Theory and Hypotheses

Transcription

1 Journal of Management (4) Examining the Human Resource Architecture: The Relationships Among Human Capital, Employment, and Human Resource Configurations David P. Lepak Department of Management and Organization, Robert H. Smith School of Business, University of Maryland, 3341 Van Munching Hall, College Park, MD , USA Scott A. Snell Department of Management and Organization, Smeal College of Business Administration, The Pennsylvania State University, 417 Beam B.A.B., University Park, PA 16802, USA Received 8 May 2000; received in revised form 16 May 2001; accepted 14 August 2001 In this study we examined the characteristics of human capital as well as the human resource (HR) configurations used for employees in four different employment modes (knowledge-based employment, job-based employment, contract work, and alliance/partnership). Results from 148 firms show that the strategic value and uniqueness of human capital differs across these four employment modes. In addition, each employment mode is associated with a particular type of HR configuration (commitment-based, productivity-based, compliance-based, and collaborative) Elsevier Science Inc. All rights reserved. Research in strategic human resource management (SHRM) has been central in shifting our attention toward firm-level issues related to managing people. Rather than focusing on individual jobs and the employees that occupy them, SHRM researchers have established a broader perspective that is oriented toward managing the workforce as a whole. And instead of focusing on particular human resource (HR) practices that are used independently or in isolation, SHRM researchers look more broadly at bundles of HR practices that are implemented in combination. Corresponding author. Tel.: ; fax: address: dlepak@rhsmith.umd.edu (D.P. Lepak) /02/$ see front matter 2002 Elsevier Science Inc. All rights reserved. PII: S (02)

2 518 D.P. Lepak, S.A. Snell / Journal of Management (4) In order to study strategic HR at an organizational level, however, researchers have tended to aggregate both conceptually and empirically all employees as though they were managed with a single (or at least dominant) HR configuration. Snell and Dean, for example, originally analyzed the HR practices of different employee groups in advanced manufacturing environments, but later combined the data into a single profile (Snell & Dean, 1992, 1994; Youndt, Snell, Dean & Lepak, 1996). Similarly, Huselid (1995) originally collected separate HR data on exempt and non-exempt employees, but combined it using weighted averages in order to portray one profile. While such aggregation aids parsimony, we would argue that doing so masks potentially important aspects of how different employee groups are managed strategically. In one of the earliest papers on strategic HR, Miles and Snow (1984) noted that while certain HR practices might be centralized or standardized for all employees, others might be customized to match the specific requirements of particular employee groups. These differences are no less important; they are, in fact, crucial aspects of a firm s strategic approach to HR.Two streams of research are particularly salient here. In the context of internal vs. external employment, Davis-Blake and Uzzi (1993), Matusik and Hill (1998), Mangum, Mayall and Nelson (1985), Osterman (1987), and others have found that firms use different modes of employment for strategic reasons. Similarly, in the context of psychological contracts, Rousseau (1995), Tsui, Pearce and others have shown that firms establish different employment relationships with employees and modify the scope of HR investments depending on their expected contribution to the firm. Building on this, Lepak and Snell (1999) argued that,... it may be inappropriate to simplify the nature of human capital investments and suggest that there exists a single optimal HR architecture for managing all employees (p. 32). As different groups of employees possess skills that vary in importance to a firm s competitiveness, the HR practices used to manage them are likely to vary (Jackson, Schuler & Rivero, 1989). Although we know that different employment modes exist, empirical examination of HR systems at this employment group level of analysis remains limited. The purpose of this study is to address these issues by focusing on HR systems used for employees in different employment modes. Following Lepak and Snell (1999), we frame our investigation by distinguishing among four types of employment: knowledge work, job-based employment, contract work, and alliance/partnerships. We then differentiate among these employment modes by examining the strategic value and uniqueness of human capital embodied within each as well as the HR configurations used to manage them. Theory and Hypotheses We begin our discussion by recognizing that firms rely upon a variety of different modes of employment. Osterman (1987), for example, examined differences among industrial, salaried, craft, and secondary employment subsystems in firms. More recently, researchers such as Matusik and Hill (1998), Rousseau (1995), Tsui et al. (1995) have studied differences in employment relationships that range from long-term relationships with core employees to short-term exchanges with external workers and other forms of contract labor.

