The associations between organisational performance,employee attitudes and human resource management

organizational behaviour

The associations between organisational performance, employee attitudes and human resource management practicesAn empirical study of small businessesChin-Ju TsaiLecturer in Hutmar) Resource Mariagemerit, School of Managetnetit, Royal Holloway, Utiiversity of London, UK

Paul EdwardsProfessor of Industrial Relations, Warwick Business School, University of Warwick, UK

Sukanya SenguptaAssociate Professor for the Industrial Relations and Organisational Behaviour Group, Warwick Business School, UK

Most research on the associations between organisational performance, employee attitudes and Human Resource Management (HRM) practices has adopted a theoretical framework that proposes that HRM practices lead to HR outcomes (e.g. job satisfaction, skills, etc.) which in turn affect organisational performance. Building on theoretical frameworks and empirical evidence from the fields of organisational psychology-performance and HRM-performance, this paper presents a study that develops and tests an alternative view of the association. This model depicts the influence of organisational performance on employee attitudes and the role of HRM practice as a mediator between the two. It was tested using data collected from employee surveys and management interviews in 32 small firms. The results suggest that employees in firms with better business performance have more positive attitudes towards three attitude measures (overall perceptions of work, job autonomy and the perceived link between reward and performance) and that the association between business performance and employee attitudes is partially mediated by HRM practices. The findings are discussed with respect to the nature of the complex performance-attitude-HRM relationship and their implications for management and future research.

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organizational behaviour

Chin-Ju Tsai, Paul Edwards and Sukanya Sengüpta

IntroductionUnderstanding the associations between organisational performance, employee attitudes, and Human Resource Management (HRM) has been a major area of research infieldssuch as organisational psychology, strategic HRM and organisational theory. Two broad strands of research have investigated attitude-performance relationships at the organisational level: one in the organisational psychology-performance literature and the other in the HRMperformance literature. Historically, numerous studies in the organisational psychology-performance literature have examined the link between employee attitudes (e.g. job satisfaction and commitment) and individual-level performance (e.g. Cook, Hepworth, Wall and Warr, 1981; Iafïaldano and Muchinsky, 1985). More recent research, however, has focused on performance outcomes at the organisational level (e.g., Harter, Schmidt and Hayes, 2002; Schneider, Hanges, Smith and Salvaggio, 2003). In the HRM-performance literature, a great number of studies have examined the associations between

HRM, HR outcomes (e.g. attitudes, skills, labour turnover) and organisational performance and have provided some empirical evidence to support the linkages (e.g. Arthur, 1994; Huselid, 1995; Park, Mitsuhashi, Fey and Björkman, 2003). Both streams of research, however, have long hypothesised that employee attitudes drive organisational performance, but have paid little attention to the influence of organisational performance on employee attitudes. In the light of recent empirical evidence which shows that firm performance is a better predictor of employee attitudes than the other way around (e.g. Ryan, Schmit and Johnson, 1996; West, Smith, Feng and Lawthom, 1998; Schneider etal, 2003), some scholars have argued that the prevailing view that employee attitudes drive firm performance may be 'at best too simplistic and at worst wrong' (Schneider et al.,, 2003: p. 846) and have begun to discuss whether scholars have been 'putting the cart before the horse' (Kiewitz, 2004: p. 127). Although the issue of possible reverse causation (i.e. organisational performance influences employee attitudes) has been recognised (e.g. Ramsay etal.y 2000), no conceptual models that illustrate the association have been put forward. To further understanding of the associations between organisational performance, employee attitudes and HRM practices, the present study (building on the extant theoretical frameworks and empirical evidence from the organisational psychology-performance and HRM-performance research) develops and tests an alternative view of the nature of these associations. Specifically, a model is proposed that illustrates the following relationships: that firm performance influences employee attitudes and that HRM practices mediate the association between performance and attitudes. To conduct a preliminary examination of the model, hypotheses were tested using data collected from management interviews and employee surveys in the context of small business. Apart from the evident importance of the sector in the modern economy (Granovetter, 1984; Scase, 2003), the main reason for using data collected from small firms is that the small business context may provide a unique setting for testing performance-attitude relationships. Employment relationships in small firms have been charac-

I 2010 The Braybrooke Press Ltd. Journal ofGer)eral Management Vol. 36 No. I Autumn 2010

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Organisational employee attitudes and human resource management practices

terised as being informal, using direct communication and having close management-employee working relationships (see e.g. Bacon et al.., 1996; Kotey and Slade, 2005). This means that employees in small firms may have better knowledge about firms' actual performances than employees in large organisations, which is particularly important in relation to the treatment here of firm performance as an independent, rather than a dependent variable. The paper is structured asfollows.There is a brief review of the two strand

s of research on performance-attitude-HRM and then an explanation of how the authors draw on theory and empirical evidence from the extant literature to develop the theoretical model and hypotheses. This is followed by sections describing the research methods and the results of the hypotheses testing. In the final section, there is discussion of the implications and limitations of the study and suggestions for further research.

