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they provide evidence for the strategic human resource management SHRM perspective, which suggests that the knowledge and skills of people affect firm outcomes.. The Research Question Th

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HUMAN CAPITAL GAINS: HOW THE INVESTMENT AND

ALLOCATION OF HUMAN CAPITAL AFFECTS THE PERFORMANCE

OF HIGH TECHNOLOGY INITIAL PUBLIC OFFERING FIRMS

by

JASON C SENJEM

B A., University of Minnesota, 1993

M S., Purdue University, 1995

A dissertation submitted to the

Faculty of the Graduate School of the

University of Colorado at Boulder in partial fulfillment

of the requirement for the degree of

Doctor of Philosophy

College of Business and Administration

2001

®

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unauthorized copying under Title 17, United States Cade

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Ann Arbor, Mi 48106-1346

This dissertation entitled:

Human Capital Gains: How the Investment and Allocation of Human Capital

Affects the Performance of High Technology Initial Public Offering Firms

written by Jason C Senjem

has been approved for the

College of Business and Administration

Human Capital Gains: How the Investment and Allocation of Human Capital Affects

the Performance of High Technology Initial Public Offering Firms

Dissertation directed by Professor Joseph G Rosse

This study explored the influence of top management team human capital on

firm performance in 113 high technology initial public offering firms (IPOs)

Hypotheses are derived from human capital theory and resource-based theory This

research presents results that are significant in several regards First they provide

evidence for the strategic human resource management (SHRM) perspective, which

suggests that the knowledge and skills of people affect firm outcomes In general,

human capital was found to predict firm performance Second the results show some

evidence for the importance of human resource flexibility to the firm Third, this

research provided support for the resource-based view of the firm suggesting that

internal resources and how they are coordinated are important for firm performance

Finally, the research provided implications for the investment and allocation of

human capital in firms poised to grow

DEDICATION

This dissertation is dedicated to my family and friends who have made this

dissertation and life in the doctoral program possible To my wife, Ferelith, who has

opened my eyes to a whole new world She has given me constant support and I have

thrived on her love, enthusiasm, and encouragement [ hope that [ can give to her all

that she has given to me

To my parents, Don and Donna, who never doubted from as far back as I can

remember that I would earn an advanced degree To my brothers Brian and Matt for

supporting me in many ways [ also thank Brian for his extraordinary help with the

research,

To my wife’s family who also have been very supportive, especially to those

Boulderites Vivian, Brian, Isabelle, Charlie, and Pete who we will miss dearly

And finally to all my friends that [ have made here in Boulder I thank

especially Gideon, my pal and motivator from the Ph.D program I thank also Leon

for all the lunch sessions in the Ph.D program I thank Corinne for her guidance,

thoughtfulness, and her much needed help with the research

I would like to thank my dissertation committee for their involvement, in particular: Joe Rosse for chairing my committee, David Balkin for his knowledge on

my topic and for his role as reader/co-chair, Chris Koberg for her role as reader/co-

chair and her guidance throughout the program, Dale Meyer for his mentorship, and

Gary McClelland for his statistical acumen Their work and cooperation made this

dissertation possible

In addition, I would like to thank Ferelith Senjem, Brian Senjem, and Corinne

Thul for their assistance with the research data and discussion I would also like to

thank those scholars who contributed intellectual capital toward this dissertation

through timely discussions including Theresa Welbourne, Howard Aldrich, Rita

McGrath, Venkat, Pat Wright, Mike Hitt, and Harold Doty

The Strategic Human Resource Management Perspective

Best Practices/Universal Approach

Entrepreneurship Research a propos Human Resources

Human Resources in Organizational Life Cycles

Human Resources in Growth-Oriented Organizations

Summary

Summary of the Literature Review

vị

The Research Question

Theoretical Development

Human Capital Theory

General and Firm Specific Human Capital

Make or Buy

Resource-Based Theory

The Model and Its Components

Human Capital Investment Modes

Human Capital Investment

Allocating Human Capital

Rate of Growth

Performance, Productivity, and Value Creation

Summary of Model Components

Hypotheses

Summary

Research Design Issues

Research Design Strategy

Human Capital Allocation

Controls and Other Variables

Extraction and Analysis of Full Sample

Effects for human capital

Effects for firm performance

Interaction effects for firm performance

Supplemental analyses

Summary of results

DISCUSSION AND CONCLUSION

Introduction

Obtaining human capital

Human capital and performance

Allocating human capital

Implications for SHRM

Implications for business

Discussion of supplemental analysis

A 1997 high technology IPOs by industry (n = 111) 196

B List of concentrated high technology metropolitan areas

C Content analysis instrumentation:

