This document summarizes four research studies that examine the relationship between human resource (HR) practices and organizational performance. Study 1 looked at flexible production systems in the auto industry. Study 2 examined how HR practices like training and performance-based pay impacted turnover, productivity and financial performance across industries. Study 3 was a longitudinal study of UK manufacturers that found job satisfaction, organizational culture and certain HR practices explained variations in productivity and profitability. Study 4 interviewed managers in various industries and found links between HR strategies, practices, employee attitudes and corporate performance.

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Research study 1- Macduffie (1995)
Industry sector: Automobiles.
Location: USA
No. of companies in study: 70 automobile plants
Theoretical background: MacDuffie’s starting position was in
the Walton (1985) tradition. He argued that innovative HR
practices are the way to secure employee commitment to the
organization and such commitment is essential if employees are
to apply the amount of discretionary effort required for high
performance. In addition, he was interested in establishing the
extent to which a specified ‘bundle’ of HR practices would be
more effective than such practices implemented individually.
Research strategy and method: MacDuffie studied flexible
production systems in the auto industry. Flexible production
systems are characterized by the reduction of stock inventories
and the elimination of ‘buffer’ areas such as those concerned
with product repair space which create ‘slack’ in the production
process. MacDuffie reasoned that these characteristics would
have three major consequences:
(1) the increase of interdependencies within the production
process;
(2) the highlighting of production problems;

2. (3) searches for improvements to the production process to
solve these problems.
His hypothesis was that innovative HR practices have an
important role to play in such flexible production systems.
MacDuffie argued that workers in flexible production systems
need a good grasp of the production process and analytical
skills to diagnose problems.
The data were collected by questionnaires and interviews with
plant managers. The study sought to assess the effect upon labor
productivity and quality of three variables: (1) the use of
‘buffers’; (2) work systems (e.g. the use of work teams and
employee involvement groups); and (3) HR policies, relating to
those involved in the production process, of selection,
performance-related reward, status differences and training and
development.
MacDuffie developed two specific hypotheses: (1) that
innovative HR practices affect performance not individually but
as interrelated elements in an internally consistent ‘bundle’ and
(2) the HR ‘bundle’ is effective in contributing to
manufacturing plant productivity and product quality when they
are integrated with flexible production systems.
Results and conclusions: MacDuffie argues that the evidence
from his study supported the hypothesis that assembly plants
using flexible production systems which use HR ‘bundles’ that
are integrated with the production strategy outperform plants
using traditional mass production systems on both measures of
productivity and quality.
Study strengths: (1) Treats HR practices as integrated ‘bundles’
rather than separate practices. (2) Uses contextually relevant
measures of organizational performance. (3) Study rooted in
specialist knowledge of manufacturing production process.
Study limitations: (1) Employee commitment and competence
are theoretical principles which are important to the study but
they are not measured. One would expect the HR ‘bundle’ to
promote high levels of commitment and competence which in

3. turn would yield high productivity and quality measures.
(2) It is not clear how the components of the HR ‘bundle’ were
chosen. It seems that important elements (e.g. job security) may
have been omitted (Richardson and Thompson, 1999). (3) The
study is industry specific and may not generalize to other
employment contexts. (4) The data are gathered from plant
managers so there is no input from employees or HR specialists.
Research Study 2 - Huselid (1995)
Industry sector: All major industries
Location: USA
No. of companies in study: 3,452 companies with more than 100
employees
Theoretical background: Huselid’s position was that HR
practices can affect HR performance in terms of their levels of
skill and motivation and through adjustments to organizational
structures which allow better job performance. Increased levels
of employee skill and motivation will lead to lower employee
turnover and higher productivity. As long as the expenditure on
the HR practices designed to yield lower employee turnover and
higher productivity does not exceed their true costs then lower
employee turnover and higher productivity should lead to
enhanced corporate financial performance. Furthermore,
Huselid argued that the concept of strategic fit was important.
Enhanced organizational performance will follow if HR
practices complement and support one another.Similarly,
enhanced organizational performance will be the consequence if
the system of HR practices is aligned with the organization’s
competitive business strategy.
Research strategy and method: Huselid sought to test four
specific hypotheses: (1) systems of high-performance work
practices will reduce employee turnover and increase
productivity and corporate financial performance; (2) employee
turnover and productivity will be the link between systems of
high-performance work practices and corporate financial
performance; (3)complementarities or synergies between high-
performance work practices will reduce employee turnover and

