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Measuring HRM effectiveness: Considering multiple stakeholders

in a global context

Saba Colakoglu ⁎, David P. Lepak, Ying Hong

Rutgers, The State University of New Jersey, School of Management and Labor Relations, Department of Human Resource Management,

Piscataway, NJ 08854, United States

Abstract

Strategic human resource management research has mostly gravitated towards financial measures of performance in order to

assess the effectiveness of human resource management initiatives. In this paper, we argue that focusing on organizational

performance mainly from financial stakeholders' perspective is no longer sufficient. We discuss the implications of globalization,

changing nature of work and the need to satisfy multiple stakeholders on how we measure the effectiveness of human resource

management systems. We provide examples from several reach streams that focus on stakeholders other than shareholders as their

main outcome of interest.

Keywords:Stakeholders; Globalization; Organizational performance; Strategic human resource management

The context in which organizations operate continues to evolve. Globalization and advances in technological

sophistication as well as the changing nature of work influence how companies are structured and where employees

work. The growing trends towards alternative forms of organizations such as offshoring and virtual organizations

are examples of how companies respond to these factors. Increased experimentation with alternative forms of work

such as the use of contingent workers, consultancy partnerships, as well as core and non-core employees is

dramatically altering the nature of work and relationships between employees as well as between employees and

their organization.

While there are certainly many implications of these trends for organizations, we argue that these trends have a

significant impact on strategic human resource management (HRM). A central argument underlying this paper is that as

organizations evolve, it is important that as a field of research we revisit the role of HRM and human resource (HR)

practices in organizations and, in particular, how we evaluate the effectiveness of HR initiatives within strategic HRM

research.

At a basic level, strategic HRM research has tended to gravitate toward measures of financial- or market-based

organizational performance as its dependent variable (Becker & Huselid, 1998; Rogers & Wright, 1998). While these

types of performance metrics are certainly critical for organizational success, we argue that it may be too simplistic to

Human Resource Management Review 16 (2006) 209–218 www.socscinet.com/bam/humres

⁎

Corresponding author. Tel.: +1 732 445 0742; fax: +1 732 445 2830.

E-mail address:[email protected](S. Colakoglu).

doi:10.1016/j.hrmr.2006.03.003 focus primarily on the financial performance of organizations as an indication of the effectiveness of HR initiatives or

as an indication that they are capable of sustaining that performance. Rather, within the evolving organizational

context, it is important to have a firm understanding of what the appropriate HR metrics are for different scenarios.

Organizations are not nearly as homogeneous as the nature of our empirical research would suggest. Internally,

employees vary with respect to their contribution to the core business of an organization (Huselid, Becker, & Beatty,

2005; Lepak & Snell, 1999) and externally, organizations vary on the relative importance of their obligations to

different stakeholder groups (Jones & Wicks, 1999). A one-size-fits-all approach to managing and measuring HR

initiatives may not reflect how firms manage their diverse pool of human capital as well as their relative performance of

meeting the needs of different stakeholder groups. The crux of our arguments are that certain performance measures

may be more or less important in different contexts and we should be cautious paying particular attention to only a

limited subset of performance measures.

The rest of our paper is structured as follows. First, we review some of the traditional approaches to measuring HRM

effectiveness and consider additional streams of research that incorporate other stakeholders' interests which may

inform future strategic HRM research. We then explore how measures of HR effectiveness that researchers emphasize

might be influenced by the emerging trends of globalization and the changing nature of work. These trends

fundamentally influence the structure and location of organizations and their operations as well as the nature of work

different employee groups perform.

1. HRM and performance

One critical question in HRM research that has garnered considerable attention is how much difference HRM can

make in organizational functions and for organizational performance. In part, this question has been posed to justify the

existence of HR functions, which have traditionally been viewed as a cost to be reduced (Becker & Gerhart, 1996), and

is a natural extension of theories and beliefs that how people are managed can make a difference. While we agree that it

is a critical endeavor to examine the relationship between HR practices and systems with performance, the domain of

research is fairly muddled (Wright & Sherman, 1999). One of the primary reasons for this is that the choice of

performance measures used in research studies varies widely. In particular, researchers have drawn from a wide array of

performance measures that vary in terms of: (1) their proximity to employee contributions or the level of aggregation in

which they are measured, and (2) the relevant stakeholder group of focus.