D An example of content analysis instrumentation and scoring

using the 1999 [PO of VA Linux Systems, Inc 223

ly — Summary of the changing nature of competition, organizations, and work 18

2.2 Key studies in human resource competencies approach:

2.3 Key studies in human resource competencies approach:

2.4 Key studies in human resource competencies approach:

2.6 Growth readiness matrix (from Lengnick-Hall & Lengnick-Hall, 1998) 53

2.7 Research involving human resources in entrepreneurial firms 56

3.1 Strategic HRM indicators of resource and coordination flexibility

4.1 Content analysis instrumentation of independent variables 95

4.3 Content analysis instrumentation and operationalization of moderator

4.4 Content analysis instrumentation and operationalization of dependent

4.5 Content analysis instrumentation of control variables 110

4.7 Testing the HR architectural model with regression analyses 119

Xi

5.1 Alpha reliability coefficients for cross-coded variables 125

5.3 Descriptive statistics for the sample and the independent variables 128

5.4 Correlations and descriptive statistics for variables used in the analysis 131

5.7 Results of regression analyses for moderating effects on firm performance 137

5.8 | Supplemental analyses for hypothesis 3 using ROA, ROS, and

Four quadrants of an HR architectural model

(adapted from Lepak & Snell, 1999)

A SHRM architectural model

A model of human capital investment

(adapted from Lepak & Snell, 1999)

Hypotheses from a SHRM architectural model

Hiring by rate of growth interaction predicting industry experience

Tiers by industry experience predicting market value

Tiers by firm experience predicting market value

Human resource flexibility by firm experience interactions

Technology by industry experience predicting work productivity

Human resource flexibility by management experience interactions

More human resource flexibility by management experience interactions

Human resource flexibility by firm experience interactions

Human resource flexibility by industry experience interactions

CHAPTER 1

INTRODUCTION

Zam not asking what determines whether a particular

firm can grow, but rather the very different question:

assuming that some firms grow, what principles will

then govern their growth, and how fast and how long

can they grow? (Penrose, 1959, p 7)

As we approach “the precipice of an epoch”, our society and researchers alike

are faced with a new organizational landscape for the twenty-first century (Hitt,

1998) Changes in the form of hyper-competition, increased technology, and

globalization of markets have led to organizational growth, creating uncertainty,

ambiguity, and discontinuity (Ireland & Hitt, 1999) As the ability for organizations

to adapt to growth in this hyper-competitive environment becomes increasingly

important, the organization and its leaders must focus on and invest in human capital

(knowledge and skills) in order to create competitive advantage over an

organization's competitors (Barney, 1995: Becker & Gerhart, 1996: Hitt, Keats, &

DeMarie, 1998: Pfeffer, 1994, 1998) Rather than assume these changes are

detrimental, it is time to ask how this ambiguity and uncertainty are beneficial to

organizations Successful organizational growth and performance may depend on

how the leaders of the organization invest in human capital (Ireland & Hitt, 1999)

Indeed, Ireland and Hitt believe that “in the 21° century, the ability to build share and

leverage knowledge will replace the ownership and/or control of assets as a primary

source of competitive advantage” (p 44)

