Exploring the Indirect Performance

Impact of High Performance Work

Systems in Professional Service Firms:
A Practices-Resources-Uses-
Performance Approach

By
Na Fu

Research Supervisors: Professor Patrick C. Flood

Dr. Janine Bosak

A Thesis Submitted to Dublin City University Business School

in partial fulfilment of the requirements

for the degree of

Doctor of Philosophy

November 2010
DECLARATION

I hereby certify that this material, which I now submit for assessment on the

programme of study leading to the award of a degree of Doctor of Philosophy is

entirely my own work, that I have exercised reasonable care to ensure that the work

is original, and does not to the best of my knowledge breach any law of copyright,

and has not been taken from the work of others save and to the extent that such work

has been cited and acknowledged within the text of my work.

Signed: ________________ Na Fu ID No. 57117713 e

Date: _____________________

i
DEDICATION

Dedicated to:

My grandma, my husband Zhengwei and my little daughter Anna.

To the memory of my beloved grandpa.

ii
ACKNOWLEDGMENTS

I wish to acknowledge everyone who helped me, encouraged me, and mentored me

during my journey at DCU in Ireland.

I would particularly like to express my gratitude to my supervisors, Professor

Patrick C. Flood and Dr. Janine Bosak, for their invaluable advice and constant

support. Looking back on my journey through my PhD, I sometimes found myself

going off on a tangent and had to find my way back to the right path. However when

this happened Patrick and Janine functioned like a virtual GPS device and reliably

recalculated my route for me. They helped me to build wide and deep knowledge

bases and to accumulate diverse research experience. They also encouraged me to

become self sufficient in gathering pertinent information. I very much appreciate

their supervision methods which enabled me to see more beautiful scenes along the

way. So my unbounded thanks to them.

During the journey, I received a lot of help from other experienced travellers. They

helped me with theories, statistical methods, and how to use them which were

critically important for me to successfully arrive at my destination. I would like to

give them my special thanks. They are Professor Denise M. Rousseau at Carnegie

Mellon University, Professor James Guthrie at University of Kansas, Professor Tim

Morris at University of Oxford, Professor Jody Hoffer Gittell at Brandeis

University, Dr Philip O’Regan at University of Limerick, Dr Jeremy Dawson at

Aston University, Professor Kathy Monks, Professor David Jacobson, Dr Siobhain

McGovern, Professor Marann Byrne, Dr Mary Canning, Dr Edel Conway, Ms Orla

iii
Feeney, Dr Aurora Trif, Dr Barbara Flood, Dr Ruth Mattimoe, Dr Brian Harney, Ms

Margaret Heffernan, Dr Aoife McDermott, Dr Angelos Alexopoulos, Dr Mr Gerry

Conyngham, Dr Gráinne Kelly, and Dr Johan Coetsee while at DCU.

I would like to say thank you to the following very kind people at DCU who gave

me support in my research and even more so in my daily life: Rachel Keegan,

Elaine Healy, Amanda Kavanagh, Nichola O'Sullivan, Ursula Baxter, Clare Balfe,

Muriel Keegan, Alva Mackenzie, and Debbie Trimble. Especially, I would like to

express my gratitude to Bernadette McCulloch, Patricia Flood and Frank Bannon

who have been so kind to my family. I also want to thank Dr Hyowon Lee for his

great help with designing my survey as well as his great friendship.

I would also like to say thank you to my PhD friends as well as my Chinese friends

in Ireland who are on their own journeys. The mutual encouragement and support

make PhD life less monotonous and more colourful. They are Deirdre O’Shea, Tara

Farrell, Cliona McParland, Aamir Chughtai, Jason Flynn, Ali J Ahmad, Diana

Nadine Boehm, John Brogan, Sarah-Jane Cullinane, Ann Marie Dunne, Louise

Gorman, Danielle Greene, Annegret Jennewein, Anna John, Rachel Kidney, Mary

Kinahan, Mary Levis, Jing Liu, Kerrie O'Sullivan, Anna Penar-Turner, Sahar Validi,

Qingmei Wang, Shuo Wang, Yanjun Ma, Yanli, Sun, Jinhua Du, Guo Hua, Tina,

Wenen Wang, Xuxin Wang, Ke Zhang, Yi Yu, Amy, Father Xiao, Huang Jin,

Zhenxin Zhang, Yu Zhang, Zhenhui Yuan, Hui Liu, Quan Zhou, Yan Yang, Fei

Gao, Yang Zhou, Yuanting Fu, and Youmei Lu.

Many thanks are also given to my previous supervisor and friends in China who

have always trusted me, encouraged me, and emotionally supported me, all of which

iv
makes me feel not so far from my mother land. They are Professor Zhiping Fan,

Professor Kai Li, Professor Qinhai Ma, Ms Guixiang Yang, Ms Yang Chen, Ms Xin

Zhao, Mr Jingtao Ma, Dr Victor Liu, Guohui Chen, Zhiduan Shao, Zhenyu Pei,

Chenliang Zhang, Xuchang Zhang, Bo Feng, Chen Xi, Weilan Suo, Kang Feng, and

Yuhua Li.

This thesis is based on data sourced from managing partners and human resource

managers in Irish accounting firms. The great support from Mr Diarmuid

Breathnach at Chartered Accountants Ireland and the other participants’ efforts are

much appreciated. Special thanks are given to Senior Partner: Mr Ronan Murphy,

Infrastructure Leader: Ms Mary Cullen and HR Manager: Ms Evelyn Kelly, all at

PricewaterhouseCoopers Ireland for their great support and helpful advice on this

project.

Finally, a big thank you to my beloved husband, Zhengwei Qiu, and my little

daughter Anna who have shared my sadness and happiness at all times. A big thank

you also to my grandma, parents in law, and sister in law for their constant

emotional and physical support. All of the aforementioned are the strongest ties and

motivators throughout these memorable and fascinating times.

I am so grateful that I have so many kind people with me during my PhD journey.

v
 TABLE OF CONTENTS
Declaration ................................................................................................................... i
Dedication ................................................................................................................... ii
Acknowledgments...................................................................................................... iii
Table of Contents ....................................................................................................... vi
List of Tables............................................................................................................... x
List of Figures ........................................................................................................... xii
List of Abbreviations................................................................................................ xiii
Abstract .................................................................................................................... xiv

CHAPTER ONE
INTRODUCTION

1.1 Overview of This Dissertation .............................................................................. 1

1.2 Significance of the Study ...................................................................................... 2
1.2.1 Significance of Understanding How SHRM Influences Performance......... 3
1.2.2 Significance of Research Context: PSFs...................................................... 5
1.3 Research Aims ...................................................................................................... 7
1.4 Research Model..................................................................................................... 7
1.5 Research Hypotheses ............................................................................................ 9
1.6 Thesis Structure and Outline............................................................................... 10

CHAPTER TWO
RESEARCH CONTEXT: PROFESSIONAL SERVICE FIRMS

2.1 Introduction ......................................................................................................... 12

2.2 Definition of PSFs............................................................................................... 12
2.3 The Characteristics of PSFs ................................................................................ 15
2.4 The Most Important Resources in PSFs.............................................................. 22
2.5 Summary ............................................................................................................. 24

CHAPTER THREE
LITERATURE REVIEW AND HYPOTHESES

3.1 Introduction ......................................................................................................... 25

3.2 Strategic Human Resource Management ............................................................ 25
3.2.1 Definition of SHRM................................................................................... 26
3.2.2 Three Approaches to SHRM...................................................................... 28
3.2.2.1 The Universalistic Approach ............................................................ 28
3.2.2.2 The Contingency Theory Approach.................................................. 30
3.2.2.3 The Configurational Approach ......................................................... 31
3.2.3 SHRM and HPWS ..................................................................................... 36
3.2.4 HPWS in PSFs ........................................................................................... 37
3.2.5 HPWS and Firm Performance.................................................................... 39
3.2.6 Summary .................................................................................................... 44

vi
3.3 The Resource-Based View of the Firm............................................................... 44
3.3.1 Definition ................................................................................................... 44
3.3.2 RBV and KBT............................................................................................ 45
3.3.3 RBV, KBT and SHRM .............................................................................. 46
3.3.4 RBV and KBT in PSFs .............................................................................. 47
3.3.5 RBV, KBT and SHRM in PSFs ................................................................. 47
3.3.5.1 The Mediating Role of Human Capital............................................. 48
3.3.5.2 The Mediating Role of Social Capital............................................... 50
3.3.5.3 The Mediating Role of Organisational Capital ................................. 55
3.3.6 Summary .................................................................................................... 57
3.4 The Dynamic Capabilities Theory ...................................................................... 57
3.4.1 Definition of Dynamic Capabilities ........................................................... 58
3.4.2 Dynamic Capabilities and RBV ................................................................. 59
3.4.3 Dynamic Capabilities and KBT ................................................................. 60
3.4.4 Dynamic Capabilities in PSFs.................................................................... 61
3.4.5 The Mediating Role of “Uses”................................................................... 63
3.4.6 Summary .................................................................................................... 67
3.6 Summary ............................................................................................................. 67

CHAPTER FOUR
RESEARCH METHODOLOGY

4.1 Introduction ......................................................................................................... 69

4.2 Research Philosophy and Its Application to This Research................................ 69
4.3 Research Process................................................................................................. 71
4.4 Sampling ............................................................................................................. 72
4.5 Questionnaire ...................................................................................................... 78
4.5.1 Preliminary Research ................................................................................. 78
4.5.2 Structure of Questionnaire ......................................................................... 79
4.5.3 Pilot Study of Questionnaire ...................................................................... 80
4.6 Survey Procedures............................................................................................... 80
4.7 Measurement of Variables .................................................................................. 82
4.7.1 HPWS......................................................................................................... 82
4.7.2 Resources ................................................................................................... 83
4.7.3 Uses ............................................................................................................ 85
4.7.4 Firm Performance....................................................................................... 87
4.7.5 Control Variables ....................................................................................... 90
4.8 Summary ............................................................................................................. 90

CHAPTER FIVE
DATA ANALYSIS

5.1 Introduction ......................................................................................................... 92

5.2 Sample Representativeness ................................................................................. 92

vii
5.3 Profile of the Respondents .................................................................................. 94
5.4 Individual Items Descriptive Analysis ................................................................ 95
5.4.1 HPWS......................................................................................................... 96
5.4.2 Resources ................................................................................................... 97
5.4.3 Uses ............................................................................................................ 99
5.4.4 Firm Performance..................................................................................... 100
5.5 Aggregation Issues ............................................................................................ 102
5.6 Common Method Bias ...................................................................................... 103
5.7 Descriptive Statistics......................................................................................... 105
5.8 Multiple Regression Analysis ........................................................................... 108
5.8.1 Results of Model 1: Practices-Resources-Performance ........................... 110
5.8.1.1 Human Capital as a Mediator.......................................................... 116
5.8.1.2 Social Capital as a Mediator ........................................................... 120
5.8.1.3 Organisational Capital as a Mediator.............................................. 120
5.8.1.4 Resources “Together” as Mediators................................................ 121
5.8.1.5 Summary ......................................................................................... 121
5.8.2 Results of Model 2: Resources-Uses-Performance.................................. 122
5.8.2.1 Mediation of Uses in Human Capital and Firm Performance......... 123
5.8.2.2 Mediation of Uses in Social Capital and Firm Performance........... 131
5.8.2.3 Mediation of Uses in Organisational Capital and Firm
Performance .................................................................................... 138
5.9 Summary ........................................................................................................... 147

CHAPTER SIX
DISCUSSION

6.1 Introduction ....................................................................................................... 148

6.2 Research Findings ............................................................................................. 150
6.3 Research Contributions ..................................................................................... 153
6.4 Implications for Research and Practice............................................................. 156
6.5 Limitations and Future Research Directions..................................................... 159

CHAPTER SEVEN
CONCLUSION

References ............................................................................................................... 163

Appendix A: Application Form: Dublin City University Research Ethics

Committee
Appendix B: DCU Research Ethics Committee Approval Letter
Appendix C: Interview Topics
Appendix D: A Summary of HR Practices in Accounting Firms with Different
Firm Size
Appendix E: Invitation Letter

viii
Appendix F: Cover Letter
Appendix G: Survey of Accounting Firms 2010
Appendix H: Post Card
Appendix I: Customised Report (Sample)
Appendix J: Industry Report
Appendix K: Letter for Missing Data (Sample)
Appendix L: Exploratory Factory Analysis Results for Resources (N=189)a, b
Appendix M: Exploratory Factory Analysis Results for Uses (N=189)a, b
Appendix N: Exploratory Factory Analysis Results for Innovation (N=189)a, b
Appendix O: A Summary of Studies for Measuring PSFs’ Performance

ix
List of Tables

Table 1.1 A Summary of The Research Hypotheses ................................................ 9

Table 3.1 HR Practices for Human Capital............................................................. 34

Table 3.2 HR Practices for Social Capital .............................................................. 34

Table 3.3 HR Practices for Organisational Capital................................................. 35

Table 3.4 A Summary of Empirical Studies of HRM on Organisational

Performance .......................................................................................... 41

Table 4.1 Different Databases for Collecting Respondents’ Contact

Information............................................................................................ 76

Table 4.2 Final Sample Contact Information.......................................................... 77

Table 5.1 ANOVA Results from Comparison Analysis ......................................... 94

Table 5.2 The Applications of HPWS in Irish Accounting Firmsa ......................... 96

Table 5.3 Resources in Irish Accounting Firms...................................................... 98

Table 5.4 Uses in Irish Accounting Firms .............................................................. 99

Table 5.5 Organisational Performance in Irish Accounting Firmsa ...................... 101

Table 5.6 Descriptive Statistics............................................................................. 106

Table 5.7 Correlation Matrix of the Study Variables............................................ 107

Table 5.8 Proposed Mediation Tests..................................................................... 109

Table 5.9 Impact of HPWS on Resources............................................................. 112

Table 5.10 Impact of HPWS and Resources on Firm Performance...................... 113

Table 5.11 A Summary of Results for Each Step and Sobel Test for
Model 1 ............................................................................................... 115

Table 5.12 Impact of Human Capital on Uses ...................................................... 124

Table 5.13 Impact of Human Capital and Uses on Firm Performance ................. 125

x
Table 5.14 A Summary of Results for Each Step and Sobel Test for
Mediation Model of Uses as Mediators between Human
Capital and Firm Performance ............................................................ 127

Table 5.15 Impact of Social Capital on Uses........................................................ 132

Table 5.16 Impact of Social Capital and Uses on Firm Performance................... 133

Table 5.17 A Summary of Results for Each Step and Sobel Test for
Mediation Model of Uses as Mediators between Social
Capital and Firm Performance ............................................................ 135

Table 5.18 Impact of Organisational Capital on Uses .......................................... 140

Table 5.19 Impact of Organisational Capital and Uses on Firm Performance ..... 141

Table 5.20 A Summary of Results of Each Step and Sobel Test for
Mediation Model of Uses as Mediators between
Organisational Capital and Firm Performance.................................... 143

Table 6.1 Summary of Hypotheses and Empirical Results................................... 149

xi
List of Figures

Figure 1.1 Conceptual Research Model ......................................................................8

Figure 2.1 Career Path in PricewaterhouseCoopers................................................... 15

Figure 2.2 Partial Structure of a Typical Large Accounting Firma ............................ 19

Figure 2.3 From Trainee to Full Partner in Burges Salmon Law Firm...................... 20

Figure 3.1 A Fit/Flexibility Model of SHRM ............................................................ 32

Figure 3.2 Intellectual Capital Architectures and Ambidextrous Learning ............... 33

Figure 3.3 Two Intellectual Capital Architectures..................................................... 36

Figure 3.4 How PSFs Deliver Service to Their Clients by Partners .......................... 39

Figure 3.5 A Model of Organisational Capital........................................................... 51

Figure 3.6 Expanded Framework of HPWS and Organisational Performance.......... 52

Figure 3.7 Exploitation and Exploration in PSFs ...................................................... 63

Figure 4.1 The Data Collection Process..................................................................... 73

Figure C.1 How PSFs Deliver Service to Their Clients by Partners ........................... 5

Figure C.2 How to Improve Team Performance through HRM .................................. 7

xii
List of Abbreviations

ACCA = Association of Chartered Certified Accountants

CAI = Chartered Accountants Ireland

CFA = Confirmatory Factor Analysis

CPA = Institute of Certified Public Accountants in Ireland

CIMA = Chartered Institute of Management Accountants

CIPD = Chartered Institute of Personnel and Development

DCU = Dublin City University

EFA = Exploratory Factor Analysis

FAME = Forecasting Analysis and Modeling Environment, a financial information

database of UK and Irish companies.
HPWS = High Performance Work Systems

HR = Human Resource

HRM = Human Resource Management

IAP = Irish Accounting Practices

ICC = Intraclass correlations

IIPA = Institute of Incorporated Public Accountants

ITI = The Irish Taxation Institute

LISREL = Linear Structural Relationships (statistics software)

PSFs = Professional Service Firms

RBV = The Resource-based View of the Firm

KBT = The Knowledge-based Theory

SHRM = Strategic Human Resource Management

SPSS = Statistical Package for the Social Sciences (statistics software)

xiii
ABSTRACT
This study uses a practices-resources-uses-performance approach to examine the
indirect impact of High Performance Work Systems (HPWS) on firm performance
in Irish Professional Service Firms (PSFs).
The study proposes that HPWS does not influence firm performance directly but
indirectly. HPWS affects a firm’s performance through two stages. Firstly, the
HPWS helps to build the firm’s resources which include human capital, social
capital and organisational capital. Secondly, these resources, in turn, create value for
the firm when they are effectively utilised. The hypotheses in this study propose that
resources mediate the relationship between HPWS and firm performance and the
uses of resources mediate the relationship between resources and firm performance.
To test this systematic approach, data was collected from 120 Irish accounting firms
who participated in the survey. This data was collected in 2010. Hierarchical
multiple regression was used to analyse the data and test the proposed mediational
models.
The results provide support for the stated hypotheses. The findings suggest that the
firm’s resources such as human capital, social capital and organisational capital
mediate the relationship between HPWS and firm performance and that the uses of
the firm’s resources mediate the relationship between the firm’s resources and the
firm’s performance. Therefore, this study provides a comprehensive picture of how
HPWS works in professional service firms by providing the conceptual and
empirical support for the practices-resources-uses-performance value creation chain.
These findings could help firms find mechanisms to improve their performance.
The study of the indirect impact of HPWS on firm performance contributes to the
understanding of how and why HPWS affect firm performance by identifying
valuable resources and the way to effectively use them in PSFs. It also provides
theoretical support for the resource-based view of the firm (Barney, 1991),
knowledge-based theory (Grant, 1996a, 1996b) and dynamic capabilities theory
(Teece, Pisano & Shuen, 1997). It also contributes to the theory of knowledge
exploitation and exploration (Lavie, Stettner, & Tushman, 2010; March, 1991).

xiv
 CHAPTER ONE
INTRODUCTION

1.1 Overview of This Dissertation

The research reported in this dissertation examines how high performance work

systems (HPWS) affect firm performance in professional service firms (PSFs). The

research applies a novel practices-resources-uses-performance approach to explore

the so called “black box” (Becker & Gerhart, 1996: 793) between human resource

management practices and the firm’s performance.

The research model developed is based on a broad range of literature which includes

strategic human resource management (SHRM) (Becker & Huselid, 2006; Boxall,

1992; Boxall & Purcell, 2000; Collins & Clarks, 2003; Delery & Doty, 1996; Delery

& Shaw, 2001; Wright & McMahan, 1992), the resource-based view of the firm

(RBV) (Barney, 1991), the knowledge-based theory (Grant, 1996a, 1996b) and the

dynamic capabilities theory (Teece, Pisano & Shuen, 1997). The unique aspect of

the research model is that it provides a comprehensive picture which links high

performance work systems to firm performance, by combining the key concepts and
1 2
ideas in relation to resources and the uses of resources.

1
Resources in this study are defined as the knowledge embedded in individuals, i.e. human capital,
relationships, i.e. social capital and organisation’s routines, systems, database, i.e. organisational
capital. This applies to rest of thesis.
2
Uses in this study are defined as the ways to use resources. Uses include communication,
coordination, monitoring and team utilisation. This applies to the rest of thesis.

1
The data was collected from 190 managing partners, HR directors/managers and

other senior staff representing 120 Irish accounting firms. The findings provide

strong support for identifying how HPWS affects firm performance in PSFs. In

addition, some findings were found in relation to the management effectiveness of

accounting firms.

This study employs and provides empirical support for the resource-based view of

the firm (Barney, 1991), the knowledge-based theory (Grant, 1996a, 1996b) and the

dynamic capabilities theory (Teece et al., 1997). It contributes to the understanding

of how and why HPWS affects the firm’s performance by identifying its valuable

resources and the effective uses of them in PSFs. The findings provide the support

for the mediational effect of resources in the relationship between HPWS and firm

performance and the mediational effect of uses in the relationship between resources

and firm performance.

1.2 Significance of the Study

In comparison to other studies of the relationship between SHRM and firm

performance (Arthur, 1994; Becker & Gerhart, 1996; Datta, Guthrie, & Wright,

2005; Delery & Doty, 1996; Guthrie, 2001; Guthrie, Flood, Liu, & MacCurtain,

2009; Huselid, 1995; MacDuffie, 1995; Richard & Johnson, 2001; Terpstra &

Rozell, 1993; Youndt, Snell, Dean Jr, & Lepak, 1996), this study addresses two

important issues. One is the indirect performance impact of human resource

practices compared to the impact of direct relationships. The other is the research

context – professional service firms (PSFs). The significance of the two issues is

described in detail in the following two sections.

2
1.2.1 Significance of Understanding How SHRM Influences

Performance

Researchers in the field of strategic human resource management (SHRM) have

found that the application of a system or a bundle of human resource (HR) practices

is positively associated with organisational performance. For example, a bundle or

system of HR practices has been found to positively influence firms’ outcomes

especially in manufacturing firms. These outcomes include financial performance

(Guthrie, 2001; Huselid, 1995), employee turnover (Richard & Johnson, 2001),

productivity (Guthrie, 2001), efficiency, flexibility (Evans & Davis, 2005), and

organisational commitment (Youndt et al., 1996). To clarify, this study labels the

bundle or system of HR practices as high performance work systems (HPWS)

(Guthrie, 2001; Guthrie et al., 2009; Huselid, 1995).

From the evidence found in the above studies, the relationship between HPWS and

firm performance may be indirect and many scholars call for deeper and more

theoretical approaches to understand how and why high performance work systems

(HPWS) affect firm performance (Bowen & Ostroff, 2004; Combs, Liu, Hall, &

Ketchen, 2006; Delery & Shaw, 2001), especially in service organisations (Combs

et al., 2006).

For example, Combs et al. (2006) suggested that employees’ knowledge, skills and

abilities (KSAs) acted as mediators between high performance work practices and

organisational performance. Guest (1997) showed that SHRM influenced firm

performance by improving employees’ skills and abilities. The findings of these two

3
studies suggest the mediational effect of the human capital in the relationship

between HR practices and firm performance.

Collins and Clark (2003) provided support for the mediating role of social structure.

They examined the mediating effect of social networks of top management teams

(TMT) on the relationship between HRM and firm performance. They found that the

mediating effects of TMT networks accounted for nearly all of the effect of

network-building practices on sales growth and less than half of the effect of

incentive pay practices based on organisational performance. Collins and Clark’s

(2003) study provides support for the mediational effect of social capital in the

relationship between HR practices and firm performance.

In addition, Wright, Dunford, and Snell (2001) argued that HPWS might play a role

in creating organisational cultures and shared organisational knowledge which

enabled the firm to form and maintain its core competencies. They indicated that

HR practices could help shape organisational processes, systems, and ultimately

competencies. Wright et al. (2001) indeed suggest the possibility of the mediational

effect of organisational capital in the relationship between HR practices and firm

performance.

Consequently, in terms of the intervening variables between HPWS and firm

performance, this study considers the resources of human capital, social capital and

organisational capital systematically. In addition, this study takes into account how

to use these resources which is labelled as uses. The uses include communication,

coordination, monitoring and team utilisation. By doing so, this study provides a

comprehensive understanding on how HRM affects firm performance.

4
1.2.2 Significance of Research Context: PSFs

Many researchers conducted their research in general manufacturing firms such as

auto manufacturing plants and steel companies (Datta et al., 2005; Ichniowski &

Shaw, 1999; Ichniowski, Shaw, & Prennushi, 1997; MacDuffie, 1995), some

general service firms like banks (Delery & Doty, 1996; Richard & Johnson, 2001),

call centres (Batt, 2002) or with the mixture of the former two contexts (Guthrie et

al., 2009; Huselid, 1995). However, there has been a lack of research into one

important context – the professional service firms. In contrast to firms previously

studied, which have stable business conditions, professional firms face a more

dynamic environment (Collins & Smith, 2006).

Professional Service Firms (PSFs) consist of a highly educated and professionalised

workforce and provide clients with customised knowledge (Empson, 2007;

Greenwood, Li, Prakash, & Deephouse, 2005; Maister, 1993). Examples of

professional services include accounting, engineering consulting, management

consulting and legal services.

PSFs are a significant context for conducting research because of their unique

characteristics, but also because of their important position in the current global

knowledge economy which is reflected in the increased growth and significance of

PSFs. According to Delong and Nanda (2003: ix), they are “becoming ever more

pronounced in economies the world over”. In the past 25 years, the professional

services sector has grown by more than 10% per annum and currently generates

more than US$ 1,000 billion in revenues globally (Empson, 2007). From the years

1978-1986, employment in these firms grew by 53.8% in comparison to 13.1% in

5
the rest of the US economy (Aharoni, 1993). For example, as one of the world’s

largest professional services firms and the largest of the Big Four auditing firms,

PricewaterhouseCoopers earned aggregated worldwide revenues of US$26.2 billion

for the fiscal year 2009, and employed over 163,000 people in 151 countries

(PricewaterhourceCoopers, 2010).

PSFs are very different from traditional manufacturing firms (Løwendahl, 2000).

They are knowledge-intensive (Morris, 2001; von Nordenflycht, 2007, 2010). Their

inputs are mainly the expert knowledge of the professional workforce (Starbuck,

1992), while their outputs are expert knowledge in the form of customised solutions

for their clients (Empson, 2007; Greenwood et al., 2005; Hitt, Shimizu, Uhlenbruck,

& Bierman, 2006; Løwendahl, 2000; Morris & Empson, 1998; von Nordenflycht,

2007, 2010). PSFs gain competitive advantage mainly by relying on their intangible

assets such as, expert knowledge known as human capital, internal and external

relationships also known as social capital, their efficient routines, databases and

systems, also known as organisational capital. However, the current research on

PSFs is not comprehensive. Although various researchers addressed the issues like

governance structure of PSFs (Cooper, Hinings, Greenwood, & Brown, 1996;

Greenwood, Hinings, & Brown, 1990; Pinnington & Morris, 2003), and the

tournament promotion system (Morris & Pinnington, 1998), only von Nordenflycht

(2010) systematically answered the question of what the PSF is and described the

characteristics of PSFs. However, issues such as “how to manage PSFs effectively”

and establishing “what the determinants of PSFs’ performance are” are in great need

of comprehensive investigation and definition.

6
For these reasons, this study chooses the professional service context to examine the

indirect impact of HPWS on firm performance.

1.3 Research Aims

This study aims to explore how HPWS affects firm performance in the professional

services context by identifying and testing the intervening variables between HPWS

and firm performance.

Using the strategic human resource management theory (Becker & Huselid, 2006;

Boxall, 1992; Boxall & Purcell, 2000; Delery & Shaw, 2001; Wright & McMahan,

1992) and the resource-based theory (Barney, 1991; Penrose, 1959; Wernerfelt,

1984), this study will explore the processes/mechanisms through which HPWS

influences firm performance. Specifically, the study will look at the mediational

effects of organisational resources in the relationship between HPWS and firm

performance. These resources are identified as human capital, social capital and

organisational capital.

In addition, based on the dynamic capabilities theory which emphasises the

exploitation and exploration of resources (Eisenhardt & Martin, 2000; Helfat et al.,

2007; Teece & Pisano, 1994; Teece et al., 1997), this study will explore the uses

through which organisational resources influence firm performance. The uses are

measured by communication, coordination, monitoring and team utilisation.

1.4 Research Model

Figure 1.1 provides a conceptual model with hypotheses on the link between the

utilisation of HPWS and firm performance.

7
Figure 1.1 Conceptual Research Model

Source: The Author

8
In this model, it is argued that HPWS results in the creation of human capital

(Becker, 1964; O’Sullivan & Sheffrin, 1998), social capital (Burt, 1992; Nahapiet &

Ghoshal, 1998), and organisational capital resources (Youndt, Subramaniam, &

Snell, 2004; Subramaniam & Youndt, 2005). It is only when these resources are

effectively managed and utilised that firms can generate superior profit above

competitors’ returns in a perfectly competitive environment (Schultz, 1961), achieve

sustainable competitive advantage, and create value (Barney & Arikan, 2001;

Sirmon, Hitt, & Ireland, 2007).

1.5 Research Hypotheses

Table 1.1 provides a summary of the research hypotheses that are tested in this study.

These hypotheses are formed based on the literature review presented in Chapter 3.

Table 1.1 A Summary of The Research Hypotheses

Hypotheses

PSF’s human capital mediates the relationship between HPWS and firm
H1
performance.

PSF’s social capital mediates the relationship between HPWS and firm
H2
performance.

PSF’s organisational capital mediates the relationship between HPWS and

H3
firm performance.

PSF’s uses mediate the relationship between its human capital and firm
H4
performance.

PSF’s uses mediate the relationship between its social capital and firm
H5
performance.

PSF’s uses mediate the relationship between its organisational capital and
H6
firm performance.

9
1.6 Thesis Structure and Outline

Chapter One introduces the overview of this dissertation which includes the

objectives and general process of this study. It outlines the significance of this

research, especially with regards to the SHRM theoretical perspective and the PSF

context. It also presents the research questions, research models, a summary of

hypotheses, and outlines the thesis structure.

Chapter Two provides a general introduction to PSFs. It presents the definition and

characteristics of PSFs and proposes that their most important resources are human

capital, social capital and organisational capital.

Chapter Three reviews and discusses the main theoretical perspectives examined in

this study. These are strategic human resource management theory, the resource-

based view of the firm, knowledge based theory and dynamic capabilities theory. In

particular, the chapter presents three approaches in the SHRM literature that have

dominated studies on the link between HRM and organisational outcomes; the

universalistic approach, the institutional approach, and the contingency theory

approach. In addition, the applications of each theory in the management of PSFs

are provided and the various hypotheses are also proposed.

Chapter Four firstly explores the philosophical basis of the research methodology

used in this study. It describes the appropriateness of a positivist approach which

provides the support for survey-based research. It then presents a detailed outline of

the research process via an illustrated chart and then describes in detail the sample

10
set up from different database resources, how the survey is designed and how it is

conducted by employing Dillman’s (2007) Tailored Design Method. Finally, all the

variable measurements in the survey and their validity and reliability are presented.

Chapter Five presents the results of the data analysis. This chapter includes a

presentation of sample representativeness, support for data aggregation, common

bias check, descriptive statistics and regression analysis of the study.

Chapter Six reviews the findings based on the results in Chapter Five and describes

the contributions of this study to literature on the subject. It also presents the

implications for researchers and for practitioners and a description of its limitations.

Finally, the future directions of the research are discussed.

Chapter Seven provides a short and general conclusion. It reiterates the research aim,

research model, findings and implications.

11
 CHAPTER TWO
RESEARCH CONTEXT: PROFESSIONAL
SERVICE FIRMS

2.1 Introduction

This chapter provides a description and definition of PSFs. This is supported by

examples, characteristics and an outline of the most important resources in PSFs.

2.2 Definition of PSFs

PSFs are an increasingly important component of the global economy, and have

attracted considerable attention from management researchers as they have grown in

scale and significance across the whole world (Aharoni, 1993; Delong & Nanda,

2003; Empson, 2007). However, “a significant obstacle to progress in our

understanding of PSFs is the lack of a definition of the central term” (von

Nordenflycht, 2010: 155). Before examining the concept of professional service

firms (PSFs), it is important to investigate the relevant concepts such as profession

and professional.

As Abbott (1988) explained, “professions are exclusive occupational groups

applying somewhat abstract knowledge to particular cases” (p.8). Greenwood (1957)

described the attributes of a profession as a systematic body of knowledge;

professional authority and credibility; regulation and control of members; a

professional code of ethics and a culture of values, norms, and symbols. Khurana,

12
Nohria and Penrice (2005) provided the criteria for calling an occupation a bona fide

profession as follows: a common body of knowledge resting on a well-developed,

widely accepted theoretical base; a system for certifying that individuals possess

such knowledge before being licensed or otherwise allowed to practice; a

commitment to use specialised knowledge for the public good, and a renunciation of

the goal of profit maximisation, in return for professional autonomy and monopoly

power; a code of ethics, with provisions for monitoring individual compliance with

the code and a system of sanctions for enforcing it. Based on the above definitions,

the profession is an occupation that requires expert knowledge, authority, credibility

and autonomy.

Sharma (1997) described professionals as people who “apply in their work a body of

knowledge and techniques acquired through training and experience, have a service

orientation and distinctive ethics, and have a great deal of autonomy and prestige in

the modern economy” (p.763). Empson (2006) provided a strict definition of

professional as “someone who has won the right to membership of a professional

association by completing an accredited programme of training and examinations”

(p.6). Her definition represents a very narrow group of organisations - accounting,

law, architecture and engineering practices. Experts or professionals within a given

field unite to form a PSF.

The above descriptions of professionals suggest that professionals embed expert

knowledge, have autonomy and are qualified from a professional association when

they pass their professional exams. In the case of accountancy, for example,

professional accountants normally have professional expert knowledge in

13
accounting, high autonomy in their work, and qualifications from some accounting

association. Accounting associations in Ireland include Chartered Accountants

Ireland (CAI: www.charteredaccountants.ie), the Association of Chartered Certified

Accountants Ireland (ACCA: http://ireland.accaglobal.com), the Institute of

Certified Public Accountants in Ireland (CPA: www.cpaireland.ie), the Chartered

Institute of Management Accountants Ireland (CIMA: www.cimaglobal.com/Our-

locations/Ireland), and the Institute of Incorporated Public Accountants (IIPA:

www.iipa.ie).

In most of the research on PSFs, “the term [PSF] is either undefined or is defined

only indirectly, by providing a brief list of examples: ‘PSFs, such as law firms,

accounting firms, etc.’” (von Nordenflycht, 2010: 155). According to Hinings et al.

(1991), “a professional service firm has a primary resource and work force of a

group of trained professionals who have agreed to work under the same

organisational umbrella” (p.376). Greenwood et al. (2005) defined professional

service firms as “those whose primary assets are a highly educated (professional)

workforce and whose outputs are intangible services encoded with complex

knowledge” (p.661). In von Nordenflycht’s (2010) study, the question of “what is a

professional service firm?” was addressed. However, von Nordenflycht did not

provide a single definition of PSFs but a theoretical framework on a taxonomy and

theory of knowledge-intensive firms. The PSFs that are discussed in this study are

the classic PSFs referred to in von Nordenflycht’s (2010) study, e.g. law, accounting

and architecture.

Morris (2001) stated that the professional service firm was a classic example of

knowledge-based or knowledge-intensive organisations. Professional service firms

14
are knowledge-intensive but are different from knowledge intensive firms as their

knowledge output is customised. In other words, both the services provided by PSFs

and the processes involved are customised or tailored to individual customers’ needs

(Maister, 1993; Nachum, 1999). In this way, pharmaceutical and software

companies are categorised as knowledge intensive firms but are not professional

service firms, as they sell the same products/services to all customers and do not

tailor them for individual clients as PSFs do. The above definitions of PSFs suggest

that PSFs require a highly educated professional workforce and provide a

customised output.

In summary, the definitions of professions, professionals, professional service firms

and the difference between PSFs and knowledge intensive firms demonstrate the

uniqueness of PSFs as their reliance on a professional workforce, in other words that

the human resource is one of the most important assets within PSFs.

2.3 The Characteristics of PSFs

Based on the definitions provided in section 2.2 above, PSFs clearly differ from the

traditional manufacturing firms in their knowledge intensity (Løwendahl, 2000).

PSFs are knowledge-intensive (Morris, 2001; von Nordenflycht, 2007, 2010). Their

inputs are mainly the knowledge embedded in the professional workforce (Starbuck,

1992) and their outputs are expert knowledge in the form of customised solutions

for their clients (Empson, 2007; Greenwood et al., 2005; Hitt et al., 2006;

Løwendahl, 2000; Morris & Empson, 1998; von Nordenflycht, 2007, 2010).

15
In addition to being knowledge intensive, there are other differences between PSFs

and traditional firms. These include the type of work they perform, their

professionalised workforce, their organisational structure and processes, their

financial structure, their management governance, and other unique management

practices, such as “up-or-out tournament promotion system”. All of these have been

examined from many different perspectives. For example, in terms of the type of

work performed by PSFs, Maister (1993) distinguished PSFs from other firms as

follows:

• Procedural – work for which the solution/approach is well known. This can

be delegated to less experienced staff and to some extent the range of

answers can even be prescribed. The key to selling this work is its efficiency.

This area has greatest leveraging potential and so has been the focus of most

business growth (particilarly in larger firms) over the last two/three decades.

• Brain – work that requires a lot of creativity. This calls for professional

expertise and little of it can be specified in advance. While this favours sole-

traders and boutique practices, larger firms can also address it.

• Grey hair – equally unique and difficult to proceduralise but where the

delivery of the solution is based on the experience and breadth of the

professional.

Stumpf, Doh and Clark (2002) described the work in PSFs as “project or program-

oriented, serving the needs of the external client organisation (or customer) rather

than internal management.” (p.261). Therefore, it may require several professionals

to work together, and frequently involves client contact, often through co-location at

a client’s place of business (Stumpf et al., 2002). Due to the type of work performed

16
by PSFs, two dependencies that affect the appropriateness of organisational and

strategic decisions were identified by Greenwood et al. (2005). The first of these is

an asymmetry of information between the firm and its clients which makes the latter

dependent on the former; and the second is the high mobility of the firm’s human

assets which makes it dependent on its professional workforce. These dependencies

differentiate PSFs from goods-producing organisations in their distinctive

organisational practices.

In terms of the professionalised workforce, Stumpf et al. (2002) observed that

professionals in PSFs generally received advanced education for their profession

since PSF’s work requires professional knowledge and technical expertise, coupled

with good diagnostic, analytic, and problem-solving skills.

Williams and Nersessian (2007) listed three key characteristics of PSFs which

emerge from the professionalised workforce. The first one was the barriers to entry.

“Many segments of the professional services industry have specialised

requirements in education, training, and accreditation that must be satisfied
before an individual can work in that specialty. Examples include law,
accounting, medicine, architecture and engineering, each of which requires
many years of formal higher education” (p.2).

