Market characteristics, intra-firm coordination, and the choice of human resource management systems: Theory and evidence

Abstract

This paper begins by constructing a team-theoretical model of organizational adaptation and coordination with three distinct task coordination modes: vertical control, horizontal coordination, and hybrid coordination. The model is then used to provide fresh insights on complementarities involving team work organization, communication channels, training and hiring, and other human resource management practices, and illustrate how such choice of practices is affected by the firm's output market conditions. Our econometric analysis of new data from Japan which provide up-to-date information on the adoption of new team-based instruments for a horizontal coordination system (cross-functional problem solving project teams and Self-Managed Teams) yields results that are broadly consistent with the theory. First, new team-based instruments are more likely to be adopted by firms with well-established formal shop-floor-based communication channels (such as shopfloor committees), while they are much less likely to be adopted by firms with well-established information sharing institutions such as joint labor-management committees, which presumably enhance the efficiency of the vertical control system by minimizing labor-management communication errors. Finally, firms in more competitive markets and those with a higher concentration of sales among a small number of customers are more likely to adopt both types of team, whereas firms facing more erratic price movement tend not to adopt Self-Managed Teams.