Top Managers and Transformational Leadership as HPWS. Agents in Mondragon Humanity at Work

Transcription

1 Top Managers and Transformational Leadership as HPWS Agents in Mondragon Humanity at Work A thesis on HPWS perceptions from employees and the moderating role of transformational leadership Master Thesis for MsC Human Resource Studies Author: Nayelli Cruz Freyre ANR Supervisor: Brigitte Kroon Second reader: Renée de Reuver Theme: HPWS perceptions and transformational leadership perceptions Period: January 2013 June 2013

2 Acknowledgements I would like to thank to my supervisor, Professor Brigitte Kroon, who trust me to work in this project and gave me the opportunity to know the amazing environment of Mondragon Cooperative. In addition, I would like to thank to Tilburg University to support my master with the scholarship, especially to Ruth Davis and Rafaela Frijns for all their support during the process. It was an honor for me to have had an extraordinary colleague and friend to share this project. Valerie Jurrij, thank so much for your support on the writing process of my thesis and be the best friend to share the Mondragon Experience and the Basque Country. Eskerrik asko, oso ondo. In addition, this thesis would not have been possible unless my international family in Tilburg. Gabi Dodoiu and Lara van Schaik, which without your advice, company and support every day, the whole year of the master will not be as an amazing it was. Mafer Gallardo and Cynthia Díaz, thank you so much for the laughs, support and listening time, which have been the best complement for this master experience. Mariana Diaz thanks so much for you words in the distance. Jose Enriquez thanks for your friendship in the distance. I also thank Marco Vivero. He has made available his support in a number of ways. His true friendships, support, feedback, his wisdom words, all the time, were immeasurable. I owe my deepest gratitude to my whole family. Especially to my parents and brother, who made this dream come true. Thanks for your support, your love, your words and trust which allowed me to achieve this big goal of my personal and professional life. 2 P a g e

3 Abstract High Performance Work Systems (HPWS) are aimed at enhancing employee performance through a combination of HRM practices that eventually will positively impact organizational performance. This study examined elements that are likely to increase employees perceptions of HPWS as suggested by the HRM system strength theory (Bowen & Ostroff, 2004). This study looked at the relationship between the top management support of HPWS and the shared average perceptions from employees on HPWS. Furthermore, this research investigated whether this relationship was moderated by the transformational leadership exerted from immediate managers from the network within Mondragon Humanity at Work. The sample was aggregated at the company level, which consisted of 44 companies with 7373 employees and 68 managers. Results found a significant positive effect of shared average perceptions of transformational leadership exerted by immediate managers on the employees shared average perceptions on HPWS. No statistically significant relationship between higher top managers support of HPWS related to higher employees shared average perceptions of these systems. Besides, the interaction between perceived transformational leadership exerted from immediate managers and top managers support of HPWS was not significant either. Nevertheless, for small and medium companies, a significant positive effect on the employees shared average perception on HPWS was found. Further research is needed because the accompaniment of top management support and leadership style seems to be crucial for implementation of HPWS. Keywords: HPWS, HRM, Mondragon, top management, transformational leadership, aggregated level, employees perceptions 3 P a g e

4 Top Managers and Transformational Leadership as HPWS Agents in Mondragon Humanity at Work Human resource management (HRM) literature has been gaining attention because it constantly seeks to contribute with relevant evidence to increase organizational performance. Within research on HRM, High Performance Work Systems (HPWS), also referred to as best practice HRM, has gained attention in particular. HPWS are aimed at enhancing employee performance through a combination of HRM practices that eventually will positively impact organizational performance (Boxal & Macky, 2007, 2009). In order for HPWS to be effective, employees are supposed to experience the presence of these practices in strong manner. This paper builds on HRM system strength theory (Bowen & Ostroff, 2004) to determine which elements are likely to increase employees perceptions of HPWS. The theory of HRM system strengths predicts that if the system (e.g., HPWS) is perceived as being high in consistency, distinctiveness and consensus, employees are more likely to perceive the existence of the system in a strong manner (Bowen & Ostroff, 2004). Managers play a crucial role in sending consistent messages to employees (Harney & Jordan, 2008). Hence, core actors involved in the process of creating consistency of HPWS are managers. Two elements that relate to the success of managers in creating a strong message of HPWS are their understandings of HPWS, and their leadership style (e.g., transformational leadership) (Kroon, Voorde, & Timmers, 2012; Biswas, 2009). The first element that contributes to the understanding of how the message of HPWS is communicated to employees is the top management support about the value of the HPWS. If top management trusts HPWS, it is more likely that their behaviors with regard to HPWS will be supportive to the implementation and realization of these practices (Kroon et al., 2012). Moreover, top managers involvement in HPWS may contribute to the effectiveness of the system (Biron, Farndale & Paauwe, 2011). These behaviors will eventually influence the perception of HPWS of employees. 4 P a g e