3 D.P. Lepak, S.A. Snell / Journal of Management (4) Related, there is a fair amount of research that focuses on the choice between internalization and externalization of employment. For example, Baron, Davis-Blake and Bielby (1986) found that choices about employment modes are frequently driven by differences in employee skills (e.g., firm-specificity), occupational differentiation, technology, and the like. Others have argued that differences represent, among other things, differences in their human capital (i.e., knowledge, skills, and abilities that have economic value to the firm) (Davis-Blake & Uzzi, 1993; Stewart, 1997). As noted by Mangum, Mayall, and Nelson, Many employers carefully select a core group of employees, invest in them, and take elaborate measures to reduce their turnover and maintain their attachment to the firm. Many of these same employers, however, also maintain a peripheral group of employees from whom they prefer to remain relatively detached, even at the cost of high turnover, and to whom they make few commitments. (1985: 599) In order to integrate this research and link it more broadly to strategy and HR, Lepak and Snell (1999) argued that differences in employment are likely to reflect differences in human capital that would then be accompanied by variations in the HR configurations used to manage employees. Lepak and Snell (1999) focused on the strategic value and uniqueness of human capital as principle drivers of employment modes and HR configurations. The strategic value of human capital refers to its potential to improve the efficiency and effectiveness of the firm, exploit market opportunities, and/or neutralize potential threats (Barney, 1991; Ulrich & Lake, 1991). Theorists such as Barney (1991) and Quinn (1992) suggest that as the strategic value of human capital increases, so too does the likelihood that firms will employ it internally. The uniqueness of human capital, on the other hand, refers to the degree to which it is rare, specialized and, in the extreme, firm-specific (Barney, 1991; Williamson, 1975). Human capital that is not readily available in the labor market, and is not easily duplicated by other firms, provides a potential source of competitive advantage (Snell, Youndt & Wright, 1996). Transaction-costs theory suggests that firm-specific human capital increases information asymmetry, thereby creating strong economic incentives to employ it internally (cf., Williamson, 1975). Human capital theory (e.g., Becker, 1964) posits that firms are more likely to invest in education, training, and development for skills when they are not transferable. Individuals are expected to make their own investments in generic (transferable) skills, or defray the firm s costs through lower wages. Firms are viewed as being more likely to acquire generic human capital externally by paying the market wage for labor (Schultz, 1961; Wallace & Fay, 1988). While this distinction between make and buy is perhaps clearest for internal employment, Matusik and Hill (1998) suggest that firms invest more in developing and improving relationships with external workers in cases where their partnership focuses on creating and transferring private knowledge. Development of unique human capital is often path-dependent (Barney, 1991; Itami, 1987) and may require tacit knowledge that is created in situ (Polyani, 1967; Williamson, 1975). Because of this, it likely needs to be developed and nurtured over time. If we juxtapose the dimensions of strategic value and uniqueness (see Figure 1), we derive a model adapted from Lepak and Snell (1999) of the relationships between human capital characteristics and employment modes.

4 520 D.P. Lepak, S.A. Snell / Journal of Management (4) Figure 1. Human capital characteristics and employment modes (adapted from Lepak and Snell (1999)). Human Capital and Employment Knowledge-based employment. Lepak and Snell (1999) argued that human capital in quadrant 1 is most likely to be viewed as core to the firm. Because of their value, these employees are able to contribute to a firm s strategic objectives. When human capital is both valuable and unique, it represents the knowledge base around which firms are most likely to build their strategies (Snow & Snell, 1993; Stewart, 1997). These workers are those most likely to represent a firm s knowledge workers those people who use their heads more than their hands to produce value (Horibe, 1999, p. xi). In these instances, firms are likely to rely on a knowledge-based employment mode that focuses on internal development and long-term employee commitment for their core employees (cf. Lepak & Snell, 1999; Rousseau, 1995; Tsui et al., 1995). Lepak and Snell (1999) used the term internal development to describe this quadrant. While the term internal describes employment, the term development connotes an orientation toward training, education, and other skill-enhancing activities. To keep employment modes and HR distinct for purposes of research, we use the term knowledge-based employment for this quadrant to reflect an employment mode that is structured around the skills and competencies of employees rather than the execution of programmed tasks and job routines. Job-based employment. Human capital that has strategic value but limited uniqueness falls within the bottom right quadrant of the HR architecture. As with quadrant 1, the value of human capital in quadrant 2 provides an incentive to employ these workers internally. At the same time, these workers skills are not particularly unique to the firm and thus, cannot serve as a differentiating source of competitiveness. In other words, workers within this quadrant are able to make significant contributions to a firm while possessing skills that are widely transferable. As with quadrant one, the notion of an acquisition approach suggested

5 D.P. Lepak, S.A. Snell / Journal of Management (4) by Lepak and Snell (1999) also confounds employment with HR. The term acquisition implies a focus on staffing (vs. development). We use the term job-based employment to reflect the fact that employees are hired to perform predetermined tasks. Contract work. Quadrant 3 contains human capital that is neither of particularly high strategic value to a firm nor unique. Workers in this category are prime candidates for outsourcing. In scenarios where one job-holder is pretty much as good as another (Stewart, 1997, p. 90) firms would be more likely to seek short-term contractual arrangements for the performance of tasks with limited scope, purpose, or duration. At the extreme, if value-added is low and skills are generic, employment decisions may reduce to calculations of costs (cf. Abraham & Taylor, 1996; Davis-Blake & Uzzi, 1993). In such cases, firms may reduce their employment costs while increasing their flexibility by contracting for ancillary human capital (Lepak & Snell, 1999). Alliances/partnerships. Lepak and Snell (1999) proposed that firms would rely on alliances/partnerships for human capital that is unique but of insufficient strategic value to employ internally. In alliances, external workers provide non-resident knowledgeintensive services to client firms (Sharma, 1997, p. 759). Frequently this occurs through a co-production process in which both parties contribute to some specific outcome (cf. Parkhe, 1993; Sharma, 1997). For example, research and development labs, legal consultants, accounting and information systems firms, investment bankers, and other external agencies are often used by firms to provide long-term customized services (Sharma, 1997). Through partnerships, firms gain human capital without incurring the entire costs of internal employment while gaining the ability to maintain an ongoing relationship that is necessary for application of unique and specialized skills. Viewed in combination, we anticipate that employees will have significantly higher value in knowledge-based and job-based employment modes than in alliances and contractual arrangements. Similarly, we expect employees will have significantly higher uniqueness in alliances and knowledge-based employment modes than in contract work and job-based employment. Hypothesis 1: Human capital value will be higher within knowledge-based employment and job-based employment than within contract work and alliances. Hypothesis 2: Human capital uniqueness will be higher within alliances and knowledgebased employment than within contract work and job-based employment. Employment and HR Configurations If the characteristics of human capital vary across employment modes, there are likely to be implications for the characteristics of HR configurations. In part, these differences are likely to reflect the systems used to obtain, retain, and develop these employees but they are also likely to reflect the nature of expectations and obligations underlying each employment mode. Figure 1 presents these differences for an HR architecture.

