Effects of Human Resource Systems on Manufacturing Performance and Turnover

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* Academy o/ Managetnenl Journal 1994, Vol. 37. No. 3. 670-687.

EFFECTS OF HUMAN RESOURCE SYSTEMS ON MANUFACTURING PERFORMANCE AND TURNOVER JEFFREY B. ARTHUR Purdue University
Using an empirical taxonomy identifying two types of human resource systems, "control" and "commitmeni," this study tested the strategic human resource proposition that specific combinations of policies and practices are useful in predicting differences in performance and turnover across steel "minimills." The mills with commitment systems had higher productivity, lower scrap rates, and lower employee turnover than those with control systems. In addition, human resource system moderated the relationship between turnover and manufacturing performance.

Long a concern among organizational contingency theory researchers, the concept of the congruence, or fit, between diverse sets of organizational policies and practices has recently emerged as an important subject of study for human resources management researchers. This new strategic, macro, human resource management perspective differs markedly from the more traditional approach focusing on the effects of separate human resource practices on individual-level outcomes (Butler, Ferris, & Napier, 1991; Jackson, Schuler, & Rivero, 1989; Mahoney & Deckup, 1986; Snell, 1992). In contrast, the strategic human resource management perspective integrates macro-level theories and concepts to explore the impact of specific configurations, or systems, of human resource activities on organization-level performance outcomes (Dyer & Holder, 1988; Fisher, 1989; Wright & McMahan, 1992). Dohbins, Cardy, and Carson pointed out that although a macro approach to studying human resource issues appears promising and conceptually very rich, "the validity of its propositions is ultimately an empirical question" (1991: 33). Empirical evidence demonstrating the predictive value of the strategic human resource perspective, however, has not heen forthcoming. Conceptual typologies ahound in this literature, hut empirically hased taxonomies of human resource strategies are rare. As a result, hasic hypotheses concerning the implications for firm performance that flow from the strategic human resource perspective have generally not been tested. A recent I would like to thank Steven G. Green, Margaret L. Williams. Michael A. Campion, Chris J. Berger, Harry G. Katz. and three anonymous reviewers for helpful comments on previous drafts of this article. 670

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review of strategic human resource management, for example, concluded that "there is little empirical evidence to suggest that strategic HR directly influences organizational performance or competitive advantage" (Lengnick-Hall & Lengnick-Hall, 1988: 468). In this study, I addressed this important gap in the existing literature by empirically testing specific organizational performance hypotheses flowing from a strategic human resource management perspective. To accomplish this, I drew on the results of a previous study that used a cluster analysis technique to empirically identify two types of human resource systems, labeled "control" and "commitment" systems, in a sample of steel minimills (Arthur, 1992).^ I developed and tested propositions regarding the utility of this human resource system taxonomy for predicting both manufacturing performance, measured as labor efficiency and scrap rate, and the level of employee turnover in steel minimills. In addition, I tested the proposition that the relationship between turnover and manufacturing performance differs significantly across the two systems. THEORETICAL DEVELOPMENT AND HYPOTHESES

Testing the strategic human resource perspective first requires categorizing organizations into a meaningful typology of human resource systems. Using the strategic perspective, a number of authors have suggested typologies (e.g.. Dyer & Holder, 1988; Miles & Snow. 1984; Osterman. 1987; Schuler & Jackson. 1987;...
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