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The International Journal of Human Resource Management 9:1 February 1998

Strategic human resources: a new source


for competitive advantage in the global
arena

Linda K. Stroh and Paula M. Caligiuri

Abstract As demands are made on organizations to expand their global markets,


having an effective global human resources function becomes imperative. Based on
interviews with global human resource executives in sixty of the largest. US-based
multinational organizations, this study first identifies ten factors, or guiding principles,
that facilitate such effectiveness. Using data from surveys of these HR executives as well
as of managers of non-HR areas and the CEOs/business unit executives of these
companies, the paper then analyses how the members of these various groups rated the
effectiveness of the global HR function. The survey findings demonstrate that the global
HR executives and the CEO/business unit executives rated the global HR function
relatively high, while the executives in the other functional areas rated its effectiveness
somewhat low. The relationship between the effectiveness of the global HR function and
firm performance was also examined and revealed that three of the ten factors identified
by the HR executives were related to bottom-line organizational performance measures.
These findings suggest that, in successful organizations, global HR is perceived to be
making a contribution and actually is making a contribution to the overall financial
performance of the organization,
Keywords Strategic human resources, international human resources, global human
resources, human resources effectiveness, global leadership, HR strategic partner

As increasing global competitiveness has become imperative for US corporations, any


process or function that enables corporations to gain a competitive advantage in the
global arena is considered valuable to those at the helm. One area whose contribution
is just beginning to be assessed is that of the global human resource function. This study
begins this process by examining both the actual and the perceived contribution of the
global human resource function to the overall effectiveness of the multinational
organization.
Past research suggests that an organization's employees can be a source for sustained
competitive advantage and can determine the ultimate success of their organizations
(Pfeffer, 1994; Prahalad, 1983). Given the importance of people in organizations, most
strategic human resource departments consider the management of the competencies
and capabilities of these human assets the primary goal. Such forward-looking, strategic
operations contrast sharply with more bureaucratic, traditional human resource
departments, which tend to manage human costs as liabilities (e.g., as incurring wage
bills and benefit expenses) (Hamel and Prahalad, 1994; Schuler and Jackson, 1987).
Strategic HR departments are future-oriented and operate in a manner consistent with
respect to the overall business plan in their organizations (Adler and Ghadar, 1990;
Adler, 1997; Kobrin, 1988; Milliman et al., 1991; Tung and Punnett, 1993). Such
departments tend to employ progressive human resource practices in which the