The second one was the high degree of self-regulation:

“This typically includes control over initial qualification and accreditation,

as well as the creation and enforcement of a code of ethics or practice
standards against which a professional’s ongoing work is measured” (p.2).

The last one was the professionals’ ability to use specialised knowledge or training

in a customised way to solve problems that their clients cannot solve for themselves.

Empson (1999) listed three key aspects of PSFs that are generally agreed to be

distinctive:

17
 • Resource base - PSFs have relatively limited physical resources; their value

derives primarily from their professional workers, specifically the technical

knowledge, expertise, and experience which they possess. The management

of knowledge and knowledge workers is therefore fundamentally important

to PSFs.

• Organisational form – through the partnership form of governance,

professionals in PSFs experience a higher degree of autonomy than they

would typically enjoy in conventional bureaucratic structures; those PSFs

which have adopted the corporate structure may still attempt to imitate

elements of the partnership form.

• Professional identity - firm members identify themselves as professionals

and are united by a shared understanding of the concept of professionalism.

This professional identity is often associated with the rhetoric of

independence and exemplary ethics but may be redefined within PSFs to

focus on exceptional commitment to clients and quality of service.

In terms of the organisational structure, PSFs have relatively few levels of

hierarchy (Greenwood et al., 1990; Stumpf et al., 2002). This can be seen from the

PwC career path (Figure 2.1), the partial structure of a typical large accounting firm

(Figure 2.2), and the career paths in Burges Salmon (Figure 2.3). Figure 2.3, which

describes the career path from a trainee to full partner in Burges Salmon law firm,

indicates there are only five levels in the organisation; solicitor, qualified solicitor,

associate, junior partner and full partner. The low hierarchy organisational structure

in PSFs is related to the limited categories of workers. By tradition, there are three

main categories of employee in PSFs, and they are the so called “finders, minders

18
and grinders” (Master, 2004). The finders are responsible for bringing in the

business, scoping and designing the projects, and engaging in the high-level client

relations necessary during work. Minders are usually those who manage the projects

and the team of people working on them to ensure that the firm runs as a cohesive

whole. Grinders (the lowest level) perform the analytical tasks.

Figure 2.1 Career Path in PricewaterhouseCoopers

Source: PricewaterhouseCoopers (2010)

Figure 2.2 Partial Structure of a Typical Large Accounting Firma

a
: This pattern is repeated in each principal country in which a large accounting firm operates.
“OMP” represents a local office managing partner.
Source: Greenwood et al. (1990: 732)

19
Figure 2.3 From Trainee to Full Partner in Burges Salmon Law Firm

Source: Burges Salmon LLP (2007)

20
The organisational structure of PSFs is changing. Hinings et al. (1991) commented

that “an important characteristic of such firms is that these professionals agree to

share ownership as a group of partners” (p.376). They also developed the P2 model

– professionalism and partnership – to describe the strategic management of the

professional firm (Greenwood et al., 1990). However, Cooper et al. (1996)

suggested that this model no longer adequately captured the dynamic changes in

professional service firms. Based on their analysis of change in two Canadian law

firms, they suggested that the dominant archetype of the professional organisation

was shifting from P2 to the Managed Professional Business (MPB) model. Similarly,

Pinnington and Morris (2003) found that the PSF was changing from traditional

partnership into a more ‘business-like’ entity, i.e. the managed professional business.

In terms of organisational processes, professional development is structured as an

apprenticeship and learn-by-doing process (Stumpf et al., 2002). Most junior

professionals have senior professionals as mentors or supervisors.

With regard to financial structure, many PSFs bill by the hour (or partial hour), day,

or an estimated number of days to complete the project (Stumpf et al., 2002).

In terms of governance, new officers are elected by existing officer corps,

leadership roles are often rotated and officers are frequently expected to continue

the producer role while taking on the leadership role (Stumpf et al., 2002).

In terms of management practice, the up-or-out tournament promotion system has

been identified as unique to PSFs (Morris & Pinnington, 1998). This practice

demands that a candidate who does not get promoted has to resign. However, Morris

and Pinnington (1998) showed that the up-or-out promotion system had become less

used in PSFs.

21
Løwendahl (2000) comprehensively defined the characteristics of PSFs as having

more than 50% professional employees; a high priority for professional goals,

including altruistic problem solving for the client; a high degree of respect for

professional norms, including the limitation of expertise; an emphasis on the

creation as well as the application of knowledge; professionals in charge of key

decisions and activities. A professional is usually also a service provider.

Based on the above review, the characteristics of PSFs are summarised as follows:

PSFs are knowledge intensive;

PSFs are dependent on their professionalised workforce;

PSFs have fewer hierarchical levels than other organisations;

PSFs are mostly partnerships although their organisational structure is

changing to more a business-like model;

PSFs’ financial structure is pay-by-hour/day.

Therefore, the human resource in which the required knowledge is embedded is

critically important for PSFs.

2.4 The Most Important Resources in PSFs

The professionalised workforce is a PSF’s most important resource. From the

knowledge perspective, the workforce has acquired professional knowledge from

both education and job training and this is used during their work to help build

organisational knowledge. They also have more tacit knowledge embedded in their

relationships within and beyond the organisation (Hitt et al., 2006; Pennings, Lee &

Van Witteloostuijn, 1998).

22
Literature on the subject suggests that these resources are conceptualised as human

capital i.e. knowledge embedded in individuals (Becker, 1964; O’Sullivan &

Sheffrin, 1998), social capital i.e. knowledge embedded in relationships (Coleman,

1988; Bourdieu; 1985; Burt, 1992; Putnam, 1993; Nahapiet & Ghoshal, 1998; Lin,

2001), and organisational capital i.e. the knowledge embedded in organisational

processes, routines, databases, and systems (Youndt et al., 2004; Subramaniam &

Youndt, 2005). Their application in PSFs is introduced as follows:

Human capital. Professionals in PSFs receive explicit knowledge from formal

education and tacit knowledge from their daily work and on-the-job training (Hitt,

Bierman, Shimizu, & Kochhar, 2001). They embody this expertise knowledge and

translate it into customised solutions for clients.

Social capital. Professionals build and maintain internal relationships which

facilitate knowledge exchange and sharing within teams since most of work in PSFs

is programme or project based. They also develop and maintain external clients’

relationships which attract new business continuously and result in direct profits for

the firm.

Organisational capital. Professionals play an important role in forming efficient

organisational routines and building organisational databases and systems which

facilitate knowledge exchange and sharing within firms.

To summarise, the human resource constitutes the critical asset of PSFs. Because of

its importance to the organisation this study will investigate if high performance

work systems (HPWS) create the human capital, social capital, and organisational

capital resources and if these resources in turn influence the firm’s performance.

23
This study will also investigate if the uses of these resources have intervening

effects on the resources-firm performance link.

Professional service firms are an appropriate context to examine strategic human

resource management because human resources constitute one of the most critical

assets and therefore provide a strong test of the practices-uses-resources-

performance model – which is what this study aims to investigate

2.5 Summary

This chapter presents the concepts and characteristics of PSFs and analyses the

valuable resources of PSFs. The knowledge intensity and highly professionalised

workforce indicate that human resources are the most important asset of PSFs. In

the next chapter, the review of relevant theories and their applications in PSFs are

presented.

24
 CHAPTER THREE
LITERATURE REVIEW AND HYPOTHESES

3.1 Introduction

The main objective of this chapter is to identify relevant theories that explain why

firms utilise high performance work systems (HPWS) extensively and how these

affect firm performance. The chapter, therefore, reviews and discusses the main

theoretical perspectives that are examined in this study. They include strategic

human resource management (SHRM), the resource-based view of the firm (RBV),

knowledge based theory (KBT) and dynamic capabilities theory. In particular, this

chapter presents three approaches from SHRM literature that have dominated

studies on the link between HRM and organisational outcomes. In addition, the

linkages between the theories and their applications in the management of

professional service firms (PSFs) are reviewed. The hypotheses are also proposed.

3.2 Strategic Human Resource Management

The aim of this section is to provide the definition of SHRM and to present the three

approaches to research on the link between SHRM and firm performance. They are

the universalistic approach, the contingency theory approach, and the

configurational approach. HPWS, a system of HR practices, is introduced in this

study. The main reason for this is that the research in SHRM focuses on a bundle or

a system of human resource (HR) practices rather than individual practices. Then

25
the role of HPWS in PSFs is reviewed. Next, two research themes on the direct and

indirect impact of HPWS on firm performance are considered. Finally, a short

conclusion is provided.

3.2.1 Definition of SHRM

Strategic human resource management (SHRM) links human resource management

with organisational strategy (Becker & Huselid, 2006; Boxall, 1992; Boxall &

Purcell, 2000; Collins & Clarks, 2003; Delery & Doty, 1996; Delery & Shaw, 2001;

Wright & McMahan, 1992).

SHRM is different from traditional human resource management (HRM). As Delery

and Shaw (2001) argued, there are at least two major features which distinguish

SHRM research from the more traditional HRM practice research. The first is that

SHRM studies focus on the strategic role of HR practices in enhancing

organisational effectiveness. The second is that SHRM focus on the analysis at unit

or firm level rather than at individual level. Similarly, Becker and Huselid (2006)

provide two differences between SHRM and traditional HRM. The first is that

SHRM is systematic and emphasised the role of HR systems rather than individual

HR practices in traditional HRM. The second is that SHRM focuses on

organisational performance which is also the objective of the organisation, rather

than individual outcomes.

There are a range of similar definitions of SHRM. For example, Wright and

McMahan (1992) define SHRM as “the pattern of planned human resource

deployments and activities intended to enable an organisation to achieve its goals”

(p.298). Bratton and Gold (2003) define strategic human resource management as

26
“the process of linking the human resource function with the strategic objectives of

the organisation in order to improve performance” (p. 37) and “a managerial process

requiring human resource policies and practices to be linked with the strategic

objectives of the organisation” (p. 38).

Other definitions of SHRM are offered as follows:

• A human resource system that “is tailored to the demands of the business

strategy” (Miles & Snow, 1984: 37).

• “The pattern of planned human resource activities intended to enable an

organisation to achieve its goals” (Wright & McMahan, 1992: 298).

• HR activities that are “systematically designed and intentionally linked to an

analysis of the business and its context” (Schuler, Jackson, & Storey, 2001:

127).

There are a lot of different labels of SHRM, such as high performance work

practices (Cappelli & Neumark, 2001; Huselid, 1995), commitment-based HR

practices (Collins & Smith, 2006), High HRM systems (Guest & Hoque, 1994),

human capital-enhancing human resource systems (Youndt et al., 1996), high

commitment management (Wood & de Menezes, 1998), high involvement HRM

(Bae & Lawler, 2000; Wood & de Menezes, 2008), high involvement management

practices (Batt 2002; Bryson, Forth, & Kirby, 2005), system of high involvement

work practices (Guthrie, 2001), and high performance work systems (Combs et al.,

2006; Datta et al., 2005; Evans & Davis, 2005; Guthrie et al., 2009; Way, 2002).

From a systematic perspective, a lot of studies have been conducted to examine the

linkages between human resources management practices and firm performance

(Arthur, 1992, 1994; Becker & Gerhart, 1996; Datta et al., 2005; Delery & Doty,

27
1996; Guthrie et al., 2009; Huselid, 1995; MacDuffie, 1995; Richard & Johnson,

2001; Terpstra & Rozell, 1993; Youndt et al., 1996).

3.2.2 Three Approaches to SHRM

Many authors have attempted to provide more analytical frameworks for SHRM.

Delery and Doty’s (1996) analysis is one of the most prominent studies which

distinguish between the following three theoretical frameworks:

• Universalistic: some HR practices are believed to be universally effective,

i.e., “best practice(s)”.

• Contingency theory: the effectiveness of HR practices is supposed to be

dependent on an organisation’s strategy, i.e., “best fit” or “vertical fit”.

• Configurational: the effectiveness of HR practices is supposed to not only

enhance vertical fit but also “horizontal fit”.

The three different theoretical frameworks of SHRM have received a lot of attention

and many empirical studies have been conducted to test their validity.

3.2.2.1 The Universalistic Approach

The universalistic approach to SHRM argues that some HR practices are always

better than others and suggests that all organisations should adopt these best

practices. As Delery and Doty (1996) wrote, “universalistic arguments are the

simplest form of theoretical statement in the SHRM literature because they imply

that the relationship between a given independent variable and a dependent variable

is universal across the population of organisations” (p.805). The universalistic

approach has attracted a range of interested researchers. Examples of this research

28
include Pfeffer (1994), Osterman (1994), Delery and Doty (1996), Guthrie (2001),

Guthrie et al. (2009), and Huselid (1995).

In Pfeffer’s (1994) book, he enumerated sixteen distinctive management practices

which helped organisations to achieve high productivity and profits and gain

competitive advantage. These sixteen best management practices were later reduced

to seven, such as employee security, selective hiring, self-managed teams or

teamworking, high pay contingent on company performance, extensive training,

reduction of status differences, and sharing information (Pfeffer, 1998). Osterman

(1994) identified a number of innovative work practices which help organisations to

achieve high productivity. They include teams, job rotation, quality circles, and total

quality management.

Empirically, Huselid (1995) examined the link between the use of bundles of high

performance work practices and organisation-level outcomes. He found

considerable support for the hypothesis that investments in such high performance

work practices were associated with lower employee turnover and greater

productivity and corporate financial performance. Delery and Doty (1996)

discovered that three individual HR practices - profit sharing, results- oriented

appraisals, and employment security - had relatively strong universalistic

relationships with important financial performance measures. This provided strong

support for the universalistic perspective. Guthrie (2001) found a positive

association between the use of high-involvement work practices and employee

retention and firm productivity while studying the relationship between High-

Involvement Work Practices, Turnover, and Productivity in a New Zealand context.

Guthrie et al. (2009) examined the effectiveness of high performance work systems

29
for organisational performance using a multi-industry sample of firms operating in

the Republic of Ireland. Their results suggested that greater use of HPWS was

associated with positive human resource and organisational outcomes.

The above research provides strong evidence for the universalistic framework of

SHRM which argues the direct relationship between SHRM and organisational

performance that proposes the “best practices” (Combs et al., 2006).

3.2.2.2 The Contingency Theory Approach

According to the contingency theory approach of SHRM, HR practices are effective

in improving organisational performance only when they are consistent with other

aspects of the organisation, e.g. organisational strategy and organisational contexts

(Delery & Doty, 1996). In other words, the contingency theory approach of SHRM

argues that the impact of HRM on firm performance is moderated by organisational

strategy. The example studies include Youndt et al. (1996) and Datta et al. (2005).

The study by Youndt et al. (1996) tested and found the support for the moderating

role of manufacturing strategy in the relationship between HR practices and firm

performance. Datta et al. (2005) examined how industry characteristics affect the

relative importance interacting with HPWS. They analysed and found the evidence

for the moderating effects of industry capital intensity, industry growth, industry

differentiation and industry dynamism in the relationship between HPWS and firm

performance.

Therefore, the two above studies provide support for the contingency theory

approach of SHRM which proposes the “best fit” approach between HRM and

30
organisational strategy rather than the “best practices” as advocated in the

universalistic approach. This “best fit” is sometimes labelled as “vertical fit”.

3.2.2.3 The Configurational Approach

The configurational approach of SHRM argues that the effectiveness of HR

practices not only depends on the fit between HRM and the aspects of organisations,

i.e. vertical fit, but also depends on the internal consistency of HR policies or

practices, i.e. horizontal fit (Delery & Doty, 1996).

Wright and Snell (1998) presented a model for exploring fit and flexibility in

strategic human resource management (see Figure 3.1). They considered fit and

flexibility as two goals of organisational strategies. They then investigated weather

SHRM could contribute to a firm’s competitive advantage. Their comprehensive

analysis illustrated that a multifaceted HRM system could simultaneously pursue

both the fit and flexibility. Multifaceted HRM emphasised the idea of “best bundles”.

To achieve the goal of “fit”, as Wright and Snell (1998) suggested, “firms that seek

to increase levels of customer service can develop selection tests, such as role plays

or interviews that assess an individual’s skill in providing customer service” (p.767).

To achieve the goal of “flexibility”, organisations could adopt practices to improve

employees’ “developmental experiences, such as job rotation and temporary

assignments, focus on broadening both the skills and behavioural repertoires of

individuals” (p.767).

Another distinctive paper on the bundles of HR practices was conducted by Kang

and Snell (2009). They linked HR practices with organisational learning. They

argued that different HR configurations, i.e. different bundles of HR practices,

31
Figure 3.1 A Fit/Flexibility Model of SHRM

Source: Wright and Snell (1998: 760)

created different types of human capital as generalist and specialist, social capital as

entrepreneurial and cooperative, and organisational capital as organic and

mechanistic as shown in Tables 3.1 to 3.3. Table 3.1 shows that skill-based HR

development system helps to build generalist human capital while job or function-

based HR development systems helps to build specialist human capital. Table 3.2

shows that market or network-based employ relations system helps build

entrepreneurial social capital while internal labour market (ILM)-based employ

relations system helps build cooperative social capital. From Table 3.3, it can be

seen that error embracing performance control system helps build organic

organisational capital while error avoiding performance control system helps build

mechanistic organisational capital.

Kang and Snell (2009) identified that the different combination of these forms of

capitals facilitate different modes of organisational learning, i.e. exploring new

knowledge domains or exploiting current ones, and they might facilitate

ambidextrous learning which includes both exploration and exploitation. Figure 3.2

shows that generalist human capital, supplemented by entrepreneurial social capital

32
and complemented by organic organisational capital facilitates exploration in

organisational learning. Specialist human capital supplemented by cooperative

social capital, and complemented by mechanistic organisational capital facilitates

exploitation in organisational learning. The dashed lines and complete circles and

lines present two new architectures of intellectual capital found by Kang and Snell

(2009). These are described in Figure 3.3 as refined interpolation and disciplined

extrapolation. Both of these architectures of intellectual capital encourage

ambidextrous learning.

Figure 3.2 Intellectual Capital Architectures and Ambidextrous Learning

Exploration
Exploitation

Human capital
Generalist Specialist

Entrepreneurial
Social capital Cooperative

Organic Organisational capital Mechanistic

Source: Kang and Snell (2009: 74)

Kang and Snell’s (2009) framework provides strong support for a configurational

approach of SHRM. It emphasises the consistency among detailed HR practices to

achieve different goals, e.g. different types of human capital, social capital and

organisational capital represent different intellectual capital architectures, or

horizontal fit. The different intellectual capital architectures are actually the

organisational strategic choices, i.e. the vertical fit. This study also recalls Wright

33
Table 3.1 HR Practices for Human Capital
Human capital Generalist: diverse knowledge of multiple domains Specialist: deep knowledge in a specific domain

Skill-based Job or function-based

Development
system
Based on potential (aptitude) (e.g. cognitive ability and aptitude tests) Based on the fit between persons and jobs
Consider the fit between individuals’ current competence and job requirements as
Staffing Place priority on employee potential and openness to learn new skills
a primary criterion.
Broad and multidimensional; formal; broad or loosely-defined, and
Job design Narrow and tight job definitions, idiosyncratic job designs
serendipitous job designs
Job rotation Broad and multidimensional Focused career development; hierarchical job movement with few job rotations
Extensive training to focus on future skill requirements beyond current job
Training Intensive training to focus on the improvement of current job-related skills
requirements
Incentive systems Skill- or knowledge-based incentive systems Focus on individuals’ performance and effort in current jobs for compensation.
Source: Kang and Snell (2009).

Table 3.2 HR Practices for Social Capital

Social capital Entrepreneurial: a more loosely connected social system Cooperative: a tightly coupled social system
weak and non-redundant relational
Structural strong and dense network connections
networks
Affective resilient dyadic trust that is developed through direct personal experiences generalized or institutional trust based on membership in the social unit
common component knowledge that reflects shared technical, professional,
Cognitive shared understanding of how knowledge can be combined
or operational knowledge
Employee
Market or network-based Internal labour market (ILM)-based
relations system
Extensive external staffing that utilizes various external sources of human
Staffing Internal staffing/promotion
resources
Performance-based compensation (e.g. individual incentives, pay for Seniority-based compensation (including fixed bonus and egalitarian pay
Compensation
reputation, hierarchical pay structure) structure)
General development experiences (e.g. crosstraining, training for
Training
interpersonal skill improvement, social events)
Socialization (e.g. mentoring, P-O fit criteria for recruiting and promotion,
Socialization
extensive orientation, team structures, multi-source feedback, etc)
Source: Kang and Snell (2009).

34
Table 3.3 HR Practices for Organisational Capital

Organisational Organic: more loosely connected to precedent, rules, and traditional Mechanistic: standardized processes and structures, detailed routines, and rule
capital expectations about work following cultures
Performance /
Error embracing Error avoiding
control system
Appraisal Develop mental performance appraisal Specific behavioural appraisal systems (e.g. behavioural observation scales)

Employees’ participation in problem-solving and decision-making;

Extensive transference of tasks and responsibilities to employees;
Participation Performance programme imposed top-down
Encouraging and implementing employee suggestions; Reduction of status
barriers between managers and employees

Evaluation Providing chances to use personal initiatives Behaviour (versus result)-based evaluation and rewards
Source: Kang and Snell (2009).

35
Figure 3.3 Two Intellectual Capital Architectures

Refined Interpolation Disciplined Extrapolation

Specialist Generalist

Cooperative Entrepreneurial

Organic Mechanistic
Source: Kang and Snell (2009)

and Snell (1998)’s conclusions that SHRM can achieve both vertical fit and

horizontal fit.

Viewed together, the above research provides support for the configurational

approach to SHRM, which emphasises consistency among HR practices as well as

consistency between HRM and the aspects of organisational outcomes.

3.2.3 SHRM and HPWS

Many researchers in the field of SHRM adopt a systems perspective which focuses

on a bundle or a system of human resource (HR) practices rather than individual

practices to examine the performance impact of HRM on relevant organisational

outcomes (Authur, 1994; Huselid, 1995; Guthrie, 2001; Guthrie et al., 2009; Gittell,

Seidner, & Wimbush, 2010; Takeuchi, Lepak, Wang, & Takeuchi, 2007).

As reviewed previously, HPWS is also often used as a label for SHRM. Although

there is no universal agreement on the definition of HPWS due to its wide and

varied usage (Boxall & Macky 2009; Boxall & Purcell 2003), HPWS can be

described as “a system of HR practices designed to enhance employees’ skills,

commitment, and productivity in such a way that employees become a source of

sustainable competitive advantage” (Lawler, 1992, 1996; Levine, 1995; Pfeffer,

36
1998; cited in Data et al., 2005: 136). HPWS involves selective staffing, extensive

training and development, mentoring, performance management, and incentives

(Gittell et al., 2010; Takeuchi et al., 2007).

HPWS is a system of HR practices that are effective for improving a firm’s

performance. However, different organisational contexts might apply different

practices, so it is necessary to look at the “firms facing similar environments rather

than on firms with diverse environments, because within- rather than cross-industry

studies will better allow researchers to identify the firm capabilities necessary for

success” (Collins & Smith 2006: 554). Therefore, the professional service firms

have been chosen as the context within which this research is conducted. The

applications of HPWS in PSFs are provided in the next section.

3.2.4 HPWS in PSFs

As outlined in Chapter Two, the inputs and outputs of PSFs are knowledge. The

human resource is the most valuable asset of PSFs as the professional staff members

embed, deliver and apply knowledge. Therefore, human resource management plays

an important role in value creation in PSFs.

PSFs usually adopt apprenticeships (Morris & Pinnington, 1998). Most professional

staff members have senior supervisors who supervise and monitor their progress.

Every year, many trainees are recruited and become professionally accredited while

they are trained on-the-job. They acquire formal knowledge through training and

experience through the performance of day-to-day tasks. After qualification, most of

them will choose to leave though some will remain. These are usually self-

motivated to obtain a qualification but monitoring or coaching is also necessary.

37
Efficient monitoring practices for trainees could help PSFs reduce costs and

improve firm performance. Therefore, the HR practices in PSFs include staffing,

training, performance management, compensation, information sharing and

participation.

In PSFs, most employees are revenue producers (Stumpf et al., 2002). However,

partners are found to play a very important role in seeking business and retaining

existing clients (Hitt et al., 2001). During the process of delivering services to

clients, partners serve as managers, as well as key production workers who actively

participate in a lot of businesses. Each partner is responsible for organising a group

of professionals, who share a particular form of expertise, into a recognizable

practice area. Partners are also responsible for a firm’s overall management.

“Partners’ desire for autonomy in the conduct of their professional tasks and
their control of client relationships produce a dispersed distribution of power
within professional firms” (Empson, 2007: 64).

Partners are the most aware of opportunities in their client markets (Hinings et al.,

1991). Usually, each partner looks after some fixed clients. When the partner

establishes the client’s needs, he or she will choose one or several directors at the

senior level who will choose some qualified professionals at the junior level to form

a service or project team. Usually after delivering services to clients, the partner will

go to his or her clients to check if they are happy with the service. This process can

be understood from a macro-level (firm level) and a micro-level (individual level) as

shown in Figure 3.4.

In Figure 3.4, line 1 illustrates a partner discovers clients’ needs. Line 2 shows the

partner forming a project team and line 5 shows delivery of service to clients.

38
Figure 3.4 How PSFs Deliver Service to Their Clients by Partners

Internally, the partner coaches and monitors individuals (line 3) to improve

individual performance (line 4) and subsequently improve team competencies.

Based on the above analysis of the work process in PSFs, partners are those who

have very good knowledge of their organisation to ensure the success in delivering

service. In addition, the use of HR practices, such as staffing, training, performance

management, compensation, information sharing and participation, facilitates this

process through improving partners and employees’ communication, coordination,

monitoring and team utilisation (Gittell et al., 2010; Kraut & Streeter 1995).

Therefore, this study explores how HR practices operates in PSFs through collecting

data from partners.

3.2.5 HPWS and Firm Performance

In the studies on the relationship between HRM and firm performance, two main

research themes concerned with direct and indirect effects have emerged. Some

scholars argue that HR practices have a direct effect on various measures of

organisational performance (Guest, 1997; Huselid, 1995). For example, high

performance work systems (HPWS) have been found to positively relate to firms’

39
outcomes in generalized firms especially in manufacturing firms, such as financial

performance (Guthrie, 2001; Huselid, 1995), employee turnover (Richard &

Johnson, 2001), firm productivity (Guthrie, 2001), efficiency, flexibility (Evans &

Davis, 2005), and organisational commitment (Youndt et al., 1996). This research

theme mainly employs the universalistic approach of SHRM.

On the other hand, other researchers contend that that is an indirect relationship

between HR practices and organisational performance, i.e. the mechanisms by

which HPWS affect firm performance. As Becker and Gerhart’s (1996: 793)

commented:

“future work must elaborate on the black box between a firm’s

HRM system and the firm’s bottom line. Unless and until
researchers are able to elaborate models, including key intervening
variables- it will be difficult to rule out alternative causal models
that explain observed associations between HR systems and firm
performance”.

The representative studies on the indirect relationship between HRM and firm

performance include Batt (2002), Collins and Clark (2003), Datta et al. (2005),

Gittell et al. (2010), Tackechui et al. (2007), Wright et al. (2001), and Youndt et al.

(1996). This research theme mainly employs the contingency theory and

configurational approaches of SHRM.

Table 3.4 summarises findings of studies relating to the direct and indirect

relationships between SHRM and organisational performance including the tested

model, sample/method and findings.

40
 Table 3.4 A Summary of Empirical Studies of HRM on Organisational Performance
Direct Indirect
Study(s) Model test Sample/Method Findings
Relationships
To explore the effect of USA: 30 of 54 mini-mills in the steel industry,
High commitment HRM systems were associated
Authur human resource systems on survey to HR managers
 to higher reported productivity and show lower
(1994) manufacturing performance
reported labour turnover.
and turnover Response rate: 56%
To examine the relationship
High involvement HR practices positively related
between human resource
USA: survey to general managers in call centers. to sales growth and negatively related to
Batt practices, employee quit
  employee quit rates. Effect of high involvement
(2002) rates, and organisational
Response rate: 54% HR practices on sales growth was moderated by
performance in the service
market context.
sector
USA: two questionnaires to CEO in 73 high-
To examine the mediating
technology firms to measure and TMT (excluding
Collins & effect of social networks of HR practices were positively associated to firm’s
CEO) to measure social networks and the secondary
  Clark top management teams on financial performance. This relationship was
source records to measure financial performance.
(2003) the relationship between mediated by top management team’s networks.
Response rate: participation rate of 35%; internal
HRM and firm performance
response rate of 54%
Meta-analysis of the effect of 92 studies of HRM and organisational performance HPWPs considerably and positively affect
Combs et
  HPWS on organisational that examined a total of 19,319 organisations from organisational performance. This relationship is
al. (2006)
performance 1985 to 2005 moderated by firm context.

To examine how industry USA: Survey to HR executives in 971

The positive relationship between human
characteristics affect the manufacturing firms having a minimum of 100
Datta et resources systems and productivity was
 relative importance and employees and $50 million in sales.
al. (2005) influenced by industry capital intensity, growth,
value of HPWS for
and differentiation.
organisational performance. Response rate: 25%

41
 Table 3.4 A Summary of Empirical Studies of HRM on Organisational Performance (continued)
Direct Indirect
Study(s) Model test Sample/Method Findings
Relationships
To test which mode of USA: two questionnaires to senior HR manager and
HR practice performance appraisal, profit sharing
Delery & SHRM, universalistic, president in 1050 banks.
and employment security were found directly and
 Doty contingency and
positively associated to organisational
(1996) configurational, is theoretical Response rate: 21% from HR manager and 53%
performance.
foundation of SHRM. from president, 11% in total

USA: questionnaire to senior HR professionals in

To evaluate the links HR practices were positively associated to firm
Huselid 3,452 firms representing all major industries.
 between HPWPs and firm financial performance and productivity and
(1995)
performance negatively associated to employee turnover.
Response rate: 28%
USA: nine orthopedics units located in a different
hospital. Multiple data collection resources.
Administrator interviews were used to measure
To explore the mediating high-performance work practices at the unit level.
Relational coordination mediated the relationship
Gittell et role of relational co- Relational coordination was measured by the care
  between HPWS and organisation outcomes.
al. (2010) ordination between HPWS provider survey at the level of individual level with
and organisational outcomes response rate at 51%. Patient surveys and
hospitalization records were used to measure
outcomes at the level of individual patients with
response rate at 64%.
Ireland: two questionnaires to managing director Greater use of HPWS was associated with lower
Guthrie et To examine the effectiveness and senior HR manager in 1338 top firms. rates of employee absenteeism and voluntary

al. (2009) of HPWS in Irish context turnover and with higher labor productivity and
Response rate: 12.3% lower labor costs.

42
 Table 3.4 A Summary of Empirical Studies of HRM on Organisational Performance (continued)
Direct Indirect
Study(s) Model test Sample/Method Findings
Relationships
USA: questionnaire to HR manager in 406 Banks in
The link between SHRM
Richard & California and Kentucky and the secondary data
effectiveness and Firms with higher levels of SHRM effectiveness
 Johnson information sources
organisational level experience performance gains.
(2001)
outcomes
Response rate: 23%
To eexamine the mediating
roles of collective human Japan: two surveys to employees and managers in
Tackechui Collective human capital and the degree of social
capital, and social exchange 76 Japanese establishments.
  et al. exchange mediated the relationship between
in the link between HPWS
(2007) HPWS and relative establishment performance.
and organisational Participation rate: 47%
performance
To distinguish between high
involvement management as
UK: adopt the result of WERS98 and a structured HR practices were critical for productivity.
Wood & a set of complementary best
interview with the senior manager responsible in Different HR practices had different effect on
de practices, as a set of
 2191 workplaces with 10 or more employees across different organisational performance. For
Menezes synergistic practices, and as
the whole British economy. example, job security was found as the only
(2008) an underlying orientation or
practice associated with reduced labour turnover.
philosophy to affect
organisational performance
To examine two alternative Two round questionnaires: 1st to general manager to
Youndt,
views-universal and ask HR and performance, and 2nd to all managers to
Dean & HR systems as a set were significantly related to
  contingency-of HR and ask the strategy.
Lepak customer alignment and employee productivity
performance relationship in
(1996)
manufacturing context Response rate: 31%

43
3.2.6 Summary

This section has presented the definition and three approaches to SHRM, and the

application of HPWS in PSFs. In particular, it reviewed the research on the direct

and indirect effect of SHRM on organisational performance. Both research themes

are supported by empirical evidence.

However, there is a lot of evidence to suggest that the HPWS-firm performance

relationship is not necessarily a direct one and many scholars call for deeper and

more theoretical approaches to understand how and why high performance work

systems (HPWS) affect firm performance (Bowen & Ostroff, 2004; Combs et al.,

2006; Delery & Shaw, 2001), especially in service organisations (Combs et al.,

2006). The next section will review the resource based view of the firm and the

knowledge-based theory to for supporting the indirect impact of HPWS on firm

performance.

3.3 The Resource-Based View of the Firm

This section reviews the resource-based view of the firm (RBV) and its application

in SHRM. In particularly, three resources in PSFs are identified, i.e. human capital,

social capital and organisational capital. Combining SHRM and the RBV, the

mediating roles of the three capital resources are found. This is followed by a

proposal of the hypotheses. Finally, a brief conclusion is provided.

3.3.1 Definition

The resource-based view of firm argues that a firm’s competitive advantage lies

primarily in the valuable, rare, imperfectly imitable, and non-substitutable resources

44
that a firm already has (Barney, 1991; Penrose, 1959; Wernerfelt, 1984). These

include tangible and intangible resources. The key resources of firms must meet the

VRIN criteria, i.e., be valuable, rare, imperfectly imitable, and non-substitutable

(Barney, 1991). Only the firms that have superior resources and protect them from

diffusion throughout the whole industry can maintain sustainable competitive

advantage and sustain high performance levels.

3.3.2 RBV and KBT

The knowledge based theory (KBT) is built upon the resource-based view of the

firm (Alavi & Leidner 2001; Grant, 1996a, 1996b). Although the resource-based

view of the firm recognises the important role of knowledge as a source of

competitive advantage, it “does not go far enough”. Specifically, the RBV treats

knowledge as a generic resource, rather than recognising that it possesses special

characteristics. It therefore does not distinguish between different types of

knowledge-based capabilities (Alavi & Leidner 2001; Grant, 1996a, 1996b).

The knowledge-based theory of a firm considers intangible resources, such as

knowledge, as the most strategically significant resource of the firm (Grant, 1996a,

1996b; Nonaka & Takeuchi 1995; Spender, 1996). This knowledge is embedded and

carried through multiple entities including individuals, relationships and

organisational processes, routines, database, and systems.

Knowledge is different from data and information as it involves ‘beliefs and

commitment’, and therefore it is a ‘function of a particular stance, perspective, or

intention’ (Nonaka & Takeuchi, 1995: 58).

45
There are two types of knowledge: explicit knowledge and tacit knowledge (Berry,

1997; Nonaka, 1994; Nonaka & Takeuchi, 1995; Polanyi, 1958, 1966). Tacit

knowledge is inherently difficult to transfer because it cannot be fully transferred

through written or verbal communication but must be learned through experience

(Nonaka & Takeuchi, 1995; Polanyi, 1966).

The knowledge-based theory argues that knowledge-based resources can build long-

term sustainable competitive advantage. As Alavi and Leidner (2001) stated

“[b]ecause knowledge-based resources are usually difficult to imitate and socially

complex, heterogeneous knowledge bases and capabilities among firms are the

major determinants of sustained competitive advantage and superior corporate

performance” (p.108).

3.3.3 RBV, KBT and SHRM

RBV has been widely used and has become a presumed paradigm in SHRM

research (Paauwe, 2004). It shifts the emphasis of SHRM from external factors, i.e.

environments, industry position, to the internal resources of the firm (Hoskisson,

Hitt, Wan, & Yiu, 1999). Therefore, it has been used as a theory base in many

empirical studies to examine how HRM practices can impact firm performance

(Boxall & Purcell, 2000; Guthrie et al., 2009; Wood & de Menezes, 2008; Wright et

al., 2001). “A knowledge-based perspective of the firm has emerged in the strategic

management literature” (Cole, 1998; Nonaka & Takeuchi, 1995; Spender, 1996a,

1996b; cited in Alavi & Leidner, 2001: 108).

There is a growing research interest in applying knowledge management in SHRM

research. One of the most distinctive theoretical studies was conducted by Wright et

46
al. (2001). They explain that SHRM forms organisational core competencies

through knowledge management, intellectual capital and dynamic capabilities. Their

work has been reviewed in the previous section.

3.3.4 RBV and KBT in PSFs

Professional service firms consist of a highly educated and professionalised

workforce who provides clients with customised knowledge (Empson, 2007;

Greenwood et al. 2005; Maister, 1993). Based on the RBV and KBT, three

resources within PSFs were identified to embed the required knowledge in Chapter

2. They are human capital, social capital, and organisational capital. Human

resource constitutes the critical asset of PSFs. Therefore, this study investigates how

to build the resources through human resource management practices systems. This

study also aims to discover how to use these resources at the firm level to help PSFs

to achieve higher performance.

3.3.5 RBV, KBT and SHRM in PSFs

The SHRM literature argues that the use of HPWS will have a positive impact of

firm performance (Arthur, 1992, 1994; Collins and Clark 2003; Huselid 1995;

Youndt et al. 1996). This impact may often be indirect (Batt, 2002; Collins & Clark,

2003; Datta et al., 2005; Gittell et al., 2010; Tackechui et al., 2007; Wright et al.,

2001; Youndt et al., 1996). The resource-based view of the firm (RBV) argues that a

firm’s competitive advantages lie primarily on the valuable, rare, imperfectly

imitable, and non-substitutable resources that a firm already has (Barney, 1991;

Penrose, 1959; Wernerfelt, 1984). The intangible resources are more likely to

47
produce a competitive advantage because they are often rare and socially complex,

thereby making them difficult to imitate (Barney 2001; Black & Boal 1994; Itami,

1987; Peteraf 1993). In an extension of the RBV, the knowledge-based theory of a

firm considers intangible resources such as knowledge, as the most strategically

significant resource of the firm (Grant, 1996a, 1996b). This knowledge is embedded

and carried through multiple entities including individuals, relationships and

organisational processes, routines, database, and systems.

Based on the resource-based view of the firm, knowledge-based theory and strategic

human resource management, the literature suggests three pathways through which

HPWS influence firm performance. They are the human capital, social capital and

organisational capital pathways (Kang & Snell, 2007). This literature is now

reviewed.

3.3.5.1 The Mediating Role of Human Capital

Human capital refers to the stock of skills and knowledge embodied in individuals

(Becker, 1964; O’Sullivan & Sheffrin, 1998), which can be built through education

and training (Becker, 1964).

There are some scholars who have found that a HPWS affects firm performance by

improving employees’ human capital. For example, Guest (1997) indicated that

SHRM improved firm performance by improving the quality of employees, i.e. their

skills and abilities. Snell and Dean (1992) argued that human resource management

practices affected a firm’s financial performance by creating higher human capital

skills, experience and knowledge. Wright et al. (2001) asserted that HPWS

facilitated building of a firm’s competitive advantage by creating a high quality

48
human capital pool which is not easily imitated by its competitor in a given time.