5 Next to that, it can be argued that the managers leadership style needs to be aligned with HPWS (Bowen & Ostroff, 2004). The purpose of this leadership style is to influence and give direction to employees' attitudes and their behaviors within the organization (Purcell & Hutchinson, 2007). Within leadership literature, transformational leadership is aimed at influencing employees attitudes to transcend their own desires for a higher contribution to the organizations (Bass, 1985). Here, it can be argued that transformational leadership is the style that matches best with the content of a HPWS system due to the alignment on boosting employee performance. Following HRM systems strength theory (Bowen & Ostroff, 2004), aligning leadership style with the type of HRM system is important for creating a strong situation. In a strong situation, a consistent message about HRM system content needs to be sent to employees. This consistence is created by the process which the message of HRM content is sent. In such situations, employees within a company perceive high levels of the system. Therefore, a strong situation created by HPWS eventually will increase organizational performance. Hence, the degree to which employees within a company perceive HPWS practices is to some extent influenced by their managers leadership style in combination with their managers trust in HPWS (Purcell & Hutchinson, 2007). Therefore, exploring this argument, this paper seeks to contribute with scientific and practical relevance and importance for understanding the way in which perceptions of employees between a network of companies on HPWS may increase. Considering the scientific relevance, it is expressed in the literature that there is a need for research on the relationship between the mediating variables of HPWS and organizational outcomes of high perceptions on HPWS (Orlitzky & Frenkel, 2005). Therefore, this paper will look at the relationship between top managers support of HPWS and employees shared average perceptions on HPWS (shared at an organizational level). Literature on moderation effects in HPWS and organizational outcomes has looked into the moderation effect of different operational aspects like technology (Kintana, Alonso & Olaverri, 2006) and the moderation effect of contextual features like organizational size, industry or organizational policies (Bowen & Ostroff, 2004; Liu, 2011). However, the effects of behavioral aspects like management leadership style, also at an organizational level, which 5 P a g e

6 influence HPWS, offers an opportunity to find new evidence about moderating effects that may impact the relationship between HPWS and the shared average perceptions of employees about these HPWS. At the same time, the purpose of this study is to make a contribution to HPWS literature from a different perspective using data from Mondragon Humanity at Work (i.e. MHW) and their network of industrial companies. These companies offer the possibility to learn from their perceived competitive advantage in management practices (Abando, Gallartegi, & Rodriguez, 2007; Markaida, 2011; Pérez, 2011) in comparison to other non cooperative companies (Arando, Gago, Kato, Jones & Freundlich, 2010). Furthermore, this paper contributes by offering academic evidence to HR practitioners about the importance of the perceptions of top management on HRM practices and leadership style in relation to employee performance. Thus, this leads to the following research question: To what extent, do transformational leadership and top managers support of HPWS lead to shared average perceptions of HPWS by employees between a network of industrial companies? The paper will be built by using the following structure. First, a brief introduction of MHW is given. Next, the main components of the conceptual model which are support and perceptions of HPWS and transformational leadership are introduced to provide an understanding of the aim of this paper. Arguments are based on HRM studies, HPWS theory and transformational leadership studies. After, the paper elaborates on the methodological background for the study, followed by the results. Finally, the conclusion, limitations and directions for future research are discussed. The literature used as evidence to support this paper is given at the end of this paper. 6 P a g e

