Strategic human resource management, market orientation, and
organizational performance
Lloyd C. Harris*, Emmanuel Ogbonna
Cardiff Business School, Cardiff University, Column Drive, Cardiff, CF10 3EU, UK
Received 1 August 1998; accepted 1 February 1999
Abstract
Research emerging from different fields of organizational analysis has linked both market orientation and strategic human resource management (SHRM) to organizational performance. Although both concepts are premised on the management of organizational culture, no study has investigated their interrelationship or the dynamics between the two concepts and organizational performance. The findings of the paper suggest a direct link between market orientation and performance and indicate that the association between SHRM and performance is mediated by the extent of market orientation exhibited by the organization. Hence, it is argued that SHRM can be viewed as an antecedent to market orientation. These findings lead to a number of conclusions and implications for both theorists and practitioners.D2000 Elsevier
Science Inc. All rights reserved.
Keywords:Strategic human resource management; Market orientation; Organizational performance; Market-oriented culture
1. Introduction
In recent years, practitioners have been bombarded with exhortations to develop an organizational culture that is focused on external market needs, wants, and demands. This has become known as a market-oriented culture (see e.g., Webster, 1994; Harris and Piercy, 1997). Paradoxically, at the same time, organizational theorists have extolled the virtue of an internal focus through developing appropriate human resource policies which are consistent with organi-zational strategy, that which has become known as strategic human resource management (SHRM) (e.g., Schuler and Jackson, 1987; Wright and McMahan, 1992; Lado and Wilson, 1994).
Interestingly, both market orientation and SHRM have been (separately) linked to increased organizational perfor-mance (e.g., Jaworski and Kohli, 1993; Huselid, 1995; Pitt et al., 1996; Guest, 1997). While the links between market orientation and performance and between SHRM and performance have been examined in isolation of each
other, both practices are founded on the management of organizational culture. In the case of market orientation, high levels of market orientation are argued to be depen-dent on the establishment of an organizational culture dominated by a focus on the market (Harris, 1998). Similarly, developing SHRM requires the nurturing of core organizational values and ensuring that these are consistent with the strategic direction of the business (Gennard and Kelly, 1994; Huselid, 1995). Surprisingly, despite similar underpinnings, no existing study has examined the asso-ciation between the two or the impact that such an association may have on performance.
The aim of this study is to examine the relationships between SHRM, market orientation, and organizational performance. As such, this study is designed to contribute to the linking of two (previously separately studied) areas. Firstly, in relation to the SHRM literature, this study partially fulfils the recommendations of researchers who have suggested that SHRM should be examined in conjunc-tion with other organizaconjunc-tional variables (see e.g., Koch and McGrath, 1996; Guest, 1997). Secondly, in examining the links between market orientation and SHRM, this study contributes to the call of Jaworski and Kohli (1993, p. 65) ``to assess the role of additional factors in influencing the market orientation of an organization.''
* Corresponding author. Tel.: 2087-5066; fax: +44-1-29-2087-4419.
E-mail address: harrislc1@cardiff.ac.uk (L.C. Harris).
0148-2963/00/$ ± see front matterD2000 Elsevier Science Inc. All rights reserved.
The literature review of this study entails the examination of the concepts and performance implications of both SHRM and market orientation leading to the development of a research proposition. Thereafter, the research design and methodology of the study is identified and discussed. After the presentation of such methods, the analysis of responses to a mailed questionnaire survey, is detailed and the paper concludes with a series of implications for both theory and practice.
1.1. SHRM and performance
Within the last two decades, there have been a number of important developments in the literature dealing with issues pertaining to the management of people. Significant atten-tion has been directed towards human resource management (HRM), which many have seen as representing a distinct approach to managing people (Guest, 1997). Interestingly, although researchers have highlighted the holistic nature of HRM, much of the initial research into the concept focused on a limited range of issues and has been criticized as `micro analytic' (Delery and Doty, 1996). However, in the last decade, researchers have sought to show the importance of HRM in influencing organizational performance and it is from this premise that the current interest in SHRM has developed (Gennard and Kelly, 1994; Lado and Wilson, 1994; Cappelli and Crocker-Hefter, 1996).
