Understanding strategic human resource management through the paradigm of institutional theory.

INTRODUCTION

Strategy is a term which is synonymous with management and is used widely across the various disciplines within organisational literature. Human Resource Management (HRM) is no exception, with Strategic Human Resource Management (SHRM) considered by numerous HR and organisational theorists as a critical and contemporaneous field, which had resulted in various conceptual and practical approaches to linking HRM practices to business strategies (Wright & McMahan, 1992; Schuler & Jackson, 2007; The Aston Centre for Human Resources, 2008; Boselie, 2010; Connell & Teo, 2010). However, there are still many questions raised as to the rigour and robustness of this theory (Tharenou, Saks & Moore, 2007).

To address some of these concerns, the following paper will explore the fundamental concepts of SHRM through the paradigm of institutional theory. The relevance of institutional theory to SHRM derives from a view that organisational processes are a reflection of the institutional environment, which is defined as a 'set of highly established and culturally sanctioned actions, patterns and expectations' (Lincoln, Hanada & McBride 1986, p.340 cited in Rosenzweig & Singh, 1991; Brewster, Wood & Brookes, 2008). It is a lens which may assist scholars and practitioners in being able to synthesise complex organisational issues into a comprehensible and relevant framework. Furthermore, this paper is based on the author's assumption that the findings may contribute to the future direction of research in SHRM.

The paper begins by discussing the evolution of institutional theory in organisational literature, as it is a theory which has consisted and still consists of a variety of approaches. It then reviews three main neo institutional concepts to explore the extent to which they have been applied in HRM and Industrial Relations (IR) literature. In exploring these ideas, the paper endorses the implications of institutional theory for understanding SHRM practices in organisations, particularly as these relate to the literature's account of institutional field, isomorphism and entrepreneurs.

WHAT IS INSTITUTIONAL THEORY?

Institutional theory has been developing over the past few decades by numerous distinguished and respected theorists from diverse fields such as economics, political science and sociology (Scott, 1995). The following section is in no account a historical review of institutional theory; nevertheless, it is noted that upon reading the various neo-institutional readings, it is evident that many of the current theorists have drawn from the past to produce their finished writings. Sociology is one distinct field which has made a constant contribution to institutionalism. Durkheim is one prominent sociologist who emphasised the role of symbolic systems and defined institutions as 'a product of joint activity and association, the effect of which is to "fix", to "institute" outside us certain initially subjective and individual ways of acting and judging' (Alexander 1983a, p. 259; cited in Scott 1995, p.10). Another influential figure is Weber cited in Scott (1995), who has influenced numerous contemporary institutionalists more so than any other early theorist with his understanding of cultural rules, social structures and governing social behaviour.

Scott (1995), who has been a prominent institutionalist over the last three decades, defined institutions as 'cognitive, normative, and regulative structures and activities that provide stability and meaning to social behaviour. Institutions are transported by various carriers-cultures, structures, and routines and they operate at multiple levels of jurisdiction' (p. 33). It is a broad definition as Scott claims that its objective is to achieve consensus amongst conflicting views and opinions of the theory; nevertheless, it is still evident that there is continuous dissent between old institutionalists and neo-institutionalists (Scott, 2004; Greenwood & Hinings, 1996). Further, there are many dichotomous views of Institutionalism and numerous unresolved issues surrounding the theory; however it cannot be disputed that the theory itself is currently widely used throughout contemporary organisational literature.

Whilst there have been numerous concepts and views explored throughout the theory's evolution, due to the boundaries discerned as set for this paper the focus will be on three core concepts that prevail in neo-institutional literature. Each concept will be introduced briefly and then followed by a discussion of the various issues that have arisen within institutionalism.

1) Institutional Field, defined as, 'a set of organizations that constitute a recognized area of life, are characterized by structured network relations, and share a set of institutions' (Lawrence & Phillips 2004, p. 321). DiMaggio and Powell (1983) suggest that by focusing on the institutional field one is able to comprehend the significance of transactions linking one organisation to another and evaluating organisations which have similar linkage to other organisations but not necessarily connected to each other.

