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The International Journal of Human Resource Management 9:1 February 1998

Strategic human resources: a new sourcefor competitive advantage in the globalarena

Linda K. Stroh and Paula M. Caligiuri

Abstract As demands are made on organizations to expand their global markets,having an effective global human resources function becomes imperative. Based oninterviews with global human resource executives in sixty of the largest. US-basedmultinational organizations, this study first identifies ten factors, or guiding principles,that facilitate such effectiveness. Using data from surveys of these HR executives as wellas of managers of non-HR areas and the CEOs/business unit executives of thesecompanies, the paper then analyses how the members of these various groups rated theeffectiveness of the global HR function. The survey findings demonstrate that the globalHR executives and the CEO/business unit executives rated the global HR functionrelatively high, while the executives in the other functional areas rated its effectivenesssomewhat low. The relationship between the effectiveness of the global HR function andfirm performance was also examined and revealed that three of the ten factors identifiedby the HR executives were related to bottom-line organizational performance measures.These findings suggest that, in successful organizations, global HR is perceived to bemaking a contribution and actually is making a contribution to the overall financialperformance of the organization,

Keywords Strategic human resources, international human resources, global humanresources, human resources effectiveness, global leadership, HR strategic partner

As increasing global competitiveness has become imperative for US corporations, anyprocess or function that enables corporations to gain a competitive advantage in theglobal arena is considered valuable to those at the helm. One area whose contributionis just beginning to be assessed is that of the global human resource function. This studybegins this process by examining both the actual and the perceived contribution of theglobal human resource function to the overall effectiveness of the multinationalorganization.

Past research suggests that an organization's employees can be a source for sustainedcompetitive advantage and can determine the ultimate success of their organizations(Pfeffer, 1994; Prahalad, 1983). Given the importance of people in organizations, moststrategic human resource departments consider the management of the competenciesand capabilities of these human assets the primary goal. Such forward-looking, strategicoperations contrast sharply with more bureaucratic, traditional human resourcedepartments, which tend to manage human costs as liabilities (e.g., as incurring wagebills and benefit expenses) (Hamel and Prahalad, 1994; Schuler and Jackson, 1987).

Strategic HR departments are future-oriented and operate in a manner consistent withrespect to the overall business plan in their organizations (Adler and Ghadar, 1990;Adler, 1997; Kobrin, 1988; Milliman et al., 1991; Tung and Punnett, 1993). Suchdepartments tend to employ progressive human resource practices in which the

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2 Linda K. Stroh and Paula M. Caligiuri,

emphasis is on assessing the knowledge, skills and abilities needed for the future and toinstitute staffing, appraisal and evaluation, incentive and compensation, and training anddevelopment programmes to meet those needs (Cascio, 1995; Schuler and Walker,1990; Schuler and Jackson, 1987; Stroh and Reilly, 1994). Huselid (1995) refers tothese strategic HR practices collectively as `high performance work practices'. Ideally,these functions should fit together to meet the greater goal of strategic human resources- to support, manage and maintain high-commitment and high-performance employees(Burack et al., 1994). Burack et al. (1994) suggest several ways that. organizations canmaintain high commitment and high performance among employees and ultimatelyorganizational effectiveness: by promoting the organization's credibility with employ-ees; encouraging the use of participative management-and employee involvement pro-grammes; focusing on high achievement, mutual trust and commitment; and developinga combined group/entrepreneurial approach to management, thereby creating anorganizational culture in which individual employees are encouraged to be adaptive,competitive and successful.

Research by several scholars has shown a close association 'between these high-performance work practices and organizational effectiveness. MacDuffie (1995), forexample, found that the presence of integrated strategic HR practices was related to

.higher productivity and higher quality in automotive assembly plants. Terpstra andRozell (1993), studying a variety of industries, found that the . presence of strategicstaffing practices was positively related to an organization's annual profit and its profitgrowth. Finally, in a study of more than 1,000 organizations, Huselid (1995) found thata relationship existed between high-performance work practices 'and such positiveemployee outcomes as lower turnover and higher productivity, , as well as bettercorporate financial performance.

Research has also shown that executives company-wide view strategic HR depart-ments as more effective partners in directing their organizations' larger business plans(Dyer, 1983). One could conclude, therefore, that, when an organization's HR strategyis linked to its business strategy, organizational effectiveness should improve (Dyer,1983; Lengnick-Hall and Lengnick-Hall, 1988; Schuler and MacMillan, 1984; Tichyet al., 1982; Stroh and Reilly, 1994).