Associations between organisational performance, employee attitudes and HRM practicesTwo broad streams of research in organisational studies have investigated the associations between employee attitudes and firm-level performance. A first stream of research can be found in the organisational psychology-performance literature. The rationale for a link between attitudes and organisationallevel performance is that employees with positive attitudes such as high job satisfaction and high commitment can infiuence firm performance in two possible ways: first, employees with positive attitudes are more likely to work for the benefit of their firms. Second, their positive attitudes would lead to customer satisfaction and customer loyalty, which in turn have a positive effect on firms' profitability (Koys, 2001). Many studies have provided crosssectional evidence reporting positive associations between different aspects of employee attitudes and organisational performance, for example, between employees' perceptions of climate and customer satisfaction and loyalty (e.g. Schneider and Bowen, 1985; Schneider, White and Paul, 1998); employees' perceptions of the strength of company culture and financial performance (e.g. Kotter and Heskett, 1992); employee satisfaction and customer satisfaction (e.g. Heskett, Sasserand and Schlesinger, 1997); and between employee satisfaction-engagement and business unit outcomes such as productivity, profit and customer satisfaction (e.g. Harter et al, 2002). Although significant associations have been found between attitude and performance, the question of 'Does attitude cause performance or does performance cause attitude?' is unresolved. Evidence from longitudinal studies that examine the causal nature of the relationship is mixed. For example, Denison's (1990) study, which is based on data collected from 34 publicly-held firms over five years, found that a positive organisational climate leads to greater financial performance. The result of Koys' (2001) research, based on surveys of employees, managers and customers in 28 branches of a restaurant chain, found that organisational citizenship behaviour caused higher profitability and that employee satisfaction predicted customer satisfaction. On the other hand, other longitudinal studies have found opposite results. For example, Ryan et al.'s (1996) longitudinal field

I 2010 The Braybrooke Press Ltd. Journal of Cernerai Mar^agement Vol. 36 No. I Autumn 2010

organizational behaviour

Chin-Ju Tsai, Paul Edwards and Sukanya Sengüpta

study used data collected from 142 bra

nches of an automobile finance company in two consecutive years (1992 to 1993) and found that customer satisfaction predicted employee satisfaction rather than vice versa. West et aVs (1998) study, based on climate data collected from academics in 46 departments in 14 British universities in 1992 and 1994 and on performance data gathered from the Higher Educational Funding Gouncil ratings of research excellence made in 1989 and 1992, concluded that research rating predicts climate rather than the other way round. A recent study, conducted by Schneider et al. (2003) and based on employee attitude data collected from 35 companies using multiple time periods over eight years, showed that two of their attitude measures - overall job satisfaction and satisfaction with security - were caused by financial performance (i.e. return on assets and earning per share) rather than the reverse. A second stream of research can be found in the HRM-performance literature. The theoretical arguments which underpin the HRM-performance relationship state that HRM practices lead to HR outcomes which in turn afifect both employee-level and firm-level performance (Arthur, 1994; Huselid, 1995; Guest, 1997; Ichniowski and Shaw, 1997; Paauwe and Richardson, 1997; Vandenberg, Richardson and Eastman, 1999). For instance, the use of HRM practices, such as sophisticated selection methods, training, job flexibility, empowerment, performance-related pay and employment security, is considered to contribute to employees' skills, knowledge, motivation and flexibility. In turn, these lead to improved individual performance and business performance. Recent years have seen a great number of empirical studies have investigated the association between HRM and organisational performance and have provided some evidence to support it. For example, Huselid's (1995) research, which was based on survey data from nearly 1000 publicly held US firms, found that the use of High Performance Work Practices (e.g. information sharing, incentive compensation and labourmanagement participation) diminished employee turnover and increased productivity and corporate financial performance. Guest etaVs (2003) study showed that the use of more HRM practices was associated with lower labour turnover and higher profitability in an analysis of 366 UK companies in the manufacturing and service sectors. Bait's (2002) multivariate analyses of data collected from 260 call centres demonstrated that greater use of high-involvement practices (e.g. employment security, employee participation in decisionmaking) was associated with lower quit rates and higher sales growth. Wright etaVs (2003) study, based on data collected from 5635 employees and archival company records in 50 business units of a large US food service organisation, found that both HR practices and employee commitment were strongly and significantly related to operating pre-tax profits. Although there is a growing body of empirical evidence showing positiv

e relationships between HRM practices and firm performance, many researchers have critically assessed the extant studies on HRM-performance links and have argued that the causal effect of HRM practices on organisational performance has not yet been fully established due to concerns about theoretical assumptions and also methodological limitations (see e.g. Guest, 1997; Wright et al, 2001; Godard, 2004; Boselie et al, 2005; Wall and Wood,

) 2010 The Braybrooke Press Ltd. Journal of General Management Vol. 36 No. I Autumn 2010

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Organisational employee attitudes and human resource management practices

2005; Wright, Gardner, Moynihan and Allen, 2005). Moreover, the line of research has been criticised for paying too little attention to addressing the influence of organisational performance on HR outcomes (Schneider et al, 2003), because almost all the extant HRM-performance research has either implicitly or explicitly posited a causal relationship which flows from HRM practices to HR outcomes thence to organisational performance, rather than from performance to HR outcomes. In summary, the empirical evidence to date points to mixed and inconclusive results for the associations between organisational performance, employee attitudes and HRM practices. As a result, the associations between organisational performance, attitudes and HRM have not yet been fully established and therefore further development of the nature of the associations is required. Next is a presentation of the conceptual framework and hypotheses that have been developed.