There has been increasing interest in the implications for human resources

management (HRM) in organizations poised for growth HRM involves the

investment and allocation of human capital in an organization By examining initial

public offering (IPO) firms, which experience an influx of cash for growth, this

dissertation investigates the magnifying effect of growth-related problems on

obtaining and allocating the appropriate human capital, or knowledge and skills The

purpose of this dissertation is to answer the question of how growth-oriented

organizations invest in and allocate knowledge and skills to achieve competitive

advantage

The above research study is based on issues in the research domains of

strategic human resource management (SHRM) and entrepreneurship The research

domain of SHRM is important to this dissertation Research in SHRM proposes that

the knowledge and skills of the individuals that make up the organization influences

firm performance (Pfeffer, 1994) Based on the idea that internal resources may be the only means of creating sustainable competitive advantage (Amit & Schoemaker,

1993; Barney, 1991; Dierickx & Cool, 1989), the SHRM perspective has suggested

that human capital and human resource systems that organize human capital are

critical for creating value for the organization (Devanna, Fombrun, & Tichy, 1981:

Lado & Wilson, 1994; Schuler & MacMillan, 1984) A major issue that the SHRM literature deals with is showing the value of human capital to the organization

(Chadwick & Cappelli, 1999) Human capital is defined as knowledge and skills

including “training, experience, judgment, intelligence, relationships, and insight of

individual managers and workers in a firm (Barney, 1997)” and their unique

combinations that produce competitive advantage SHRM research attempts to

measure the effects of managing human capital on firm performance A variety of

approaches are typically used to examine this link with performance including “best

practices”, contingency, configurational, executive agency, and competencies

approaches Thus, using a SHRM perspective in this dissertation helps in building an

overall framework in which to develop theoretical propositions involving human

capital and firm performance

In addition, an important issue from the entrepreneurship literature involves

the management of organizational growth (Penrose, 1959; Welbourne, Meyer, &

Neck, 1999) Organizations encounter many challenges during growth that require

human resource management policies (Aldrich & Langton, 1998; Aldrich & von

Glinow, 1992; Baron, Burton, & Hannan, 1996) Human resource management policies are critical because they determine what and how knowledge and skills are

invested and how those knowledge and skills are allocated Because an increasing

rate of growth places demands for knowledge and skills on the organization, choosing

human resource management policies that meet the demand are crucial Thus, this

dissertation provides a piece to the puzzle of understanding how organizations meet

the growth demands of knowledge and skills

Two theories ground this research in a framework that specifies important

relationships between human capital and firm performance: human capital theory and

resource-based theory Human capital theory has two major implications for the

investment in human capital, which is defined as the knowledge and skills used by the

organization The first implication is that there is a difference between general and

or buy decision of whether to invest human capital internally or obtain human capital

externally

Human capital theory is complementary to resource-based theory According

to the resource-based view of the firm, competitive advantage can be achieved when

resources such as human capital (knowledge and skills) are valuable and unique

(Barney, 1991) The resource-based view of the firm assumes that human capital is

heterogeneous and potentially immobile; that is, human capital varies as to the extent

that value and uniqueness are inherent characteristics of an organization’s human

capital (Wright, Smart, & McMahan, 1995) Presumably, the more unique and

valuable human capital is, the more likely it is to lead to competitive advantage for

the firm (Barney, 1997)

Using human capital theory and resource-based theory, a model is presented

that links different human capital investment modes (cf HR practices) to the actual

knowledge and skills of an organization that then affects firm performance Both HR

nractices and firm performance are important and are included in the model

However, I include them as part of an overall augmented model (i.e., architectural HR

model) based on relationships specified by human capital theory and resource-based

theory rather than hypothesizing a direct relationship between those investment

modes (cf HR practices) and firm performance Thus, the model has some

theoretical grounding, something SHRM research has been criticized as lacking

With these theories in mind, I am looking at specific investment and allocation

relationships that lead to firm performance Consequently, this test of an overall HR

model with theoretically specified relationships ¡s what Í hope to add to the research

literature in SHRM

The proposed model is constructed to answer two major questions: |) How

does human capital investment occur? and 2) How does human capital investment

translate to performance? Two moderating variables enumerate the relationships in

the HR model that are based on the two major questions (see Table 1.1) The first

moderating variable is rate of growth that influences how human capital investment

modes affect human capital investment characteristics I hypothesize that in firms

with a higher rate of growth, acquisition/ board invitation investment modes will be

positively related to valuable human capital (i.e., general knowledge and skills)

