Throwback Thursday: How HR Impacts Organizational Performance

[In honor of #ThrowbackThursday, we’re pleased to bring you one of our most read posts on Human Resource Development Review‘s article “HRD and HRM Perspectives on Organizational Performance: A Review of Literature.”]

 Victor1558 (cc)

Victor1558 (cc)

Managers rely upon HR departments for services such as recruitment, payroll, and employee relations, but experts have found that HR plays a much more significant role in organizations. To explore this role, Meera Alagaraja of the University of Louisville published HRD and HRM Perspectives on Organizational Performance: A Review of Literature in the Human Resource Development Review June 2013 issue:

HRDR_72ppiRGB_150pixWA systematic review of literature on the relationship of human resources (HR) and organizational performance (OP) revealed a dearth of contribution from human resource development (HRD) in establishing the linkage. This linkage, which refers to the significant relationship between HRD and OP, is an important topic relevant to research and practice. The review utilized OP as the dependent variable to survey the state of human resource literature and thus, includes contributions from human resource management (HRM). The literature review revealed similarities and differences in the conceptualization of OP as a dependent variable between the two fields. On further analysis, the similarities and differences reveal convergence in specific areas of inquiry as well as emphasize the underlying differences in the philosophical assumptions of HRD and HRM. The independent contributions of HRD and HRM in establishing the HR–OP linkage also reflect the utilization of diverse research designs, methods of data collection, analysis, and findings. Both fields have focused on strategic contributions for improving organizational performance and are very much connected in practice. Much of the separation therefore, appears to be academic where competing views highlight a tension that exists in theory, research and what we know about effective HRD or HRM in practice.

Continue reading the article here, and get e-alerts about the latest research published in Human Resource Development Review.

Throwback Thursday: What is Organizational Performance?

[Happy #ThrowbackThursday! We’re excited to revisit one of our most read posts on Organizational Research Methods‘s article “Exploring the Dimensions of Organizational Performance: A Construct Validity Study.”]

kenteegardin (cc)

kenteegardin (cc)

Editor’s note: We are pleased to welcome P. Maik Hamann, Frank Schiemann, Lucia Bellora, and Thomas W. Guenther, all of Technische Universitat Dresden, whose paper Exploring the Dimensions of Organizational Performance: A Construct Validity Study was published in Volume 16, Number 1 (January 2013) of Organizational Research Methods. The raison d’être of management research is to prove that management instruments and management methods, such as strategic planning, zero based budgeting, or the balanced scorecard, are able to enhance organizational perfUntitledormance. In addition, major theories in management research, for instance all contingency theories, include organizational performance as an important dependent variable in their conceptual arguments. But what is organizational performance? How can it be defined and measured in a reliable and valid manner? The Organizational Research Methods article Exploring the Dimensions of Organizational Performance: A Construct Validity Study provides answers to these questions.

home_coverEvery time we review existing literature on the effect of management methods on organizational performance, we find it hard to compare results across studies. The contradictions between studies are mostly caused by different concepts and measurement approaches of organizational performance. If, due to completely different concepts and measurement systems, we are not able to combine study results, how can we as researchers even pretend to contribute to management research by the newest study applying a new construct measurement approach on organizational performance? Consequently, the interest into measurement approaches, construct validation and conceptual nature of organizational performance was triggered in our research team. After reviewing previous literature on this subject we recognized that no construct validation study addressing jointly the conceptual level of organizational performance and the construct validity of a comprehensive set of indicators at the operational level had been published before. This was the gap we wanted to close with our study.

Following Combs, Crook, and Shook (2005)1 we distinguish between operational and organizational performance. In this framework operational performance combines all non-financial outcomes of organizations. Furthermore, the conceptual domain of organizational performance is limited to economic outcomes. On this basis, we identify four organizational performance dimensions: profitability, liquidity, growth, and stock market performance. For each of these dimensions, we propose and test a set of construct valid indicators on a large panel data set with 37,262 firm-years for 4,868 listed US-organizations.

