Strong Situations and Firm Performance: A Proposed ReConceptualization of the Role of the HR Function

John J. Haggerty and Patrick M. Wright

CRITIQUES OF
HRM AND FIRM PERFORMANCE
STRONG SITUATIONS
HUMAN CAPITAL IN THE FUNCTION
MANAGEMENT EXPECTATIONS
STRONG SITUATIONS AND THEIR CRITERIA IN HRM
STRONG SITUATIONS AND THE ROLE OF
THE IMPORTANCE OF IMPLEMENTATION
THE FUNCTION AND STRONG SYSTEMSPUTTING IT ALL
TOGETHER
ENTRY CITATION

Facilitator: Imagine yourself in a world where all of the administrivia, the lowest
value added work you do, is suddenly gone. What is it that you will now do with that
available time?
HR Practitioner: (After a long pause) I dont honestly know, but Im fairly certain I
wont have the skills to do it.
In a recent series of global HR working group sessions, we consistently heard that
somewhere between 30 and 70 per cent of the time worked by relatively high-level
HR professionals is, by their own admission, low-value added, and thus only remotely
connected to firm performance. While most would admit that outsourcing,
automation, self-service and devolution (to line managers) are beginning to help, there
is still a fairly high administrative component to their daily tasks. While this in and of
itself is noteworthy, it is the sentiment above which is most worrisome. What exactly
is contemporary HR expected to be doing, and do they have the skills to meet those
expectations? Candidly, many practitioners will answer, I don't know.
A review of the extant literature on strategic HRM will provide a wealth of
information about individual practices (performance feedback, incentive pay,
participation in goal setting, job design, etc.), or bundles of practices (high
performance work systems), and their relationship with firm performance, but will do
little to answer the question, what are the people responsible for HRM within firms
supposed to be doing? That is, if the essence of strategic human resource
management is the effect it has on important business outcomes, what are the
activities that functional HR needs to be engaging in? How (exactly) does HRM help
drive business performance?

Scholars have repeatedly referred to the practice-performance relationship as the

black box of HRM. The evidence suggests a relationship, but the independent
variables (practices and/or bundles) are distal from the outcomes (profitability/market
value), and the effects sizes are small. And this body of practice/performance
literature does little to suggest what those involved in HRM as a profession should be
doing, aside perhaps from adopting proven practices and bundles. This approach
ignores the entire issue of organizational context.
In this chapter we suggest that conceptualizing HRM as a practice or a set of practices
not only ignores important aspects of context, it may in fact lead to the development
of HR functions that base their contribution to the business on practices or bundles
(bench-marking), not on business results. As the field of business process outsourcing
continues to mature and improve, HR functions focused on HR practices (largely
administrative in nature) are finding less and less left for them to do.
We suggest a re-conceptualization of HRM not as practices and bundles, but as
signals from management to employee groups and individuals. We will explore how
the level of human capital in the HR function, HR systems, structure, and line
management expectations of the HR function can come together to build and maintain
legitimate HR functions. Legitimate HR functions will be better positioned to create
strong situations. We believe that it is those strong situations which then allow HRM
to impact firm performance through the individual interpretation of management
signals and the discretionary behavior of employees.
Our argument is that the emerging role (if not the historical but rarely achieved role)
of HRM, is the creation of those strong situations which allow for the development of
a shared climate in which the intended signals from leaders are correctly interpreted
by the target audience (s), and drive the appropriate individual (discretionary)
behaviors which aggregate to generate competitive advantage. That is, amid all the
complexity that is the modern competitive organization, local actors, applying simple
rules, are the root of sustained competitive advantage. And the most vital role of HRM
is to help the organization establish and maintain the proper climate and the decision
heuristics behind those simple rules.
We will first review some of the current criticisms of HR, many of which focus on the
inability of HR to achieve business partner status. We will then turn our attention to
the research on the HRM Performance link, and the continuing discussion of the
black box. We will then examine the concept of strong situations, in particular
Bowen and Ostroff's (2004) HR system strength concept. We will use this new
concept to go inside the black box and explore the role of the HR function in driving
performance through building the strength of the HR system.

CRITIQUES OF HR
Recently, a number of established scholars and several commentators began to pay
attention to the notion of HR functional excellence. In one of the most infamous
passages in Why We Hate HR, Hammonds (2005) takes dead aim at the people of HR
with the following now well-known paragraph:

