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The strength of human resource practices and transformational leadership: impact on organisational performance

Carmen M.M. Pereiraa and Jorge F.S. Gomesb*

aTraining Department, Euroconsult, Lisbon, Portugal; bManagement Department, ISEG-UTL, Lisbon, Portugal

The Human resource (HR) strength concept (Bowen, D., and Ostroff, C. 2004, ‘Understanding HRM-Firm Performance Linkages: The Role of the “Strength” of the HRM System,’ Academy of Management Review, 29, 2, 203–221) reflects the capacity of an HR system to transmit messages characterised by high distinctiveness, consistency and consensus. HR systems are therefore affecting perceptions and interpretations of organisational realities, such as climate and culture. Furthermore, Bowen and Ostroff (2004) suggest that organisational climate mediates the relationship between HR strength and performance. The leadership literature advocates that leaders are people who are able to create a social context in which employees are guided towards a shared interpretation, understanding and perception of the organisational climate (Yukl, G.A. 1989, Leadership in Organizations, Englewood Cliffs, NJ: Prentice Hall). In summary, both HR strength and leadership are two environment dimensions shaping and moulding employees’ perceptions and interpretations. The current study explores the relationships between HR strength, leadership, organisational climate and performance. 323 questionnaires were used to gather information from a company in the industrial sector. The results show a positive relationship between the variables; however, mediating effects of climate were only observed between leadership and performance.

Keywords: HR system strength; leadership; organisational climate; performance

1. Introduction

As a strategic partner, the HR function is expected to be aligned with an organisation’s strategic

purpose and mission (Ulrich 1997). Ferris, Hochwarter, Buckley, Harrell-Cook and Frink

(1999) suggest that HR practices and systems mustadapt to the organisation’s strategy, i.e. HR

must follow management choices to support the firm’s competitive moves. It is therefore

expected that HR will contribute to organisational goals and strategy through systems, which

will ideally ensure greater internal consistency and complementarity (horizontal alignment) as

well as greater congruency with organisational goals (vertical alignment) (Miles and Snow

1984; Becker and Gerhart 1996; Delery and Doty 1996; Michie and Sheehan 2005).

Despite some empirical confirmation of the relationship between HR and performance,

there is no consensus as to the mechanisms that explain this connection. Ferris et al. (1998)

suggest that the social context plays a role between HR and performance. Social context

consists of culture, climate, policies and processes of social interaction, and it affects

organisational efficiency through HR systems (see also Evans and Davis 2005). HR

systems therefore affect employees’ sensemaking (Weick 1995), i.e. the process through

which they understand and share individual experiences of organisational events.

ISSN 0958-5192 print/ISSN 1466-4399 online

q 2012 Taylor & Francis

http://dx.doi.org/10.1080/09585192.2012.667434

http://www.tandfonline.com

*Corresponding author. Email: [email protected]

The International Journal of Human Resource Management,

Vol. 23, No. 20, November 2012, 4301–4318

A review of literature confirms that organisational performance is the result of several

factors, such as the context in which the professional activities are performed. Studies

show that financial performance is associated with positive attitudes and that there is a link

between sales performance and service climate (Gelade and Ivery 2003). In particular,

when employees perceive that their work context allows them to achieve their personal

goals, they will become involved and will devote more time and effort to the organisation,

thereby contributing towards the organisation’s productivity and competitiveness (Brown

and Leigh 1996). Leadership is another powerful factor affecting performance, as shown

in several works (Podsakoff, MacKenzie and Bommer 1996; Mayer, Nishii, Schneider and

Goldstein 2007).

The current study aims to investigate the mediating role of social context on the

relationship between leadership and HR, on one hand, and performance, on the other hand.

The study builds on concepts of HR strength and climate strength discussed by Bowen and

Ostroff (2004), to explore the above-mentioned relationships.