Becker and Gerhart (1996) explained that human resource activities contributed to

firm’s competitive advantages by developing employees’ skills. They argued that a

highly skilled workforce would help firms to achieve higher financial performance.

In PSFs, human capital is defined as the knowledge embedded in professionals that

can be used to produce high quality professional services for clients (Hitt et al.,

2001; Hitt et al., 2006; Pennings, Lee & Van Witteloostuijn, 1998).

Human capital is a very important asset of PSFs (Hitt et al., 2001; Morris & Snell,

2008). Higher human capital means more expertise knowledge embedded in highly

professionalised workforces in PSFs. It can help PSFs build a good reputation by

signalling that the professional service firm has the potential to provide more

efficient solutions for its clients. The clients may prefer to choose the PSF with

higher human capital since they believe that smarter people will provide better

solutions when other conditions are the same. PSFs achieve high human capital by

recruiting graduates from top institutions who have potentially better learning

capability (Hitt et al., 2001). In addition, extensive training programmes can help to

build human capital as most people want to learn more and are interested in

opportunities that develop personal skills. So higher human capital also helps PSFs

to attract more talent and brighter graduates from top institutions.

To build high human capital, PSFs need to identify, attract and retain superior

professionals. This can be achieved through HR practices such as selection,

recruitment, training and skill-based pay.

Thus this study proposes that HPWS improves firm performance by improving

PSFs’ human capital.

49
 H1: PSF’s human capital mediates the relationship between HPWS and

firm performance.

3.3.5.2 The Mediating Role of Social Capital

Social capital is a resource which is embedded in the relationships among

individuals (Coleman, 1988; Bourdieu; 1985; Burt, 1992; Putnam, 1993; Nahapiet

& Ghoshal, 1998; Lin, 2001).

There is some research which has found that many human resource management

practices have a significant role to play in creating social capital. For example,

Wright et al. (2001) argued that HPWS affected firm performance in many different

ways and give an example that “… these [human resource management] systems

may promote and maintain socially complex relationships characterized by trust,

knowledge sharing, and teamwork” (p.710). Bowen and Ostroff (2004) identified

that human resources management influenced organisational performance by

fostering a collective organisational climate. The concept of organisational climate

in Bowen and Ostroff (2004) came from psychology and was defined as “is a shared

perception of what the organization is like in terms of practices, policies, procedures,

routines, and rewards” (p.205). It responded to Nahapiet and Ghoshal’s (1998)

description of the cognitive facet of social capital as “shared representations,

interpretations, and systems of meaning among parties” (p.244). Therefore, Bowen

and Ostroff’s (2004) research provides support for the mediating role of social

capital between HR practices and firm performance.

Leana and van Buren (1999) stated that employment practices fostered

organisational internal social capital and then organisational internal social capital

50
 created value for firms. In other words, organisational social capital mediated the

human resource management practices and organisational performance relationship

(see Figure 3.5).

Figure 3.5 A Model of Organisational Capital

Organisational outcomes

Organisational social  Benefits

capital o Commitment
Employment justification
Practices o Work flexibility
 Associability
o Collective goals o Collective organisation
 Stable o Intellectual capital
relationships o Collective action
 Trust  Costs
 Strong norms o Maintenance costs
 Specified roles o Fragile/resilient
o Dyadic/generalised o Foregone innovation
o Institutionalised power

Source: Leana and van Buren III (1999: 547)

They also indicated that employment practices could also reduce organisational

internal social capital. However the issue of what employment practices reduce

internal social capital remains unanswered.

Evans and Davis (2005) studied the mediating role of the internal social structure

between high performance work systems and organisational performance and built a

framework to show that the human resource practices that enhance organisational

internal social structure will create organisational internal social capital and then

improve organisational financial efficiency and organisational flexibility (see Figure

3.6).

Empirically, Collins and Clark (2003) tested and found support for the mediating

role of social capital between HR practices and firm performance in high technology

firms. In addition, Gittell et al. (2010) provided one of the best empirical tests to

51
Figure 3.6 Expanded Framework of HPWS and Organisational Performance

High Performance Internal Social Organisational

Work System Structure Performance

 Staffing  Bridging Week ties  Organisational

 Self-managed teams  Generalized norms of financial efficiency
 Decentralization reciprocity 
 Training  Shared mental  Organisational
 Flexible work models flexibility
assignments  Role making
 Communication  Organisational
 compensation citizenship behavior

Source: Evans and Davis (2005: 761)

date of the argument that high-performance work systems affected organisational

outcomes through their impact on strengthening relational coordination among

employees. They argued that high-performance work systems, including selection

for cross-functional teamwork, cross-functional conflict resolution, cross-functional

performance measurement, cross-functional rewards, cross-functional meetings, and

cross-functional boundary spanners, were designed to foster the employee-employee

relationships through which effective coordination was achieved. The relational

coordination was defined as “a mutually reinforcing process of interaction between

communication and relationships carried out for the purpose of task integration”

(Gittell 2002a, p. 301). Gittell et al. (2010) tested their hypotheses among a sample

from nine hospitals where the administrators were interviewed on the high-

performance work systems, the care providers completed the survey on relational

coordination, the patients answered the questions on the quality of care, and the

hospital records were reviewed to measure the efficiency of care. Their results

provided the support for the argument that the impact of high-performance work

52
systems on organisational outcomes was mediated by the relational coordination

among employees.

Although the above research provides support that social capital mediates the

relationship between HR practices and organisational outcomes, there are still some

gaps. First of all, their contexts include high technology firms and hospitals which

are knowledge-intensive but not professional service firms which are knowledge-

intensive but differ from the above firms. Secondly, Collins and Clark (2003) only

focused on the top management team members without considering the relationships

between employees and managers. Gittell et al. (2010) only analysed the employee-

employee relationships, i.e., internal social capital at an individual level without

considering the external social capital, i.e. the relationships between employees and

their clients. Both the studies overlook the mediating role of general social capital

especially the external social capital through which HR practices influence firm

performance. Therefore, this study investigates both the internal and external social

capital at firm level to illustrate the three pathways through which HPWS work.

In this study, PSFs’ social capital is defined as the knowledge embedded in the

relationships among professionals and between professionals and clients. Some HR

practices contribute to building social capital through training, compensation, and

communication and information sharing practices. For example, to build internal

social capital, PSFs could provide training programs for improving professionals’

teamwork and communication skills, compensation policies such as group-based

pay and bonus sharing plans, and open vertical and horizontal communication

channels for professionals sharing and exchanging knowledge within the firm

through employee suggestion forums. To build external social capital, PSFs could

53
provide professionals with external training opportunities, and reimburse them for

developing networks with potential and existing clients.

In PSFs, social capital plays an important role in two ways. On one hand, the

relationships between PSFs and clients, i.e., external social capital, help PSFs to

attract and retain clients. The service delivered by PSFs suffers from an “opaque

quality” (von Nordenflycht, 2010) mainly because the PSFs inputs and outputs are

intangible and the clients can not evaluate the quality of service before they receive

it. When choosing a service provider, the clients usually choose the service provider

who has a relationship with them all other things being equal (Alvesson, 2001;

Pennings et al., 1998). Pennings et al. (1998) defined a firm’s social capital as the

ties between professionals and their potential clients and found that a firm’s human

and social capital has great influence on firm dissolution in PSFs. Their study shows

that at a firm-level, human and social capital can be an important source of

competitive advantage. On the other hand, the capital embedded in the internal

relationships among professionals within the firm, i.e., internal social capital, can

help PSFs deploy teams, coordinate tasks and communicate within the firm

efficiently.

Based on the above analysis, this study proposes that the PSFs’ social capital

mediates the relationship between HPWS and firm performance.

H2: PSF’s social capital mediates the relationship between HPWS and

firm performance.

54
3.3.5.3 The Mediating Role of Organisational Capital

Organisational capital is defined as the institutionalised knowledge residing within

organisational processes, routines, systems and structures (Youndt et al., 2004;

Subramaniam & Youndt, 2005) and is the result of integrating and combining

individual knowledge into organisational knowledge (Grant, 1996a, 1996b) which is

preserved over time (Daft & Weick, 1984). Organisational capital is a source of

organisational competitive advantage (Kang & Snell, 2007; Teece, 2000; Teece et

al., 1997).

Some scholars propose that HR practices affect firm performance through building

organisational capital. For example, Ferris, Arthur, Berkson, Kaplan, Harrell-Cook,

and Frink (1998) point out that HR practices affected organisational effectiveness by

shaping organisational work climate. According to Kopelman, Brief and Guzzo’s

(1990) definition, work climate can be understood as the extent to which

managements know the organisational processes, databases and systems that

employees can use to accomplish their work. In addition, Wright et al. (2001)

suggested that HPWS might play a role in creating organisational cultures and

shared organisational knowledge which enables a firm to form and maintain its core

competencies. Their work indicated that HR practices might affect firm performance

by forming organisational processes and systems.

In PSFs, organisational processes are highly institutionalised due to their

knowledge-based work (Freidson, 1986; Greenwood et al., 1990; Robertson,

Scarbrough, & Swan, 2003). The organisational routines in PSFs are informal work

practices which are formed by professionals during their team work (Morris, 2001).

Some large PSFs build their own databases and systems which store individual

55
experience and knowledge (Suddaby & Greenwood, 2005), which are often called

knowledge centres (Moore & Birkinshaw, 1998). The professionals in the firm can

access them and draw on previous experience. The databases and systems provide

support for professionals to reuse and exploit existing knowledge. Most PSFs have

flat organisational structures (Greenwood et al., 1990; Stumpf et al., 2002) which

facilitate knowledge flow between seniors and juniors.

Organisational capital constitutes an important resource for PSFs by facilitating

knowledge creation, sharing, combination and exchange (Morris & Snell, 2008).

Besides facilitating knowledge integration, organisational capital also shapes

professionals’ image and identity (Empson, 2001) which play an important role in

attracting new clients.

Some HR practices contribute to the building of organisational capital in PSFs

through staffing, training, and performance control (Kang & Snell, 2009; Youndt et

al., 2004). In detail, when recruiting new people, the fit between candidates’

attitudes and organisational culture needs to be considered. During the training

process, it is not only the professional knowledge but also the organisational

databases and systems and the shared values among the firm that need to be

introduced to employees. In designing the performance control system,

organisations could embrace the errors made by employees to encourage them to

explore new knowledge. This will form organic organisational capital which

involves “the simple and enacted routines, structures, and cultures … [that] provides

opportunities and autonomy for individuals and groups to experiment with both the

way they work and the way they organize that work” (Kang & Snell, 2009: 70-71).

The organisations also can choose to avoid errors to encourage employees only

56
exploit existing knowledge. This will form mechanistic organisational capital which

involves “the standardized processes and structures, detailed routines, and rule …

[that] tends to reinforce efficient coordination by establishing ingrained patterns of

behaviour and interdependence” (Kang & Snell, 2009: 70).

These above arguments lead to the following hypotheses.

H3: PSF’s organisational capital mediates the relationship between

HPWS and firm performance.

3.3.6 Summary

This section reviewed the resource-based view of the firm and its application in

strategic human resource management research. Based on the literature and the

practices in PSFs, three valuable, rare, imperfectly imitable, and non-substitutable

resources in PSFs were identified as human capital, social capital and organisational

capital. Then the research on the mediating roles of the three capital resources in the

relationship between high performance work systems and firm performance was

reviewed which leads to the proposed hypotheses on the link of practices-resources-

performance. The following section will review the dynamic capabilities theory

(Teece et al., 1997) and its application in PSFs to provide the arguments on the link

of resources-uses-performance.

3.4 The Dynamic Capabilities Theory

The dynamic capabilities theory (Eisenhardt & Martin 2000; Helfat et al. 2007;

Teece & Pisano, 1994; Teece et al., 1997) argues that firms not only compete on

57
their existing resources but also compete on their capabilities to exploit and explore

the resources.

This section presents the concept of dynamic capabilities and its application in

professional service firms. Based on the dynamic capabilities theory (Eisenhardt &

Martin 2000; Helfat et al. 2007; Teece & Pisano, 1994; Teece et al., 1997), this

study proposes the intervening variables as the “uses of resources” between

resources and firm performance. The uses of resources describe how resources are

developed, how they are integrated within the firm, and how they are released. The

effective use of resources, for example, will help a professional service firm to

balance their investments in exploring new ideas, products and services and later

exploiting existing knowledge to gain competitive advantage.

3.4.1 Definition of Dynamic Capabilities

The concept of dynamic capabilities was introduced by Teece and Pisano (1994)

and Teece et al. (1997). They asserted that in a dynamic environment a firm’s

competitive advantage would rest on the firm’s internal processes and routines that

enable the firm to renew and develop their resources to enable the firm to deliver

innovative products and services to their clients.

Teece et al. (1997: 516) defined dynamic capabilities as follows:

“the firm’s ability to integrate, build and reconfigure internal and external
competences to address rapidly changing environments.”

Other definitions of dynamic capabilities by Eisenhardt and Martin (2000) and

Helfat et al. (2007) are given as follows:

58
 “The firm’s processes that use resources-specifically the processes to
integrate, reconfigure, gain and release resources-to match and even create
market change.” (Eisenhardt and Martin, 2000: 1107).

“the capacity of an organisation to purposefully create, extend, or modify its

resource base” (Helfat et al., 2007: 4).

The concept of dynamic capabilities offers insights into the drivers of

competitiveness in firms that have similar resource bases. These drivers include:

integrating, combining and developing the resource bases according to the firm’s

strategic options.

3.4.2 Dynamic Capabilities and RBV

The resource-based view of the firm argues that a firm’s competitive advantage lies

primarily in the valuable, rare, imperfectly imitable, and non-substitutable resources

that a firm already has (Barney, 1991; Penrose, 1959; Wernerfelt, 1984). However,

the resources alone cannot guarantee the development of competitive advantage or

the creation of value (Barney & Arikan, 2001; Priem & Butler, 2001; Sirmon et al.,

2007). For example, Porter (1991) commented that “resources are not valuable in

and of themselves, but they are valuable because they allow firms to perform

activities … business processes are the source of competitive advantage” (p.108).

The “resources can only be a source of competitive advantage if they are used to ‘do

something;’ i.e., if those resources are exploited through business processes (Ray,

Barney, & Muhanna, 2004: 26).

The dynamic capabilities theory considers how resources are developed, how they

are integrated within the firm, and how they are released. This process is omitted in

the resource-based view of the firm. Therefore, the dynamic capabilities theory

59
attempts to bridge these gaps between resources and firm performance by adopting a

process approach.

While the resource-based view of the firm emphasises the importance of resources,

including the creation and selection of resources, the dynamic capabilities theory

emphasises the development and renewal of resources. Therefore, the dynamic

capabilities approach can be theoretically considered as outlining the process which

links the resources to firm performance. Empirically, Ray et al. (2004) provided

support for the dynamic capabilities approach linking resources and performance.

They conducted their research to explore the relationships between resources and

firm performance in a call centre. The resources were social climate, managerial IT

knowledge, technology resources, and investment in customer service. The unit

performance was measured by customer service quality, self-assessment, weighted

retention ratio and complaints ratio. Their results show that social climate and

managerial IT knowledge are positively related to customer service performance.

This research examined the relationship between resources and performance at a

unit level. They claimed that the “uses” of resources enabled resources to become a

source of competitive advantage using the dynamic capabilities framework.

However, they did not answer the question of how to use these resources empirically.

The next section will identify the effective uses of the resources in PSFs, i.e. the

dynamic capacities of PSFs.

3.4.3 Dynamic Capabilities and KBT

The knowledge-based theory emphasises the important strategic role of knowledge.

Effectively managing knowledge can help organisations to achieve sustainable

60
competitive advantage. Knowledge management has been considered as an

improved means by which to understand the dynamic capabilities approach. For

example, Nielsen (2006) demonstrated that dynamic capabilities were composed of

concrete and well-known knowledge management activities. He identified eight

knowledge management activities: knowledge creation, acquisition, capture,

assembly, sharing, integration, leverage, and exploitation. He then assembles these

activities into the three dynamic capabilities of knowledge development, knowledge

(re)combination, and knowledge use. The dynamic capabilities and the associated

knowledge management activities create flows to and from the firm’s stock of

knowledge and they support the creation and use of organisational capabilities.

3.4.4 Dynamic Capabilities in PSFs

Some studies have investigated the relationship between resources and dynamic

capabilities. For example, Eisenhardt and Martin (2000) suggested that social capital

facilitates the four processes of dynamic capabilities which are acquiring,

integrating, recombining and releasing internal and external resources. Coff and

Blyler’s (2003) investigated the relationship between social capital, dynamic

capabilities and rent appropriations. They claimed that social capital played a central

role in building dynamic capabilities through facilitating the acquiring, integrating,

recombining and releasing of internal and external resources. They also mentioned

that organisational structure, shared culture, language and routines (organisational

capital) are elements required to build firms’ dynamic capabilities. In the second

half of their paper, they argued that the person who had higher social capital would

generate higher rents when the firm has a dynamic capability.

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While social capital facilitates building dynamic capabilities, human capital does so

as well. Human capital builds reputations for firms and then attracts new clients. It

also integrates, recombines and releases resources through being leveraged in PSFs.

During the process of teamwork in delivering service, partners and associates

exchange, recombine their knowledge and provide an integrated and efficient

solution to clients. During this process, partners usually release their tacit

knowledge to juniors.

Uses of these resources are similar to uses of the knowledge which is embedded in

individuals, relationships and the organisational processes, routines, databases, and

systems. They are human capital, social capital and organisational capital as

mentioned in previous sections. There are two approaches using this knowledge or

resources (Kang & Snell, 2009; Lavie et al., 2010; March 1991). One focuses on

how to reuse or replicate existing knowledge, i.e., exploitation. The other one

focuses on how to generate new knowledge, i.e., exploration. The effective use of

resources may help a PSF balance the effective exploitation of existing resources

with the exploration of knowledge to create new capabilities. The following matrix

shows how PSFs create value by exploiting and exploring existing resources.

The matrix in Figure 3.8 shows that the exploration of resources in PSFs is designed

to deliver new products or services to new clients and to deliver new products or

services to old clients. It also shows that the exploitation of resources in PSFs is to

deliver existing services or products to the existing clients or new clients as there is

no new knowledge/capability required. The exploration process needs to utilise

human capital to invent new products or services and the social capital to attract

new clients and new business and the organic organisational capital (Kang & Snell,

62
Figure 3.7 Exploitation and Exploration in PSFs
New Product / Service

Exploration Exploration

Old Clients New Clients

Exploitation Exploitation

Old Product / Service

2009) that facilitate this delivery. The exploitation process needs to reuse or refine

the existing products or services and existing clients, which requires the use

mechanistic organisational capital (Kang & Snell, 2009) to facilitate this delivery.

3.4.5 The Mediating Role of “Uses”

To illustrate exploration and exploitation in more detail, this study proposes the

concept of uses which indicate the management mechanisms of PSFs. The uses

include communication, coordination, monitoring and team utilisation.

The addition of uses into the mediational model of resources and firm performance

is an innovation of this study. In an extensive review of the literature, only Soo,

Devinney, Midgley and Deering (2002) proposed a framework of “sources-uses-

outcomes” in examining firms’ knowledge systems and their impact on firms’

innovation and financial performance. They surveyed the knowledge management

processes of 317 firms across a wide range of consumer, industrial, service and

manufacturing sectors. They measured the sources as formal and informal

63
networking, as well as internal and external acquisition. They measured uses as the

quality of problems solving/decision making which was correctly viewed as an

evaluation rather than a real “use” of resources. Therefore, their study is limited in

the single resource (social capital) and the measurements of uses. In addition, they

tested their model in different context which overlooked the influence of industry

characteristics. Therefore, this study explores the intervening role of uses as

communication, coordination, monitoring and team utilisation in the relationships

between three recourses and firm performance in professional service firms.

There is some research which investigates how human capital, social capital and

organisational capital work together to improve organisational learning (Kang &

Snell 2009) and innovation (Subramaniam & Youndt, 2005) directly. These studies

have found support for the significant and positive association between the

resources of human capital, social capital, organisational and firm performance.

With regard to the mediators between resources and firm performance, some

scholars have paid a lot of attention to how knowledge management capacity

mediates the relationship between resources and firm performance. For example,

Smith, Collins and Clark (2005) investigated the mediation of knowledge creation

ability in employees’ stock of knowledge including experience, education and

functional heterogeneity (similar to human capital in this study), ego networks

including number of contacts, range of contacts and strength of ties (similar to social

capital in this study), and organisational climate for risk taking and teamwork

(similar to organisational capital in this study) and innovation. They found empirical

support for these mediational models in the context of high technology firms. Yli-

Renko, Autio and Sapienza (2001) provided empirical evidence for the mediating

64
role of knowledge acquisition in their investigation of the relationship between

social capital and knowledge exploitation/firm performance which was measured as

new product development in young technology-based firms. Another example is

Collins and Smith’s (2006) study which examined the causal chain from HR

practice, social climate, knowledge exchange and combination to firm performance.

They found that commitment-based HR practices were indirectly related to firm

performance through their effects on organisational social climate and knowledge

exchange and combination in the context of high technology firms.

From a practical perspective, four management mechanisms within PSFs are

identified in this study. They are communication, coordination, monitoring and team

utilisation (Gittell et al., 2010; Greenwood et al., 2005; Greenwood et al., 2007;

Morris, Gardner, & Anand, 2007; Stumpf et al., 2002).

With a high degree of human capital, social capital, and organisational capital, a

professional service firm can “redeploy its employees easily and quickly” (Jin,

Hopkins, & Wittmer, 2010: 943) since employees will be capable of adapting to

new jobs quickly and work well with new and existing co-workers and clients.

Efficient organisational capital can also allow and facilitate redeployment through

the uses mechanisms, i.e. communication, coordination, monitoring and team

utilisation.

The uses of resources means exploiting and exploring the knowledge embedded in

employees and their relationships, as well as in organisational systems and

databases. It is through the uses of resources that professional service firms are able

create value from the resources. As described earlier, PSFs’ work is project or

programme-oriented. To meet client’s needs, a partner needs to choose several

65
professionals to form a team to solve client’s problems. The team forms the basic

unit of work in the professional service firm, and team management is vital for the

successful completion of project.

First, PSFs need to deploy the team and coordinate tasks efficiently. The dynamic

global economic environment accelerates PSFs’ working speed (Morris et al., 2007;

Teece, 2003). Usually the customers’ assignments are much more compressed in

terms of time (Morris et al., 2007). The PSFs have to compress their work into a

much shorter time frame. As in Morris et al. (2007)’s study, a partner from a

consulting firm said “… [we need to] compress six months work into a three week

assignment” (p.20).

In professional service firms, since professionals need to work together, the

communication among them is very important to accomplish the work. They need to

exchange their opinions, and to create solutions through teamwork to meet the

clients’ needs. This includes communication in a timely and accurate manner.

Since professionals need to work together, the communication among them is very

important to accomplish the work. They need to exchange their opinions, create

solutions through teamwork to meet the clients’ needs. According to Transactive

Memory Theory which proposes that individual members can serve as external

memory aids to each other (Wegner, 1987), in PSFs, coordination and

communication can benefit firm performance through combining and recombining

individual knowledge into group knowledge or organizational knowledge.

Efficient team management will contribute to the efficient utilisation of a firm’s

human capital and social capital during the creation of new knowledge.

66
As discussed in the previous sections, most professional staff have senior

supervisors who supervise and others monitor their progress. Monitoring (Teece,

2003) is a way to leverage and exploit knowledge between them.

Based on the above review and analysis, this study proposes that the uses of

resource mediate the positive relationship between resource and firm performance

as follows:

H4. PSF’s uses mediate the relationship between its human capital and

firm performance.

H5. PSF’s uses mediate the relationship between its social capital and firm

performance.

H6. PSF’s uses mediate the relationship between its organisational capital

and firm performance.

3.4.6 Summary

This section presented the theory of dynamic capabilities to better understand the

value chain which links HR practices, resources and uses to firm performance. Four

uses of resources were identified in PSFs. These were: communication, coordination,

monitoring and team utilisation. The hypotheses were proposed for the mediational

effects of the uses of the resources in understanding the relationship between PSFs’

resources and firm performance.

3.6 Summary

This chapter presented the theoretical base for the research model proposed in this

study. These theories, including strategic human resource management, the

67
resource-based view of the firm, dynamic capabilities and knowledge-based theory,

are not completely separate. They can be applied together to explain how and why

HPWS affects firm performance. This chapter reviewed literature and the practices

in PSFs and then proposed the hypotheses which answered the above question

theoretically. Based on the literature, three potential mediators between HPWS and

firm performance were identified as resources which include human capital, social

capital, organisational capital. In addition, four mediators between resources and

firm performance were identified as uses which include communication,

coordination, monitoring and team utilisation. This chapter also provided the origins

for the approach of the practices-resources-uses-performance applied in this study.

The hypotheses were also presented in this chapter.

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 CHAPTER FOUR
RESEARCH METHODOLOGY

4.1 Introduction

This chapter first explores the philosophical basis of the research methodology that

is used in this study. It describes the appropriateness of a positivist approach which

provides the support for survey-based research. It then provides a description of the

whole research process. It also presents the details on sampling and survey design.

Next, it presents the procedure to conduct the survey by employing Dillman’s

(2007) Tailored Design Method. Finally, all the variable measurements in the survey

as well as their validity and reliability are presented.

4.2 Research Philosophy and Its Application to This

Research

“All research is based on assumptions about how the world is perceived and how we

can best come to understand it” (Uddin & Hamiduzzaman, 2009: 658). It is

therefore very important to understand the philosophy of research for two main

reasons (Hughes & Sharrock, 1997). First, the exploration of philosophy encourages

“in-depth thinking, and generates further questions in relation to the topic under

consideration” (Crossan, 2003: 47). Second, the understanding of philosophy is

significant for researchers to refine, specify and evaluate research methods

(Easterby-Smith, Thorpe & Lowe, 2002).

69
A main philosophy in social research is positivism. The term positivism was first

coined by French philosopher August Comte (1798-1857) in nineteen century.

Based on Comte’s assumptions, “society could be analyzed empirically just like

other subjects of scientific enquiry and social laws and theories could be on the

basis of psychology and biology” (Walliman, 2005: 203). In other words, real

knowledge could be derived from human observation of objective reality (Comte,

1853). The facts of reality can be verified through observation and examination

which is labelled as empiricism. Therefore, the positivist approach usually adopts a

clear quantitative approach to investigate the real world and it has a number of

advantages. First, the quantitative approach allows the comparison between groups,

locations and times which can be measured for difference. Second, the positivist

approach attempts to identify causal mechanisms in the real world which helps to

predict other phenomena. It means that researching a small group can give a reliable

indication of the views of a larger population. The third advantage of the positivist

approach is that researchers retain control of the research process, e.g.,

standardisation of survey instruments and controlling for variables. Other

advantages of the positivist approach include easily comparable data, economical

collection of large amounts of data, and clear theoretical focus (Saunders, Lewis, &

Thornhill, 2007). It can be argued that this focus on measurement can lead to major

flaws. It is argued by critics that the positivist approach does not “provide the means

to examine human beings and their behaviours in an in-depth way” (Crossan, 2003:

51). As an amendment to positivism, post-positivism emerged which recognises the

critiques against positivism (Popper, 1959) and assumes that “reality is multiple,

subjective and mentally constructed by individuals” (Crossan, 2003: 54). Therefore,

70
the post-positivism approach does not reject positivism but refines it to meet these

critiques. The post-positivist approach usually adopts a qualitative research

perspective to describe and explore in-depth phenomena.

Although there is criticism against positivism, it has a lot of advantages listed above

and is widely used in social science. In most of the research in social research,

especially studies that are concerned with investigating the HRM-firm performance

link, surveys are frequently used, e.g. Arthur (1994), Becker and Gerhart (1996),

Datta et al. (2005), Delery and Doty (1996); Gittell et al. (2010), Guthrie (2001),

Guthrie et al. (2009), Huselid (1995), MacDuffie (1995), Richard and Johnson

(2001), Takeuchi et al. (2007) and Youndt et al. (1996). Aligned with the

mainstream quantitative approach in HRM-firm performance research, this study

mainly uses a positivist approach. Following three exploratory interviews, pilot tests

of the questionnaire were conducted with accounting faculty and practitioners to

refine the instrument. The survey-based method was employed to collect data which

was then analysed allowing propositions to be tested. The findings based on the

survey data are discussed. By doing so, it allows for comparisons between the

findings in the present study and the previous findings. Moreover, this approach

allows the investigator to test the role of intervening variables in the HRM-firm

performance link and to statistically control for variables such as firm size.

4.3 Research Process

Accountancy is a traditional professionalised and regulated sector. Therefore, Irish

accounting firms were chosen in this study. To better understand the Irish

accounting context, the researcher conducted three semi-structured interviews with

71
the managing partners and HR senior director in a large accounting firm. The topics

in the interview covered human resource management, innovation, etc. (refer to

Appendix C). Following these interviews, a survey was conducted. During the

survey design, the researcher piloted it with many experts in different areas to

improve the face validity and content validity of the survey. Then Dillman’s (2007)

Tailored Design Method was employed to conduct the survey. Letters or emails

were sent to the respondents who omitted some questions for missing information.

Figure 4.1 presents a flow chart of the data collection process in detail.

4.4 Sampling

Most of the Irish accounting firms are small and medium sized. To avoid the firms

are too small in size to have a HPWS, the accounting firms with 3 or more partners

or 5 or more employees were chosen as the sample. These criteria were based on the

pilot study. Since there was no single database which could provide comprehensive

information on accounting firms, the information from several databases was

combined to select the final sample.

There are mainly six databases which include information regarding Irish

accounting firms. They are: Business World Top 1000 Professional Firms,

Chartered Accountants Regulatory Board, Chartered Accountants Ireland,

Forecasting Analysis and Modeling Environment (FAME), Kompass Directory, and

IndexIreland.

Business World Top 1000 Professional Firms: This is a database which contains

the top 1000 professional firms in Ireland (e.g. accounting, auctioneers,

architects, consulting, estate agents, marine surveyors, opticians,

72
Figure 4.1 The Data Collection Process

73
 recruitment agencies, solicitors, etc). The number of employees is the

ranking criterion. It contains 242 accounting firms, 240 firms with 5 or

more employees. This database provides the managing partners’ contact

information. However. none is provided for HR directors. There is also no

financial information.

Chartered Accountants Regulatory Board: This is a body established by the

Institute of Chartered Accountants in Ireland to regulate its members, in

accordance with the provisions of the Institute's Bye-laws, independently,

openly and in the public interest. It has firm information for 1130

accounting firms located in all Ireland including 212 Irish accounting

firms with 3 or more partners. It provides all of the partners’ names and

firms’ contact information including mailing address and telephone

numbers. It does not provide financial information or the number of

employees.

Chartered Accountants Ireland: This is the largest and longest established

accountancy body in Ireland and has over 18,000 members and 6,500

students (www.charteredaccountants.ie). It provides the information on

HR manager/director in the top 100 Irish accounting firms, such as post

address, telephone number, and email.

FAME: This database provides information on company accounts, ratios, activities,

ownership and management for the largest 2.6 million UK and Irish

companies with summary information for a further 1 million smaller

businesses. It includes 1328 Irish accounting firms and provides

74
 information on some firms’ financial performance and on the number of

employees.

IndexIreland: This contains the information for 89 Irish accounting firms. It

provides the websites of the firms and also a short introduction to some

firms.

Kompass Directory: This includes contact details and some basic company

information for 1.8 million companies in 75 countries worldwide,

including Ireland. It also includes 1322 Irish accounting firms’

information including 251 firms with more than 10 employees. However,

it does not provide financial information and provides only the number of

employees for a few of the firms.

In addition, the local magazines such as Accountancy Ireland and Finance Dublin

were used to confirm the information from other databases.

Table 4.1 shows the basic information distribution of the above databases.

Based on the above analysis of the databases, the final sample was set up as follows.

• Step 1: Select the accounting firms with 5 or more employees from the

Businessworld Top 1000 Profession Firms (n = 240).

• Step 2: Select the accounting firms with 3 or more partners from the

Chartered Accountants Regulatory Board (n = 162).

• Step 3: Select the accounting firms in IndexIreland (n = 89).

75
Table 4.1 Different Databases for Collecting Respondents’ Contact Information
No. of firms Contact person
Mailing Financial Number.
Databases Tel/Fax Website Partners HR
Total Specify address information employees
/principals Director

240
243 with >= 5   Some    
employees
Top 1000 Professional Firms

162
1130 with >= 3   Some    
principals

100 100       

1328 n/a   Some  Some Some Some

89 n/a       

251
1322 with >= 11   Some  Some  Some
employees

Source: The Author

76
 • Step 4: Select the accounting firms from Chartered Accountants Ireland (n

= 100).

• Step 5: Combine the information from the four databases.

• Step 6: Check internet and collect more information from firm websites if

available. Also check FAME, Kompass, Accountancy Ireland and Finance

Dublin to confirm the information (n = 274).

To avoid single-rater bias (Gerhart, Wright, McMahan & Snell 2000), two

respondents from each unit were chosen to post the surveys to. Among the 274 firms,

all the firms had address information. 202 firms had two contacts including 161

firms with emails. 70 firms just had only one contact including 19 firms with emails

(see Table 4.2). Because accounting firms are different from other traditional firms,

there is no HR director position in the small or medium firms. For example, in a

firm with 3 partners and 18 employees, the managing partner answered “I have HR

responsibilities also” when being requested for HR manager/director’s contact

information. For these small and medium sized firms, two copies of the

questionnaires were sent to the two partners within one unit/firm.

Table 4.2 Final Sample Contact Information

No of Managing Partner HR Director Other

% Web email
firms Name Title Email Name Title Email contacts

161 59       (40)

41 15       14

19 7      

53 19      

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4.5 Questionnaire

The main source of the data used in this dissertation was the Survey of Accounting

Firms 2010 (Human Resource Management, Knowledge Management and Firm

Performance). This questionnaire contained Likert scale statements, proportion

questions, and some objective continuous data such as revenue. It was clearly

structured and professionally designed. More importantly, it had been pilot studied

by experts from different areas which helped to minimise the problems of

misinterpretation or misreading the questions. The design of the survey instrument

and the survey itself will be described in more detail in the following sections.

4.5.1 Preliminary Research

For creating a suitable and valid questionnaire to measure the HPWS in accounting

firms with different sizes, the investigator firstly formed a list all of the HR practices

shown in the representative literature in HPWS and firm performance link (Collins

and Smith, 2005; Data et al., 2005; Guthrie, 2001; Huselid, 1995; Takeuchi et al.,

2007). Then two experienced accounting lecturers based at DCU were invited to tick

the practices which were used by Irish accounting firms with small, medium and

large firm sizes. Both lecturers worked in accounting firms before joining the

university and are perfectly active researchers in accounting firms in Ireland. One

worked in a large accounting firm and the other worked in a medium size

accounting firm.

The reason for this preliminary work is that most of research on HRM is based in

general manufacturing firms and some HR practices may not be suitable for

accounting firms, especially for the accounting firms of a small or medium size. The

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results are shown in Appendix D. The results show that most of firms are using HR

practices such as employment tests, especially skill tests, internal promotions, task

training, monitoring systems, continuous training, formal individual performance

appraisals, multiple formal performance feedbacks, performance appraisals for

setting goals and determining compensation, and self-directed teams.

At the same time, three semi-structured interviews were conducted with the

managing partner, communication partner and senior HR manager in a large

accounting firms to understand and explore the context. This accounting firm has

more than 100 partners and over 2,100 employees. Each interview lasted about one

hour. The topics addressed include human resource management, the vital resources

in accounting firms, and innovation (see Appendix C).

In terms of the valuable resources, all interviewees identified the importance of 1)

the workforce and 2) the relationships between professional staff and clients and

those relationships among the professional staff. They also regarded communication,

coordination, monitoring and team utilisation as very important within PSFs.

The above exploratory study is critically important, not only for a better

understanding of the Irish accounting context, but also for creating a valid and

suitable questionnaire for Irish accounting firms.

4.5.2 Structure of Questionnaire

The Survey of Accounting Firms 2010 (Appendix G) covered nine key areas that

covered all the interests of the broader research project. These included

• Section 1: Background

• Section 2: Human Resource Practices

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 • Section 3: Human Capital and Social Capital in Your Organisation

• Section 4:Organisational Routines

• Section 5: Market and Clients

• Section 6: Knowledge Management Capacity

• Section 7: Monitoring and Team Utilisation

• Section 8: Administrative Coordination

• Section 9: Generating New Ideas and Communication

4.5.3 Pilot Study of Questionnaire

To improve the validity of the survey (Robson, 2002), the questionnaire was pilot

tested by many experts from different areas. For example, the academic experts in

the field of HR reviewed the questionnaire in relation to the HR practices included.

The statistical advice was obtained from the experts in survey design area. In

addition, the academics and practitioners in accounting helped to re-word the survey

items to reflect the unit level and using the language in accounting profession such

as articles systems in accounting firms.

4.6 Survey Procedures

After setting up the sample and finishing the pilot study, Dillman’s (2007) Tailored

Design Method was employed to conduct the survey. This method consists of five

steps which include invitation letter, cover letter with questionnaire, thank you and

reminder postcard, letter with the first replacement of questionnaire, and final letter

with the second replacement of questionnaire. The procedure is described in more

detail in the following:

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  Invitation letter

 First, an invitation letter (Appendix E) was posted and emailed to all

the respondents to inform them about the survey.

 Cover letter with questionnaire

 Two weeks later, a cover letter (Appendix F) and a copy of

questionnaire (Appendix G) were mailed out. A pre-paid and self-

addressed envelop was also enclosed.

 Thank you and reminder postcard

 Four weeks later, a postcard (Appendix H) was sent out to thank the

respondents who had filled in and returned the questionnaire or had

filled in the online survey. The postcard was also sent to remind the

respondents who had not filled in the questionnaire.

 Letter with the first replacement of questionnaire

 Six weeks later, a letter with the first replacement of questionnaire

was sent out to the respondents who had not completed it.

 Final letter with the second replacement of questionnaire

 Eight weeks later, the final letter with the second replacement of the

questionnaire was sent out to the respondents who had not completed

it.

In all mailings, the respondents were promised complete confidentiality regarding

the data provided by them. They were also promised a customised report (Appendix

I) which would help to position their practice and a summary industry report

(Appendix J).

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The managing partners and the HR managers returned their surveys independently.

During the process, if some respondent missed some questions, a letter or email was

sent to him or her to request the missing information (Appendix K). Considering

some respondents may prefer to complete the survey electronically, an online

version of the survey was provided at www.surveymonkey.com/s/accountants.