Interestingly, the burgeoning interest in SHRM has not been matched by the development of appropriate theoretical constructs for the concept (Guest, 1997). Indeed, researchers have criticized the underpinning theoretical foundations of SHRM and many have called for the formulation of a theory of SHRM (Dyer, 1985; Bacharach, 1989). Two major reasons account for this criticism. The first is that the concept of HRM, from which SHRM originated, has itself been subjected to extensive criticisms for its poor theoretical framework (see for instance, Keenoy, 1990; Noon, 1992; Legge, 1994). The second, and perhaps more important reason, is that researchers have approached the field of SHRM from a variety of perspectives with little acknowl-edgement of the differences within them and no attempt has been made to identify the common threads in the perspec-tives (Delery and Doty, 1996). Such an understanding is important to enable an assessment of the viability and adoption of the concept and a brief discussion is provided in what follows.
In an extensive review of the literature, Delery and Doty (1996) identify three categories of researchers and the perspectives that they have adopted in theorizing SHRM. They label the first group of researchers `universalists' largely because of their interest in identifying `best practice' SHRM policies. Delery and Doty (1996, p. 803) note that
``these researchers . . . posit that some human resource
practices are always better than others and that all organiza-tions should adopt these best practices.'' It is within this perspective of theorizing in SHRM that the present interest
in developing `high performance work practices' is located (see, Osterman, 1994; Pfeffer, 1994; MacDuffie, 1995). Thus, the assumption is that the adoption of certain SHRM policies is likely to result in increased organizational per-formance (Kochan and Dyer, 1993).
The second strand of theorizing identified by Delery and Doty (1996) comprises those researchers adopting a contingency approach. In keeping with the early founda-tion of the contingency perspective within organizafounda-tional theory, these researchers argue that the success of HRM policies is contingent upon the achievement of a match between human resource policies and other aspects of the organization. For example, researchers adopting this per-spective have demonstrated that different human resource policies may be required at different stages in an organi-zation's life cycle (Miles and Snow, 1984; Bird and Beecher, 1995).
Delery and Doty (1996) identify a third group of SHRM theorists as adopting a `configurational' approach. Delery and Doty (1996, p. 808) note that this approach is more
complex and consists of researchers who seek to ``. . .
identify configurations, or unique patterns of factors, that are posited to be maximally effective.'' This category of researchers are also said to approach their subject from a more theoretical perspective and many of the phenomena they identify may not necessarily be empirically observable (Doty and Glick, 1994).
A consistent theme in all three theoretical perspectives of SHRM is the assumption that SHRM is linked to organiza-tional performance. However, while the literature is rich with claims that both HRM and SHRM are linked to performance, there is little empirical evaluation of this and the theoretical foundations upon which these links are based have been described as inadequate (Wright and McMahan, 1992; Kochan and Dyer, 1993; Koch and McGrath, 1996; Guest, 1997). Indeed, it can be argued that there has been a tendency for researchers to underplay the difficulties asso-ciated with the pursuit of SHRM policies in organizations. For example, the emphasis on strategic fit that has domi-nated much of the studies in this area is based on underlying assumptions of not only the supremacy of strategy but also a rationalist interpretation of strategy, both of which have been subjected to much criticism in the HRM literature (see Lenz and Lyles, 1985; Kamoche, 1994).