7 Theoretical framework Mondragon Humanity at Work in Context Today, MHW inside the Basque Country, in Spain and in the international context of cooperatives organizations is seen as a reference of economic success and achievement of competitive advantage through their 170 companies that include consumer goods, capital goods, industrial components, construction, and enterprise services. Additionally, Mondragon has a knowledge division that includes fourteen technological centers, a university, two professional training centers, and a management training center which in addition to providing the training demanded for the rest of cooperatives of the region, is also a center of innovation for the company and other corporate executives (Markaida, 2011; Kasmir, 1999). Hence, MHW provides an interesting context for this study because of different factors. Firstly, MHW occupies a leading place within the group of industrial cooperatives in the Basque Country which have a high marked industrial profile differing from the rest of Spanish companies. Besides, this profile is marked in the international cooperative organizations context (Abando et al., 2007; Whyte, 1995) which makes MHW a good model to get insights in the industrial sector and cooperative organization model. Secondly, one of the factors that the literature brings to evidence which explains Mondragon s competitive advantage is the existence of higher quality managers within MHW (Markaida, 2011). These managers provide a unique source of competitive advantage that is difficult to replicate as the resource based view theory explains (Wright et al., as cited in Bowen & Ostrof, 2004), in comparison with other cooperatives. Finally, research effectuated in the cooperative environment in the Basque Country has found that the level of management quality is higher in cooperatives than exhibited in the non cooperative sector (Arando et al., 2010). The level of quality is related with HRM systems which are based on best practices and which support and develop management quality (Abando et al., 2007; Lertxundi, 2011). Despite this fact, the concept of the management quality within the Basque Country has not been subject of much empirical research (Abando et al., 2007; Markaida, 2011). In view of all the facts and features presented before, exploring the variables of the HPWS in the MHW context can offer 7 P a g e

8 valuable evidence to contribute to HPWS research, an assertion reproduced in the literature about cooperative organizations as well (e.g. Markaida, 2011; Kasmir, 1999; Abando et al., 2007; Lertxundi, 2011; Whyte, 1995). High Performance Work Systems (HPWS) and the role of top management HPWS have been defined as a cluster of managerial practices that encourages employee autonomy, motivates them through empowerment, and improves their skills and incentives (Boxall and Macky, 2007). The research in HPWS has been growing since it has been proven that this system may lead to high organizational outcomes (Boxall and Macky, 2007, 2009). The combination of these practices will also generate a full competitive advantage for the organization due to its operational process that creates value through employees' performance. The operational process refers to how these practices complement each other and are aligned effectively to achieve a common goal, in this case, high employees performance. The operational process linked with the combination of best practices is difficult to imitate for other organizations as the resource based view theory mentioned (Becker and Gerhart, 1996). Employees performance is harder to imitate compared to other sources like technology or geographical distribution places. In the research field of HRM, few studies provided information on how to develop mechanisms to increase employee performance and at the end affect organizational performance (Liao, Lepak & Hong, 2009; Takeuchi, Chen, & Lepak, 2009). In order to understand this relationship between the employees and the organizational outcomes, research has to be done to understand the role of mediating management and employee variables (Boxall and Macky, 2007). These studies may help to understand the mechanisms which are related to high organizational outcomes. Several studies suggested that the way HPWS are implemented will support the intentions managers have with regard to the achievement of organizational outcomes (e.g. Cunningham & Hyman, 1999; Gilbert, De Winne, & Sels, 2011; Hall & Torrington, 1998; Thornill & Sauders, 1998). Meanwhile, the relationship between employees performance and HPWS is related to how this system is truly experienced by employees. In order to reach a positive experience, the HRM system strength theory argues that these systems (e.g. HPWS) have to be communicated in a consistent manner regarding their 8 P a g e