6 522 D.P. Lepak, S.A. Snell / Journal of Management (4) Knowledge-based employment and HR. If knowledge-based workers possess valuable and unique skills, firms would logically invest heavily in training and development, particularly in areas related to firm-specific skills. But the implications for HR extend more broadly. As the focus is on the development and utilization of proprietary knowledge, managers are likely to structure knowledge work to allow for flexibility, change, and adaptation. To maximize their contribution, firms are likely to empower these workers, encouraging participation in decision making and discretion on the job. And to protect their human capital investments and encourage commitment to the firm s long-term success, these employees would likely receive a considerable degree of employment security (Koch & McGrath, 1996). As the importance of an employee s ability to learn and develop firm-specific competencies increases, staffing decisions are likely to focus on aptitude rather than achievement. To further emphasize the importance of learning over time, performance appraisal systems are likely to focus on development and feedback (Snell & Dean, 1992; Ulrich & Lake, 1991) and firms may implement knowledge-based pay programs that reward employees for accumulating multiple skills (cf. Delany & Huselid, 1996). To reinforce a long-term orientation and commitment to these employees firm s may rely on stock options and other forms of long-term compensation. Job-based employment and HR. The human capital of job-based employees can be important for creating customer value. But because it is more transferable than that of knowledge-workers, firms are not likely to make the same kind of human capital investments (Becker, 1964). The idiosyncratic characteristics of job-based workers are likely to be de-emphasized, and their participation is likely to be limited to the boundaries of their jobs. In these cases, managers are likely to rely on a productivity-based HR configuration; that is, hiring employees, paying them a market-based wage, focusing on their job performance, and preparing for the possibility that they may leave (Becker, 1964; Flamholtz & Lacey, 1981). The distinction between a commitment-based and a productivity-based HR system represents the make or buy decision for human capital. Rather than developing generic skills, firms are more likely to acquire individuals who already possess the needed skills (cf. Koch & McGrath, 1996; Snell & Dean, 1992; Tsui et al., 1995). Given that these individuals may leave, managers are likely to standardized jobs to facilitate more rapid replacement. This does not mean that these employees are short-timers. It simply means that since their human capital is transferable, firms are likely to establish a shorter time horizon for ensuring their productivity. Rather than focusing on developmental performance appraisals, firms would more likely adopt a short-term orientation with a results oriented component (Snell, 1992; Snell & Youndt, 1995). Finally, compensation systems are also likely to be job-based (Mahoney, 1989) balancing market wages with concerns over internal equity. If incentives are used, they are likely to focus on near-term productivity targets. Contractual work and HR. While organizations often seek at least limited continuity and loyalty from employees in a job-based employment mode, in contractual arrangements firms may simply focus on the economic aspects of the contract (Rousseau, 1995) and strive to ensure worker compliance with preset rules, regulations, and/or procedures. To do

7 D.P. Lepak, S.A. Snell / Journal of Management (4) so, these economic exchanges would likely contain explicit definitions for equivalence, a distinct timetable for the exchange, and terms which are discussible, negotiable, and enforceable (Mahoney & Watson, 1993, p. 144). Much like Mahoney and Watson (1993) authoritarian model, firms would probably limit the discretion of these workers and concentrate on enforcing rules and regulations, upholding specific provisions regarding work protocols, and ensuring conformance to preset standards. Any training and performance appraisal activities would likely be limited to ensuring compliance with company policies, systems, procedures, and outcomes (cf. Mahoney, 1989; Rousseau & Parks, 1993). Given the transactional nature of the exchange and heavy emphasis on conformance, compensation would likely be based on an hourly wage and the accomplishment of specific tasks. Alliances/partnerships and HR. HR in this quadrant is non-traditional but instrumental for integration and collaboration. At a general level, a collaborative HR configuration would be orientated toward sharing information and developing trust between partners (Ring & Van de Ven, 1992). Given the need for joint production (a characteristic that distinguishes alliance partners from contract work), managers would likely recruit/select alliance partners who can integrate their knowledge and experience into the firm and work in a team environment (cf. Salas, Dickinson, Converse & Tannenbaum, 1992). Since the exchange of information and joint outcomes of the collaboration are important, firms would likely invest heavily in the relationship itself rather than developing the alliance partner s human capital. To support this, firms would likely arrange team building initiatives and evaluations would tend to emphasize developmental issues such as the extent of learning and the evolution of the relationship (Matusik & Hill, 1998). Finally, firms are likely to establish collective incentives that encourage both parties to share and transfer information (cf. Davenport & Prusak, 1998; Quinn, Anderson & Finkelstein, 1996). Based on these arguments, we anticipate that the HR configuration predicted to be used for each employment mode will be significantly greater than the other three HR configurations. For example, for knowledge workers, the commitment-based HR configuration will be significantly greater than the productivity-, compliance-, and collaborative-based HR configurations. Hypothesis 3: Within the knowledge-based employment mode the commitmentbased HR configuration will be significantly greater than the other three HR configurations. Hypothesis 4: Within the job-based employment mode the productivity-based HR configuration will be significantly greater than the other three HR configurations. Hypothesis 5: Within contractual work arrangements the compliance-based HR configuration will be significantly greater than the other three HR configurations. Hypothesis 6: Within alliances the collaborative-based HR configuration will be significantly greater than the other three HR configurations.