The conceptual model and hypothesesBuilding on the theoretical frameworks and empirical results in the extant literature, the authors developed an alternative view of the nature of the associations between organisational performance, employee attitudes and HRM practices. The model, shown in Figure 1, indicates that organisational performance influences employee attitudes and that the performance-attitude association is mediated by HRM practices. Below, the authors explain the specific relationships in the model.

HI Organizational Performance

Employee Attitudes Overall perceptions of work Job autonomy Perceptions of management skills Perceived link between reward and perfonnance

Figure 1: A model of the associations between organisational performance, employee attitudes, and HRM practices

Organisational performance and employee attitudesThe first part of the model suggests that organisational performance directly influences employee attitudes. This proposition is based on thefindingsof some organisational psychology-performance studies, which show that organisational performance is a better predictor of employee attitudes than the reverse (e.g. Ryan etal, 1996; West etal, 1998; Schneider ei a/., 2003). It is also based on the rationale that high-performing firms are more likely to provide employees with better working conditions (e.g. pay, benefits, work environment) and thus, enhance employee

s' attitudes towards their jobs. Further, it is more likely that in the long run, employees will be happier

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organizational behaviour

Chin-Ju Tsai, Paul Edwards and Sukanya Sengupta

working with a successful organisation than with a company that is constantly struggling to survive (Kiewitz, 2004). Thus: Hypothesis 1: Organisational performance is positively related to employees' attitudes.

The mediated effect of organisational performance on employee attitudesThe second part of the model shows that HRM practices mediate the association between organisational performance and employee attitudes. This proposition is based on the reasoning that strongly performing firms are more able and more likely to invest in HRM practices and that firms can enhance employees' positive attitudes through the use of good HRM practices. For example, profitable firms are more likely to provide employees with continuous and systematic training and development activities, and to use monetary incentive practices to encourage high performance; these practices are likely to enhance employees' attitudes as employees can develop their skills in the organisations and they can see the direct link between their performance and rewards. In HRM-performance research, scholars have largely posited that HRM practices lead to organisational performance. Although the possible reverse link between firm performance and HRM practices (i.e. firm performance influences HRM practices) has received some attention (e.g. Paauwe and Richardson, 1997; Wright, Gardner and Moynihan, 2003; Gelade and Ivery, 2003), as far as is known, no extant research has explicitly examined it, nor has HRM been treated as a mediator between organisational performance and employee attitudes. It is proposed that: Hypothesis 2: Organisational performance is positively related to employees' attitudes through the use of HRM practices. It should be noted that it is acknowledged here that the model has not fully addressed all possible reciprocal relationships and all variables constituting the complex associations between organisational performance, attitudes and HRM practices. It does, however, aim to address the possible link between performance and attitudes and the mediating effects of HRM.

MethodsSampleThif-ty-two small firms located in the Midlands of England participated in this study, comprising eight food manufacturing, 14 media (film and television production) and ten Information and Communication Technology (ICT) firms. The sample frames of the media and ICT firms were identified through database searches (e.g. FAME database, company lists obtained from regional development agencies), while food firms used a combination of database searches and information from local contacts as the food industry is much more heterogeneous and no complete lists of firms are available. Two criteria were used for selecting the firms: firms that had less th

an 120 employees and

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Organisational employee attitudes and human resource management practices

those with an annual turnover of between£100,000 and£10 miUion. The media firms eventually studied differ in size and are representative of the firms in the higher end as well as lower end of the market. The ICT firms studied represent the firms in the sample frame in terms of their number of employees. As indicated earlier, the food industry does not have ready listed firms; therefore, it is not possible to estimate how representative the eventual samples are but it comprised different types of firms in terms of products and markets. The mean employment size of the 32 firms is 30. The mean sizes for the food, media and ICT firms are 33, 9 and 45, respectively. Forty per cent of the firms had been in operation for between four and ten years, 25% for 11 to 20 years and 28% for over 20 years. This age distribution is similar to that of small firms in the UK as a whole (Forth etal, 2006). Small firms are extremely varied (Storey, 1994) and looking at specific sectors helps to control for this variety. The focus on three tightly-defined sectors means that it was possible to control for various external contextual factors. This contrasts with studies such as Way's (2002) which have the benefit of generality but the disadvantage of covering some extremely heterogeneous firms. The analysis took place in the Midlands of England so as to control for local labour market conditions.