Whether corporations choose their HR practices from a `best practices' or acontingency or `fit' perspective has been debated extensively. Those who favour the`best practices' approach believe that there are a distinct set of practices that, whenimplemented, will result in greater organizational effectiveness. Those who favour thecontingency perspective believe that HR practices should be designed in response tosuch organizational and environmental factors as the economic status of the industry,the maturity of the market and technological considerations (Dyer and Reeves, 1995;Kochan and Osterman, 1994; Lawler, 1992; Miles and Snow, 1984; Pfeffer, 1994). AsBecker and Gerhart (1996) noted, the inconsistencies in the studies that have examinedthe relationship between HR practices and organizational effectiveness have made itdifficult to compare the value of these two approaches. Becker and Gerhart (1996)suggest, for instance, that the level of analysis has not been analogous across studies,ranging from broad guiding principles (macro) to specific policies or practices (micro).It is possible that the `best practices'approach may be more valuable in explainingguiding principles, while the specific policies and practices supporting a given guidingprinciple may be situation dependent (Becker and Gerhart, 1996), so that companiesmay follow both approaches.

A new source for competitive advantage in the global arena 3

Given that the study of strategic global HR systems as they apply to organizationaleffectiveness is a relatively new topic of research and that earlier studies of HRfunctions in multinational organizations used as their unit of analysis general principles(as opposed to specific HR practices), we have adopted a 'best practices' approach inthis study. Becker and Gerhart (1996: 786) consider the overarching principles guidingHR practices as an HR system's 'architecture'. Our study focuses on such 'systemarchitecture' as it relates to organizational effectiveness.

As with domestic HR departments, the goal for international HR operations should beto assess HR needs for the future proactively and implement practices and policies tomeet those needs. But what are those needs? Whit are the issues and concerns facingHR departments in multinational organizations? And how can global HR enhance itseffectiveness as a strategic business partner and contribute to the overall effectivenessof multinational organizations? Research is still in its infancy in producing the answersto these questions. This study is yet another step in that direction.

The research on global HR to date has been dominated by the study of expatriates(their selection, training, compensation and adjustment to foreign countries) and cross-cultural comparisons of HR issues and practices (e.g., Briscoe, 1995; Dowling et at.,1994; Shenkar, 1995). The focus on these two topics presents a somewhat misleadingimpression, however, of the breadth - of issues currently facing the global HR manager,including staffing foreign subsidiaries, managing multiple employment environmentsworld-wide, developing a variety of different pay scales and the like.

Research by Caligiuri and Stroh (1995) supports the hypothesis that there is a closelink between global HR practices (recruitment, selection, socialization) and globalbusiness strategies. That is, among the companies participating in their study, the globalHR practices were consistent with their global business strategies overall. On firstimpression, this finding supports the value of the contingency perspective for examiningstrategic HR issues. Further analysis found, however, that these companies' strategieswere related to a composite Multinational Corporation Success Index of economicvariables (return on capital, sales growth, return on equity, profit margin), suggestingthat: companies subscribe more to a 'best practices' approach. Specifically, companieswithh ethnocentric strategies, characterized by the exertion of strong control fromheadquarters were found to be less successful than companies that followed any ofthe other three approaches: regiocentrism (regional autonomy) polycentrism (foreignsubsidiaries have autonomy), or geocentrism (there is one corporate culture with equalvoice and participation across countries). From a 'best practices' perspective, localresponsiveness should be incorporated into the global HR practices of multinationalcompanies. The Caligiuri and Stroh study, however, did not examine the practices ofcompanies for their other attributes of 'fit' and did not control for their stage of globaldevelopment. That study, however, partially supports Becker and Gerhart's (1996)theory that both 'best practices' and fit may operate concurrently to affect fineperformance.

Through sampling, the current study holds constant some of the environmentalcontingencies of our participating organizations, and only multinational organizations ina mature stage of global development are included. By controlling the sample, weattempt to examine the best guiding principles for multinational organizations in amature stage of global development.

The purpose of this study is threefold. First, the study attempts to identify thosefactors, or guiding principles, that have enabled multinational organizations to have an

4 Linda K. Stroh and Paula M. Caligiuri

effective global HR function. Second, the study analyses the effectiveness of global HRoperations from the perspective of non-HR managers. And, third, the study attempts toidentify which global HR factors, or guiding principles, are related to the bottom-lineeffectiveness of multinational organizations.