8 524 D.P. Lepak, S.A. Snell / Journal of Management (4) Methods The primary unit of analysis in this study was the employment mode. Our data collection procedure involved asking participants to answer questions about one specific employment mode within their firm rather than provide information for all four employment modes. This procedure was designed to limit potential contrast errors respondents might have committed if they were asked to describe the HR systems for all four modes (cf. Salancik & Pfeffer, 1978). It also helped us avoid violating the assumption of independence of the responses (cf. Rosenthal & Rosnow, 1991). As a result of this design, our analytic tests focus on examining employment mode data from different firms rather than comparing the attributes of all four employment modes within each firm. We identified a pool of 2375 firms from the Directory of Corporate Affiliations to represent a broad sample of organizations. We only selected firms for which public information was available to enable the collection of archival variables. Holding companies and firms with less than 200 employees were excluded from the population to eliminate the possibility of including very small firms that might not have formal HR procedures (Huselid & Becker, 1996). Senior Executives The initial step for this study was to contact the senior executive (CEO or President) from each firm and ask for his or her participation. Each of the 2375 potential respondents in the population was randomly assigned one of four employment modes and was sent a survey that included the entire range of HR practices as well as the measures of human capital. They were instructed to indicate the extent to which their firm utilized each employment mode, but then were asked to answer the HR and human capital questions only with regard to the employment mode they were assigned. After 3 weeks, a prompting letter and second survey was mailed to those who had not yet responded. A total of 84 senior executives participated in the study. Senior HR Managers Each senior executive was asked to identify a senior HR manager (i.e., vice president of human resources, etc.) within his or her firm. Seventy-four senior HR managers were identified. Given this limited number, we directly contacted the senior HR manager of each firm to participate in this study. We sent a questionnaire assessing the characteristics of human capital and HR practices for a single employment mode (assigned randomly) to the 1478 firms in the Directory of Corporate Affiliations that had identified a senior HR manager. After 3 weeks, a prompting letter and second survey was mailed to those who had not yet responded. A total of 102 senior HR managers participated in this study: 31 identified by the senior executives and 71 identified through the Directory of Corporate Affiliations. Line Managers Each senior executive and senior HR manager was also asked to identify three line managers familiar with the other three employment modes that they did not emphasize. In

9 D.P. Lepak, S.A. Snell / Journal of Management (4) total, 114 line managers from 53 firms were identified. Each line manager was sent a survey assessing the human capital and HR practices used within a single employment mode not assessed by the senior HR manager or senior manager. After 3 weeks a prompting letter and second survey was mailed to those who had not yet responded. A total of 48 line managers participated. Instrumentation and Variables Employment mode. At the beginning of each questionnaire participants were provided descriptions of the four employment modes of interest in the study. (1) Knowledge-based employment relationships in which firms develop and maintain a long-term commitment to full-time employees over time (e.g., loan officers in banks, R&D in pharmaceutical firms, etc.). (2) Job-based employment relationships in which employees are hired on a full-time basis to contribute immediately to the firm by performing a specific set of tasks (e.g., accountants, sales representatives, assembly line workers, etc.). (3) Contract work relationships in which external individuals are contracted to perform tasks with limited scope, purpose, or duration (e.g., outsourced workers, temporary workers, etc.). (4) Alliance/partnership relationships in which firms establish ongoing, mutual partnerships with independent/autonomous to jointly perform some tasks or projects (e.g., consultants, joint venture partners, key subcontractors, etc.). After describing the four employment modes, we instructed each participant that their survey would focus only on one of the four, and we told them which mode this would be (i.e., knowledge-work, job-based employment, contract work, or alliance). To make certain that respondents understood and were visualizing a particular subset of jobs, we asked them to record on their survey which jobs their firm typically employed in the employment mode their survey emphasized. Table 1 displays a sample of the jobs identified by respondents. What is interesting is that some jobs are listed in multiple modes. We believe that this reflects that firms allocate the same jobs in different ways. Some firms may internalize a subset of jobs while other firms may use external labor for the same jobs. Table 1 Sample of jobs identified for each employment mode Alliances/partnerships: actuarial consulting, architectural services, consultants, executive development trainers, human resource consultants, benefits administration, management consultants, organizational development, software engineers, psychologists Contract work: administrative positions, technical jobs, assemblers, low level clerical, programmers, consultants, drafting support, janitorial, maintenance, general labor, support staff, temporary workers Knowledge-based employment: analysts, artists, strategic planning, middle management, design engineers, mechanical engineers, functional managers, exempt engineers, salespersons, professional employees, research and development employees, research scientists Job-based employment: accountants, administrative positions, engineers, salespersons, graphic designers, customer service agents, drivers/delivery representatives, account managers, human resource professionals, lawyers, trainers