1.1. Proximal versus distal HR measures

HRM researchers have varied in the level of analysis of the performance measures they emphasized. While

traditional HRM research has generally focused on individual level outcomes such as job performance (e.g.Wright

& Boswell, 2002), job satisfaction (e.g.Seibert, Silver, & Randolph, 2004), and motivation (e.g.Bloom, 1999),

strategic HRM research has focused on unit or firm level outcomes related to labor productivity (Huselid, 1995;

Koch & McGrath, 1996; MacDuffie, 1995) scrap rate (Arthur, 1994), sales growth (Batt, 2002; Guthrie, 2001),

return on assets (ROA) and return on investment (ROI) (Delery & Doty, 1996), and market-based performance

(Huselid, 1995). These aggregate level outcomes can further be differentiated by department level, plant (site) level,

business unit level, and firm (corporate) level performance measures (Rogers & Wright, 1998).

Looking across the potential measures of HR effectiveness,Dyer and Reeves (1995a,1995b)suggested that

measures of organizational performance in HR research may vary based on the measures' level of proximity to the

HR practices. According to their categorization, HR practices have their most immediate impact on employees

since employee outcomes such as turnover, absenteeism, job satisfaction, commitment, and motivation are in a

closer line of sight to HR practices. They propose that HR practices also have the strongest effect on such

employee outcomes, as these outcomes are to some extent the initial goal for designing the HR practices. The

second category of organizational performance which is more distal to HR practices than individual level employee

outcomes includes more macro level outcomes associated with aggregates of individual efforts, such as indicators

of productivity, quality of products and customer service. The third category of performance noted byDyer and

Reeves (1995a,1995b)encompasses financial and accounting outcomes, such as ROA, ROI, and profitability.

Finally, the most distal performance measure to HR practices is the capital market outcome, such as stock price,

growth, and returns.

210S. Colakoglu et al. / Human Resource Management Review 16 (2006) 209–218 While some researchers have suggested that more proximal or intermediate outcomes may be a more appropriate

level for HR research (Arthur, 1994; Delery & Doty, 1996; MacDuffie, 1995), the focal interest of many strategic

HR studies has been placed on firm or corporate performance (Becker & Huselid, 1998; Rogers & Wright, 1998).

The focus on organizational level performance measures is understandable as it is quite illuminating for researchers

and convincing for managers to find a significant impact of HR on more distal outcomes such as financial or

market performance than on more immediate outcomes such as employee behavior.Becker and Gerhart (1996)

argue that corporate market measures of financial performance are particularly meaningful andBecker and Huselid

(1998)identified the advantage of focusing on the corporate level of analysis of performance when they stated that

corporate performance is the“raison d'etre”of strategic HRM research because HR policies and systems can be

tied to meaningful performance data such as market performance and accounting measures of performance (e.g.,

sales, ROA, ROE, ROI). Moreover, because many corporations are required to report these data, researchers may

be able to access relevant performance measures from a secondary source of data. These are certainly advantages

for reducing common method bias concerns and increasing practical applicability of study results (Lepak, Liao,

Chung, & Harden, in press).

Although corporate or firm level performance metrics are important to examine, it cannot be drawn that certain

outcomes are definitely more important than others. First, corporate performance measures may be viewed as quite

distal from HR practices and likely to be influenced by more proximal performance measures related to HR initiatives.

Indeed,Rogers and Wright (1998)point out that the more proximal outcomes serve as a means for achieving those

higher-level outcomes. For instance, employee motivation may serve to enhance employees' effort and performance

and subsequently their aggregated performance. Nevertheless, these distal performance metrics are the specific HR

metrics of which many practitioners and researchers emphasize. Second, the most relevant performance measures may

fundamentally depend on the vantage point of focus for research; a perspective that is directly related to considerations

of different stakeholder groups.

1.2. Stakeholder groups

While we might conceptualize many different internal and external parties of an organization who have a

vested interest in its operations,Hitt, Ireland, and Hoskisson (2005)suggest that there exist three primary groups

of stakeholders that exert distinct pressures on organizations and are directly impacted by the performance of

organizations. First, companies must attend to the needs of capital market stakeholders–shareholders and major

suppliers of capital such as banks. Second, companies must consider the needs and demands of product market

stakeholders–the primary customers, suppliers, unions, and host communities with whom organizations conduct

business. Finally, companies must also consider the needs of organizational stakeholders, the employees and

managers within the organization. In line with the stakeholder framework,Rogers and Wright (1998)proposed a

Performance Information Market (PIM) system which includes four major markets that allow different

stakeholders (in a broad sense) to evaluate organizational performance: (1) the financial market; (2) the labor

market; (3) the consumer (product) market; and (4) the political (social) market. Their PIM system extends the

focus of HR research to include other stakeholders' interests such as the labor market, the society, customers,

suppliers, and unions.