2. Organisational influence processes

2.1 Content and process in HRM

Bowen and Ostroff (2004) put forward a proposal to answer the question as to how HR

produces benefits for increased performance. They suggest that HR systems must be

analysed and understood in relation to: (1) content, i.e. practices and policies for reaching

particular goals; and (2) process, i.e. which attributes of the HR system can shape/create

strong situations in the form of shared meanings about contents.

As far as the content dimension is concerned, the aim should be the design of practices

that are effectively linking organisational goals with employee’s goals (vertical

alignment). At the process level, the concern is with horizontal alignment, i.e. how

different HR practices are implemented and communicated to employees. Considering

that it is the employees who put the strategy into practice (Lambooij, Sanders, Koster and

Zwiers 2006), HR must be aligned within the organisation because only in this way will

the employees know what is expected of them. Within the HR process dimension,

communication is a key concept.

In fact, the HR system can be defined as a complex set of communication mechanisms

between the organisation and its employees (Tsui, Pearce, Porter and Tripoli 1997), which

is why the way in which the message is transmitted and how it is received by the employee,

are of utmost importance. Similarly, Galang and Ferris (2003) suggest that HR exercises

influence and power over employees, acting at the level of symbolic communication.

Since individuals are active throughout the process, the perception and agreement of

the content of the message depends on the attributions that are made. Causal inference is a

process through which the employees meet, obtain causal explanations from others and

communicate these explanations to others (Kelley 1973). In an organisational context, and

with regard to HR, the employees make attributions of trust about cause–effect

relationships whenever they can create situations that reflect the following assumptions

(Kelley 1973): distinctiveness, consistency and consensus.

2.1.1 Distinctiveness

Distinctiveness refers to mechanisms and characteristics that enable HR practices to

attract the employees’ attention and arouse their interest. Distinctiveness is embodied in

four attributes:

C.M.M. Pereira and J.F.S. Gomes4302

(1) Visibility: degree to which the messages stand out and are observable. Ease of

recognition influences the attention employees pay to the information, the way in

which they organise it cognitively and how they make causal attributions. To

create a strong situation, its characteristics must be salient and visible throughout

the day’s work and must be part of the individuals’ routines and activities.

(2) Understandability: degree of ambiguity and understanding in the messages

conveyed by HR. In situations in which the stimulus is not clearly understood, the

employees may make several categorisations. Accordingly, different people will

use different cognitive categories to process the information, resulting in different

attributions.

(3) Legitimacy of authority: legitimacy of authority of the HR systems and its agents

(e.g. HR professionals) involves employees’ perception of the roles that are required,

the expectations for performance and which behaviours are formally accepted.

(4) Relevance: the situation must be presented in a way so that individuals can perceive

how important is it for the goals they hope to achieve. Relevance is found alongside

legitimacy of authority, whereby the influence over employees operates through the

authority of the leader and the motivational significance he/she has for the

employee. Thus, employees must perceive the situation to be relevant for achieving

both personal and organisational goals, and the desired behaviours must be clear and

adequate for these goals to be reached.

2.1.2 Consistency

Consistency helps employees to gain awareness and understand what is expected of them.

For employees to make attributions about expected and rewarded behaviours, the

principles of causal attribution must be present, and it must be possible to ascertain the

priority (in which the causes precede the effects) and the contiguity to the effect (the cause

is close in time to the effect). Consistency refers to the existence of an effect whenever its

cause is present, and it is fundamental that these relationships are consistent over time, for

everyone in every context. This is guaranteed through:

(1) Instrumentality: establishes a non-ambiguous perception of the cause–effect

relationship relative to the desired behaviours and their associated consequences.

Instrumentality is perceived as higher when the connection between employees’

behaviours and the results are close in terms of time (principle of the contiguity of

causal attribution) and when they are applied consistently over the established

time (principle of the priority of causal attribution).

(2) Validity: HR practices must be consistent in terms of what they propose to do and

what they effectively do. When a practice is applied and publicised with certain

effects and then does not result in what was expected, the message sent to employees

is contradictory, which enables them to develop their own personal interpretations.