1.2. Market orientation and performance
Prior to the late 1980s, there was little success in the development of constructs related to market orientation. However, the late 1980s witnessed an increased academic and practitioner interest in the development of practical models to define key marketing constructs such as market orientation (Bruning and Lockshin, 1994). While a number of studies present market orientation as synonymous with other constructs such as `customer orientation' (Shapiro, 1988), more recent studies suggest that market orientation is distinct and implies a less politicized nature (Kohli and Jaworski, 1990) and a more proactive, longer term focus (Slater and Narver, 1998). Research into market orientation is dominated by the conceptualizations of two sets of theorists. First, the information-based conceptualization of Kohli and Jaworski (1990), which presents market orienta-tion as collecting, disseminating, and responding to intelli-gence about the market. Second, there exists the culture-oriented approach of Narver and Slater (1990), which defines market orientation as ``the organizational culture that most effectively and efficiently creates the necessary behaviors for the creation of superior value for buyers.'' While there is merit in both views, the Kohli and Jaworski (1990) view has been subjected to criticism (see Diaman-topoulos and Hart, 1993) while the Narver and Slater (1990) conceptualization has been praised (see e.g., Green-ley, 1995a,b).
The resurgence of interest into the concept of market orientation can be attributed to its association with organi-zational performance. Indeed, an examination of the sub-stantial proportion of literature examining various aspects of the marketing concept finds an over-riding and sometimes explicit assumption that implementing the marketing philo-sophy will increase organizational performance (see for instance, Felton, 1959; Houston, 1986; Brownlie and Saren, 1992). Since the development of empirical models of market orientation in the early 1990s, there has been a proliferation of studies claiming an association between market orienta-tion and organizaorienta-tional performance.
A review of the literature finds that studies linking market orientation and organizational performance fall into three distinct categories. The first are those studies that evaluate the utility of conceptualizations of market orientation and the association with performance. The second group com-prises those studies that examine the association between market orientation and performance in certain national contexts. The third category consists of those studies that examine the forms of orientation and performance.
The main studies within the first classification are those forwarded by Kohli and Jaworski (1990), Narver and Slater (1990), Jaworski and Kohli (1993) and Slater and Narver, (1994). Following a detailed review of the literature and a series of executive interviews, Kohli and Jaworski (1990) suggested that market orientation can impact on customers, employees, and businesses with the level of impact being
moderated by the supply and demand factors. They went on to argue that the greater the level of market orientation of an organization, the greater the overall performance of the organization with performance expressed in terms of in-creased return on investment, profits, sales and market share. It is notable that in a later empirical study, Jaworski and Kohli (1993) revised their model of the consequences of market orientation to distinguish between the objective and subjective measures of performance.
The second set of studies comprises research into the market orientation ± performance link in different national contexts. Greenley (1995a) conducts a survey of UK companies and finds that the association between market orientation and performance is moderated by environmental factors. Interestingly, the findings of Greenley (1995a) are inconsistent with the findings of Narver and Slater (1990), Slater and Narver (1994), Ruekert (1992), and elements of Jaworski and Kohli (1993), but supports some elements of Jaworski and Kohli (1993) and Diamantopoulos and Hart (1993). In contrast, Selnes et al. (1996) conduct surveys of market orientation in the United States and Scandinavia. Selnes et al. (1996) find that the association between market orientation and performance is similar for both samples. Similarly, Pitt et al. (1996) undertake surveys of market orientation in Malta and the UK and find similar associations between market orientation and performance for both samples.
The final category of studies focuses on different types of orientation and their link with market orientation. Greenley (1995b) identifies five differing forms of market orientation (comprehensive, competitive-focused, custo-mer-focused, undeveloped, and fragmented) along with three factors that discriminate between them. Furthermore, Greenley (1995b) finds that the forms of market orientation are associated with differing levels of company perfor-mance. Wong and Saunders (1993) also study the associa-tion between orientaassocia-tion and performance. They address
the association between business orientation and
perfor-mance and find six clusters of business orientation (quality marketers, mature marketers, innovators, aggressive pushers, price promotions, and product makers), which correspond respectively to a balanced or market orienta-tion, marketing orientaorienta-tion, product orientaorienta-tion, sales or-ientation, financial oror-ientation, and production orientation. Wong and Saunders (1993) conclude that an organization with a balanced orientation out-performs other organiza-tions with other business orientaorganiza-tions.
1.3. Market orientation and SHRM
empirical scrutiny. This may be illustrated by the recent conclusions of a number of theorists who argue that the link between SHRM and performance needs further empirical research (e.g., Huselid et al., 1997) and greater conceptual development (e.g., Guest, 1997).