Most HR organizations have ghettoized themselves literally to the brink of

obsolescence. They are competent at administrivia but companies are
increasingly farming those activities out to contractors Whats left is the more
important strategic role of raising the reputational and intellectual capital of the
companybut HR is, it turns out, uniquely unsuited for that. (p. 43)
While somewhat more scholarly in his approach, Lawler (2005) reaches a very similar
conclusion:
It is nearly unanimous that HR can and should add more value to corporations. The
best way to do this is by being a business partnerby directly improving the
performance of the business. This can be accomplished by effective talent
management, helping with change management, influencing strategy, and a host of
other value added activities that impact effectiveness. But HR does not seem able to
position itself as a business partner in many cases. (p. 165)
Both authors seem to be implying that the strategic role now identified as most likely
to impact firm performance, turns more on the people in HR than the practices of HR.
And finally, in reviewing the general in ability of the HR function to operate at the
desired strategic level, Becker and Hueslid (2006) suggest: Whether this market
failure is due to a lack of knowledge, a lack of managerial competence, or an inability
to execute (or more likely some combination) is open for conjecture, and it is hoped,
future research. (p. 905)
The degree of convergence on the importance of execution (not the selection of
practices), and the need for improved skills among those responsible (HR
professionals), is remarkable. Yet to date, little of the suggested work has been done,
and the predominant focus of strategic HR research remains on practices and bundles.

HRM AND FIRM PERFORMANCE

While questions have been raised about the value added by the HR function, efforts to
prove the positive impact of human resource management on the market capitalization
or financial performance of firms have a well-established history (Becker and
Huselid, 1998; Wright et al., 2003). Burdened by an administrative heritage, human
resources practitioners have long been interested in empirical proof that their work is
as valuable to firm success as the work of other support professionals such as
accountants and lawyers (Boudreau and Ramstad, 2002). Theoretical work done in the
early 1990s led to a flurry of academic research aimed at proving a macro or
organizational level link (Wright and McMahan, 1992; Huselid, 1995; MacDuffie,
1995) between HRM and firm performance.
By the mid 1990s, a relationship between HRM and organizational level outcomes
had been demonstrated empirically (Huselid, 1995; 2000). Research claimed that
firms that used certain human resource practices had better performance than firms
that did not. Firms that bundled practices into high-performance work systems
(HPWS) had better performance than firms that did not (MacDuffie, 1995). These
findings were replicated across multiple industries and sectors (Youndt et al., 1996),
and eventually, in multiple countries as well. The results seemed consistent whether

one used market or accounting based measures of performance (Huselid, 1995). Metaanalysis (Combs et al., 2006) of 92 individual studies confirmed a correlation of 0.20,
with stronger effects for HPWS bundles than for individual HPWS practices. While
methodological challenges remain (Wright et al., 2005), it is now widely accepted that
how the workforce is managed has an effect on the performance of firms.
Interestingly, however, while the research said that HR practices, bundles and systems
mattered, the actual role of the HR function has been largely left out (for exceptions
see Lado and Wilson, 1994; Ulrich, 1997; Huselid et al., 1997). Presumably, the HR
function must select the practices to implement or bundle, but little if anything was
researched or written about the ability of those in HR to do that, or the processes
through which that is done. While the fit of HRM to strategy has been analyzed, the
mechanics of how that fit is determined, and how practices are selected and
implemented has not been addressed. And virtually no attention has been paid to the
range of potential success (or failure) that those in HR might have when attempting to
implement the best-practices or bundles. Practice selection, implementation and
execution, the intellectual activity of HR professionals, has been largely ignored in the
empirical literature.
While research continues on practices and bundles as the essence of HRM systems,
some researchers have adopted or called for a more micro organizational approach to
identify intermediate links in the causal HRM-performance chain (Collins and Clark,
2003; Bowen and Ostroff, 2004; Ostroff and Bowen, 2000). There is also a growing
acknowledgement that more qualitative and contextual methodology, rooted in
institutional theory, might be needed during this transition to better identify the
constructs and variables that should ultimately be tested quantitatively (for a review
see Paauwe, 2004). Still others are suggesting that the inherent complexity of the
HRM performance relationship should be acknowledged, and efforts to understand
them should not be reductionist, but should look to biological systems and complexity
theory as analogs and move more deliberately to a systems level of analysis (Colbert,
2004). In a recent review of the literature and the state of the art of HRM research,
Becker and Huselid (2006) acknowledge progress, but also recognize the lack of
context and the need for greater attention to implementation. In fact, they quote
Barney (2001) who earlier recognized, the ability to implement strategies is, by itself,
a resource that can be a source of competitive advantage. (p. 901)

STRONG SITUATIONS
Few organizations today maintain strict command and control hierarchies. In many
contemporary organizations, layers of management have been removed, spans of
control have greatly increased, and leaders and supervisors are often unable to
meddle in the day to day activity of their reports, some of whom may not even be in
the same physical location. Policy manuals and detailed employee handbooks have
largely disappeared, and employees are expected to exercise greater amounts of
discretion and judgment in their day to day activities, which should be in support of
the organization's strategic goals. But how does the average employee make such
decisions? We suggest that organizations guide employee behavior by establishing a
high level set of principles, and constantly adjust behavior by sending signals
through the formal and informal networks of the firm. HRM is the primary channel
through which such signals are sent.