2) Institutional Isomorphism is a 'constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions' (DiMaggio & Powell 1983, p. 149). It is further suggested that institutional isomorphism is a useful tool in evaluating the politics and ceremony that permeate many modern organisations (Dacin, Munir & Tracey, 2010; Brewster, et al, 2008). There are three mechanisms of how institutional isomorphism occurs. The first mechanism is coercive isomorphism, which results from political influences from other organisations and the problem of legitimacy that all organisations face in an institutional field. Meyer and Rowen (1977) imply that more organisations are becoming homogenous within their institutional field as it is easier to create formal organisations based on the myths of wider institutions. The second source is mimetic processes, where imitation is encouraged because of uncertainty from poor organisational goals, or when the environment creates 'symbolic uncertainty'. The third mechanism is normative processes and results mainly from professionalization, which proceeds unilaterally with the formation of organisational fields (DiMaggio & Powell, 1983).

3) Institutional Entrepreneurs 'are actors who leverage resources to create new or transform existing institutions' (DiMaggio, 1988; Garud, Hardy, & Maguire, 2007; Maguire, Hardy, & Lawrence 2004: cited in Battilana, Leca & Boxenbaum 2009, p. 68). They can be individual or collective agents and can be referred to as change agents but not all change agents are institutional entrepreneurs. The paper further argues that an actor cannot be an institutional entrepreneur if he/she does not initiate changes and actively participate in the implementation of these changes.

One key issue that dominates institutional theory is the broad disagreement amongst theorists over the theoretical definition and empirical measurement of core concepts such as institutional fields and institutions (Dacin, 1997, cited in Hoffman, 1999; Peters, 2000). Scott (1995) further espouses that institutional fields are often considered independent variables, affecting organisational forms and processes. However; this is due to his view of the world as a constitution of variables. He prioritises the value of determining the boundaries of fields and the way in which they are organised, in terms of their governance structures and the extent of their structuration. Similarly, Leca and Naccache (2006) argue that those institutional logics that are utilised by institutional entrepreneurs will ultimately depend on the boundaries of the fields in which they operate.

According to Hoffman, (1999) to analyse the institutional process, organisational fields and guiding institutions are first defined, then forces that drive inertia and isomorphism are described. The stability of an organisation was once the focus of the old institutionalists; however, with the current volatile external and internal organisational environment, neo-institutionalists are attempting to identify how institutional forces change. Scott in 1995 posited that the three institutionalist pillars, regulative, normative and cognitive are analytically independent and self-contained, therefore co-evolution would not be expected. This was considered a serious weakness in the framework as the theory was perceived as almost intrinsically static, while the world of politics, which it sought to explain, was almost inherently dynamic (Peters, 2000). Scott has amended his view since then and now espouses that the pillars may overlap, so that the development of one force will influence the development of other forces. He has also redefined his definition of institutions by stating that 'Institutions are comprised of regulative, normative, and cultural-cognitive elements that, together with associated activities and resources, provide stability and meaning to social life' (Scott 2008b, p. 192). Correspondingly, the neo-institutionalists have a common point in belief that organisations are under constant pressure to adapt and be consistent with their institutional environments as that is the way that organisations may be legitimised and recognised (Bjorkman, 2006; Greenwood & Hinings, 1996). Based on this metamorphosis of institutional theory, the next section will investigate how the theory has been used in mainstream Human Resource (HR) and Industrial Relations (IR) theory.

HOW HAS INSTITUTIONAL THEORY BEEN USED IN THE MAINSTREAM HR AND IR LITERATURE?

Institutional theory was first linked to Industrial Relations (IR) literature from scholars such as Commons (1913) and Webb (1894) cited in Bray, Waring and Cooper (2009), who explored the genesis of trade unionism, employees' role in the workplace and the development of collective bargaining. However, these scholars could be referred to as 'old institutionalists', as their focus has been on rules and regulations between the employees and the employer. Consequently, this was critiqued as one dimensional and overly descriptive. In contrast, the neo-institutionalists, to address this criticism, shifted their focus to a broader analysis of the employment relationship by encompassing production and capitalist social relations. Consequently, this critical shift in thinking has led to the contemporary acceptance that there is "open-endedness" or "indeterminacy" in the complex employment relationship (Edwards, 1995 cited in Bray et al). Furthermore, understanding the use of rules and regulations from the neo-institutionalists' point of view has become the avatar to explain the theoretical and methodological features of research in IR (Bray, 2000). The majority of IR studies have been mostly empirical and Bray et al (2009) similarly state this observation in the field. It further attributes this phenomena as the objective of IR studies or theory is to enhance comprehension of complex real-life scenarios. Correspondingly, Kerr (1983) and Cappelli (1985) cited in Bray et al (2009, p.53), also identify this characteristic, but argue that although the studies show relevance to the practice of IR, IR studies may still be perceived as too "descriptive and atheoretical". All the same, it is important to consider that the neo-institutionalist paradigm in IR research may not only offer a more "holistic" explanation inclusive of the social environment and multi-perspectives but inevitably influence the diagnosis of problems which may occur in employment relations.