The uncertainty surrounding the links between SHRM and performance may be potentially explained by looking at the mediating role of other organizational variables. This paper argues that the link between SHRM and performance is mediated by the extent to which such HRM policies are geared towards the market, that is are market-oriented. This may be illuminated by a brief review of literature examining the impediments to developing market orienta-tion. While extant marketing theory has produced a useful list of potential individual obstacles to market orientation, many studies have packaged such obstacles into the generic barrier of organizational culture (e.g., Messikomer, 1987; Day, 1994; Harris, 1996). Indeed, Harris (1998) argues that the development of a market-oriented culture is contingent on the development of an organizational culture dominated by strongly and widely held beliefs in a market focus. Similarly, evidence in HRM literature suggests that HRM is premised on the management of organizational culture (see Fombrun, 1983; Ogbonna, 1992). Thus, an appropriate organizational culture devel-oped via SHRM may be a key antecedent to market orientation. Hence, by integrating marketing and culture theory into the SHRM-performance debate, it is possible to propose the following.
Proposition 1. The association between market orienta-tion and organizaorienta-tional performance is direct while the link between SHRM and organizational performance is indirect being mediated by the extent of market orientation.
To summarize, this paper has provided a review of the literature on SHRM and performance and market orientation and performance. This review finds that both concepts have achieved widespread popularity largely because of claims by many researchers of an association with organizational performance. Surprisingly, although the successful develop-ment of market orientation and SHRM are both founded on managing culture, no study combines the investigation of the two concepts. This gap in existing knowledge provides the rationale for this study.
2. Research methodology
Research methodology literature indicates that in order to examine the issues involved in this study, a descriptive quantitative research design was appropriate. Consequently, a multi-industry sample of 1000 units was established from the FAME database of registered UK firms. Utilizing a systematic random selection procedure, suitable medium and large firms were selected according to set criteria
(which included the date of registration, turnover, and number of employees).
Responses were required from key informants knowl-edgeable in a variety of tactical and strategic activities (Bowman and Ambrosini, 1997). Discussions with senior managers found that Human Resource Managers were comparatively ignorant of strategic marketing activities. However, Strategic Marketing Managers were relatively well informed of HRM issues (largely due to their promi-nent role in strategy development and their roles in internal communication and internal marketing). Furthermore, dis-cussions with senior executives found that a significant proportion of those executives responsible for `marketing' also were responsible for wider more general management issues. Hence, focusing on the `Head of Marketing' pro-vided key informants knowledgeable in both areas of strategy some of which would be `General Managers' and some (purely) `Marketing Managers'.
To improve the content validity, response reliability, and response rates, the survey was conducted in a manner recommended by Dillman (1978), Conant et al. (1990), Churchill (1991), and Faria and Dickinson (1992). These recommendations encompassed a variety of issues includ-ing: questionnaire design, survey piloting, and pre-notifica-tion and post-survey follow-up reminders.
A survey research instrument was developed using both measures adapted from extant literature. There are two dominant measures of market orientation, namely those of Narver and Slater (1990) and Kohli et al. (1993). While, the Kohli et al. (1993) measure of market orientation has been successfully utilized in a number of studies (e.g., Pitt et al., 1996), the Kohli et al. (1993) battery has been subjected to academic criticism (see Diamantopoulos and Hart, 1993; Oczkowski and Farrell, 1998). Consequently, the Narver and Slater (1990) measure of market orientation was used to gauge the levels of market orientation.
SHRM was measured via a scale of items designed to capture the essence of the construct. Eight specific items, based on one generic question, were developed based on the SHRM measures of Delery and Doty (1996) and Huselid et al. (1997). Further, pre-testing and survey piloting through extensive and prolonged interviews with HRM practi-tioners, general managers, and appropriate academics re-duced these items to the five key questions adopted for the study. The precise wording of questions and items pertain-ing to measures of market orientation and SHRM are presented in Table 1.
valid in many fields (Jaworski and Kohli, 1993; Deshpande et al., 1993). A review of relevant literature led to the decision to measure performance using 10 questions adapted from the constructs of the preceding authors. Performance measures were phrased around two generic questions pertaining to long- and short-term performance, complemented by five variables referring to performance in: customer satisfaction, sales growth, market share, competi-tive advantage, and sales volume.