But signals, even when carefully constructed and sent, are subject to interpretation. To
be effective, all recipients should hear, understand and accept the message, and should
be guided to behave in similar ways to support the organization's objectives. That is,
despite differences in personality, interest, focus, etc., individuals will react to
messages and behave in similar (and predictable) ways. When signals are correctly
interpreted and individuals behave in ways that favor desired organizational
outcomes, the situation is said to be strong.
Mischel (1973; 2004) building on the earlier work of Lewin et al. (1939) in the field
of psychology, introduced the concept of situational strength. Years of research into
personality traits revealed substantial differences in the level of trait measured in
individuals as situational characteristics varied (the person versus situation debate).
That is, individual conscientiousness measures varied as situational factors changed.
Mischel (1973) in essence reversed this finding and suggested that strong situations
could induce consistent behaviors across individuals, despite underlying differences in
personality, while weak situations would allow for greater variance in interpretation
and response. Thus, it is imperative to create strong situations when the desired
outcome is consistency of behavior or action across employee groups. For example, if
customer service is important, all employees who interact (or could interact) with
customers should display courtesy and a caring attitude, regardless of their mood or
affect at the point of interaction.
Human resource practices are one important way that leaders send signals to
individuals in organizations. Incentive pay plans, for example, are intended to drive
behavior consistent with strategic organizational goals. But, is a single HRM practice,
or even a cluster of practices enough to create the strong situation Mischel
envisioned? We do not believe this to be true.
We contend that the black box of the HRM-firm performance link, or the ability of
HRM to produce desired organizational outcomes (growth, profit, market value), is
more likely to be a result of the strength of the total HR system than it is the result of
individual HR practices or high-performance work systems.

HUMAN CAPITAL IN THE HR FUNCTION

Many organizations today have sets of high level principles (basic truths, laws or
assumptions) that are intended to guide the decision making of employees at all
levels. These may be formalized in a corporate values statement, or an employee
code of conduct. It is here that one would find statements about the value of
individual integrity, the need to be respectful of differences, and the importance of
meeting or exceeding customer expectations. For example, a corporate value
statement (principle) may contain the words employees are our most important
asset, which may or may not be fully reflected and supported across a spectrum of
HR practices such as pay and benefits, development, and flexible work arrangements
to promote work-family balance. Similarly, a statement about ethical behavior at the
principle level should translate into practices that promote the open discussion of
differences, the ability to report question able behavior an onymously and some
guarantee of aggressive investigation and follow-up.

To be effective in guiding decisions, principles must be made real in ways that are
meaningful to employees at all levels. Consistent with our earlier argument about the
role of HR and strong situations, the degree to which there is a clear linkage between
these high level principles and the individual practices employees interact with is an
important determinant of HR legitimacy and system strength. But, given the myriad of
employee groups and the complex architecture (Lepak and Snell, 1999) of modern
organizations, how can a few principles translate into the requisite complexity of
practices needed to efficiently manage a modern organization?
Our argument is that one important role of the professional employees in the HR
function is to manage this complex translation function well. Employees must be able
to see clearly the link between a corporation's lofty aspirational statements, and the
impact (on them as individuals and groups) of individual business and human
resource practices. To do this effectively, HR must be comfortable operating at both
the conceptual (principles or systems) level, and the more concrete practices level.
Effective translation also requires deep esoteric knowledge of the existing culture of
the organization, of the best ways to present messages designed to change behavior at
the individual and group level, and a realistic feel for the current frame of mind in the
effected employee groups.
This suggests the need for a strong foundation upon which to build and leverage the
skills implied by the translation activity above. The deep analytical capability,
intuitive capacity, data input and processing speeds required to do this well favor HR
professionals and functions with focused and tacit academic and functional training
and professional development. HR functions that stress high level academic
achievement, including specific functional knowledge and quantitative analytical
training (MBAs or research oriented Masters degrees) will be better able to build and
maintain the competencies necessary to create strong situations.

MANAGEMENT EXPECTATIONS
Bowen and Ostroff (2004) suggested that creating a strong HR situation should help
employees understand what is expected and better enable them to determine the
appropriate expected behaviors. They incorporate communication theory and push the
research agenda into new territory. Can this micro approach be reconciled with the
resource-based view (RBV) theoretical implication that sustained competitive
advantage derives from relationships that may be socially complex and deeply
embedded, thus unobservable (Wright et al., 2001)? We suggest that the relationship
between line managers and human resource professionals is just such a relationship
generally unobserved, and certainly important in the development of the strong
situations which translate to competitive advantage.
In order for human resources professionals to fully leverage their high-level skills,
there must be a consistently high level of expectation emanating from operating
management at all levels. In order to have high expectations, management must have
a reasonable amount of knowledge about the state of the art in human resource
capability, and must constantly measure output and demand more from the investment
they make in the function. Management teams with high levels of HR domain
knowledge are more likely to select highly skilled and high performing functional

leaders, who in turn will build and maintain high performing HR functional
organizations.
High levels of management expectation will also promote frequent interaction
between line management and human resource leaders at all levels, further reinforcing
the perceived legitimacy of the HR function. HR functions high in organizational
legitimacy will be better able to establish and maintain strong situations, leading to a
shared organizational climate.

