPs

Introduction Importance Satisfaction

Introduction

Importance

Satisfaction

1.00

.17*** 1.00

.85*" .19**' 1.00


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practices may be important contributors to the degree to which employee expectations have been tnet and, consequently to their attachment to the organization. By introducing innovations, stated Sims (1994), organizations reshape the psychological contract. At Step 111 (Table 5), 24 per cent of the variance in OC was due to the combined eftects of three variables, that is. introduction of IHRPs, importance of IHRPs and the total work experience of employees (adjusted R- = .24). However, maximum variability of OC was attributable to the introduction dimension of IHRPs. The other two variables - the importance dimension of IHRPs and the total work experience - together increased the explainable variance in OC by only .05 (Table 5: Step III: adjusted R' = .24). Total work experience had a significant positive correlation with OC (Table 5: Step 111; r= .11; p < .03). This indicated that the greater the work experience of the employees, the higher would be their commitment to the organization. Ail the other predictor variables failed to enter the regression equation, indicating that, though they may be correlated with OC. they were not significant in predicting the commitment of the employees. Conclusions Though the results should be viewed as preliminary, they provide future researchers with some empirical evidence supporting a promising new perspective with which to study HR practices and their relationship with outcomes important for attaining business leadership. Findings point towards the introduction ditnension as the most important predictor of organizational commitment. These findings were indicative of the importance of introducing innovations in various HR practices by the organizations for enhancing employee attachment to the organization. One limitation of the present study is that it focused only on those organizations that had a reputation for being 'innovative' with respect to their HR practices. Organizations with a reputation for being 'traditional' in their HR practice orientation were not included as part of the study. A comparative study of these two groups of organizations may further enrich the findings. Moreover, industry comparisons of innovative human resource practices as well as their relationships with HR performance measures may yield important insights. Future studies using moderators, such as industry, size of the organization and ownership, arc suggested to gain additional insights on this issue. The relationship of IHRPs, along the three dimensions, with firm financial performance was not included within the purview of the present research. Yet the increasing concern of organizations to measure the contribution of HR function makes it imperative to investigate empirically the linkage of IHRPs with objective as well as subjective measures of firm performance over sustained periods of time. Research on the significant diflerence between the HR practices of high-performing versus lowperforming organizations is one way that this relationship could be studied. Because of the use of a convenience sample, generalizabiiity of the results is limited. Nevertheless, external validity is not overly compromised because competitive environment was seen as an important antecedent of innovations in HR practices. All the participating organizations were identified in the preliminary investigation as those that were introducing new improvements and innovations in their HR practices. The experts whose views were sought for the selection of organizations mentioned competitive pressure as the major factor encouraging the organizations to adopt more innovative HR practices. Thus, most organizations facing competition may show similar relationships. Furiher research,, however, needs to be undertaken to cross-validate ihe current results.

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Despite the relatively small size of the sample, the study yielded interesting results on the relationships of IHRPs with employee attitudes. In spite of its limitations, the findings of the study indicate that a number of benefits can be gained through the use of IHRPs. The sample in the present study transcends industrial and sectoral analysis and thus provides a global picture. Hence, it contributes to the emerging empirical literature exploring the combined impact of IHRPs on employee attitudes. However, adopting a multidisciplinary approach will serve to produce research that is more relevant to practitioners. Implications and prospects for further research These findings have important lessons for organizations by way of the seriousness of their efforts towards HR system renewal. By empirically testing whether certain combinations of IHRPs are associated with higher commitment, the present study adds to academic knowledge by providing empirical evidence pointing towards the significance of continuous renewal of HR practices. There is a growing conviction that the nature of HR practices ultimately contributes to the success of the firm. Firms that employ IHRPs are likely to be more successful, enabling them to pay employees higher wages, provide more training and promotion opportunities, create and ntirture employee practices that motivate and enable people to do their very best and lay off fewer people during economic downttims. Thus, for organizations that act in these ways, IHRPs are likely to yield benefits for both individual employee and the broader economic and social system. Therefore, organizations need to focus on developing innovative HR systems that capture the potential gains for all concerned. While literature abounds with theoretical assertions about the importance of modifying HR practices, research on this issue has yet to gain momentum. Managers can use the findings of the study to help defend the proposition that positive attitudes of employees can arise when their organization commits resources to human resource activities and programmes. If a company's management supports the human resource department in continuously renewing HR practices, then employees are likely to perceive a high degree of organizational commitment or support for them. In turn, this positive impression should engender more positive employee attitudes, which subsequently affect employee behaviour. Empirical evidence on the relationship of innovative human resource practices with employee commitment is still very limited and focuses mainly on single HR practices. The present study makes a significant contribution since organizations simultaneously use many HR practices that may enhance attitudinal and operational outcomes. Moreover, the present study provides an understanding of the nature of IHRFs, whereas most existing research does not make a distinction between HR practices per se and innovative HR practices. In the Indian context, evidence for a relationship between good HR practices and employee attitudes and organizational effectiveness was largely anecdotal, coming from industry case presentations (Rao, 1999). Findings suggest that employees' commitment to the organization is a function of their perception of the people orientedness of the organization. The perception that the organization was action-oriented with respect to the extent of introduction of HR innovations is likely to enhance employee beliefs about the commitment of the management of their organization to the human resources of the organization. This, in turn, is likely to lead to higher identification with the values of their organization. By promoting new HR practices, an organization provides the signal that its human resources are worthy of the firm's investment, attention and time (GiUey, 2001).