The 7-point Likert-type scoring was adopted for all items (Likert, 1932a,b). The Narver and Slater (1990) measure of market orientation had previously been employed using 5-point scales. However, Barnes et al. (1994) argue that the switch to 7-point scales has no effect on principal compo-nents analysis and improves construct reliability. Hence, 7-point scales were used to improve reliability and for reasons of ease of response and administration (Churchill and Peter, 1984; Malhotra, 1993).
After a number of reminder letters, a total of 342 responses were received. Unfortunately, 20 were ineligible for reasons including: company policy of non-participation in survey, company liquidation, and inadequate completion of the survey instrument. The Council of American Survey Research Organizations (CASRO, 1982) method of re-sponse rate calculation (which removes ineligible rere-sponses
from the sample size) produced a return rate of 34.22%. This yield is notably above comparable studies, possibly reflecting the utility of adopting of the survey design and administration recommendations of Dillman (1978), Conant et al. (1990), Churchill (1991) and Faria and Dickinson (1992) discussed earlier. No major differences were found between the early and late respondents or between popula-tion and sample industrial classificapopula-tions, suggesting that these forms of response bias may not be a problem. Responses to the questionnaires were analyzed using the SPSS package. The analysis ranged from univariate ana-lyses to more sophisticated multivariate techniques. Section 3 details the results of this analysis.
3. Findings
In order to evaluate the developed proposition, it was first necessary to construct meaningful indices of market orientation, SHRM and organizational performance. Conse-quently, principal components analysis with varimax rota-tion was conducted of items pertaining to SHRM and market orientation (see Table 1). As expected, this principal components analysis led to the extraction of two factor solutions. Factors were only retained if they possessed an
Table 1
Principal components analysis of measures of market orientation, and SHRM
Factor loadinga
Item Market orientation Strategic HRM Communality
Understanding customer needsb 0.82299 0.69494
Focusing on customer commitmentb 0.76203 0.59927
Getting all functions to contribute to customer valueb 0.76172 0.59051
Sharing information across departmentsb 0.76049 0.64057
Measuring customer satisfactionb 0.74750 0.62243
Setting customer satisfaction objectivesb 0.73395 0.60114
Creating value for customersb 0.73202 0.55003
Sharing information about customersb 0.73088 0.55202
Targeting opportunities for competitive advantageb 0.72720 0.61196
Sharing resources across the whole companyb 0.65333 0.49231
Top managers discussing competitors' strategiesb 0.64269 0.42964
Responding rapidly to competitors' actionsb 0.58086 0.34094
All departments contributing to company strategyb 0.56860 0.36984
Human resource managers play a key role in developing strategyc 0.83965 0.72736
A key task of our human resource department is forward planning and integrating management resourcesc
0.82373 0.72073
This company practices `strategic human resource management'c 0.80031 0.71458
A key task of our human resource department is ensuring high levels of motivation and commitment. (r)c
0.74417 0.64176
Human resource systems drive the strategic objectives to this companyc 0.70093 0.49250
Eigenvalues 8.13860 2.35681
% Variance explained 42.8 12.4
Cumulative % variance 42.8 55.2
a
Principal components analysis with varimax rotation, converging in seven iterations (all loadings less than 0.3 suppressed). b
Question wording was `Please indicate the extent to which the following statements are true of the personnel, policies, or procedures of your company by circling the appropriate point' measured on a 7-point Likert-type scale respectively anchored by (1) Not At All and (7) Very Great Extent.
c Question wording was `To what extent does your company place a high priority on the following?' measured on a 7-point Likert-type scale respectively
eigenvalue greater than one, accounted for over 5% of variance and if they were conceptually clear and interpre-table (Kaiser, 1958; Churchill, 1991).