MethodsThe research on which this article is based encompassed two separate studies. In thefirst study, we collected open-ended interview data from eighty-four global humanresource executives working in sixty multinational US-based firms. These interviewsidentified the top ten global HR factors, or guiding principles, impacting on theeffectiveness of the global HR function. Survey data were then gathered from (1) globalhuman resource executives, (2) executives from other functional areas and (3) CEOs/business unit executives in the same sixty multinational organizations so as to comparethe perceived effectiveness of the global HR function in the eyes of the HR and non-HRmanagers in these organizations; Finally, the. effectiveness ratings were tested againstfirm-level performance data to assess whether the effectiveness of, the global HRfunction is positively related to organizational performance.

InterviewsInterview data were collected from global HR executives at sixty multinational firms,all of whom are members of the International Personnel Association (IPA), aprofessional association whose members represent sixty of the top hundred multi-national organizations in the United States. The list of managers was then dividedbetween the two authors to conduct the interviews.

Interviews were conducted by telephone or in person and ranged in length from 20minutes to 1 % hours. Each interviewer took notes while interviewees spoke. A total ofeighty-four interviews were conducted (some very large companies had two members inthe IPA).

The primary purpose of the interviews was to identify the factors global HRexecutives believe enable global HR operations to be effective. Given that the topic isgeneral, the interviews were very unstructured. Starting questions were asked, such as,` What do you think is facilitating the effectiveness of your company's global HRoperations?' and `What do you think is impeding your company's global HRoperations?' The interviewers asked variations of that question to probe for furtherfactors, for example, `Can you think of any other factors that might impact theeffectiveness of the global HR function?'

After the interviews, the authors' notes were content analysed to identify the mostimportant factors impacting on effectiveness., Initially, each author grouped the factorsmentioned during her interviews by category, and then. they grouped them togetherconsensually. Consensus was considered reached when the same factor appeared onboth lists or factors on both lists were considered similar enough except for the termused to describe it.

The content analysis of our interview results isolated ten factors, or guidingprinciples, that appear to facilitate the effectiveness of the global HR function inmultinational organizations. The first five are guiding principles that HR departmentsshould implement on an organization-wide basis. These five would have a direct impact


Implement formal systems to improve world-widecommunications

Implement an International Human ResourceInformation System (IHRIS)

Foster the global mindset in all employees throutraining and development

Develop global leadership through developmentalcross-cultural assigrunents

Position the HR function as a strategic businesspartner in the organization's global business

Directimpact on themultinationalorganization

Figure 1 Guiding principles for global HR which impact on the effectiveness of themultinational organization

on the success of the multinational organization and would be implemented by globalHR for the entire organization (see Figure 1):

I Position the human resource function as a strategic partner in global business.2 Develop global leadership through developmental cross-cultural assignments.3 Foster the global mindset in all employees through training and development.4 Implement formal systems that improve world-wide communication.5 Design and implement an international human resource information system

(HRIS).The other five factors would be implemented within the human resources function, soas to better position itself for globalization. These have a more indirect effect on theoverall functioning of the multinational organization. For these five factors, the globalHR function would improve itself and be better positioned to be a strategic player in theglobal business of the organization (see Figure 2).6 Ensure flexibility in all human resource programmes and processes.7 Develop relationships with international HR counterparts to encourage information

exchange.8 Have ability to express the relative worth of human resource programmes in terms

of their bottom-line contribution to the organization.


Ensure flexibility in all human reource programmesand processes

Develop relationships with international HRcounterparts to encourage information exchange

Have the ability express globally the relative worth ofHR programmes in terms of bottom-line contribution

Have the ability to market HR globally as a sourceof strategic advantage

Encourage the relinquishing of domestic HR powerto a world-wide HR structure

Figure 2 Guiding principles for global HR which impact indirectly on the effectivenessof the multinational organization

9 Have ability to market HR globally as a source of strategic advantage.10 Encourage the relinquishing of domestic HR power to a world-wide HR struc-

ture.