(3) Consistent HR messages: transmits compatibility and stability in the signals sent by

the HR practices, while lack of consistency in the communications may lead to

situations of cognitive dissonance.

2.1.3 Consensus

Results from the agreement among employees on how they perceive the cause–effect

relationships. The attribution concerning behaviours, and which answers lead to which

effects, are more likely to be accurate when there is consensus. This is fostered by:

The International Journal of Human Resource Management 4303

(1) Agreement among principal HR decision makers: when the employees perceive

that decision makers (top managers, HR and first line managers) agree among

themselves regarding the message, a consensus is more likely to be reached.

(2) Fairness: extent to which HR practices follow the principles of justice

(distributive, procedural and interactional). This attribute refers to the employees’

perception of the ‘fair’ way in which they are treated.

In short, the central idea of the theory is that HR systems influence employees’ attitudes and

behaviours and, consequently, individual and organisational performance, through perceptions

of the organisational climate. Since the climate is defined as the perception that the employees

have of the policies, practices and organisational procedures, the HR system is considered

to play a critical role in the perception of the climate. Sanders, Dorenbosch and Reuver

(2008) suggest that when a system is perceived by employees as having high distinctiveness

and consistency and when there is consensus among all, the system is expected to contribute

towards organisational performance and greater affective commitment, motivating the

employees to display the behaviours and attitudes that are appropriate and desired.

2.2 HR system strength

Bowen and Ostroff (2004) propose a model that connects HR to organisational performance,

through the mediating effect of the situational strength. This concept was presented by

Mischel (1973) and is used by Bowen and Ostroff (2004) to describe how a strong HR

system must lead to greater behavioural consistency and uniformity within the group.

According to Mischel (1973), individuals constantly receive information from their

surrounding environment, and their cognition and behaviours are affected by these

situational clues. Situations are strong in as much as they lead people to construct events in

the same way, encourage uniform and well-defined expectations with the aim of obtaining

the most suitable behavioural standard, associate incentives with the performance of this

standard behaviour and promote the skills necessary for adequate construction and

execution (Mischel 1973; Schneider, Salvaggio and Subirats 2002; Sanders et al. 2008).

Strong situations lead to the sharing of ideas, beliefs, attitudes and objectives that

strengthen the effectiveness among employees (Dorenbosch, Reuver and Sanders 2006),

and lead to cooperation and the use of routines that are suitable for organisational

objectives (Whitman, Van Rooy and Viswesvaran 2010).

Situational strength is therefore understood to oscillate between the capacity that the

situation has to induce conformity (strong situation) or discrepancy (weak situation). A

strong situation manifests itself in group cohesion, whose members will make an effort to

stay and keep the group intact, complying with its rules and taking into account the

interests of the group above their own (Nauta and Sanders 2001; Frenkel and Sanders

2007). In weak situations, individuals are uncertain as to how to categorise the events and

do not have clear information on the most adequate behaviours for the situation. Hence

they will rely on their internal dispositions to guide their behaviour.

The HR system is in a key position to create strong or weak systems, thus influencing

employees’ perception of practices, policies, procedures, routines and rewards. The HR

strength concept draws attention to the processes that are associated with it, what

communication practices exist, the way in which people are influenced/persuaded and the

way in which they react and attribute meaning to the messages they receive.

As observed, the top, direct and HR managers play a key role in how HRM ensures the

presence of distinctiveness, consistency and consensus. It is therefore necessary to

C.M.M. Pereira and J.F.S. Gomes4304

understand the behaviours and the position of the leaders within their units of work so as to

understand their potential contribution to the strength of HR practices and to

organisational performance.

2.3 Leadership

The leader is key because of the intermediate position he/she holds between the strategic

apex and the operational base. Supervisors are interpretative filters, since they are the ones

who implement the company’s goals and policies and communicate the characteristics of

the work processes on which to focus most. They have the power to create a context that

leads to a shared interpretation/understanding of the desired behaviours and attitudes,

thereby influencing employees’ perception (Mayer et al. 2007; Whitman et al. 2010). They

thus influence employee behaviours and attitudes, both through the leader–subordinate

relationship, and because leaders put the strategic and HR goals into practice.

