Complementing the current management literature's focus on the value-creation side of empowerment practices, this paper offers a transaction cost-exchange perspective to explain why firms adopt empowerment practices and how such practices affect firm performance. Specifically, we theorize how performance ambiguity and human asset specificity, two major characteristics of employee-employer exchange, shape firms' decisions to adopt empowerment practices, both independently and interactively. Our model also develops a contingency perspective of how empowerment practices affect firm performance by delineating the moderating role of empowerment practices in the relationship between employee-employer exchange characteristics and firm performance.
Over the past three decades, employee empowerment practices have received considerable attention from human resource management (HRM) researchers and practitioners (Evans & Davis, 2005; Ford & Fottler, 1995; Kanter, 1977; Lawler, Mohrman, & Benson, 2001; Maynard, Gilson, & Mathieu, 2012; Robbins, Crino, & Fredendall, 2002; Seibert, Silver, & Randolph, 2004). Empowerment practices often take the form of advanced HRM practices, such as information sharing, autonomy through job boundaries, and team accountability (Seibert et al., 2004) by granting lower-level employees substantial decision-making authority and responsibility with respect to the execution of their job tasks (Wall, Cordery, & Clegg, 2002). These empowerment practices have been identified as a core component of the broader high involvement management practices (HIMP) and high performance work practices (HPWP) (Maynard et al., 2012; Riordan, Vandenberg, & Richardson, 2005). The general proposition in the literature is that adopting empowerment practices helps firms to better leverage human resources for competitive advantage (Wood, Burridge, Rudloff, Green, & Nolte, 2015; Wright, Dunford, & Snell, 2001) and enhances organizational performance (Birdi et al., 2008; Chenevert & Tremblay, 2009). This is congruent with a burgeoning body of research that has attempted to demonstrate that HIMP and HPWP result in better organizational performance (Wright, Gardner, Moynihan, & Allen, 2005). However, empirical studies have provided mixed evidence for the positive impacts of HIWP and HPWP, such as the influences of empowerment practices on firm performance (Birdi et al., 2008; Cappelli & Neumark, 2001; Combs, Liu, Hall, & Ketchen, 2006; Gibson, Porath, Benson, & Lawler, 2007; Kim & Ployhart, 2014; Staw & Epstein, 2000). The reality is that not all companies adopt empowerment practices and the effect of these practices on organizational performance may not be as large as one would expect (Kaufman, 2015; Wood & Wall, 2007).