Surveys

Surveys were sent to each of the members of the IPA who participated in theinterviews. Each executive was asked to give a survey to one of his/her peers in a non-HR area (e.g., VP of operations, marketing, or sales) and to the CEO or generalmanager of his/her business unit. Fifty-five IPA members returned their surveys, for aresponse rate of 66 per cent, and a total of forty-four managers in non-HR functions andCEO/division heads returned their surveys. Thus, a total of ninety-nine managersparticipated in the survey portion of this study.

Given that the survey was targeted at three distinct groups of raters - global humanresource executives, executives in non-HR areas and the CEOs/business unit executives- three versions were written, respectively. The variables assessed in the survey tapthe various raters' perceptions of the effectiveness of global HR on each of theaforementioned ten guiding principles.

Directimpacton the

functioningof globalhuman

resources

indirect.impact on themultinational. organization


Independent variables

World-wide communication World-wide communication was measured by means ofthe following two items to which survey participants were asked to respond on a five-point scale ranging from 'strongly agree' to 'strongly disagree': 'There is frequentcommunication among global HR professionals worldwide' and 'People in global HRhave fostered informal relationships with our colleagues in other countries'. Alphareliability for this scale was .60.

International HRIS International HRIS was measured by the following two items towhich survey participants were asked to respond on a five-point scale ranging from'strongly agree' to 'strongly disagree': 'Global HR lacks the technology to assimilateinformation in a useful manner' (reverse coded) and 'Global HR has human resourceinformation systems that are networked worldwide'. Alpha reliability for this scalewas .78.

Global mindset Global mindset was measured with nine items. Examples of theseitems are 'When going into emerging markets, global HR provides our organizationwith critical information on local laws and customs'; 'We have people with inter-national experience in key global HR management positions'; and 'People in global HRlack a global mindset' (reverse scored). Response choices were on a five-point scaleranging from 'strongly agree' to 'strongly disagree'. Alpha reliability for this scalewas .86.

GHR flexibility Flexibility of the global human resource function was measured witha single item: 'Global HR lacks the ability to be flexible and make changes in a timelyfashion' (reverse scored). Response choices were on a five-point scale ranging from'strongly agree' to 'strongly disagree'.

Developing relationships How well managers in global HR have developedrelationships with other managers in the organization was measured with a four-itemconstruct. Examples of these items include: 'Social relationships are overly influentialin decision making' and 'When making decisions, global HR is more likely to do whatis right for the relationship rather than what is right for the business' (reverse coded).Response choices were based on a five-point scale ranging from 'strongly agree' to'strongly disagree.'. Alpha reliability for this scale was .77.

Global leaders How well managers in global HR have contributed to the develop-ment of global leaders was measured with a four-item scale. Examples of these itemsinclude: 'We use international assignments to develop global leaders' and 'Our keyleaders have multilingual skills and multicultural skills'. Response choices were basedon a five-point scale ranging from 'strongly agree' to 'strongly disagree'. Alphareliability for this scale was .86.

Bottom-line contribution Based on the literature in this field, the authors developedan eight-item construct to measure whether global HR was perceived as contributingpositively to the organization's bottom line. Examples of these items include: 'GlobalHR is viewed as an operating cost, rather than as a competitive advantage' (reversescored) and 'The global HR function positively contributes to the bottom line of our


Edev =E,-E;Fd-„ =Fe -F,Step 2: Deviations were recoded, reflecting whether a company was higher than theindustry median, equal to the industry median, or lower than the industry median. Sixscores, with values of either I or 2, resulted for each company.If Ads,, through Fdn, % 0, then A..,, through F. = 2, respectively.If Ads„ through Fd.„ < 0, then A. through F. = 1, respectively.Step 3: The scores were added, and a mean was calculated to form a composite MNCSuccess Index. The mean scores ranged between 1 and 2. If, for example, a companyhad data for only four out of the six variables, the total was divided by 4 instead ofby 6.(A. +B.+C.+D. +E.+F,J-:-6The mean for the Forbes' MNC Success Index was 1.7. The second index oforganizational performance represents the scores given in Fortune's America's MostAdmired Companies (March, 1996). The Fortune scores had a mean of 6.92. TheFortune and Forbes data were then combined to form two known groups (1 = low-performing companies; 2 = high-performing companies). Two known groups werecreated using a split (in thirds) of both the Fortune and Forbes data. If a companyappeared in the bottom third of both variables, then the company was in the low group.if the company appeared in the top third for both variables, then the company was in thehigh group. (Because these were just rough estimates of organizational success, webelieved it was more appropriate to use these data as ordered categorical estimates,rather than treating them as interval-level data.) The data in the known groups (high-versus low-performing organizations) were then examined qualitatively. From this case-study perspective we wanted to see if there was any pattern of mean scores between thehigh- and low-performing organizations on the ten global HR effectiveness factors.(The small sample precluded us from doing statistical mean comparisons, therefore, ourinterpretation of these data should be considered exploratory.)