Interestingly, the growth dimension is troublesome under conditions of high environmental instability (e.g., in 2002 after the dotcom bubble or at the beginning of the financial crises in 2008). We perceive two possible explanations for this finding. First, growth is examined based on three aspects of size: sales, employees, and assets. These aspects differ in their reactivity with regard to increasing environmental instability (e.g., although sales might decrease immediately, investments already under way will be finished, thus increasing an organization’s assets base). Second, Higgins (1977)2 introduced the concept of a sustainable growth rate that must be in alignment with overall organizational performance, the financial policy, and the dividend payout ratio. If an organization grows at a rate above its sustainable growth rate, the other aspects (e.g., other dimensions of organizational performance) will eventually decrease. Fully developing these two arguments was beyond the scope of our article. However, they pose interesting research questions for future research on the growth dimension of organizational performance.

In summary, we propose a validated set of measurement indicators for the organizational performance construct for future management research. Furthermore, we highlight situations, in which construct validity is hampered.

1 Combs, J. G., Crook, T. R., & Shook, C. L. (2005). The dimensionality of organizational performance and its implications for strategic management research. In D. J. Ketchen (Ed.), Research methodology in strategy and management (Vol. 2, pp. 259-286). Amsterdam: Elsevier.

2 Higgins, R. C. (1977). How Much Growth Can A Firm Afford? Financial Management, 6(3), 7-16.

Read the paper, “Exploring the Dimensions of Organizational Performance: A Construct Validity Study,” online in Organizational Research Methods.

Management INK in 2013: Revisiting Research on Organizational Performance

orm In the spirit of reflection on 2013, we are pleased to highlight one of the most read articles of the year, “Exploring the Dimensions of Organizational Performance: A Construct Validity Study” published in  Volume 16, Number 1 (January 2013) of Organizational Research Methods. This article discusses findings which reveal that performance dimensions are not what were previously proposed by researchers and offers up new essential intelligence for the continuing assessment of organizational performance investigation.

This article is free to read for the next week! The paper by P. Maik Hamann, Frank Schiemann, Lucia Bellora, and Thomas W. Guenther can be read online in Organizational Research Methods.

Examination of Strategic Leadership

Strategic leadership styles and their need for further empirical research is compellingly discussed in the newlyjlaw cover published article in Journal of Leadership and Organizational Studies, “Strategic Leadership: Values, Styles, and Organizational Performance” by Dr. Suzanne M. Carter  and Dr. Charles R. Greer both at Texas Christian University.

Read the abstract:

Strategic leaders are being challenged by stakeholder demands that organizations meet triple bottom line performance measures. Nonetheless, there is a paucity of empirical research on how strategic leaders’ values and leadership styles are related to such measures. We describe values and established and evolving leadership styles and review the results of empirical studies investigating their relationship with organizational performance. Gaps in our knowledge of such relationships are identified and suggestions for future research are provided. A continuum of leadership styles, from transactional through responsible, is developed using the dimensions of stakeholder salience and economic, social, and environmental performance outcomes.

Read the entire article online in Journal of Leadership and Organizational Studies, and sign up for e-alerts here so you don’t miss out on JABS’ latest articles and issues.

How Leadership Styles Influence Firm Performance

Editor’s note: We are pleased to welcome Suzanne M. Carter of Texas Christian University, whose paper Strategic Leadership: Values, Styles, and Organizational Performance,” co-authored by Charles R. Greer of Texas Christian University, is forthcoming in the Journal of Leadership & Organizational Studies and now available in the journal’s OnlineFirst section.

My colleague, Bob Greer and I, were surprised to find so many leadership styles being posited in our review of the literature. Moreover, when viewed from the standpoint of the leader’s ability to be successful, it seems that the number of things that leaders are becoming responsible for is growing rapidly. Unfortunately, we still know little, from an empirical standpoint, about whether certain leadership styles tend to lend themselves to better organizational outcomes.

UntitledThe biggest surprise for us, I suppose, was discovering how little we know to date about the influence of leadership styles on firm performance from a top management perspective. In particular, evidence of leadership styles at the top management level on outcomes beyond the financial realm is extremely limited. Although some work is being done on the impact of leadership style on group processes, little empirical work has examined the impact of these styles on triple bottom line organizational outcomes such as environmental responsibility and social issues such as diversity practices.  Most of the work remains theoretical at this stage.

JLOS_72ppiRGB_150pixWI hope that our article spurs an increase in empirical research on this topic. It is essential that we understand the link between leadership style and organizational performance outcomes if we are to understand the benefits of encouraging certain leader behavior.

Read the paper, Strategic Leadership: Values, Styles, and Organizational Performance,” online in the Journal of Leadership & Organizational Studies.

What is Organizational Performance?

