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What drives the adoption of SHRM in Indian Companies?

Ashok Som
Hamid Bouchikhi

April 2003


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What drives the adoption of SHRM in Indian Companies?

Managerial innovation and its critical importance in today's global business is well documented. The crucial role of managerial innovation in strategic human resource management is becoming increasingly prevalent in both business and academic literature. However, practically no such study has been undertaken in an emerging country scenario as India. This study identifies the drivers of adoption of innovative strategic human resource practices (SHRM) in Indian organizations. This study is of critical importance against the backdrop of the liberalization of the Indian economy which started in 1991. The structural adjustments due to liberalization have created a hyper-competitive and turbulent environment. Drawing from both innovation and SHRM literature this research report discusses five main propositions of adoption of innovative SHRM practices in Indian organizations. The generalisability, applicability, acceptability, and the diffusion of practices are discussed.

Key words: SHRM, Innovation, India


The authors acknowledges the financial support of Centre de Researche de l'ESSEC (CERESSEC).

What drives the adoption of SHRM in Indian Companies?

Managerial innovation and its critical importance in today's contemporary highly dynamic and complex environment are well documented. The topic of innovation has come into existence as an outcome of progressive developments in management science and practice. Innovation is defined as adoption of an internally generated or purchased device, system, policy, program, process, product, or service that is new to the adopting organization (Damanpour and Evan, 1984). Kimberly (1981) defines managerial innovation as any program, product or technique which represents a significant departure from the state of the art of management at the time it first appears and which affects the nature, location, quality, or quantity of information that is available in the decision-making process while Kogut and Zander (1999) define managerial innovation as a recombination of current capabilities that leads to new knowledge creation. For this article managerial innovation is defined as: "Any intentional introduction of program, policy, practice or system designed to influence or adapt employee attitudes and behaviors that is perceived to be new and creates current capabilities and competencies"

This definition distinguishes managerial innovation from the organizational change process i.e. not all changes involve innovation, since whatever an organization adopts is not perceived to be new. This definition reflects the wide scope of innovative practices, from functional activities to wide ranging strategic initiatives aimed at building the capabilities and competencies that organizations need in hyper-competitive environment. This thesis focuses on innovative human resource strategies in Indian organizations.


Internationalization, liberalization, growing competition and changing environments make managerial innovations inevitable perquisites for growth, success and survival for an organization. Adoption of managerial innovation occur in highly complex social, political and economical environments (Kimberly, 1981). Analysis of managerial innovation in organizations, therefore, requires a better understanding of the environment in which individuals within an organization function.

Post-1991 India started its phased economic restructuring to provide domestic organizations the time and competencies to face greater competition. This was the initial phase of liberalization. The economic restructuring was triggered by a serious balance of payments crisis when foreign exchange reserves touched their all time low to a mere billion dollars. IMF and the World Bank agreed to help India face the crisis with structural adjustment loans. The components of liberalization was a process of macro-economic stabilization (devaluation of the rupee, reducing fiscal deficit, reducing government expenditure, reduction of some subsidies, controlling inflation), phased deregulation and elimination of license regime to bring in competition, opening of economy to foreign and private investment, rationalization of tax structure, healthier functioning of capital markets, increase functioning autonomy of public sector units and implementation of a safety net for those hurt by structural adjustments. Liberalization creates intensive competition through easier entry and greater foreign participation. It opens many opportunities for growth through the removal of artificial barriers on pricing and output decisions, investments, mergers and acquisitions, JVs, technology imports, import of foreign capital etc. It enables corporations to expand diversify, integrate, and globalize more freely. Economic restructuring has profound effect for effective management of organizations especially in the face of superior competition. The extensiveness of the typology of managerial innovation has mainly been confined to the western nations and has not penetrated many developing countries and their organizations. It


is no surprise then that, even lesser research has been conducted in the field of SHRM and its innovative practices in India. There has been very little empirical research to comprehend how firms, both Indian and foreign owned adopt managerial innovation and inculcate strategic Human Resource practices to make organizations more competitive. Even though there has been accumulating evidence of the economic impact of strategic HRM (e.g., Harel &Tzafrir, 1999; Huselid, 1995), cross cultural equivalence has to be ensured in order to meaningfully apply the implications for management practices and the concepts of managerial innovation. This article is an attempt to understand managerial innovation in an emerging country context like that of India. The study identifies and then analyzes what drives managerial innovation, in an emerging country context. The research questions that the article focuses on are: What are the drivers of managerial innovation in an emerging country scenario? What are the innovative strategic Human Resource management (SHRM) practices that are being adopted by Indian organizations in the face of hyper-competition? How universal are those policies and practices i.e. how relevant are they to most sectors and industries in the world wherever there is a competitive market economy or a movement towards it. These questions motivate this research report and it tries to develop propositions of adoption of strategic SHRM practices in Indian organizations.