4.7 Measurement of Variables

This section describes how the variables were measured in this study. They include

HPWS, resources as human capital, social capital, organisational capital, uses of

resources as communication, coordination, monitoring and team utilisation, firm

performance as productivity, relative organisational performance, relative market

performance and innovation, and control variables as firm size and firm age.

To help ensure the survey’s validity, most of the items except monitoring and team

utilisation were adopted from measures that had been used in previous studies.

Multiple-item scales were employed.

4.7.1 HPWS

Considering the characteristics of PSFs, sixteen items were adopted from Huselid

(1995) and Datta et al. (2005). These items covered HR practices including: staffing,

performance management and remuneration, information sharing and participation,

and training and development. An example item is, “Please estimate what

proportion (0% to 100%) of your professional staff are administered an employment

test (e.g. skills tests) prior to hiring with respect to all of the professional staff in

your organisation over the previous 12 months”.

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Since HPWS is mostly used as an index (Batt, 2002; Guthrie, 2001; Guthrie et al.,

2009), the Cronbach’s alpha was calculated for this sixteen-item HPWS scale and it

was .73 which was above the cut-off point of .70 (Nunnaly, 1978). This shows the

internal consistency of the HPWS measures.

4.7.2 Resources

The resources as human capital, social capital and organisational capital were

mainly adopted from Youndt et al. (2004) and Subraman and Youndt (2005). All of

the measures use a seven-point Likert scale varying from 1 = strongly disagree to 7

= strongly agree. The respondents were asked to indicate their level of agreement

with each of the statements.

Human Capital. Five items from Youndt et al. (2004) and Subraman and Youndt

(2005)’s were adopted. They included: “Our professional staff are highly skilled”,

“Our professional staff are widely considered to be the best in the accounting

industry”, “Our professional staff are creative and bright”, “Our professional staff

are experts in their particular jobs and functions”, and “Our professional staff

develop new ideas and knowledge”. One item which emerges from the exploratory

interviews was added: “Our professional staff are up to date on relevant new

taxation, auditing, accounting and legal developments”.

Social Capital. Five items from Youndt et al. (2004) and Subraman and Youndt

(2005) were adopted. They included: “Our professional staff are skilled at

collaborating with each other to diagnose and solve problems”, “Our professional

staff share information and learn from one another”, “Our professional staff interact

and exchange ideas with people from different functional areas of the organisation.”,

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“Our professional staff partner with clients to develop solutions”, and “Our

professional staff apply knowledge from one area of the organisation to problems

and opportunities that arise in another”. One item was added for measuring the

external social capital. It is that “Our professional staff develop and maintain good

relationships with clients”.

Organisational Capital. Three items in Youndt et al. (2004) and Subraman and
3
Youndt (2005) were adopted . They included: “The databases are used as a way to

store knowledge”, “The culture (stories, rituals and symbols) contains valuable ideas

and ways of doing business”, and “Much of the organisation’s knowledge is

contained in manuals, databases, structures and processes”, Another four items were

added to get a more comprehensive measure of organisational capital including

organisational processes, routines and structure. They included: “The processes are

efficient to solve clients’ problems”, “The routines encourage employees to know

each other”, “The routines encourage employees to know about the whole

organisation”, and “A low level of vertical hierarchies and cross-function barriers

are maintained in the organisation structure”.

Because of the additional items for the resource variables, an exploratory factor

analysis was conducted first to examine their factor structure. To test the convergent

and discriminant validity of the multiple-item scales of human, social and

organisational capital, a confirmatory factor analysis was performed.

A principal axis factor analysis using oblique rotation was performed. The results

are shown in Appendix L. The nineteen items loaded on to three factors with factor

3 One item in Youndt et al. (2004) and Subraman and Youndt (2005)’s was not adopted as “Our
organisation uses patents and licenses as a way to store knowledge”. This is because the
accounting context does not use patents.

84
 4
loadings of .54 or above . The factor of human capital explained 42.41% of the

variance, with an eigenvalue of 8.06. The factor of social capital explained 7.18% of

the variance, with an eigenvalue of 1.36. The factor of organisational capital

explained 13.41% of the variance, with an eigenvalue of 2.54.

The human capital, social capital and organisational capital also had high internal

consistency with Cronbach’s alphas of .86, .88, and .89 respectively which were

comparable to the ones obtained by Youndt et al. (2004) (0.81, 0.88, and 0.62

respectively).

Using Amos 7.0, the confirmatory factor analysis (CFA) was performed to the

multiple-item scales of human, social and organisational capital. The three-factor

model showed a good model fit since it had chi-square less than five times their

degrees of freedom (χ2/df = 306.05/132 = 2.32), the Comparative Fit Index (CFI,

Bentler, 1990) was .90 (p = .00) which is acceptable according to Bentler and

Bonnett (1980) and RMSEA was .08 which is smaller than the cut-off point .10

(Browne & Cudeck, 1993). All of the three factors had very high reliability with

Cronbach’s alpha above .86 which was above the suggested value of .70. Thus, it is

concluded that the measures for resources were valid and internally consistent.

4.7.3 Uses

The measures of uses included communication, coordination, monitoring and team

utilisation.

Communication. Three items were adopted from Gittell et al. (2010) and reworded

to reflect the unit/firm level analysis by changing the focus of the items to the unit

4 One item of “Professional staff develop new ideas and knowledge” had cross-loadings on human
capital (.44) and social capital (.48) and thus dropped.

85
level. For example, the respondents were asked “how often do employees on

average engage in the behaviors listed below, e.g., communicating with

management in a timely way about the status of the project?” Respondents answered

on a seven-point Likert scale ranging from 1 = never to 7 = always.

Coordination. Seven items were adopted from Kraut and Streeter (1995). The

respondents were asked “to what extent does your organisational engage in the

following items, e.g. formal policies and procedures for coordinating the team’s

work?” Respondents answered on a seven-point Likert scale ranging from 1 = small

extent to 7 = great extent.

Monitoring. Three items were created based on Teece (2003). The respondents

were asked to what extent they agree with the items. These three items are, “There

are mechanisms in place to encourage employees to reflect on the outcomes of their

efforts”; “There are mechanisms in place to monitor employee contributions to new

ideas and developments”; and “There are mechanisms in place to assist employees

adjust their approach if they find their efforts are taking them down the wrong path”.

Respondents answered on a seven-point Likert scale ranging from 1 = strongly

disagree to 7 = strongly agree.

Team utilisation. Four items were created based on Teece (2003). The respondents

were asked to what extent they agree with the items. These four items were: “Newly

formed teams quickly establish a good understanding of each others’ talents and

skills”; “Teams are formed on the basis of an understanding of people's skills and

abilities”; “Teams can be formed quickly as required”; and “Teams are continuously

reconfigured to address the set of opportunities facing the organisation”.

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Respondents answered on a seven-point Likert scale ranging from 1 = strongly

disagree to 7 = strongly agree.

Since these measures of uses included adopted items and newly created ones, a

principal axis factor analysis using oblique rotation was performed to check the

factor structure. The results in Appendix M revealed the expected four-factor

structure, which accounted for 76.28% of variance with the preliminary factor

loadings of .55 or above. The factor of communication explained 6.71% of the

variance, with an eigenvalue of 1.07. The factor of coordination explained 48.54%

of the variance, with an eigenvalue of 7.77. The factor of monitoring explained

8.66% of the variance, with an eigenvalue of 1.39. The factor of team utilisation

explained 12.38% of the variance, with an eigenvalue of 1.98. The communication,

coordination, monitoring and team utilisation also had high internal consistency

with Cronbach’s alphas of .92, .90, .89 and .88 respectively.

4.7.4 Firm Performance

Firm performance was assessed using both objective and subjective measures. The

objective one was productivity and the subjective ones were the self-reported

relative organisational performance, relative market performance and innovation.

Although a lot of published studies on the HR-performance link employed self-

reported performance measures (e.g., Chuang & Liao 2010; Delaney & Huselid

1996; Liao, Toya, Lepak, & Hong, 2009; Sun, Aryee, & Law, 2007; Takeuchi et al.,

2007; Youndt et al., 1996), there have been concerns regarding their use. This is

because that self-reported/subjective firm performance measures may raise

87
measurement errors and common method bias (this issue will be addressed in detail

in Chapter 5).

There are mainly three reasons for using the self-reported comparative firm

performance measures. First, it is very difficult or impossible to obtain the objective

financial performance on individual units (Gupta, 1987; Gupta & Govindarajan

1984, 1986). Second, the comparative method encourages more respondents to

participate than the method of directly asking respondents to provide exact figures

(Tomaskovis-Devey, Leiter, & Thompson 1994). Finally, the subjective measures of

company performance (relative to competitors) are positively associated with the

objective measures. Empirically, Wall et al. (2004) found that subjective and

objective measures of company performance were positively associated at .52.

In this study, the correlations between perceived organisational and market

performance and their revenue were both significant, t=.197, p=.034 and t=.248,

p=.007 respectively, which indicates that the subjective performance measures were

appropriate.

The above analysis reveals the appropriateness of the objective and subjective firm

performance measures. The measures and their validity and reliability of

productivity, relative organisational performance, relative market performance and

innovation are presented in the following:

Productivity. The productivity was calculated as revenue/number of professional

staff. The revenue data was aggregated from the respondents’ data and the public

data since there was strong agreement between the data from these sources. The

respondents were asked to estimate the fee income for their firm/unit for the most

recent year (€ million). Information on firm size was collected from public

88
databases such as Chartered Accountants Regulatory Board, Businessworld Top

1000 Professional Firms, Kompass and Fame.

Relative organisational performance and relative market performance. Eleven

items were adopted from Delaney and Huselid (1996). Respondents were asked to

rate their organisation’s performance relative to their competitors using a seven-

point Likert-type scale, varying from 1 = much worse to 7 = much better. Since all

of the items were adopted and found to be valid, the reliabilities for relative

organisational performance and relative market performance were calculated and

were both .84. These were comparable to the ones obtained by Delaney and Huselid

(1996) (alpha = .86 for relative organisational performance and .85 for the relative

market performance).

Innovation. Nine items were adopted from Janseen (2001, 2005). The respondents

were asked “How often do employees on average engage in the behaviors listed

below, e.g. creating new ideas for difficult issues”. The respondents answered from

1 = never to 7 = always. Janseen (2001) found two factors in this measure of

innovation. However, in the pilot study, the experts from HR and accountancy

understood them as measuring the same thing. Therefore, a principal axis factor

analysis using oblique rotation of the items was conducted to check the factor

structure. All of the nine items had factor loadings of .72 or above on a single factor,

and this factor explained 75.99% of variance, with an enginvalue of 6.84. These

factor loadings are shown in Appendix N. The nine-item scale had a reliability

of .96.

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4.7.5 Control Variables

Firm size and firm age were considered as control variables.

Firm size. Firm size was included because it might be associated with the use of

HPWS as well as revenue, productivity (Datta et al. 2005), and innovation. The HR

practices and the resources of the large firms are different from the small and

medium firms. For example, the large accounting firms will have a system of HR

practices while small firms may only have some informal HR practices. Therefore,

firm size was considered as control variable. The objective number of professional

staff was mostly derived from public databases such as IndexIreland, Chartered

Accountants Regulatory Board, Compass, Top 20 Irish Accountancy Firms and a

few are from the company websites.

Firm age. Similar to Guthrie et al. (2009), firm age was included to control for “any

advantages associated with increased time for the evolution or adoption of HPWS or

differences in our outcome measures” (Guthrie et al. 2009: 118). The logarithm of

the firm age was used to normalise the firm age. The firm age was calculated as

“2010 – the established year” and respondents were asked to indicate the established

year.

4.8 Summary

This chapter first explored the importance of understanding research philology for

conducting research and reviewed the advantage and flaws for positivism which

claimed for the quantitative approach in social science. Similar to the previous

research, this study adopted mainly survey-based method to collection data to test

the proposed model in this study. This chapter then described the processes in detail

90
for selecting sample firms. The pilot study and how to conduct the survey were

reviewed. The methods used to measure the variables selected in the model were

also described. In addition, the validity and reliability of these measures were

provided. In the next chapter, the data will be analysed and the results will be

provided.

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 CHAPTER FIVE
DATA ANALYSIS

5.1 Introduction

This chapter provides a detailed overview of the research findings. The structure of

this chapter is as follows: Firstly, it provides an analysis of non-response bias to

examine the sample representativeness in this study. Secondly, the results of the

analysis of interrater agreement (IRA) and interrater reliability (IRR) are presented

to provide support for aggregating the matched pair responses in each firm. Then,

the common method bias is addressed and tested to demonstrate that it is not a

serious problem in this study. Next, the descriptive statistics are presented in order

to show the association between variables. Finally, the results are presented of the

hierarchical multiple regression analysis together with the Sobel tests.

5.2 Sample Representativeness

Surveys were mailed to 548 respondents in 274 firms as described in Chapter 4.

This included 10 firms that did not exist and 3 firms that did not qualify for this

study because of small firm size or because they are not accounting firms. This

reduced the sample to 522 respondents in 261 firms in the final population. After

survey mails, reminder postcards, replacement surveys (see Chapter 4), 195 surveys

in total were returned in the form of hard copy (156) and online (39). Four surveys

were not completed and were therefore excluded. The response rate was 36.40%

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(190/522) representing 120 firms (45.98%). There are 71 matched pair responses

representing 71 firms (27.20%).

Therefore, the final sample for this study consisted of 120 accounting firms located

in Ireland, covering a range of geographical regions.

To examine the sample representativeness (Wilcox, Bellenger, & Rigdon, 1994),

many researchers have checked the non-response bias by comparing demographic

and contextual variables from the respondents with the known values from the

population to see if they differ in terms of the available data (Armstrong & Overton,

1977; Guthrie et al., 2009).

This study conducted the comparison analysis on the characteristics between the

early responses and late responses, web responses and hard copy responses, as well

as matched pair responses and non-paired responses. The early responses are those

who returned the survey after the first mailing. The late responses are those who

returned the survey after later mailings. The web responses are those who filled in

the survey online. The hard copy responses are those returned the hard copy survey.

The matched pair responses are those where there are two respondents in one

unit/firm. The non-paired responses are those where there is only one respondent in

one unit/firm.

There are two reasons for conducting comparison analysis. One is the relatively high

response rate (36.40% for individual level and 45.98% for firm level). The other is

the difficulty in obtaining public data on the firms’ background and contextual

information. To explore representativeness, a one-way ANOVA procedure was used.

The results in Table 5.1 showed no significant difference between the early

responses and the late responses, between the web response and the hard copy

93
response, as well as between the matched pair responses and non-paired responses

in terms of firm information and individual information.

As a result, there were no concerns on the sample representativeness and non-

response bias in this study. Therefore, the full sample was utilised for the purpose of

later analysis and the profile of participating firms was deemed to be representative

of the accounting firm profession in Ireland.

Table 5.1 ANOVA Results from Comparison Analysis

Matched pair
Early response v late Web response v
Items response v non pair
response hard copy response
response
F Sig F Sig F Sig

Revenue .380 .539 .043 .835 .483 .488

Firm size .103 .749 .505 .478 1.672 .198

Firm age 1.054 .306 1.396 .239 .359 .550

Respondents’ age .162 .688 1.044 .308 .802 .372

Respondents’ education 1.928 .167 .045 .831 .003 .954

Respondents’ work tenure

.582 .447 .193 .661 .339 .561
in present organisation
Respondents’ work tenure
.108 .743 .033 .855 .083 .773
in accounting
Respondents’ full time
.018 .893 .114 .736 .112 .739
work experience

5.3 Profile of the Respondents

Among the respondents, 50% of respondents were managing partners, 10% of

respondents were HR manager/directors, 34% of respondents were partners, and 6%

of respondents were other experienced professional staff who had a good knowledge

94
of their organisations (including titles such as Director, Financial Director,

Managers, Office Manager, Auditor and Associate.).

In terms of gender, 80% of respondents were males and 20% were females. In terms

of age, 2% of respondents were 30 or less, 21% of respondents were between 31 and

40, 37% of respondents were between 41 and 50, 29% of respondents were between

51 and 60, and 11% of respondents were above 60. For education level, 48% of

respondents had a Bachelor’s Degree, 11% of respondents had a Master’s Degree

and 37% of respondents do not have any degrees.

In terms of the professional qualification, 60% of respondents qualified from the

Chartered Accountants Ireland (CAI), 13% of respondents qualified from the

Association of Chartered Certified Accountants (ACCA), 11% of respondents

qualified from the Institute of Certified Public Accountants in Ireland (CPA), 1% of

respondents qualified from the Chartered Institute of Management Accountants

(CIMA), 1% of respondents qualified from the Institute of Incorporated Public

Accountants (IIPA), 10% of respondents qualified from the Irish Taxation Institute

(ITI) and 4% of respondents were members of the Chartered Institute of Personnel

and Development (CIPD).

5.4 Individual Items Descriptive Analysis

This section presents a summary of the 190 respondents’ perception of various items

as assessed in the measure of HPWS and the measures of resources including human

capital, social capital and organisational capital. Uses such as communication,

coordination, monitoring and team utilisation, relative organisational performance,

relative market performance and innovation are also reported.

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5.4.1 HPWS

Table 5.2 illustrates the breakdown of respondents’ replies on the proportionate use

of various HPWS practices. The respondents were asked for the proportion (0%-

100%) of the professional staff who were involved in each HR practice over the last

12 months.

Table 5.2 The Applications of HPWS in Irish Accounting Firmsa

Mean
Measurements Score S.D.
%

HPWS Index (average) 44.92 16.92

What proportion of your professional staff…

Are administered an employment test (e.g. skills tests) prior to hiring? 18.10 36.15
Hold jobs which have been subjected to a formal job analysis to identify
48.91 45.06
position requirements (such as required knowledge, skills or abilities)?
Hold non-entry level jobs which have been filled as a result of internal
25.99 32.29
promotions (as opposed to hired from outside of the organisation)?
Receive formal individual performance appraisals? 82.52 34.15
Receive formal performance appraisals from more than one source (i.e.,
37.94 45.85
from several individuals such as supervisors, peers etc.)?
Have access to company incentive plans, profit-sharing plans, and/or gain-
15.43 30.82
sharing plans?
Receive their performance appraisals which are used to determine their
45.69 46.67
compensation?
Receive their performance appraisals which are used to set goals and plan
63.05 43.39
skill development?
Receive above market wage levels to attract and retain them? 25.96 32.61
Are included in a formal information sharing programme (e.g., a
44.37 47.31
newsletter)?
Are asked to complete attitude surveys on a regular basis? 9.06 28.15
Participate in Quality of Work Life (QWL) programs, Quality Circles
7.94 24.23
(QC), and/or labour-management participation teams?
Have access to a formal grievance procedure and/or complaint resolution
82.96 37.37
system?
Receive continuous training, e.g. continuous professional development? 89.30 21.26

Receive structured mentoring, e.g. via articles? 59.72 40.23

Are organised in self-directed work teams in performing a major part of
61.93 42.32
their work roles?
a
Missing data and listwise deletion reduced the sample from n = 190 to n = 187.

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Table 5.2 shows that the average level for Irish accounting firms to use HPWSwas

about 45%. In other words, a score above 44.92 implied a more extensive utilisation

of HPWS and any lower score implied a less extensive utilisation of HPWS in

comparison to the average utilisation of HPWS. This result is consistent with the

result (46.96%) in Guthrie et al.’s study (2009) in which data on HPWS was

collected from 165 firms among the Top 1000 companies in Ireland. In this study,

the highest score showed the extent to which a specific firm policy or HR practice

was in use in the sample of Irish accounting firms. In this regard, 89% of the sample

had access to continuous training. Similarly, about 83% of the sample utilised

formal individual performance appraisals.

5.4.2 Resources

Table 5.3 illustrates the breakdown of respondents’ replies on each item for

organisational resources, including human capital, social capital and organisational

capital.

The resources were measured on a seven-point Likert-type scale ranging from 1 =

strongly disagree, to 7 = strongly agree.

On average, the scores for human capital, social capital and organisational capital of

Irish accounting firms were 5.49, 5.71 and 5.50 respectively. A higher score for

each item indicated stronger agreement of the respondents on it. In all, higher scores

of resources variables indicated higher human capital, social or organisational

capital while a lower score indicated lower human, social or organisational capital.

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Table 5.3 Resources in Irish Accounting Firms
Mean
Score
Resources Measurement S.D.
7-Point
a
Human Capital (Average)
In your organisation, the professional staff… 5.49 .75

are highly skilled. 6.01 .80

are widely considered to be the best in the accounting industry. 5.01 1.11

are creative and bright. 5.46 .84

are experts in their particular jobs and functions. 5.55 .96

are up to date on relevant new taxation, auditing, accounting and legal
developments. 5.85 .91

develop new ideas and knowledge. 5.04 1.05

b
Social Capital (Average)
In your organisation, the professional staff… 5.71 .79
are skilled at collaborating with each other to diagnose and solve
problems. 5.68 .89

develop and maintain good relationships with clients. 6.16 .81

share information and learn from one another. 5.91 .86

interact and exchange ideas with people from different functional areas of
the organisation. 5.56 1.04

partner with clients to develop solutions. 5.53 1.15

apply knowledge from one area of the organisation to problems and
opportunities that arise in another. 5.39 1.11
Organisational Capital (Average) c
In your organisation … 5.50 .79

The databases are used as a way to store knowledge. 5.76 .95

The processes are appropriate to solve clients’ problems. 5.58 .90

The culture (stories, rituals and symbols) contains valuable ideas and ways
of doing business. 5.35 1.05

The routines enable employees to know each other. 5.61 .98

The routines enable employees to know about the whole organisation. 5.59 .99
Much of the organisation’s knowledge is contained in manuals, databases,
structures and processes. 5.15 1.35
A low level of vertical hierarchies and cross-function barriers are
maintained in the organisation structure. 5.46 1.27
a
Missing data and listwise deletion reduced the sample from n = 190 to n = 188.
b
The valid sample was n = 190 (listwise).
c
Missing data and listwise deletion reduced the sample from n = 190 to n = 185.

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Table 5.4 Uses in Irish Accounting Firms

Mean
Uses Measurement Score S.D.
7-Point

Communication (Average) a
In your organisation, how often do employees on average engage in the 5.01 1.18
behaviours listed below?
Communicating with management in a timely way about the status of the
project. 4.98 1.26
Communicating with management accurately about the status of the
project. 5.10 1.22

Sharing organisational goals about the quality of services. 4.94 1.34

b
Coordination (Average)
To what extent does your organisation engage in the following items? 4.98 1.10

Formal policies and procedures for coordinating the team's work. 5.00 1.40

Project milestones and delivery schedules. 5.16 1.26

Project documents and memos. 5.15 1.24

Regularly scheduled team meetings. 5.29 1.25

Requirements/design review meetings. 4.97 1.35

Design inspections. 4.26 1.53

a
Monitoring (Average)
In your organisation… 4.65 1.18
There are mechanisms in place to monitor employee contributions to new
ideas and developments. 4.29 1.36
There are mechanisms in place to encourage employees to reflect on the
outcomes of their efforts. 4.69 1.35
There are mechanisms in place to assist employees adjust their approach if
they find their efforts are taking them down the wrong path. 4.97 1.23
a
Team Utilisation (Average)
In your organisation … 5.33 1.09

Teams can be formed quickly as required. 5.61 1.10

Newly formed teams quickly establish a good understanding of each
others’ talents and skills. 5.34 1.20
Teams are continuously reconfigured to address the set of opportunities
facing the organisation. 5.04 1.43
Teams are formed on the basis of an understanding of people’ s skills and
abilities 5.33 1.28
a
The valid sample was n = 190 (listwise).
b
Missing data and listwise deletion reduced the sample from n = 190 to n = 188.

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5.4.3 Uses

Table 5.4 illustrates the breakdown of respondents’ replies on the uses as

communication, coordination, monitoring and team utilisation.

All of the measurements were using a seven-point Likert-type scale. For

communication, 1 = never, and 7 = always. For coordination, 1 = small extent, and 7

= great extent. For monitoring and team utilisation, 1 = strongly disagree, to 7 =

strongly agree.

On average, Irish accounting firms’ communication, coordination, monitoring and

team utilisation effectiveness were perceived as quite high (5.01, 4.98, 4.65, and

5.33 respectively). Similar to the explanations on the results of resources, a higher

score indicated more effective use mechanisms while a lower score indicated less

effective uses.

5.4.4 Firm Performance

Table 5.5 illustrates the breakdown of respondents’ replies on productivity, relative

organisational performance, relative marketing performance and innovation. All of

the subjective measurements used a seven-point Likert-type scale. For relative

organisational performance and relative market performance, scales ranged from 1 =

much worse to 7 = much better. For innovation, scales ranged from 1 = never to 7 =

always.

For the subjective firm performance measure, on average, the productivity of Irish

accounting firms was €0.08 million per professional staff. A higher score indicates

that the firm is more productive and a lower score indicates that the firm is less

productive.

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For the subjective firm performance measurements, the average scores were 5.72 for

relative organisational performance, 4.78 for relative market performance, and 4.40

for innovation. A higher score indicated better performance, while a lower score

indicated worse performance.

Table 5.5 Organisational Performance in Irish Accounting Firmsa

Mean
Firm Performance Measurements S.D.
Score

Productivity (€ million per professional staff)a .08 .03

b
Relative Organisational Performance
Please rate your organisation’s performance relative to your competitors: 5.72 .63
Quality of services 6.06 .78
Development of new services 5.19 1.07
Ability to attract essential employees 5.25 1.02
Ability to retain essential employees 5.75 .93
Satisfaction of clients 5.96 .70
Relations between partners/directors and other employees 5.90 .82
Relations among employees in general 5.93 .85
Perceived Marketing Performanceb
Please rate your organisation’s performance relative to your competitors: 4.78 .95
Marketing 4.62 1.24
Growth in revenue 4.83 1.10
Profitability 4.94 1.18
Market share 4.72 1.10
Innovationb
In your organisation, how often do employees on average engage in the 4.50 1.13
behaviours listed below?
Creating new ideas for difficult issues 4.53 1.18
Searching for new work methods, techniques or instruments 4.65 1.21
Generating original solutions for problems 4.76 1.27
Mobilising support for innovative ideas 4.51 1.32
Acquiring approval for innovative ideas 4.61 1.35
Transforming innovative ideas into useful applications 4.45 1.27
Evaluating the utility of innovative ideas 4.31 1.30
Introducing innovative ideas into the work environment in a
systematic way 4.31 1.37
Making team members enthusiastic for innovative ideas 4.40 1.40
a
Missing data and listwise deletion reduced the sample from n = 190 to n =137
b
The valid sample was n = 190 (listwise).

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5.5 Aggregation Issues

In the final sample, there were 71 matched pair responses representing 71 firms. The

investigator chose to average across their responses so that the final score for each

firm represents the average unit-level response/perception. To aggregate matched

pairs data, the interrater agreement5 and interrater reliability6 were examined.

Interrater agreement was assessed using Rwg (James, demaree, & Wolf, 1984, 1993)

for each variable (see Table 5.6). The rule of thumb value for Rwg is .60 (James,

1982) and the more commonly acceptable value of .70. In this study, the mean Rwg

for the 16-item HPWS scale was 1.17 which was higher than the .97 obtained by

Lepak and Snell (2002) and the .96 obtained by Takeuchi et al. (2007). For human

capital, the mean of Rwg was .90, which was comparable to the .92 obtained by

Takeuchi et al. (2007); for social capital, the mean Rwg was .89; for organisational

capital, the mean of Rwg was .82; for communication, the mean of Rwg was .89; for

coordination, the mean of Rwg was .86; for monitoring, the mean of Rwg was .79; for

team utilisation, the mean of Rwg was .84; for the relative organisational

performance, the mean of Rwg was .96, which is higher than the .94 obtained by

Takeuchi et al. (2007); for the relative market performance, the mean of Rwg was .97;

and for innovation, the mean of Rwg was .99. The average of the Rwgs for all of the

variables were well above the thumb value for Rwg is .60 (James, 1982) and the

5 The interrater agreement refers to the degree to which ratings from individuals are interchangeable;
namely, it reflects the extent to which raters provide essentially the same rating, i.e. the consensus
(Kozlowski & Hattrup, 1992; LeBreton & Senter, 2008; Tinsley & Weiss, 1975).
6 The interrater reliability refers to the degree to which ratings of different judges are proportional
when expressed as deviations from their means, i.e. the consistency (Bliese, 2000; Kozlowski &
Hattrup, 1992; LeBreton, Burgess, Kaiser, Atchley, & James, 2003).

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more commonly acceptable value of .70, which indicates that the two respondents

form each firm were in strong agreement.

Both interrater agreement and interrater reliability were assessed using the intraclass

correlations. ICC(1)s and ICC(2)s were calculated using McGraw and Wong’s

(1996) formula with a one-way random-effects analysis of variance (see Table 5.6).

ICCs simultaneously measures interrater agreement and interrater reliability. High

values may only be obtained when there is both absolute consensus and relative

consistency in judges’ ratings (LeBreton & Senter, 2008). Gittell et al. (2010) state

“the ICC(1) provides an estimate of the reliability of a single respondent’s

assessment of the unit mean” and “ICC(2) provides an overall estimate of the

reliability of unit means” (p. 498). In this study, the ICC(1) values for all of the

variables ranged from .23 to .99 which were higher than the median value as .12

reported by James (1982). This indicates that the two respondents in each unit/firm

had high agreement and also the answers from any one of the respondents in a

particular firm was reliable. The ICC(2) values for all of the variables ranged

from .63 to 1.00 which were higher than the .60 cut-off point recommended by

Glick (1985). This indicates the firms can be reliably differentiated in terms of all of

the variables in this study.

Based on the above results, the matched pair response data were aggregated into

firm level data.

5.6 Common Method Bias

The collection of all measures from the same source may raise concerns about

common method bias. To avoid common method bias, this study obtained some data

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from public database sources. For example, the control variable firm size which was

also used for calculating the dependent variable, productivity, was obtained from the

Chartered Accountants Regulatory Board, Businessworld Top 1000 Professional

Firms, Kompass and FAME. In addition, for the firm’s revenue, public data were

obtained from the Top 20 Accounting Firms (Accounting Survey, 2009) for the 12

firms (10.17%). While it is somewhat limited due to the sample size, it does provide

a reliability cross-check. Computed ICCs for this sub-sample strongly supported the

reliability of these data, ICC(1) = .965, ICC(2) = .979 for aggregation purpose. The

ICC(1) results suggest that a single source is a reliable indicator of scores provided

from the other sources. In other words, the revenue data from respondents and the

public sources are highly correlated. In addition, the ICC(2) results indicate the high

reliability of unit means on revenue information therefore supporting aggregation.

Based on these results, all revenue data was utilised in this study to calculate

average productivity scores for each firm.

In addition to using public source data, the Harman one-factor test was conducted to

examine the common method bias for the rest of the measures. Significant common

method bias would result if one general factor accounts for the majority of

covariance in the variables (Podsakoff & Organ, 1986). A principal axis factoring

analysis with oblique rotation method was performed for the rest of the items except

for HPWS since the HPWS’ scales (proportion from 0% to 100%) were measured

differently from other measures (which used a seven-point Likert Scale). The results

showed eleven factors with eigenvalues greater than one which accounted for

72.65% of the total variance, with the first factor accounting for 36.12% of the

variance. Since a single factor did not emerge and one general factor did not account

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for most of the variance, common method bias is unlikely to be a serious problem in

the rest of the data (Podsakoff & Organ, 1986).

The use of public data and the examination of the multiple-factor structure of

measures show that common method bias is not a serious problem in this study.

Therefore, all of the matched pair response data was aggregated to the firm level to

create the measures of HPWS, human capital, social capital, organisational capital

and monitoring, communication, coordination, monitoring and team utilisation.

5.7 Descriptive Statistics

This section presents findings based on the correlation analysis using the aggregated

data. Table 5.6 provides operationalisations and descriptive statistics for study

variables, including the means, standard deviations, Rwgs, ICC(1)s, ICC(2)s, inter-

item reliabilities. Table 5.7 provides correlation coefficients among the variables in

the study. It indicates a number of statistically significant and noteworthy

relationships. For example, HPWS was found somewhat more likely to yeild higher

human capital (r = .312, p< .01), social capital (r = .247, p< .01) and organisational

capital (r = .250, p< .01). It also was found to be significantly correlated with

relative organisational performance (r = .283, p <.01), relative market performance

(r = .311, p <.001) and innovation (r = .319, p <.001). Table 5.7 shows that all

correlations between human capital, social capital, organisational capital

communication, coordination, monitoring, communication, team utilisation, relative

organisational performance, relative market performance and innovation were

significant at different levels.

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Table 5.6 Descriptive Statistics
Variables Operationalization N Mean S.D. Rwg ICC(1) ICC(2) Alpha
1. Firm age ln (years since founding) 120 1.29 .35 .89 .94 .94

2. Firm size ln (number of professional staff) 115 1.38 .51

3. HPWS Average score for 16 HPWS items 120 44.88 15.70 1.17 .64* .78 .80

4. Human Capital Average score for 7 human Capital items 120 5.48 .64 .92 .46 .63 .90

5. Social Capital Average score for 6 social Capital items 120 5.73 .67 .89 .38 .88 .90

6. Organisational Capital Average score for 7 organisational Capital items 120 5.51 .69 .82 .28 .85 .86

7. Communication Average score for 3 communication items 120 5.05 .99 .89 .41 .71 .81

8. Coordination Average score for 6 coordination items 120 5.00 .96 .86 .38 .88 .90

9. Monitoring Average score for 3 monitoring items 120 4.68 1.05 .79 .45 .83 .85

10. Team Utilisation Average score for 3 team utilisation items 120 5.35 .91 .84 .41 .85 .86

11. Productivity ln ( revenue per professional staff member) 111 -1.10 .16 n.a. .99 1.00 1.00
Relative organisational Average score for 7 organisational performance
12. 120 5.72 .56 .96 .23 .82 .84
performance items
13. Relative market performance Average score for 4 market performance items 120 4.77 .84 .97 .41 .85 .86

14. Innovation Average score for 9 innovation items 120 4.52 1.03 .99 .55 .96 .96
* When calculating ICC(1), ICC(2) and reliability for HPWS, HPWS was treated as one index.

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 Table 5.7 Correlation Matrix of the Study Variables
Variables 1 2 3 4 5 6 7 8 9 10 11 12 13
1. Firm age

2. Firm size .162†

3. HPWS .023 .466***

4. Human Capital .081 .377*** .312**

5. Social Capital -.022 .066 .247** .641***

6. Organisational Capital -.023 .166 .250** .308*** .496***

7. Communication -.012 .146 .256** .377*** .404*** .433***

8. Coordination -.097 .300** .601*** .394*** .365*** .422*** .432***

9. Monitoring -.041 .226* .455*** .353*** .421*** .599*** .498*** .524***

10. Team Utilisation -.096 .206* .426*** .460*** .468*** .486*** .583*** .558*** .644***

11. Productivity -.047 .211* .089 .102 -.001 -.048 .083 -.020 .058 .043
Relative organisational
12. .076 .220* .283** .477*** .343*** .358*** .209* .364*** .346*** .300** .056
performance
13. Relative market performance .015 .341*** .311*** .295** .162† .260** .264** .408*** .365*** .389*** .168† .559***

14. Innovation .016 .225* .319*** .493*** .524*** .447*** .807*** .578*** .517*** .613*** .119 .228* .317***
*** p< 0.001, ** p< 0.01, * p< 0.05, † p< 0.10 (two-tailed tests). Listwise deletion method was employed to deal with missing data which reduced sample size from
120 to 111.

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5.8 Multiple Regression Analysis

Usually, the most desirable analytical method for testing the hypotheses proposed in

this study would be structural equation modelling. However, given the small sample

size (n = 120), structural equation modelling could not be used, especially with the

large number of items (16) that were used to measure HPWS. The hierarchical

multiple regression analysis techniques (Hofmann, Griffin, & Gavin, 2000) were

employed instead to test two separate mediational models.

The first mediational model was to test the mediational effects of resources on the

HPWS - firm performance link, labelled as Model 1. Model 1 tested the practices-

resources-performance approach. It consisted of one independent variable (HPWS);

four dependent variables to measure firm performance (productivity, relative

organisational performance, relative market performance and innovation); and three

mediators to measure resources (human, social and organisational capital). Model 1

refers to Hypotheses 1 to 3 which proposed the mediational effect of human, social,

and organisational capital on the relationship between HPWS and firm performance.

The second mediational model was to test the mediational effects of uses on

resources-firm performance link, labelled as Model 2. Model 2 tested the resources-

uses-performance approach. It consisted of three independent variables to measure

resources (human capital, social capital, and organisational capital); four dependent

variables to measure firm performance (productivity, relative organisational

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performance, relative market performance and innovation); and four mediators to

measure uses (communication, coordination, monitoring and team utilisation).

Model 1 refers to Hypotheses 4 to 6 which proposed the mediational effect of uses

on the relationship between resources and firm performance.

Table 5.8 Proposed Mediation Tests

Model 1 Model 2

Step 1 HC-> Firm Performance

Test for significant relationship: HPWS->Firm Performance SC-> Firm Performance
X->Y OC-> Firm Performance

HC-> Communication
HC-> Coordination
HC-> Monitoring
HC-> Team Utilisation

SC-> Communication
Step 2 HPWS-> HC
SC -> Coordination
Test for significant relationship: HPWS-> SC
SC -> Monitoring
X->M HPWS-> OC
SC -> Team Utilisation

OC-> Communication
OC -> Coordination
OC -> Monitoring
OC -> Team Utilisation

Communication -> Firm

Performance
Coordination-> Firm
Step 3 HC-> Firm Performance
Performance
Test for significant relationship: SC-> Firm Performance
Monitoring-> Firm
M->Y OC-> Firm Performance
Performance
Team Utilisation-> Firm
Performance

Step 4 The effect of X on Y should be “0” to indicate a full mediation or

Test for relationship: XM->Y weaker to indicate a partial mediation.

Note: X indicates independent variable; Y indicates dependent variable; M indicates proposed

mediators; HC indicates human capital, SC indicates social capital and OC indicates organisational
capital. Firm performance represents four measures. These are productivity, relative organisational
performance, relative market performance and innovation. Using one phrase to indicate firm
performance is designed to avoid confusion and complexity.

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The tests for the two mediational models followed the four conditions discussed in

Baron and Kenny (1986). The four conditions used to assess mediation in Baron and

Kenny (1986) are as follows:

1) the independent variable should be directly related to the dependent

variable (X->Y);

2) the independent variable should be related to the mediator (X->M);

3) the mediator should be related to the dependent variable (M->Y);

4) the direct relationship between the independent variable and dependent

variable should become non significant (full mediation) or weaker (partial

mediation) when accounting for the effect of the mediator (XM->Y).

In addition, the Sobel test for testing the significance of mediation (Preacher &

Hayes, 2004; Sobel, 1982) was conducted for each model. Table 5.8 shows the

relationships to be tested for Model 1 and Model 2 corresponding to Baron and

Kenny (1986)’s four conditions.