STRONG SITUATIONS AND THEIR CRITERIA IN

HRM
A strong situation is thus one in which the variability of responses to a stimuli
normally associated with fundamental differences in personality are reduced.
Translating this concept to the field of human resources, Bowen and Ostroff (2004)
propose that HRM practices, as a system contribute to firm performance by
motivating employees to adopt desired attitudes and behaviors that, in the collective,
help achieve the organization's strategic goals (p. 204). They propose that
organizational climate mediates the HRM-performance relationship, and they suggest
that: strong climates allow employees to understand the desired and appropriate
responses and form a collective sense of what is expected (p. 204). They view the
HRM system as a key determinant of climate, and begin to suggest that researchers
differentiate between strong and weak HRM systems.
HRM system strength is based on metafeatures (Bowen and Ostroff, 2004: pp. 208
213), described as distinctiveness, consistency and consensus. Under distinctiveness,
they list:

understandability
visibility
legitimacy of authority
relevance.

Consistency is made up of:

instrumentality
consistent HRM messages.

While consensus refers to:

agreement among principal HRM decision makers

fairness.

When these metafeatures are present, and the HRM system is strong, the sense
making process will be most likely to result in the intended organizational climate. If
the HRM system is weak, the HRM practices will send messages that are ambiguous
and subject to individual interpretation. Given ambiguity, one of two things may
happen: variability, or unintended sense making (Bowen and Ostroff, 2004: 213).

In the next section we will focus more directly on how strong situations and climate
mediate the relationship between HRM and firm performance, and we begin to
identify how the HR function can create and maintain the required conditions for a
strong situation.

STRONG SITUATIONS AND THE ROLE OF HR

At the macro level, the resource-based view has emerged as the primary theoretical
explanation for the relationship between HRM and firm performance (Wright et al.,
2003). But theory building at lower levels of analysis has lagged (Bowen and Ostroff,
2004). Exactly how HRM effects firm performance, and through what mechanisms
these effects manifest themselves is still largely unknown. The framework proposed
by Bowen and Ostroff suggests that the strength of the HR system (based on the work
of Michels'strong situations from the sociology literature) can contribute to firm
performance by motivating employees to adopt desired attitudes and behaviors that in
the collective help achieve the organization's strategic goals.' Their analysis is multilevel, looking at the organization, the group and the individual simultaneously, and
seeking to explore how the levels are linked (House et al., 1995).
While acknowledging the role of the resource-based view at the macro level, Bowen
and Ostroff turn to climate as a mediating construct in their proposed multilevel
analysis of the relationships between HRM and performance. What individual
employees see, and how they make sense of their environment (in this case within the
organizational context) forms their psychological climate (Schneider, 1990, 2000).
Organizational climate is a shared perception of what the organization is like in terms
of practices, policies, procedures, routines and rewardswhat is important and what
behaviors are expected and rewarded (Bowen and Ostroff, 2004). HRM practices and
the HRM system will play a critical role in determining climate perceptions, which is
in turn empirically linked to higher level behaviors and organizational performance
indicators (Bowen and Ostroff, 2004). But the actual mechanisms through which
these variables interrelate are still poorly understood.
They base their conception of a strong situation in the work of Lewin et al. (1939) on
climate, and Mischels work on the strength of social situations (Mischel, 1973).
Strong situations lead all persons to construe the particular events the same way,
induce uniform expectancies regarding the most appropriate response pattern, provide
adequate incentives for the performance of that response pattern, and instill the skills
necessary for its satisfactory construction and execution (Mischel, 1973, in Bowen
and Ostroff, 2004: 207).
This distinction between HRM content and HRM process is important in a number of
ways. Bowen and Ostroff view HRM practices as communications from the employer
to the employee. Using theories from communication they discuss the need for
accurate reception and yielding, or acceptance of the message (Chaiken et al., 1996).
For the message to have its desired effect, both are necessary (Bowen and Ostroff,
2004).
For a situation to be considered strong, employees must hear the message, as it was
intended, and must accept it prior to choosing an appropriate response. This event-