Furthermore, in those firms with a lower rate of growth, development alliance

investment modes will be positively related to unique human capital (i.e specific

knowledge and skills)

1 Development 1 Value (General HC)

2 Acquisition 2 Uniqueness (Specific HC)

3 Board Invitation

4 Alliance

2 How does human capital investment translate to performance?

The second moderating variable is human capital allocation (i.e., HR

flexibility), which is hypothesized to affect the relationship between human capital

investment characteristics and firm performance Resource-based theory proposes

that valuable and unique internal resources (e.g., knowledge and skills) create

competitive advantage when they are organized properly Since the degree of HR

flexibility (resource and coordination flexibility of knowledge and skills) is an

indicator of the ability of internal resources to be organized (i.e., the allocation of

knowledge and skills), HR flexibility should influence the relationship between

human capital characteristics and firm performance I hypothesize that the greater the

HR flexibility (human capital allocation), the stronger the relationship between both

valuable and unique human capital and firm performance, since greater HR flexibility

allows the HR system to more easily reconfigure its resources (knowledge and skills)

in order to adapt to the growth of the organization

To test these relationships, a sample of 113 IPO firms is studied [POs are

unique in that they represent a dramatic change in increased growth going from

private to public ownership Furthermore, these firms tend to be small and young

when undergoing this change Thus, [POs present an excellent opportunity for

studying new ventures that are likely to be dealing with the human capital issues

discussed in this dissertation The research design follows a cohort of organizations

that went public in 1997 over a two-year period to study the relationships between the

investment and allocation of human capital and firm performance (see Table 1.2) A

multimethod approach of data collection is used including: content analysis of initial

public offering (IPO) prospectuses, extraction of COMPUSTAT financial database

information, and supplemental information from annual reports to shareholders, 10k

reports, and company web sites as needed Three phases of IPO prospectus content

analysis is conducted: instrumentation, pilot study, and extraction Finally, the data is

analyzed using a model comparison approach to multiple regression

Human 113 IPOs from Longitudinal | HC Investment | OLS

telecommunications | prospectuses, | Alliances

Characteristics:

Education level;

Industry experience;

Firm experience;

Management experience

HR Flexibility:

Skill variety;

Employment Agreements;

Although many problems of research design exist, proper planning can help

limit the effects of some of these for a stronger overall research study These

problems are addressed by using a longitudinal research design as well as multiple

dependent variables, a specified sample, and theoretically derived hypotheses

This study provides several contributions to the research literature, theory, and

organizational application It contributes to the literature in the domains of strategic

human resource management and entrepreneurship The research adds to the SHRM

literature by showing how the value, uniqueness, and allocation of knowledge and

skills are important for organizational performance This will help provide some

evidence for the competencies approach to SHRM by showing the value of human

capital to firm performance In addition, because this study investigates the

relationships involved in investing in and allocating human capital, this will help shed

light on the processes at work in SHRM Also, this expands the SHRM domain by

looking deeper than strategies and beyond contingencies directly into the knowledge

and skills of key individuals and more broadly into key mechanisms of leveraging

those knowledge and skills

This research presents results that are significant in several regards First,

they provide evidence for the strategic human resource management (SHRM)

perspective, which suggests that the knowledge and skills of people affect firm

outcomes In general, human capital is predicted to increase firm performance The

results of the current study tests these propositions by measuring make versus buy

human resource systems and the flexibility of its human resources [n addition, key

human capital characteristics are measured and related to several different measures

of firm performance

Second, this research shows how top management teams influence the

performance of the firm Executives use their individual experiences, or human

capital, to develop cognitive bases of decision-making The upper-echelons approach

(Hambrick & Mason, 1984) proposes that top managers use these cognitive bases to

make decisions that affect the strategy and performance of a firm While top

managers’ cognitive bases are developed through their individual experiences, these

experiences can influence organizational outcomes such as firm growth (Eisenhardt &

Schoonhoven, 1990) The results will show under what conditions the expzrience of the top management team improves performance