The stakeholder group that has traditionally been of primary interest in the strategic HRM literature has been the

capital market stakeholders. For example,Rogers and Wright (1998)reviewed 59 studies that examined the

relationship between HR and various organizational outcomes and revealed that only two of the studies used employee

outcomes such as turnover as the outcome of interest. On the other hand, 40 of the studies reviewed byRogers and

Wright (1998)used accounting measures and financial market measures of performance such as ROA, ROE, ROI, and

Tobin'sQthat directly serve the interests of the capital market stakeholders. Unfortunately, the importance of designing

HR practices that address the concerns of multiple stakeholders is not widely acknowledged in HR research (Boselie,

Dietz, & Boon, 2005; Schuler & Jackson, 2005). Indeed, a common feature of recent publications in strategic HRM

discuss the relative impact of HR systems on outcomes such as sales per employee or return on assets associated with a

standard deviation increase or decrease in the level of HR system use. This is powerful information. But, it is clearly

oriented toward financial-based metrics.

One implication of this focus on capital market performance measures is that it tends to ignore the importance

of other potential stakeholder groups, as well as other potential types of performance measures. If we recognize

211 S. Colakoglu et al. / Human Resource Management Review 16 (2006) 209–218 that the demands and relative power of different stakeholder groups may put serious constraints and opportunities

on the operations and the direction of organizations, it might be fruitful to consider how performance measures in

strategic HRM research might be related to alternative stakeholder perspectives. For example, how would our

outcome measures look if we explicitly considered stakeholder groups other than capital market stakeholders? In

the following sections, we briefly explore some research that has explicitly considered product and organizational

market stakeholders' interests as their main outcome.

1.2.1. Product-market stakeholders and outcomes

One area of research that has specifically considered the impact of HR initiatives on product market

stakeholders is‘climate for service’research. In this research stream, customer satisfaction is treated as a

mediating variable between HR practices and business performance and it is slightly different from more

traditional strategic HRM research by its focus on the customer as the main outcome of interest. In general,

climate can be defined as the employees' perceptions of the routines and rewards that characterize a setting

(Schneider & Reichers, 1990) and can be understood as the immediate environment surrounding the individuals

when they enter an organization. Climate research generally has a strategic target or focus of interest such as

service, justice, or safety, and attempts to identify those elements of the work environment–as described by

employees–that correlate, or link, to critically important organizational outcomes such as customer satisfaction

(Lepak et al., in press). Studies that indicate a significant and positive relationship between how favorably

members of an organization describe their organizational environment and customer satisfaction levels are

numerous.

In their review of this literature,Wiley and Brooks (2000)reported that various dimensions of work climate,

such as customer orientation, quality emphasis, teamwork/cooperation, and involvement/empowerment have been

found to correlate with overall customer satisfaction. Such dimensions of climate are certainly related to HR

practices. For instance,Liao and Chuang (2004)suggested that HR practices for customer service focusing on

employee involvement, training, and performance incentive as the most relevant for employee performance in

service settings.Liao and Chuang (2004)found that service climate and employee involvement explain individual-

level employee service performance which, in turn, is related to customer satisfaction and loyalty.

Since product-market stakeholders are those stakeholders that are positioned outside the organization, unions

may be one of the stakeholders that belong to this group (Hitt et al., 2005). According to the industrial relations

framework, collective forms of employee representation, such as unions, are the most efficient ones for promoting

industrial democracy. As noted byFreeman and Medoff (1979), there are two fundamentally different views of

unions and their relationship with organizational outcomes. According to the collective-voice view, unions uphold

the interests of employees, shareholders, and society by improving communication between managers and

workers, collecting information concerning the preferences of workers, enhancing productivity, as well as reducing

pay inequality among workers, and represent the political interests of lower income and disadvantaged people.

According to the monopolistic view, unions raise wages above competitive levels, reduces productivity, destructs

society's productivity through frequent strikes, and fights for their own interests in the political arena. These two

faces of unionism place unions in a controversial position within the stakeholder theory: do unions sacrifice the

business and societal interests for their own, or do unions contribute to advance these interests all together.

