A multi-level examination of quality-focused human resource practices and firm performance: evidence from the US healthcare industry Mesut Akdere* Department of Administrative Leadership, University of Wisconsin-Milwaukee, Milwaukee, WI, USA In today’s business world, the role of quality has become ever more significant for organizations to compete in a global marketplace. Based on the quality management theory, this study empirically examines the relationship between quality-focused human resource practices (QHRP) and organizational performance outcomes. Data from 69 healthcare organizations indicate a strong support for this relationship. A Human Resource (HR) system focused on quality management was directly related to multiple dimensions of organizational performance outcomes (i.e., intangible – employee satisfaction and customer satisfaction – and tangible – profit). Specifically, two measures of QHRP, knowledge management and strategic management, were found to be positively related to the financial performance of firms implementing quality management. Process management is found to be negatively related to employee satisfaction. General Human Resources were positively related to both employee and customer satisfaction. Employee focus of the firms is also positively related to employee satisfaction. In addition, employee satisfaction is also related to both customer satisfaction and financial performance while customer satisfaction is found to be positively related to employee satisfaction. The findings indicate a generally strong positive relationship with the organizational performance outcomes. The results of this study are particularly important in showing HR’s contribution to the organization’s bottom line. Keywords: knowledge management; leadership; performance; process management; quality management; strategic management Introduction The challenge of becoming a strategic partner and participating in the strategic planning of an organization has been significant for Human Resource (HR) scholars and practitioners as a way to help the organization gain competitive advantage. In many HR departments, strategic partnering has become one of the goals of the overall HR function and serves as a source of motivation and rationale for HR’s bottom line contribution to organizational performance. In their annual reports, most organizations state that their people – employees – are their most important assets (Barney and Wright 1998). However, a major challenge for the field of HR remains in finding ways to effectively and efficiently utilize organizations’ human capital. Similarly, HR needs to move beyond performing the many administrative and legally mandated tasks that traditional personnel functions have performed to adding value through directly improving the performance of the business (Lawler 2005). Organizations are becoming flatter, more decentralized, and are moving from individual-based to team-based methods of production (Arvey and Murphy 1998). In an ISSN 0958-5192 print/ISSN 1466-4399 online q 2009 Taylor & Francis DOI: 10.1080/09585190903142399 http://www.informaworld.com *Email: [email protected]The International Journal of Human Resource Management, Vol. 20, No. 9, September 2009, 1945–1964
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Amulti-level examination of quality-focused human resource practicesand firm performance: evidence from the US healthcare industry
Mesut Akdere*
Department of Administrative Leadership, University of Wisconsin-Milwaukee, Milwaukee, WI, USA
In today’s business world, the role of quality has become ever more significant fororganizations to compete in a global marketplace. Based on the quality managementtheory, this study empirically examines the relationship between quality-focusedhuman resource practices (QHRP) and organizational performance outcomes. Datafrom 69 healthcare organizations indicate a strong support for this relationship.A Human Resource (HR) system focused on quality management was directly relatedto multiple dimensions of organizational performance outcomes (i.e., intangible –employee satisfaction and customer satisfaction – and tangible – profit). Specifically,two measures of QHRP, knowledge management and strategic management, werefound to be positively related to the financial performance of firms implementingquality management. Process management is found to be negatively related toemployee satisfaction. General Human Resources were positively related to bothemployee and customer satisfaction. Employee focus of the firms is also positivelyrelated to employee satisfaction. In addition, employee satisfaction is also related toboth customer satisfaction and financial performance while customer satisfaction isfound to be positively related to employee satisfaction. The findings indicate agenerally strong positive relationship with the organizational performance outcomes.The results of this study are particularly important in showing HR’s contribution to theorganization’s bottom line.
Keywords: knowledge management; leadership; performance; process management;quality management; strategic management
Introduction
The challenge of becoming a strategic partner and participating in the strategic planning of an
organization has been significant for Human Resource (HR) scholars and practitioners as a
way to help the organization gain competitive advantage. In many HR departments, strategic
partnering has become one of the goals of the overall HR function and serves as a source of
motivation and rationale for HR’s bottom line contribution to organizational performance.
In their annual reports, most organizations state that their people – employees – are their
most important assets (Barney and Wright 1998). However, a major challenge for the field of
HR remains in finding ways to effectively and efficiently utilize organizations’ human
capital. Similarly, HR needs to move beyond performing the many administrative and legally
mandated tasks that traditional personnel functions have performed to adding value through
directly improving the performance of the business (Lawler 2005).
Organizations are becoming flatter, more decentralized, and are moving from
individual-based to team-based methods of production (Arvey and Murphy 1998). In an
to involve planning and administering the activities necessary to achieve a high level of
performance in key business processes, identifying opportunities for improving quality
and operational performance, and ultimately, customer satisfaction (Evans and Lindsay
2005). This study identified a negative relationship between process management and
employee satisfaction. This finding, however, is consistent with the existing literature on
process management which does not necessarily include employee satisfaction as a
potential outcome.