effect relationship is cemented by distinctiveness (the event effect is highly

observable), consistency (the event effect presents itself the same across modalities
and time) and consensus (there is agreement among individuals views of the event
effect relationship) (Kelley, 1967). When all are present together, the situation is
strong, and employees are highly likely to interpret messages in a similar fashion and
behave in ways appropriate to the organization's objectives (Bowen and Ostroff,
2004).
While Bowen and Ostroff identify the separation between HRM practices and HRM
process, their analysis tends to place them back together in the form of the HRM
system. They then analyze the various ways that distinctiveness, consistency, and
consensus can be made palpable, leading to strong HRM situations.
It is here that we begin to depart from the Bowen and Ostroff analysis and suggest
that the strength of the HRM system is leveraged more on the process and less on the
content of HRM. That is, individual practices, taken in the aggregate, may not lend
themselves to creation of a strong situation, but the overall HRM process does.
Bowen and Ostroff identify four characteristics of HRM that can foster
distinctiveness: visibility, understandability, legitimacy of authority, and relevance.
For visibility, they talk about the need for an HRM practice to be salient and readily
observable. They conclude:
The creation of a strong organizational situation requires that situational
characteristics be salient and visible throughout much of the employees daily work
routines and activities. When the HRM system includes a wide spectrum of HRM
practicesfor example, selection, training, diversity programs, employee assistance
programs, and so forththat affect a large number of employees, visibility is likely to
be higher. Expanding the number and range of practices should enhance salience and
visibility, because it increases complexity and allows for the set of practices to be
more figural relative to other stimuliboth of which are principle of salience (Fiske
and Taylor, 1991). Additionally, shared meaning cannot be developed unless most or
all employees are subjected to and can perceive the same practices . (Bowen and
Ostroff, 2004: 208).
While we believe that the Bowen and Ostroff analysis is correct, and that visibility
does in fact help create and maintain a strong organizational situation, it is not
practical to think in terms of every practice being visible (or for that matter relevant)
to all employees, or even at times a large sub-set of all employees. Practices vary
across employee segments (hourly, non-exempt, supervisory, executive, full-time/parttime, contractor, partner, consultant), and vary considerably across industry and
country. Practices are, and should be, visible to those most directly affected. Attempts
to broadly disseminate information about practices that are not relevant will most
likely result in significantly less attention to the chosen medium over time, weakening
the organizational situation. The complexity of most organizations today, and the
segmentation of employees along multiple lines, makes visibility at the practices level
impractical. Efforts to make all practices visible to all employees are likely to result in
white noise, effortlessly ignored by those exposed.

Similar concerns can be stated with respect to the Bowen and Ostroff (2004) notion of
understandability and relevance. While it is intuitively obvious that to have an effect
on an individual a practice must be understandable, and that clear communication is
critical to success, the interplay between understandability and relevance cannot be
overlooked. Employees are subject to an ever-increasing amount of information from
traditional and new (more invasive) sources, and attention cannot be paid to all
simultaneously. The signals must be clear and in some way personalized to signal a
particular employee to be attentive to a message that has relevance, yet allow others to
ignore the message as noise. Perhaps the best way to maximize attention to critical
input is to provide it face to face (and one on one) in a quiet setting, but the reality of
today's workplace makes such a communication choice unrealistic. Again, time
demands and the complexity of communications in the workplace make creating a
strong situation by communicating to everyone the same messages difficult if not
unrealistic.
Further, attempting to achieve consistency and consensus at the dynamic and
changing level of practices is also problematic. There is little apparent consistency
between the CEO's pay scheme and the pay plan of the part time call-center associate.
Any attempt to articulate a basis for such consistency would be widely attended to,
but is unlikely to produce motivation among those at the lower end of the pay
continuum. And while agreement among HRM's is important, it does not mean that
they must compromise and seek practices that do not acknowledge the differences
inherent across employee populations. Fairness has a contextual component to it
fair as compared to what? The notions of consistency and consensus make more sense
at the less dynamic, more abstract level of process and principle.
One way, however, that visibility, understandability and relevance can be brought
together to produce a coherent message that employees are likely to attend to is if the
HR function and the HRM system have what Bowen and Ostroff (2004) call
legitimacy of authority. It is here that the recent suggestions of Lawler begin to make
sense, the organization or structure of HR matters. When properly positioned in the
organization (for example directly reporting to the CEO, not through an
Administrative VP or other staff position), and properly resourced with high caliber
professionals, HR appears in the eyes of the organization to be legitimate. It is the
perception in the minds of individual employees, all of whom hear a large number of
messages every day, that certain messages, from certain sources, deserve more
attention than others. Companies that have established and maintained an HR function
and a system of HR processes that are viewed as important and meaningful by
employees are more likely to create strong situations around HRM, and therefore have
greater influence on employee behavior, leading to desired business outcomes. It is
the strength of the HRM system that creates adequate and appropriate visibility, which
leads to quick analysis of relevance, which leads the right employees to look intently
for meaning or understanding. That is, a strong HRM system aids employees in sense
making and decision-making. And since such sense making activity is continuous and
in some cases unconscious, it aids in the creation of agility by promoting employee
judgment on a continuous basis. Behaviors, determined in the moment by well
informed employees, will support the general principles of the organization, even
when established practices (rules) do not.