9 content and the process by which they are implemented (Bowen & Ostroff, 2004). According to Becker & Huselid, (2006), HRM systems are most often implemented by line and top managers. Therefore, today managers are assumed to get involved in the implementation of the HRM system (Gilbert et al., 2011). This role of managers refers to the delivery of specific and precise HR practices that encourage and support employee productivity within their organizations. As mentioned before, while these practices directly impact employees, it depends on how managers enact and support them. Furthermore, the extent to which managers are able to influence the perceptions of employees on the HRM practices may increase the chances to higher shared perceptions of employees to HPWS (Harney & Jordan, 2008). In order to be able to communicate HPWS, managers must understand and support these types of practices (Kroon et al., 2012). Previous research has found that managers who have stronger believes in the value of HPWS, and who have more knowledge about effective HRM practices, had their employees report higher levels of HPWS (Kroon et al., 2012). Furthermore, top managers, may contribute to the effectiveness of employees performance through encouraging a strong alignment between HPWS and organizational goals (Biron et al., 2011). Thus, based on these arguments, this paper seeks to focus on the relation between top managers support of HPWS and HPWS perceptions of employees within a company with the next hypothesis: Hypothesis 1: Higher top manager s support of HPWS is related to higher shared average perceptions on HPWS of employees within a company The transformational leadership role of managers in HPWS Research in organizational leadership along with management theories, argues that leadership is a behavior expected from managers (Mintzberg, 1971; Howell & Avolio, 1993). Meanwhile, research in organizational behavior bears a high recognition on acceptance of the role of managers in delivering HRM practices (e.g. Cunningham & Hyman, 1999; Becker & Huselid, 2006; Gilbert et al., 2011; Hall & Torrington, 1998; Purcell and Hutchinson, 2007; Thornill & Sauders, 1998). These characteristics of managers, leadership and HRM delivery, are related to how managers influence employees perceptions 9 P a g e

10 of HPWS. The higher employees perceptions of HPWS, the higher organizational outcomes may be expected according to HPWS theory (Harney & Jordan, 2008; Jung & Sosik, 2002; Boxall & Macky, 2007). With regard to the leadership behavior of managers, evidence shows that the most accurate type of leadership that is related to high organizational outcomes is transformational leadership (Biswas, 2009; Howell & Avolio, 1993; Yang et al., 2010). The theory of Bass (1985) of transformational leadership explained that this style of leadership is aimed at influencing employees attitudes to transcend their own desires for a higher contribution to the organizations. Transformational leadership is focused to boost employees behaviors, and thus, this leadership style is aligned with the features of HPWS which looks at increasing the empowerment and skills of employees to affect organizational outcomes. Podsakoff, MacKenzie and Bommer (1996) conceptualized six behaviors to explain the process of how leaders influence employees through this leadership style: 1) articulating a vision of the future, 2) performing an appropriate role model based on the organizational value's conception, 3) stimulating the acceptance of a team goal, 4) communicating expectations about high performance, 5) considering individual needs and 6) possessing intellectual incitement. Therefore, transformational leadership contributes to organizational performance through its support to HPWS and therefore influences the behaviors of employees and their perceptions of these HPWS. In this relationship managers take on the role to deliver HRM practices to employees. Furthermore, employees perceptions on these practices will have an impact on organizational outcomes (Biswas, 2009; Boxall & Macky, 2007). Thus, this paper seeks to focus on perceived transformational leadership of immediate managers through the employees perception of HPWS with the next hypothesis: Hypothesis 2a. A strong situation of perceived transformational leadership exerted by immediate managers is positively related with shared average perceptions of HPWS of employees within a company 10 P a g e