Third, the model is intended to show the importance of human resource

flexibility to the firm A primary proposition is that higher human resource flexibility

will increase performance for those firms with higher levels of human capital (Dyer

& Schafer, 1999; Hitt, Keats, & DeMarie, 1998: Wright & Snell, 1998) For

example, Wrigat and Snell (1998) suggest that human resource flexibitity should

create greater fit among the firm’s strategy, employee skills, employee behaviors, and

human resource systems However, a closer look at flexibility should provide some

interesting implications that will be examined in this study

Fourth, this research is intended to provide support for the resource-based

view of the firm According to resource-based theory, competitive advantage can be

achieved when resources such as human capital (knowledge and skills) are valuable and unique (Barney, 1991) The resourced-based theory assumes that human capital

Il

is heterogeneous and potentially immobile (Amit & Schoemaker, 1993; Bamey,

1991; Wernerfelt, 1984); that is, human capital varies as to the extent that value and

uniqueness are inherent characteristics of an organization’s human capital (Wright,

Smart, & McMahan, 1995) Presumably, the more unique and valuable human

capital is, the more likely it is to lead to competitive advantage for the firm (Barney,

1997) The study should show in what situations unique and valuable human capital

are likely to contribute to increased firm performance

Fifth, this study adds to the entrepreneurship literature with its focus on

growth One of the biggest issues in entrepreneurship is the management of growth

By focusing on firms experiencing growth and measuring the rate of growth, we can

observe effects to human capital that occur during this period of change For

instance, we can expect firms that manage growth well will behave differently than

those firms that do not Thus, it would seem to be important to know how rate of

change influences that firm behavior

Finally, this study contributes to the development of theory in organizations

By integrating two complementary theories that treat knowledge and skills as

important assets to organizations, the research model maximizes the strengths and

minimizes the weaknesses of each theory as applied to organizations For instance,

should an organization use external employment relationships and acquire their

human capital, or internally develop the knowledge and skills of its key employees?

Human capital theory helps in answering this question of “making” or “buying” an

organization’s human capital, but does not have so much to say about how that

human capital is put to use On the other hand, resource-based theory does not

allocation of those resources

The contributions of this study to organizational applications are limited As

science is the pursuit of knowledge, the study may be justified for its own sake

However, the importance of relating academic research to the business world is

undeniable Consequently, there are three important implications of this research for organizations First, the model intended to provide evidence that certain modes of

human capital investment provide valuable or unique knowledge and skills to the

organization that are important for competitive advantage For example, from the

results of future research we may be able to infer whether acquiring and/or

developing human capital provides the best balance of knowledge and skills

according to how fast a firm grows Firms may need to take into account the

expected rate of growth and compensate for this early on by using investment modes

that will translate into the best mix of talent for the long term At the very least, the

results may tead to new questions about acquiring and developing knowledge and

skills for organizations

Second, this study will help to determine under what conditions specific and

general human capital are important for firm performance The proposes that top

management in growth-oriented firms need both general knowledge and skills for

adaptability and specific knowledge and skills for a greater understanding of technical

growth problems that affect the performance of the firm Therefore, human capital

investment decisions may need to consider the diversity and depth of knowledge and

13

skills of those individuals leading a firm through the uncertainty and changes

involved in growing an organization

Third, the results may suggest that firms perform better in growth-oriented

environments when human resources are flexible Thus, firms that also invest in

coordinating technology, develop flatter structures, locate in high technology areas,

have more variety of knowledge and skills in their top management, and do not

require employment agreements may be able to increase the firm’s market value To

be clear, this study is not intended to test these three applications However, it is both

useful and appropriate to anticipate potential implications for the results of this study

Such iterations between academic model building and organizational application can

provide important insight leading to a more developed understanding of the

phenomenon

In summary, human capital investment is proposed to be important for

providing value and uniqueness to the organization In addition, how the firm

allocates its valuable and unique human capital may determine its competitive

advantage for growth-oriented organizations Snell, Youndt, and Wright (1996: p

84) are frank in saying that empirical research in this area is greatly needed:

It is somewhat tronic that just when executives fully

embrace the idea that people are their best asset, and

turn to us for advice and council on how to build

competitive advantage through people, we as a

community of scholars may have too little to offer them

This dissertation intends to provide some evidence that can be used to help

guide the study of human capital and growth-oriented organizations In addition, this

research attempts to address some of the major research issues in the SHRM and

entrepreneurship literature This research has introduced many interesting questions

not tested here of which I hope to pursue Some questions include: How do new

ventures deal with the obsolescence of their human capital? How do social capital

investments affect performance and human capital investments? Do human capital

investments slow growth over time?