Thus, although Bowen and Ostroff (2004) seem to argue that visibility,
understandability, relevance and legitimacy of authority are equal in their importance
and impact, we would argue that the legitimacy of authority of the HRM function is a
condition precedent to the other three. A legitimate HRM system also encourages
consistency, and promotes consensus among groups of employees who are comparing
interpretations of messages. Bowen and Ostroff leave it to others to determine and
develop appropriate measures of HRM system strength. We would encourage effort be
invested to first dimensionalize HRM legitimacy of authority.
Legitimacy of authority, we suggest, is not a function of HR practices, which has been
the focus of much if not most of the HRM performance literature. We see the reverse
relationship, that effective HR practices are a function of HRM legitimacy of
authority. That is, HR functions are more able to produce and implement HR practices
that have the desired impact on employee behavior if they are perceived as legitimate
authority broadly in the organization. The relationship of the HR function to the top
management team is a critical ingredient in its legitimacy of authority. This
relationship is often visible to employees, and signals them whether to pay close
attention to HR as a partner in the business, or pay less attention to HR as a largely
administrative function. The relative status of HR to other business functions and
disciplines (e.g. accounting and finance, legal, marketing, etc.) is also often signaled
to employees in a variety of ways, including office proximity, attendance at meetings
and who travels with the boss. Therefore, when HR is broadly perceived to be a
legitimate authority within the organization, it is more likely to be able to create and
maintain strong situations, leading to enhanced performance
While these are important antecedents, they alone do not create the strong situation
described by Bowen and Ostroff. We would argue that given clear evidence of
legitimacy of authority, strong situations are created and maintained in the processes
used to develop, implement and evaluate HRM itself, quite distinct from the practices
that make up the work product, or the individuals that hold the positions within HR.
At several points in their analysis, Bowen and Ostroff (2004) draw a distinction
between HR practices, and HR processes. But the bulk of their detailed review deals
with practices alone as the manifestation of HR, in keeping with earlier research.
Colbert (2004) is more explicit in his review, suggesting that the inherent complexity
of HRM at the micro level is a natural and expected reflection of a complex adaptive
system. As such, rather than work harder to reduce that complexity (and eliminate
potentially valuable variance), he suggests that HRM scholars move up the levels of
abstraction and deal more directly at the level of policy and principle, incorporating
theory from the field of complexity. His work bridges a gap in the literature from our
understanding of micro level relationships to the more recent work on organizational
agility (Shafer et al., 2001), and the work of Teese et al. (1997) on dynamic
capabilities. The key to understanding, in contradiction to Bowen and Ostroff (2004),
is not in reducing the level of abstraction, but increasing it by focusing on processes.
Consistent with complexity theory, and with the work of Mintzberg (1978), Colbert
(2004) suggests that the answer may lie not in the discreet contributions of traditional
reductionist research, but in identifying the critical patterns in the stream of evolving
HRM stategy.

Colbert's (2004) argument is that, in accordance with the RBV of the firm, many of
the most critical contributions of HRM are captured not in individuals or in individual
practices, but in the complex interactions and relationships among many individuals
and practices (Colbert 2004). This systems level view is not new, but the addition of
theory from other fields (complexity) helps provide an analogical bridge (Colbert,
2004: 353) linking HRM and performance. It also fits well with Mintzberg's earlier
suggestion that we should look for patterns in a stream of decisions to determine
strategy.
But Colbert's model, although strong, is not complete. There is, in our experience, an
additional level of abstraction that is not principle, not policy, not practice and not
product. It is the process through which principles, policies and practices are created,
modified, implemented and evaluated on a continuing basis. It is the device that
signals employees to be attentive the content of this process will have a significant
effect on their growth and development in the firm, it will signal the behaviors that are
expected, and the rewards or sanctions they will receive for compliance or noncompliance. It is in itself a complex process, but it reduces the complexity of the
individual HR policies and practices by packaging them in a way that has legitimacy
of authority and conveys a clear and consistent message appropriate for the audience.
For example, GE, widely regarded as a successful company, has for over 50 years
utilized its Session C process to manage its HRM system. The rhythms of employee
participation in the process are clear and well established. The agenda for each year's
Session C process is approximately 80 per cent fixed. It contains the building blocks
of employee self evaluation and career interest identification, leadership and 360
performance appraisals, employee training and development interests and leadership
recommendations, and a review of compensation and benefit practices and turnover.
The other 20 per cent of the review agenda reflects current cares and concerns, and
may involve a very deep dive on a particular function (e.g. accounting or sourcing or
technology), a review of the results of a recent change effort (e.g. moving six sigma
from an internal efficiency program to a program to build customer relationships by
sharing the results), and/or a discussion about specific industry or demographic trends
that impact the management of people (e.g. movement of administrative activity to
shared services centers, and/or the need to promote more innovation and creativity
across the board.) If a specific HR practice has recently been changed (e.g. the forced
distribution of employee performance'), it most likely grew out of a prior Session C
(or many), and will be evaluated through the lens of future Session C's. That is, the
growth and development of the HRM system is not ad hoc or situational, it is
contained within a vessel that gives it context, meaning and importance to all levels of
leadership and to employees through the vast commitment of leadership time (not just
HR time) to the process, which is highly visible to all.
It is in this process domain that we believe the work of Bowen and Ostroff and
Colbert can be reconciled. If one were to look across GE or other large complex
organizations from the bottom of the chain, from the domain of HR practices, one
would find the complexity and variety nearly incomprehensible. If one looks from the
top, from the principle level, one would find simplicity (we want to be the world's
most competitive enterprise'), but little meaning. The policy level exists, but it is
viewed as either administratively required (reporting rules), or deeply esoteric (stock
option cancellation policy upon involuntary cessation of employment); policy