ResultsSurveys

Descriptive statistics were created for all the independent and dependent variables (seeTable 1). Next, correlational analyses were conducted to assess the relationship betweenthe independent and dependent variables from the perspectives of the global HRexecutives, the managers in the other functional areas and the CEOs/business unitmanager (see Tables 2, 3 and 4 respectively).

Table 1 provides a comparison of the mean ratings for the various dimensions basedon the responses of the global HR executives, the managers in the other functional areasand the CEOs/general managers. The patterns that emerge are noteworthy. HRexecutives rated themselves most high on Flexibility (mean = 3.77) and -World-wideCommunication (mean = 3.74) and much lower on International HRIS (mean = 2.55).The ratings of the leaders of the other functional areas demonstrate a similar pattern(Flexibility mean = 3.26; World-wide Communication mean = 3.68), although the

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organization'. Response choices were based on a five-point scale ranging from `stronglyagree' to `strongly disagree'. Alpha reliability for this scale was .77.

Ability to market global HR This variable was measured with a single item: `GlobalHR sufficiently markets its services within our organization.' Response choices werebased on a five-point scale ranging from `strongly agree' to `strongly disagree'.

Ability to relinquish power domestically The ability to relinquish power at homewas measured with a single item: 'HR people domestically struggle. with relinquishingpower when moving to a decentralized structure.' Response choices were based on afive-point scale ranging from `strongly agree' to `strongly disagree'.

Strategic partner Whether global HR was viewed as a strategic partner wasmeasured with seven items. Examples include: `When entering new markets, a globalHR person is on the initial business strategy team' and 'Global HR is part of ourstrategic planning team'. Response choices were based on a five-point scale rangingfrom `strongly agree' to 'strongly disagree'. Alpha reliability for this scale was .73.

Dependent variablesGlobal effectiveness Global HR's effectiveness was measured using a two-item scale.On a five-point scale ranging from I (strongly agree) to 5 (strongly disagree),respondents were asked to rate their perception of the effectiveness of the global HRfunction. Items included: 'Global human resources is important to our organizationaleffectiveness,' and 'Global human resources adds little value to our organizationaleffectiveness' (reverse coded). Alpha reliability for this scale was .82.

Organizational performance Data were collected in two ways on the financialsuccess of each organization represented in the study. First, taking into account thatthese corporations represented a variety of industries, a standardized profitability andgrowth score was created. Using data from the Forbes' Annual Report on AmericanIndustry (January, 1996), both industry medians and company data were collected forall of the following: (1) return on equity over the past five years, (2) return on equityfor the most recent twelve months, (3) return on capital over the most recent twelvemonths, (4) sales growth of the company for the past five years, (5) sales growth of thecompany for the most recent twelve months, and (6) profit margin for the most recenttwelve months. To handle missing data, the,six dichotomous variables shown belowwere averaged (M = 1.70, SD = .25). The alpha coefficient for the MNC Success Indexwas .72.

Next, an index of MNC success was calculated as follows, where I = the company'sindustry median, c = company data and A, B, C, D, E and F = the six growth andprofitability variables above.Step 1: Deviations from the industry medians were calculated for each of the sixvariables.Ad,„ = A~ - AiB.k,, = B c - B iCam,=C,-CiD d,, = D. - Di

1 0 Linda K. Stroh and Paula M. Caligiuri

Table I Means and standard deviations of independent and dependent variables

Notes' means 'Global HR perspective'means 'Non-global HR/other functional head perspective'

` means 'CEO/division head perspective'

global HR effectiveness ratings from the perspective on the other functional areas arelower overall. Once again, HRIS falls well behind (mean = 2.61).