10 526 D.P. Lepak, S.A. Snell / Journal of Management (4) Human capital characteristics. The strategic value of human capital was measured with a 12-item index grounded in theoretical work by Porter (1985), Quinn (1992), Snell et al. (1996), and Ulrich and Lake (1991). As noted above, human capital is valuable to the extent that it contributes to a firm s competitive advantage or core competence by improving efficiency and effectiveness, exploiting opportunities, or neutralizing threats (Barney, 1991; Porter, 1985). The uniqueness of human capital was assessed with a 10-item index grounded in theoretical work by Barney (1991), Snell et al. (1996), and Williamson (1975) and was intended to capture the extent to which a particular form of human capital is idiosyncratic to a particular firm. These two indices were measured on a 5-point Likert scale (1 = strongly disagree, 5 = strongly agree) and consist of the mean value for the multiple items comprising each index. The items are listed in Appendices A and B. HR configurations. All respondents were asked to assess the degree of reliance on HR practices related to job design, recruitment and selection, training and development, performance appraisal, and compensation for the employment mode indicated on their survey. Following the procedures used by MacDuffie (1995) and Youndt et al. (1996), each configuration was operationalized as an additive index of HR practices. Operationally, the HR configurations increase in value by increasing the number of practices they employ within the system or by using the practices in an HR system in a more comprehensive and widespread approach (Youndt, Snell, Dean & Lepak, p. 849). The HR practices were combined to form a commitment-based, a productivity-based, a compliance-based, and a collaborative HR configuration. These indices were calculated based on a 5-point Likert scale (1 = strongly disagree, 5 = strongly agree). For each case, all four HR indices were calculated by taking the mean value of the items in each configuration. The specific practices that comprise each configuration are presented in Table 2. This approach departs from previous approaches to operationalize HR configurations in that it allows for the possibility that firm s might resemble more than one HR configuration in how they manage a particular employment mode. By testing for differences across employment modes, our approach is conceptually similar to testing for adherence to an ideal profile or profile deviation for each HR configuration. The greater the mean on each index, the more similar it is to the HR configuration. The primary difference is that a score is calculated for each of the HR configurations for each case rather than forcing cases to resemble only one such as with a cluster analysis or profile deviation approach. Thus, our approach allows for variability in the degree to which firms adhere to one or multiple HR configurations. In addition, our approach allows for equifinality within the HR configurations (Becker & Huselid, 1998; Delery & Doty, 1996). As noted by Becker and Huselid (1998) since the typical index is a summation of individual elements of the HRM system, it implies that within the broad middle range of the index there are multiple ways to increase its value (p. 64). And while we anticipate that an extensive use of the HR practices comprising each configuration reflects a greater adherence to that particular configuration, we have no conceptual rationale to expect that any individual HR practice is more or less important than the others in the configuration. Potential confounds and control variables. In an effort to enhance the statistical accuracy of our analytic procedures we controlled for organizational, industrial, and labor

11 D.P. Lepak, S.A. Snell / Journal of Management (4) Table 2 HR configurations Commitment Productivity Compliance Collaboration These employees perform jobs that allow them to routinely make changes in the way they perform their jobs... are designed around their individual skills... are extremely simple... are standardized throughout industry Reverse coded... are well-defined... empower them to make decisions... have a high degree of job security... include a wide variety of tasks Reverse coded... involve job rotation... require them to participate in crossfunctional teams and networks The recruitment/selection process for these employees assesses their industry knowledge and experience... emphasizes promotion from within... emphasizes their ability to collaborate and work in teams... focuses on selecting the best all around candidate, regardless of the specific job... focuses on their ability to contribute to our strategic objectives... involves screening many job candidates... is comprehensive (uses interviews, tests, etc.)... places priority on their potential to learn (e.g., aptitude)... uses many different recruiting sources (agencies, universities, etc.) Our training activities for these employees are comprehensive... are continuous... emphasize improving current job performance... emphasize on the job experiences... focus on compliance with rules, regulations, and procedures... focus on team building and interpersonal relations... require extensive investments of time/money... seek to increase short-term productivity Reverse coded

12 528 D.P. Lepak, S.A. Snell / Journal of Management (4) Table 2 (Continued ) Commitment Productivity Compliance Collaboration... strive to develop firm-specific skills/ knowledge Performance appraisals for these employees... are based on input from multiple sources (peers, subordinates, etc.)... are based on objective, quantifiable results... are based on team performance... assess compliance with preset behaviors, procedures, and standards... assess quality of output... assess quantity of output... emphasize employee learning... focus on their ability to work with others... focus on their contribution to our strategic objectives... include developmental feedback... measure productivity and efficiency Compensation/rewards for these employees... are based on hourly pay... are based on straight salary... are based on the market wage (going rate)... are designed to ensure equity with peers... focus primarily on their short-term Reverse performance coded... have a group-based incentive component (gainsharing, etc.)... have an individual incentive/bonus component... include an extensive benefits package... include employee stock ownership programs (ESOP, etc.)... place a premium on their industry experience... provide incentives for new ideas... value seniority market effects during all statistical analyses. Our organizational variables focus on firm size, unionization, firm performance, and extent of diversification. Firm size was assessed by the natural logarithmic transformation of the number of full-time employees in the organization (Kimberly, 1976). Unionization was assessed by a single item (i.e., approximately what percentage of your firm s employees are unionized?). Return on investment (ROI) was collected from the CompuStat database and was included to control for firm performance and was measured as the average of the four fiscal quarters preceding data collection. Extent of diversification represents the number of industries (four-digit SIC codes) within which each firm operates.

