The Needfor Understanding Human Resource Management (HRM) in Context
Applied psychologists have developed sophisticated tools and techniques intended to improve the effectiveness of organizations, and substantial evidence attesting to the value of these h as accrued (e.g. Denison 1990; Hansen & Wemerfelt 1989; Kaufman 1992; MacDuffie & Krafcik 1992; Macy & Izumi 1993; Terpstra & Rozell 1993; United States Department of Labor 1993; MA Huselid, unpublished; ER Schnell, Olian JD, KG Smith, HP Sims Jr, JA Scully, KA Smith, unpublished). Nevertheless, US employers have been slow to adopt the "best" practices, i.e. those widely discussed in organizations as being the most effective (Bretz et al1992, Rynes & Boudreau 1986, Saari et al 1988). Commentators have suggested that the acontextua1 nature of the scientific evidence is part of the problem (e.g. Johns 1993, Murray & Dimick 1978); consequently, calls for new human resource management (HRM) research that takes context more seriously have become more frequent (e.g. Begin 1991, Dobbins et al 1991, James et al 1992, Latham 1988). At the same time, a growing body of empirical evidence is beginning to shed light on the relationship between contextual conditions and HRM. Our objective for this review is to increase the momentum associated with this emerging field.
We use HRM as an umbrella term that encompasses (a) specific human resource practices such as recruitment, selection, and appraisal; (b) formal human resource policies, which direct and partially constrain the development of specific practices; and (c) overarching human resource philosophies, which specify the values that inform an organization'S policies and practices. Ideally, these comprise a system that attracts, develops, motivates, and retains employees who ensure the effective functioning and survival of the organization and its members. To understand HRM in context we must consider how these three components of HRM are affected by the internal and external environments of organizations. The internal contextual factors we discuss are technology, structure, size, organizational life cycle stage, and business strategy. We treat organizational culture as inextricably bound to HRM and therefore not meaningful if separated from it. The external contextual factors are legal, social, and political environments; unionization; labor market conditions; industry characteristics; and national cultures.
Theoretical Perspectives Relevant to Understanding HRM in Context
Theoretical perspectives based in sociology, economics, management, and psychology focus on different aspects of the domain of HRM in Context (Wright & McMahan 1992). We begin by offering brief summaries of the perspectives that have guided most of the empirical studies reviewed in this chapter and that we feel are most likely to drive future research.
GENERAL SYSTEMS THEORY In general systems theory, the unit of analysis is understood as a complex of interdependent parts (von Bertalanffy 1950). An open (vs closed) system is dependent on the environment for inputs, which are transformed during throughput to produce outputs that are exchanged in the environment. Open systems models seldom address organizations or large units within organizations. Katz & Kahn's (1978) The Social Psychology of Organizations is an exception in that it treats HRM as a subsystem embedded in a larger organizational system. The open systems view of HRM has been developed further by Wright & Snell (1991), who used it to describe a competence management model of organizations. Skills and abilities are treated as inputs from the environment; employee behaviors are treated as throughput; and employee satisfaction and performance are treated as outputs. In this model, the HRM subsystem functions to acquire, utilize, retain, and displace competencies. Similarly, Snell's (1992) description of HRM as a control system is based in open systems theory. In a more narrow discussion, Kozlowski & Salas (1994) presented a multilevel organizational systems approach for understanding training implementation and transfer. Many of the more specific theories used to understand HRM in Context assume that organizations function like open systems (see below).
ROLE BEHAVIOR PERSPECTIVE Katz & Kahn (1978) focused on roles as the interdependent components that make up an organization system. Instead of using specific behaviors andjob performances as the fundamental components, this perspective shifts the focus from individuals to social systems characterized by multiple roles, multiple role senders, and multiple role evaluators. Katz & Kahn defined role behaviors as "the recurring actions of an individual, appropriately interrelated with the repetitive activities of others so as to yield a predictable outcome." HRM is the organization's primary means for sending role information through the organization, supporting desired behaviors, and evaluating role performances; it is effective, therefore, when it communicates internally consistent expectations and evaluates performances in ways that are congruent with the system's behavioral requirements (e.g. see Frederickson 1986). System requirements are, in turn, presumed to depend on contextual factors such as business strategies and the nature of the industry. Role theory recognizes that the behavioral expectations of all role partners can influence the behavior of organizational members. By implication, effective HRM helps employees meet the expectations of role partners within the organization (i.e. supervisors, peers, subordinates), at organizational boundaries (i.e. customers and clients), and beyond (i.e. family and society). Thus the expectations of these role partners must be incorporated into an understanding of HRM in Context.