Although the evidence about the effects of unions on performance is mixed, unions are an important stakeholder

group that needs to be taken into account along with employees, customers, suppliers, financial institutions,

shareholders, and the like. Unions clearly have a vested interest in organizations, and in many cases may serve an

influential role in how organizations operate. Understanding the strategic HRM from a union perspective may

provide additional insights into the different measures of performance that need to be considered by organizations.

Finally, other stakeholders that are positioned outside the organization such as suppliers, alliance partners and local

communities have generally not been taken into consideration although these stakeholders may be affected by

HRM as well as influence HRM.

In many companies HR has a continuing and equally important responsibility for meeting the needs of multiple

stakeholders and needs to change the mindset that equates strategic HRM with only“having a seat at the table”and

“showing bottom-line results”(Schuler & Jackson, 2005) by considering multiple stakeholder needs. While important,

focusing solely on a bottom-line emphasis does not consider the views of product market stakeholders that might

provide additional insights into strategic HRM research.

212S. Colakoglu et al. / Human Resource Management Review 16 (2006) 209–218 1.2.2. Organizational stakeholders and outcomes

There are several research domains that have paid more attention to organizational stakeholders–in particular,

employees as a stakeholder group. On the one hand, there is a long history in traditional HRM research that examines

the impact of various HR practices and activities on employee outcomes. A large volume of research has accumulated

in this area over the years examining the impact of single HR practices such as selection (e.g.Barrick, Patton, &

Haugland, 2000), training and development (e.g.Frayne & Geringer, 2000), recruitment (e.g.Phillips, 1998),

compensation (e.g.Rynes & Bono, 2000), and performance management (e.g.Welbourne, Johnson, & Erez, 1998)on

individual level outcomes. Although there is a considerable emphasis even within this research stream on the outcome

of job performance (Wright & Boswell, 2002), researchers have also investigated these practices' impact on more

employee-focused outcomes such as job satisfaction (e.g.Seibert et al., 2004), motivation (e.g.Bloom 1999),

socialization (e.g.Klein & Weaver, 2000), career success (e.g.Janasz, Sullivan, & Whiting, 2003), and occupational

safety (Zacharatos, Barling, & Iverson, 2005). An emphasis on such employee-focused outcomes takes into account the

importance of meeting the needs and interests of employees as major stakeholders in the organization.

A secondary stream that has focused on employees, as well as on unions that we discussed above, is the industrial

relations (IR) paradigm. IR research focuses on the employee as the main stakeholder of interest. One of the main

differences between IR research and strategic HRM research is that while strategic HRM approaches the study of work

and employment from the employer's perspective, and thus implicitly the shareholders' or capital market perspective,

industrial relations research approaches the same topic from the employee's standpoint (Kaufman, 2001), explaining

why individual workers may be at a power disadvantage against the corporation and advocating collective forms of

dealing between employees and employers.

Interestingly, researchers coming from an IR standpoint often address similar issues as strategic HRM researchers,

albeit from different perspectives. Researchers emphasizing high involvement HR systems tend to focus on the use of

certain HR practices that directly influence the nature and scope of the jobs employees perform (Lepak et al., in press;

Zacharatos et al., 2005). For example, IR researchers such asOsterman (1994)examined the implementation of several

innovative or flexible work place practices, such as job rotation, quality circles, total quality management, and

participation. While these practices have considerable overlap with those HR systems addressed by strategic HRM

researchers, the major advantage of the perspective adopted here not only target the interests of the shareholder, but

equally importantly, emphasizes the benefits of the employees. Even so, the fact that researchers from strategic HRM

and industrial relations backgrounds share common interest in a broadly conceived notion of HR practices suggests

research opportunities of examining the potential for mutual gains initiatives that may benefit both employees as well

as capital market stakeholders.

2. The changing context and HRM outcomes

Our discussion about performance measures in HRM research highlights several factors that play an important role

in HRM research. The first one is the level of analysis issue. HRM outcome measures vary in terms of the level of

analysis at which they are captured as well as the degree of proximity to the impact of employees and the HR practices

in place. In addition, HRM outcome measures may vary according to three different stakeholder groups. In light of

these considerations, the relevant and most appropriate performance measure should weigh organizational goals with

respect to salient stakeholders. In the remainder of this paper we build on these distinctions and explore how

considerations of HR effectiveness may be viewed in the context of the two emerging trends noted at the outset–

globalization and the changing nature of work.