generally does not inform action in the broad sense. The real power is at the process
level, where the goal to be the world's most competitive enterprise is given form,
communicated broadly through well established rhythmic occurrences (we do not say
events, because they are not), routinely and frequently measured, and adapted as
needed. There is no mystery as to when Session C occurs, and no doubt to its meaning
and importance. The strong situation was carefully created, and is well maintained.
Complexity is reduced, but variance is not eliminated.
Thus the process level of abstraction allows us to utilize Colbert's (2004) explication
of the resource-based view and its irreducible complexity, yet still look for the
mediating mechanisms identified by Bowen and Ostroff (2004). If we focus on HRM
legitimacy of authority, and use organizational structure, frequency and quality of
interaction with line management, and the existence and importance of a
comprehensive HRM process as a proxy to measure legitimacy, these measures
should give multi-level HR System strength data that we would hypothesize would
correlate with desired employee behaviors and firm performance.
In simplest terms, our argument is that the strength of the HRM system, and the
process through which it is enacted, will explain more firm performance variance than
individual practices or bundles of practices. The strength of the HRM system and
process will determine how well employees attend to HRM messages, how well they
understand, individually and collectively what behaviors are expected, and what the
outcomes will be for so behaving. With clear understanding of the expectations, and
the consequences, employees can be expected to exercise judgment and display
motivation. A coherent HRM process allows for any change of an HR practice to be
interpreted in an overall context that remains largely unchanged.
In fact, a strong HR process may mitigate against the potential damaging effects of an
inappropriate or out of date practice employees will know to ignore it and behave
in a way that is consistent with the higher level principles as represented through the
process. Strong HRM process creates the strong situations identified by Bowen and
Ostroff (2004), yet operates at a higher level of abstraction than practices (but still
meaningful to employees), as suggested by Colbert.
Research into the prevalence of HRM systems, and the relative strength of HRM
processes should be given priority among HRM scholars. Some dimensions to
consider, as explained above, include the relative value of HR and other functions, the
amount of management time spent on HRM across the board, the HR skills and
business understanding of those engaged in HR work, and the state of maturity of the
HR organizational capital, the HRM process itself.

THE IMPORTANCE OF IMPLEMENTATION

This notion of the importance of execution, not just formulation, has a corollary in the
strategy literature. In the early 1970s, Henry Mintzberg began to challenge
conventional notions of strategy as static plans by suggesting that strategy could be
thought of as a pattern in a stream of decisions (Mintzberg, 1978). This gave a more
emergent feel to what had become thought of as complicated and exhaustive
cookbook. It also meant that what happened after the recipe was created was also part

of strategy, that is, implementation was as much a part of a strategy as formulation.

Within his conceptualization of strategy he allowed for the constant tug of war
between managers as a process in which many decision makers with conflicting goals
bargain among themselves to produce a stream of incremental, disjointed decisions
(Mintzberg 1978). Any one decision analyzed on its own may seem insignificant or
inconsequential, but it may be the most important decision in determining the general
direction or pattern being followed. Thus, strategy is not just what was planned, but
what actually happened, regardless of the plan. This same general discussion of
strategy applies to strategic HR as well.
HR practices, the deliberative product of planning and design, may or may not
produce the desired business outcomes. The practitioner press is full of stories about
companies that have attempted to implement best practices only to discover very
little or even negative impact on the outcomes desired.
While our goal is not to challenge the growing base of proof that HR practices
matter when it comes to business outcomes, it is our intent to suggest strongly that
practices are not the full story. Our argument is that practices and implementation
must be looked at together and preferably over time and as part of a complete and
dynamic system. We say dynamic to make it clear that effective HRM is not fixed or
static, any more than a currently enacted or emerging strategy is fixed and static. The
growing body of literature on organizational agility as the root of iterative competitive
advantage (Shafer et al., 2001), strongly suggests that scaleable or adaptive HR
configurations are critical to maintaining the system. Agile organizations generally
vest decision making at the lowest possible level (Lepak and Snell, 1999), and utilize
shared values as the basis for such decisions. In such an environment an elaborate and
rigid HR architecture would be viewed as obsolete and unnecessary.
Becker and Huselid (2006), while discussing where do we go from here in research
on the HRM performance link, speculate that there is a robust HR-firm performance
effect because there is wide variation in how firms manage even the HR basics (p.
905). They further suggest that the variance may be due to lack of knowledge, lack of
managerial competence, or an inability to execute (or more likely some combination)
(p. 905). This suggestion, coupled with the criticism of the HR function from Lawler
and Hammonds (above), points to the need for more fine grained and contextual
research which provides some measure of the ability of HR professionals to do the
prescriptive work of a full business partner.
Lawler (2005: 167) suggests that few HR organizations have reached the desired
status of the role because of the way that they are organized. Hammonds and others
maintain that it is the people (Hammonds, 2005). But while this debate, structure
versus people gets started, we suggest that neither position is likely to be universally
supported. A great person in a bad structure is probably as bad as bad people in a great
structure. The key, we suggest, is to look at the total HR system, in the context of the
total business system. Unfortunately, very little in the existing research approaches
HRM at this level.
Thus, in the overall context of HR functional excellence, it is helpful to connect the
dots. Practices by themselves, as noted by Lado and Wilson (1994), can both create
and destroy value. People by themselves (the HR function) can probably be seen to