Agarwala: Innovative HR practices and organisational commitment

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The results of the present study suggest that the employees believed that innovations in HR practices were important for the achievement of organizational goals. The importance dimension of IHRPs also emerged as a significant predictor of OC. Thus, HR practitioners need to so align HR Innovations that they enhance OC and further organizational goal achievement. The management of human resources must move from the traditional programmes to custom-made systems fitting the specific needs and objectives of an organization. The study, thus, points towards the need for strategic orientation of the HR function. Though practitioners and academicians have long asserted the importance of linking HR practices with the business needs of the organization, relatively little has been done on this aspect by way of research. Further, by demonstrating that certain combinations of IHRPs lead to specific employee attitudes, such as organi?ational commitment, the present study may also provide an explanation for the HR-firm performance link. Theoretical evidence emphasizes that OC and other HR performance measures play a mediating role between HR practices and organizational effectiveness. The study suggests that the employees of those organizations that are innovative in their HR practices may show greater identification with their organization, when compared to the employees of organizations that are not innovative. It may be inferred that higher organizational commitment may lead to better organizational performance. However, there is a need to study the relationship between HR practices, commitment and firm performance systematically. It is evident from the findings of the study that organizations would gain valuable benefits by way of innovations in their HR practices. However, each organization needs to consider the environment in which it is functioning as well as the needs of its workforce. The specific improvements that an organization makes in its HR practices may, thus, serve the unique requirements ol the organization and its employees. Appendix 1: examples of innovative practices for the fourteen HR practice categories 01

EMPLOYEE ACQUISITION STRATEGIES (e.g. greater importance to be attached to fit between person and company culture, emphasizing 'career' not 'job" and selling company image to attract potential employees, referral bonuses, signon bonuses for new employees, psychological testing, developing industryacademia interface, etc.)

02

EMPLOYEE RETENTION STRATEGIES (e.g. evolving a pleasant work environment, deferred compensation, competitive salaries, faster promotions, greater work autonomy, etc.)

03

COMPENSATION and INCENTIVES (e.g. increasing componem of variable pay. stock options, combining individual and team incentives, performance-linked incentives, customization of perks to individual needs, offering a variety of allowances, conducting compensation surveys, etc.)

04

BENEFITS and SERVICES (e.g. focus on long-term benefits for employees through alternative insurance and health management schemes, giving benefits directed at employees' families, flexible employee benefits/cafeteria approach. child and elder care programmes, improvements in retirement benefits)

05

REWARDS and RECOGNITION (e.g. performance-linked rewards, flexible tewards, cash rewards for extraordinary performance, rewarding team performance, best employee awards, public recognition of good performance at

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The International Journal of Human Resource Management a company meeting or function, recognition from co-workers, blend of financial and non-financial rewards)

06

TECHNICAL TRAINING (e.g. systematic training needs assessment, crossfunctional training, providing job relevant training, facilitating transfer of training to actual job performance, etc.)

07

MANAGEMENT DEVELOPMENT (MD) (e.g. linking MD to individual needs, linking MD to organizational objectives, using innovative MD methods, like stress management programmes, adventure training, leadership and attitudinal training, study leave, programmes for women managers, etc.)