0985-5192 m Routledge 1998


2 Linda K. Stroh and Paula M. Caligiuri,
emphasis is on assessing the knowledge, skills and abilities needed for the future and to
institute staffing, appraisal and evaluation, incentive and compensation, and training and
development programmes to meet those needs (Cascio, 1995; Schuler and Walker,
1990; Schuler and Jackson, 1987; Stroh and Reilly, 1994). Huselid (1995) refers to
these strategic HR practices collectively as `high performance work practices'. Ideally,
these functions should fit together to meet the greater goal of strategic human resources
- to support, manage and maintain high-commitment and high-performance employees
(Burack et al., 1994). Burack et al. (1994) suggest several ways that. organizations can
maintain high commitment and high performance among employees and ultimately
organizational effectiveness: by promoting the organization's credibility with employ-
ees; encouraging the use of participative management-and employee involvement pro-
grammes; focusing on high achievement, mutual trust and commitment; and developing
a combined group/entrepreneurial approach to management, thereby creating an
organizational culture in which individual employees are encouraged to be adaptive,
competitive and successful.
Research by several scholars has shown a close association 'between these high-
performance work practices and organizational effectiveness. MacDuffie (1995), for
example, found that the presence of integrated strategic HR practices was related to
.higher productivity and higher quality in automotive assembly plants. Terpstra and
Rozell (1993), studying a variety of industries, found that the . presence of strategic
staffing practices was positively related to an organization's annual profit and its profit
growth. Finally, in a study of more than 1,000 organizations, Huselid (1995) found that
a relationship existed between high-performance work practices 'and such positive
employee outcomes as lower turnover and higher productivity, , as well as better
corporate financial performance.
Research has also shown that executives company-wide view strategic HR depart-
ments as more effective partners in directing their organizations' larger business plans
(Dyer, 1983). One could conclude, therefore, that, when an organization's HR strategy
is linked to its business strategy, organizational effectiveness should improve (Dyer,
1983; Lengnick-Hall and Lengnick-Hall, 1988; Schuler and MacMillan, 1984; Tichy
et al., 1982; Stroh and Reilly, 1994).
Whether corporations choose their HR practices from a `best practices' or a
contingency or `fit' perspective has been debated extensively. Those who favour the
`best practices' approach believe that there are a distinct set of practices that, when
implemented, will result in greater organizational effectiveness. Those who favour the
contingency perspective believe that HR practices should be designed in response to
such organizational and environmental factors as the economic status of the industry,
the maturity of the market and technological considerations (Dyer and Reeves, 1995;
Kochan and Osterman, 1994; Lawler, 1992; Miles and Snow, 1984; Pfeffer, 1994). As
Becker and Gerhart (1996) noted, the inconsistencies in the studies that have examined
the relationship between HR practices and organizational effectiveness have made it
difficult to compare the value of these two approaches. Becker and Gerhart (1996)
suggest, for instance, that the level of analysis has not been analogous across studies,
ranging from broad guiding principles (macro) to specific policies or practices (micro).
It is possible that the `best practices'approach may be more valuable in explaining
guiding principles, while the specific policies and practices supporting a given guiding
principle may be situation dependent (Becker and Gerhart, 1996), so that companies
may follow both approaches.
A new source for competitive advantage in the global arena 3
Given that the study of strategic global HR systems as they apply to organizational
effectiveness is a relatively new topic of research and that earlier studies of HR
functions in multinational organizations used as their unit of analysis general principles
(as opposed to specific HR practices), we have adopted a 'best practices' approach in
this study. Becker and Gerhart (1996: 786) consider the overarching principles guiding
HR practices as an HR system's 'architecture'. Our study focuses on such 'system
architecture' as it relates to organizational effectiveness.
As with domestic HR departments, the goal for international HR operations should be
to assess HR needs for the future proactively and implement practices and policies to
meet those needs. But what are those needs? Whit are the issues and concerns facing
HR departments in multinational organizations? And how can global HR enhance its
effectiveness as a strategic business partner and contribute to the overall effectiveness
of multinational organizations? Research is still in its infancy in producing the answers
to these questions. This study is yet another step in that direction.
The research on global HR to date has been dominated by the study of expatriates
(their selection, training, compensation and adjustment to foreign countries) and cross-
cultural comparisons of HR issues and practices (e.g., Briscoe, 1995; Dowling et at.,
1994; Shenkar, 1995). The focus on these two topics presents a somewhat misleading
impression, however, of the breadth - of issues currently facing the global HR manager,
including staffing foreign subsidiaries, managing multiple employment environments
world-wide, developing a variety of different pay scales and the like.
Research by Caligiuri and Stroh (1995) supports the hypothesis that there is a close
link between global HR practices (recruitment, selection, socialization) and global
business strategies. That is, among the companies participating in their study, the global
HR practices were consistent with their global business strategies overall. On first
i mpression, this finding supports the value of the contingency perspective for examining
strategic HR issues. Further analysis found, however, that these companies' strategies
were related to a composite Multinational Corporation Success Index of economic
variables (return on capital, sales growth, return on equity, profit margin), suggesting
that: companies subscribe more to a 'best practices' approach. Specifically, companies
withh ethnocentric strategies, characterized by the exertion of strong control from
headquarters were found to be less successful than companies that followed any of
the other three approaches: regiocentrism (regional autonomy) polycentrism (foreign
subsidiaries have autonomy), or geocentrism (there is one corporate culture with equal
voice and participation across countries). From a 'best practices' perspective, local
responsiveness should be incorporated into the global HR practices of multinational
companies. The Caligiuri and Stroh study, however, did not examine the practices of
companies for their other attributes of 'fit' and did not control for their stage of global
development. That study, however, partially supports Becker and Gerhart's (1996)
theory that both 'best practices' and fit may operate concurrently to affect fine
performance.
Through sampling, the current study holds constant some of the environmental
contingencies of our participating organizations, and only multinational organizations in
a mature stage of global development are included. By controlling the sample, we
attempt to examine the best guiding principles for multinational organizations in a
mature stage of global development.
The purpose of this study is threefold. First, the study attempts to identify those
factors, or guiding principles, that have enabled multinational organizations to have an
4 Linda K. Stroh and Paula M. Caligiuri
effective global HR function. Second, the study analyses the effectiveness of global HR
operations from the perspective of non-HR managers. And, third, the study attempts to
identify which global HR factors, or guiding principles, are related to the bottom-line
effectiveness of multinational organizations.