Institutional theory has been further applied to a plethora of HRM studies in areas such as International Human Resource Management (IHRM), Diversity Management Practices (DMP), analysis of Multinational Corporations (MNCs) and SHRM. As established earlier in the paper, the basic understanding of institutional theory is that many systems, practices and programs in organisations are legitimised through the social constructionist position, namely one that views organisations as being the product of social meanings and practices (Wright & McMahan, 1993). The following section will discuss the three isomorphic processes of institutional theory and provide examples as to how they may influence HR practices.

Scott (2008a) implies through the lens of institutional theory, certain practices can be coercively enforced, like governments or organisations mandating laws or policy. An example that demonstrates such coercive isomorphism is the evolution of employment practices. This is in response to changes in government legislation such as the Equal Opportunity Act (1984) which has influenced how recruitment and selection of employees takes place in organisations (Dessler, Griffiths & Lloyd-Walker, 2007). Equally, minimum wage legislation has also directly influenced the pay practices of organisations. If one was to hypothesise an absence of such regulatory guidelines then the current HRM function could consist of very different processes.

An example of mimetic isomorphism in HRM is when training programs are acquired by one organisation modelling another organisation's practice (Wright & McMahan, 1993). Talent Management is an example of a contemporaneous practice that is perceived to be effective in organisations and has seen tremendous growth in interest by HR practitioners. According to Lewis and Heckman (2006), in 2004 a search of the term "talent management hr" on a popular search engine resulted in 2,700,000 hits but one year later the result was over 8 million. One might assume that the wide acceptance of "talent management" amongst HR practitioners would indicate that it is supported by a plethora of research and a core set of principles. However, this is not the case, as a review of the literature suggests that the theory is nebulous and there is still lack of evidence indicating success from this program.

Normative isomorphism is demonstrated by practices which are authorised or legitimised through an organisation seeking validation from a superordinate body. Wright and McMahan (1993) propose that employment surveys of the "best" companies to work for have evolved into a form of accreditation for employers. The study further suggests that due to organisations wanting to be validated by these surveys, the root objective of the surveys is dismissed and HRM practices could be negatively influenced.

Bjorkman (2006) insists that institutional theory has rarely been mentioned in IHRM studies until the early 1990s when the influential paper on SHRM by Wright and McMahan (1992) stated that 'the ideas of institutionalism may help in understanding the determinants of HRM practices' (p. 313). Since then, the theory has been widely used by numerous IHRM scholars, mostly in investigating HRM practices in MNCs and comparative studies of HRM practices across countries. For instance, Lawler's study in 2006 analysed foreign-owned subsidiaries from the institutional perspective as being influenced by their local culture and environment and by expectations from the parent company (Lawler, 2006). Another IHRM study discussed the "institutional distance" which occurs when there is a transfer of policies from US companies to their foreign subsidiaries (Ferner, Almond & Colling, 2005). Despite the acceptance of the institutional perspective in IHRM, Bjorkman (2006) argues that the theory is still underexploited and insists that the application of the theory could assist in a more comprehensive analysis of complex IHRM issues and problems.

THE IMPLICATIONS FOR INSTITUTIONAL THEORY FOR UNDERSTANDING SHRM PRACTICES

Wright and MaMahan (1992) in their influential paper, define SHRM as 'the pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals' (p. 298). Definitions of SHRM since the 1990s have focused on areas such as 'linkage between HRM to performance' (Connell & Teo, 2010 p.285), 'alignment between HRM and organizational internal and external context' (Boselie, 2010 p.13), 'systematically linking people with the organisation' and 'integrating of HRM strategies into corporate strategies' (The Aston Centre for Human Resources 2008 p.14). Subsequently, Kaufman (2001) suggests that most SHRM scholars would agree that SHRM values the employees of an organisation as a valuable asset, which an organisation must utilise effectively through a synergistic set of HR practices to gain a competitive edge over their competitors. From the literature reviewed, it is apparent that there has been an ample body of empirical research conducted (Lengnick-Hall, Lengnick-Hall, Andrade & Drake, 2009). However, there is still critique from scholars who believe that the empirical evidence is still lacking in rigour to support SHRM core fundamentals. Further, the gap between HR policies and practice delivered in organisations serves as evidence of this weakness (Alvesson, 2009).