5.8.1 Results of Model 1: Practices-Resources-Performance

Model 1 examined the mediational effects of resources in the relationship between

HPWS and firm performance. The independent variable was HPWS. The mediators

were human capital, social capital and organisational capital. The dependent

variables included productivity, relative organisational performance, relative market

performance and innovation which were used to measure firm performance.

Based on Baron and Kenny’s (1986) procedure, controlling for firm age and firm

size, firm performance was first regressed on HPWS. The mediation variables, i.e.,

human capital, social capital and organisational capital, were then regressed on

110
HPWS separately. Finally, firm performance was regressed on HPWS with each

mediator separately. The Sobel tests were conducted for each meditational model.

Tables 5.9 and 5.10 show the regression results for Model 1, which proposed the

mediational effects of resources (human capital, social capital and organisational

capital) on the relationship between HPWS and firm performance. The dependent

variables for measuring firm performance include productivity, relative

organisational performance, relative market performance and innovation. Therefore

there were four models labelled as Model 1.1 to 1.4 in Table 5.10 representing

different dependent variables for firm performance measures. Model 1.1 to 1.4 all

include four separate simple meditational models which could be tested using

regression analysis. For example, Model 1.1 includes four simple mediation models

as 1) human capital as mediator between HPWS and productivity; 2) social capital

as mediator between HPWS and productivity; 3) organisational capital as mediator

between HPWS and productivity; and 4) human capital, social capital and

organisational capital together as mediators between HPWS and productivity.

Therefore, there are 12 simple mediational models.

To streamline the presentation of the results and to avoid repetition in the reporting

of the results, one detailed example of the findings for the meditational model which

proposed the mediational effect of human capital and firm performance was

presented and then the results for the additional mediational models were reported in

a short section. Table 5.11 presents a summary of results for each step and Sobel

Test for Model 1.

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Table 5.9 Impact of HPWS on Resources

Human capital Social Capital Organisational capital

Variable
Step1 Step2 Step1 Step2 Step1 Step2

Control

Firm age .000 .010 -.029 -.013 -.051 -.038

Firm size .376*** .291** .068 -.065 .170† .067

Practices

HPWS .176† .276* .214*

R2 .142 .165 .005 .064 .029 .064

Adjusted R2 .123 .142 -.013 .038 .012 .039

∆R2 .024 .059 .035

F/ ∆F 9.279*** 3.166† .276 6.956* 1.668 4.175*

[df1, df2] [2, 112] [1, 111] [2, 112] [1, 111] [2, 112] [1, 111]

N 115 115 115 115 115 115

Note: Standardized coefficients were reported. Listwise deletion method was employed to deal with
missing data in hierarchical multiple regression analysis which reduced sample size from 120 to 115.
*** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

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 Table 5.10 Impact of HPWS and Resources on Firm Performance

Model 1.1 (productivity) Model 1.2 (relative organisational performance)

Variable
Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4

Control

Firm age -.083 -.084 -.084 -.085 -.088 -.088 .070 .082 .075 .086 .094 .084

Firm size .225* .233* .226* .233* .240* .227* .184* .084 -.051 .104 .063 -.089

Practices

HPWS -.018 -.023 -.014 .002 -.005 .207* .125 .121 .139 .100

Resources

Human Capital .025 .047 .464*** .515***

Social Capital -.015 .002 .310*** -.154
Organisational
-.090 -.103 .317*** .259**
Capital

R2 .051 .052 .052 .052 .052 .061 .043 .076 .255 .166 .170 .312

Adjusted R2 .034 .025 .016 .016 .024 .007 .026 .051 .228 .135 .140 .273

∆R2 .000 .001 .000 .008 .009 .033 .180 .090 .094 .236
∆F 2.930* .028 .056 .023 .860 .348 2.493† 3.961* 26.522*** 11.857*** 12.468*** 12.344***

[df1, df2] [2, 108] [1, 107] [1, 106] [1, 106] [1, 106] [3, 104] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [3, 108]

N 111 111 111 111 111 111 115 115 115 115 115 115
ZSobel 2.923** 2.051* 2.114*

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 Table 5.10 Impact of HPWS and Resources on Firm Performance (Continued)

Model 1.3 (relative market performance) Model 1.4 (innovation)

Variable
Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4
Control
Firm age -.010 -.004 -.007 -.002 .004 .000 -.009 .005 -.001 .011 .020 .011
Firm size .288** .236* .176 .244* .222* .137 .209** .093 -.063 .124 .066 -.030
Practices
HPWS .109 .072 .075 .066 .058 .241* .156* .106 .155 .085
Resources
Human Capital .207* .266† .485*** .398***
Social Capital .123 -.150 .489*** .108
Organisational
.201* .204† .400*** .248**
Capital

R2 .082 .091 .127 .106 .129 .160 .043 .088 .284 .312 .238 .413
2
Adjusted R .066 .067 .095 .073 .098 .113 .026 .063 .258 .287 .210 .380
∆R2 .082 .009 .036 .014 .038 .068 .045 .196 .224 .150 .325
∆F 5.027** 1.113 4.487* 1.735 4.766** 2.932** 2.530† 5.443* 30.075*** 35.767*** 21.660*** 19.901***
[df1, df2] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [3, 108] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [3, 108]
N 115 115 115 115 115 115 115 115 115 115 115 115
ZSobel 2.128* 1.060 1.695† 2.937** 2.381* 2.306*

Note: Standardized coefficients were reported. Listwise deletion method was employed to deal with missing data in hierarchical multiple regression analysis
which reduced sample size from 120 to sizes ranging from 111 to 115. *** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

114
Table 5.11 A Summary of Results for Each Step and Sobel Test for Model 1

1st condition 2nd condition 3rd condition 4th condition Sobel Test
Hypothesis X M Y
(X->Y) (X->M) (M->Y) (XM->Y) (Z)

Productivity × √ × -- --
1. Human capital mediates
the relationship between
Rorga √ √ √ √ 2.923**
HPWS Human Capital
HPWS and firm
performance.
Rmark × √ √ √a 2.218*

Innovation √ √ √ √a 2.937**

Productivity × √ × -- --
2. Social capital mediates
the relationship between
Rorga √ √ √ √ 2.051*
HPWS Social Capital
HPWS and firm
performance.
Rmark × √ × -- --

Innovation √ √ √ √ 3.106**

Productivity × √ × -- --
3. Organisational capital
mediates the relationship Organisational
Rorga √ √ √ √ 2.114*
HPWS
between HPWS and firm capital
performance.
Rmark × √ √ √a 1.695†

Innovation √ √ √ √ 3.106**
Note: a indicates that the direct path between X and Y remained significant. Rorga = relative organisational performance; Rmark = relative market performance.
*** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

115
5.8.1.1 Human Capital as a Mediator

Hypothesis 1 proposed the mediational effect of human capital on the relationship

between HPWS and firm performance. Following the procedure by Baron and

Kenny (1986), the multiple hierarchical regression was used. Controlling for firm

size and firm age, firm performance was firstly regressed on HPWS. Then human

capital was regressed on HPWS. Lastly, firm performance was regressed on both

HPWS and human capital.

Since firm performance was measured via four performance indicators, four simple

mediational models were tested as: 1) the mediational effect of human capital

between HPWS and productivity; 2) the mediational effect of human capital

between HPWS and relative organisational performance; 3) the mediational effect

of human capital between HPWS and relative market performance; and 4) the

mediational effect of human capital between HPWS and innovation.

Productivity as the Dependent Variable.

The first condition requires the significant relationship between the predictor and the

dependent variable (X->Y), i.e. HPWS and productivity. The beta coefficients for

HPWS on productivity was not significant (β = -.018, p>.10) (see Step 2 in Model

1.1, Table 5.10). The first condition was not satisfied. However, the first condition is

not required unless the expectation is for complete mediation (Kenny, Kashy, &

Bloger, 1998).

The second condition requires the significant relationship between predictor and

mediator (X->M), i.e. HPWS and human capital. The beta coefficients for HPWS on

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human capital was significant and positive (β = .176, p<.10) (see Step 2 in Table

5.9 for human capital), satisfying the second condition.

The third condition requires the significant relationship between mediator and

dependent variable (M->Y), i.e. human capital and productivity. The beta

coefficients for human capital on productivity was not significant (β = .025, p>.10)

(see Step 3-1 in Model 1.1, Table 5.10). The third condition which is required was

not satisfied.

Therefore, the meditational effect of human capital on HPWS and productivity is

not supported.

Relative Organisational Performance as the Dependent Variable.

The first condition (X->Y): The beta coefficients for HPWS on relative

organisational performance was significant and positive (β = .207, p<.05) (see Step

2 in Model 1.2, Table 5.10). The first condition was satisfied.

The second condition (Y->M): The beta coefficients for HPWS on human capital

was significant and positive (β = .176, p<.10) (see Step 2 in Table 5.9 for human

capital), satisfying the second condition.

The third condition (M->Y): The beta coefficients for human capital on relative

organisational performance was significant and positive (β = .464, p<.001) (see

Step 3-1 in Model 1.2, Table 5.10), satisfying the third condition.

The fourth condition requires the direct relationship between the independent

variable and dependent variable should become non significant (full mediation) or

weaker (partial mediation) when accounting for the effect of mediator (XM->Y).

The beta coefficients for HPWS on relative organisational performance became

117
smaller and non significant when human capital was included (from β = .207,

p<.05, to β = .120, p>.10) (see Step 2 and Step 3-1 in Model 1.2, Table 5.10),

satisfying the fourth condition.

Finally, the Sobel test was conducted using Preacher and Hayes’ (2004) procedure

for simple mediation for the mediator- human capital. The results provided support

for human capital acting as the mediator between HPWS and relative organisational

performance (ZSobel = 2.923, p<.01).

Therefore, human capital mediates the relationship between HPWS and relative

organisational performance.

Relative Market Performance as the Dependent Variable.

The first condition (X->Y): The beta coefficients for HPWS on relative market

performance was positive but not significant (β = .109, p>.05) (see Step 2 in Model

1.3, Table 5.10). The first condition was not satisfied. However, the first condition is

not required unless the expectation is for complete mediation (Kenny, Kashy, &

Bloger, 1998).

The second condition (Y->M): The beta coefficients for HPWS on human capital

was significant and positive (β = .176, p<.10) (see Step 2 in Table 5.9 for human

capital), satisfying the second condition.

The third condition (M->Y): The beta coefficients for human capital on relative

market performance was significant and positive (β = .207, p<.05) (see Step 3-1 in

Model 1.3, Table 5.10), satisfying the third condition.

The fourth condition (XM->Y): The beta coefficients for HPWS on relative market

performance became smaller when human capital was included (from β = .109,

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p>.10, to β = .072, p>.10) (see Step 2 and Step 3-1 in Model 1.3, Table 5.10),

satisfying the fourth condition.

Finally, the Sobel test was conducted and support was found for human capital

acting as the mediator between HPWS and relative market performance (ZSobel =

2.128, p<.05).

Therefore, human capital mediates the relationship between HPWS and firm

performance which was measured by relative market performance.

Innovation as the Dependent Variable.

The first condition (X->Y): The beta coefficients for HPWS on innovation was

significant and positive (β = .241, p<.05) (see Step 2 in Model 1.4, Table 5.10). The

first condition was satisfied.

The second condition (Y->M): The beta coefficients for HPWS on human capital

was significant and positive (β = .176, p<.10) (see Step 2 in Table 5.9 for human

capital), satisfying the second condition.

The third condition (M->Y): The beta coefficients for human capital on innovation

was significant and positive (β = .485, p<.001) (see Step 3-1 in Model 1.4, Table

5.10), satisfying the third condition.

The fourth (XM->Y): The beta coefficients for HPWS on innovation became

smaller and non significant when human capital was included (from (β = .241,

p<.05, to β = .156, p<.10) (see Step 2 and Step 3-1 in Model 1.4, Table 5.10),

satisfying the fourth condition.

The results of Sobel test provided support for human capital acting as the mediator

between HPWS and innovation (ZSobel = 2.937, p<.01).

119
Therefore, human capital mediates the relationship between HPWS and innovation.

5.8.1.2 Social Capital as a Mediator

To streamline the presentation of the results and to avoid repetition in the reporting

of the results, this section and afterwards provides a short summary report on the

mediation tests.

Hierarchical regression was used to test hypothesis 2 which proposed the

mediational effect of social capital in the relationship between HPWS and firm

performance.

The results shown in Tables 5.9 (for social capital), 5.10 and 5.11 suggested that

social capital mediated the relationship between HPWS and two dependent variables

by satisfying four conditions in Baron and Kenny (1986). According to Sobel test of

significance of this mediation, social capital mediated the relationship between

HPWS and relative organisational performance (ZSobel = 2.051, p<.05) and

innovation (ZSobel = 2.381, p<.05). For models assessing productivity and relative

market performance as firm performance indicators, one or more of the relevant

paths were non significant and thus failed to meet the criteria for mediation.

5.8.1.3 Organisational Capital as a Mediator

Hypothesis 3 stated that organisational capital would mediate the relationship

between HPWS and firm performance.

The results shown in Tables 5.9, 5.10 and 5.11 suggested that organisational capital

fully mediated the relationship between HPWS and two firm performance measures,

i.e., relative organisational performance and innovation by satisfying four conditions

in Baron and Kenny (1986). The results also suggested that organisational capital

partially mediated the relationship between HPWS and relative market performance

120
although this relationship was non significant (β = .109, p>.10) (see Step 2 in

Model 1.3, Table 5.10) (Kenny, Kashy, & Bloger, 1998). The results of the Sobel

test provided support for the mediational effect of organisational capital in the

relationship between HPWS and relative organisational performance (ZSobel = 2.114,

p<.05), relative market performance (ZSobel = 1.695, p<.10) and innovation (ZSobel =

2.306, p<.05). For the model assessing productivity, the relevant paths were non

significant and thus failed to meet the criteria for mediation.

5.8.1.4 Resources “Together” as Mediators

Due to the high correlations between human capital, social capital and

organisational capital shown in Table 5.7, multiple hierarchical regression analyses

were also carried out in which all three resources were entered into the equation

simultaneously in Step 3 in order to test the combined effect of these interrelated

Human capital was found to significantly relate to relative organisational

performance (β = .515, p<.001), relative market performance (β = .266, p<.10), and

innovation (β = .398, p<.01). Organisational capital was found to significantly

relate to relative organisational performance (β = .259, p<.01), relative market

performance (β = .204, p<.10), and innovation (β = .248, p<.01).

5.8.1.5 Summary

The purpose of this section was to test hypotheses 1 to 3 which proposed the

mediational effects of human capital, social capital and organisational capital on the

HPWS - firm performance link.

Based on the above analysis, hypothesis 1 is supported by the finding on the

mediational effects of human capital on the relationship between HPWS and firm

121
performance indicators, i.e. relative organisational performance, relative market

performance and innovation. Hypothesis 2 is supported by the finding on the

meditation effects of social capital between HPWS and firm performance indicators,

i.e. relative organisational performance and innovation. Hypothesis 3 is supported

by the finding on the meditation effects of organisational capital between HPWS

and firm performance indicators, i.e. relative organisational performance, relative

market performance and innovation.

5.8.2 Results of Model 2: Resources-Uses-Performance

Model 2 set out to examine the mediational effects of uses in the relationship

between resources and firm performance. In this model, there were three

independent variables, i.e. human capital, social capital and organisational capital;

four dependent variables to measure firm performance, i.e. productivity, relative

organisational performance, relative market performance and innovation; and four

mediators to measure uses, i.e. communication, coordination, monitoring and team

utilisation.

Due to the complexity of Model 2, this section presents the results in the order of the

independent variables examined. First, the results on the mediating effect of uses in

human capital and firm performance are reported. Then the results on the mediating

effect of uses in social capital and firm performance are reported. Finally, the results

for the model on the mediating role of uses in the relationship between

organisational capital and firm performance are reported.

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5.8.2.1 Mediation of Uses in Human Capital and Firm Performance

Hypothesis 4 proposed that uses mediate the relationship between human capital and

firm performance. The independent variable was human capital. The mediators

examined were uses, i.e. communication, coordination, monitoring and team

utilisation. The dependent variables to measure firm performance were productivity,

relative organisational performance, relative market performance and innovation.

Based on Baron and Kenny’s (1986) procedure, controlling for firm age and firm

size, firm performance was first regressed on human capital. Each mediator was

then regressed on human capital separately. Finally, firm performance was regressed

on human capital with each mediator separately. The Sobel tests were conducted for

each meditational model.

Tables 5.12 to 5.13 show the regression results for the meditational model which

proposed that the relationship between human capital and firm performance was

mediated by uses. The dependent variables for measuring firm performance were

productivity, relative organisational performance, relative market performance, and

innovation. Therefore, there were four models labelled as Model 2.1 to 2.4 in Table

5.12 representing different dependent variables for firm performance measures.

Model 2.1 to Model 2.4 all included five separate simple meditational models which

could be tested using regression analysis. For example, Model 2.1 addressed five

simple mediation models as 1) communication as mediator between human capital

and productivity; 2) coordination as mediator between human capital and

productivity; 3) monitoring as mediator between human capital and productivity; 4)

team utilisation as mediator between human capital and productivity; and 5)

communication, coordination, monitoring and team utilisation together as mediators

123
 between human capital and productivity. The test of the 16 simple mediational

models was carried out using hierarchical regression analyses and following the

four-step procedure by Baron and Kenny (1986) as described in the previous section.

To streamline the presentation of the results this section presents the findings of the

mediational analyses in a short format.

Table 5.14 presents a summary of results for each step and Sobel Test for the

meditational model in which uses act as mediators between human capital and firm

performance. This table illustrates why the models failed to be a mediational ones

via showing which conditions were not satisfied.

Table 5.12 Impact of Human Capital on Uses

Communication Coordination Monitoring Team Utilisation

Variable
Step1 Step2 Step1 Step2 Step1 Step2 Step1 Step2

Control

Firm age -.028 -.030 -.158† -.156† -.073 -.074 -.139 -.142†

Firm size .134 -.018 .314*** .186* .226* .101 .219* .046

Resource
Human
.404*** .341*** .331*** .459***
Capital

R2 .018 .158 .109 .208 .051 .145 .058 .239

Adjusted
.000 .135 .093 .87 .034 .122 .041 .219
R2
∆R2 .140 .100 .094 .058 .181

∆F 1.006 18.496*** 6.819** 13.990*** 3.030† 12.206*** 3.463* 26.429***

[df1, df2] [2, 112] [1, 111] [2, 112] [1, 111] [2, 112] [1, 111] [2, 112] [1, 111]

N 115 115 115 115 115 115 115 115

Note: Standardized coefficients were reported. Listwise deletion method was employed to deal with
missing data in hierarchical multiple regression analysis which reduced sample size from 120 to 115.
*** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

124
 Table 5.13 Impact of Human Capital and Uses on Firm Performance

Model 2.1 (productivity) Model 2.2 (relative organisational performance)

Variable
Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5 Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5
Control
Firm age -.083 -.083 -.082 -.102 -.083 -.087 -.105 .070 .067 .068 .097 .083 .079 .094
†
Firm size .225* .217* .217* .241* .217* .218* .245* .184 .002 .003 -.033 -.019 -.002 -.046
Resource
Human Capital .021 .001 .067 .021 .034 .042 .484*** .472*** .419*** .415*** .447*** .427***
Uses
Communication .049 .098 .029 -.077
Coordination -.130 -.170 .189* .152
Monitoring -.002 .042 .209* .222†
Team Utilisation -.028 -.028 .080 -.082

R2 .051 .052 .054 .065 .052 .052 .074 .043 .243 .244 .272 .281 .248 .299
2
Adjusted R .034 .025 .018 .030 .017 .017 .011 .026 .223 .217 .245 .255 .221 .253
∆R2 .000 .002 .013 .001 .001 .022 .210 .000 .028 .037 .005 .056
∆F 2.930 †
.041 .230 1.507 .063 .063 .609 †
2.493 29.458*** .104 4.275* 5.712* .712 2.213†
[df1, df2] [2, 108] [1, 107] [1, 106] [1, 106] [1, 106] [1, 106] [4, 103] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107]
N 111 111 111 111 111 111 111 115 115 115 115 115 115 115
ZSobel .403 1.884† 2.079* 1.013

125
 Table 5.13 Impact of Human Capital and Uses on Firm Performance (Continued)
Model 2.3 (relative market performance) Model 2.4 (innovation)
Variable
Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5 Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5
Control
Firm age -.010 -.011 -.005 .037 .010 .035 .049 -.009 -.012 .010 .060 .017 .055 .050
†
Firm size .288** .206* .210* .149 .177 .191** .154 .209* .018 .031 -.068 -.022 -.004 -.015
Resource .
Human Capital .218** .137 .114 .122 .069 .035 .509*** .219*** .353*** .380*** .293*** .156*
Uses
Communication .201* .018 .718*** .617***
Coordination .305** .174 .457*** .213*
Monitoring .290** .125 .391*** .016
Team Utilisation .324** .163 .470*** .084

R2 .082 .123 .157 .197 .195 .203 .239 .043 .266 .700 .431 .396 .434 .742
2
Adjusted R .066 .099 .126 .168 .166 .174 .189 .026 .246 .689 .411 .374 .413 .725
∆R2 .082 .041 .034 .074 .072 .080 .116 .222 .453 .166 .130 .168 .476
∆F 5.027** 5.163* 4.422* 10.092** 9.823** 11.021** 4.080** 2.530 †
33.609***159.434*** 32.031*** 23.733*** 32.606*** 49.253***
[df1, df2] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107]
N 115 115 115 115 115 115 115 115 115 115 115 115 115 115
ZSobel 1.839† 2.825** 2.599** 2.928** 4.176*** 3.578*** 3.199** 4.035***
Note: Standardized coefficients were reported. Listwise deletion method was employed to deal with missing data in hierarchical multiple regression analysis which
reduced sample size from 120 to sizes ranging from 111 to 115. *** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

126
Table 5.14 A Summary of Results for Each Step and Sobel Test for Mediation Model of Uses as Mediators between Human Capital and Firm Performance
1st condition 2nd condition 3rd condition 4th condition Sobel Test
Hypothesis X M Y
(X->Y) (X->M) (M->Y) (XM->Y) (Z)
Productivity × √ × -- --

Rorga √ √ × -- --
Communication
Rmark √ √ √ √ 1.839†
Innovation √ √ √ √a 4.176***

Productivity × √ × -- --

Rorga √ √ √ √a 1.884†
Coordination
Rmark √ √ √ √ 2.825**
4. Uses mediate the relationship
Human Innovation √ √ √ √a 3.578***
between human capital and firm
Capital
performance. Productivity × √ × -- --

Rorga √ √ √ √a 2.079*
Monitoring
Rmark √ √ √ √ 2.599**
Innovation √ √ √ √a 3.199**

Productivity × √ × -- --

Rorga √ √ × -- --
Team Utilisation
Rmark √ √ √ √ 2.928**
Innovation √ √ √ √a 4.035***
a
Note: indicates that the direct path between X and Y remained significant. Rorga = relative organisational performance; Rmark = relative market performance.
*** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

127
5.8.2.1.1 Communication as a Mediator

The results shown in Tables 5.12 (for communication), 5.13 and 5.14 suggested that

communication fully mediated the relationship between human capital and relative

market performance by satisfying Baron and Kenny (1986)’s four conditions. The

results also suggested that communication mediated the relationship between human

capital and innovation, although the direct path between human capital and

innovation remained significant. The strength of the direct path is not surprising

given the findings by Subramaniam and Yount (2005) on the direct relationship

between human capital and innovation. According to the Sobel test of significance,

communication mediated the relationship between human capital and relative

market performance (ZSobel = 1.839, p<.10) and innovation (ZSobel = 4.176, p<.001).

For models assessing the other two firm performance measures as productivity and

relative organisational performance, one or more of the relevant paths were non

significant and thus failed to meet the criteria for mediation.

5.8.2.1.2 Coordination as a Mediator

The results shown in Tables 5.12 (for coordination), 5.13 and 5.14 suggested that

coordination fully mediated the relationship between human capital and relative

market performance by satisfying the four conditions set out by Baron and Kenny

(1986). The results also suggested that coordination mediated the relationship

between human capital and two firm performance measures – relative organisational

performance and innovation, although the direct paths between human capital and

the two firm performance measures remained significant. According to the Sobel

test, coordination mediated the relationship between human capital and relative

organisational performance (ZSobel = 1.884, p<.10), relative market performance

128
(ZSobel = 2.825, p<.10) and innovation (ZSobel = 3.578, p<.001). For model assessing

productivity, the first and third paths were non significant and thus failed to meet the

criteria for mediation.

5.8.2.1.3 Monitoring as a Mediator

The results shown in Tables 5.12 (for monitoring), 5.13 and 5.14 suggested that

monitoring fully mediated the relationship between human capital and relative

market performance by satisfying the four conditions identified by Baron and Kenny

(1986). The results also suggested that monitoring mediated the relationship

between human capital and the two firm performance variables - relative

organisational performance and innovation, although the direct path between human

capital and these two firm performance measures remained significant. The

literature provides support for the strong direct relationship between human capital

and firm performance (Hitt et al., 2001; Subramaniam & Yount, 2005). According

to the Sobel test, monitoring mediated the relationship between human capital and

relative organisational performance (ZSobel = 2.079, p<.05), relative market

performance (ZSobel = 2.599, p<.01) and innovation (ZSobel = 3.199, p<.01). For

model assessing productivity, the first and third paths were non significant and thus

failed to meet the criteria for mediation.

5.8.2.1.4 Team Utilisation as a Mediator

The results shown in Tables 5.12 (for team utilisation), 5.13 and 5.14 suggested that

team utilisation fully mediated the relationship between human capital and relative

market performance by satisfying the four conditions required in Baron and Kenny

(1986). The results also suggested that team utilisation mediated the relationship

between human capital and innovation, although the direct path between human

129
capital and innovation remained significant. This result is acceptable considering the

literature which provides support for the strong direct relationship between human

capital and innovation (Subramaniam & Yount, 2005). According to the Sobel test

of significance, team utilisation mediated the relationship between human capital

and relative market performance (ZSobel = 2.928, p<.01), and innovation (ZSobel =

4.035, p<.001). The models assessing the other two firm performance measures -

productivity and relative organisational performance were not supported due to the

non significance of one or more relevant paths which thus failed to meet the criteria

for mediation.

5.8.2.1.5 Uses “Together” as Mediators

Due to the fact that communication, coordination, monitoring and team utilisation

are related to each other as found in the correlation statistics in Table 5.7, the human

capital and uses including communication, coordination, monitoring and team

utilisation were entered together in the third step. The results were shown in the Step

3-5 shown in Table 5.12. Communication was significantly related to innovation (β

= .617, p<.01). Monitoring was significantly related to innovation (β = .213, p<.01).

Monitoring was significantly related to relative organisational performance (β =

.222, p<.10).

5.8.2.1.6 Summary

This section provided the results of testing hypothesis 4 which proposed the

meditation effects of uses on the relationship between human capital and firm

performance.

The results of the analyses support Hypotheses 4 by showing the mediating effect of

1) communication on the relationship between human capital and relative market

130
performance and innovation; 2) coordination on the relationship between human

capital and relative organisational performance, relative market performance and

innovation; 3) monitoring on the relationship between human capital and relative

organisational performance, relative market performance and innovation; and 4)

team utilisation on the relationship between human capital and relative

organisational performance, relative market performance and innovation.

5.8.2.2 Mediation of Uses in Social Capital and Firm Performance

Hypothesis 5 proposed that uses would mediate the relationship between social

capital and firm performance. The independent variable was social capital. The

mediators were uses which were measured by communication, coordination,

monitoring and team utilisation. The dependent variables to measure firm

performance were productivity, relative organisational performance, relative market

performance and innovation.

Based on Baron and Kenny’s (1986) procedure, controlling for firm age and firm

size, firm performance was first regressed on social capital. Each mediator was then

regressed on social capital separately. Finally, firm performance was regressed on

social capital with each mediator separately. The Sobel tests were conducted for

each meditational model.

Tables 5.15 to 5.16 show the regression results for the meditational model which

proposed that the relationship between social capital and firm performance was

mediated by uses. Model 2.5 to 2.8 in Table 5.16 represented different dependent

variables to measure firm performance, i.e. productivity, relative organisational

performance, relative market performance and innovation. Model 2.5 to Model 2.8

all included five separate simple meditational models which could be tested using

131
regression analysis directly. For example, Model 2.4 included five simple mediation

models as 1) communication as a mediator between social capital and productivity;

2) coordination as a mediator between social capital and productivity; 3) monitoring

as a mediator between social capital and productivity; 4) team utilisation as a

mediator between social capital and productivity; and 5) communication,

coordination, monitoring and team utilisation together as mediators between social

capital and productivity. The test of these simple mediational models was carried

out using hierarchical regression analyses and following the four-step procedure by

Baron and Kenny (1986) as described in the previous section. To streamline the

presentation of the results this section presents the findings of the mediational

analyses in a short format. Table 5.16 presents a summary of results for each step

and Sobel Test for the meditational model in which uses act mediators between

social capital and firm performance.

Table 5.15 Impact of Social Capital on Uses

Communication Coordination Monitoring Team Utilisation
Variable
Step1 Step2 Step1 Step2 Step1 Step2 Step1 Step2
Control
Firm age -.028 -.017 -.156† -.147† -.073 -.061 -.139 -.127
Firm size .134 .107 .314*** .291*** .226* .198* .219* .190*
Resource
Social Capital .395*** .338*** .409*** .433***

R2 .018 .173 .109 .222 .051 .218 .058 .245

2
Adjusted R .000 .150 .093 .201 .034 .197 .041 .224
∆R 2
.155 . .114 .167 .187
∆F 1.006 20.818*** 6.819** 16.233*** 3.030† 23.642*** 3.463* 27.433***
[df1, df2] [2, 112] [1, 111] [2, 112] [1, 111] [2, 112] [1, 111] [2, 112] [1, 111]
N 115 115 115 115 115 115 115 115
Note: Standardized coefficients were reported. Listwise deletion method was employed to deal with
missing data in hierarchical multiple regression analysis which reduced sample size from 120 to 115.
*** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

132
 Table 5.16 Impact of Social Capital and Uses on Firm Performance

Model 2.5 (productivity) Model 2.6 (relative organisational performance)

Variable
Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5 Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5
Control
Firm age -.083 -.084 -.082 -.100 -.083 -.085 -.102 .070 .079 .081 .113 .093 .097 .114
† †
Firm size .225* .226* .218* .261* .223* .227* .255* .184* .161 .153 .094 .116 .134 .081
Resource
Social Capital -.018 -.045 .022 -.024 -.016 -.017 .336*** .307** .258** .242* .275** .224*
Uses
Communication .068 .106 .073 -.045
Coordination -.116 -.163 .229* .176
Monitoring .015 .043 .229* .184
Team Utilisation -.005 -.010 .141 -.012

R2 .051 .052 .056 .062 .052 .052 .073 .043 .155 .159 .196 .196 .170 .215
2
Adjusted R .034 .025 .020 .027 .016 .016 .010 .026 .132 .129 .166 .167 .140 .164
∆R2 .000 .004 .010 .000 .000 .021 .112 .004 .041 .041 .015 .060
∆F 2.930 †
.036 .422 11.180 .019 .002 .585 2.493 †
14.742*** .577 5.588* 5.624* 2.002 2.055†
[df1, df2] [2, 108] [1, 107] [1, 106] [1, 106] [1, 106] [1, 106] [4, 103] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107]
N 111 111 111 111 111 111 111 115 115 115 115 115 115 115
ZSobel .977 2.279* 2.378* 1.754

133
 Table 5.16 Impact of Social Capital and Uses on Firm Performance (Continued)
Model 2.7 (relative market performance) Model 2.8 (innovation)
Variable
Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5 Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5
Control
Firm age -.010 -.006 -.002 .043 .014 .040 .054 -.009 .005 .017 .069 .026 .062 .054
Firm size .288** .279** .254** .182* .215* .210* .158* .209 .174** .099* .047 .106 .089 .038
Resource
Social Capital .139 .048 .026 .006 -.018 -.076 .512*** .234*** .364*** .370*** .318*** .177***
Uses
Communication .230* .036 .701*** .613***
Coordination .333*** .186† .436*** .211***
Monitoring .324** .138 .345*** -.014
Team Utilisation .361*** .188 .447*** .063

R2 .082 .102 .145 .188 .184 .200 .243 .043 .301 .711 .451 .397 .455 .748
2
Adjusted R .066 .077 .114 .158 .154 .171 .193 .026 .285 .701 .431 .375 .435 .732
∆R2 .019 .044 .086 .082 .098 .141 .260 .407 .148 .093 .151 .445
41.500* 155.132 29.621* 17.007* 30.115* 47.306*
∆F 5.027** 2.366 5.619* 11.646*** 11.053** 13.532*** 4.984** 2.530*
** *** ** ** ** **
[df1, df2] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107]
N 115 115 115 115 115 115 115 115 115 115 115 115 115 115
ZSobel 2.242* 2.898** 3.057** 3.304*** 4.217*** 3.319*** 3.426*** 3.949***
Note: Standardized coefficients were reported. Listwise deletion method was employed to deal with missing data in hierarchical multiple regression analysis which
reduced sample size from 120 to sizes ranging from 111 to 115. *** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

134
Table 5.17 A Summary of Results for Each Step and Sobel Test for Mediation Model of Uses as Mediators between Social Capital and Firm Performance
1st condition 2nd condition 3rd condition 4th condition Sobel Test
Hypothesis X M Y
(X->Y) (X->M) (M->Y) (XM->Y) (Z)
Productivity × √ × -- --

Rorga √ √ × -- --
Communication
Rmark × √ √ √b
2.242*

Innovation √ √ √ √a 4.217***

Productivity × √ × -- --

Rorga √ √ √ √a 2.279*
Coordination
Rmark × √ √ √b 2.898**
5. Uses mediate the relationship
Social Innovation √ √ √ √a 3.319***
between social capital and firm
Capital
performance. Productivity × √ × -- --

Rorga √ √ √ √a 2.378*
Monitoring
Rmark × √ √ √b 3.057**
Innovation √ √ √ √a 3.426***

Productivity × √ × -- --

Rorga √ √ × -- 1.754
Team Utilisation
Rmark × √ √ √b 3.304***
Innovation √ √ √ √a 3.949***
a b
Note: indicates that the direct path between X and Y remained significant. indicates that the direct path between X and Y was not significant. Rorga = relative
organisational performance; Rmark = relative market performance. *** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

135
5.8.2.2.1 Communication as a Mediator

The results shown in Tables 5.15 (for communication), 5.16 and 5.17 suggested that

communication mediated the relationship between social capital and innovation,

although the direct path between social capital and innovation remained significant.

The results also suggested that communication mediated the relationship between

social capital and relative market performance though the direct relationship was not

significant. According to the Sobel test, communication mediated the relationship

between social capital and relative market performance (ZSobel = 2.242, p<.05) and

innovation (ZSobel = 4.217, p<.001). For models assessing the firm performance

indicators of productivity and relative organisational performance, one or more of

the relevant paths were non significant and thus failed to meet the criteria for

mediation.

5.8.2.2.2 Coordination as a Mediator

The results shown in Tables 5.15 (for coordination), 5.16 and 5.17 suggested that

coordination mediated the relationship between social capital and relative

organisational performance and innovation with the remaining significant direct

paths. The results also suggested that coordination mediated the relationship

between social capital and relative market performance with non significant direct

path between social capital and relative market performance. According to the Sobel

test, coordination mediated the relationship between social capital and relative

organisational performance (ZSobel = 2.279, p<.05), relative market performance

(ZSobel = 2.898, p<.01) and innovation (ZSobel = 3.319, p<.001). For models

assessing productivity, the first and third conditions were not satisfied and thus

failed to meet the criteria for mediation.

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5.8.2.2.3 Monitoring as a Mediator

The results shown in Tables 5.15 (for monitoring), 5.16 and 5.17 suggested that

monitoring mediated the relationship between social capital and relative

organisational performance and innovation with the remaining significant direct

paths between social capital and these two firm performance measures. The results

also suggested that monitoring mediated the relationship between social capital and

relative market performance with a non significant direct path between social capital

and relative market performance. According to the Sobel test of significance of this

mediation, monitoring mediated the relationship between social capital and relative

organisational performance (ZSobel = 2.378, p<.05), relative market performance

(ZSobel = 3.057, p<.01) and innovation (ZSobel = 3.426, p<.001). The model assessing

productivity failed to meet the criteria for mediation because the first and the third

condition were not satisfied.

5.8.2.2.4 Team Utilisation as a Mediator

The results shown in Tables 5.15 (for team utilisation), 5.16 and 5.17 suggested that

team utilisation mediated the relationship between social capital and innovation with

the remaining significant path from social capital to innovation. The results also

suggested that team utilisation mediated the relationship between social capital and

relative market performance, although the direct path between social capital and

relative market performance was not significant. According to the Sobel test of

significance, team utilisation mediated the relationship between social capital and

relative market performance (ZSobel = 3.304, p<.001), and innovation (ZSobel = 3.949,

p<.001). The model assessing firm performance indicators of productivity and

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relative organisational performance were not supported due to the non significance

of one or more relevant paths which thus failed to meet the criteria for mediation.

5.8.2.2.5 Uses “Together” as Mediators

Due to the fact that communication, coordination, monitoring and team utilisation

are related to each other as indicated by their inter-correlations (see Table 5.7), the

social capital and uses including communication, coordination, monitoring and team

utilisation were entered together in the third step. The results were shown in Step 3-

5 shown in Table 5.14. Communication was significantly related to innovation (β =

.613, p<.001). Coordination was significantly related to relative market

performance (β = .186, p<.10) and innovation (β = .211, p<.001).

5.8.2.2.6 Summary

This section presents the results for hypothesis 5 which proposed the meditation

effects of uses on the relationship between social capital and firm performance.

Viewed together, hypothesis 5 is supported by finding the mediational effects of 1)

communication on the relationship between social capital and relative market

performance and innovation; 2) coordination on the relationship between social

capital and relative organisational performance, relative market performance and

innovation; 3) monitoring on the relationship between social capital and relative

organisational performance, relative market performance and innovation; and 4)

team utilisation on the relationship between social capital and relative organisational

performance, relative market performance and innovation.

5.8.2.3 Mediation of Uses in Organisational Capital and Firm Performance

Hypothesis 6 proposed that uses would mediate the relationship between

organisational capital and firm performance. The independent variable was

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organisational capital. The mediators were uses which were measured via

communication, coordination, monitoring and team utilisation. The dependent

variables to measure firm performance were productivity, relative organisational

performance, relative market performance and innovation.

Based on Baron and Kenny’s (1986) procedure, controlling for firm age and firm

size, firm performance was first regressed on organisational capital. Each mediator

was then regressed on organisational capital. Finally, firm performance was

regressed on organisational capital with each mediator separately. The Sobel tests

were conducted for each meditational model.