Adoption of Managerial Innovation
Insights offered by organizational theories reveal that managerial innovation is adopted by organizations mainly to improve organizational performance. Walston et al (2001) argue that managerial innovation promise to enhance efficiency and is particularly attractive to organizations facing intense competition and/or performance deficiencies and can be thought of as either driven by economic efficiency or by non-economic factors. Adoption and diffusion occur as they encompass the generation, development, and implementation of new ideas or behaviors (Damanpour, 1991) and are influenced by the characteristics of individual


people, by the characteristics of the organization itself, and by characteristics of the context in which it operates and out of which it emerged (Kimberly, 1981; Kimberly and Evanisko, 1981).
In terms of the context influencing innovation Orru, Biggart and Hamilton (1991) reported that each society creates a context of fiscal, political, and social institutions that limit and direct the development of "fit organizational forms". They asserted that in East Asia, private businesses operate according to substantively distinct institutional models that contribute to differentially shaping organizational behavior and structure. This conjecture was supported by empirical findings that business organizations in South Korea, Taiwan and Japan "operate according to different institutional principles and exhibit dissimilar organizational and interorganizational structures that manifest those principles". The authors concluded that company structures and interfirm networks are "strikingly uniform or isomorphic within each economy but different from each of the others. The institutional principles that shape organizational forms in these three countries do not hamper organizational efficiency, but rather provide a basis for market order and for competitive relations (Orru, Biggart and Hamilton, 1991: 363). Management researchers like DiMaggio and Powell, (1983, 1991), Scott (1995) have emphasized that organizations tend to adopt an innovation due to institutional factors such as normative and regulatory pressures, highlighting the effects of pressures for conformity against economic efficiency. Barringer and Milkovich (1998) enriched the institutional model by including comprehensive organizational theories such as resource dependence (Peffer & Salancik, 1978; Oliver, 1991), agency theory (Jensen & Meckling, 1976; Eisenhardt, 1989) and transactional cost models (Williamson, 1981). The key implication of their work derives a theory explaining why and how managerial innovation, and its adoption thereafter, is legitimized by managers. In one of his review of institutional theory, Kimberly (1995) tends


to differ in this context and suggests that managerial innovations were adopted by organizations and now are being adopted by individual people. The capacity of individual people to adopt managerial innovation is determined by human resource management practices (Gooderham et al, 1999;

Wolfe, 1995; Kossek, 1987).

Strategic HRM like other organizational functions has been called upon to contribute to new organizational demands and requirements vis-a-vis organizational performance. Researchers (Ulrich, 1999) have increasingly studied how HRM can be used to plan the activities strategically and how to effectively manage HRM. Research has tended to suggest that not only do innovative SHRM practices result in tangible organizational results (Huselid, 1995; Inchinowski, Kochan, Levine & Olson, 1996) but assist organizations in developing innovative solutions as the need arises (Schuler & Jackson, 1987). A wide array of SHRM policies can be construed as an innovation. Wolfe (1995) interviewed and surveyed a sample of 60 US HR professionals, over 40 different innovations were named. Participants were asked to name an HR innovation and then to identify an innovation they had actually implemented or helped implement. Examples given include human resource information systems; 360 degree appraisals; internet recruiting; on-line access to employee information; strategic HRM; telecommuting; Six Sigma; People Soft; realistic job previews; outsourcing; and competency based compensation.

Gooderham et al (1999) reported in their study of adoption of innovation in six European countries, that different types of human resource management practices may be determined to a considerable extent by the imperative of maintaining external legitimacy through adherence to institutional structures, rules, and norms at the national level-and may vary as a result of dissimilar national contexts. Geary and Roche (2001) in their study of Irish SHRM practices argued that foreign owned firms are distinctive in their practices in comparison with indigenous firms. The compliance with local laws and regulations lead to differentiated and


innovative practices. In other instances, foreign firms may seek to resemble local firms to compete more effectively in the local market to “fit in” by imitating local practices. Adoption of managerial innovation is affected by the characteristics of the context or the environment in which individuals and organisations operate. The task environment in which the carriers of innovation, namely the employees, function as a network directly influences an organization’s choice of strategic HRM policies, thus affecting the concept of innovation. Munene's (1995) study of managerial innovations in Africa revealed that there are external and internal characteristics in an organization which extend or limit its ability to first adopt and then diffuse managerial innovation. The intensification of poverty in such developing countries, as Nigeria and Uganda, is both a cause and an effect of organization misbehavior, and the environment in which their employees should exhibit their capacity to innovate, poses severe challenges due to the economic conditions. Poverty, debt, and governmental regulations dictate the speed of implementation, and show a negative relationship with an innovative process adoption by the management.

On the other hand, presence of factors within the company such as accountability, aspirations of educated elite as individuals in the organization tend to accentuate the implementation process. Awamleh (1994) in a similar study in Jordan reported that there is negative relationship between managerial innovation and age, organizational level, and length of service while a positive relationship exists between managerial innovation and education. His study reported that the most significant obstacles to innovation are those related to organizational climate rather than those to societal environment or managers themselves. Hence, these findings support the notion that in different countries, dissimilar organizational forms and practices may prove equally efficient, due to varying cognitive criteria, legislation and normative structures.


Both innovation and strategic SHRM literature individually have identified the linkage of adoption process and institutional environment, however, detailed discussion regarding the linkage of SHRM adoption practices and the peculiar institutional variables has not been addressed adequately for emerging economies. Gooderham et al (1999) in their findings highlight the need to incorporate country-specific, institutional factors in studies of patterns of organizational practices in general and HRM practices in particular. Their analysis indicates that the national institutional embeddedness of firms plays a far more important role in shaping HRM practices than their industrial embeddedness. In this context, we believe that a study of the adoption of SHRM by Indian companies will add to the nascent body of knowledge about managerial innovation in emerging economies. Strategic Human Resource Management Adoption in Indian Organizations India, after decades of protectionism, has experienced a revolutionary change. The liberalization ...

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