In recent years, the transformational leadership framework has caught much attention.

It has been suggested that transformational leaders strongly affect not only individual and

organisational performance, but also group cohesion and employees’ beliefs and values

(Grojean, Rsick, Dickson and Smith 2004). Such leaders are close to their subordinates

and motivate them beyond the material benefits (Rubin, Munz and Bommer 2005). They

also have the influence/power to change the values, beliefs and attitudes of their

subordinates so as to motivate them to go above and beyond what is expected of them. This

is achieved by articulating a future vision of the organisation, ensuring an operational

model that is consistent with this vision, encouraging a focus on the goals and showing

individual consideration for the employees (Podsakoff et al. 1996; Judge and Bono 2000).

Wu, Tsui and Kinicki (2010) describe two types of transformational behaviours:

individual versus group oriented. Behaviours related to ‘individualised consideration’ and

‘intellectual stimulation’ tend to influence employees individually, since they are directed

at each employee. On the other hand, ‘idealised influence’ and ‘motivational inspiration’

tend to influence the group as a whole, as the emphasis is placed on the level of sharing

values and one ideology. In terms of impact on individual performance, this is related to

the processes through which transformational leaders affect results (Walumbwa, Avolio

and Zhu 2008). The authors ascertain that this style of leadership is positively related to:

(1) identifying with the work unit, through the effect on motivation for achieving

organisational goals and interests; in this case, the employees adopt the latter as their own

and are willing to make a greater effort on behalf of the organisation; and (2) perception of

self-efficiency: employees are confident and believe in their capacities so as to

successfully complete the tasks that are required of them.

The leader’s behaviours allow for a cognitive and emotional identity to be created

among employees (Wu et al. 2010), increasing the individuals’ sense of self-worth and the

adoption of attitudes that benefit collective success. These psychological mechanisms

enable the leader to promote a collective identity among group members, whereby

idiosyncratic characteristics will have less of an impact on employees’ perceptions.

3. Effects of influence processes

3.1 On organisational climate

Studies on HR and leadership show that these factors affect the situations that employees

experience in the workplace and the social context of the organisation. Different HR and

leadership practices foster different organisational climates, which lead to different

The International Journal of Human Resource Management 4305

behaviours and attitudes on the part of the employees. In this way, the social context

produces or inhibits behaviours. Literature on organisational climate also suggests that

climate has a mediator role on the relationship between HR and performance (Dickson,

Hanges and Resick 2006; Takeuchi, Chen and Lepak 2009).

Amidst climate literature, the psychological climate is a key concept. Psychological

climate is related to the individual perceptions and meanings attributed to the

environment; it is based on experimentation and the meaning given to what is seen and

to the events experienced (Parker et al. 2003; Dickson et al. 2006; Takeuchi et al. 2009).

Employees attribute different meanings to the stimuli received in accordance to their

knowledge structure and their information-processing traits, which then leads to different

attitudinal and behavioural responses (Parker et al. 2003; Nishii, Lepak and Schneider

2008). Brown and Leigh (1996) state that the perceptions that contribute to the

psychological climate are clearly related to the support given by leaders, the extent to

which they are seen to be flexible, the support they provides, the clarification of roles, the

chance for employees to express themselves, and the recognition and contribution they see

themselves as making to the organisation. In this sense, the psychological climate may be

considered in terms of psychological security and/or significance of the working

environment, both of which are clearly related to leadership action and the HR practices

within the organisation.

In an organisational context, the meanings include contents such as goals, expected

work-related behaviours and performance activities which are expected, supported and

rewarded by leaders. In this sense, psychological climate should be closer (i.e. stronger) at

the intra-department level than at the inter-department level (Takeuchi et al. 2009). It is

therefore likely that organisational goals are understood in a different way according to the

department area (e.g. production vs. commercial).