The first factor solution extracted, loads heavily onto a vector generating an eigenvalue of 8.13860 and explains 42.8% of variance. The 13 items that load on to this factor were originally derived from the Narver and Slater (1990) scale measuring market orientation. Consequently, the solu-tion is accepted and the factor allocated the label market orientation. The second factor extracted also loads heavily on to a vector, generating an eigenvalue of 2.35681 and explains 12.4% of variance. The five items that load onto the second factor were originally derived and adapted from the measures of Delery and Doty (1996) and Huselid et al. (1997), designed to gauge the extent of SHRM. Thus, the solution is accepted and the factor labeledstrategic human resource managementwith a short-hand notation of Strate-gic HRM. Given that judgmental comparative measures of performance are widely used and accepted, an index of performance was constructed by calculating the summated means of items. Thus, indices were constructed for perfor-mance, market orientation, and Strategic HRM by calculat-ing the summated means of scales.
Prior to the evaluation of the developed proposition, it was considered prudent to establish the reliability and the validity of each of the three scales utilized in this study. Reliability gauges ``the degree to which measures are free from error and therefore yield consistent results'' (Peter, 1979, p. 6). Slater (1995) argues that the most commonly reported measure of reliability is the Cronbach alpha and that the usual criterion is 0.7. The Cronbach alpha coeffi-cient (Cronbach, 1951) test of reliability led to coefficoeffi-cients that ranged from 0.9259 to 0.8666 (see Table 2). The high level of the coefficients and the finding that deletion of items would reduce the coefficient led to the conclusion that the scales were acceptably reliable (Peterson, 1994).
As stated earlier, the questionnaire was piloted, pretested, and adjustments made to improve content validity. However, analyses of the validity of index operationalization and discriminant validity were also undertaken. The validation of the index operationalization test of correlating items to the scale, indicated that the correlations were high and in the expected direction indicating an acceptable level of conver-gent validity (see Table 2). The level of discriminant validity was gauged via the adoption of the test recommended by Gaski (1986). This test indicates evidence of discriminant validity in that the correlation between market orientation and Strategic HRM is lower than either scales' alpha coefficient. Consequently, it was concluded that each of the scales used in the study are acceptably reliable and valid. As stated previously, the items used in the study were all measured on 7-point scales resulting in a mid-point of four. Each of the scales ran low to high in scoring (e.g., score of 1 suggesting low performance and a score of 7 indicating high performance). Primary data exploration was undertaken via the analysis of descriptive statistics (see Table 3). The descriptive statistics of Table 4 illustrate that the mean scores of measures of market orientation and performance are notably above the mid-point with a low level of variance. In contrast, the scale gauging the level of Strategic HRM is significantly below the mid-point while the stan-dard deviation is relatively high indicating varying degrees of Strategic HRM within the sample. Comparatively few meaningful findings can be derived from the analysis of descriptive statistics, however, these statistics would appear to indicate that the levels of market orientation and organi-zational performance are significantly above the measure of Strategic HRM. Furthermore, given that the sample of the study consists of larger firms, the descriptive statistics tentatively support theorists who have claimed an associa-tion between organizaassocia-tional size and market orientaassocia-tion (see e.g., Liu, 1995).
Table 2
Reliability and scale validation test results
Inter-Item correlations*
Scale Number of scale items Cronbach alpha coefficient Lowest Highest
Market orientation 13 0.9259 0.5042 0.7783
Strategic HRM 5 0.8666 0.4161 0.7436
Performance 10 0.8980 0.4161 0.7436
* Pearson correlation coefficient. All correlations significant at the 0.001 level.