Methods

The research on which this article is based encompassed two separate studies. In the
first study, we collected open-ended interview data from eighty-four global human
resource executives working in sixty multinational US-based firms. These interviews
identified the top ten global HR factors, or guiding principles, impacting on the
effectiveness of the global HR function. Survey data were then gathered from (1) global
human resource executives, (2) executives from other functional areas and (3) CEOs/
business unit executives in the same sixty multinational organizations so as to compare
the perceived effectiveness of the global HR function in the eyes of the HR and non-HR
managers in these organizations; Finally, the. effectiveness ratings were tested against
firm-level performance data to assess whether the effectiveness of, the global HR
function is positively related to organizational performance.

Interviews

Interview data were collected from global HR executives at sixty multinational firms,
all of whom are members of the International Personnel Association (IPA), a
professional association whose members represent sixty of the top hundred multi-
national organizations in the United States. The list of managers was then divided
between the two authors to conduct the interviews.
Interviews were conducted by telephone or in person and ranged in length from 20
minutes to 1 % hours. Each interviewer took notes while interviewees spoke. A total of
eighty-four interviews were conducted (some very large companies had two members in
the IPA).
The primary purpose of the interviews was to identify the factors global HR
executives believe enable global HR operations to be effective. Given that the topic is
general, the interviews were very unstructured. Starting questions were asked, such as,
`What do you think is facilitating the effectiveness of your company's global HR
operations?' and `What do you think is impeding your company's global HR
operations?' The interviewers asked variations of that question to probe for further
factors, for example, `Can you think of any other factors that might impact the
effectiveness of the global HR function?'
After the interviews, the authors' notes were content analysed to identify the most
important factors impacting on effectiveness., Initially, each author grouped the factors
mentioned during her interviews by category, and then. they grouped them together
consensually. Consensus was considered reached when the same factor appeared on
both lists or factors on both lists were considered similar enough except for the term
used to describe it.
The content analysis of our interview results isolated ten factors, or guiding
principles, that appear to facilitate the effectiveness of the global HR function in
multinational organizations. The first five are guiding principles that HR departments
should implement on an organization-wide basis. These five would have a direct impact
A new source for competitive advantage in the global arena 5

Implement formal systems to improve world-wide


communications

Implement an International Human Resource


Information System (IHRIS)

Direct
Foster the global mindset in all employees throu
training and development
impact on the
multinational
organization

Develop global leadership through developmental


cross-cultural assigrunents

Position the HR function as a strategic business


partner in the organization's global business

Figure 1 Guiding principles for global HR which impact on the effectiveness of the
multinational organization

on the success of the multinational organization and would be implemented by global


HR for the entire organization (see Figure 1):
I Position the human resource function as a strategic partner in global business.
2 Develop global leadership through developmental cross-cultural assignments.
3 Foster the global mindset in all employees through training and development.
4 Implement formal systems that improve world-wide communication.
5 Design and implement an international human resource information system
(HRIS).
The other five factors would be implemented within the human resources function, so
as to better position itself for globalization. These have a more indirect effect on the
overall functioning of the multinational organization. For these five factors, the global
HR function would improve itself and be better positioned to be a strategic player in the
global business of the organization (see Figure 2).
6 Ensure flexibility in all human resource programmes and processes.
7 Develop relationships with international HR counterparts to encourage information
exchange.
8 Have ability to express the relative worth of human resource programmes in terms
of their bottom-line contribution to the organization.
6 Linda K. Stroh and Paula M. Caligiuri

Ensure flexibility in all human reource programmes


and processes

Develop relationships with international HR


counterparts to encourage information exchange

Direct

impact on the
i mpact indirect.
on the
Have the ability express globally the relative worth of
HR programmes in terms of bottom-line contribution functioning multinational
of global . organization
human
resources

of strategic advantage
Have the ability to market HR globally as a source

Encourage the relinquishing of domestic HR power


to a world-wide HR structure

Figure 2 Guiding principles for global HR which impact indirectly on the effectiveness
of the multinational organization