2.1. Globalization

The growth of world trade has consistently surpassed world production since the 1950s, and total stock of the

world's foreign direct investment has reached almost $7 trillion as of 2002 (UNCTAD, 2002). More than

850,000 foreign subsidiaries of about 65,000 parent firms continue to contribute to the world economy everyday

(WTO, 2002). Theories that explain the determinants of international trade and existence of multinational corporations

are numerous. For example, Adam Smith argued that division of labor between countries is present whenever location

and labor advantages make it possible for one country to produce a product cheaper than other countries. Extending this

theory, the Heckscher–Ohlin theorem argues that these cost differences among countries result from the differences in

213 S. Colakoglu et al. / Human Resource Management Review 16 (2006) 209–218 factor endowments such as labor, land, and capital. For example, most developing nations have more labor available

per quantity of capital compared to developed nations. Such cost advantages make it possible for organizations to enjoy

economies of scale by placing their operations in locations that offer relative cost advantages.

What these theories indicate is that as long as organizations enjoy the benefits of moving their operations and sales

beyond their national borders, globalization will continue to be a major driver of organizational actions and change. By

doing so, however, organizations are often faced with tensions that result from the need to be responsive to local

conditions as well as to integrate their operations on a global scale (Bartlett & Ghoshal, 1987, 1988; Doz, Bartlett, &

Prahalad, 1981). Performance of many organizations depends on their ability to cope with heterogeneous cultural,

institutional, and competitive environments, to coordinate their geographically and culturally dispersed resources, and

to leverage innovations across national borders (Carpenter, Sanders, & Gregersen, 2001). These issues are

compounded if we recognize that the needs, concerns, and demands of different stakeholder groups may not only be

different from each other, but also different in each location based on strategic, cultural, and institutional

considerations.

Organizations vary on the reason why they enter new markets and also vary in the mode they choose to enter a

market. Such variations in goals and entry modes have different implications for how we measure effectiveness from

the stakeholders' perspective. While some operations are set up just to adapt global products to local markets and

engage in the sales and marketing of that product, some operations have a much broader value-added scope within a

multinationals' network (Birkinshaw & Morrison, 1996). Still other operations are set up to provide certain expertise to

the rest of the multinational with minimal local interface. In these scenarios, the capital market stakeholders may be

most interested in the extent to which local operations are able to fulfill the role imposed by the headquarters. While we

acknowledge that measures which are proximal to capital stakeholder interests may be somewhat distal to HR

practices, we may look into the performance of each individual subsidiary based on the“role”imposed by the

multinational organization on that subsidiary or based on the reason why the multinational chose to enter that market.

In addition, organizations choose from a number of different options when entering a new market. They can either

enter with a wholly owned entry mode (e.g. greenfield investments) or opt for equity-based entry modes (e.g. joint

ventures, mergers, and acquisitions). In wholly owned entry modes, organizations maximize the amount of control they

can exert on subsidiaries while limiting the local resources of which they may gain access (Woodcock, Beamish, &

Makino, 1994). In equity-based entry modes, organizations have less control over subsidiary operations but have rapid

access to new markets and may operate effectively by partnering with local companies (Schuler, Jackson, & Luo,

2004). Equity-based entry modes facilitate organizational learning and enable organizations to capitalize on the

existing competence and resources of their alliance partners (Makino & Delios, 1996). When measuring performance

from the capital market stakeholders' perspective, the goals of other alliance partners also need to be considered. For

example, if motive for establishing an alliance is to attain rapid access to local distribution channels for one partner and

gain technological know-how for the other partner, the shareholders of each partner are concerned about different

dimensions of performance that need to be integrated into the performance measures we examine.

From a product market stakeholder perspective, there may be fundamental differences in what it means to meet the

needs of customers, suppliers, unions, and host communities in various locations in which organizations conduct

business. Customers are concerned about the quality, innovativeness and cost of the services and products they buy as

well as their convenience and speed. HR practices can be instrumental in determining the quality and variety of

products and services a firm delivers to its customers. However, based on cultural differences and values, local

customer needs and wants may vary from location to location. Researchers interested in measuring the impact of HR

systems on customers may also need to take into account these differences in consumer values and behavior. HR

practices that impact customer outcomes positively in one country may not be equally effective in eliciting the same

outcome or a fundamentally different customer outcome in another country.