Table 3
Descriptive statistics
Mean Standard deviation Valid cases
Market orientation 4.89 1.05 321
Strategic HRM 3.34 1.30 311
Performance 5.05 0.95 321
Table 4
Zero-order correlations between organizational performance, market orientation, and strategic SHRM
Performance
Market orientation 0.3259***
Strategic HRM 0.2162***
The evaluation of Proposition 1 was initiated by the zero-order correlation of market orientation and Strategic HRM to organizational performance. The results of this analysis are presented in Table 4. The zero-order correla-tion of market orientacorrela-tion to organizacorrela-tional performance found that market orientation is positively and significantly associated with performance at the 0.001 level. The
strength and direction of this association (r = 0.3259)
indicates preliminary support for the claim that market orientation is linked to performance. This finding is con-sistent with much of the strategic marketing literature (see e.g., Narver and Slater, 1990; Jaworski and Kohli, 1993; Wong and Saunders 1993; Pitt et al. 1996; Selnes et al. 1996) but is not wholly consistent with some theorists (see e.g., Slater and Narver, 1993; Greenley, 1995b; Liu, 1995) who argue that the link between market orientation perfor-mance is not universal.
The zero-order correlation of the measure of Strategic HRM to organizational performance also found a strong association (r= 0.2162). Consistent with the suggestions of a number of HRM writers, Strategic HRM was found to be positively and highly significantly associated with organiza-tional performance at the 0.001 level (Kochan and Dyer, 1993; Osterman, 1994; Pfeffer, 1994).
However, while correlation analysis provides a strong indication of association, in order to undertake a more complete examination of the proposed relationships and to evaluate whether such associations are direct or indirect, a simple path analysis was conducted (see Fig. 1). A form of path analysis, which evaluated the directness of associations and the cumulative impact of any independent factors on the dependent factor of organizational performance, was re-quired. Consequently, a form of path analysis was adopted that followed the path analysis technique recommendations of Duncan (1966) and Pendhazur (1982). In defense of their use of path analysis Szymanski et al. (1993, p. 8) argue that
path analysis provides a clearer understanding of associa-tions than the use of ``regression per se'' and conclude that a path methodology enables the examination of ``whether an indirect effect embellishes, diminishes, or negates an asso-ciated direct effect.''
The path model illustrates the direct and indirect relation-ships between Strategic HRM, market orientation, and performance. Table 5 presents the standardized regression coefficients and Table 6 presents the direct and indirect effects of market orientation and strategic HRM on the measure of performance. The indirect effect of strategic HRM is calculated as a simple multiplicative measure of the
magnitude of sequential beta weights. It should be noted
that (respectively) the Goldfeld and Quant (1965), Ramsey (1974), Belsley et al. (1980), and Hair et al. (1998) tests for multicollinearity, linearity, normality, and homoscedasicity were conducted and no problems encountered.
The path analysis presented in Fig. 1 suggests that both market orientation and strategic HRM are associated with organizational performance (see Table 6). This provides further support for claims of an association between market orientation, strategic HRM, and performance. However, the association between strategic HRM and organizational performance is found to be indirect. The regression and path analysis indicates that the strength of the zero-order correlation between strategic HRM and organizational per-formance (presented in Table 4) is misleading. The regres-sion analysis used to construct the simple path analysis presented in Fig. 1, indicates that the link between strategic
HRM and performance is purely indirect due to the
asso-ciation between Strategic HRM and market orientation. Thus, a high level of support is found for the claim that the link between strategic HRM and performance is mediated by the extent of market orientation exhibited by the organization. In this sense, strategic HRM can be viewed as an antecedent to market orientation, which, in turn, is an antecedent to performance.
Fig. 1. Path analysis of the links between Strategic human resource management, market orientation, and organizational performance.
Table 6
Direct and indirect effects of independent factors on performance
Independent variables Direct effect Indirect effect Total effect
Market orientation 0.33 ± 0.33
Strategic HRM ± 0.46 0.15
Table 5
Total effects of independent factors (market orientation and strategic HRM) and performance regression
Dependent Independent Beta R2 Sign ofF
4. Conclusions and implications
In summary, a review of existing literature finds that Strategic HRM and market orientation are both developed concepts which have been linked to organizational perfor-mance (see e.g., Jaworski and Kohli, 1993; MacDuffie, 1995). However, a review of literature pertaining to orga-nizational culture (e.g., Ogbonna, 1992) and literature on the barriers to market orientation (e.g., Harris, 1998) finds that strategic HRM centers on managing organizational culture while market orientation can be facilitated or im-peded by cultural barriers. Consequently, this paper theo-rizes that the association between market orientation and organizational performance is direct while the link between strategic HRM and organizational performance is indirect, being mediated by the extent of market orientation. Briefly, a study designed to investigate these issues demonstrates that strategic HRM and market orientation are both linked to organizational performance although strategic HRM is associated indirectly.