9 Have ability to market HR globally as a source of strategic advantage.


10 Encourage the relinquishing of domestic HR power to a world-wide HR struc-
ture.

Surveys

Surveys were sent to each of the members of the IPA who participated in the
interviews. Each executive was asked to give a survey to one of his/her peers in a non-
HR area (e.g., VP of operations, marketing, or sales) and to the CEO or general
manager of his/her business unit. Fifty-five IPA members returned their surveys, for a
response rate of 66 per cent, and a total of forty-four managers in non-HR functions and
CEO/division heads returned their surveys. Thus, a total of ninety-nine managers
participated in the survey portion of this study.
Given that the survey was targeted at three distinct groups of raters - global human
resource executives, executives in non-HR areas and the CEOs/business unit executives
- three versions were written, respectively. The variables assessed in the survey tap
the various raters' perceptions of the effectiveness of global HR on each of the
aforementioned ten guiding principles.
A new source for competitive advantage in the global arena 7

Independent variables
World-wide communication World-wide communication was measured by means of
the following two items to which survey participants were asked to respond on a five-
point scale ranging from 'strongly agree' to 'strongly disagree': 'There is frequent
communication among global HR professionals worldwide' and 'People in global HR
have fostered informal relationships with our colleagues in other countries'. Alpha
reliability for this scale was .60.

International HRIS International HRIS was measured by the following two items to
which survey participants were asked to respond on a five-point scale ranging from
'strongly agree' to 'strongly disagree': 'Global HR lacks the technology to assimilate
information in a useful manner' (reverse coded) and 'Global HR has human resource
information systems that are networked worldwide'. Alpha reliability for this scale
was .78.

Global mindset Global mindset was measured with nine items. Examples of these
items are 'When going into emerging markets, global HR provides our organization
with critical information on local laws and customs'; 'We have people with inter-
national experience in key global HR management positions'; and 'People in global HR
lack a global mindset' (reverse scored). Response choices were on a five-point scale
ranging from 'strongly agree' to 'strongly disagree'. Alpha reliability for this scale
was .86.

GHR flexibility Flexibility of the global human resource function was measured with
a single item: 'Global HR lacks the ability to be flexible and make changes in a timely
fashion' (reverse scored). Response choices were on a five-point scale ranging from
'strongly agree' to 'strongly disagree'.

Developing relationships How well managers in global HR have developed


relationships with other managers in the organization was measured with a four-item
construct. Examples of these items include: 'Social relationships are overly influential
in decision making' and 'When making decisions, global HR is more likely to do what
is right for the relationship rather than what is right for the business' (reverse coded).
Response choices were based on a five-point scale ranging from 'strongly agree' to
'strongly disagree.'. Alpha reliability for this scale was .77.

Global leaders How well managers in global HR have contributed to the develop-
ment of global leaders was measured with a four-item scale. Examples of these items
include: 'We use international assignments to develop global leaders' and 'Our key
leaders have multilingual skills and multicultural skills'. Response choices were based
on a five-point scale ranging from 'strongly agree' to 'strongly disagree'. Alpha
reliability for this scale was .86.

Bottom-line contribution Based on the literature in this field, the authors developed
an eight-item construct to measure whether global HR was perceived as contributing
positively to the organization's bottom line. Examples of these items include: 'Global
HR is viewed as an operating cost, rather than as a competitive advantage' (reverse
scored) and 'The global HR function positively contributes to the bottom line of our
A new source for competitive advantage in the global arena 9

Edev =E,-E;
Fd-„ =Fe -F,
Step 2: Deviations were recoded, reflecting whether a company was higher than the
industry median, equal to the industry median, or lower than the industry median. Six
scores, with values of either I or 2, resulted for each company.

If Ads,, through F dn, % 0, then A..,, through F. = 2, respectively.


If Ads„ through F d.„ < 0, then A. through F. = 1, respectively.
Step 3: The scores were added, and a mean was calculated to form a composite MNC
Success Index. The mean scores ranged between 1 and 2. If, for example, a company
had data for only four out of the six variables, the total was divided by 4 instead of
by 6.

(A. +B.+C.+D. +E.+F,J-:-6

The mean for the Forbes' MNC Success Index was 1.7. The second index of
organizational performance represents the scores given in Fortune's America's Most
Admired Companies ( March, 1996). The Fortune scores had a mean of 6.92. The
Fortune and Forbes data were then combined to form two known groups (1 = low-
performing companies; 2 = high-performing companies). Two known groups were
created using a split (in thirds) of both the Fortune and Forbes data. If a company
appeared in the bottom third of both variables, then the company was in the low group.
if the company appeared in the top third for both variables, then the company was in the
high group. (Because these were just rough estimates of organizational success, we
believed it was more appropriate to use these data as ordered categorical estimates,
rather than treating them as interval-level data.) The data in the known groups (high-
versus low-performing organizations) were then examined qualitatively. From this case-
study perspective we wanted to see if there was any pattern of mean scores between the
high- and low-performing organizations on the ten global HR effectiveness factors.
(The small sample precluded us from doing statistical mean comparisons, therefore, our
interpretation of these data should be considered exploratory.)