13 D.P. Lepak, S.A. Snell / Journal of Management (4) The industry in which firms operate may influence how firm s utilize the four employment modes. For instance, industries facing growth opportunities may be more likely to outsource for labor as a short-term solution to deal with increased labor demand. And while our sample size precludes the possibility of controlling for each specific industry, we draw from Dess and Beard (1984) and control for industry munificence, dynamism, and complexity. Data for these industry measures were obtained from Manufacturing USA, Industry U.S. and Trade Outlook, and Ward s Business Directory of U.S. Private and Public Companies. Industry munificence, a measure of the amount of resources available to firms, was measured as the regression slope coefficient divided by mean sales value when regressing time against industry sales for the past 5 years ( ). Industry dynamism, a measure of the amount of change in each industry, was assessed using the same regression model and was measured as the standard error of the regression slope coefficient divided by the mean sales value. Industry complexity focuses the degree of market concentration in each industry. This variable was assessed using the MINL formula (Schmalensee, 1977) of sales concentration that reflects the relative organizational density within an industry. Our labor market data were collected from the Bureau of Labor Statistics database for the 1-year period preceding the data collection for the state in which each firm was located. Unemployment was measured as the average unemployment rate for the year preceding data collection. Net change in the unemployment was measured as the difference in the unemployment rate from Percent change in unemployment from was measured to control for the relative magnitude of any changes in unemployment. Unemployment volatility, a measure of the stability or change in unemployment, was measured as the standard deviation of the unemployment rate for the 12 months prior to the collection of the survey data. Response Statistics Results Of the 234 usable returned questionnaires, five indicated their firm does not rely on the employment mode their questionnaire emphasized (a 1 on a 1 5 scale). These five respondents were removed from the sample leaving 229 usable surveys. In 23 instances two individuals from the same firm completed surveys focusing on identical employment modes. Because the level of analysis for this study rests at the employment mode level, we aggregated their perceptual responses to the employment level. In total, this sample consists of 206 cases from 148 firms (6.5%) of which 43 focus on alliances, 48 focus on knowledge-based employment, 50 focus on contract work, and 65 focus on job-based employment. These participating firms represent 86 different industries (four-digit SIC) and average 9836 full-time employees. Across respondents, the reported mean use for each employment mode was 3.21 for alliances, 3.56 for knowledge-based employment, 3.02 for contract work, and 4.44 for job-based employment. Those respondents focusing on the alliance mode reported a mean of 3.45, those focusing on knowledge-based employment reported a mean of 3.82, those focusing on contract work a mean of 3.22, and those focusing on job-based employment a

14 530 D.P. Lepak, S.A. Snell / Journal of Management (4) mean of Considering that the means tended to be slightly higher for those completing a survey on a particular employment mode than the average for the entire sample, it is possible that potential respondents who were not utilizing the employment mode sent to their firm removed themselves from the sample. We performed several tests for non-response bias. First, crosstab analysis was used to assess the possibility of non-response bias for industry differences at the four-digit SIC code level as well as for the level of diversification. The Pearson chi-square statistic was not significant at the.05 level for either industry membership or diversification. Using a one-way analysis of variance (ANOVA), no significant differences were found at the.05 level between responding and non-responding firms in terms of firm size. Similarly, using a one-way ANOVA, no significant differences were found with regard to ROI, return on assets, and firm sales between participating firms and a randomly selected sample of 250 non-responding firms. Following the procedures outlined by Huselid (1995) and Koch and McGrath (1996) we also formally tested for sample selection bias in a series of regression analyses (for further discussion of this technique see Berk, 1983 and Heckman, 1979). Specifically, we generated an inverse Mills ratio that captures the probability of responding to the survey as a function of three variables diversification, firm size, and industry membership. Once calculated, this ratio was included in a regression analysis examining the relationships among human capital characteristics, employment, and the HR configurations. The results remained consistent when the Mills ratio is included in the regression equations. Thus, including this correction for selectivity bias does not change any conclusions that stem from the results of this study. Descriptive Statistics Table 1 shows the means, standard deviations, correlations, alphas, as well as interrater agreements (r wg ), and intraclass correlation coefficients (ICC(1)) for the 23 firms in which identical surveys were completed. The alphas generally indicate consistency and the interrater agreement (r wg ) statistics met or exceeded.88. The r wg statistics demonstrate that different raters within the same firm agree in their assessment of the characteristics of human capital in different employment modes as well as how they are managed. We used the r wg statistic as a check on the agreement of multiple raters within firms to assess the validity of aggregating for those cases in which multiple respondents completed from the same firm completed identical surveys (cf. Kozlowski & Hattrup, 1992). In contrast to assessing agreement in ratings, ICC(1) present information regarding the reliability of multiple raters. The ICCs range from.20 to.46. The disparity between these two measures has been addressed elsewhere (Gerhart, Wright, McMahan & Snell, 2000; Huselid & Becker, 2000; Klein & Kozlowski, 2000) and may be particularly obvious in this sample. In our study, the HR configuration means reflect the extent to which firms adhere to a particular HR configuration, though the exact pattern of the individual HR practices used may vary. For the ICC to be meaningful there is an assumption that differences in ratings between firms for a particular employment mode are meaningful and greater than the variance among raters within firms for the same employment mode (cf. Bliese, 1998, Lahey, Downey & Saal, 1983). As noted by Lahey et al. (1983), however, ICC values cannot be significant unless the target main-effect is significant (i.e., there