The findings of the study lead to a number of interesting implications for both marketing and HRM theorists and practitioners. The first (and rather obvious) implication can
be derived from the finding that both strategic HRM and
market orientation are related to organizational performance. Consistent with a variety of extant theories and studies, evidence was found to suggest that both strategic HRM and market orientation are linked to the overall performance of an organization. Hence, organizations wishing to improve company performance should focus their attention on the needs, wants, and demands of the market, while paying attention to harnessing its human resource in order to ensure that these are met.
More profound implications can be derived from the finding that Strategic HRM is not directly associated with performance but rather is purely indirectlylinked to com-pany performance. This finding may provide some justifica-tion for the claims of past theorists that the link between strategic HRM and performance is not as clear as is suggested by some authors (as noted by Wright and McMa-han, 1992; Koch and McGrath, 1996; Guest, 1997). This finding provides some support for the `universalist' per-spective on HRM theorizing (Delery and Doty, 1996) in that Strategic HRM is found to be linked to performance (albeit indirectly). However, the findings also support aspects of the `contingency' perspective (Delery and Doty, 1996) through the implication that the success of strategic HRM is dependent on policies being consistent with the needs, wants, and demands of the market. Thus, for Strategic HRM to lead to increased performance, the policies and practices arising from it must not only be internally consistent they must also be focused on generating a market-led organiza-tional culture.
The findings demonstrate that the development of market orientation is partially dependent on the appropriate strate-gic management of the human resource facilitating the
development of an appropriate organizational culture. In-deed, an examination of the coefficient of multiple determi-nation (R2) in Table 5 finds that the measure of strategic HRM explains 25% of the variance of market orientation around its mean. Put differently, the level of strategic HRM may predict 25% of the level of market orientation exhibited by an organization. This finding may appear to some to pose an organizational paradox in that the development of an external focus appears to be dependent on an internal orientation. Thus, the avoidance of marketing myopia is contingent on a myopic focus on the organization. This argument would hold if strategic HRM is purely focused on internal dynamics as may have been the case with early research into HRM (see Delery and Doty, 1996). However, recent theorizing in strategic HRM emphasizes both an internal and external focus (see e.g., Huselid et al., 1997).
A key issue that emerges is the need for an `appropri-ately' oriented strategic human resource. A contentious issue in management theory related to the development of sustainable competitive advantage is that the sources of such an advantage should be imperfectly imitable (Fiol, 1991; Reed and DeFillippi, 1990). Hence, Barney (1986; 1991) argues that providing an organizational culture is unique, it may provide a source of sustainable advantage over com-petitors. A potential implication of the findings of this paper is that a singular focus on discipline-specific sources of competitive advantage (such as market orientation or a flexible human resource policy) may not provide a unique and imperfectly imitable advantage, which may be sus-tained. However, it is possible to argue that a market-oriented culture developed as the result of a market-focused (strategic) HRM may provide the means to develop a unique and unimitable source of competitive advantage derived from both an internal andan external orientation.
The findings, conclusions, and implications of this study are bounded by a series of limitations. These limitations suggest that caution is needed in interpreting parts of this study but they also indicate a number of potentially fruit-fully avenues for future research. Firstly, the data presented in this paper was obtained using a cross-sectional metho-dology that precludes definitive causal claims (although it has been argued that statistical association in combination
with extant theory provides adequate evidence to suggest
been gained via the study of such issues from alternative perspectives. Thus, it is suggested that researchers continue to draw upon diverse literatures and perspectives to provide illuminating insights into traditionally narrow disciplines.
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