Results

Surveys

Descriptive statistics were created for all the independent and dependent variables (see
Table 1). Next, correlational analyses were conducted to assess the relationship between
the independent and dependent variables from the perspectives of the global HR
executives, the managers in the other functional areas and the CEOs/business unit
manager (see Tables 2, 3 and 4 respectively).
Table 1 provides a comparison of the mean ratings for the various dimensions based
on the responses of the global HR executives, the managers in the other functional areas
and the CEOs/general managers. The patterns that emerge are noteworthy. HR
executives rated themselves most high on Flexibility (mean = 3.77) and -World-wide
Communication (mean = 3.74) and much lower on International HRIS (mean = 2.55).
The ratings of the leaders of the other functional areas demonstrate a similar pattern
(Flexibility mean = 3.26; World-wide Communication mean = 3.68), although the
8 Linda K. Stroh and Paula M. Caligiuri

organization'. Response choices were based on a five-point scale ranging from `strongly
agree' to `strongly disagree'. Alpha reliability for this scale was .77.

Ability to market global HR This variable was measured with a single item: `Global
HR sufficiently markets its services within our organization.' Response choices were
based on a five-point scale ranging from `strongly agree' to `strongly disagree'.

Ability to relinquish power domestically The ability to relinquish power at home


was measured with a single item: 'HR people domestically struggle. with relinquishing
power when moving to a decentralized structure.' Response choices were based on a
five-point scale ranging from `strongly agree' to `strongly disagree'.

Strategic partner Whether global HR was viewed as a strategic partner was


measured with seven items. Examples include: `When entering new markets, a global
HR person is on the initial business strategy team' and 'Global HR is part of our
strategic planning team'. Response choices were based on a five-point scale ranging
from `strongly agree' to 'strongly disagree'. Alpha reliability for this scale was .73.

Dependent variables

Global effectiveness Global HR's effectiveness was measured using a two-item scale.
On a five-point scale ranging from I (strongly agree) to 5 (strongly disagree),
respondents were asked to rate their perception of the effectiveness of the global HR
function. Items included: 'Global human resources is important to our organizational
effectiveness,' and 'Global human resources adds little value to our organizational
effectiveness' (reverse coded). Alpha reliability for this scale was .82.

Organizational performance Data were collected in two ways on the financial


success of each organization represented in the study. First, taking into account that
these corporations represented a variety of industries, a standardized profitability and
growth score was created. Using data from the Forbes' Annual Report on American
Industry (January, 1996), both industry medians and company data were collected for
all of the following: (1) return on equity over the past five years, (2) return on equity
for the most recent twelve months, (3) return on capital over the most recent twelve
months, (4) sales growth of the company for the past five years, (5) sales growth of the
company for the most recent twelve months, and (6) profit margin for the most recent
twelve months. To handle missing data, the,six dichotomous variables shown below
were averaged (M = 1.70, SD = .25). The alpha coefficient for the MNC Success Index
was .72.
Next, an index of MNC success was calculated as follows, where I = the company's
industry median, c = company data and A, B, C, D, E and F = the six growth and
profitability variables above.
Step 1: Deviations from the industry medians were calculated for each of the six
variables.
Ad,„ = A~ - Ai
B.k,, = B c - B i
Cam,=C,-Ci
D d,, = D. - Di
1 0 Linda K. Stroh and Paula M. Caligiuri
Table I Means and standard deviations of independent and dependent variables