Tables 5.18 to 5.19 show the regression results for the meditational model which

proposed that the relationship between organisational capital and firm performance

was mediated by uses. Model 2.9 to 2.12 in Table 5.16 represented four different

dependent variables to measure firm performance i.e. productivity, relative

organisational performance, relative market performance and innovation. Model 2.9

to Model 2.12 all included five separate simple meditational models which could be

tested using regression analysis directly. For example, Model 2.9 included five

simple mediation models as 1) communication as mediator between organisational

capital and productivity; 2) coordination as mediator between organisational capital

and productivity; 3) monitoring as mediator between organisational capital and

productivity; 4) team utilisation as mediator between organisational capital and

productivity; and 5) communication, coordination, monitoring and team utilisation

together as mediators between organisational capital and productivity. The test of

the 16 simple mediational models was carried out using hierarchical regression

analyses and following the four-step procedure by Baron and Kenny (1986) as

139
described in the previous section. To streamline the presentation of the results this

section presents the findings of the mediational analyses in a short format.

Table 5.20 presents a summary of results for each step and the Sobel Test for the

meditational model in which uses act as mediators between social capital and firm

performance.

Table 5.18 Impact of Organisational Capital on Uses

Communication Coordination Monitoring Team Utilisation

Variable
Step1 Step2 Step1 Step2 Step1 Step2 Step1 Step2

Control

Firm age -.028 -.007 -.156† -.137 -.073 -.043 -.139 -.117

Firm size .134 .063 .314*** .250** .226* .127 .219* .143†

Resource
Organisational
.420*** .377*** .582*** .446***
Capital

R2 .018 .189 .109 .246 .051 .380 .058 .252

Adjusted R2 .000 .167 .093 .226 .034 .364 .041 .231

∆R2 .171 .138 .329 .193

∆F 1.006 23.428*** 6.819** 20.290*** 3.030† 58.935*** 3.463* 28.683***

[df1, df2] [2, 112] [1, 111] [2, 112] [1, 111] [2, 112] [1, 111] [2, 112] [1, 111]

N 115 115 115 115 115 115 115 115

Note: Standardized coefficients were reported. Listwise deletion method was employed to deal with
missing data in hierarchical multiple regression analysis which reduced sample size from 120 to 115.
*** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

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 Table 5.19 Impact of Organisational Capital and Uses on Firm Performance

Model 2.9 (productivity) Model 2.10 (relative organisational performance)

Variable
Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5 Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5
Control
Firm age -.083 -.088 -.086 -.099 -.084 -.084 -.101 .070 .087 .087 .117 .096 .103 .120
†
Firm size .225* .241* .232* .262* .229* .235* .257* .184 .126 .122 .071 .101 .106 .063
Resource
Organisational
-.090 -.135 -.059 -.141 -.108 -.141 .341*** .313** .257** .225* .279** .200†
Capital
Uses
Communication .106 .122 .066 -.035
Coordination -.084 -.152 .221* .182
Monitoring .088 .102 .199† .132
Team Utilisation .038 -.004 .139 .021

R2 .051 .059 .068 .065 .064 .060 .085 .043 .155 .159 .192 .180 .170 .202
2
Adjusted R .034 .033 .033 .029 .029 .025 .023 .026 .133 .128 .163 .150 .140 .150
∆R2 .008 .009 .005 .005 .001 .025 .113 .004 .037 .025 .041 .047
∆F 2.930† .897 1.026 .598 .541 .123 .714 2.493† 14.813*** .461 5.016* 3.299† 1.911 1.576
[df1, df2] [2, 108] [1, 107] [1, 106] [1, 106] [1, 106] [1, 106] [4, 103] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107]
N 111 111 111 111 111 111 111 115 115 115 115 115 115 115
ZSobel 2.247* 2.052*

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 Table 5.19 Impact of Organisational Capital and Uses on Firm Performance (Continued)
Model 2.11 (relative market performance) Model 2.12 (innovation)
Variable
Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5 Step1 Step2 Step3-1 Step3-2 Step3-3 Step3-4 Step3-5
Control
Firm age -.010 .001 .002 .042 .014 .038 .052 -.009 .012 .018 .077 .029 .070 .060
† †
Firm size .288** .252** .240** .177 .213* .206** .164 .209* .136 .090 .019 .088 .065 .025
Resource
Organisational
.212* .130 .098 .033 .069 -.023 .427*** .112† .249** .204* .204* .027
Capital
Uses
Communication .195* .027 .749*** .638***
Coordination .302** .180 .471*** .228***
Monitoring .307** .135 .383*** .004
Team Utilisation .321** .174 .499*** .097

R2 .082 .126 .157 .195 .184 .203 .239 .043 .220 .675 .387 .311 .406 .726
2
Adjusted R .066 .102 .126 .166 .155 .174 .189 .026 .199 .663 .365 .286 .385 .708
∆R2 .044 .031 .069 .058 .077 .113 .177 .455 .167 .091 .186 .506
154.086** 30.013** 14.480** 34.460** 49.369**
∆F 5.027** 5.540* 4.023* 9.407** 7.854** 10.676** 3.960** 2.530† 25.169***
* * * * *
[df1, df2] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107] [2, 112] [1, 111] [1, 110] [1, 110] [1, 110] [1, 110] [4, 107]
N 115 115 115 115 115 115 115 115 115 115 115 115 115 115
ZSobel 1.960* 2.976** 3.038** 3.092** 4.718*** 3.727*** 3.826*** 4.152***
Note: Standardized coefficients were reported. Listwise deletion method was employed to deal with missing data in hierarchical multiple regression analysis which
reduced sample size from 120 to sizes ranging from 111 to 115. *** p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

142
Table 5.20 A Summary of Results of Each Step and Sobel Test for Mediation Model of Uses as Mediators between Organisational Capital and Firm
Performance
1st condition 2nd condition 3rd condition 4th condition Sobel Test
Hypothesis X M Y
(X->Y) (X->M) (M->Y) (XM->Y) (Z)
Productivity × √ × -- --

Rorga √ √ × -- --
Communication
Rmark √ √ √ √ 1.960*

Innovation √ √ √ √a 4.718***

Productivity × √ × -- --
a
Rorga √ √ √ √ 2.247*
Coordination
Rmark √ √ √ √ 2.976**
6. Uses mediate the a
relationship between Organisational Innovation √ √ √ √ 3.727***
organisational capital and Capital Productivity × √ × -- --
firm performance.
Rorga √ √ √ √a 2.052*
Monitoring
Rmark √ √ √ √ 3.038**
Innovation √ √ √ √a 3.826***

Productivity × √ × -- --

Rorga √ √ × -- --
Team Utilisation
Rmark √ √ √ √ 3.092**

Innovation √ √ √ √a 4.152***
a
Note: indicates that the direct path between X and Y remained significant. Rorga = relative organisational performance; Rmark = relative market performance. ***
p< .001, ** p<.01, * p<.05, † p<.10. All tests were two-tailed.

143
5.8.2.3.1 Communication as a Mediator

The results shown in Tables 5.18 (for communication), 5.19 and 5.20 suggested that

communication fully mediated the relationship between organisational capital and

relative market performance. The results also suggested that communication

mediated the relationship between organisational capital and innovation, although

the direct path between organisational capital and innovation remained significant.

According to the Sobel test of significance of this mediation, communication

mediated the relationship between organisational capital and relative market

performance (ZSobel = 1.960, p=.05) and innovation (ZSobel = 4.718, p<.001). For

models assessing the other two firm performance measures as productivity and

relative organisational performance, one or more of the relevant paths were non

significant and thus failed to meet the criteria for mediation.

5.8.2.3.2 Coordination as a Mediator

The results shown in Tables 5.18 (for coordination), 5.19 and 5.20 suggested that

coordination fully mediated the relationship between organisational capital and

relative market performance. The results also suggested that coordination mediated

the relationship between organisational capital and the two firm performance

measures - relative organisational performance and innovation, although the direct

paths remained significant. According to the Sobel test, coordination mediated the

relationship between organisational capital and relative organisational performance

(ZSobel = 2.247, p<.05), relative market performance (ZSobel = 2.976, p<.01) and

innovation (ZSobel = 3.727, p<.001). For models assessing productivity, the first and

the third conditions were not satisfied and thus failed to meet the criteria for

mediation.

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5.8.2.3.3 Monitoring as a Mediator

The results shown in Tables 5.18 (for monitoring), 5.19 and 5.20 suggested that

monitoring fully mediated the relationship between organisational capital and

relative market performance. The results also suggested that monitoring mediated

the relationship between organisational capital and two firm performance measures

as relative organisational performance and innovation, although the direct paths

remained significant. According to the Sobel test, monitoring mediated the

relationship between organisational capital and relative organisational performance

(ZSobel = 2.052, p<.05), relative market performance (ZSobel = 3.038, p<.01) and

innovation (ZSobel = 3.826, p<.001). For models assessing productivity, the first and

the third conditions were not satisfied and thus failed to meet the criteria for

mediation.

5.8.2.3.4 Team Utilisation as a Mediator

The results shown in Tables 5.18 (for team utilisation), 5.19 and 5.20 suggested that

team utilisation fully mediated the relationship between organisational capital and

relative market performance. The results also suggested that monitoring mediated

the relationship between organisational capital and innovation, although the direct

path between organisational capital and innovation remained significant. According

to Sobel test of significance of this mediation, team utilisation mediated the

relationship between organisational capital and relative market performance (ZSobel =

3.092, p<.01), and innovation (ZSobel = 4.152, p<.001). The model assessing the

other two firm performance measures - productivity and relative organisational

performance - were not supported due to the non significance of one or more

relevant paths which thus failed to meet the criteria for mediation.

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5.8.2.3.5 Uses “Together” as Mediators

Due to the fact that communication, coordination, monitoring and team utilisation

are related to each other as found in correlation statistics in Table 5.7, the

organisational capital and uses including communication, coordination, monitoring

and team utilisation were entered together in the third step. The results were shown

in the Step3-5 shown in Table 5.16. Communication was significantly related to

innovation (β = .638, p<.001). Coordination was significantly related to innovation

(β = .228, p<.001).

5.8.2.3.6 Summary

This section provides the results of mediation test for hypothesis 6 which proposed

the meditation effects of uses on the relationship between organisational capital and

firm performance.

Viewed together, hypothesis 6 is supported by finding the mediational effects of 1)

communication on the relationship between organisational capital and relative

market performance and innovation; 2) coordination on the relationship between

organisational capital and relative organisational performance, relative market

performance and innovation; 3) monitoring on the relationship between

organisational capital and relative organisational performance, relative market

performance and innovation; and 4) team utilisation on the relationship between

organisational capital and relative organisational performance, relative market

performance and innovation.

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5.9 Summary

The main objective of this chapter was to present how the hypotheses were tested by

processing and analysing the raw data step by step. First, the results from ANOVA

show that the sample for this study was representative. The Rwgs, ICC(1)s and

ICC(2)s calculated from the pairs data provided evidence for data aggregation. In

addition, the public firm size information and firm revenue information was adopted

and the results of Harman one-factor test helped to rule out the common method

bias. After aggregation, the correlations presented an overview of relationships

between variables. Due to the complexity of the model and the sample size (120),

the proposed research model in this study was tested in two separate mediational

models. The first model tested the mediational effects of resources on the

relationship between HPWS and firm performance. The second model tested the

mediational effects of uses on the relationship between resources and firm

performance. The hierarchical multiple regression analysis was employed and the

results provided sufficient support for the hypotheses proposed in Chapter 3. The

findings will be discussed in the next chapter

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 CHAPTER SIX
DISCUSSION

6.1 Introduction

The main objective of this study was to examine how HPWS affects firm

performance by identifying and testing the influence of a series of intervening

variables between HPWS and firm performance. Based on an analysis of existing

literature and considering the unique characteristics of PSFs (e.g. knowledge

intensity, professionalised workforce), three pathways through which HPWS

influences firm performance were identified as resources. These are human capital,

social capital and organisational capital. In addition, this study also identified the

uses of the resources as intervening variables between resources and firm

performance. Based on this work, the thesis presents a novel and systematic

practices-resources-uses-performance approach to explain the indirect performance

effect of HPWS on firm performance.

The complete model proposed in this study was tested in two separate mediational

models. This was due to its complexity and the limited sample size. The first model

tested the practices-resources-performance link, i.e. the mediational effect of

resources in the relationship between HPWS and firm performance. The second

model tested the resources-uses-performance link, i.e. the mediational effects of

uses between resources and firm performance.

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Table 6.1 provides a summary of the hypotheses and the empirical results found in

this study.

Table 6.1 Summary of Hypotheses and Empirical Results

Support
Hypotheses
Productivity Rorga Rmark Innovation

Human capital mediates the relationship

1 × √ √ √
between HPWS and firm performance.

Social capital mediates the relationship

2 × √ √ √
between HPWS and firm performance.

Organisational capital mediates the

3 relationship between HPWS and firm × √ √ √
performance.

Communication × × √ √

Coordination × √ √ √
Uses mediate the relationship between
4
human capital and firm performance. Monitoring × √ √ √

Team × × √ √
Utilisation

Communication × × √ √

Coordination × √ √ √
Uses mediate the relationship between
5
social capital and firm performance. Monitoring × √ √ √

Team
Utilisation × × √ √

Communication × × √ √

Uses mediate the relationship between Coordination × √ √ √

6 organisational capital and firm
performance. Monitoring × √ √ √

Team
Utilisation × × √ √
Note: Rorga = relative organisational performance; Rmark = relative market performance.

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For Model 1, mediational effects of human capital, social capital and organisational

capital were found in the relationship between HPWS and three firm performance

measures (relative organisational performance, relative market performance and

innovation). For Model 2, mediational effects of four “uses” were found in the

relationships between resources (human capital, social capital and organisational

capital) and two firm performance measures (relative market performance and

innovation). The mediational effects of two “uses” (coordination and monitoring)

were found in the relationship between resources (human capital, social capital and

organisational capital) and relative organisational performance.

6.2 Research Findings

The findings in this study which demonstrate that the firms with more extensive HR

practices saw increases in firm performance are consistent with findings from

previous studies on the positive relationship between HPWS and firm performance

(Arthur, 1994; Becker & Gerhart, 1996; Datta et al., 2005; Delery & Doty, 1996;

Guthrie et al., 2009; Huselid, 1995; MacDuffie, 1995; Richard & Johnson, 2001;

Terpstra & Rozell, 1993; Youndt et al., 1996), However, this study’s failure to find

the expected significant relationship between HPWS and productivity is not

consistent with findings from previous studies. There are two possible reasons for

this. The first is the global economic recession which resulted in rapidly falling

revenues for many accounting firms (Finance Dublin, 2009). As revenue decreases,

HPWS practices are less likely to be dropped immediately due to time and monetary

constraints. Therefore, the relationship between HPWS and productivity in this

study may be different from that found in periods of greater economic stability. The

150
other possible reason is the research context. Professional service firms differ from

traditional manufacturing firms in that their employees are not paid piecework wage

but are paid through chargeable hours, resulting in revenue stream uncertainty.

Revenue per employee, which is usually used in other contexts, might not be an

appropriate measure for PSFs. Given these contexts, the non significant relationship

between HPWS and productivity in this study is not wholly surprising.

The findings of Model 1 which propose the mediational effects of resources

between HPWS and firm performance provide support for the claim that firms with

more extensive HPWS have higher human capital, social capital and organisational

capital, which in turn leads to higher firm performance. The findings regarding the

mediational effect of human capital and social capital in the relationship between

HPWS and firm performance corresponds to the study by Takeuchi et al. (2007)

who found the mediational effects of human capital and social capital in the

relationship between HPWS and relative organisational performance in 76 Japanese

business establishments. The findings regarding the mediational effect of social

capital in the HPWS and firm performance corresponds to the study by Gittell et al.

(2010) who found that HPWS influenced organisational performance through its

impact on relational capital.

With regard to the second model, the findings also found evidence for the

mediational effect of uses between resources and firm performance. In other words,

the firms with higher human capital, social capital and organisational capital seem to

experience higher firm performance through improving their uses of their resources.

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The uses in this study reflect the knowledge management capacities from a practical

perspective since communication, coordination, monitoring and team utilisation are

the mechanisms through which knowledge is acquired, shared, transferred,

leveraged and created. Therefore, the findings correspond to the existing studies on

the mediational effects of knowledge management capacities in the relationship

between resources and firm performance. For example, Smith, Collins and Clark

(2005) found that knowledge creation ability mediated the effects of an employee’s

stock of knowledge (similar to human capital in this study), ego networks (similar to

social capital in this study), and organisational climate (similar to organisational

capital in this study) on innovation in high technology firms. Additionally, Yli-

Renko, Autio and Sapienza (2001) explored the mediational effects of knowledge

acquisition in the relationship between social capital and new product development

in young technology-based firms. Another example from Collins and Smith (2006)

investigated the causal chain from HR practice, social climate, knowledge exchange

and combination to firm performance. They found that commitment-based HR

practices were indirectly related to firm performance through their effects on

organisational social climate and knowledge exchange and combination in the

context of high technology firms. All in all, the findings generally supported

previous research. In addition, in contrast to previous research, the findings

provided support for the extended model of another mediator -organisational capital

-between HPWS and firm performance. It also supported the idea that uses act as a

mediator between resources and firm performance.

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6.3 Research Contributions

The present research makes four key contributions to the existing literature on the

relationship between HPWS and firm performance. These will now be described in

detail.

Firstly, this study found a systematic pathway through which HPWS effects firm

performance by identifying the three mediators of human capital, social capital and

organisational capital. Previous research into mediators between HPWS were

confined to either investigating only one or two possible mediators out of three. For

example, Collins and Smith (2006) examined the mediating effect of social

networks in top management teams (TMT) and on the relationship between HRM

and firm performance in high technology firms. Gittell et al. (2010) examined the

mediating role of relational coordination, which includes the shared goals and

mutual respect in the relationship between HPWS and organisational performance in

hospitals. Takeuchi et al. (2007) examined the mediating roles of human capital and

social capital between HPWS and organisational performance in 76 Japanese

business establishments. As a contribution to the existing research, this study not

only examined human capital and social capital but also examined organisational

capital as an additional mediator in the relationship between HPWS and firm

performance and found empirical to support for all mediators. This is especially

important in the professional services firm context which is under-explored from the

vantage point of high performance work systems.

A second contribution of this study is the articulation of a novel way through which

human capital, social capital and organisational capital affect firm performance. In

153
doing so it additionally highlights the mediational role of uses in the relationship

between resources and firm performance. Of the existing research on human capital,

social capital and organisational capital, many researchers only examined their

direct effect on organisational performance and some focused solely on one or two

forms of capital. For example, Youndt et al. (2004) examined the effect of human

capital, social capital and organisational capital on firms’ performance indicators

such as financial returns and Tobin’s Q. Subramaniam and Youndt (2005) examined

the effect of human capital, social capital and organisational capital on two types of

innovation capabilities in high technology firms. Pennings et al. (1998) examined

the effect of human capital and social capital on firm dissolution in PSFs. Hitt et al.

(2001) examined the non-linear effect of human capital on firm performance. Later,

Hitt et al. (2006) examined the effect of human capital and social capital on

internationalisation of PSFs in law firms. The findings of this study provide support

for significant direct effects of human capital, social capital and organisational

capital on firm performance. This is consistent with previous research conducted in

different organisational contexts. Moreover, the findings provide support for the

indirect effects of resources on firm performance through the uses. In so doing the

present study provides empirical support for the argument that resources must be

utilised to create value for firms (Sirmon et al. 2007).

A third contribution of this study is that a more complete picture of firm

performance is provided by measuring both objective and subjective firm

performance. In the existing research in HPWS and firm performance, some

researchers adopted objective measures such as productivity (Guthrie, 2001; Guthrie

et al., 2009; Huselid, 1995; Wood & de Menezes, 2008), turnover (Guthrie, 2001;

154
Guthrie et al., 2009; Huselid, 1995; Wood & de Menezes, 2008), absenteeism

(Guthrie et al., 2009; Wood & de Menezes, 2008), financial performance such as

ROA and ROE (Delery & Doty, 1996) and organisational efficiency (Gittell et al.,

2010). Other researchers adopted subjective self-reported performance measures,

such as perceived firm performance (Chung & Liao, 2010; Delaney & Huselid,

1996; Takeuchi et al., 2007; Youndt et al., 1996), innovation (Subramaniam &

Yount, 2005), client satisfaction (Gittell et al., 2010) and service quality (Liao et al.,

2009). In this study, both objective measures on firm performance such as

productivity, and multiple subjective measures of firm performance such as relative

organisational performance, relative market performance and innovation, were

employed. The comprehensive measures of firm performance provide a more

complete picture of the firms’ achieved goals. In addition, the findings of mediation

tests provide insights into the different predictors for different firm performance

dimensions.

The fourth contribution of this study is the specific context being tested –

professional service firms. Most of previous literature on the relationship between

HRM practices and firm performance has examined this in contexts such as

manufacturing firms e.g. auto manufacturing plants, steel companies (Datta et al.,

2005; Ichniowski & Shaw, 1999; Ichniowski et al., 1997; MacDuffie, 1995; Gant,

Ichniowski, & Shaw, 2002), some general service firms like banks (Delery & Doty,

1996; Richard &Johnson, 2001) and call centres (Batt, 2002), a mixture of

manufacturing firms, general service firms (Huselid, 1995; Guthrie et al., 2009) or

high technology firms (Subramaniam & Youndt, 2005). The important context of

professional service firms was omitted. Authors such as Collins and Smith (2006)

155
called for the exploration of HRM practices in firms which are “facing more

dynamic environments”, rather than stable business conditions typically faced by the

above sample firms (p.545). The research reported here responds to this call., Some

topics have been addressed in existing research in PSFs. These include

organisational structure (Greenwood et al., 1990; Cooper et al., 1996; Pinnington &

Morris, 2003), tournament promotion systems (Morris & Pinnington, 1998) and

knowledge management (Alvesson, 2001; Donaldson, 2001; Empson, 2001;

Løwendahl, Revang & Fosstenløkken, 2001; Morris, 2001; Suddaby & Greenwood,

2001; Willman, Fenton-O’Creevy, Nicholson & Soane, 2001). However, systematic

research on HRM in professional service firms is scarce. This study filled this gap

by examining how HPWS operates in professional service firms.

6.4 Implications for Research and Practice

The findings of this study have important implications for both researchers and

managers.

Theoretically, the findings provide support for the general arguments of the

resource-based view of firm (Barney, 1991), the knowledge-based theory of firm

(Grant, 1996a, 1996b), dynamic capabilities (Teece et al., 1997) perspectives,

knowledge exploitation and knowledge exploration (Lavie et al., 2010; March,

1991). More specifically there are four potential implications for researchers in

HRM.

First, the findings provide insights into how HPWS work. Many HRM researchers

have discussed the indirect effect of HPWS on firm performance. The arguments

and empirical results of this study indicate that HPWS positively influences firm

156
performance through improving the firm’s resources (human capital, social capital

and organisational capital) and the efficient uses of these resources. Therefore, this

study provides researchers with comprehensive insights into the value creation chain

to better understand how HPWS works.

Second, this study provides insights into how organisational resources such as

human capital, social capital and organisational capital are used to improve firm

performance. Many researchers in knowledge management have argued that human

capital, social capital and organisational capital facilitate knowledge acquisition,

sharing, transfer, leverage, combination and creation. This study identifies four

mechanisms through which knowledge is acquired, shared, transferred, leveraged,

combined and created. This provides researchers with insights on an alternative way

to test the effect of organisational knowledge resources on firm performance.

Third, this study identifies the mechanisms between HPWS and performance and

provides insights into the universalistic and contingency perspectives in strategic

HRM research. In a meta-analysis of 92 articles on SHRM, Combs et al. (2006)

found that HPWS considerably and positively affects organisational performance.

They also found that organisational strategy and context could potentially moderate

the HRM and firm performance relationship and that employees’ knowledge, skills

and abilities (KSAs) and social structure mediate the relationship between high

performance work practices and organisational performance. This study found that

HPWS were significantly and positively related to firm performance. This provides

support for the universalistic perspective in SHRM research and is consistent with

other studies such as Combs et al. (2006). This study also found that human capital,

social capital and organisational capital mediate the relationship between HPWS

157
and firm performance. This supports the contingency perspective in SHRM research

which is consistent with other studies such as Combs et al. (2006).

From a practical perspective, several important lessons for practitioners can be

drawn from the discussion and analysis of the link from HR practices, through

resources built from HR practices and the uses of these resources to firm

performance.

Fourth, this study found empirical evidence for the importance of a firm’s

investments in HR practices. It demonstrates that firms with extensive utilisation of

HR practices seem to experience increases in firm performance. This study also

provides managers in PSFs with the mechanisms through which HPWS works by

improving firm performance. The HR practices help the firm to create human capital,

social capital and organisational capital, which in turn allows the firm to improve

their communication, coordination, monitoring and team utilisation abilities.

Resources and the uses of these resources are critically important for PSF

management since they enable internal employee deployment and build the external

clients relationships which are required for improved service quality and efficiency.

In addition to the above, this study provides some decision making support for

managers in PSFs, by identifying resources and resource use effectiveness. For

example, when managers in PSFs know that their external social capital is high, in

other words, they have very good relationship with their clients, they may utilise

their existing knowledge to their clients. This study also highlights how managers

improve the pool of human capital, social capital and organisational capital and how

to explore and exploit these to create new products and service and to attract new

clients and new business.

158
6.5 Limitations and Future Research Directions

Despite its contributions and strong implications, this study is limited in several

ways.

First, it examined three mediators between HPWS and firm performance, these are

human capital, social capital and organisational capital. There may also be other

intervening variables between HPWS and firm performance which remain

unidentified. For example, the relationship between employees and organisations

was not addressed in this study. Therefore, the next steps in the development of

strategic human resource management theory should include the development of

HPWS models that include more causal mechanisms. Some researchers have begun

to take steps in this direction. For example Liao et al. (2009) examined the

mediational effects of employees’ psychological empowerment and employees’

perceived organisational support on the relationship between HPWS and employees’

performance.

The second limitation concerns the small sample size, single industry data and

collection of data at a single time point. This study is limited by its small sample

size (120) albeit with a high response rate (45.80%). The small sample size did not

allow the investigator to conduct structural equation modelling which was the

desired method to test the complete model. As a result a complete picture of the

relationships could not be deducted. This study may also be limited by the single

industry data which was collected from accounting firms only. Other professional

service firms, e.g. law firms, architecture firms, were omitted from the investigation.

In order to test the more universal validity of the findings it is important for future

159
research to investigate multiple-sector PSFs, such as law firms, architecture firms,

etc. which will increase the sample size and sample diversity. In addition, this study

collected data at a single point of time. It is also important to gather longitudinal

data on the HPWS in PSFs to track the sample firms and to detect causal

relationships in more detail.

This study is also limited in the examination of HPWS as an index. This makes it

difficult to isolate the effects of single HR practices on specific firm resources and

performance. For example, it was argued that HPWS had an influence on firm

performance through the improvement of human capital. However, the question

remains unanswered as to which HR practices improve human capital which in turn

will influence a key dimension of firm performance. Therefore, another direction for

future research is to examine the consistency between HPWS usage and firm goals.

Despite these limitations, these results contribute to a better understanding of the

process of explaining how HPWS affects firm performance, especially in the

professional service context. The findings of this study provide empirical evidence

underlying the mechanisms through which HPWS and important firm performance

is linked.

160
 CHAPTER SEVEN
CONCLUSION

The main objective of this study was to examine the indirect performance effect of

HPWS in professional service firms. By doing so, this study adds to those studies

which attempt to open up the so called “black box” in strategic HRM research

(Wright & Garner, 2003) in the particular context of professional service firms.

Based on the resource-based view of the firm, knowledge-based theory and dynamic

capability theory, the present study conceptualised and tested a new model of

practices-resources-uses-performance that provides insights into linkages between

HPWS and firm performance in PSFs. Three pathways through which HPWS

influences firm performance were found in the existing studies on the indirect

relationship between HPWS and firm performance. These pathways were human

capital, social capital and organisational capital. These are the most important

resources in PSFs as they have the potential to be valuable, rare, imperfectly

imitable, and non-substitutable resources (Barney, 1991). However, these resources

must be effectively managed and utilised to achieve superior profit (Schultz, 1961)

and competitive advantage (Sirmon et al., 2007). The mediation of uses of resources

between firms’ resources and performance was then proposed. Therefore, the

present study theoretically and empirically establishes a new framework for HPWS

research in terms of a “practices-resources-uses-performance” approach.

161
To test the proposed model, data was collected from managing partners and HR

managers in 120 accounting firms based in Ireland. The findings provide support for

the mediational effects of resources in the relationship between HPWS and firm

performance. They also provide support for the mediational effects of uses in the

relationship between resources and firm performance. In this regard, this study

provides evidence from professional service firms that HPWS influences firm

performance by building firms’ human capital, social capital and organisational

capital. These resources in turn improve firm performance by improving firms’

communication, coordination, monitoring and team utilisation.

Despite its limitations in terms of sample size and single industry focus, the present

study contributes to SHRM theory and its application in PSFs. It does this by

identifying systematic mechanisms through which HPWS affect firm performance

and by identifying three mediators: human capital, social capital and organisational

capital. In addition, the identification of uses as a mediator between resources and

firm performance represents a novel way through which resources influence firm

performance. The new model proposed here and the empirical findings provide a

rounded and more complete perspective of how HPWS affects firm performance.

This in turn provides new insights for researchers in the SHRM field. This study

also enriches the understanding of context in SHRM research by extending the focus

of research to professional service firms.

162
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178
APPENDIX A: APPLICATION FORM: DUBLIN CITY
UNIVERSITY RESEARCH ETHICS COMMITTEE
Research Ethics Committee: Notification Form for Low-Risk Projects and
Undergraduate Dissertations

DCU Research Ethics Committee has introduced a procedure for notification to the
committee of
1. low-risk social research projects, in which personal information that is deemed not
sensitive is being collected by interview, questionnaire, or other means
2. dissertations on undergraduate programmes in all disciplines.

The committee requires researchers to concisely answer the following questions within this
form (before the project starts):

Project Title:
Exploring the Indirect Performance Impact of High Performance Work Systems in
Professional Service Firms: A Practices-Resources-Uses Approach

Applicant Name and E-mail:

Na Fu Na.Fu3@mail.dcu.ie

If a student applicant, please provide the following:

Level of Study (Undergrad/Taught MSc/Research MSc/Phd): PhD
Supervisor Name and E-mail:
Patrick Flood & Janine Bosak; Patrick.flood@dcu.ie, Janine.Bosak@dcu.ie

Questions:
1. Provide a lay description of the proposed research (approx. 300wds):

This study examines how high performance work systems (HPWS) affect firm performance
in professional service firms (PSFs). The research applies a practices-resources-uses
systematic approach to explore the “black box”.

It is argued that HPWS do not affect firm performance directly but indirectly. HPWS affect
firm performance through two steps. First, the HPWS creates firm’s human capital, social
capital and organisational capital resources. These resources in turn create value for firms
when they are effectively utilized. This is the practices-resources-uses approach.

The research model is developed based on a diverse range of literature which includes
strategic human resource management (SHRM), resource-based view of the firm (RBV),
knowledge-based theory as well as dynamic capabilities. The uniqueness of the research
model is that it provides a comprehensive chain from HPWS to firm performance, i.e.
innovation, productivity and financial performance, through combining the key concepts and
ideas in relation to intellectual capital resources which includes human capital, social capital
and organisational capital, uses of resources which includes monitoring, team utilization,
administrative coordination, generating new ideas and communication, and knowledge
management capacities.

The study of the indirect impact of HPWS on firm performance will contribute to the
understanding of how and why HPWS affect firm performance by identifying valuable
resources and the way to effectively use them in PSFs. It also will provide theoretical
support for the arguments of the resource-based view of firm (Barney, 1991), the
knowledge-based theory of firm (Grant, 1996a, 1996b) and the dynamic capabilities (Teece,
Pisano & Shuen, 1997) perspectives.

1
This research project gets the support from Charted Accountants Ireland. To conduct this
research project, Patrick Flood, Janine Boask and I collaborated with Professor Tim Morris
at University of Oxford and Dr Philip O’Regan at University of Limerick.
2. Detail your proposed methodology (1 page max.):

This research project will be survey-based. The data will be collected from two responses in
one unit/firm in the sample of 272 accounting firms in Ireland. The contact information for
the respondents in 272 accounting firms were collected from Business World Top 1000
Professional Firms, Chartered Accountants Regulatory Board, Chartered Accountants
Ireland, FAME, Kompass Directory and IndexIreland.

Dillman (2002)’s Tailored Design Method (TDM) is applied to conduct the survey.

The data collected from hard copy and online survey will be inputted to statistical software
packages and analysed accordingly, using correlation and regression analysis.

3. Detail the means by which potential participants will be recruited:

Dillman (2002)’s Tailored Design Method (TDM) is applied to conduct the survey.

1. An invitation letter will be posted to responses first to invite them to participate in

this research project.
2. A letter and a hard copy of questionnaire will be posted to responses.
3. A reminder/thank you postcard will be posted.
4. A follow up letter and the first replacement of questionnaire will be posted to the
responses who have not filled in the questionnaires.
5. A letter and the second replacement of questionnaire will be posted to the non-
responses. (This may be not necessary if by then a lot of responses return survey.)
6. A final letter will be posted.

Together with the letter and questionnaire, a pre-paid and self-addressed envelop will be
enclosed for returning surveys. Alternatively to hard copy of questionnaire, an online version
will be provided.

All of the surveys will be posted to potential participants. The link for an online version will
be written in the letters which will be posted to potential participants.

4. How will the anonymity of the participants be respected?

The questionnaires will contain generic questions which will in no way identify the
participants. If the questionnaires are filled out in hard copy they will returned in non
identifiable envelopes. If the questionnaires are filled out electronically the responses will
file in automatically with non identifiable responses. There will be a reference number for
each response which will only be used for checking response rate.

In addition, it will be assured to participants that this is a strictly confidential survey. No

individual response or firm will be identified in our research. Only aggregate results will be
reported.

5. What risks are researchers or participants being exposed to, if any?

There are no risks foreseen for filling the questionnaire which may take around 15 minutes.

6. Have approval/s have been sought or secured from other sources? Yes/No No
If Yes, give details:

2
7. Please confirm that the following forms are attached to this document:
Informed Consent Form Yes/No No
Plain Language Statement Yes/No No

If not, explain why:

NB – The application should consist of one file only, which incorporates all
supplementary documentation. The completed application must be proofread and
spellchecked before submission to the REC. All sections of the form should be
completed. Applications which do not adhere to these requirements will not be
accepted for review and will be returned directly to the applicant.

The administrator to the Research Ethics Committee will assess, on receiving such
notification, whether the information provided is adequate and whether any further action is
necessary. Please complete this form and e-mail to fiona.brennan@dcu.ie

Please note: Project supervisors of dissertations on undergraduate programmes have the

primary responsibility to ensure that students do not take on research that could expose
them and the participants to significant risk, such as might arise, for example, in
interviewing members of vulnerable groups such as young children.

In general, please refer to the Common Questions on Research Ethics Submissions for
further guidance on what research procedures or circumstances might make ethical
approval necessary (http://www.dcu.ie/internal/research/questions_ethics_submissions.pdf)

3
APPENDIX B: DCU RESEARCH ETHICS COMMITTEE
APPROVAL LETTER

4
APPENDIX C: INTERVIEW TOPICS
Interview 1 with Managing Partner

Figure C.1 How PSFs Deliver Service to Their Clients by Partners

Source: The Author

Based on Figure C.1, the following questions were asked to interviewee.

1a. What do you do to retain your existing clients during the recession?
1b. What do you do when a client wants to leave you or has left you?
1c. How do you build relationships with potential clients?
1d. How do you do things differently from your competitors?
1e. How do you ensure the quality and profit of your service to your clients?

2a. How do you select people to form a client service team?

2b. Generally, how many directors, managers and juniors are there in one client
service team?
2c. How do you measure your team performance?
2d. How do you keep your project team efficient and effective?

3a. What can be done to improve your employees’ skills when you are cutting costs?
3b. What can be done to strengthen the relationships between team members within
departments and between different departments?
3c. What do you do with the organisational structure and routines to improve project
efficiency?
3d. What is key employee?
3d. How do you retain your key employees?

5
4a. The people who are motivated well will contribute more to the company. How
do you make sure the employees in different levels are highly motivated?
4b. How can juniors become partners?
4c. Do you hire directors or managers outside PWC, e.g. some people with fruitful
experience in other industries? If so, are you employing the same promotion
method/criteria to them?
4d. Since you have annual performance appraisal, do you use a performance-based
compensation strategy?

5. What is new practice portfolio?

6. How do you deliver it to your clients?

Interview 2 with Communication Partner

1. What is the impact of the recession on HR and company performance in PWC?

2a. Because of the recession, lots of firms are cutting costs. What are you going to
or have you been doing?

2b. Are there any changes in the organisational structure, for example, job
redesigning, clients retention, promotion models and performance management? If
so, what are they?

3a. Do you think the recession is the best time for upgrading talent? If yes, what are
you going to do for upgrading your talent? Will you make contingency plans for
recruiting and/or retaining top talent?

3b. Are there any changes in the relationships between employees, between
employee and clients and between different networks?

3c. Generally, most of the work is conducted by teams. During the recession, are
there events for team building, such as improving trust, leadership or motivation?

4a. What has happened to your business results in the last 3 years?

4b. Could you forecast the business results for the next 3 years?

4c. What are your estimated changes in the market share?

4d. How can you retain or improve your revenue during this recession? Are you
going to provide your clients with new practice portfolio?

4e. Is innovation important for PSFs and why?

6
4f. How should today's economy change our view of innovation?

4g. What do you think innovation means for PSFs? New practice portfolio, new
solutions, or else?

5. How do you look after your clients? And the changes at the moment?

6. What have the employees in different levels to do to get promoted?

7. How can juniors become a partner?

8. What challenges and opportunities are there for PSFs?

9. Is a recession really the time for PSFs to make major changes?

10. Are larger or smaller companies better positioned to make such changes?

Interview 3 with Senior HR Manager

Figure C.2 How to Improve Team Performance through HRM

Source: The Author

HR practice here includes recruitment (path 1), training (path 1 and 2),
compensation (path 3 and 4), and performance measurement (path 3 and 4).

1a. Externally, where do the candidates come from and what are the percentages,
e.g., graduates or experienced employees, and the percentage?
1b. Can you tell me about your promotion systems?
- promotion criteria, e.g., formal assessment V automatically based on tenure
1c. What will the people do if they are not promoted? (“up or out” tournament
promotion model)

7
2a. What kind of training activities are there for employees in different levels?
2b. How often does training take place?
2c. Are there training activities to improve trust and teamwork to keep the project
team efficient and effective?
2d. Is there management skills training for those who get promoted, e.g., for senior
manager?

3a. What is the compensation package for associates, seniors, managers, directors,
and partners?
3b. How is the profit shared? Is it based on tenure, performance or equal sharing?
3c. Is there any performance based pay, “eat what you kill” or team based pay in
PWC?

4a. How is the performance of employees measured?