Data collectionFieldwork was conducted during 2005. Management interviews and employee surveys were the two main approaches used for data collection. Managing directors or owner-managers were asked to indicate the performance of their firms in areas such as profitability and grov^rth in sales. HR managers or the people who were responsible for HR functions were asked about the HR policies and practices in their firms; for example, they were asked whether certain HR policies/practices had been implemented (e.g. off-the-job training plans, formal documentation of HR processes) and the approaches they used to implement those HR policies/practices. Of the 32 firms, five had a dedicated HR manager, ten had a manager in charge of HR functions in addition to his/her primary responsibilities (e.g. administration, finance); thus, in these 15 firms, both managing directors and HR managers were interviewed. In the remaining 17 firms, managing directors were interviewed about both firm performance and HR issues as they were in charge of HR functions. Employee surveys were used to collect data on employees' attitudes towards their work. Afrer successful pilot testing in a food firm, surveys were conducted in the 32 firms. Given the small size of the firms, questionnaires were generally distributed to all employees either by the researchers or managers. In some cases, however, some sampling methods wer

e needed. For example, in the media firms, where freelance workers are common, only permanent employees were included. In total, 384 useable questionnaires were returned, 98 from the food firms, 105 from media and 181 from ICT. The overall response rate was 64.3%. Fifty-five per cent of the employee survey respondents were male. Most employees had been working with the firms for some time: 31% of the respondents had been in their jobs for over five years.

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Chin-Ju Tsai, Paul Edwards and Sukanya Sengupta

30% between two and five years and 14% between one and two years, with 25% being employed for less than one year. This distribution is again broadly similar to that for employees in UK small firms (Forth et al, 2006).

MeasuresTo test the hypotheses, four sets of measures were constructed: (a) organisational performance (b) employee attitudes (c) HRM practices and (d) control variables.

Organisational performanceThe performance measure was created by calculating the mean score of the following three performance indicators of a firm (a= 0.69):= Profitability: managers' reports of the changes in profitability over the past three years ( 1= gone down, 2= gone down slightly, 3= stayed the same, 4= gone up slightly, 5= gone up). Growth in sales: managers' reports of the changes in sales over the past three years ( 1= rapid decline, 2= declining, 3= stable, 4= growing, 5= fast growing). Reputation: each firm's reputation was measured by asking industry experts about the standing of the firm and then cross-checking this with the firm's own views of where it stood in terms of reputation (1= very low, 5= very high). The performance measure is designed to give a broad indication of the ability of a small firm to continue to survive and to provide jobs. It also gives an indicator that is likely to relate to how employees see firms, in the sense that employees have an interest in a strong firm which can grow or at least survive and offer them jobs. Further, it gives an indicator which makes comparison possible across sectors. There are two main reasons for using subjective organisational performance measures: first, the subjective data was used as an alternative to dealing with the difficulties of collecting comparable objective performance data from the sample of small firms. Some of the firms treated the information as strictly confidential and thus as something to which employees and researchers could have no access. Second, there is accumulating evidence showing that objective and subjective measures of firm performance are positively correlated (see e.g. Wall et al, 2004).

Employee attitude measuresEmployee attitudes were measured by 23 question items which were designed to measure employees' attitudes towards various aspects of their work including job autonomy, motivation, opportunities to develop skills, job security, the skills o

f management, quality of training and development programmes and reward for performance. These dimensions are based on Gallie et al.'s (2004) work on job autonomy and Appelbaum et al.'s (2000) ability, motivation and opportunity to contribute (AMO) approach which conceptualise HPWSs as a system which provide employees with the ability to use their discretion at work, to develop skills and increase motivation/

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Table 1: Principal components factor structure of employee attitudes Questionnaire item Overall perceptions of work How motivated do you feel in your present job? Opportunities to develop skills and abilities a r e . . . How secure do you feel in your present job? How far can you trust managers to look after your best interests? I am satisfied with the quality of training and development available to me. Supervisor encourages me to suggest ways to improve work process. Job autonomy How much influence do you have over the pace of work? How much influence do you have over how the work is done? How much influence do you have over what tasks you do in your job? I have more influence than my supervisor in deciding how to do tasks. Perceptions of management skills How good would you say that managers here are at technical skills and abilities in running the firm? How good would you say that managers here are at keeping employees informed about how the flrm is being run? How good would you say that managers here are at seeking views of employees? How good would you say that managers here are at responding to suggestions from employees? How good would you say that managers here are at treating employees fairly? Perceived¡ink between reward and performance There is a strong link between how well I perform my job and receiving recognition and praise. 0.26 0.14 0.16 0.77 0.41 -0.07 0.53 0.24 0.12 0.14 -0.03 0.04 0.82 0.87 0.81 0.62 0.12 0.08 0.08 -0.16 -0.06 0.09 0.12 0.29 0.93 1= very poor, 5= very good 1= very poor, 5= very good 1= very poor, 5= very good 1= very poor, 5= very good 1= very poor, 5= very good 0.71 1= strongly disagree, 5= strongly agree 1= strongly disagree, 5= strongly agree 1= strongly disagree, 5= strongly agree 0.73 0.71 0.53 0.69 0.76 0.55 0.12 0.16 0.09 -0.01 -0.07 0.13 0.22 0.30 0.24 0.44 0.11 0.27 0.07 0.16 -0.12 0.14 0.13 0.26 0.80 1= none, 5= great deal 1= none, 5= great deal 1= none, 5= great deal 1= strongly disagree, 5= strongly agree Factor 1 Factor 2 Factor 3 Factor 4 Alpha 0.79 1= hardly at all, 5= strongly 1= poor, 2= fair, 3= good, 4= excellent 1= very insecure, 4= very secure 1= not at all, 5= completely 1= strongly disagree, 5= strongly agree 1= strongly disagree, 5= strongly agree Scale