Variables GHR' GHR NHR I NHR CEO c CEO


mean sd mean sd mean sd

Independent variables .
I International communication 3.74 . 69 3.68 .54 3.87 .55
2 International HRIS 2.55 .86 2.61 .74 2.85 .77
3 Global mindset 3.39 .57 3.10 .61 3.29 .55
4 Flexibility 3.77 .91 3.26 1.06 3.59 1.00
5 Developing relationships 3.67 .64 3.40 . 69 3.78 .78
6 Global leaders 3.34 .75 2.97 .69 3.49 .66
7 Bottom-line contributors 3.49 .60 3.11 .64 3.29 .62
8 Ability to market HR product 2.81 .86 2.54 . 88 2.77 .75
9 Relinquish power 2.55 . 95 2.79 . 96 2.76 .74
10 Strategic partner 3.36 .60 2.97 .67 3.30 .79
Dependent variables
l l Global HR effectiveness 4.34 -.52 3.76 .79 4.00 .59
12 Fortune 6.92 1.04
13 Forbes 1.70 .25
Notes
' means 'Global HR perspective'
means 'Non-global HR/other functional head perspective'
` means 'CEO/division head perspective'

global HR effectiveness ratings from the perspective on the other functional areas are
lower overall. Once again, HRIS falls well behind (mean = 2.61).
The ratings of the CEOs/business unit managers show a similar pattern, yet much
more closely match the global human resource executives' own ratings on these critical
dimensions (Flexibility mean = 3.59; World-wide Communication mean = 3.87; HRIS
mean = 2.85). One of the most interesting findings is how much variability there was
between groups in the ratings. Thus, the global HR executives rated themselves most
highly overall (mean = 4.34), followed next by the CEOs/business unit managers
(mean = 4.00), followed well behind by the heads of the other functional areas
(mean = 3.76). The differences between the global human resource executives'
perceptions of global human resource's effectiveness and the perceptions of the heads
of the other functional areas is significant (t = 3.41, p < .01), but so is the difference
between the global human resource executives' perceptions and those of the CEOs/
business unit managers (t = 2.13, p < .05). These gaps in perception, especially
between global human resource executives and managers in non-HR areas, should be of
particular concern to global HR managers who are attempting to become strategic
partners with other non-HR functional areas.
As Table 2 suggests, from the perspectives of global HR executives, the variables
World-wide Communication (r = .30, p < .05), Global Mindset (r = .36, p < .05),
Global Leaders (r = .25, p < .05) and Strategic Partner (r = .29, p < .05) were all
positively related to the perceived effectiveness of the global HR function. In other
words, when global HR was better at communicating with employees world-wide,
instilling a global mindset within employees in the organization, and developing global
leaders, it was perceived as a more effective functional area overall.

A new source for competitive advantage in the global arena 11

Table 2 Correlations among global HR perspective variable

Variables 1 2 3 4 5 6 7 8 9 10 11

Independent variables
I GHR'
international
communication
2 GHR .27*
international
HRIS
3 GHR global .34* .35*
mindset
4 GHR flexibility . 08 .24* .52**
5 GHR developing . 09 .03 .22 .48**
relationships
6 GHR global .40** .33* .49** .28* .27*
leaders
7 GHR bottom-line .11 .20 . 53** .55** .52** .33*
contributors
8 GHR ability to .11 .46** .32 .19 . 08 . 21 * . 47**
market HR
product
9 GHR relinquish .11 .00 .09 .32* .08 .04 . 24* .15
power
10 GHR strategic .18' .30* .64** .37** .34* .42** .70** .44** . 08
partner
Dependent variable
11 GHR global HR .30* .16 .36* .18 .13 . 25* .14 .02 .03 .29*
effectiveness
Notes
' means 'Global HR perspective'
*p<.05. **p<.01.

From the perspective of the executives in the other functional areas, the variables
Strategic Partner (r = -.37, p < .05), Ability to Relinquish Power Domestically
(r = -.35, p < .05) and International HRIS (r = .30, p < .05) were related to whether
the global HR function was perceived as effective. Surprisingly, from the perspective of
the heads of non-HR areas, the less global human resources became involved as a
strategic partner, the less it relinquished power to its world-wide counterparts, and the
better it was at developing international human resource information systems, the more
effective it was perceived to be. The suggestion here is that the heads of non-HR areas
would rather global HR were not involved in the international activities of the
organization.
From the perspective of the CEOs/business unit leaders, the variables Global Leaders
(r = .62, p < .01), Strategic Partners (r = .39, p < .05), and Flexibility (r = .65,
p < .01) were related to the perceived effectiveness of the global HR function. Unlike
the heads of the non-HR functional areas, CEOs/business unit leaders perceived an
increase in the effectiveness of the global human resource function when those in this
area were good at developing global leaders and being strategic partners and when they
developed flexible global HR policies.

