Evaluation of Strategic Investment Decisions of Organizations and Leaders, and Their Impact on Performance

Abstract

The field of strategic human resource management (SHRM) has asserted that a highly capable HRM system can effectively manage employees’ human and social capital which will lead to superior performance. However, the field has made little progress beyond the primary proposition of the more invested in HRM systems the higher firm performance. In Study 1, I propose an alternative explanation of the HRM and performance link by investigating the relationship at various levels of investment. The results show an S-shaped relationship between the extent to which firms invest in the HRM system and financial performance. The finding suggests that firms need to invest a substantial amount towards HRM system before it can yield positive performance gains and that there is an optimal point of return where the performance can be maximized such that investing further would result in diminishing returns. In Study 2, the focus is shifted to leaders of organizations. While facing uncertainty in the business environment, the premium is put on the leaders’ ability to acquire relevant information and resources, and reconfigure internal capabilities in response to the uncertainty. Adopting social capital as the overarching theory, I propose that networking is the underlying mechanism that leaders utilize in establishing and maintaining relationships to acquire information and leverage the relationship to influence others. By referring to the cumulative advantage theory, it demonstrates that the benefit from networking has a cumulative effect such that the benefit increases at an increasing rate. The results also confirm a three way interaction which suggests that the benefit of leaders’ networking is more apparent during the time of uncertainty. The beneficial effect of networking in time of uncertainty can be further enhanced by the extent of access to the organization’s strategic information. Both studies were conducted in the post global financial crisis era where organizations have increasingly focused on cost cutting and maximizing return on investment. The data was collected from a European MNC that operates in 27 countries. With the longitudinal design and multi-source objective measure of performance, this thesis provides a much more complete understanding of the relationship between the strategic choices that organizations and leaders make and their impact on performance.