Radcliffe (2005) is one such scholar who believes the root cause is due to the inconsistencies which occur within the three SHRM theoretical approaches to empirical research. The three SHRM approaches are the "universalistic" or "best practice perspective," which is derived from the work of Pfeffer (1994, 1995, 1998) cited in The Aston Centre for Human Resources (2008). Pfeffer suggests that regardless of strategy, certain 'best' HRM practices will contribute to organisational success. The critique of this approach is that there is a lack of agreement between scholars about what practices would be considered to be 'best practices' when for instance studies suggests that 'best' HRM practices lead to high performance (Radcliffe, 2005). In comparison, the "contingency" approach focuses on the fit or consistency between organisational strategy and HR practices will improve organisational performance. (Boselie, 2010; Schuler & Jackson, 2007). Kamoche (1994) argues that SHRM has serious concerns as to the concept of matching strategy to human capital. The paper further posits that SHRM is an overly simplistic approach which invites abuse from management to gain short-term objectives without considering the long-term gains. Finally, the third perspective, "configurational" SHRM is considered a holistic approach (Schuler & Jackson, 2007), emphasizing 'patterns, of HR practices which contribute to an internal consistent whole' (Schuler & Jackson, 2007) and draws a correlation between those patterns and organisational performance (Doty & Glick, 1994 cited in Schuler & Jackson, 2007). However, the major shortcoming with this approach is that it is not viable to test more than a few select patterns which does not represent the real-world complexity of organisational systems (Schuler & Jackson, 2007). Further, it implicates the difficulty of narrowing the gap between HR policies and practice in organisations.

A brief overview of the key issues surrounding SHRM has been discussed above. The question then remains as to what are the implications of institutional theory in understanding SHRM. Wright and McMahan (1993) insist the institutional perspectives are important as events can happen in organisations that were not intended or planned and not all outcomes are due to conscious planning processes. In addition, the institutional paradigm may explain the source of the gaps between planned organisational goals and what actually happens in practice because it considers the social constructionist view where external forces may influence the creation of practices that become legitimised. Conversely, The Aston Centre for Human Resources (2008) believe that the limitation of institutional theory is its very 'mechanistic portrayal of organisational responses' (The Aston Centre for Human Resources, 2008, p.243) to normative, coercive and mimetic pressures in society. Further, the connotation is that it could dismiss the strategic ability of an organisation to respond to such pressures. Nevertheless, although this critique is valid, it is evident as Bjorkman (2009) suggests that institutional theory has been underutilised for a range of issues in HRM. In fact, Bjorkman points out that there has been little use of "agency" when utilising institutional theory in organisational analysis. Correspondingly, numerous contemporary organisational scholars have discussed the importance of organisational actors and agencies in neo-institutional theory (Levy & Scully, 2007; Leca & Naccache, 2006; Lawrence & Phillips, 2004). Hence, understanding the specific roles in more depth could provide explanations as to how the actors form strategies and how institutions change (Wright, Snell & Dyer, 2005).

Bae and Lawler's study in 2000 hypothesised a linkage between organisational and HRM strategy in Korean firms and concluded that there was a positive relationship. However, if an institutional perspective was integrated with the resource-based perspective that was used in the paper, it is possible that symbolic and reputational considerations in HRM could have added to a richer analysis, which may have in turn contributed to a stronger argument. In brief, the plethora of literature researched for this paper indicates that institutional theory could add value to explanations of the relationships between variables from the perspective of organisational change, power mechanisms, diversity, policy, performance and business strategies (Tsai & Yen, 2008). Importantly it may also contribute to a more aligned theoretical framework that could assist organisations to fulfil the fundamental objectives of SHRM.

CONCLUSION

A review of contemporary textbooks and literature on SHRM has revealed the detailing of a common set of prescriptive practices (Wright et al, 2005; Gubman, 2004; Hiltrop, 1996) which deem to be the answer to organisational HR needs regardless of the size, situation and industry characteristics of the particular business, because it is a one size fits all approach, precise situational factors will vary. The Institutional perspective is not presented to be the answer to all the issues that have been discussed in this paper. However, it is proposed that the institutional view is one that considers the multi perspectives and dynamic forces clearly engulfing contemporary organisations. Hence, allowing the analyst to view issues that may not have been visible from a dichotomous perception of an organisation. In the volatile and dynamic business environment of today, a paradigm that may result in a deeper analysis and synthesis of complex issues in an organisation is an analytic tool that SHRM scholars should be encouraged to utilise as it may not only assist in developing and strengthening SHRM research but also possibly minimise the gap between theory and practice.

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Alison Lee

University of Technology, Sydney