The role of business strategy on the adoption and effectiveness of broad-based employee share ownership

Abstract

PurposeIn this research, the authors try to answer the question of when broad-based employee share ownership (ESO) is more likely to be used and how it can be managed more effectively from the vertical fit perspective in strategic human resource management (HRM).Design/methodology/approachThe study analyzes an unbalanced panel sample of 614 organizations (1,601 organization-year data points) in South Korea, utilizing hierarchical linear modeling (HLM).FindingsThe analysis demonstrates that organizations are more likely to adopt broad-based ESO when they utilize the prospector and analyzer strategies as opposed to the defender strategy. The analysis also reveals that the relationship between broad-based ESO and labor productivity is positive only when organizations utilize the prospector strategy as opposed to other types of strategies (i.e. analyzer and defender strategies).Practical implicationsThe findings first indicate that the decision to adopt a broad-based ESO in organizations should be informed by their business strategy if they want to enhance labor productivity. Specifically, the results demonstrate that only the prospector firms, rather than defenders or analyzers, can reap the productivity benefit of broad-based ESO. Second, since innovation is a major source of productivity for prospector firms, the findings demonstrate that a broad-based ESO can be a vehicle that drives innovation. As a result, firms may want to consider utilizing broad-based ESOs to foster innovation.Originality/valueThe findings emphasize the relevance of the “vertical fit” perspective in examining the broad-based ESO and firm productivity relationship. Most past research utilized the “horizontal fit” framework in refining the relationship between broad-based ESO and productivity. Thus, the study emphasizes the need to utilize the “vertical fit” perspective, and not only the “horizontal fit” perspective, in the broad-based ESO research. Through this, the study meaningfully extends the research on the productivity effect of broad-based ESO by adding an important moderator (i.e. strategy) to the model.