The layout of this dissertation is as follows First, this chapter provides an

overview of the research question and guidance for the rest of the chapters The

second chapter reviews the relevant literature For instance, the importance of people

and their knowledge and skills in today’s work environment is shown In addition,

the strategic human resource management perspective is introduced as a research

literature that is involved in showing how the investment and allocation of human

capital is important to the organization including the five major approaches to this

perspective Next, the organizational life cycle literature is discussed to provide the

background to the research setting in growth-oriented organizations Also, the

literature on the special requirements for human resources in growth-oriented

organizations is reviewed Chapter 3 then presents the research question as well as

introduces the relevant theories After discussing human capital theory and resource-

based theory, the model will be presented and its components defined Next, the

hypotheses are specified based on the theories introduced earlier Chapter 4 then

provides a research design in which to test the model from the previous chapter

Justifications for the sample, measures, and procedure are given Then, a discussion

of an appropriate analysis for the data concludes the chapter Chapter 5 presents the

results of the research design and analyses Finally, Chapter 6 concludes with a

discussion of the results, implications for SHRM and for business, limitations, and

future research

CHAPTER 2

LITERATURE REVIEW

What a piece of work is man! how noble in reason! how

infinite in faculty! in form and moving how express!

how admirable in action! how like an angel in

apprehension! how like a god! the beauty of the world!

the paragon of animals! And yet, to me what ts this quintessence of dust? (Hamlet, W Shakespeare)

In today’s organizations we can see Hamlet’s enigma of contrasting

philosophies regarding the value of the individual Can individuals bring a unique

value to organizations, or are we mere “dust” to be swept under the metaphorical rug

of the organization? Of organizations, it has been said that “the people make the

place (Schneider, 1987)” and we should “put people first for organizational success”

(Pfeffer & Veiga, 1999) However, too often we hear of individuals as “cogs” in the

machinery of the organization to be controlled and manipulated with as much say as a

speck of dust Consequently, these “Newtonian organizations in a quantum age”

(Wheatley 1992, p 25) that refuse to acknowledge sincerely that individuals do matter to their sustainability and growth will be left behind

This chapter first assesses today’s work environment, which has put a

premium on the value of people Second, this chapter reviews the human resources

literature that has been influenced by this increased importance of putting people first

in Organizations Finally, this chapter examines the criticality of human resources in

growth-oriented organizations

17

The Importance of Human Resources in Today’s Work Environment

In today’s environment, human resources have become more important than

ever Although 21*'-century technologies threaten that “the future doesn’t need us”

(Joy, 2000: p 238), there is ample evidence that suggests the knowledge and skills

that people hold will provide the value to organizations now and in the future

Clearly, most organizations and researchers alike recognize that the world of

work is changing in the new millennium Organizations have been trying different

ways of dealing with this change through TQM, team-based designs, telecommuting,

empowerment, and a myriad of other management fashions Likewise, organizational

researchers have been initiating research streams based on those fashions More

important, however, is the more general trend toward recognizing that these changes

are evolving into a fundamental shift in the way organizations utilize the knowledge

and skills of people

Several significant forces are driving today’s and tomorrow's businesses:

customer focus, expansion of customer definition, Internet technologies such as e-

commerce, cross-industry competition, more global players, need for more

technology skills, more cross-firm alliances and networks, and the increasing

diversity of workers Organizations are emphasizing these new issues and we must

adapt our research, which is mostly based on past assumptions of the workplace, in

order to remain relevant in these changing times

Below are three perspectives on how people are affected by the changing

nature of work (See Table 2.1) These perspectives point out the key economic forces

that are propelling employees and employers to form new roles and relationships

More certainty and stability

Relatively clear industry boundaries

Increasing strategic discontinuities

Blurring of industry boundaries

Hypercompetitive markets

Extreme emphasis on customer

Focus on innovation, learning Changing career dynamics

Rule-centered work structures

New Organizational Era (Rousseau, 1997)