15 D.P. Lepak, S.A. Snell / Journal of Management (4) are differences between the targets being rated) (p. 588). Kozlowski and Hattrup echo this point, consistency indexes lack power when variance among judges across targets is restricted a situation that occurs when agreement among judges across a set of common targets is high (p. 163). In our study, there is no reason to expect variation across firms in their use of HR practices within a particular employment mode. In fact, the hypotheses imply that there would be little variation between firms on the same employment modes. And while this scenario lends support to the framework being tested (i.e., consistency in assessment of HR for each employment mode across firms) these exact same numbers offer a misleading validity assessment. Rather than capturing how much the raters within a firm agree, the ICC statistics might capture the similarity in the perceptions of the HR practices used across firms for a particular employment mode. As an additional check on the validity of the HR configurations, we asked five expert raters (tenure track professors in HR management) to assess the consistency of each practice with each of the HR configurations. The raters displayed 100% agreement with the practices comprising the commitment and collaborative HR configurations, 75% agreement for the productivity configuration, and 86% agreement for the compliance configuration. The t-tests for these expert ratings indicated that the mean for the practices included in each HR configuration were significantly greater than the mean for the practices not included in each configuration commitment (t = 9.90, p <.001), productivity (t = 11.21, p <.001), collaboration (t = 6.90, p<.01), and compliance (t = 11.33, p<.001). Hypothesis Testing We first performed multivariate analysis of covariance (MANCOVA) to test for overall differences across employment modes for human capital and HR configurations while controlling for the potential impact of extraneous variables. The results indicate there are significant differences for human capital (Wilks s lambda =.54; F = 22.55, p <.001) as well as the HR configurations (Wilks s lambda =.35; F = 20.17, p<.001) across the four employment modes. Human Capital and Employment To test Hypotheses 1 and 2 we followed the procedures of Tsui, Pearce, Porter and Tripoli (1997) and performed ANOVA and analysis of covariance (ANCOVA) to examine the ordering of the means of human capital value and uniqueness across the four employment modes. We performed t-tests to compare the level of value and uniqueness between the specific employment modes. The results of these analyses are presented in Tables 3 and 4. The ANCOVA results indicate that the means are significantly different for value (F = 42.39, p <.001) and uniqueness (F = 18.77, p <.001). Specifically, across employment modes human capital value is highest for knowledge-based and job-based employment, next highest for alliances, and lowest for contract work. The findings indicate that human capital uniqueness is highest for knowledge-based employment, next highest for alliances and job-based employment, and lowest for contract work. The uniqueness of knowledge-based employees is significantly higher than the uniqueness of contract workers and job-based

16 532 D.P. Lepak, S.A. Snell / Journal of Management (4)

17 D.P. Lepak, S.A. Snell / Journal of Management (4)

18 534 D.P. Lepak, S.A. Snell / Journal of Management (4) employees. Similarly, the uniqueness of alliance workers is greater than the uniqueness of contract workers. Counter to our hypothesis, the uniqueness of alliance workers is less than knowledge-based employees and is not significantly different from job-based employees. These results provide support for Hypothesis 1 and mixed support for Hypothesis 2. Employment and the HR Configurations To test Hypotheses 3 6 we used ANOVA and ANCOVA. The results of these analyses indicate that the explanatory effect of employment remained significant for the commitmentbased (F = 66.38, p<.001), productivity-based (F = 22.00, p<.001), compliancebased (F = 17.98, p <.001), and collaborative-based (F = 12.87, p <.001) HR configurations after considering the control variables. Specifically, the results indicate that the commitment-based HR configuration is significantly greater for knowledge-based employment than for the other three employment modes. Similarly, the compliance-based HR configuration is significantly greater for contractual work than for the other three employment modes. While the productivity-based HR configuration is greatest for the job-based employment mode there is no significant difference between job-based and knowledge-based employment for this HR configuration. In addition, although the collaborative HR configuration is significantly greater for alliances than for contract work, it is not used significantly more than for knowledge-based or job-based employment. While these results provide general insights into the pattern of HR configuration use, the most stringent test of our hypotheses involved a more fine-grained analysis to compare the four HR configurations within each employment mode sub-sample. To examine these within employment mode differences in the use of the HR configurations we performed paired comparisons within each employment mode sub-sample. These results are presented in Table 5. Within the knowledge-based employment mode, the commitment-based HR configuration is significantly greater than the compliance-based HR configuration (t = 8.89, Table 5 Paired comparison of HR configurations within employment modes Knowledge-based employment (n = 48), t-test Job-based employment (n = 65), t-test Contractual work arrangements (n = 50), t-test n = 43, t-test Commitment vs. productivity d 9.53 d 2.24 b Commitment vs. compliance 8.89 d 3.96 d d 1.13 a Commitment vs. collaborative d 7.65 d Productivity vs. compliance d 9.50 d 3.25 c 3.14 c Productivity vs. collaborative d d Collaborative vs. compliance 8.63 d 2.63 c 3.27 c 7.02 d a p<.10. b p<.05. c p<.01. d p<.001.