4b. What are the performance criteria for associates, seniors, managers, directors,
and partners?
4c. What type of information would you like to know about the performance of the
PSF as a HR manager in a PSF?

5. What changes are there for HRM in PWC because of the recession?

8
APPENDIX D: A SUMMARY OF HR PRACTICES IN
ACCOUNTING FIRMS WITH DIFFERENT FIRM SIZE
Firm Size
Medium
Small firm Large firm
HR Practices firm

Selection
employment test (e.g., skills tests, aptitude tests,
skills tests
mental/cognitive ability tests)
internal promotions 
promotions based upon merit or performance

(versus seniority)
promotions based upon seniority only if merit is
based upon seniority
equal
promotions based upon seniority among employees

who meet a minimum merit requirements;
a lot of
intensive recruiting efforts  recruitment when required
advertising
comprehensive selection (using structured,
standardized interviews, e.g., behavioural or 
situational interviews, tests etc.)
selection based on overall fit to the company 

selection based on aptitude 

selection based on collaboration and teamwork

skills
selection based on individual competency no matter

fit with the organisation
applicant pool, for one job many candidates 
offer an orientation program  

Training and Development

cross training (for a variety of skills)  More technical skills, firm-specific training
cross-utilisation (routinely perform more than one

job, i.e. job rotation)
task or firm-specific training 
training in generic skills 
training focused on future skill requirements  just for what they need
multiple career path opportunities 
team-building and teamwork skills training  team skills are trained on the job

mentoring system 
continuous training 
comprehensive training 

9
 Firm Size
Medium
Small firm Large firm
HR Practices firm

on-the-job training 
Training length (hours)  total training hours for trainees every year

Compensation and Benefits

group / team performance based pay  only for management not trainees
knowledge-based / skill-based / individual
 individual performance based pay
performance based pay
employee stock ownership 
organisational performance-based pay  only for partners

high salaries / wages high salary + low benefits package or low

extensive benefits package salary + high benefits package

sponsor company social events 

Performance Control

formal individual performance appraisals 

multiple formal performance feedbacks 
performance appraisals for setting goals 
performance appraisals for planning skill

development
performance appraisals linked to individual

performance related pay
objective and quantifiable performance appraisals  e.g., cost, clients satisfaction and time

Information Sharing and Participation

participation programs 

operating performance information sharing 

financial performance information sharing 
strategic information sharing 

formal grievance/complaint resolution procedure 

self-directed work teams 
attitude surveys  
decision making  trainees don’t make decision

participation in quality of work life programs 

10
APPENDIX E: INVITATION LETTER

11
APPENDIX F: COVER LETTER
Cover letter to the firms who have contact information for two persons:

12
Cover letter to the firms who have contact information for two persons:

13
APPENDIX G: SURVEY OF ACCOUNTING FIRMS 2010

14
 GENERAL INSTRUCTIONS

What is the purpose of the project?

The purpose of this study is to examine the influence of human resource management (HRM) and
knowledge management (KM) on the performance of accounting firms.
Why should I participate?
You will receive a free customised professional report for your organisation which will allow you to
benchmark your firm’s management effectiveness. The study will also benefit the Chartered
Accountants Ireland, your profession and several doctoral students.
What are the questions about?
The questions relate to human resource management, knowledge management, human capital,
management control mechanisms, clients and markets. There are no trick questions and we think
that you will find this questionnaire both stimulating and interesting.
How long will it take?
The survey will take about 10 to 15 minutes to complete. A prepaid self addressed envelope is
provided to return the survey to DCU.
Which part of the organisation should I think of as I complete the survey?
Please answer in respect of the local firm/unit of which you are part, unless you have received this
in your capacity as National Managing Partner or National HR Director. In that case you should
complete it for the national organisation as a complete entity.
Who will read the results?
We assure you that this is a strictly confidential survey. Under no circumstances will your individual
responses be made available to anyone in your organisation or other organisations. Only the
directors of this research can read your answers.
Is there an online version?
If you prefer to complete the survey electronically, the online survey is also available online at
www.surveymonkey.com/s/accountants.
Who should I contact?
If you have any questions, please contact Professor Patrick Flood at 01 700 6943 or email him at
Patrick.Flood@dcu.ie.

We would like to thank you in advance for your time and effort.
 PROJECT DIRECTORS AND RESEARCH TEAM

Prof. Patrick Flood is Professor of Organisational Behaviour, Head of the

HRM Group and a Deputy Director of the Leadership, Innovation and
Knowledge (LInK) research centre at Dublin City University. A former
Fulbright scholar, he has held faculty and visiting appointments at the
Australian Graduate School of Management, London School of Economics,
London Business School, University of Limerick and the University of
Maryland. Patrick’s research interests include CEO leadership and top team
effectiveness; HRM and organisational performance; management practices
and professional service firms performance.

Prof. Tim Morris is Professor of Management Studies, University of Oxford,

Programme Co-Director and Academic Director of the Centre for the
Management of Professional Service Organisations at Saïd Business School,
University of Oxford. Dr Morris specialises in the leadership challenges facing
those heading up organisations of professionals and has taught and written
extensively on strategic change, the management of innovation and
strategies for managing human capital. He has presented the models he has
developed from his consulting and research to senior executives on many
occasions in the UK and abroad.

Dr. Janine Bosak is a lecturer in Organisational Psychology at Dublin City

University Business School. She holds a diploma in Psychology from the
University of Mannheim (Germany) and a doctorate from the University of
Bern (Switzerland). Janine is a member of LInK Research Centre. Her
research interests are at the interface of organisational and social
psychology.

Dr. Philip O’Regan is a Senior Lecturer in Financial Accounting at the

University of Limerick. He is an accountant and worked for a number of
accounting firms including PwC before joining UL. Philip's research interests
include intellectual capital, corporate governance and regulation, accounting
history and financial reporting.

Ms Na Fu is a registered doctoral student at Dublin City University Business

School. She is a member of LInK Research Centre. Na’s research topic is on
the indirect relationship between HPWS and organisation performance in
Irish professional service organisations using a practice-resource-use
approach. Na received her BA in Engineering from Northeastern University at
Shenyang, China and is the 2010 recipient of the best graduate paper award
of the Academy of Management awarded by the Management Consulting
Division.

16
 Ref:
1. YOUR BACKGROUND
1. What is your title or position?
 Managing Partner  HR Manager/Director  Other (please specify) __________

2. In what functional area do you work?

 Accounting  Auditing
 Taxation  Business Advisory
 Other (please specify) __________
3. Are you?
 Male  Female

4. Please indicate your nationality?

 Irish  Other (please specify) __________

5. What age are you? _____ years

Regarding your education and work experience:
6. What is the highest degree you have obtained?
 Bachelor’s Degree
 Masters
 PhD
 None
 Other (please specify) __________
7. From which professional body did you obtain your professional qualification and in which year did you
qualify?
Qualified in year…
 Chartered Accountants Ireland (ACA/FCA) ________
 Association of Chartered Certified Accountants (ACCA) ________
 Institute of Certified Public Accountants in Ireland (CPA) ________
 Chartered Institute of Management Accountants (CIMA) ________
 Other (please specify) ____________________ ________
8. How many years have you worked in your present organisation? _____ years

9. How many years have you worked in the accounting profession? _____ years

10. How many years of full time work experience do you have? _____ years

Regarding Your Organisation:

Please answer in respect of the local firm/unit of which you are part, unless you have received this in your
capacity as National Managing Partner or National HR Director, in which case you should complete it for
the national organisation.

11. Please indicate the year in which your organisation was established in its current form: __________

12. Please indicate if your organisation’s ownership structure is a partnership:  Yes  No

13. Please indicate if your organisation is part of an international network of accounting firms:  Yes  No

14. Please indicate if your organisation is part of a national network of accounting firms:  Yes  No
17
15. How is the firm organised: by (please tick  as many as are relevant)
 Department
 Client group
 Specialist group
 Local office
 Other (please specify) __________
16. Please rank in order of importance the following criteria for promoting a professional to partner in your
organisation: (Please rank the categories below from 1 through to 6. 1=Most important)
______ Getting new business
______ Technical skill
______ Fee earning ability
______ Management ability
______ Getting on with peers
______ Getting on with clients
17. Please rank in order of importance the following criteria used to assess partner’s performance:
(Please rank the following categories from 1 through to 4. 1=Most important)

______ Fees earned

______ Technical skill
______ Management ability
______ Getting new business
18. Please indicate how many offices you have in all-Ireland (including Northern Ireland): _________
19. Please indicate the number of people below in your organisation in all-Ireland (including Northern
Ireland):
the number of partners: _________
the number of other associates (non-partner chargeable): _________
and the number of support staff: _________
20. Please estimate the fee income for your practice in all-Ireland (including Northern Ireland) for your most
recent year: € __________million (Please note that this information will not be disclosed to any third
party. It will only be used for statistical purposes).
21. Please indicate the proportion of your fee income that comes from innovative services (as opposed to
repeat work): __________%
22. Please indicate the proportion of fee income for your most recent year that came from each of the
following activities: (the four quadrants should total 100%).
Innovative Services

% %

Existing Clients New Clients

% %

Repeat work
18
2. HUMAN RESOURCE PRACTICES

Please answer the following questions with respect to all the professional staff in your organisation
over the previous 12 months. Please estimate, on average...
Staffing: What proportion of your professional staff…
1. Are administered an employment test (e.g. skills tests) prior to hiring? ................................ %
2. Hold jobs which have been subjected to a formal job analysis to identify position
requirements (such as required knowledge, skills or abilities)? ........................................... %
3. Hold non-entry level jobs which have been filled as a result of internal promotions (as
opposed to hired from outside of the organisation)? ........................................................... %
Performance management & Remuneration: What proportion of your professional staff …
4. Receive formal individual performance appraisals?............................................................... %
5. Receive formal performance appraisals from more than one source (i.e., from several
individuals such as supervisors, peers etc.)? ....................................................................... %
6. Have access to company incentive plans, profit-sharing plans, and/or gain-sharing
plans? ................................................................................................................................... %
7. Receive their performance appraisals which are used to determine their compensation?.... %
8. Receive their performance appraisals which are used to set goals and plan skill
development?........................................................................................................................ %
9. Receive above market wage levels to attract and retain them? ............................................ %
Information sharing & participation: What proportion of your professional staff …
10. Are included in a formal information sharing program (e.g., a newsletter)? ....................... %
11. Are asked to complete attitude surveys on a regular basis? ............................................... %
12. Participate in Quality of Work Life (QWL) programs, Quality Circles (QC), and/or
labour-management participation teams? ............................................................................ %
13. Have access to a formal grievance procedure and/or complaint resolution system? ......... %
Training & development: What proportion of your professional staff …
14. Receive continuous training, e.g. continuous professional development? .......................... %
15. Receive structured mentoring, e.g. via articles? .................................................................. %
16. Are organised in self-directed work teams in performing a major part of their work
roles? .................................................................................................................................... %
Other issues…
17. What is the average number of hours of training received by a typical professional staff
member per year?................................................................................................................. #
18. Which one of the following promotion bases do you use most often? (Please tick only one option)
 merit or performance rating alone
 seniority only if merit is equal
 seniority among employees who meet a minimum merit requirement
 seniority
19. For the five graduate trainee positions that your firm hires most frequently, how many
qualified applicants do you have per position (on average)? ............................................... #
Over the previous three years, please estimate (on average)
20. your annual voluntary employee turnover rate (percent who voluntarily departed your
organisation) ......................................................................................................................... %
21. your annual involuntary employee turnover rate (percent who involuntarily departed
your organisation – i.e., were discharged) ........................................................................... %
22. the number of days per year employees were absent ......................................................... #
3. HUMAN CAPITAL IN YOUR ORGANISATION Strongly Unsure Strongly
Disagree Agree
In your organisation, the professional staff…
1. are highly skilled. ........................................................................................ 1 2 3 4 5 6 7

2. are widely considered to be the best in the accounting industry ................ 1 2 3 4 5 6 7

3. are creative and bright. ............................................................................... 1 2 3 4 5 6 7

4. are experts in their particular jobs and functions. ....................................... 1 2 3 4 5 6 7

5. are up to date on relevant new taxation, auditing, accounting and 1 2 3 4 5 6 7
legal developments .....................................................................................
6. are skilled at collaborating with each other to diagnose and solve 1 2 3 4 5 6 7
problems. ....................................................................................................
7. develop new ideas and knowledge............................................................. 1 2 3 4 5 6 7

8. develop and maintain good relationships with clients................................. 1 2 3 4 5 6 7

9. share information and learn from one another. .......................................... 1 2 3 4 5 6 7

10. interact and exchange ideas with people from different functional 1 2 3 4 5 6 7
areas of the organisation. ...........................................................................
11. partner with clients to develop solutions ..................................................... 1 2 3 4 5 6 7

12. partner with other firms in the network to develop solutions ..................... 1 2 3 4 5 6 7
13. apply knowledge from one area of the organisation to problems 1 2 3 4 5 6 7
and opportunities that arise in another .......................................................
4. ORGANISATIONAL ROUTINES Strongly Unsure Strongly
Disagree Agree
In your organisation…
1. The databases are used as a way to store knowledge .............................. 1 2 3 4 5 6 7

2. The processes are appropriate to solve clients’ problems. ........................ 1 2 3 4 5 6 7

3. The culture (stories, rituals and symbols) contains valuable ideas 1 2 3 4 5 6 7
and ways of doing business........................................................................
4. The routines enable employees to know each other .................................. 1 2 3 4 5 6 7

5. The routines enable employees to know about the whole organisation..... 1 2 3 4 5 6 7

6. Much of the organisation’s knowledge is contained in manuals, 1 2 3 4 5 6 7
databases, structures and processes .........................................................
7. A low level of vertical hierarchies and cross-function barriers are 1 2 3 4 5 6 7
maintained in the organisation structure.....................................................
5. MARKETS AND CLIENTS Much Comparable Much
Please use the following scale to rate your organisation’s performance Worse Better
relative to your competitors:
1. Quality of services....................................................................................... 1 2 3 4 5 6 7
2. Development of new services..................................................................... 1 2 3 4 5 6 7
3. Ability to attract essential employees.......................................................... 1 2 3 4 5 6 7
4. Ability to retain essential employees........................................................... 1 2 3 4 5 6 7
5. Satisfaction of clients .................................................................................. 1 2 3 4 5 6 7
6. Relations between partners/directors and other employees ...................... 1 2 3 4 5 6 7
7. Relations among employees in general...................................................... 1 2 3 4 5 6 7
8. Marketing .................................................................................................... 1 2 3 4 5 6 7
9. Growth in revenue....................................................................................... 1 2 3 4 5 6 7
10. Profitability .................................................................................................. 1 2 3 4 5 6 7
11. Market share ............................................................................................... 1 2 3 4 5 6 7
6. KNOWLEDGE MANAGEMENT CAPACITY Strongly Unsure Strongly
Disagree Agree
In your organisation…
1. Knowledge is obtained from clients to solve their problems...................... 1 2 3 4 5 6 7

2. Knowledge is obtained from partners to solve clients’ problems ............... 1 2 3 4 5 6 7

3. Knowledge is obtained from employees to solve clients’ problems .......... 1 2 3 4 5 6 7

4. Knowledge is shared between senior level staff and junior level staff ....... 1 2 3 4 5 6 7

5. Knowledge is shared between colleagues.................................................. 1 2 3 4 5 6 7

6. Knowledge is shared between units ........................................................... 1 2 3 4 5 6 7

7. Knowledge is effectively translated into application .................................. 1 2 3 4 5 6 7

8. The existing knowledge is integrated successfully with new
1 2 3 4 5 6 7
knowledge acquired from clients ................................................................
9. Organisational knowledge is accumulated by employees through
1 2 3 4 5 6 7
writing general guides on a project and storing them as archives..............
10. Most of the employees have access to these archives .............................. 1 2 3 4 5 6 7
11. Most partners leverage their knowledge efficiently to generate novel
1 2 3 4 5 6 7
solutions for clients .....................................................................................
12. Most teams can efficiently use knowledge to develop new ideas .............. 1 2 3 4 5 6 7
13. An expertise directory is maintained by job division and specialty of
1 2 3 4 5 6 7
all employees ..............................................................................................

7. MONITORING AND TEAM UTILIZATION Strongly Unsure Strongly

Disagree Agree
In your organisation…
1. There are mechanisms in place to monitor employee contributions to
1 2 3 4 5 6 7
new ideas and developments ......................................................................................
2. There are mechanisms in place to encourage employees to reflect on
1 2 3 4 5 6 7
the outcomes of their efforts ........................................................................................
3. There are mechanisms in place to assist employees adjust their
1 2 3 4 5 6 7
approach if they find their efforts are taking them down the wrong path.....................
4. Teams can be formed quickly as required................................................................
1 2 3 4 5 6 7
5. Newly formed teams quickly establish a good understanding of each
1 2 3 4 5 6 7
others’ talents and skills...............................................................................................
6. Teams are continuously reconfigured to address the set of
1 2 3 4 5 6 7
opportunities facing the organisation ................................................................
7. Teams are formed on the basis of an understanding of people’ s skills
1 2 3 4 5 6 7
and abilities ..................................................................................................................

Small Great
8. ADMINISTRATIVE COORDINATION
Extent Extent
To what extent does your organisation engage in the following items?

1. Formal policies and procedures for coordinating the team's work ..............................
1 2 3 4 5 6 7

2. Project milestones and delivery schedules................................................................

1 2 3 4 5 6 7

3. Project documents and memos ...................................................................................

1 2 3 4 5 6 7

4. Regularly scheduled team meetings................................................................1 2 3 4 5 6 7

5. Requirements/design review meetings................................................................

1 2 3 4 5 6 7

6. Design inspections................................................................................................
1 2 3 4 5 6 7
9. GENERATING NEW IDEAS AND COMMUNICATION Never Occasionally Always
In your organisation, how often do employees on average engage in the
behaviours listed below?
1. Creating new ideas for difficult issues ................................................................
1 2 3 4 5 6 7

2. Searching for new work methods, techniques or instruments ................................

1 2 3 4 5 6 7

3. Generating original solutions for problems ................................................................

1 2 3 4 5 6 7

4. Mobilising support for innovative ideas................................................................

1 2 3 4 5 6 7

5. Acquiring approval for innovative ideas ................................................................

1 2 3 4 5 6 7

6. Transforming innovative ideas into useful applications ................................ 1 2 3 4 5 6 7

7. Evaluating the utility of innovative ideas ................................................................

1 2 3 4 5 6 7
8. Introducing innovative ideas into the work environment in a
1 2 3 4 5 6 7
systematic way................................................................................................
9. Making team members enthusiastic for innovative ideas ................................
1 2 3 4 5 6 7
10. Communicating with management in a timely way about the
1 2 3 4 5 6 7
status of the project................................................................................................
11. Communicating with management accurately about the status
1 2 3 4 5 6 7
of the project ................................................................................................
12. Sharing organisational goals about the quality of services ................................
1 2 3 4 5 6 7

That was the final set of questions for the survey. If you wish to share any additional comments please use the
following space. We appreciate your time and effort in answering these questions.

ADDITIONAL COMMENTS FOR THE RESEARCHERS:

We certainly welcome any comments that you may have about how your organisation motivates employees to
accumulate and share information and knowledge with each other in order to increase your organization’s ability to
solve clients’ problems. Thank you once again for helping us to increase our understanding of how organisations like
yours increase the knowledge base in an organisation and exploit it efficiently.
……………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………

Would you like to take part in a follow-up study, please?  Yes  No

If ‘yes’, please provide name and address or attach a business card:

Name: _______________________________
Address: _______________________________
_______________________________
_______________________________
Email: ___________________________________

Thank you again for your help!

APPENDIX H: POST CARD

15
APPENDIX I: CUSTOMISED REPORT (SAMPLE)

16
 EVIDENCE FROM IRISH ACCOUNTING PRACTICES

HUMAN RESOURCES, KNOWLEDGE MANAGEMENT AND PERFORMANCE

Report to XXXX

December 2010

University of Oxford Dublin City University University of Limerick

 Report to XXXX

Executive Summary

1. The purpose of this study was to examine the influence of human resource management (HRM)
and knowledge management (KM) upon the performance of professional service firms.

2. This report provides the results of research undertaken within accounting firms in Ireland
between May 2010 and August 2010. It includes information on high performance work
systems, intellectual capital, knowledge management capacities, management mechanisms and
organisational performance.

3. This report provides comparisons between your practice and all 190 members of the Irish
Accounting profession who participated in this survey on each of above areas.

4. The results show that your practice uses more high performance work systems, has higher
intellectual capital, higher knowledge management capacities, higher management mechanisms
effectiveness, higher relative organisational performance, higher relative market performance,
higher productivity and lower absenteeism.

5. The main recommendation is to continue using human resource management practices to build
intellectual capital, to improve knowledge management capacities and management
mechanisms effectiveness to encourage your employees to be more innovative and productive.

Basic Concepts
High performance work systems (HPWS): “a system of HR practices designed to enhance
employees’ skills, commitment, and productivity in such a way that employees become a
source of sustainable competitive advantage” (Lawler, 1992, 1996; Levine, 1995; Pfeffer,
1998; cited in Data, Guthrie and Wright 2005).

Intellectual capital: “sum of all knowledge with which an organisation is able to leverage in the
process of conducting business to gain competitive advantage” (Subramaniam and
Youndt, 2005: 451).

Human capital: the stock of skills and knowledge embedded in individuals (Becker, 1964;
O’Sullivan & Sheffrin, 1998), which can be built through education and training (Becker,
1964).

Social capital: the stock of knowledge embedded in the relationships among individuals
(Coleman, 1988; Bourdieu; 1985; Burt, 1992; Putnam, 1993; Nahapiet & Ghoshal, 1998;
Lin, 2001).

Organisational capital: the institutionalized knowledge residing within organisational processes,

routines, systems and structures (Youndt et al., 2004; Subramaniam & Youndt, 2005).

Knowledge management capacity: organisation’s capacity to manage knowledge. In this study,

knowledge acquisition, knowledge sharing and knowledge application which help
organisations to improve their knowledge management capacity are explored.

Management mechanisms: the management practices or activities that explore, develop and
utilize the resources of organisations. Communication, coordination, monitoring and team
utilisation are measured.

Relative organisational and market performance: the self-reported comparative measures of

organisational performance.

Productivity: revenue per professional staff (€ million).

Absenteeism: the number of absent days per employee per year due of illness.
 Report to XXXX
1
Figure 1 Comparison on Uses of High Performance Work Systems (0% - 100%)

100.00 Accounting Profession

Your Practice
87.50
80.00
80.00 80.00
73.59 73.13
69.68
60.00
60.10

40.00 44.88 45.00

37.15 35.61
32.57

20.00

0.00
HPWS Index Recruitment Performance Remuneration Information Training
Management Sharing

1
Figure 2 Comparison on Intellectual Capital (7 point scale)
Accounting Profession
7.00 Your Practice
6.63 6.75 6.64
6.50
6.00
5.71
5.57 5.49 5.50
5.00

4.00

3.00

2.00

1.00
Intellectual Capital Human Capital Social Capital Organisational
Capital

Figure 3 Comparison on Knowledge Management Capacity (7 point scale)2

7.00 Accounting Profession

Your Practice
6.45 6.50 6.50
6.36
6.00
5.69 5.71
5.51
5.00 5.12

4.00

3.00

2.00

1.00
Knowledge Knowledge Knowledge Sharing Knowledge
Management Acquisition Application
Capacity

1 Details are in page 6 in main report.

2 Details are in page 9 in main report.
 Report to XXXX
3
Figure 4 Comparison on Effectiveness of Management Mechanisms (7 point scale)

7.00 Accounting Profession

7.00
Your Practice
6.46 6.50 6.50
6.00
5.83

5.33
5.00
4.99 5.01 4.98
4.65
4.00

3.00

2.00

1.00
Management Communication Coordination Monitoring Team Utilisation
Mechanisms
4
Figure 5 Comparison on Subjective Performance Measures (7 point scale)

7.00 Accounting Profession

6.79 Your Practice
6.50 6.50
6.00
5.72
5.00
4.78
4.50
4.00

3.00

2.00

1.00
Relative Relative Market Innovation
Organisational Performance
Performance

4
Figure 6 Comparison on Objective Performance Measures

0.15 6.00 Accounting Profession

Your Practice

0.12
0.10
4.10

0.08 3.00

0.05

1.27

0.00 0.00
Productivity Absenteeism

3 Details are in page 10 in main report.

4 Details are in page 11 in main report.
APPENDIX J: INDUSTRY REPORT

17
 EVIDENCE FROM IRISH ACCOUNTING PRACTICES

HUMAN RESOURCES, KNOWLEDGE MANAGEMENT AND PERFORMANCE

An Industry Report

December 2010

University of Oxford Dublin City University University of Limerick

Foreword

Human resource management is of critical importance for accounting firms and has an
important role in value creation and exploitation. This report addresses several important
areas in organisational management:
• It outlines the uses of human resource management practices.
• Within firms it provides and evaluation of human capital, i.e. knowledge embedded in
individuals, social capital, i.e. knowledge embedded in relationships, and
organisational capital, i.e. knowledge embedded in organisational routines, systems
and databases.
• It illustrates the knowledge management practices which encourage the flow of
knowledge between senior employees, junior employees and clients.
• It identifies the management mechanisms which are effective in daily management,
such as communication, coordination, monitoring and team utilisation.
• It also presents different performance measures such as perceived organisational and
market performance; innovation, productivity and absenteeism.
• The report’s findings provide a useful insight into the management of professional
service firms, taking into account comprehensive human resource and knowledge
management practices and policies.
Thank you very much for your participation in this major study. I hope your practice will benefit
from the insight provided by this study. Both a long report for the industry and a short
customised report for your practice are provided.

Diarmuid Breathnach
Student Service Manager of Chartered Accountants Ireland

i
 ACKNOWLEDGEMENTS

This extensive survey of human resource management (HRM) and knowledge management
(KM) in professional service firms (PSFs) would not have been possible without the
cooperation of a large number of people and institutions.

First and foremost, we acknowledge the managing partners, human resource managers and
other partners, senior staff in almost 120 accounting firms in Ireland and thank them all for
their time and insights on human resource management and knowledge management in their
respective practices.

We are very grateful to the Chartered Accountants Ireland (CAI) for their assistance. We
particularly acknowledge the input of Diarmuid Breathnach in promoting the access to
accounting firms in Ireland.

To improve the validity and reliability, we piloted the survey with accounting and organisational
experts in different areas. We express our appreciation to their efforts and help. They are Dr
Edel Conway, Dr Aurora Trif, Dr Jan Bosak, Prof. Tim Morris, Dr Philip O’Regan, Dr Barbara
Flood, Prof. Marann Byrne, Ms Orla Feeney, Dr Ruth Mattimoe, Dr Mary Canning, two
partners and three managers in Big 4 firms.

We also thank David Meehan based at DCU library who provided support for the firm
database to select the sample in this study.

The professional design of the survey comes from Dr Hyowon Lee at DCU. We give him our
thanks.

Many thanks are also given to Professor Denise Rousseau who provided great insights for the
research model at the initial stage and Professor Jim Guthrie who helped a lot in data
analysis.

Last, but certainly not least, we wish to thank our international and national partners. They are
Professor Tim Morris at Saïd Business School, University of Oxford, and Dr Philip O’Regan at
Kemmy Business School, University of Limerick.

ii
 ABOUT THE AUTHORS

Prof. Patrick Flood is Professor of Organisational Behaviour, Head of the

HRM Group and a Deputy Director of the Leadership, Innovation and
Knowledge (LInK) research centre at Dublin City University. A former
Fulbright scholar, he has held faculty and visiting appointments at the
Australian Graduate School of Management, London School of Economics,
London Business School, University of Limerick and the University of
Maryland. Patrick’s research interests include CEO leadership and top team
effectiveness; HRM and organisational performance; management practices
and professional service firms performance.

Prof. Tim Morris is Professor of Management Studies, University of Oxford,

Programme Co-Director and Academic Director of the Centre for the
Management of Professional Service Organisations at Saïd Business School,
University of Oxford. Dr Morris specialises in the leadership challenges facing
those heading up organisations of professionals and has taught and written
extensively on strategic change, the management of innovation and
strategies for managing human capital. He has presented the models he has
developed from his consulting and research to senior executives on many
occasions in the UK and abroad.

Dr. Janine Bosak is a lecturer in Organisational Psychology at Dublin City

University Business School. She holds a diploma in Psychology from the
University of Mannheim (Germany) and a doctorate from the University of
Bern (Switzerland). Janine is a member of LInK Research Centre. Her
research interests are at the interface of organisational and social
psychology.

Dr. Philip O’Regan is a Senior Lecturer in Financial Accounting at the

University of Limerick. He is an accountant and worked for a number of
accounting firms including PwC before joining UL. Philip's research interests
include intellectual capital, corporate governance and regulation, accounting
history and financial reporting.

Ms Na Fu is a registered doctoral student at Dublin City University Business

School. She is a member of LInK Research Centre. Na’s research topic is on
the indirect relationship between HPWS and organisation performance in
Irish professional service organisations using a practice-resource-use
approach. Na received her BA in Engineering from Northeastern University at
Shenyang, China and is the 2010 recipient of the best graduate paper award
of the Academy of Management awarded by the Management Consulting
Division.

iii
 Table of Contents

Foreword .....................................................................................................................................i
Acknowledgements .................................................................................................................... ii
About the Authors ..................................................................................................................... iii
1. Overview ................................................................................................................................1
2. Background of this study........................................................................................................1
2.1 Research Aim ...................................................................................................................... 1
2.2 Research Process ............................................................................................................... 1
2.2.1 Sampling........................................................................................................................... 1
2.2.2 Survey Procedures ........................................................................................................... 2
3. Theoretical Basis....................................................................................................................2
3.1 HPWS .................................................................................................................................. 2
3.2 Intellectual Capital ............................................................................................................... 2
3.2.1 Human Capital .................................................................................................................. 2
3.2.2 Social Capital.................................................................................................................... 3
3.2.3 Organisational Capital ...................................................................................................... 3
3.3 Knowledge Management Capacity: Finders, Minders and Grinders................................... 3
3.4 Management Mechanisms .................................................................................................. 4
4. Descriptive Results ................................................................................................................4
4.1 Characteristics of the Sample.............................................................................................. 4
4.2 Results of Uses of HPWS.................................................................................................... 6
4.3 Results of Intellectual Capital .............................................................................................. 6
4.4 Results of Knowledge Management Capacity..................................................................... 9
4.5 Results of Management Mechanisms Effectiveness......................................................... 10
4.6 Results of Organisational Performance............................................................................. 11
5. Regression Results of the Survey........................................................................................13
6. Findings................................................................................................................................17
7. Conclusion............................................................................................................................17
List of Tables

Table 1 The Uses of HPWS in Irish Accounting Firms.............................................................. 7

Table 2 Intellectual Capital in Irish Accounting Firms................................................................ 8
Table 3 Knowledge Management Capacity in Irish Accounting Firms ...................................... 9
Table 4 Management Mechanisms in Irish Accounting Firms................................................. 10
Table 5 Organisational Performance in Irish Accounting Firms .............................................. 12

List of Figures
Figure 1 Distribution of Respondents on Title ........................................................................... 5
Figure 2 Distribution of Respondents on Gender ...................................................................... 5
Figure 3 Distribution of Respondents on Age............................................................................ 5
Figure 4 Distribution of Respondents on Education .................................................................. 5
Figure 5 Distribution of Respondents on Professional Qualification ......................................... 5
Figure 6 Comparison on Uses of HPWS (index results) ........................................................... 7
Figure 7 Intellectual Capital (7-point scale) ............................................................................... 8
Figure 8 Knowledge Management Capacity (7-point scale) ..................................................... 9
Figure 9 Management Mechanisms Effectiveness (7-point scale).......................................... 11
Figure 10 Subjective Performance Measures (7-point scale) ................................................. 12
Figure 11 Objective Performance Measures........................................................................... 13
Figure 12 HPWS on Relative Organisational and Market Performance and Innovation......... 13
Figure 13 HPWS on Productivity ............................................................................................. 13
Figure 14 HPWS on Absenteeism........................................................................................... 13
Figure 15 Human Capital on Relative Organisational and Market Performance and
Innovation............................................................................................................... 14
Figure 16 Human Capital on Productivity................................................................................ 14
Figure 17 Human Capital on Absenteeism.............................................................................. 14
Figure 18 Social Capital on Relative Organisational and Market Performance and
Innovation............................................................................................................... 14
Figure 19 Social Capital on Productivity.................................................................................. 15
Figure 20 Social Capital on Absenteeism ............................................................................... 15
Figure 21 Organisational Capital on Productivity .................................................................... 15
Figure 22 Organisational Capital on Absenteeism .................................................................. 15
Figure 23 Organisational Capital on Relative Organisational and Market Performance
and Innovation........................................................................................................ 15
Figure 24 HPWS on Intellectual Capital .................................................................................. 16
Figure 25 HPWS on Knowledge Management Capacity ........................................................ 16
Figure 26 HPWS on Management Mechanisms Effectiveness............................................... 16
Abbreviations

ACCA = Association of Chartered Certified Accountants

CAI = Chartered Accountants Ireland
CFA = Confirmatory Factor Analysis
CPA = Institute of Certified Public Accountants in Ireland
CIMA = Chartered Institute of Management Accountants
CIPD = Chartered Institute of Personnel and Development
DCU = Dublin City University
HPWS = High Performance Work Systems
HR = Human Resource
HRM = Human Resource Management
IIPA = Institute of Incorporated Public Accountants
IS = Information Sharing
ITI = The Irish Taxation Institute
PA = Performance Appraisals
UL = University of Limerick
1. OVERVIEW
This report details the results of research undertaken within accounting firms in Ireland between
May 2010 and August 2010. The research, which was conducted by three universities, is a major
study of professional service firms in Ireland. The universities participating in the study are; Dublin
City University, the University of Oxford and the University of Limerick. The research study was
supported by the Chartered Accountants Ireland.
In the first part of this report, the background to the research study is provided. This includes the
research aim and process. Following this, the theoretical base is presented to help better
understand the concepts of high performance work systems (HPWS), intellectual capital, human
capital, social capital, organisational capital, knowledge management capacity and management
mechanisms. Then the results of the survey are provided. The results of the regression of HPWS
and intellectual capital on firm performance are also provided. A number of findings and
recommendations from the study are presented. This is followed by a short conclusion.

2. BACKGROUND OF THIS STUDY

2.1 Research Aim

The purpose of this study was to examine the influence of human resource management (HRM)
and knowledge management (KM) upon the performance of professional service firms.
Professional service firms (PSFs) consist of a highly educated and professionalized workforce who
provide clients with customised knowledge (Empson, 2007; Greenwood, Li, Prakash, &
Deephouse, 2005; Maister, 1993). Examples of professional services include accounting,
engineering consulting, management consulting and legal services. PSFs are very different from
traditional manufacturing firms (Løwendahl, 2000).
Professional service firms are knowledge-intensive (Morris, 2001; von Nordenflycht, 2007, 2010).
Their inputs are mainly the knowledge acquired, possessed and utilised by their professional
workforce (Starbuck, 1992). Their outputs are the expert knowledge in the form of customized
solutions for their clients (Empson, 2007; Greenwood et al., 2005; Hitt, Shimizu, Uhlenbruck, &
Bierman, 2006; Løwendahl, 2000; Morris & Empson, 1998; von Nordenflycht, 2007, 2010).
Human resources constitute one of the most critical assets of PSFs. Because of this, we
investigated how to build the resources of human capital, social capital and organisational capital
through human resource management practices systems. We also wanted to investigate how to
utilise these resources at the firm level to help PSFs to achieve higher performance.
This is an area which had not been fully researched in the Irish context and is of practical
relevance to the management of accounting firms.
The goals of our project were to:

Understand the determinants of accounting firms’ success

Establish the key HRM and KM practices of accounting firms
Determine how these factors influence innovation and performance

2.2 Research Process

2.2.1 Sampling
Accountancy is a traditional professionalised and regulated sector. Most Irish accounting firms are
small to medium size. Selection of appropriate firms, which included some formal and informal HR
practices and knowledge management activities, was based on defined criteria. One of these was
that the accounting firm should have 3 or more partners. The other criterion was that the employee
number was not less than 5. Since no single database could provide comprehensive information
on accounting firms, this information was researched using Business World Top 1000 Professional
Firms, Chartered Accountants Regulatory Board, Chartered Accountants Ireland, FAME, Kompass
Directory and IndexIreland. The information obtained from these sources was combined to create
the sample frame for this study. 274 accounting firms were chosen as a sample of this study. To

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avoid single-rater bias, two respondents (primarirly the Managing Partner and the Partner
responsible for Human Resource were chosen for each firm.

2.2.2 Survey Procedures

In order for a questionnaire to be effective, the measures used in each of the questions should be
valid (Robson, 2002).
To improve the validity of the survey, the questionnaire was pilot studied by many experts from
academia and practitioners in the areas of HRM, survey design, professional service firms’
research and accounting practice.
The questions in the survey relate to human resource management, knowledge management,
human capital, management control mechanisms, clients and markets.
To conduct the survey, Dillman (2002)’s Tailored Design Method (TDM) was applied. First, an
invitation letter was posted and emailed to all the respondents to inform them that the survey was
being conducted and to introduce our research objectives. Second, a letter and a copy of the
questionnaire were mailed out. A pre-paid envelope was also enclosed. Third, a postcard was
issued to thank the respondents who completed and returned the questionnaire or who completed
the online survey. The postcard also served to remind the respondents who had not yet completed
the questionnaire. Forth, a letter with a copy of the questionnaire was issued to those respondents
who had not yet completed the original. Last, a final letter with a second copy of the questionnaire
was issued to the respondents who had not completed either the original or the first copy.

3. THEORETICAL BASIS
In this section, the concept of HPWS, intellectual capital, knowledge management capacity and
management mechanisms are reviewed and defined. This provides a theoretical base for better
understand of these relevant management theories.

3.1 HPWS

High Performance Work Systems (HPWS) can be described as “a system of HR practices

designed to enhance employees’ skills, commitment, and productivity in such a way that
employees become a source of sustainable competitive advantage” (Lawler, 1992, 1996; Levine,
1995; Pfeffer, 1998; cited in Data, Guthrie and Wright 2005).
HPWS involve selective recruitment, extensive training and development, mentoring, performance
management, and incentives (Gittell, Seidner and Wimbush 2009; Takeuchi, Lepak, Wang and
Takeuchi 2009).