While these examples are admittedly simplistic, they point to a key issue. How HR functions is likely to be

influenced by the context in which organizations operate. How we measure the effectiveness of HR activities must be

couched in terms of the relative cultural, legal, and institutional factors present in different international locations.

2.2. The changing nature of work

As companies continue to locate operations outside their national borders, they rely on a more heterogeneous

workforce to carry out their activities based on differences in nationality and culture. Due to the forces of globalization,

214S. Colakoglu et al. / Human Resource Management Review 16 (2006) 209–218 organizations are likely to confront at least some aspect of internationalization and new HR issues to deal with (Briscoe

& Schuler, 2004). One issue that has received much attention in this context where organizations try to achieve

economies of global scale isoffshoring(substituting foreign for domestic labor). Although manufacturing jobs have

long been a target for such offshoring, the current trend is towards white-collar jobs that were previously insulated from

foreign competition. For example, many call centers and back office operations are being offshored to India, Eastern

Europe, and Philippines as a result of declining communication costs, the Internet, and other technological advances.

The low labor costs coupled with the necessary human capital that is needed to do the job (e.g. competency in spoken

English) make these locations attractive for many organizations that try to achieve global economies of scale.

While these jobs may often be considered as part of the peripheral functions of the organizations and thus be

expected targets for offshoring, the recent trend is towards the internationalization of R&D activities which

requires advanced human capital and strong knowledge management systems. For instance, since 1993, when

Motorola established the first foreign-owned R&D lab in China, the number of foreign R&D units in China has

reached 700. Similarly, the Indian R&D activities of General Electric employ more than 2000 people in diverse

areas such as aircraft engines, consumer durables, and medical equipment and the contribution of South-East and

East-Asian countries to global semiconductor design has reached 30% as of 2002, from practically nothing in the

mid-1990s (UNCTAD, 2005).

What this trend implies is that companies need to manage their portfolio of employment arrangements on a truly

global scale while taking into account local cultural and national differences. Adopting an architectural perspective,

Lepak and Snell (1999)note that there are four types of employment modes that require different HR strategies based

on the value and uniqueness of human capital each employee group possesses. Increased outsourcing and offshoring to

foreign countries may mean that human capital that varies in its value and uniqueness for the organization may be

scattered throughout the world making the management of HR architecture more complicated. It may be that

organizations that understand their global HR architecture and manage human capital differentially taking into account

cultural differences will be able to create a competitive advantage.Huselid et al. (2005)note that unless companies are

able to match A positions (positions that are most crucial for executing strategy) with high performers, organizations

will not be able to realize an HR-based competitive advantage. With globalization and offshoring, both the positions

and the high-performers that can fill these positions may be dispersed throughout the world. It is a challenge for

organizations to find out key talent wherever they are located in the organization, place them in the right position and

manage them based on their spot in the HR architecture.

In our discussion of measuring effectiveness of HR from the perspective of organizational market stakeholders,

we suggested that employee-focused outcomes that take into account the importance of meeting the needs and

interests of employees are particularly important. While HR practices can have a significant impact on such

outcomes, the heterogeneity of the workforce in terms of cultural values implies that HR practices that are

effective in satisfying the needs of organizational stakeholders in one cultural context may not be as effective in

another cultural context. For example, an individual performance-based incentive scheme may have a positive

impact on employee outcomes in a cultural context that is highly individualistic (e.g. U.S.), but an opposite

impact in a collectivistic cultural context (e.g. China). Moreover, the meaning of employee outcomes may be

culturally sensitive. Given that most of the employee outcome constructs considered in strategic HRM research

have been developed in the Western part of the world, we may need to rethink and investigate their meaning from

different cultural perspectives. For example, career success may be related to reaching a high organizational status

in a high-power distance culture, while it may be related to achievement of monetary goals in a performance-

oriented culture. Therefore, researchers need to be sensitive to cultural nuances when measuring HR effectiveness

at the individual level.

Another way to think about how we measure effectiveness of HR from the individual employees' perspective is to

consider which employment mode the employee falls into in the HR architecture (Lepak & Snell, 1999, 2002). Some

individual outcomes may be more critical or interesting in one employment mode, while others may be more relevant in

a different employment mode. For example, the impact of HR practices on the level of organizational commitment may

not be as important for contractual employees, while it may be very critical for core employees since their human

capital is highly valuable and unique. Similarly, if an organization has made the initiative of planning its workforce

based on positions and players (Huselid et al., 2005), it may be more important to assess how HR practices impact the

satisfaction and commitment of A players, while it may be more critical to assess how HR practices impact the job

performance of B players. Therefore, a choice of outcome measures should take into consideration the contextual

215 S. Colakoglu et al. / Human Resource Management Review 16 (2006) 209–218 demands, especially with regard to the new global workforce, as well as the relative role of employee groups within a

company's broader HR architecture.