19 D.P. Lepak, S.A. Snell / Journal of Management (4) p<.001). However, there is no statistically significant difference between commitment and the productivity-based (t =.11, n.s.) or collaborative-based (t =.25, n.s.) configurations. These results provide mixed support for Hypothesis 3, suggesting that firms use all three of these HR configurations to manage knowledge workers. Within the job-based employment mode, the results indicate that the productivity-based HR configuration is significantly greater than the commitment-based (t = 4.97, p<.001), compliance-based (t = 9.50 p<.001), and collaborative-based (t = 4.89, p<.001) HR configurations. The results indicate that the compliance HR configuration is significantly greater than the productivity-based (t = 3.25, p <.01), collaborative-based (t = 3.27, p<.001), and commitment-based (t = 9.53, p<.001) HR configurations for contract work. The results indicate that the collaborative HR configuration is significantly greater than the commitment-based (t = 7.65, p <.001), productivity-based (t = 5.49, p<.001), and compliance-based (t = 7.02, p<.001) HR configurations for alliance partners. These results provide support for Hypotheses 4, 5, and 6. Additional Analysis Forty-one firms in the sample provide data on multiple employment modes within their firm. As an additional check we tested whether human capital and the HR configurations differ across employment modes within these firms. The ANCOVA results indicate that there are significant differences in the human capital and HR configurations across employment modes while there are no significant differences when firm (rather than employment mode) is the differentiating variable. These analyses suggest that, within firms, there are differences across employment modes with regard to human capital and the HR configurations. Discussion In general, this study provides support for the notion that different employment modes are associated with variations in human capital value and uniqueness. From our study we can conclude that the strategic value of human capital is reflected in choices about whether to use internal vs. external employment modes. Consistent with the extant literatures in strategy and economics, assets that are internalized tend to have a high degree of strategic value. While this finding is consistent with our hypotheses, what is particularly interesting is that the reported value of contract workers is significantly less than alliance partners. Evidently, when deciding whether to utilize short-term contractual arrangements or ongoing partnerships with external providers, organizations consider the strategic value of the human capital to be used in these arrangements. It is evident that the uniqueness of human capital differentiates the likelihood of employing workers in relational vs. transactional employment modes. The results indicate that knowledge-based employees tend to have the highest level of uniqueness, alliances and job-based employees have the next highest, and contract workers have the lowest level of uniqueness. Interestingly, workers in alliances have a significantly lower level of uniqueness when compared to knowledge workers while they do not differ significantly from job-based workers. It may be the case that firms demarcate between core (knowledge-based) and

20 536 D.P. Lepak, S.A. Snell / Journal of Management (4) peripheral (contract) labor and those employee groups that fall in between are allocated to alliances or job-based employment modes based on their strategic value. Whether intended or emergent, there appears to be a clear pattern in the resource allocations and HR configurations used for different kinds of workers. The qualitative responses provided in Table 1 suggest several noteworthy points as well. First, there is variation regarding the jobs identified for each mode. For example, within the knowledge-based employment mode the jobs range from engineers to research scientists and professionals employees. Second, in some cases the same job was listed in different employment modes. For example, HR professionals were identified as being in job-based, knowledge-based, and alliances. Taken together, we believe that these differences highlight an important issue central to an HR architectural perspective the decisions about employment are not fixed for a particular job. The issue is which factors lead to this decision. Though the title of the job may be the same, the role of the individual vis-à-vis the firm s competitive position may differ widely from firm to firm. We would encourage additional research that examines the influence of the job performed relative to the characteristics of human capital (value and uniqueness) to perform the job in explaining employment choices. These findings may be encouraging for advocates of the resource-based view of the firm (e.g., Barney, 1991, Quinn, 1992; Wernerfelt, 1984) who suggest that firms should move away from relying solely on transactional or financial criteria and consider more strategic or resource-based factors when making sourcing decisions. Related, these results may also address the concerns of critics who argue that outsourcing and relying on contract labor may deplete the core skills that drive organizational success (e.g., Bettis, Bradley & Hamel, 1992). Rather than turning over their entire workforce to contractors, our findings suggest that firms primarily rely on contract work to meet fairly generic needs or access widely available skills. At the same time, firms are taking steps to ensure they identify and retain those workers who are most critical to their competitiveness. In addition to the characteristics of human capital, the findings suggest a pattern that pairs HR configurations with employment modes in distinct ways. As hypothesized, the commitment-based HR configuration is significantly greater for knowledge-based employees than for workers within the other three employment modes. In addition, the compliancebased HR configuration is used most extensively for employees in a contract mode. These findings parallel the work of Arthur (1992) and others who describe two potentially opposing approaches to HR: one based on commitment, and one based on control/compliance. The pattern across employment modes for the productivity and collaborative HR configurations are more complicated. Though the productivity-based HR configuration is used for job-based workers, this HR configuration is used for knowledge-workers as well. A similar pattern exists for the collaborative HR configuration; that is, the collaborative HR configuration is used equally for alliance partners and knowledge workers as well as job-based employees. Considered in combination with the within employment mode analyses, what is particularly interesting is that much of the variance associated with the HR configurations relates to the management of knowledge-based employees. While the commitment-based HR configuration tends to be limited to knowledge-workers, within this employment mode, the results indicate that there is no significant difference regarding the use of the commitment-, productivity-, and collaborative-based HR configurations. In contrast, within alliances,