Stable work responsibilities

Employees with similar responsibilities

Fixed, machine-driven technology

Internally-defined performance

Designs stressing present performance

Less use of individual-based structures 21" Century Nature of Work (Ilgen

& Pulakos, 1999; Murphy &

Jackson, 1999) Unstable work responsibilities

Unique responsibilities

Person driven technology interfaces

Customer-defined performance

Designs enabling future performance

Greater use of team-based structures

19

Hitt, Keats, and DeMarie (1998) summarize strategic changes that

organizations are encountering as we approach the new millennium:

The new competitive landscape, driven by the

technological revolution and significant globalization,

is moving towards hypercompetition (rapidly escalating

competition and strategic maneuvering), extreme emphases on price, quality and satisfaction of customer

needs, and an increasing focus on innovation (both in

technology and new products/services) Furthermore,

the time frames of all strategic actions are being

reduced In this new competitive landscape, firms exist

in highly turbulent and chaotic environments that produce disorder, disequilibrium and substantive

uncertainty (p 23)

Currently, over 170 million people use the Internet including 3.5 billion E-

mail messages sent daily and $60.4 billion spent on E-services and equipment

expected to reach $203.2 billion by 2002 (Hamm, 1999) In 1998 the Internet

economy, including infrastructure, applications, intermediaries, and E-commerce,

generated $301 billion in revenue and 1.2 million jobs That is a rate of growth of

174.5 percent over the past four years (Belton, 1999) Clearly, growth in technology

has a huge impact on the way organizations are doing business

In the last fifty years the percentage of worldwide income that has come from

global trade has tripled from 7 percent to 21 percent (Ruggiero, 1997) Economic and

companies For instance, free trade agreements like GATT, NAFTA, and the Favored

Nation status of China help encourage economic development and growth

internationally Organizations are reacting to this global environment, meaning more

adaptation and change for these companies

Hitt et al., (1998) outlines six primary challenges that organizations are

experiencing driven by changes in technology and the global economy In particular,

they propose that in order to deal with the new competitive landscape, organizations

must develop strategic flexibility They define strategic flexibility as “the capability

of the firm to proact or respond quickly to changing competitive conditions and

thereby develop and/or maintain competitive advantage” (p 26) Briefly, they

suggest that flexibility can be achieved through building core competencies,

developing human capital, effectively using new technologies, engaging in valuable

strategies (e.g., global markets, alliances), and creating an innovative culture

Rousseau (1997) argues that organizations are moving away from the

traditional concept of organization and taking on the new concept of organizing She

suggests that researchers need to focus on organization as a process, its traditional

meaning, rather than on organization as a fixed entity as has been the case for the last

50 years The process of organizing is becoming more important in an era of

transitions that can be summarized as follows:

In the past two decades, globalization has forced American companies

to compete on a world-wide scale, and the collapse of communism has

extended capitalist principles to every corner of the globe

Deregulation has injected market forces into areas long insulated from

them, such as telecommunications, air travel and medicine The

Internet has helped better-informed buyers find legions of new sellers,

and sellers find far-flung buvers (Murray, 1999: p Al)

Rousseau’s (1997) look at the future of organizational behavior research

identifies several changes in work due to specific environmental changes in the

economy like those Murray identifies For instance, the actual tasks which

employees complete are changing from being merely repetitive to requiring

uniqueness and novelty This affects the psychological contract between employee

and employer, as this change requires some acceptance of ambiguity from the

employee and more flexibility in structure from the employer (Rousseau, 1995)