INSTITUTIONAL THEORY A role theory perspective assumes individuals respond to normative pressures as they seek approval for their performance in socially defined roles. Similarly, institutional theory views organizations as social entities that seek approval for their performances in socially constructed environments. Organizations conform to gain legitimacy and acceptance, which facilitate survival (Meyer & Rowan 1977, Zucker 1977). Because multiple constituencies control needed resources, legitimacy and acceptance are sought from many stakeholders.
Research on institutionalization (Scott 1987, Zucker 1987) focuses on pressures emanating from the internal and external environments. Internally, institutionalization arises out of formalized structures and processes, as well as informal or emergent group and organization processes. Forces in the external environment include those related to the state (e.g. laws and regulations), the professions (e.g. licensure and certification), and other organizations-especially those within the same industrial sector. Regardless of the source of institutional pressures, two central assertions of this perspective are (a) institutionalized activities are resistant to change and (b) organizations in institutionalized environments are pressured to become similar (Meyer & Rowan 1977, DiMaggio & Powell 1983). Thus, in this theoretical perspective, context is the major explanation for both resistance to change and the adoption of new HRM approaches. The first assertion suggests that HRM activities have deep historical roots in the organization, so they cannot be understood completely without analyzing the organization'S past. From the second assertion it follows that HRM activities may be adopted by an organization simply because other organizations have done so. Thus, "managerial fads and fashions" ebb and flow in part because a few legitimate organizations become fashion leaders that are imitated by other organizations that view imitation as a low-risk way to gain acceptance (Abrahamson 1991). Tolbert & Zucker (1983) showed, for example, that institutionalization resulting from imitation partially explained the rate at which reforms in civil service selection procedures spread throughout the country at the turn of the century.
RESOURCE DEPENDENCE THEORY Like institutional theory, resource dependence theory focuses on the relationship between an organization and its constituencies. However, resource dependence theory emphasizes resource exchanges as the central feature of these relationships, rather than concerns about social acceptability and legitimacy (Pfeffer & Cohen 1984). According to this perspective, groups and organizations gain power over each other by controlling valued resources. Furthermore, HRM activities and processes are assumed to reflect the distribution of power within a system. For example, personnel departments acquire power over other departments to the extent they make others dependent upon them by controlling the flow of human resources into and through the organization (Osterman 1984, 1992; Pfeffer & Cohen 1984). Thus this theoretical perspective is somewhat similar to an interactionist perspective within psychology in that the actor (an organization or unit) and the environment work in conjunction as explanations for the behavior of the actor.
Institutional theory and resource dependence theory were developed in the context of understanding large public bureaucracies, where efficiency may not be among the most important goals (see Ostroff & Schmitt 1993). In contrast, the theories we discuss next-human capital theory, transaction costs theory, agency theory, and resource-based theory-were developed in the context of understanding business enterprises, for which issues of efficiency are presumed to be central.
HUMAN CAPITAL THEORY In the economics literature, human capital refers to the productive capabilities of people (Becker 1964). Skills, experience, and knowledge have economic value to organizations because they enable it to be productive and adaptable; thus, people constitute the organization's human capital. Like other assets, human capital has value in the market place, but unlike other assets, the potential value of human capital can be fully realized only with the cooperation of the person. Therefore, all costs related to eliciting productive behaviors from employees-including those related to motivating, monitoring, and retaining them-constitute human capital investments made in anticipation of future returns (Flamholtz & Lacey 1981).