12 Linda K. Stroh and Paula M. Caligiuri


Table 3 Correlation among other functional head perspectives variables

Non-HR functional perspective


Variables 1 2 3 4 5 6 7 8 9 10 11

Independent variables
1 NHRa
international
communication
2 NHR .33*
international
HRIS
3 NHR global . 31* .57**
mindset
4 NHR flexibility . 52** .45** .43**
5 NHR developing .20 .25 .26 .32*
relationships
6 NHR global .34* .27 .55* .28 .03
leaders
7 NHR bottom-line .38* .53** .65** .55** .50** .21
contributors
8 NHR ability to .38* .48** .29 .54** .23 .29 -.11
market HR
product
9 NHR relinquish . 27* .34 .20 .28 -.10 .15 -.11 .11
power
10 NHR strategic . 00 .24 .36* .17 .64** .19 -.24 .19 . 04
partner
Dependent variable
11 NHR global HR .13 .30* -.07 -.05 -.26 .03 -.26-.04 -.35*-.37*
effectiveness
Notes
' means 'Non-global HR/other functional head perspective on global HR effectiveness in each area'
*p<.05. **p<.01.

Effect of GHR on bottom-line performance

To assess the contribution of GHR to the bottom-line financial success of an


organization, we examined the relationship between the CEOs'/business unit heads'
ratings of global HR's perceived effectiveness and data on the participating organiza-
tions' financial performance. Part of the assumption in making this comparison was that
CEOs/division heads probably determine whether GHR staff are pan of the strategic
team. The CEOs/division heads are those in the organization who would be most likely
to include GHR, depending on their perceptions of GHR's effectiveness. These
individuals will either value or potentially 'de-value' the role that GHR plays in the
organization.
Each of the ten global HR performance factors had been rated by the CEO/business
unit leaders of the participating organizations. Their evaluations for each of these ten
factors were then compared with the bottom-line index created from the Forbes and the
Fortune data (see methods section for description of index). The means suggested
differences between the two groups (high- vs. low-performing organizations) on various

A new source for competitive advantage in the global arena 13

Table 4 Correlations among CEO/division head perspectives variables

CEOldivision head perspective


Variables 1 2 3 4 5 6 7 8 10 11

Independent variables
I CEO'
international
communication
2 CEO -.20
international
HRIS .
3 CEO global .27 .29
mindset
4 CEO flexibility .66** .61** .55**
5 CEO developing .20 -.15 -.02 . 09
relationships
6 CEO global .26 .57** .17 .36 .34
leaders
7 CEO bottom-line . 33 .23 -.17 .18 .33 . 04
contributors
8 CEO ability to .07 .08 -.00 -.16 -.06 -.20 -.02
market HR
product
9 CEO relinquish .31 .32 -.02 .11 -.15 .01 . 08 -.10
power
10 CEO strategic .35 .43**-.01 . 39* .34 .24 . 06 -.08 -.19
partner
Dependent variable
11 CEO global HR .12 .22 .32 . 65** .31 .62** .01 -.06 -.06 .39*
effectiveness
Notes
' means 'CEO/division head perspective on global HR effectiveness in each area'
*p<.05. **p<.01.

global HR effectiveness factors. We found that the most successful companies had
global HR functions that performed better in three areas: (1) developing global
leadership through cross-cultural assignments, (2) making human resources a strategic
partner in global business and (3) ensuring flexibility in all human resource programmes
and processes. These data suggest that, when HR is perceived by CEOs/business unit
heads as good at developing global leaders, as part of strategic decision making and as
having flexible HR programmes and processes, the overall performance of the company
is enhanced as well. In sum, this case analysis suggests that a positive relationship
exists between the bottom-line financial success of an organization and its HR
performance in these three areas. Those organizations that performed better on these
three measures received higher ratings for their financial performance than those
companies that scored lower on these three measures. In addition, those organizations
where the CEOs/business unit heads rated global human resources more highly (using
the two-item global effectiveness scale) were organizations that were performing better.
We cannot suggest from these data that the organizations performed better because the
global human resource function was effective, but there appears to be a relationship
14 Linda K. Stroh and Paula M. Caligiuri
between the perceived overall effectiveness of an organization's GHR functions and the
bottom-line performance of the organization.