0.14

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There is a strong link between how well I -0.03 perform my job and receiving more pay. This company rewa

rds people who make an extra effort. Eigenvalue% variance explained 0.44 6.52 19.65

0.13 0.29 1.29 14.54

0.11 0.17 2.52 18.87

0.81 0.50 1.09 10.34-

Note: Figures in bold type indicate the associated question loads on a single factor

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incentives. The survey questions were largely based on, with modifications, the British national Workplace Employee Relations Survey (Kersley et al, 2006), Appeibaum et al.'s (2000) and those deployed by Gallie, Felstead and Green (2004). Employees were asked to rate the extent to which they agreed/ disagreed with and had control over the various aspects of their work. To explore the underlying factor structure ofthe questionnaire items, the authors used a principal component factor analysis with varimax rotation. Eighteen items with a factor loading exceeding 0.50 were retained and used to construct the four factors that were named: overall perceptions of work, job autonomy, perceptions of management skills and the perceived link between reward and performance. The first factor was named 'overall perceptions of work', because this factor comprises six items that cover different aspects of attitudes towards work. All ofthe factors had eigenvalues above 1.00 and Gronbach's Alphas greater than 0.70. Table 1 shows the questionnaire items, the constructed factors, scales and scale reliabilities.

HRM praaicesThe HRM measure comprises four indicators: the presence of a dedicated HR manager or specialist, the attainment ofthe Investor in People (IiP) accreditation,' formal documentation of HR processes and the alignment of HR strategy to business strategy. The indicators used here are not entirely the same as practices usually included in High Performance Work Systems (HPWS) (see e.g. Appelbaum et al, 2000) as most research on HRM in small and medium-sized enterprises (SMEs) suggests that small firms vary greatly in the use of HR practices and tend to use informal, less sophisticated and few forms of HR practices (see e.g. Gassell, Nadin, Gray and Glegg, 2002; Harney and Dundon, 2006; Ram, Edwards, Gilman and Arrowsmith, 2001; Bacon and Hoque, 2005). The four HRM indicators used in the study are likely, on the one hand, to be contingent on resources that firms have (e.g. money and time) and on the other hand, to have an impact on employees' attitudes. In accordance with the work by Sels et al (2006), the four indicators were combined into the HRM practices measure, to reflect the HRM system in the firms. Specifically, the measure was constructed by summing up the scores of the four questions derived from interviews with managers: (a) presence of dedicated HR specialists (1 - no, 2= yes); (b) Investor in People accreditation (1= no, 2= yes); (c) formal documentation of over 50% of HR processes (1= no, 2= yes); (d) HR services and functions aligned with business strategy ( 1=

no, 2= yes). The index measures a higher level of HRM systein, rather than assessing individual HR practices (e.g. selection, training, reward practices). The measuring of higher-level HRM policies and practices would 'allow for better measurement ofthe underlying construct than narrower measures that are based on specific practices' and 'reflect properties ofthe HRM system as aInvestors in People (IIP) is a national standard in the UK for the quality of training and development. It was introduced in 1990 with the aim of raising employers' commitment to both training and investment in people, and to create a benchmark enabling organisations to improve the quality and effectiveness of their training and development practices. (IiP, 2006.)

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whole, rather than the individual practices' (Neal, West and Patterson, 2005: pp. 499-500).

Control variablesSeven control variables were included in the analyses covering four firm characteristics (the industry sector, turnover, the size of the firm and the age of the firm) and three employee characteristics-related variables (gender, length of service and educational attainment).^

ResultsTable 2 presents the means, standard deviations and correlations of all the variables in the study. The four attitude measures are significantly intercorrelated (r= 0.13 to 0.66). Two attitude measures - job autonomy and the perceived link between reward and performance - are significantly related to the organisational performance measure. The HR indicator is significantly and positively correlated with the organisational performance measure and the perceived link between reward and performance attitudinal measure. The hypotheses were further tested using a series of hierarchical multiple regression analyses.