3.2 Intellectual Capital

Intellectual capital is the “sum of all knowledge with which an organisation is able to leverage in the
process of conducting business to gain competitive advantage” (Subramaniam and Youndt, 2005:
451). There are three dimensions of intellectual capital; human capital, social capital and
organisational capital.
3.2.1 Human Capital
Human capital refers to the stock of skills and knowledge embodied in individuals (Becker, 1964;
O’Sullivan & Sheffrin, 1998), which can be built through education and training (Becker, 1964). In
PSFs, human capital is defined as the knowledge embedded in professionals that can be used to
produce high quality professional services for clients (Hitt et al., 2001; Hitt et al., 2006; Pennings,
Lee & Van Witteloostuijn, 1998).
Human capital is a very important asset of PSFs (Hitt et al., 2001; Morris & Snell, 2008). Higher
human capital means more expert knowledge embedded in a highly professionalized PSF
workforce. It could help PSFs build a good reputation by signalling that the professional service
firm has the potential to provide more efficient solutions for its clients. The clients may also prefer
to choose the PSF with higher human capital if they believe that smarter people would provide
better solutions if other conditions are the same.

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3.2.2 Social Capital
Social capital is a resource which is embedded in the relationships among individuals (Coleman,
1988; Bourdieu; 1985; Burt, 1992; Putnam, 1993; Nahapiet & Ghoshal, 1998; Lin, 2001). We
define the PSFs’ social capital as the knowledge embedded in the relationships among
professionals and between professionals and clients.
In PSFs, social capital plays an important role in two ways. Firstly, the relationships between PSFs
and clients, i.e., external social capital, help PSFs to attract and retain clients. The service
delivered by PSFs suffers from an “opaque quality” (von Nordenflycht, 2010) mainly because the
PSFs inputs and outputs are intangible knowledge and the clients cannot evaluate the quality of
service that they will get or they will have gotten. When choosing a service provider, the clients
usually choose the ones who have relationships with them when other things are equal (Alvesson,
2001; Pennings et al., 1998). Pennings et al. (1998) defined the firms’ social capital as the ties
between professionals and their potential clients and found that a firm's human and social capital
has a great influence on firm dissolution in PSFs. Their study shows that firm-level human and
social capital could be important sources of competitive advantage.
Secondly, the capital embedded in the internal relationships among professionals within the firm,
i.e., internal social capital, could help PSFs deploy teams, coordinate tasks and communicate
within the firm efficiently.
3.2.3 Organisational Capital
Organisational capital is defined as the institutionalized knowledge residing within organisational
processes, routines, systems and structures (Youndt et al., 2004; Subramaniam & Youndt 2005). It
is the result of integrating and combining individual knowledge into organisational knowledge
(Grant, 1996a, 1996b) which is preserved over time (Daft & Weick, 1984). Organisational capital is
a source of organisational competitive advantage (Teece, 2000).
In PSFs, organisational processes are highly institutionalized due to the nature of knowledge-
based work (Freidson, 1986; Greenwood, Hinings, & Brown, 1990; Robertson, Scarbrough, &
Swan, 2003). The organisational routines in PSFs are informal work practices that are formed by
professionals during team work (Morris, 2001). Some large PSFs build their own databases and
systems that store individual experience and expertise knowledge (Suddaby & Greenwood, 2001).
The professionals in the firm can access them and gain the benefit of previous experience. They
are also known as knowledge centres (Moore & Birkinshaw, 1998). These databases and systems
provide support for professionals to reuse and to exploit existing knowledge. Most PSFs have flat
organisational structures (Greenwood et al., 1990; Stumpf, Doh & Clark, 2002) that facilitate
knowledge flow between seniors and juniors.
Organisational capital constitutes an important resource of PSFs by facilitating knowledge creation,
sharing, combination and exchange (Morris & Snell, 2008). Besides facilitating knowledge
integration, organisational capital also shapes a professionals’ image and identity (Empson, 2001)
and these play an important role in attracting new clients.

3.3 Knowledge Management Capacity: Finders, Minders and Grinders

The knowledge-based theory (KBT) of the firm considers knowledge as an intangible resource and
as the most strategically significant resource of the firm (Grant, 1996a, 1996b; Nonaka and
Takeuchi 1995; Spender 1996). Knowledge represents a highly valuable organisational resource.
Organisations should pay careful attention to how they manage knowledge (Empson 2001) and
effectively managing it could help them to achieve sustainable competitive advantage.
Nielsen (2006) identifies eight knowledge management activities; knowledge creation, acquisition,
capture, assembly, sharing, integration, leverage, and exploitation. He assembled these activities
into the three dynamic capabilities of knowledge development, knowledge (re)combination, and
knowledge use.
Knowledge represents a highly valuable organisational resource, especially in PSFs where
partners, who are also referred to as “finders” (Maister, 2004) need knowledge to find potential
clients and to maintain good relationships with their existing clients. They also require knowledge
to choose appropriate members to form an efficient project team to deliver a good quality service to
their clients. The managers or directors, also referred to as “minders” (Maister, 2004), perform

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administrative tasks and coordinate tasks and teams to ensure that the firm runs as a cohesive
group. The other professionals and trainees, also referred as “grinders” (Maister, 2004), serve the
clients’ needs and integrate their knowledge to tailor solutions for their clients.
From the view of knowledge stock and knowledge flow, knowledge acquisition, knowledge sharing
and knowledge application are of critical important in helping organisations to gain knowledge
management capacity. These aspects of knowledge are explored in this study.

3.4 Management Mechanisms

The RBV argues that a firm’s competitive advantages lie primarily in the valuable, rare, imperfectly
imitable, and non-substitutable resources that a firm already has (Barney, 1991; Penrose, 1959;
Wernerfelt, 1984). However, the resources by themselves cannot guarantee the development of
competitive advantages or the creation of value (Barney & Arikan, 2001; Priem & Butler, 2001;
Sirmon, Hitt and Ireland, 2007). For example, Porter (1991: 108) argued that ‘resources are not
valuable in and of themselves, but they are valuable because they allow firms to perform activities
… business processes are the source of competitive advantage’. The “resources can only be a
source of competitive advantage if they are used to ‘do something;’ i.e., if those resources are
exploited through business processes (Ray, Barney and Muhanna, 2004: 26).
Here, the management mechanisms are considered as the management practices or activities that
explore, develop and utilize the resources of organisations. Communication, coordination,
monitoring and team utilisation are measured. These are sufficient for successful and efficient
completion of PSFs’ daily work.
In PSFs, most of the work is project or program-oriented. To meet client’s needs, a partner needs
to choose several professionals to form a team to solve a client’s problems. The team forms the
basic unit of work in the professional service firm and team management is vital for the successful
completion of a project.
First, PSFs need to deploy the team and coordinate tasks efficiently. The dynamic global economic
environment accelerates PSFs’ work speed. Usually the customers’ assignments are much more
compressed in term of time (Morris, Gardner, & Anand, 2007). The PSFs have to compress their
work into much shorter time. Morris et al. (2007)’s, report a partner from a consulting firm as saying
“… [we need to ] compress six months work into a three week assignment”. Another issue in
managing teams is conflict management. All of the professionals in PSFs are knowledge workers.
They have high autonomy and prefer self-management. There may be a conflict between them
when they do not have consistency with some work design. PSFs have to transform these conflicts
into cooperation by means of team management. Otherwise, it may “lead to mass defections and
the destruction of enterprise value, even more assuredly than in an industrial company setting”
(Teece, 2003: 900). Since professionals need to work together, the communication among them is
very important to accomplish the work. They need to exchange their opinions and create solutions
through teamwork to meet the clients’ needs. Efficient team management will contribute to
improving the efficiency of the firm’s human capital and social capital as they create new
knowledge. For this reason, communication, coordination, monitoring and team utilisation are
explored in this study.

4. DESCRIPTIVE RESULTS
This section presents the results of the survey, including the characteristics of the sample, the
profile of respondents and the comparison between your practice and whole accounting profession
in terms of HPWS, human capital, social capital, organisational capital, knowledge management
capacities, management effectiveness on monitoring, team utilisation, coordination, generating
new ideas and communication, and firm performance.

4.1 Characteristics of the Sample

Surveys were mailed to 548 respondents in 274 firms. This included 10 firms that did not exist and
3 firms that did not qualify for this study because of small firm size or because they are not
accounting firms. This reduced the final sample population to 522 respondents in 261 firms. Survey
mails, reminder postcards, replacement surveys (see Chapter 4) representing 195 surveys in total,
were returned in the form of hard copy (156) and online (39). Four surveys were not completed

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Figure 7 Distribution of Respondents on Title Figure 8 Distribution of Respondents on Gender
HR Manager
Male
Managing Partner 10%
80%
50%

Partner
34%

Female
20%
Others
6%

Figure 9 Distribution of Respondents on Age Figure 10 Distribution of Respondents on

Education

41~50
Bachelor's
37%
Degree
48%

51~60
29%

31~40 None
21% 37%
Master's Degree
>60
<30 11%
11% Other
2% 4%

Figure 11 Distribution of Respondents on Professional Qualification

ACCA
13%
CAI
60%

CPA
11%

CIMA
1%
IIPA
1%
CIPD
4% ITI
10%

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and were therefore excluded. The response rate was 36.40% (190/522) representing 120 firms
(45.98%). There are 71 matched pair responses explain representing 71 firms (27.20%).
Therefore, the final sample for this study consisted of 120 accounting firms located in Ireland,
covering a range of geographical regions.
Among the respondents, 50% were managing partners, 10% were HR manager/directors, 34%
were partners and 6% were other experienced professional staff who had a good knowledge of
their organisations (including holders of positions such as Director, Financial Director, Managers,
Office Manager, Auditor and Associate.).
In terms of gender, 80% of respondents were male and 20% were female. In terms of age, 2% of
respondents were 30 or less, 21% were between 31 and 40, 37% were between 41 and 50, 29%
were between 51 and 60, and 11% were above 60. With regard to education level, 48% of
respondents had a Bachelor’s Degree, 11% had a Master’s Degree and 37% did not have any
degree.
In terms of the professional qualification, 60% of respondents qualified from the Chartered
Accountants Ireland (CAI), 13% qualified from the Association of Chartered Certified Accountants
(ACCA), 11% qualified from the Institute of Certified Public Accountants in Ireland (CPA), 1%
qualified from the Chartered Institute of Management Accountants (CIMA), 1% of from the Institute
of Incorporated Public Accountants (IIPA), 10% qualified from the Irish Taxation Institute (ITI) and
4% were members of the Chartered Institute of Personnel and Development (CIPD).

4.2 Results of Uses of HPWS

In consideration of the characteristics of PSFs, sixteen items were adopted from Huselid (1995)
and Datta et al. (2005). These items covered HR practices in recruitment, performance
management & remuneration, information sharing & participation, training & development. A
sample question is, “Please estimate what proportion (0% to 100%) of your professional staff are
administered an employment test (e.g. skills tests) prior hiring with respect to all of the professional
staff in your organisation over the previous 12 months”.
Since HPWS is mostly used as an index (Batt, 2002; Guthrie, 2001; Guthrie et al., 2009), the
Cronbach’s alpha was calculated for this sixteen-item HPWS scale and this was found to be .73.
This was above the cut-off point of .70 and demonstrates the internal consistency of our HPWS
measure.
Table 2 illustrates the breakdown of respondent’s replies on the proportionate use of various
HPWS practices. On average, the application of HPWS in Irish accounting firms was about 45%. In
other words, a score above 45 implied a more extensive utilisation of HPWS and any lower score
implied a less extensive utilisation of HPWS in comparison to the average utilisation of HPWS. In
this study, the highest score showed the extent to which a specific firm policy or HR practice was in
use in the sample of Irish accounting firms. In this regard, 89% of the sample had access to
continuous training. Similarly, about 83% of the sample utilised formal individual performance
appraisals. Figure 6 presents the results of uses of HPWS in Irish accounting context.

4.3 Results of Intellectual Capital

The measurements derived by Subramaniam and Youndt (2005) to measure intellectual capital
were adopted. The respondents were asked to indicate their level of agreement with each of the
statements (from 1 = strongly disagree, and 7 = strongly agree).
Table 3 illustrates the breakdown of respondent’s replies on each item for measuring intellectual
capital. On average, the scores for human capital, social capital and organisational capital for Irish
accounting firms were 5.49, 5.71 and 5.50 respectively. A higher score for each item indicates
stronger agreement of the respondents. In all, higher scores of resources variables indicate higher
human capital, social or organisational capital while a lower score indicates lower human, social or
organisational capital. Figure 7 presents the results of intellectual capital for each dimension in the
Irish accounting context.

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Table 1 The Uses of HPWS in Irish Accounting Firms

Mean Score
%
HPWS Index (average)
44.92

What proportion of your professional staff…

Are administered an employment test (e.g. skills tests) prior to hiring? 18.10
Hold jobs which have been subjected to a formal job analysis to identify position requirements
48.91
(such as required knowledge, skills or abilities)?
Hold non-entry level jobs which have been filled as a result of internal promotions (as opposed
25.99
to hired from outside of the organisation)?
Receive formal individual performance appraisals? 82.52
Receive formal performance appraisals from more than one source (i.e., from several
37.94
individuals such as supervisors, peers etc.)?
Have access to company incentive plans, profit-sharing plans, and/or gain-sharing plans? 15.43

Receive their performance appraisals which are used to determine their compensation? 45.69

Receive their performance appraisals which are used to set goals and plan skill development? 63.05

Receive above market wage levels to attract and retain them? 25.96

Are included in a formal information sharing program (e.g., a newsletter)? 44.37

Are asked to complete attitude surveys on a regular basis? 9.06

Participate in Quality of Work Life (QWL) programs, Quality Circles (QC), and/or labour-
7.94
management participation teams?
Have access to a formal grievance procedure and/or complaint resolution system? 82.96

Receive continuous training, e.g. continuous professional development? 89.30

Receive structured mentoring, e.g. via articles? 59.72

Are organised in self-directed work teams in performing a major part of their work roles? 61.93

a
Missing data and listwise deletion reduced the sample from n = 190 to n = 187.

Figure 12 Comparison on Uses of HPWS (index results)

70.00
69.68
60.00

60.10
50.00

40.00 44.88
37.15
30.00
35.61

20.00 32.57

10.00

0.00
HPWS Index recruitment performance remuneration information training
management sharing

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Table 2 Intellectual Capital in Irish Accounting Firms

Mean Score
Resources Measurement
7-Point

Human Capital (Average) a: In your organisation, the professional staff… 5.49

are highly skilled. 6.01

are widely considered to be the best in the accounting industry. 5.01
are creative and bright. 5.46
are experts in their particular jobs and functions. 5.55
are up to date on relevant new taxation, auditing, accounting and legal developments. 5.85
develop new ideas and knowledge. 5.04

Social Capital (Average) b: In your organisation, the professional staff… 5.71

are skilled at collaborating with each other to diagnose and solve problems. 5.68
develop and maintain good relationships with clients. 6.16
share information and learn from one another. 5.91
interact and exchange ideas with people from different functional areas of the organisation. 5.56
partner with clients to develop solutions. 5.53
apply knowledge from one area of the organisation to problems and opportunities that arise in
5.39
another.
Organisational Capital (Average) c: In your organisation … 5.50

The databases are used as a way to store knowledge. 5.76

The processes are appropriate to solve clients’ problems. 5.58
The culture (stories, rituals and symbols) contains valuable ideas and ways of doing business. 5.35
The routines enable employees to know each other. 5.61
The routines enable employees to know about the whole organisation. 5.59
Much of the organisation’s knowledge is contained in manuals, databases, structures and
5.15
processes.
A low level of vertical hierarchies and cross-function barriers are maintained in the organisation
5.46
structure.
a
Missing data and listwise deletion reduced the sample from n = 190 to n = 188. b The valid sample was n = 190 (listwise).
c
Missing data and listwise deletion reduced the sample from n = 190 to n = 185.

Figure 13 Intellectual Capital (7-point scale)

6.00
5.57 5.71 5.50
5.00
5.49

4.00

3.00

2.00

1.00
Intellectual Capital human capital social capital organisational capital

8
4.4 Results of Knowledge Management Capacity
The measures for knowledge management capacity are mainly adopted from Chen and Huang
(2009). Five additional items are also used to measure knowledge management capacity because
of the context of PSFs. All of the 13 items are measured on a seven-point Likert-type scale (1 =
strongly disagree, 7 = strongly agree). All of the three aspects had very high reliability with
Cronbach’s alpha above .83. This is above the suggested value of .70. Thus, we concluded the
measures for knowledge management were valid and internally consistent.
Table 4 illustrates the breakdown of respondent’s replies on knowledge management capacity. On
average, Irish accounting firms’ knowledge management capacity is 5.56 on a seven point scale..
A higher score indicates more knowledge management capacity while a lower score indicates less
knowledge management capacity. This applies to the three aspects of knowledge management
capacity, i.e. knowledge acquisition, knowledge sharing and knowledge application. Figure 8
presents the results of knowledge management capacity for each knowledge management
capacity in the Irish accounting context.
Table 3 Knowledge Management Capacity in Irish Accounting Firms

Mean Score
Knowledge Management Capacity Measurement
7-Point

Knowledge Acquisition (Average) a: In your organisation, … 5.69

Knowledge is obtained from clients to solve their problems 5.68

Knowledge is obtained from partners to solve clients’ problems 6.04
Knowledge is obtained from employees to solve clients’ problems 5.36
a
Knowledge Sharing (Average) : In your organisation, … 5.71

Knowledge is shared between senior level staff and junior level staff 5.77
Knowledge is shared between colleagues 5.89
Knowledge is shared between units 5.47
b
Knowledge Application (Average) : In your organisation, … 5.12

Knowledge is effectively translated into application 5.52

The existing knowledge is integrated successfully with new knowledge acquired from clients 5.58
Organisational knowledge is accumulated by employees through writing general guides on a
4.67
project and storing them as archives
Most of the employees have access to these archives 5.12
Most partners leverage their knowledge efficiently to generate novel solutions for clients 5.67
Most teams can efficiently use knowledge to develop new ideas 5.35
An expertise directory is maintained by job division and specialty of all employees 3.97
a
The valid sample was n = 190 (listwise). b Missing data and listwise deletion reduced the sample from n = 190 to n = 189.

Figure 14 Knowledge Management Capacity (7-point scale)

6.00

5.51 5.71
5.00 5.69 5.12

4.00

3.00

2.00

1.00
Knowledge knowledge acquisition knowledge sharing knowledge application
Management Capacity

9
4.5 Results of Management Mechanisms Effectiveness

The measures of management mechanisms are newly created scales based on measures of Kraut
and Streeter (1995) on administrative coordination, Janseen (2000) on generating new ideas,
Gittell, Seidner, and Wimbush (2009) on communication. All of the measures use a seven-point
Likert scale, 1 = strongly disagree and 7 = strongly disagree for monitoring and team utilisation, 1 =
to small extent and 7 = to great extent for coordination, 1 = never and 7 = always for generating
new ideas and communication.
Exploratory factor analysis (principal axis analysis with oblique rotation) was conducted and five
factors were found. The factor loadings are above .55 for monitoring, above .65 for team utilisation,
above .50 for coordination, above .65 for generating new ideas, above .49 for communication. The
reliability for each of the five factors was very high (all Cronbach’s alphas above .83).
Table 5 illustrates the breakdown of respondents’ replies on the management mechanisms. On
average, Irish accounting firms’ management mechanisms effectiveness is 4.93. A higher score
indicates more effective management mechanisms while a lower score indicates less effective
management mechanisms. This applies to the five aspects of management mechanisms, i.e.
monitoring, team utilisation, coordination, generating new ideas and communication. Figure 9
presents the results of management mechanisms effectiveness for each aspect in the Irish
accounting context.
Table 4 Management Mechanisms in Irish Accounting Firms

Mean Score
Uses Measurement
7-Point
Communication (Average) a
5.01
In your organisation, how often do employees on average engage in the behaviours listed below?
Communicating with management in a timely way about the status of the project. 4.98

Communicating with management accurately about the status of the project. 5.10

Sharing organisational goals about the quality of services. 4.94

Coordination (Average) b
4.98
To what extent does your organisation engage in the following items?
Formal policies and procedures for coordinating the team's work. 5.00

Project milestones and delivery schedules. 5.16

Project documents and memos. 5.15

Regularly scheduled team meetings. 5.29

Requirements/design review meetings. 4.97

Design inspections. 4.26

Monitoring (Average) a
4.65
In your organisation…
There are mechanisms in place to monitor employee contributions to new ideas and
4.29
developments.
There are mechanisms in place to encourage employees to reflect on the outcomes of their efforts.
4.69
There are mechanisms in place to assist employees adjust their approach if they find their efforts
4.97
are taking them down the wrong path.
Team Utilisation (Average) a
5.33
In your organisation …
Teams can be formed quickly as required. 5.61

Newly formed teams quickly establish a good understanding of each others’ talents and skills. 5.34

Teams are continuously reconfigured to address the set of opportunities facing the organisation. 5.04

Teams are formed on the basis of an understanding of people’ s skills and abilities 5.33

a
The valid sample was n = 190 (listwise).
b
Missing data and listwise deletion reduced the sample from n = 190 to n = 188.

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Figure 15 Management Mechanisms Effectiveness (7-point scale)

6.00

5.00
4.99 5.33
4.98 4.65
4.00 5.01

3.00

2.00

1.00
Management communication coordination monitoring team utilisation
Mechanisms

4.6 Results of Organisational Performance

Firm performance was assessed using both subjective and objective measures. The subjective
ones were the self-reported relative organisational performance, relative market performance and
innovation. The objective measures were productivity and absenteeism.
Relative organisational performance and relative market performance. Eleven items were adopted
from Delaney and Huselid (1996). Respondents were asked to rate their organisation’s
performance relative to their competitors using a seven-point Likert-type scale, varying from 1 =
much worse to 7 = much better. Since all of the items adopted have been proved to be valid, the
reliabilities for relative organisational performance and relative market performance were
calculated and were both .84. These were comparable to the ones obtained by Delaney and
Huselid (1996) (alpha = .86 for relative organisational performance and .85 for the relative market
performance).
Innovation. Nine items were adopted from Janseen (2001, 2005). The respondents were asked
“How often do employees on average engage in the behaviors listed below, e.g. creating new
ideas for difficult issues”. The respondents answered from 1 = never to 7 = always. Janseen (2001)
found two factors in innovation. However, in the pilot study, the experts from HR and accountancy
understood them as measuring the same thing. Therefore, a principal axis factor analysis using
oblique rotation of the items was conducted to check the factor structure. All of the nine items had
factor loadings of .72 or above on a single factor, and this factor explained 75.99% of variance,
with an enginvalue of 6.84. These factor loadings are shown in Appendix L. The nine-item scale
had a reliability of .96.
Productivity. Productivity was calculated as revenue/number of professional staff. The revenue
data was aggregated from the respondents’ data and the public data since there was strong
agreement between the data in these resources. The respondents were asked to estimate the
income from fees for their firm/unit for the most recent year (€ million). The firm size information
was collected from public databases such as Chartered Accountants Regulatory Board,
Businessworld Top 1000 Professional Firms, Kompass and Fame.
Absenteeism. Absenteeism was calculated as the number of absent days per employee per year
due to illness.
Table 6 illustrates the breakdown of respondent’s replies on relative organisational performance
and relative marketing performance. For subjective firm performance measurements, the average
scores were 5.72 for the relative organisational performance, 4.78 for the relative market
performance and 4.40 for innovation. A higher score indicated better performance than the
average performance while a lower score indicated worse performance. For the subjective firm
performance measure, on average, the productivity of Irish accounting firms was €0.08 million per
professional staff. The higher score indicates that the firm is more productive than the average firm
and a lower score indicates that the firm is less productive. The average absenteeism was 4.10

11
days. The larger number indicates that the longer absent time of employees. Figures 10 to 11
presents the results of these performance measures in Irish accounting context.
Table 5 Organisational Performance in Irish Accounting Firms
Firm Performance Measurements Mean Score
Relative Organisational Performance
5.72
Please rate your organisation’s performance relative to your competitors:
Quality of services 6.06
Development of new services 5.19
Ability to attract essential employees 5.25
Ability to retain essential employees 5.75
Satisfaction of clients 5.96
Relations between partners/directors and other employees 5.90
Relations among employees in general 5.93
Perceived Marketing Performancea
4.78
Please rate your organisation’s performance relative to your competitors:
Marketing 4.62
Growth in revenue 4.83
Profitability 4.94
Market share 4.72
a
Innovation
4.50
In your organisation, how often do employees on average engage in the behaviours listed below?
Creating new ideas for difficult issues 4.53
Searching for new work methods, techniques or instruments 4.65
Generating original solutions for problems 4.76
Mobilising support for innovative ideas 4.51
Acquiring approval for innovative ideas 4.61
Transforming innovative ideas into useful applications 4.45
Evaluating the utility of innovative ideas 4.31
Introducing innovative ideas into the work environment in a systematic way 4.31
Making team members enthusiastic for innovative ideas 4.40
b
Productivity (€ million per professional staff) .08
Absenteeism (the number of absent days per employee per year because of illness) c 4.10

a
The valid sample was n = 190 (listwise)
b
. Missing data and listwise deletion reduced the sample from n = 190 to n =137
c
Missing data and listwise deletion reduced the sample from n = 190 to n =188

Figure 16 Subjective Performance Measures (7-point scale)

6.00
5.72
5.00

4.00 4.78 4.50

3.00

2.00

1.00
relative organisational relative market performance innovation
performance

12
Figure 17 Objective Performance Measures

4.50
4.00
0.08
3.50
0.07
0.08 3.00 4.10
0.06
2.50
0.05
2.00
0.04
1.50
0.03
1.00
0.02
0.50
0.01
0.00
0.00 absenteeism
productivity
(the number o f absent days per
(€million per professio nal staff) emplo yee per year because o f
illness)

5. REGRESSION RESULTS OF THE SURVEY

Controlling for firm size and firm age, the impact of HPWS, intellectual capital on firm performance
was tested.
Figures 12 to 14 illustrate that the use of HPWS was positively related to productivity, relative
organisational and market performance and innovation, and negatively related to absenteeism.

Figure 18 HPWS on Relative Organisational and Market Performance and Innovation

6.5

6
Subjective Performance Measures

Relative organisational
5.5 performance

Relative market
performance
5
Innovation

4.5

3.5
0 10 20 30 40 50 60 70 80 90 100
HPWS

Figure 19 HPWS on Productivity Figure 20 HPWS on Absenteeism

5

0.087

4.5
Productivity

A bs enteis m

4
0.085

3.5

0.083
0 10 20 30 40 50 60 70 80 90 100 3
HPWS 0 10 20 30 40 50 60 70 80 90 100
HPWS

13
Figures 15 to 17 illustrate that the human capital was positively related to productivity, relative
organisational and market performance and innovation, and negatively related to absenteeism.

Figure 21 Human Capital on Relative Organisational and Market Performance and Innovation
7

6
Subjective Performance Measures

Relative organisational
5
performance

4 Relative market
performance

3 Innovation

0
1 2 3 4 5 6 7
Human Capital

Figure 22 Human Capital on Productivity Figure 23 Human Capital on Absenteeism

0.1
8

0.09 7
P roduc tiv ity

A bs enteeis m

6
0.08

5
0.07

0.06
1 2 3 4 5 6 7 3
Human Capital 1 2 3 4 5 6 7
Human Capital

Figures 18 to 20 illustrate that the social capital was positively related to productivity, relative
organisational and market performance and innovation, and negatively related to absenteeism.

Figure 24 Social Capital on Relative Organisational and Market Performance and Innovation
7

6
Subjective Performance Measures

Relative organisational
5
performance

4 Relative market
performance

3 Innovation

0
1 2 3 4 5 6 7
Social Capital

14
Figure 25 Social Capital on Productivity Figure 26 Social Capital on Absenteeism
0.09
8

7
P ro d u c t iv it y

A b s e n te e is m
6

0.08
3
1 2 3 4 5 6 7
1 2 3 4 5 6 7
Social Capital
Social Capital

Figures 21 to 23 illustrate that the organisational capital was positively related to productivity,
relative organisational and market performance and innovation, and negatively related to
absenteeism.

Figure 27 Organisational Capital on Productivity Figure 28 Organisational Capital on Absenteeism

0.11
6

0.1

5
P ro d u c t iv it y

A b s e n te e is m

0.09

4
0.08

0.07
1 2 3 4 5 6 7 3
1 2 3 4 5 6 7
Organisational Capital
Organisational Capital

Figure 29 Organisational Capital on Relative Organisational and Market Performance and Innovation
7

6
Subjective Performance Measures

Relative organisational
5
performance

4 Relative market
performance

3 Innovation

0
1 2 3 4 5 6 7
Organis ational Capital

15
In addition, the impact of HPWS on intellectual capital, knowledge management capacities and
management mechanisms were tested. Figures 24 to 26 show that HPWS was positively related to
the three aspects of intellectual capital (human capital, social capital organisational capital),
knowledge management capacities (knowledge acquisition, sharing and application), and four
management mechanisms (communication, coordination, monitoring and team utilisation).
Figure 30 HPWS on Intellectual Capital
6.5
Intellectual Capital

Human Capital
Social Capital
Organisational Capital

5.5

5
0 10 20 30 40 50 60 70 80 90 100
HPWS

Figure 31 HPWS on Knowledge Management Capacity

6.5
Knowledge Management Capacities

Knowledge Acquisition
5.5 Knowledge Sharing
Knowledge Application

4.5
0 10 20 30 40 50 60 70 80 90 100
HPWS

Figure 32 HPWS on Management Mechanisms Effectiveness

7

6.5

6
Management Mechanisms

5.5 Communication
Coordination
5
Monitoring

4.5 Team Utilisation

3.5

3
0 10 20 30 40 50 60 70 80 90 100
HPWS

16
6. FINDINGS
Based on the above analysis, the findings can be summarized as follows:

HPWS usage was found to be about average (45%).

This result is consistent with the result (46.96%) in Guthrie et al.’s study (2009) in which
data on HPWS was collected from 165 firms among the Top 1000 companies in Ireland.

Intellectual capital, knowledge management capacities, and management mechanisms

effectiveness in Irish accounting firms are high (above average value of 4).

The firms with more uses of HPWS saw increases in productivity, relative organisational
and market performance and innovation, and decreases in absenteeism.

The firms which make more use of HPWS saw higher intellectual capital, i.e. human
capital, social capital and organisational capital.

The firms with more uses of HPWS saw higher knowledge management capacities, i.e.
knowledge acquisition, knowledge sharing and knowledge application.

The firms with more uses of HPWS saw more efficient management mechanisms, i.e.
communication, coordination, monitoring and team utilisation.

The firms with higher human capital saw increase in productivity, relative organisational
and market performance and innovation, and decreases in absenteeism.

The firms with higher social capital saw increase in productivity, relative organisational and
market performance and innovation, and decreases in absenteeism.

The firms with higher organisational capital saw increases in relative organisational and
market performance and innovation, and decreases in productivity and absenteeism.

7. CONCLUSION
The main objective of this research was to investigate the uses of HPWS, intellectual capital,
knowledge management capacities and to examine their impact on firm performance in Irish
accounting context.
This study explores the theory bases for the above concepts and their application in professional
service firms. Data was collected from 190 managing partners, HR directors/managers in 120 Irish
accounting firms. This report presents both descriptive results and hierarchical multiple regression
analysis results of the survey. The findings provide sufficient support for the uses of HPWS which
have positive impact on organisational performance and help firms build intellectual capital and
knowledge management capacities.
There are some limitations in this report. For example, it did not list each item for each category in
HPWS. Recruitment includes employment test, formal job analysis and internal promotion. If you
require any further information relating to the study or its findings, you could contact Ms Na Fu who
will be very happy to provide additional information. Her contact information is as follows:

Ms Na Fu
Dublin City University Business School
Glasnevin
Dublin 9

Email: Na.Fu3@mail.dcu.ie
Tel: 01-700-5742
Mobile: 0870510338

References are available as request.

17
18
APPENDIX K: LETTER FOR MISSING DATA (SAMPLE)

18
APPENDIX L: EXPLORATORY FACTOR ANALYSIS
RESULTS FOR RESOURCES (N=189)a, b
Rotated Factor Loadings
1 2 3
Human Capital
Professional staffs are widely considered to be the best in the
accounting industry. .82 .05 -.18
Professional staffs are experts in their particular jobs and
functions. .75 .00 .10
Professional staffs are up to date on relevant new taxation,
auditing, accounting and legal developments. .72 .10 .02
Professional staffs are creative and bright. .70 -.06 .05
Professional staffs are highly skilled. .69 -.10 .09
Professional staffs develop new ideas and knowledge. .44 -.09 .48
Social Capital
Professional staffs share information and learn from one
another. -.08 -.02 .87
Professional staffs interact and exchange ideas with people
from different functional areas of the organisation. -.11 -.04 .84
Professional staffs partner with clients to develop solutions. .09 -.01 .69
Professional staffs develop and maintain good relationships
with clients .20 -.04 .63
Professional staffs apply knowledge from one area of the
organisation to problems and opportunities that arise in .10 .22 .58
another.
Professional staffs are skilled at collaborating with each other
to diagnose and solve problems. .26 .03 .56
Organisational Capital
The culture (stories, rituals and symbols) contains valuable
ideas and ways of doing business. .23 .75 -.18
Much of the organisation's knowledge is contained in manuals,
databases, structures and processes. -.06 .75 -.16
The processes are efficient to solve clients’ problems. .14 .74 -.08
The routines encourage employees to know each other. -.07 .72 .19
The routines encourage employees to know about the whole
organisation. -.13 .67 .25
The databases are used as a way to store knowledge. .02 .63 -.07
A low level of vertical hierarchies and cross-function barriers
are maintained in the organisation structure. -.19 .54 .22
Eigenvalues 8.06 2.54 1.36

% of variance 42.41 13.41 7.18

α .86 .89 .88
a
Extraction Method: Principal Axis Factoring. Rotation Method: Promax with Kaiser Normalization.
b
Rotation converged in 6 iterations.

19
APPENDIX M: EXPLORATORY FACTOR ANALYSIS
RESULTS FOR USES (N=189)a, b

Rotated Factor Loadings

1 2 3 4

Communication
Communicating with management in a timely way about the
status of the project. .01 -.04 1.02 -.04
Communicating with management accurately about the status of
the project. -.03 .01 .95 -.02

Sharing organisational goals about the quality of services. .06 .07 .65 .10
Coordination
Project milestones and delivery schedules. .87 .00 .05 -.12
Project documents and memos. .87 .01 -.03 -.07
Requirements/design review meetings. .79 -.10 .08 .07
Regularly scheduled team meetings. .73 .10 -.07 .08
Design inspections. .71 .02 .04 -.01
Formal policies and procedures for coordinating the team's work. .59 .04 -.08 .18
Monitoring
There are mechanisms in place to encourage employees to
reflect on the outcomes of their efforts. -.02 .02 -.02 .92
There are mechanisms in place to monitor employee
contributions to new ideas and developments. .05 -.12 .00 .91
There are mechanisms in place to assist employees adjust their
approach if they find their efforts are taking them down the -.04 .30 .10 .55
wrong path.
Team utilisation
Newly formed teams quickly establish a good understanding of
each others’ talents and skills. -.09 .91 .05 .01
Teams are formed on the basis of an understanding of people's
skills and abilities. .00 .86 -.01 .02

Teams can be formed quickly as required. .09 .85 -.05 -.11

Teams are continuously reconfigured to address the set of
opportunities facing the organisation. .10 .62 .04 .03
Eigenvalues 7.77 1.98 1.39 1.07
% of variance 48.54 12.38 8.66 6.71
α .90 .89 .88 .92
a Extraction Method: Principal Axis Factoring. Rotation Method: Promax with Kaiser
Normalization.
b Rotation converged in 10 iterations.

20
APPENDIX N: EXPLORATORY FACTOR ANALYSIS
RESULTS FOR INNOVATION (N=189)a, b

Innovation Factor Loadings

Transforming innovative ideas into useful applications. .89

Evaluating the utility of innovative ideas. .89
Mobilising support for innovative ideas. .88
Making team members enthusiastic for innovative ideas. .88
Introducing innovative ideas into the work environment in a systematic way. .88
Generating original solutions for problems .86
Acquiring approval for innovative ideas. .84
Searching for new work methods, techniques or instruments. .83
Creating new ideas for difficult issues. .72
Eigenvalues 6.84
% of variance 75.99
α .96
a Extraction Method: Principal Axis Factoring. Rotation Method: Promax with Kaiser Normalization.
b Rotation converged in 10 iterations.

21
 APPENDIX O: A SUMMARY OF STUDIES FOR MEASURING PSFS’ PERFORMANCE
Study Purpose Sample Performance measurement Data source
To examine performance evaluation
2,150 professionals in a performance evaluation and coaching experiences
and counselling experiences within a
Burke (1996) single large professional (mainly five-point Likert scale: 1 = not at all; 5 = Survey
single large professional services
services firm to a great extent
firm.
Consultants
To explore and compare the effects of News and
Greenwood et al. top 50 consulting firms
ownership upon professional service Productivity = total revenues per professional Management
(2007) worldwide
firms Consulting
International
To find the determinants of PSFs’
Public
Greenwood et al. performance by analysing 160 accounting firms in Firm Performance = revenues per professional
Accounting
(2005) organisational reputation and US (R/P)
Report
diversification
To examine the direct and moderating
93 from 100 largest law American
Hitt et al. (2001) effects of human capital on PSFs’ the ratio of net income to total firm revenue
firms in the United States Lawyer
performance
Firm performance = the ratio of worldwide net
To examine the impact of human
72 from the 100 largest income to total firm revenue. American
Hitt et al. (2006) capital and relational capital on the
U.S. law firms Internationalization = the number of foreign Lawyer
internationalization of PSFs
offices and the number of lawyers in each office
To investigates linkage among
indicators of options-based career 117 of the nation’s
mobility strategies in PSFs and highest
Financial performance measures (revenues per
mentoring, developmental work grossing law firms and
Malos (1996) lawver. profits per partner, and the relative Am Law 100
experience, intentions to stay, starting other large firms in major
profitabilitv indexl
salaries, and firm financial urban
performance centers.

22
Study Purpose Sample Performance measurement Data source
Performance
To examine if public ownership create
growth = an agency’s percent annual change in
negative consequences for 122 from the largest 200
von Nordenflycht. revenue Advertising
professional service firms by reducing agencies from the 1962
(2007) creativity = the number of Clio and ADCNY Age report
employee incentives in advertising Advertising Age report.
awards an agency won in a given year
industry
firm size = the logarithm of global revenue
To address the difficulties associated Output of the service producer (operational
Data
with the measurement of productivity 60 largest management measure) : Turnover
Envelopment
Nucham (1999) of professional service firms and to consulting firms active in
Analysis
propose a more adequate measure of Sweden Output of the client: Improved competitive
(DEA)
productivity in these industries. position
Directories of
accountant
To examine the effect of human and Entire population of associations
Pennings et al. organisational dissolutions = the changes in
social capital upon firm dissolution in Dutch accounting firms that appeared
(1998) accountants' organisational affiliations
PSFs for the period 1880-1990 at one- to
five-year
intervals
To examine the proposition that the
traditional archetype of the
756 partnership firms of Comparative firm performance using a five-point
Pinnington and professional partnership is said to
solicitors in England and Likert varying from 1=much better to 5 = much Survey
Morris (2003) have changed into a more 'business-
Wales worse
like' entity, the managed professional
business.

23