Organizational structure and high-performance work practices

Abstract

Abstract Using firm-level data from Denmark, a country characterized by a high level of adoption of “high-performance work practices” (HPWPs), we document a large percentage of firms with limited adoption and large differences depending on the firms’ organizational structures. To explain these differences, we propose a theoretical framework based on agency theory and on human resource process theory in which the benefits of HPWPs vary across organizations according to their organizational structure. We find that opportunity- and skill-enhancing practices are more frequently used in firms with a network structure than in firms with a divisional structure, which in turn use them more frequently than firms with a functional structure. These findings are consistent with the idea that firms whose structures are designed to rely more heavily on employee control benefit less from HPWPs than those whose structures are meant to promote employee commitment. The use of performance pay is greater in divisional firms than in functional firms, which is consistent with this same idea. However, we find that the use of performance pay is lower in network organizations than in divisional organizations and is not significantly different from its use in functional organizations.