The Economic Value of High Performance Work Systems: An Oracle case study
Date
2012-10-04
Authors
Opperman, Eldrid Roy
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Abstract
High performance work systems (HPWS) has been recognised as a set of human resource (HR) practices such as selection, training, performance management, and compensation, which are designed to increase employee performance. Research has revealed that these practices have to be implemented in a “bundles” or “systems” approach, i.e. when implemented as a systems, only then will the combination constitute a high performance work system (Huselid 1995; MacDuffie 1995; Ichniowski and Shaw 1999; Ramsay, Scholarios and Harley 2000; Tsai 2006; Absar, Nimalathasan and Jilani 2010). A large number of qualitative statistical analyses have been conducted to prove the positive linear relationship between HPWS and organisational performance (Nadler and Gerstein 1992; Pfeffer 1994; Vandenberg, Richardson and Eastman 1999; Wood 1999; Ramsay et al. 2000; Murphy and Southey 2003; Paauwe 2004; Li-Yun, Aryee and Law 2007; Liu, Combs, Ketchen and Ireland 2007; Macky and Boxall 2007; Sun, Aryee and Law 2007; Yalabik, Chen, Lawler and Kim 2008). However, meagre research has been conducted to determine the actual economic value of the adoption and implementation of these HPWS practices (Li-Yun et al. 2007; Liu et al. 2007). The focus has simply been on the inference between HPWS and performance.
None of the research revealed any negative linear relationship; due to positive reporting bias (Farias and Varma 1998). The aim of this research was not to reveal that a consistent positive linear relationship existed. All results (positive and negative) were taken into consideration in analysing and reporting the final outcome, i.e. the true economic value of HPWS. The results did in fact reveal that negative linear relationships do exist.
Conventional literature clearly reveals that all of the HPWS research has been conducted outside the borders of South Africa. This research has been confined to a South African organisation, namely; Oracle iiicorporation,
South Africa. Oracle specialises in the sales and support services of software and hardware applications. The research went beyond conventional studies that simply sought to statistically prove a positive linear relationship between HPWS and performance. A mixed method analysis was utilised where quantitative and qualitative analysis was conducted to incorporate both objective and subjective data from a sample size of 66 employees and 12 managers. This mixed method approach enhanced the validity of the research (Johnson and Onwuegbuzie 2004). The first analysis was to statistically confirm the effect (positive or negative) of each HPWS practice on sales (explicit sales targets) and non sales (HR process implementation) related employee/organisational performance. Thereafter, the effects were combined to give an overall effect of HPWS on performance. Finally, the statistical effects were transformed into rand value effects through the use of a statistical formula, i.e ΔU = rxySDyźs-[NaC/Ns] (Cascio and Boudreau 2008). These rand value effects were combined to ascertain the revenue generated by HPWS. From this revenue, all costs associated with the implementation of HPWS were subtracted, including tax deductions, to ascertain net revenue. The net revenue and costs were the used to calculate a return on investing in HPWS practices.
This research also validated some managerial scepticism, on whether funds allocated to HR practices are good investments (Liu et al. 2007). It highlights the fact that negative returns should not be clouded by objective scepticism. Subjective evaluation is important in ascertaining whether HPWS practices are implemented correctly. Hence, the research emphasised that process evaluation is a key component of the assessment of HPWS implementation
Description
MBA thesis - WBS
Keywords
High performance work systems, Employee performance, Performance management