Furthermore, network relationships are changing Rousseau suggests that these

relationships form depending on what information or knowledge is required to be

successful rather than traditional roles provided by members of a network In other

words, relevant expert knowledge is preferred over functional expertise in

collaborations Expert knowledge is thought to be more flexible than functional

expertise, which is important in an ambiguous and uncertain environment, where

roles are broadly defined In addition, the process of organizing means that

individual careers are based on the personal resources one can provide rather than as a

progression up a hierarchy of an organization Flattening hierarchies in contemporary

organizations have eliminated the traditional promotion-focused career Now the

emphasis is on personal development and the amount of experience and flexibility, as

well as breadth of knowledge and skills that one can contribute to the organization

This means that individual differences in personality, learning, and cognition are

more important than ever as individuals vary in their ability to adapt while trying to

develop their careers Finally, work structures are becoming more and more

developed by the people doing the work Rather than managers providing direct

control over employees, with the increased spans of control and responsibilities for

managers, self-management appears to be the answer to the lessening of formal

control Fewer external cues from reduced structure increases the importance of

improvisation and learning thereby allowing self-management to provide internal

guides for navigating in an uncertain environment

Murphy and Jackson (1999) echo Rousseau and Hitt et al in describing the

effects that the changes in the nature of work will have on the role of human resource

systems as we enter the next century First, stable work responsibilities are

disappearing, as job elements are becoming less codified due partially to weakening

of unions (Ilgen & Pulakos, 1999) Technology also creates less stable jobs, as

employees must continuously learn new job elements thereby increasing costs of

assessing performance

Second, similar to the change to unstable work responsibilities is the increase

in tailoring the job to the individual The advent of the Americans with Disabilities

Act, job sharing, and other factors (IIgen & Pulakos, 1999) make performance more

situation specific and thus more difficult to measure Third, as technology interfaces

with individuals increases, HR systems will encounter more difficulty in separating

individual performance from the technology used as well as encounter greater ease of

assessing technology with electronic monitoring systems

Fourth, in the future human performance will be determined more by

customers than by internal standards Customers in this conceptualization are both

internal and external These customer assessments of performance are difficult to

define and evaluate Customer performance standards may be relatively

straightforward to set, but linking these standards to any particular individual may be

somewhat tenuous Fifth, the importance of continuous learning is essential for

organizations using designs enabling future performance rather than stressing present

performance Identifying individuals who can learn and deal with change may be the

biggest challenge for HR systems looking for individuals who will perform well in

the future

Finally, using team-based structures rather than traditional individual-based

structures creates the necessity for flexibility in the distribution of responsibilities

Consequently, HR systems face increased difficulty of assessing performance,

rewarding individuals, motivating individuals, and developing individuals

Summary

One common theme emerges out of the above three perspectives of the

changing nature of work That theme is the need for organizations to invest in

knowledge and skills Making human resources a priority requires the realization that

competitive advantage, new ways of organizing, and human and organizational

performance all will be achieved in this new organizational environment only if the

organization is willing to invest in its people that make up the organization The

strategic human resource management view of organizations supports a framework

for showing the advantages of investing in knowledge and skills while facing change,

growth, and competitive pressures

The Strategic Human Resource Management Perspective

The changes in the nature of work outlined above have led to a rediscovery of

human resources (HR) as a way to take on these new challenges The following

sections examine research in Strategic Human Resource Management (SHRM) or HR

strategy SHRM researchers try to answer questions such as, “Does HR really matter,

do people really matter, and how can organizations make people matter?”

Consequently, SHRM attempts to show that HR systems or people in the HR systems

make a difference to the organization's bottom line

Human resource management has been maligned in the past for not

contributing to the bottom line of firms Work on utility analysis to provide a dollar

value for a particular HR practice has made some progress in showing the value of

HRM, but it has generally been ineffective Somewhat recently, a body of literature

called SHRM has emerged which connects human resource management systems

with the decision-making that goes on regarding bottom line issues The goal of

SHRM is to prove and define the value of HR to the organization How that is done

is of some debate as not everyone agrees upon what SHRM is Several perspectives

have been proposed to represent the value of SHRM: “best practices”, contingency

configurational, executive agency, and competencies

The best practices approach refers to a fixed set of HR practices that

contribute to the bottom line The contingency approach, however, refers to a vertical

coupling of an HR practice or two that link to certain organizational strategies The