Market competition, HRM, and firm performance: The conventional paradigm critiqued and reformulated

Abstract

A proposition in the HRM literature is that to survive intensifying competition firms need to more effectively use their human capital by implementing high-performance work practices (HPWPs). This proposition is anchored on both extensive empirical evidence of a positive HPWP effect on performance and a theoretical model which incorporates ideas from strategy, RBV, AMO, behavioral, human capital, and organizational capability perspectives. This paper argues that on deeper examination both empirical and theoretical arguments have significant flaws and weaknesses which undercut the ‘more competition→more HPWPs→higher firm performance’ proposition. Indeed, using an alternative economics-based model the paper concludes the likely effect of intensified competition is, on balance, the opposite of the standard model; that is, more competition leads to less HPWPs. The model also demonstrates why the positive HPWP effect found in empirical studies is likely upward biased and more association than causation. The paper reconciles a number of empirical anomalies, such as why high-performance work systems are not more widely adopted, and explains why the conventional advice given to managers – invest in more HPWPs – needs revision.