In another study of general managers and quality managers from 20 US companies,
Saraph, Benson, and Schroeder (1989) reported a relationship between process
management and employee satisfaction within the quality management framework.
Seungwook Park, Hartley and Wilson (2001) studied the Korean auto industry and its
quality management practices and performance results, and reported that the highest
performance rated companies were found to emphasize process management and
employee satisfaction to a greater degree than the lowest performance rated companies.
The finding reported in this current study in regards to the relationship between process
management and employee satisfaction does not, however, support the findings of the
aforementioned studies.
Based on the HLM analysis, there is a negative relationship between process
management and employee satisfaction. Even though a significant level of relationship is
reported in the analysis, the relationship is negative. One reason for a negative relationship
can be explained by the fact that unlike the previous studies, this study examined the long-
term healthcare organizations dealing with human care and maintaining human lives,
which is significantly different from the environment of an auto industry or engineering
production. What this study argues is that the reported negative relationship should be
taken into account to develop unique ways and techniques to approach process
management in long-term healthcare organizations in order to improve employee
satisfaction.
Third, the general Human Resource functions of supervision, empowerment, job
design, coordination/communication, and training and development were reported to be
significantly related to employee satisfaction both at the individual and facility levels. This
finding highlights the traditional contribution of Human Resource functions to employee
satisfaction and supports the results of Oliva’s study (2001) reporting significant
relationships with general HR functions and employee satisfaction. This study
investigated the employees’ reactions to work pressure in the service industry, which
was defined as a negative outcome of general HR functions, and suggested that ‘how a
service organization responded to work pressure was a critical determinant of service
quality, employee satisfaction, and the overall profitability of the service firm’ (p. 27).
The reasons for the significant positive relationship between general HR functions
and employee satisfaction are twofold. First, as a field that focuses on developing and
managing human expertise and resources within the organization, one of the goals of HR
should naturally be achieving employee satisfaction as a business outcome. Second, these
findings are also important for the field of long-term healthcare where organizations face
problems in regards to employee development and management, which often result in a
decrease in employee satisfaction. Little (2003) reported that, in achieving quality,
employee satisfaction was considered as crucial and influential as customer satisfaction in
twenty-first century business and management practices. The current study confirms this
trend and calls for further emphasis on general HR functions integrating quality
management process in long-term healthcare organizations. Hyer and Brown (2003), on
the other hand, conducted a longitudinal study of 16 firms over a span of more than 10
The International Journal of Human Resource Management 1959
years and investigated the concept of ‘work cells.’ Their study reported that general HR
functions, defined as work cells, had tremendous potential for improving productivity,
throughput time, cost, quality, and employee satisfaction. This study also supports Hyer
and Brown’s findings and highlights HR’s contribution to achieving a satisfied workforce.
Fourth, employee focus was reported to have a significant positive relationship with
employee satisfaction both at the individual and facility levels. This study argues that
valuing staff is an important factor in quality management and performance improvement,
and highlights the relationship between employee focus as one of the QHRP sub-
variables and employee satisfaction. In fact, it may be considered an expected outcome
that organizations practicing employee focus consequently achieve higher levels of
employee satisfaction. A study by Agus (2005) investigating the structural linkages
between quality management, product quality performance, and business performance in
the electronics industry in Malaysia suggested a similar finding in which employee
satisfaction was reported as an outcome of employee focus of the organization. In another
study, Riordan, Vandenberg and Richardson (2005) examined the relationship between the
perceived employee involvement and organizational effectiveness, and reported that
organizations with high levels of perceived employee involvement lead to organizational
effectiveness as measured through financial performance, turnover rate, and workforce
morale. Furthermore, building value through organization and people contributes to HR’s
return on investment (Ulrich and Smallwood 2005).
Fifth, customer satisfaction, and financial performance outcomes of operating margin
and net margin reported significant relationships with employee satisfaction. Existing
literature on the relationship between employee satisfaction and financial outcomes of
organizational performance presents similar results. Harmon et al. (2003) conducted an
action research study, examining how changes to the work environment affected quality
and cost of service within the US Department of Veterans Affairs (VA). They surveyed
112,360 employees, and asked for employee observations and opinions on a wide variety
of topics surrounding their work experiences. The study reported that employee
satisfaction was related to decreased cost. Similarly, Ahire, Golhar, and Waller (1996)
used a survey of 371 manufacturing firms, and examined the constructs of quality
management and then empirically tested and validated their model of quality management
framework. They reported significant association between employee satisfaction and
organizational business results. The current study also reports the same relationship within
the long-term healthcare context. Furthermore, the findings of this current study also
support the notion of investing in organizations’ most precious assets – their employees.
Sixth, at the facility level, HLM analysis reported only one significant relationship
between QHRP and customer satisfaction: general HR functions. A similar relationship
was also recently reported by Oakley (2005), who surveyed a sample of 5568 employees in
90 organizations in the US media industry and their customers which were over 37,000.
Examining the attitudes of employees, the study reported a direct correlation between
general HR functions and customer satisfaction, and customer satisfaction and financial
performance. It can be concluded that long-term healthcare organizations can utilize the
QHRP framework as a core business process to achieve employee and customer
satisfaction. This is important as customer satisfaction was reported to be related to
general HR functions within the organization.