4. increase productivity; (4) alignment of a firm’s high-
performance work practices with its competitive strategy will
reduce employee turnover and increase productivity.
Questionnaires were sent to 12,000 US firms which yielded
3,452 replies, a 28 per cent response rate. The questionnaire
was sent to the senior HR manager in each firm. The
questionnaire asked about13 high-performance work practices
which Huselid grouped into two main categories, which he
called employee skills and organizational structures’ and
‘employee motivation’. The former category included practices
designed to enhance employees’ knowledge and skills and
thereafter a structure in which those knowledge and skills could
be applied in job performance. These practices included: job
design; sophisticated employee selection; training and
development; employee participation programs, including
profit-share schemes. The category he called ‘employee
motivation’ included practices to recognize and reinforce the
desired employee behaviors developed by practices in the first
category. These included: performance appraisal; individual
performance-related pay; and merit-based promotion.
In addition, respondent views were sought on the extent to
which there was consistency between the HR practices and
between the HR practices and the firm’s competitive strategy.
Employee turnover equated to the firm’s average annual
turnover rate and productivity was measured as sales per
employee. Corporate financial performance was assessed in two
ways: gross rate of return on capital and the market value of the
firm divided by the costs of its assets.
Results and conclusions: Huselid found broad support for the
hypothesis that systems of high performance work practices will
reduce employee turnover and increase productivity and
corporate financial performance. This applied across industries
and firm size. Indeed, the strength of the association was
substantial. However, he found only modest support for the
third and fourth hypotheses: that higher levels of internal and
external fit will lead to better firm performance.

5. Study strengths: (1) Huselid adopts an explicitly strategic
perspective in that he seeks to measure the effect of both
internal and external fit. (2) He attempts to overcome one of the
main methodological problems with this type of research, the
problem of reverse causality. This means that, in this study, it is
a concern that the firms may introduce high-performance work
practices because they are successful rather than such practices
causing organizational success. Huselid does this by introducing
the intermediate measure of employee turnover and higher
productivity rather than measuring directly the effect on firm
performance of high-performance work practices. (It is difficult
to imagine firms introducing high-performance work practices
because they have low employee turnover and high employee
productivity.) (3) Large sample size and breadth of industrial
coverage.
Study limitations: (1) The data are gathered from HR specialists
with no input from employees. (2) Data are collected at
company level which does not allow for differences in separate
workplaces in multi-workplace organizations (Richardson and
Thompson, 1999). (3) The fact that this is a ‘snapshot’ piece of
research rather than longitudinal (over a period of time)
weakens any claim that high performance work practices cause
enhanced organizational performance.
Research Study 3- Patterson et al.
Industry sector: Manufacturing
Location: UK
No. of companies in study: 67
Theoretical background: Patterson et al.’s point of departure
was similar to that of other similar studies. They assumed that:
(1) employees are the organisation’s valuable resource; and (2)
that the management of employees makes a difference to
company performance. More specifically, they devised four
research questions:
(1) Is there any relationship between employee attitudes (i.e.
job satisfaction and employees’ commitment to their
organisations) and company performance?

6. (2) Does organisational culture predict subsequent
organisational performance?
(3) Do human resource management practices make a difference
to organisational performance and, if so, which of these
practices are the most important?
(4) How do other management practices (i.e. competitive
strategies, quality emphasis, research and development
investment, investment in technology) compare with human
resource management practices in terms of their influence upon
organisational performance?
Research strategy and method: This was part of a ten-year study
which began in 1991 aimed at establishing the factors that
affect organisational effectiveness. Organisations’ economic
performance data were collected annually from 1990. Senior
managers in the companies were interviewed every two years
from 1991 and 36 of the companies’ employees participated in
employee attitude and organisation culture surveys in the early
stages of the research. The companies were predominantly
single-site, single-product operations with less than 1,000
employees.
Interviews were carried out with four or five senior managers in
each of the 67 organisations, organisational documentation was
gathered and observational tours of production plants were
undertaken. In 36 of the organisations, employee attitude and
culture survey questionnaires were sent to employees.
Company performance was measured by productivity (sales per
employee) and profitability (profit per employee). For each
company, performance data for two time periods were collected:
(1) the average of the company’s performance for the three
years prior to the measurement of HRM practices,culture and
employee attitudes;
(2) the average of the company’s performance for the year
following the measurement of HRM practices, culture and
employee attitudes.
Job satisfaction was measured by 15 items ranging from
relations with fellow team members and managers; to job