have the same potential impact. How then, do practices and people add up to strong,
value added HRM? The answer may be found in looking beyond practices and people
to the principles of the organization and the processes through which HRM is enacted.
Our argument is that when the HR function has the right human capital ingredients,
and it is broadly seen as a legitimate authority within the organization, and the line
management knows the value that good HRM can deliver (and demands results), the
conditions are right for HR to create and maintain the strong situations needed to
effect business results.

THE HR FUNCTION AND STRONG HR SYSTEMS

PUTTING IT ALL TOGETHER
The question to ask any CEO in a discussion of what may be wrong with HRM in the
company is simple and direct: Do you have your very best people in HR? Most will
readily say no. When asked by Jack Welch (to a group of CEOs) how many of you
pay your HR person the same as you pay your CFO, very few hands went up in the
room. How then is HR to understand (and influence) the business strategy, be seen
widely in the organization as credible and important, and have the skills necessary to
weave a complex web of practices into a coherent and well understood philosophy
through a highly visible and recognized process? The fact is, they can not. Highly
capable practitioners, trapped in organizations that do not properly build HR's
legitimacy, often talk about pushing on a rope, the frustrating exercise of trying to
get the leadership (not the employee population!) to pay attention to critical human
capital dimensions. Demanding line managers, saddled with HR practitioners drawn
from the administrative heritage of the function, are frustrated as well. Only when
capable practitioners and demanding line managers are paired can we expect HRM to
have maximum impact on firm performance.
There are, therefore, several important pieces to building and maintaining an HRM
system that creates the clear signals envisioned by Bowen and Ostroff, and provides
for the higher level sense making (patterns in a stream of decisions) discussed by
Colbert. At the floor is to staff HR with only the highest caliber talentthe
intellectual and leadership equals to the best in any other function. They must know
their craft, practice it well, and receive the highest levels of continuing education
along with any other talent pool in the company. The HR function cannot be a
stepchild.
But to be effective in the role of business partner or business leader, HR must also
know a lot about business in general, and about the current business they support
specifically. HR must not only be at the table, they must articulately and convincingly
speak the language spoken by everyone else. The need for keen analytical skills and
financial savvy cannot be overstated. To be in any position to leverage their core
competency in HRM, HR professionals must be masters of the business as well.
Given high-level core competency in HRM, and well honed general business skills
and tacit organizational knowledge, HR must also be positioned in the organization in
a way that is seen as legitimate. HR cannot be expected to push' its agenda; managers
must demand that HR not only be world class, but that it produce consistent world
class outcomes measurable in the business results. Leaders at all levels in the

organization need to demand more from their HR partners, and never be complacent
with the simple enactment of popular best practices. HR should be measured on the
basis of its ability to produce and maintain the talent the organization needs to
compete and win, consistently, year after year. Only then will they deserve to be paid
what CFO's are paid.
But perhaps most importantly, though rarely talked about, HR must adopt a more
complete systems orientation, and develop a perpetual process through which
individual HR practices are given context and meaning. Such a process must be
closely linked to the aspirational principle that people are an important (if not the
most important) asset in the organization. It must be a process that is not held in secret
by those in the fraternity, but a process that touches every employee, in some
meaningful way, on a very regular basis. So the end game of HR functional excellence
has very humble beginnings. Hire the best possible people, people equally talented in
their field as the best people in any other important function in the company. Teach
them the business, at the detailed level. Position them properly, and demand that they
perform better every year. And most importantly, build a process through which
individual HR practices are tied together in a living, perpetual system that is highly
visible to all. Only then will an organization have true HR functional excellence.
Further Readings

Entry Citation:
Haggerty, John J., and Patrick M. Wright. "Strong Situations and Firm Performance:
A Proposed Re-Conceptualization of the Role of the HR Function." The SAGE
Handbook of Human Resource Management. 2009. SAGE Publications. 15 Apr. 2010.
<http://www.sage-ereference.com/hdbk_humanresourcemgmt/Article_n7.html>.
Chapter DOI: 10.4135/978-1-8570-2149-3.n7