The ratings of the CEOs/business unit managers show a similar pattern, yet muchmore closely match the global human resource executives' own ratings on these criticaldimensions (Flexibility mean = 3.59; World-wide Communication mean = 3.87; HRISmean = 2.85). One of the most interesting findings is how much variability there wasbetween groups in the ratings. Thus, the global HR executives rated themselves mosthighly overall (mean = 4.34), followed next by the CEOs/business unit managers(mean = 4.00), followed well behind by the heads of the other functional areas(mean = 3.76). The differences between the global human resource executives'perceptions of global human resource's effectiveness and the perceptions of the headsof the other functional areas is significant (t = 3.41, p < .01), but so is the differencebetween the global human resource executives' perceptions and those of the CEOs/business unit managers (t = 2.13, p < .05). These gaps in perception, especiallybetween global human resource executives and managers in non-HR areas, should be ofparticular concern to global HR managers who are attempting to become strategicpartners with other non-HR functional areas.

As Table 2 suggests, from the perspectives of global HR executives, the variablesWorld-wide Communication (r = .30, p < .05), Global Mindset (r = .36, p < .05),Global Leaders (r = .25, p < .05) and Strategic Partner (r = .29, p < .05) were allpositively related to the perceived effectiveness of the global HR function. In otherwords, when global HR was better at communicating with employees world-wide,instilling a global mindset within employees in the organization, and developing globalleaders, it was perceived as a more effective functional area overall.

Variables GHR' GHRmean sd

NHR Imean

NHRsd

CEO cmean

CEOsd

Independent variables .I International communication 3.74 . 69 3.68 .54 3.87 .552 International HRIS 2.55 .86 2.61 .74 2.85 .773 Global mindset 3.39 .57 3.10 .61 3.29 .554 Flexibility 3.77 .91 3.26 1.06 3.59 1.005 Developing relationships 3.67 .64 3.40 . 69 3.78 .786 Global leaders 3.34 .75 2.97 .69 3.49 .667 Bottom-line contributors 3.49 .60 3.11 .64 3.29 .628 Ability to market HR product 2.81 .86 2.54 .88 2.77 .759 Relinquish power 2.55 . 95 2.79 .96 2.76 .74

10 Strategic partner 3.36 .60 2.97 .67 3.30 .79

Dependent variablesl l Global HR effectiveness 4.34 -.52 3.76 .79 4.00 .5912 Fortune 6.92 1.0413 Forbes 1.70 .25


Table 2 Correlations among global HR perspective variable

Notes' means 'Global HR perspective'*p<.05. **p<.01.

From the perspective of the executives in the other functional areas, the variablesStrategic Partner (r = -.37, p < .05), Ability to Relinquish Power Domestically(r = -.35, p < .05) and International HRIS (r = .30, p < .05) were related to whetherthe global HR function was perceived as effective. Surprisingly, from the perspective ofthe heads of non-HR areas, the less global human resources became involved as astrategic partner, the less it relinquished power to its world-wide counterparts, and thebetter it was at developing international human resource information systems, the moreeffective it was perceived to be. The suggestion here is that the heads of non-HR areaswould rather global HR were not involved in the international activities of theorganization.

From the perspective of the CEOs/business unit leaders, the variables Global Leaders(r = .62, p < .01), Strategic Partners (r = .39, p < .05), and Flexibility (r = .65,p < .01) were related to the perceived effectiveness of the global HR function. Unlikethe heads of the non-HR functional areas, CEOs/business unit leaders perceived anincrease in the effectiveness of the global human resource function when those in thisarea were good at developing global leaders and being strategic partners and when theydeveloped flexible global HR policies.

Variables 1 2 3 4 5 6 7 8 9 10

11

Independent variablesI GHR'

internationalcommunication

2 GHR .27*internationalHRIS

3 GHR global .34* .35*mindset

4 GHR flexibility . 08 .24* .52**5 GHR developing . 09 .03 .22 .48**

relationships6 GHR global .40** .33* .49** .28* .27*

leaders7 GHR bottom-line .11 .20 . 53** .55** .52** .33*

contributors8 GHR ability to .11 .46** .32 .19 .08 . 21 * . 47**

market HRproduct

9 GHR relinquish .11 .00 .09 .32* .08 .04 .24* .15power

10 GHR strategic .18' .30* .64** .37** .34* .42** .70** .44** . 08partner

Dependent variable11 GHR global HR .30* .16 .36* .18 .13 . 25* .14 .02 .03 .29*

effectiveness

1 2 Linda K. Stroh and Paula M. Caligiuri

Table 3 Correlation among other functional head perspectives variables

Notes' means 'Non-global HR/other functional head perspective on global HR effectiveness in each area'*p<.05. **p<.01.