The relationships between organisational performance and employee attitudes (HI)Hypothesis 1 proposes that organisational performance is positively related to employees' attitudes. It was tested by matching and analysing data collected from management interviews and surveys of employees. As the organisational performance measure was assessed at the organisational level, while employee attitudes were measured at individual level, it was necessary to assign the organisational-level measure to individual levels in order to conduct assessment of the association between individual employee attitudes (dependent variable) and business performance. The scores of the organisational level performance measure were therefore assigned to each employee observation.^ Firm control variables: Industry sector was measured using dummy variables coding for the media (1= media, 0= non-media) and ICT (1= ICT, 0= non-ICT) sectors. Turnover was measured by a firm's turnover of the financial year prior to the fieldwork interviews ( 1= under£500,000,2=£500,00

0-£999,000,3=£1-2.5 million, 4=£2.5-4 million, 5=£4-5.5 million, 6= Over£5.5 million). The size of the firm was measured by calculating the logarithm of the total number of employees in the firm (log of total employment) to capture the size and scale effect. The age of the firm was measured by calculating the logarithm of company age (company age was calculated as 2005 minus the founding year) in order to capture any founding value and maturation effect. Employee control variables: Gender: 1= male, 0= female. Data for the length of service were drawn from employee survey ( 1= less than one year, 2= one year to less than two years, 3= two to less thanfiveyears, 4=fiveto less than ten years, 5= ten years or more). Data for educational attainment were also drawn from employee survey ( 1= no academic qualifications; 2= GCSE grades D-C/CSE grades 2-5/SCE O grades D-E/SCE Standard grades 4-7; 3= GCSE grades AC/CE O level passes/CSE grade 1/SCE O grades A-C/SCE Standard grades 1-3; 4= GCE A level grades A-E/SCE Higher grade A-C; 5= HND or HNC; 6= First degree, higher degree, e.g. BA, BSc, MA, PGCE).

I 2010 The Braybrooke Press Ltd. Journal of General Management Vol. 36 No. I Autumn 2010

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organizational behaviour

Organisational employee attitudes and human resource management practices

This treatment enables us to maintain 'trait-related individual differences' (Harter et al, 2002). The hypothesis was then tested through two steps. The control variables were entered

in the first step and organisational performance was then entered in the second. The results are reported in Model 1 in Table 3. They show that organisational performance is significantly and positively associated with three of the four attitude factors: overall perceptions of work (ß= 0.14, p< 0.10), job autonomy (ß= 0.14, p< 0.10) and the perceived link between reward and performance (ß= 0.21, p< 0.01). To test the reverse possibility (i.e. employee attitudes lead to organisational performance), the authors conducted an organisational level analysis. First, aggregate values were created for the employee measures in each firm and then a multiple regression was run, in which organisational performance was entered as the dependent variable, employee attitudes were treated as independent variables and four firm characteristics-related control variables were included. The results of the analysis show no significant associations between organisational performanceTable 3: The results of regression analyses for the associations between organisational performance and employee attitudes and the mediation effects Overall perceptions of work Variable Control variables Sector (Media) Sector (ICT) Turnover Log of total employment Log of company age Gender (reference: Female) Length of service -0.31** -0.27** 0.09 -0.22* 0.11 -0.06 -0.09 -0.38** -0.27** 0.03 -0.33** 0.12 -0.04 -0.10"" -0.07 0.08 0.21** 0.11 0.08 4.42*** 0.13 0.10 4.82*** 0.16 0.13 6.89*** 0.31** 0.26** -0.02 -0.03 -0.03 0.00 0.14** 0.11"" 0.14"^ 0.35** 0.26** 0.02 0.02 -0.04 -0.01 0.15** 0.11"" 0.17* -0.10 0.16 0.14 6.40*** 0.12 0.10 5.15*** -0.27** -0.09 0.17* -0.37*** 0.07 -0.06 -0.14* -0.12"" 0.08 -0.33** -0.09 0.12 -0.47*** 0.08 -0.05 -0.16** -0.12* 0.03 0.18* 0.13 0.11 5.32*** 0.12 0.10 5.051*** 0.18"" 0.09 0.08 0.00 0.06 -0.03 -0.06 0.01 0.21** 0.08 0.07 0.01 -0.12 0.06 -0.01 -0.08 0.01 0.16* 0.22** 0.14 0.12 5.46*** Model 1 Model 2 Job autonomy Model 1 Model 2 Perceptions of management skills Model 1 Model 2 Perceived link between reward performance Model 1 Model 2

Education attainment -0.07 Organisational performance HRM practicesR^

0.14'*'

AdjR^F

N= 384" P< 0.10 (two-tailed test)^ *P< 0.05 (two-tailed test) **P<0.01 (two-tailed test) ***P< 0.001 (two-tailed test)

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Chin-Ju Tsai, Paul Edwards and Sukanya Sengupta

and attitudes with coefficients ranging from 0.012 to 0.239 (The full regression model has not been shown in here, but is available from the first author upon request). Based on these results, partial support is provided for Hypothesis 1.

