Business strategy, organizational culture, and performance outcomes in China's technology industry.

This article presents a framework for the alignment of organizational culture and business strategy to better understand the role of HR practices in knowledge-related performance. The relationships among the knowledge-driven HR practices, corporate culture, and business strategy were tested using 132 organizations in China's high technology industry in the Pearl River Delta area. The findings support the proposition that both capability and incentive systems are significant predictors of knowledge-related performance. Significant interaction effects of HR culture and HR business strategy in knowledge-related performance were observed. The organization's commitment to quality was found to be an important determinant of organizational performance.

Knowledge-intensive industries face a dynamic and fiercely competitive environment. Products in the high technology industry are more complex, with shorter life cycles that need constant innovation in order to meet changes in market conditions and customer expectations (George, et al., 2001). In high technology firms, technological innovation becomes critical in responding to rapid changes; innovation depends heavily on acquiring new knowledge. An organization must therefore fully utilize its resources and capabilities in order to remain competitive.

Leveraging intellectual capital as a sustainable competitive advantage depends upon a firm's ability to use existing knowledge and to generate new knowledge. Human resources can be instrumental in meeting the challenges in the formalization of, and access to, experience, knowledge, and expertise that create new capacities, superior performance, and innovation (Beckman, 1999). Human resource practices can play a critical role in supporting and contributing to the creation, integration, and utilization of knowledge.

Human resource management (HRM) practices and knowledge-related outcomes appear to be associated, but the link is not fully understood and lacks some important aspects of interpretation and empirical support (Minbaeva, 2005, p. 126). This article addresses this void by examining the impact of various HR practices that support knowledge creation and utilization, which in turn influence knowledge-related outcomes. The corporate culture and business strategy could be considered as the mediating link between HRM practices and knowledge-related outcomes. Knowledge-related outcomes are defined and measured by productivity, research and development capability, products and services quality, and market share. The relationships among the knowledge-driven HR practices, corporate culture, and business strategy were investigated using 132 organizations in China's technology-intensive industry in the Pearl River Delta area. The results contribute to advancing our understanding of the complex relationships between HRM practices and organizational performance and the potential interaction effects of corporate culture and business strategy.

China's Institutional Environment and Human Resource Management

China introduced market reforms in the early 1980s. Its GDP reached US$2,225.68 billion in 2005, with a real GDP growth at 9.9 percent (Economist Intelligence Unit, Country Briefing). Despite the booming economy, China is also criticized as being highly bureaucratic, low in government efficiency, and lacking in transparency. The insufficient protection of intellectual property rights creates the fear of piracy. A challenge is the absence of well-established institutional rules. China tries to improve the business climate by providing a more favorable institutional environment, as indicated by moderate ratings (on a scale of 0 to 10) on a number of the IMD (2006) World Competitiveness rating factors:

1. Technological regulation supports business development and innovation (6.02);

2. Development and application of technology and supported by legal environment (6.12);

3. Legal environment supports scientific research (6.35).

China would move forward with the institutional reforms necessary to produce a more positive outcome. Innovation and technological progress are essential ingredients to promoting reform (Davis, 2006).

China has been strong in basic and scientific research and actively engaged in technology development. Young people are interested in science and technology as reflected by the high percentage of total first university degrees in science and engineering (73.3% in 1999 and 57.4% in 2002). Scientists, engineers, R&D personnel, and IT skills are readily available. Unit labor cost is relatively cheap and labor productivity improved significantly from 3.77 in 2001 to 5.42 in 2005 (IMD, 2006). A study by McKinsey Global Institute (2005) reveal the paradox of shortages amid plenty. In the interviews with 83 HR professionals involved in hiring local graduates, on average fewer than 10 percent of Chinese job candidates would be suitable for work in foreign companies because they lack practical and English language skills (Farrell & Grant, 2005). China's emergence in the global economy offers both opportunities and threats; thus, it provides a rich context for this study.

Inherited from the historical burden of the planned socialist economy, the HR function is generally underdeveloped in China. HR practices have exhibited reactive and highly operational oriented characteristics. The level of human resource management sophistication varies across joint ventures, collectives, and state-owned enterprises. Foreign-invested enterprises or joint ventures tend to have a better HR system adopted from their headquarters. Admission to the World Trade Organization has now exposed China to unprecedented competitive and dynamic environments in which more modern HRM will be crucial to meet the challenges in creating flexible and adaptable organizations. HR practices must be transformed to fit China's unique cultural and institutional context.

HR practices are in transition from a highly centralized allocation process to a more market-driven and merit-oriented system. Staffing practices are becoming more decentralized and selection criteria have focused more on technical skills and proven work experience. Facing the shortage of managerial talent, companies tend to emphasize training and development of talents, particularly technical knowledge. In order to acquire better quality managerial talent, firms utilize both internal development and external acquisition strategies. The idea of a learning organization is emphasized in high tech firms and foreign-invested enterprises. According to a survey conducted by Mercer HR Consulting (2005), employees rated training and development the least favorable. Because of the high turnover rate (averaging 20%), the process of training and development is considered time-consuming and costly. Multinational corporations often resort to poaching from each other.

Given the traditional values of a high level of collectivism, together with the need to maintain harmonious relations within the organization, compensation tends to be egalitarian; however, facing competitive pressure from the market, pay must be competitive. Organizations have adopted various policies, including bonuses, subsidies, merit pay, or pay for performance. For benevolent-authoritative employers, benefits still comprise an important part of the pay package. Pay systems based on individual performance and individual incentives are becoming more common. There is greater acceptance of wider reward disparities based on individual performance (Ding, et al., 1997). Survey results from Mercer HR Consulting (2005) reveal that only 25 percent of the respondents participated in incentive programs. The respondents are not satisfied with their organization's benefits programs. The result is alarming because reward is one of the key drivers for employee engagement.

The following sections explore the important elements that link HRM to knowledge-related performance in China's fast-growing technology sector.

Creating Knowledge-Oriented HR Systems

There is considerable interest in studying the role of knowledge-driven HRM practices that contribute to sustained competitive advantage through developing firm-specific competencies and acquiring organizational knowledge, which in turn improves the firm's ability to innovate (Keegan & Turner, 2001). The core HR practices (i.e., staffing, training and development, reward and performance management) may facilitate the diffusion of knowledge and innovation. Organizations identify the needed skills and knowledge through the staffing processes of acquiring, developing, and retaining human capital. Training or self-development programs can be an important knowledge acquisition mechanism. When properly organized, training programs are important vehicles for promoting collaboration and knowledge exchange (Lyles & Salk, 1996; Lane, et al., 2001). Comprehensive training to develop unique or firm-specific skills, socialization programs, job enrichment, and cross-functional career paths encourage employees to build knowledge. Skill-based pay systems and developmental performance appraisals may be used to facilitate the development of firm-specific knowledge and competencies (Snell, et al., 1999).