Effect of GHR on bottom-line performance

To assess the contribution of GHR to the bottom-line financial success of anorganization, we examined the relationship between the CEOs'/business unit heads'ratings of global HR's perceived effectiveness and data on the participating organiza-tions' financial performance. Part of the assumption in making this comparison was thatCEOs/division heads probably determine whether GHR staff are pan of the strategicteam. The CEOs/division heads are those in the organization who would be most likelyto include GHR, depending on their perceptions of GHR's effectiveness. Theseindividuals will either value or potentially 'de-value' the role that GHR plays in theorganization.

Each of the ten global HR performance factors had been rated by the CEO/businessunit leaders of the participating organizations. Their evaluations for each of these tenfactors were then compared with the bottom-line index created from the Forbes and the

Fortune data (see methods section for description of index). The means suggesteddifferences between the two groups (high- vs. low-performing organizations) on various

Non-HR functional perspectiveVariables

1 2 3

4

5 6 7 8 9

10

11

Independent variables1 NHRa


2 NHR .33*internationalHRIS

3 NHR global . 31* .57**mindset

4 NHR flexibility . 52** .45** .43**5 NHR developing .20 .25 .26 .32*

relationships6 NHR global .34* .27 .55* .28

.03leaders

7 NHR bottom-line .38* .53** .65** .55** .50** .21contributors

8 NHR ability to .38* .48** .29 .54** .23 .29 -.11market HRproduct

9 NHR relinquish . 27* .34 .15 -.11

.11.20 .28 -.10power

10 NHR strategic . 00 .24

.36* .17 .64** .19 -.24 .19

. 04partner

Dependent variable11 NHR global HR .13 .30* -.07 -.05 -.26 .03 -.26-.04 -.35*-.37*

effectiveness


Table 4 Correlations among CEO/division head perspectives variables

Notes' means 'CEO/division head perspective on global HR effectiveness in each area'*p<.05. **p<.01.

global HR effectiveness factors. We found that the most successful companies hadglobal HR functions that performed better in three areas: (1) developing globalleadership through cross-cultural assignments, (2) making human resources a strategicpartner in global business and (3) ensuring flexibility in all human resource programmesand processes. These data suggest that, when HR is perceived by CEOs/business unitheads as good at developing global leaders, as part of strategic decision making and ashaving flexible HR programmes and processes, the overall performance of the companyis enhanced as well. In sum, this case analysis suggests that a positive relationshipexists between the bottom-line financial success of an organization and its HRperformance in these three areas. Those organizations that performed better on thesethree measures received higher ratings for their financial performance than thosecompanies that scored lower on these three measures. In addition, those organizationswhere the CEOs/business unit heads rated global human resources more highly (usingthe two-item global effectiveness scale) were organizations that were performing better.We cannot suggest from these data that the organizations performed better because theglobal human resource function was effective, but there appears to be a relationship

CEOldivision head perspectiveVariables 1 2

3 4

5 6

7 8 10

11

Independent variablesI CEO'


2 CEO -.20internationalHRIS

.3 CEO global .27 .29

mindset4 CEO flexibility .55**.66** .61**5 CEO developing .20 -.15 -.02 . 09

relationships6 CEO global .26 .57** .17

.36

.34leaders

7 CEO bottom-line .33 .23 -.17 .18

.33 . 04contributors

8 CEO ability to .07 .08 -.00 -.16 -.06 -.20 -.02market HRproduct

9 CEO relinquish .31 .32 -.02 .11 -.15 -.10.01

. 08power

10 CEO strategic .35 .43**-.01 .39* .34 .24

. 06 -.08 -.19partner

Dependent variable11 CEO global HR .12 .22

.32 .65** .31 .62** .01 -.06 -.06 .39*effectiveness

14 Linda K. Stroh and Paula M. Caligiuribetween the perceived overall effectiveness of an organization's GHR functions and thebottom-line performance of the organization.