Mediation effects (1-12)The second analysis tested whether HRM practices mediate the relationships between organisational performance and employee attitudes. Similar to that of organisational performance measure, the HRM indicator was assigned to each employee observation. Mediation effects exist if the significant influenc

e of independent variables on dependent variables disappears due to the addition of the hypothesised mediators (Baron and Kenny, 1986). Specifically, Hypothesis 2 was tested by examining the effects of adding the HRM practices measure to the regression Model 1 containing the organisational performance measure. The regression results shown in Model 2 in Table 3 provide partial support to this hypothesis. As can be seen in Model 2, on the overall perceptions of work measure, the organisational performance measure became insignificant after the HRM measure was added to the equation. The addition of the HRM practices measure to Model 1 removed the significant relationship of organisational performance to overall perceptions of work, suggesting that the effect of organisational performance on employees' attitudes towards overall perceptions of work occurs primarily by way of using HRM practices. On the job autonomy measure, the HRM measure is insignificant and the organisational performance measure remains significant after the HRM indicator was added to the model, which indicates that HRM practices have no mediation effect on the association between organisational performance and job autonomy. On the perceived link between reward and performance measure, the organisational performance measure remains significant after the HR measure was added to the equation, which indicates that HRM practices have no mediation effect on the performance-attitude relationship. Although the addition of the HRM indicator in Model 2 decreases the effect of organisational performance on the attitudinal measure slightly, HRM practices could not account for the effect of organisational performance on employee attitudes. The result of the regression analysis shows that both organisational performance and HRM practices have direct relationships with the perceived link between reward and performance attitude measure. Taken together, these results provide partial support for Hypothesis 2.

Discussion and conclusionThis study has explored the relationships between organisational performance, employee attitudes, and HRM practices by proposing and testing an alternative ftamework of the nature of the associations, in particular seeking to explain employee attitudes as a product of firms' economic context and testing the mediated effect of organisational performance on employee attitudes. The main findings are summarised and discussed as follows. The hypothesis that proposes a positive association between organisational performance and employee attitudes is partially supported. The performance

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Organisational employee attitudes and human resource management practices

measure is positively and significantly related to three attitude measures: overall perceptions of work, job autonomy and the perceived link between reward and performance. This indicates that better performing firms are

more likely to have employees with more positive attitudes towards these three attitudinal aspects. The positive associations observed here is in line with the results of extant studies such as Schneider etal (2003) and Harter etal (2002). It is found that HRM practices mediate the association between organisational performance and employees' overall perceptions of work. The result indicates that the association between performance and the attitude is contingent on HRM practices; that is, the way firm performance influences employees' overall perceptions of work is by the use of HRM practices. Although the intent was not to test the direct associations between HRM practices and employee attitudes, the results show that HRM practices have a direct association with two dimensions of employees' attitudes: perceptions of management skills and the perceived link between reward and performance (see Table 3). The direct effects of HRM practices on employee attitudes found here is consistent with the HRM literature which states that HRM practices have impacts on employees' attitudes (Guest, 1997; Paauwe and Richardson, 1997). Taken together, these results indicate that organisational performance can have both a direct and an indirect influence on employee attitudes (i.e. 'directly' influences employees' attitudes towards job autonomy and the perceived link between reward and performance and 'indirectly' influences employees' overall perceptions of work through the use of HRM practices) and that HRM practices can have mediating effects on the performanceattitude association and have a direct influence on employees' attitudes (i.e. perceptions of management skills and the perceived link between reward and performance). The results can be grounded in the knowledge ofthe firms in question. First, the fact that organisational performance did not affect perceptions of management reflects the ways in which these perceptions are generated in small firms. Evidence on small firms in general finds that workers here have more favourable views of managers than do large-firm workers (Forth et al, 2006; Kalleberg and Van Buren, 1996). The data here find little variation between firms, which can be explained in terms of close working relationships that tend to characterise all small firms (Tsai etal, 2007). Part of this turns on the regular presence ofthe owners of firms and a sense of a shared destiny. In this context, poorly performing firms may generate reasonably positive views of managers among workers, if managers are seen to be engaging with the needs of the firm and if performance problems are attributed to the market. In one of the food firms, for example, there had been a significant worsening of performance which was due to the cancellation of a contract by a large customer. Managers reported that workers offered to reduce their wages to help the firm to survive; problems were attributed to the customer and not to the managers themselves. Second, HRM practice

s did not mediate the effects of performance on autonomy. The authors would explain this in terms ofthe nature of jobs in these firms. Formal job evaluation and job grading were very rare. In large firms, HR practices may directly affect the organisation of work, through such

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Chin-Ju Tsai, Paul Edwards and Sukanya Sengupta