Organisational climate and psychological climate are distinct concepts. The former is

the result of what is experienced within the organisation, and it reflects the beliefs shared

among employees, which give meaning and significance to the organisational

environment. It is related to the practices, policies, procedures, routines and rewards,

with regards to what is important, expected and rewarded. It is based on interaction

processes among the employees and on the shared perception resulting from them. It is

stable over time and may be integrated into formal organisational units, such as

departments (Dickson et al. 2006; Dawson, González-Romá, Davis and West 2008). The

climate is therefore a powerful social mechanism, since it models the way in which

individuals build the meaning of their organisation reality.

The distinction between psychological and organisational climate has generated some

empirical challenges. The authors suggest that organisational climate is created by

aggregating the psychological climates of each individual. In accordance with the

composition model, there are several ways to assess organisational climate at an aggregate

level of analysis. Following Chan (1998), there are five variants of the composition model:

additive, direct consensus, referent shift, dispersion and process. The direct consensus and

dispersion variants are the most relevant for analysing organisational climate and are

characterised by: (1) direct consensus, in which the meaning of the construct represents the

consensus among the variables; and (2) dispersion, in which the meaning of the construct

is the variance of the variables that comprise it.

Direct consensus has been widely used in empirical research. A high level of

organisational climate will reflect a greater consensus among the group members. If the

group members have little shared perceptions, or if they are highly varied, it means there is

C.M.M. Pereira and J.F.S. Gomes4306

no shared meaning within the group about the practices, policies or even goals (Schneider

et al. 2002; Dickson et al. 2006).

3.2 The concept of climate strength

In short, within the organisation there is a sharing of/variance in perceptions of beliefs and

values, and this reflects the strength of the organisational climate. In other words, the

agreement/disagreement among the employees of the organisation/department with regard

to the practices and policies that characterise them will determine whether the climate is

strong enough to induce desired behaviours (Schneider et al. 2002; Dickson et al. 2006).

A strong climate reflects less ambiguity with regard to the organisation’s policies,

practices, procedures and goals. This leads to shared expectations and perceptions among

the group members, which are necessary for behavioural uniformity. In practice, strong

climates stimulate sharing of the standards, practices and expectations associated with the

organisation’s environment. Nevertheless, it should be remembered that even when the

organisational climate is strong, it may be negative. In this case, there is behavioural

consistency among the employees, but these behaviours do not reflect what is desired and

not positive for organisational performance.

In organisations with strong climates, the consensus among employees about how the

organisation works enhances the relationship between the climate and the organisation’s

results, through greater consistency and continuity of employee behaviour (Dickson et al.

2006). Moreover, if the organisational climate is strong, there will be more chance of its

persisting throughout the organisation’s life (Schneider et al. 2002). Climate strength is

considered to act in favour of the organisation provided that it is geared towards good

performance (Dickson et al. 2006).

4. Research hypotheses

On the basis of the aforementioned studies, we propose the model shown in Figure 1.

4.1 HR strength: organisational performance

The HR system is considered to have an impact on the creation of strong situations reflected

in the organisational climate and, thus, have an impact on the organisation’s performance

(Bowen and Ostroff 2004; Evans and Davis 2005). It is therefore expected that:

Hypothesis 1a: The HR system is positively associated with situational strength

(analysed through organisational climate) so that the stronger the HR

system is, the stronger the organisational climate will be.

Hypothesis 1b: The relationship between HR strength and performance is mediated

by situational strength (analysed through organisational climate).

Strength of the HR system (Distinctiveness, consistency and consensus)

Leadership (Transformational)

Situational strength Organisational climate

Organisational performance

Figure 1. Relationship between the HR system strength, leadership, organisational climate and performance.

The International Journal of Human Resource Management 4307

4.2 Leadership: organisational performance

Leaders’ behaviours foster the commitment of their

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