DiscussionWe believe this study makes a unique contribution to the field of global HR byidentifying the top ten best practices, or guiding principles, for global HR. As Beckerand Gerhart (1996) suggest, macro guiding principles are important across allorganizations, regardless of situation. Becker and Gerhart (1996) suggested that thespecific policies or practices, to support these guiding principles, are more situation-specific. These specific practices were not addressed directly in the study. We were,however, able to re-examine the interview data (after survey data had been collectedand analysed) to ascertain the specific practices described by the global HR executives,relative to the various dimensions. For example, the factor `Developing relationshipswith international HR counterparts to encourage information exchange' played outdifferently in different organizations. Some organizations held annual or bi-annualworld-wide HR meetings, where the meeting place rotated around the world. Otherorganizations promoted the use of the e-mail system among HR professionals world-wide, while others formed cross-national teams of HR professionals world-wide toaddress corporate HR issues. Future research should examine systematically howorganizations put these principles into practice.

Consistent with the previous findings from Caligiuri and Stroh (1995), this study alsofound that successful companies tend to share similar global HR guiding principles.While the small samples of high-success and low-success organizations precluded usfrom doing statistical analyses, clear trends emerged in the data around three of thefactors. Future research should attempt to test the link between the global HR practicesand organizational performance in a more systematic and methodologically rigorousmanner. True organizational performance data (for example, as used in Huselid, 1995)should be used instead of the less precise proxies (i.e., Forbes and Fortune data) oforganizational performance.

Some other findings in this study were noteworthy. Most important, GHR executivesappear to be very aware of the strengths and weaknesses of their functional areas. Theexecutives in this study not only were able to identify ten best practices that are relatedto the overall perceived effectiveness of GHR but seemed to' know that mastering thesepractices was the key to increasing the effectiveness of GHR.

Weaknesses in the GHR function were also apparent, however. The negativedirection found in the other functional area perspective variables, Strategic Partner andRelinquishing Power Domestically, were symptomatic of findings revealed throughoutthe interview portion of the study. Global human resources executives noted that leadersof non-HR functions were reluctant to include GHR in strategic decisions, for example,noting that doing so often complicated their decision making. Making decisions relatedto people, without a doubt, makes decisions more complex, but including the 'peopleside of the equation' is critical - and is likely to affect not only the 'people side' of theoperation but bottom-line performance as well.

This resistance, on the part of non-HR managers, to including global HR in strategicdecisions should certainly be a major concern to HR as well as to higher-levelmanagement. Convincing the heads of other functional areas that the work of GHR isimportant and significant to the bottom-line performance of the organization should bea primary goal. Our research suggests that non-HR managers will begin to perceive the


work of GHR as contributing to the bottom line of an organization when GHR candemonstrate that it is effective in each of the ten `best practice' areas.

Limitations of methodology

As with most research undertakings, this study's methodology is not without flaws. Asnoted earlier, the measures of organizational performance may not be precise measuresof organizational performance. The same is true for individual performance of theglobal HR managers - more objective measures would add greater value to this type ofstudy. Future research should attempt to develop more rigorous measures of bothorganizational and individual performance. Also, time limitations of the busyexecutives often precluded our using extensive multi-item constructs that might providegreater reliability and validity. It would also have been interesting if data had alloweda more in-depth understanding of the surprising negative perceptions provided by thenon-HR function between effectiveness and HR involvement as a strategic partnerrelationship. Uncovering more precisely why the non-HR function views greaterparticipation of HR in strategic decisions as problematic would have contributed greatlyto this field. We suggest future research examine this relationship more closely.

Despite these shortcomings, we believe that this study has value to both practitionersand researchers alike. It provides those who manage human resources on a global scalewith a list of guiding principles by which they may develop their own HR processes andpractices. From a practical perspective this study also reinforces the message thathuman resources can play a strategic role in improving an organization's competitiveadvantage. With respect to research, we believe this study provides a focus on severalareas of inquiry which have not yet been examined. The field of international HR istruly an open and important research frontier.

Linda K. StrohLoyola University Chicago

Paula M. CaligiuriRutgers University

Acknowledgements

An earlier version of this paper was presented to the Academy of Management,Cincinnati, 1996.

The authors would like to thank the membership of the International PersonnelAssociation (IPA) for their participation and financial support of the research study. Aspecial thanks ' to: Glen Anderson, Tony Annoni, Matt Ashe, Bill Edgley, MichaelGordon, Sven Grasshoff, Victor Guerra, Andre Rud6, James McCarthy, Luiz JacquesM. da Silveira, Raj Tatta, Linda Watson and Ed Nunez. We also thank LoyolaUniversity Chicago and Rutgers University for partial support for the study.

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