things as formal team-work structures. In these firms, such levers were largely absent. Third, direct effects of HR practices were noted in relation to perceptions of management skills and the relationship between reward and performance. As noted at the outset, most small firms are characterised by informality in employee relationships and these were no exception. A perennial issue is the balance between this informality and the formality that HR systems can provide. Studies commonly report, for example, tensions in the management of pay, with formal rules being ignored by ownermanagers who wish to reward workers according to their own preferences (Taylor, 2005; Gilrhan and Edwards, 2008). In such a context, the link between reward and one's own performance is likely to be variable and dependent on the idiosyncrasies of individual managers. The results here imply that HR practices can contain this effect and clarify the nature of the relationship. Finally, what of the wider picture and the possible causal effects of employee behaviour? In firms of this kind, there are strong reasons to treat performance as causally prior to employee characteristics. These firms were run by ownermanagers and a key driver of performance was the identification of a particular business niche. For ICT firms, this entailed producing a very specific product or application and developing a strong working relationship with customers. In the media sector, success depended on the ability of the owner-manager to develop a distinctiye creative idea. For the food firms, it was crucial to occupy a niche outside the remit of the very large firms that dominate the sector, 'authentic' and 'ethnic' products being one example. It was these features of the business context that shaped firms' prospects. This is not to say that employee behaviour was unimportant. In the ICT and media firms in particular, employee skills and flexibility were crucial if customer demands were to be met. These skills contributed to the continuing operation of the firm, but in many ways they were subordinate to the acumen of the owner-manager. Theoretically, these findings suggest that the associations between organisational performance, attitudes and HRM practices are more complex than the existing theoretical frameworks depict. The extant frameworks have largely posited that employee attitudes drive organisational performance and that HRM practices lead to employee attitudes thence to organisational performance. This study discovered that organisational performance can affect employee attitu

des directly and indirectly. Synthesising results from existing empirical work and this study, it indicates that the unidirectional models that try to explain the performance-attitude-HRM associations cannot fully explain organisational reality. As March and Sutton (1997: p. 701) point out, the use of a 'unidirectional causal interpretation of organisational performance is likely to fail', because 'performance feeds back upon itself through numerous mechanisms'. In addition, the nature of the attitude-performance associations is compounded by the possibility that 'causality may work in both directions' (Ostroff, 1992: p. 971) and that many intermediaries exist within the attitude-performance relationship (Schneider eia/., 2003). To further improve understanding of the performance-attitude-HRM associations, additional comprehensive theoretical models are needed, as well as empirical evidence to address the nature and outcomes of the associ-

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ations. The authors believe that progress in understanding the relationships can be achieved by conceptualising and testing likely causal as well as reciprocal relationships, by including more potential variables and mediators that may play a role in the associations and by using longitudinal research in different organisational contexts. In terms of implications for practice, understanding the complex links between organisational performance, employee attitudes and HRM practices has important implications for HR professionals and managers. It is vital that practitioners are aware that the associations are unlikely to be unidirectional but tightly interconnected, with plausible reverse and reciprocal relationships. This model and the findings suggest that organisational performance can influence employee attitudes and that HRM practices mediate the performance-attitude association and can influence employee attitudes directly. The complexity of the association cautions practitioners to consider simultaneously factors that can make a contribution to organisational performance and how organisational performance can have an impact on HRM practices and employee outcomes when searching for ways to manage people to gain maximum organisational performance. It is very likely that changes in any parts of the associations will need inputs from other parts and any changes made will affect other parts. For example, to improve organisational performance, inputs from HRM practices and employee attitudes will be important; on the other hand, any changes in performance will be likely to affect firms' HRM practices and employee attitudes. There are two major strengths of this study. First, the study conducts a multi-level analysis, which matches organisational-level outcomes with employee-level experiences. The use of multi-level analysis is essential to know m

ore about the nature of the associations between performance, attitudes and HRM (Wright and Boswell, 2002; Paauwe and Boselie, 2005; Boselie et al, 2005). Second, the study eliminates the possibility of common method variance by using data collected from multiple sources: performance measure data was collected from interviews with senior managers and from opinions of industry experts, HRM practices information was gathered fi-om interviews with HR managers (or with managing directors if they were in charge of HR functions) and employee attitude measures were collected through employee surveys. The main limitation of the study was the use of a cross-sectional research design which does not allow us to determine causal relationships between the variables under study. Given the fact that the model we proposed has not been tested before, a cross-sectional design serves as a cost-effective starting approach to examine whether the variables in our model are related (Wall and Wood, 2005). The study has provided preliminary evidence of correlation for the complex relationships; longitudinal research is required to address the causality of the associations.

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Psychology, Vol. 54, No. 4, pp. 875-901. Chin-Ju Tsai is Lecturer in Human Resource Management at School of Management, Royal Holloway, University of London, UK. Her research interests include links between HRM and organizational performance, employment relations in high-tech SMEs and comparative human resource management. Her articles have been published In journals such as Human Relations,Human Resource Management Journal and International Journal of Human Resource Management.

Paul Edwards is Professor of Industrial Relations at Warwick Business School, University of Warwick, UK. His research interests include human resource management in small and ethnic minority firms and the personnel policies of multinational companies. He is an Associate Editorof Human Relations. Recent research has been published in the British Journal of Industrial Relations and in 'Work and Occupations.

Sukanya Sengupta is an Associate Professor for the Industrial Relations and Organisational Behaviour Group at Warwick Business School and a guest editor for the Human Relations Special Issue on Broadening the Horizons of HRM. Her research interests include employee share ownership and performance, employment relations in the creative enterprises and small and medium enterprises. She has published extensively in a range of leading academic journalssuch as the British Journal of Industrial Relations, Human Relations, Human Resource Management

and Industrial Relations as well co-authored book chapters including the recent edited version ofIndustrial Relations Theory and Practice.

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