3. Discussion

Strategic HRM researchers have spent considerable effort examining what HR systems are, which practices

should be included in these systems, how these practices operate to influence organizational outcomes, and

theories that shed light on to the relation between HRM and organizational outcomes. For example, researchers

mostly agree that HRM systems, rather than single HRM practices have an impact on organizational outcomes

(Becker & Huselid, 1998; Huselid, 1995; Ichniowski, Shaw, & Prennushi, 1997; Wright & Snell, 1998). Despite

some variation across studies as to which practices should be considered, researchers mostly agree that practices

such as selective staffing, intensive training and development programs, employee involvement, and job security

should be among them (Arthur, 1992; Huselid, 1995; MacDuffie, 1995). Strategic HRM research is also

consistent in terms of its treatment of higher-level contingency variables such as strategy, industry or

developmental stage of an organization as critical factors that influence the use and effectiveness of HR systems

(Jackson, Schuler, & Rivero, 1989; Baird & Meshoulam, 1988). Most often, researchers try to find evidence for

the alignment between HRM practices and these higher-level contingencies which is suggested to improve

organizational outcomes.

While strategic HRM research has made considerable progress in these areas, researchers have not paid equal

attention to defining and refining the outcome construct of interest, namely‘performance’. In general, strategic HRM

often postulates‘firm performance’as the dependent variable. However, performance is a multidimensional construct

(Gilley & Rasheed, 2000; Rogers & Wright, 1998). Performance varies by how proximal it is to the intended impact of

HR practices, the level at which it is aggregated, and by the stakeholder groups whose interests are met.

In this paper, we have tried to emphasize that as the context in which we measure the effectiveness of HRM is

changing, focusing on the right organizational outcome becomes more challenging but at the same time more important

for advancing this field of research. Strategic HRM researchers need to think about workforce management on a global

scale and from multiple stakeholders' perspective, taking into account the diversity of interests between and within

stakeholder groups. Just as the climate research has a strategic focus of interest such as innovation, safety, or service

and aligns both the dependent and the independent variables with the focus of interest, there is a need to be more

explicit regarding the direction of our research and what HR systems are geared toward achieving which outcomes

(Lepak et al., in press).

Considering multiple stakeholders in strategic HRM is a worthy endeavor, but not without its challenges. By

definition, stakeholders have diverse and potentially conflicting interests. If there is a pie to be shared by different

stakeholders, it may be the case that each stakeholder group desires to increase its share at the cost of other

stakeholders. Shareholders want to have larger profits; customers look for high quality products and services with low

price tags and employees desire a meaningful job in which their earnings are in line with their perceived contribution.

Moreover, society expects corporations to be socially responsible by considering the needs of the local communities in

which they operate.

When researchers focus exclusively on financial or market performance, they tend to ignore how the bigger picture

may look like and whether high financial performance is being achieved at the cost of other stakeholders. For example,

efficiency and cost-cutting measures may prove to be beneficial for shareholders and customers (if the low cost is

reflected in the price of goods and services), but it is not as appealing to employees who may have to pay health

insurance from their own pockets. Organizations who score high on financial performance metrics may not be doing

equally well on other types of metrics that focus on other stakeholders. Conversely, an organization that is not

performing well financially may be performing well from another stockholder's perspective. From a research

perspective, does finding a positive relationship between HR practices and social responsibility, for example, diminish

in importance if the HR practices are only marginally related to financial metrics?

In this paper, we have focused on how the increased presence of globalization and the changing nature of work may

impact the way we think about measuring HR effectiveness. Our key point is that relying on a single performance

measure to assess the benefits or implications of HRM in different types of companies and in different contexts may

mask the relative importance of different performance measures for those companies. We encourage future research to

examine the relationship among these performance outcomes, as well as if there are certain contexts in which different

216S. Colakoglu et al. / Human Resource Management Review 16 (2006) 209–218 performance measures have more or less importance, to provide insights into how best to evaluate the impact of HRM

activities.

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