Business strategy, human resources, labour market flexibility and competitive advantage

Abstract

This paper contributes to the strategic human resource management literature by testing the three main approaches – the universalistic (‘best practice’), contingency and configurational – against an original database. Specifically, we examine: (1) the relationship between HR and firm performance, (2) the links between strategy, HR and the use of flexible employment contracts and (3) the moderating effects of strategy on the links between HR, flexible labour and firm performance. Using original data collected from manufacturing and service-sector companies, we find positive relationships between HR policies and practices and performance; that the relationship between HR and performance is dependent upon business strategy; and that companies pursuing an integrated approach to HR coupled with an innovator/quality-enhancer focus within their business strategy perform best. The use of external flexible labour reduces the effectiveness of HR, especially for those pursuing an innovator/quality-enhancer approach.