The Effect of Human Resource Management Practices on Firm Performance: Empirical Evidence from High-Tech Firms in Taiwan

Article excerpt

This study comprehensively evaluated the links between human resource management (HRM) practices and firm performance of Taiwan's high-tech firms. Using data from Hsinchu science-based industrial park, the study found that HRM practices such as training & development, teamwork, benefits, human resource planning and performance appraisal have significant effect on employee productivity. In addition, benefits and human resource planning are negatively related to employee turnover This study also shows that competitive strategies, such as cost strategy and differentiation strategy, have revealed moderating effects on the relationship between HRM practices and firm performance.

Introduction

In Taiwan, technology-intensive industries have expanded from 30% of the total industry in 1987 to 43% today, while labor-intensive industries have declined to 25%. In other words, important changes have occurred in Taiwan's industry structures over the last decades. Making Taiwan a `high-tech island' has been the most important industrial policy direction of the government. Accordingly, the development of science-based industrial parks will help to pool resources, cluster high-tech firms together, and facilitate R&D activities.

Hsinchu Science-based Industrial Park (HSIP) was established in 1980, and accounted for 3.5% of all manufacturing output, also, sales growth of 38% was six times the national average. It is being recognized that competitive advantages such as flexible production and manufacturing capability can be obtained with a highly qualified workforce that enables HSIP firms to compete on the basis of market responsiveness, product and service quality, and technological innovation. The average age of employees is 31 and 62.9% are college graduates or above (Science Park Administration, 2000), which suggests that HSIP firms tend to hire technically skilled employees to facilitate the creation of specific know-how. In fact, HSIP firms employ and retain their workforce by implementing human resource management (HRM) practices, such as profit sharingcontributing stocks to workforce, the formation of work teams -facilitating problemsolving and product innovation, and even the use of flexible work hours-enhancing employee adaptability and responsiveness, and the like. In response, FIRM practices are essentially the levers by which a pool of human capital can be developed.

Over the years, researchers have amassed a fair amount of empirical evidence that certain HRM practices can directly affect firm performance. For example, Delaney & Huselid (1996) showed the effect of certain individual HRM practices (e.g. comprehensive selection and training activities) on firm performance. More recently, Ichniowski et al. (1999) derived specific prototypical bundles of HRM practices that they explored as determinants of firm performance. Those HRM practices included incentive pay, recruiting and selection, teamwork, employment security, job flexibility, skills training and communication. Similarly, Huselid (1995) found that investment in HRM activities such as incentive compensation, selective staffing techniques, and employee participation resulted in lower turnover, greater productivity, and increased organizational performance. MacDuffie (1995) have found that bundles of inter-related HRM practices had more influence on performance than individual practices working in isolation.

Going beyond these direct HRM-performance relationships, other evidence suggests that the impact of HRM practices on firm performance may be further enhanced when practices are match with the competitive requirements inherent in a firm's strategic posture (e.g. Wright,-Smart & McMahan, 1995 ; Miles & Snow, 1984 ). According to Porter's (1980) framework, effective business strategies can be classified as either costleadership strategies or differentiation strategies. Each of these strategies implies something different about the potential role of human resources in improving firm performance. …