Discussion
We believe this study makes a unique contribution to the field of global HR by
identifying the top ten best practices, or guiding principles, for global HR. As Becker
and Gerhart (1996) suggest, macro guiding principles are important across all
organizations, regardless of situation. Becker and Gerhart (1996) suggested that the
specific policies or practices, to support these guiding principles, are more situation-
specific. These specific practices were not addressed directly in the study. We were,
however, able to re-examine the interview data (after survey data had been collected
and analysed) to ascertain the specific practices described by the global HR executives,
relative to the various dimensions. For example, the factor `Developing relationships
with international HR counterparts to encourage information exchange' played out
differently in different organizations. Some organizations held annual or bi-annual
world-wide HR meetings, where the meeting place rotated around the world. Other
organizations promoted the use of the e-mail system among HR professionals world-
wide, while others formed cross-national teams of HR professionals world-wide to
address corporate HR issues. Future research should examine systematically how
organizations put these principles into practice.
Consistent with the previous findings from Caligiuri and Stroh (1995), this study also
found that successful companies tend to share similar global HR guiding principles.
While the small samples of high-success and low-success organizations precluded us
from doing statistical analyses, clear trends emerged in the data around three of the
factors. Future research should attempt to test the link between the global HR practices
and organizational performance in a more systematic and methodologically rigorous
manner. True organizational performance data (for example, as used in Huselid, 1995)
should be used instead of the less precise proxies (i.e., Forbes and Fortune data) of
organizational performance.
Some other findings in this study were noteworthy. Most important, GHR executives
appear to be very aware of the strengths and weaknesses of their functional areas. The
executives in this study not only were able to identify ten best practices that are related
to the overall perceived effectiveness of GHR but seemed to' know that mastering these
practices was the key to increasing the effectiveness of GHR.
Weaknesses in the GHR function were also apparent, however. The negative
direction found in the other functional area perspective variables, Strategic Partner and
Relinquishing Power Domestically, were symptomatic of findings revealed throughout
the interview portion of the study. Global human resources executives noted that leaders
of non-HR functions were reluctant to include GHR in strategic decisions, for example,
noting that doing so often complicated their decision making. Making decisions related
to people, without a doubt, makes decisions more complex, but including the 'people
side of the equation' is critical - and is likely to affect not only the 'people side' of the
operation but bottom-line performance as well.
This resistance, on the part of non-HR managers, to including global HR in strategic
decisions should certainly be a major concern to HR as well as to higher-level
management. Convincing the heads of other functional areas that the work of GHR is
important and significant to the bottom-line performance of the organization should be
a primary goal. Our research suggests that non-HR managers will begin to perceive the
A new source for competitive advantage in the global arena 15

work of GHR as contributing to the bottom line of an organization when GHR can
demonstrate that it is effective in each of the ten `best practice' areas.

Limitations of methodology

As with most research undertakings, this study's methodology is not without flaws. As
noted earlier, the measures of organizational performance may not be precise measures
of organizational performance. The same is true for individual performance of the
global HR managers - more objective measures would add greater value to this type of
study. Future research should attempt to develop more rigorous measures of both
organizational and individual performance. Also, time limitations of the busy
executives often precluded our using extensive multi-item constructs that might provide
greater reliability and validity. It would also have been interesting if data had allowed
a more in-depth understanding of the surprising negative perceptions provided by the
non-HR function between effectiveness and HR involvement as a strategic partner
relationship. Uncovering more precisely why the non-HR function views greater
participation of HR in strategic decisions as problematic would have contributed greatly
to this field. We suggest future research examine this relationship more closely.
Despite these shortcomings, we believe that this study has value to both practitioners
and researchers alike. It provides those who manage human resources on a global scale
with a list of guiding principles by which they may develop their own HR processes and
practices. From a practical perspective this study also reinforces the message that
human resources can play a strategic role in improving an organization's competitive
advantage. With respect to research, we believe this study provides a focus on several
areas of inquiry which have not yet been examined. The field of international HR is
truly an open and important research frontier.

Linda K. Stroh
Loyola University Chicago
Paula M. Caligiuri
Rutgers University

Acknowledgements

An earlier version of this paper was presented to the Academy of Management,


Cincinnati, 1996.
The authors would like to thank the membership of the International Personnel
Association (IPA) for their participation and financial support of the research study. A
special thanks ' to: Glen Anderson, Tony Annoni, Matt Ashe, Bill Edgley, Michael
Gordon, Sven Grasshoff, Victor Guerra, Andre Rud6, James McCarthy, Luiz Jacques
M. da Silveira, Raj Tatta, Linda Watson and Ed Nunez. We also thank Loyola
University Chicago and Rutgers University for partial support for the study.

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