Editor’s note: We are pleased to welcome P. Maik Hamann, Frank Schiemann, Lucia Bellora, and Thomas W. Guenther, all of Technische Universitat Dresden, whose paperExploring the Dimensions of Organizational Performance: A Construct Validity Studywas published in Volume 16, Number 1 (January 2013) of Organizational Research Methods.

The raison d’être of management research is to prove that management instruments and management methods, such as strategic planning, zero based budgeting, or the balanced scorecard, are able to enhance organizational perfUntitledormance. In addition, major theories in management research, for instance all contingency theories, include organizational performance as an important dependent variable in their conceptual arguments. But what is organizational performance? How can it be defined and measured in a reliable and valid manner? The Organizational Research Methods article “Exploring the Dimensions of Organizational Performance: A Construct Validity Study” provides answers to these questions.

home_coverEvery time we review existing literature on the effect of management methods on organizational performance, we find it hard to compare results across studies. The contradictions between studies are mostly caused by different concepts and measurement approaches of organizational performance. If, due to completely different concepts and measurement systems, we are not able to combine study results, how can we as researchers even pretend to contribute to management research by the newest study applying a new construct measurement approach on organizational performance? Consequently, the interest into measurement approaches, construct validation and conceptual nature of organizational performance was triggered in our research team. After reviewing previous literature on this subject we recognized that no construct validation study addressing jointly the conceptual level of organizational performance and the construct validity of a comprehensive set of indicators at the operational level had been published before. This was the gap we wanted to close with our study.

Following Combs, Crook, and Shook (2005)1 we distinguish between operational and organizational performance. In this framework operational performance combines all non-financial outcomes of organizations. Furthermore, the conceptual domain of organizational performance is limited to economic outcomes. On this basis, we identify four organizational performance dimensions: profitability, liquidity, growth, and stock market performance. For each of these dimensions, we propose and test a set of construct valid indicators on a large panel data set with 37,262 firm-years for 4,868 listed US-organizations.

Interestingly, the growth dimension is troublesome under conditions of high environmental instability (e.g., in 2002 after the dotcom bubble or at the beginning of the financial crises in 2008). We perceive two possible explanations for this finding. First, growth is examined based on three aspects of size: sales, employees, and assets. These aspects differ in their reactivity with regard to increasing environmental instability (e.g., although sales might decrease immediately, investments already under way will be finished, thus increasing an organization’s assets base). Second, Higgins (1977)2 introduced the concept of a sustainable growth rate that must be in alignment with overall organizational performance, the financial policy, and the dividend payout ratio. If an organization grows at a rate above its sustainable growth rate, the other aspects (e.g., other dimensions of organizational performance) will eventually decrease. Fully developing these two arguments was beyond the scope of our article. However, they pose interesting research questions for future research on the growth dimension of organizational performance.

In summary, we propose a validated set of measurement indicators for the organizational performance construct for future management research. Furthermore, we highlight situations, in which construct validity is hampered.

1 Combs, J. G., Crook, T. R., & Shook, C. L. (2005). The dimensionality of organizational performance and its implications for strategic management research. In D. J. Ketchen (Ed.), Research methodology in strategy and management (Vol. 2, pp. 259-286). Amsterdam: Elsevier.

2 Higgins, R. C. (1977). How Much Growth Can A Firm Afford? Financial Management, 6(3), 7-16.

Read the paper, “Exploring the Dimensions of Organizational Performance: A Construct Validity Study,” online in Organizational Research Methods.

Does Privacy Make Us Productive?

Modern-day organizations increasingly are seeking to create an “open” work environment—one that makes workers more observable—theorizing that transparency boosts performance. But a new study in Administrative Science Quarterly (ASQ) finds this trend may be counterproductive.

Ethan S. Bernstein of Harvard University published “The Transparency Paradox: A Role for Privacy in Organizational Learning and Operational Control” on June 21, 2012 in ASQ.  Recognizing the prevalence of the trend in factories, the author provides field-based evidence that transparency is not “such a panacea” and makes a strong case for preserving worker privacy in the interest of productivity:

We typically assume that the more we can see, the more we can understand about an organization. This research suggests a counteracting force: the more that can be seen, the more individuals may respond strategically with hiding behavior and encryption to nullify the understanding of that which is seen.

Read the full article in ASQ by clicking here. To learn more about Administrative Science Quarterly, please follow this link.

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