7. autonomy, variety and responsibility; physical work conditions;
pay; hours; recognition; job security; attention paid to
suggestions; opportunities to use abilities; and promotion
opportunities. Organisational commitment was measured by
three components: identification with, involvement in and
loyalty towards the company.
The HR practices measured were grouped under two headings
which reflect the interrelated nature of the practices which
Patterson et al. wished to portray: ‘acquisition and development
of employee skills’ (selection, induction, training and appraisal)
and ‘job design’ (skill flexibility, job responsibility, job variety
and use of formal teams).
Two data analysis strategies were employed: (1) the HR
practices culture and employee attitude data were related to the
average of the company’s performance for the year following
the measurement of HRM practices, culture and employee
attitudes; and (2) the researchers investigated whether higher
levels of HRM practices, culture and employee attitudes were
positively related to an increase in organisational performance
by controlling for prior performance when predicting
subsequent performance.
Results and conclusions: Patterson et al. showed that:
1. Job satisfaction and organisational commitment each
explained 5 per cent of the variation between companies in
change of profitability. For productivity, job satisfaction
explained 17 per cent and organisational commitment 7 per cent
of the change in performance.
2. Organisational cultural factors explained 10 per cent of the
variation between companies in change of profitability. In
relation to productivity, organisational cultural factors
explained 29 per cent of the change in performance over three
to four years. The most important aspect of the organisational
cultural factors was employee welfare.
3. HRM practices explained 19 per cent of the variation between
companies in change of profitability.For productivity, job
satisfaction explained 17 per cent and organizational

8. commitment 7 per cent of the change in performance. For
productivity, HRM practices explained 18 per cent of the
change in performance.
4. Management practices other than HR (i.e. competitive
strategies, quality emphasis, research and development
investment, investment in technology) accounted for a very
small proportion of the variation between companies in terms of
their profitability and productivity.
Study strengths: (1) This is a longitudinal study with a before–
after measurement and therefore does allow attempts to measure
the effect of the introduction of HR practices over time. (2) The
study does include employee as well as managerial interview
data. (3) Mixed data collection methods were used which added
to the validity of the data. (4) The single-site and single-product
nature of the sample makes comparison more valid.
Study limitations: (1) The study was restricted to manufacturing
companies, raising the question of generalisability. (2)
Although the study is confident in its assertion that a link exists
between HR and company performance, it does not explain why
this link exists, i.e. what it is about the HR practices which
cause enhanced company performance.
Research study 4- Guest et al. (2000)
Industry sector: Various
Location: UK
No. of companies in study: 237
Theoretical background: The study is based on a model
developed by Guest (1997). In this model Guest argues that the
financial performance of companies is influenced by four
factors: business and HR strategies; effectiveness of HR
departments and HR practices; HR outcomes; and productivity
coupled with product and service quality. Put simply, the model
contends that business and HR strategies will point to the
appropriateness of certain HR practices. The extent to which the
HR practices are conducted effectively together with the
effectiveness of the HR department will influence the
achievement of the HR outcomes which Guest specifies:

9. employee competence, commitment and flexibility. These three
HR outcomes will in turn affect productivity and product and
service quality which will have a significant influence upon the
company’s financial performance.
Research strategy and method: The study concentrated upon the
private sector, both manufacturing and service. The respondents
were heads of HR and CEOs. The research report is based upon
interviews with 835 companies and over 1,000 managers. In 237
companies there were matched responses from both the head of
HR and the CEO.
Two separate questionnaires were sent: one to CEOs and the
other to heads of HR. The head of HR questionnaire asked
questions about: the workforce, HR strategy and practices, HR
outcomes and performance outcomes. The CEO questionnaire
covered: HR strategy, a limited amount of HR practices, HR
outcomes and performance outcomes, and additional questions
on the business strategy and the state of the market in which the
company operated.
Results and conclusions: (1) The most important factor in the
defining of business strategies was responsiveness to customers
(74 per cent) and high service quality (59 per cent), whereas
beating competitors on price was rated lowly (10 per cent). (2)
Only 10 per cent of managers thought issues concerning people
were more important than finance or marketing. (3) Only one-
quarter of organisations had more than 50 per cent of a list of
18 typical HR practices in place. (4) The most highly rated
areas of HR activity were internal labour market practices
(promotion from within) and employment security. (5)
Managers rated employee flexibility and performance outputs
highly.(6) Approximately one-half of CEOs rated their
company’s productivity and financial performance as above
average for their industry. (7) Overall responses led the
researchers to conclude that there was link between HR
practices and HR department effectiveness, employee attitudes
and behavior and corporate performance.
Study strengths: (1) The sample size was one of the biggest in

10. all the studies linking HR with corporate performance. (2)
There was an attempt to measure the effectiveness, rather than
simply the presence, of HR practices. (3) The clarity with which
the research is based upon the variables which link HR and
organisational performance.
Study limitations: (1) Interviews were by telephone, which
limited the degree of ‘insight’ which could be developed by
researchers (particularly when contrasted with, for example, the
observational tours of production plants undertaken by
Patterson et al.). (2) The absence of employee data. (3) The
self-report nature of the managerial responses which raises
questions about respondent objectivity. This is particularly
relevant where questions about such items as organisational
performance in relation to competitors are concerned. (4)
Although the study points to the relationship between certain
key variables it is less helpful in explaining the reasons for
certain associations between variables.