Seventh, stepwise multiple regression analysis reported a significant relationship
between knowledge management and financial outcomes of organizational performance.
Shih and Chiang (2005) examined the impact of both corporate and human resource
strategies on knowledge management strategy, and their interactive influence on the
M. Akdere1960
effectiveness of the knowledge management. Using a sample of 147 Taiwanese large
companies in the banking, services, and manufacturing industries, the results of their study
reported a relationship between knowledge management and organizational financial
outcomes. In another study, Kyriakopoulos and de Ruyter (2004) investigated how
organizations utilized stored knowledge and acquired market information. Their study of
product development activities reported that there was a positive relationship between
knowledge management and financial performance outcomes.
The findings presented in these studies are very similar to those of this study.
Knowledge management is becoming increasingly important in the bottom line
contribution of HR practices to organizations. The finding of this study on the
relationship between knowledge management and financial outcomes of organizational
performance is even more meaningful for long-term healthcare organizations which suffer
dramatically as a result of high employee turnover and the consequent failure in the
organization-wide implementation of knowledge management practices.
Finally, the data analysis of stepwise multiple regression reported a significant
relationship between strategic management and financial outcomes of organizational
performance. Hatch and Dyer (2004) sought to identify the sources of wide and persistent
variations in learning performance in the semiconductor manufacturing industry. The
findings revealed a correlation between knowledge management and financial
performance outcomes. A recent study by Reeves and Ford (2004) sampled 81 healthcare
service providers listed in the same Standard Industrial Classification codes for Health
Services Organizations. Their findings reported that strategic management was
significantly related to financial outcome variables.
This study also reported a similar relationship between strategic management and
financial outcomes of organizational performance. Quality management focuses on the
execution of strategic management in healthcare which should address organizational
agility based on contingency plans, or if circumstances require a shift in plans and rapid
execution of new or changed plans. Furthermore, strategic management includes overall
organizational strategy to address changes in healthcare services and programs. In a
rapidly changing technologically advanced healthcare environment, organizations should
expect changes in services and programs as quality of care is rapidly increasing through
advancing technology. The findings highlight the need for long-term healthcare
organizations to capitalize on strategic management as a competitive and sustainable
advantage and adopt management practices that integrate strategic management as a core
business function within the QHRP framework.
Implications for human resource management practice and research
One of the goals of this study is to provide a framework for the field of Human Resources
(HR) to measure its contribution to organizational performance outcomes. The framework
validated in this study can serve as a reliable tool to link HR practices to organizational
performance within a quality management environment. The demand for higher performance
is a reality of today’s business. Using the QHRP framework, HR practitioners and scholars
can view and position HR as a major business process.
The survival of the field of HR as a strategic and competitive business partner lies in
its ability to develop new approaches and sound measurement systems to demonstrate its
financial benefit to organizations’ bottom line. This notion is supported by researchers in the
field. American Society for Training and Development reported that ‘only 3 percent of T&D
programs were evaluated for financial impact’ (Bassi, Benson and Cheney 1996, p. 12).
The International Journal of Human Resource Management 1961
Huselid (1995), on the other hand, pointed out the lack of systematic research investigating
HR’s ability to provide companies with a source of competitive advantage. Thus, the
framework validated in this study not only measures HR’s relationship with organizational
performance outcomes but introduces a new realm of practice and research by integrating
quality management as a major HR process. The findings of this study highlight and
recommend that the relationships between the QHRP and organizational performance
outcomes are all significant in contributing to the argument of HR’s bottom line
contribution to the organization. Furthermore, these findings present evidence that
investment in HR will very likely return to the organization.
This study further suggests that HR managers can advocate and champion the QHRP
framework as a strategic business process. A previous study by MacDuffie (1995) reported
strong evidence that supports the results presented in this study in which organizations
bundling HR practices into a system that was integrated with production/business strategy
outperformed companies using traditional mass production systems. In addition, education
managers and employees in the range and meaning of the expected performance
dimensions can help them recognize desired behaviors, evaluate performance accurately,
and provide meaningful feedback, as well as guide their own goal setting and performance
tracking (London, Mone and Scott 2004). Future research is needed to test this framework
for HR practices in other industries.
Acknowledgements
An earlier version of this research was named 2005 American Society for Training & DevelopmentDissertation of the Year Award.Prior versions of this research have been presented at: the 2006 American Society for Training &Development (ASTD) International Conference & Exposition, Dallas, Texas; the 21st Annual(2006) Society for Industrial and Organizational Psychology (APA Div. 14) Conference, Dallas,Texas; and the 2007 Human Resource Management Association of Southeastern Wisconsin SpringConference, Milwaukee, Wisconsin.I would like to thank my dissertation advisor Dr. Richard A. Swanson, and committee members,Dr. Sandra J. Potthoff, Dr. Ross E. Azevedo, Dr. Gary N. McLean and Dr. Rosmerie J. Park. Specialthanks to friend and colleague Dr. Toby M. Egan for his many helpful suggestions on this research.
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