08

CAREER PLANNING and DEVELOPMENT PRACTICES (e.g. developing career paths, providing fast-traek career plans, providing mentors to employees, cross-functional career paths, participative career plans, career counselling, etc.)

09

PERFORMANCE APPRAISALS (e.g. giving weight to individual, team and organizational performance while appraising; using quantifiable criteria for appraisals; participative appraisals; open appraisals to increase transparency; giving appraisal feedback; linking rewards to appraisals, 360" appraisals, etc.)

10

POTENTIAL DEVELOPMENT: A COMPANY-WIDE MD PROGRAMME (job rotations, use of assessment centres, coaching, conducting potential appraisals, etc.)

11

SUCCESSION PLANNING: MD programme aimed at filling specific position with one of the two potential candidates (e.g. identifying replacements, provision of fall-back positions in case of failure, preparing to assume higher responsibility, etc.)

12

EMPLOYEE RELATIONS WITH A HUMAN FACE: TREATING EMPLOYEES WITH CONCERN (e.g. information sharing, opeti and transparent communication, family get-togethers, humanizing work environmetit, respecting employees, ensuring fairness in management practices, encouraging risk-taking, etc.)

13

EMPLOYEE EXIT and SEPARATION MANAGEMENT (e.g. extending benefits to retirees for lifetime, retirement planning workshops for about-to-retire employees, conducting exit interviews, outplacement services, VRS, etc.)

14

ADOPTING RESPONSIBILITY FOR SOCIALLY RELEVANT ISSUES (e.g. adult education programmes, community development projects, eoncem for greening and environment protection, research promotion, etc.)

Appendix 2: the participating organizations (researcli site: India) 1.

COMPANY A: This organization is a part of a large industrial colossus and was incorporated in the mid-1980s as ajoint venture. It brought to India a revolution on two wheels. Over the years, the organization has established its leadership. Today, nearly one out of every two motorcycles sold in its category in India is from this firm. It commands 50 per cent of the market, attaining the stature of a giant in the industry. Combined with its technological excellence is a large dealer network, reliable, quality after-sales service and the provision of genuine spare parts.

2.

COMPANY B: The organization is a part of Rupees 9,000 million group, comprising two listed companies. The activities of the group are organized into


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various business units covering all the business interests. The group started business in late 1950s. The plant that the researcher visited in the present study was set up in 1976. With speeialization of operations in 1986 this plant now manufactures only engines. The organization has now diversified into exports, consultancy, garments and footwear. The firm is organized into strategic business units. From being a family-managed organization, the firm is now managed by professionals. 3.

COMPANY C: This organization, in the automobile sector, was established in the early 1980s as a joint venture, with each parmer holding 50 per cent of the equity. The company has a strong international presence with sales in over a hundred eountries worldwide. The organization has shown consistent gains in market share in the passenger car market over the years. The organization constantly brings in new models to meet the competition in the passenger car market.

4.

COMPANY D: The firm is ranked among the world's largest industrial and service companies incorporated in late 1950s. A public-sector organization, it is the largest commercial undertaking in India. The firm places great emphasis on research and development and has a comprehensive. ISO-9001-certified R&D centre.

5.

COMPANY E: The organization is a premier telecom research and development organization set up in the mid-1980s. Today, the tirm is engaged in developing systems and transferring the technology to its licensed manufacturers. The focus of the firm is on eomprehensive solutions appropriate to the telecom network requirements. A wealth of expertise in software development has given it the capability to act as a global telecom software player.

6.

COMPANY F: A global information technology (IT) services company incorporated in the early 1980s, it offers a wide range of services. The organization has emerged as a global IT services corporation. The firm is one of the top ranked software providers for global markets from India and has received recognition through a number of prestigious awards, both for its research and development in computer software, software exports and quality of products, services and solutions, from various government and business organizations. The company has also been a continuous out-performer on the stock market.

7.

COMPANY G: A document eompany incorporated in the early 1980s in technical and financial collaboration with a foreign major. Ali the products of the organization are Y2K compliant. The firm has made a paradigm shift from selling stand-alone products and ser\ices to offering complete, networked business solutions. The organization has invested heavily over the years in research, engineering, marketing and customer service, reaping rich rewards. It continues to be the market leader in all key product categories.

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