11 Moderation in HPWS through perceived transformational leadership of immediate managers The relationship between HRM systems and organizational outcomes can be explained by the integration of content and process of HRM (Bowen & Ostroff, 2004). In relation to this HRM integration, Bowen and Ostroff (2004) argued that HRM systems should create strong situations. In these strong situations, the effective comprehension of HRM content leads to positive organizational outcomes. In order to create strong situations, Bowen and Ostroff, (2004) have proposed that the HRM systems should be perceived as having high levels of distinctiveness, consistency, and consensus. An important characteristic of HRM systems that can promote distinctiveness is the legitimacy of authority. The purpose of legitimate authority is to increase the chances that communicators of HRM systems, like top managers, send consistent messages to involve employees in the organizational outcomes. To generate this involvement, employees should interpret these messages without exceptions (Bowen & Ostroff, 2004). Concerning this purpose, transformational leadership could be seen as an aspect of legitimate authority due to one of its features which seeks for leaders to communicate performance expectations clearly (Podsakoff et al., 1996). Transformational leadership is aimed at employees in order to build and enhance their behaviors in a way that favors organizational performance. According to Biswas (2009), the idea that HPWS are effective and contribute to organizational performance, is linked with the perception of the managerial leadership style. Therefore, transformational leadership is used to influence the perceptions of employees on the delivered HRM practices and eventually positively influences organizational outcomes. Thus, this interaction between transformational leadership and HRM system strength gives space for research as Bowen and Ostroff (2004) illustrated. They mentioned that it is important to look at factors that can influence the impact of the HRM systems strength and organizational outcomes. In this case, one of the factors they mentioned is leadership style, which is likely to interact with HRM characteristics. For instance, top managers and line managers have been described as principal HRM system delivery agents (Becker & Huselid, 2006). As they are seen as legitimate leaders, managers have the opportunity to introduce a common interpretation of the system among the organizations they lead. Hence, a strong 11 P a g e

12 HRM system accompanied with a strong situation of shared perceived transformational leadership from employees within a company may promote a stronger relationship between the shared perceived HPWS and organizational outcomes than each of these would individually do. In view of this example and the theory explained, the next hypothesis is proposed: Hypothesis 2b: The level of shared average perceived managers transformational leadership moderates the relationship between top managers support of HPWS and employees shared average perceptions of HPWS. The interaction of higher perceived leadership with higher top managers support of HPWS will relate to a higher employee s shared perception on HPWS. Conceptual model Taken together, this proposal examines the top managers support of HPWS and employee s shared average perceptions of HPWS and the moderation of shared average perceived transformational leadership in this relationship. Figure one shows the conceptual model underlying this research. Shared average perceived transformational Leadership of Immediate Managers Top Managers support of HPWS + Employees shared average perceptions of HPWS Figure 1. Conceptual model of top managers support and employees shared average perceptions of HPWS, and how shared average perceived transformational leadership moderates this relationship. 12 P a g e

13 Method Research Design The present research was a cross sectional study that was tested with quantitative research techniques in which participants answered a survey on site, in classroom type environment at MHW. The data was collected by inviting organizations to participate and they were able to accept or decline. Second, all the employees from an organization that accepted the invitation were included in the sample. Participants of the present survey were managers and employees located in the industry sector of MHW. The survey was answered anonymous and took in average twenty-five minutes to be answered. Population and sample The database was an industry sample where the different subgroups were identified in 45 autonomous companies ( empresas ). This industry sample consisted of 7901 employees, and 113 managers which were identified within each company. The distribution of the size of the companies is as follows: 20% of the organizations are small size, 39% medium size and, 41% are large companies 1. In small companies, the minimum number of employees who responded was 15 and the maximum was 46; about managers, the minimum number who responded was 1 and the maximum was 2. In medium companies, the minimum number of employees who responded was 42 and the maximum was 182; about managers, the minimum number who responded was 1 and the maximum was 6. Finally, in large companies, the minimum number of employees who responded was 53 and the maximum was 576; about managers, the minimum number who responded was 1 and the maximum was 10. With regard to employees type of contract, 82% employees from the total provided information. The distribution of the 1 According to the EU SME user guide, organizations are categorized as small when they have fewer than 50 employees and their annual turnover is less than 10 million, medium when they have above 50 and less than 250 employees and their annual turnover is less than 43 million. The companies that have a higher number of employees and higher annual turnover as described above are considered as large companies. 13 P a g e

14 type of contract 2 of employees is as follows: 73% are co-owners, 16% employees have an eventual type of contract and 11% have permanent contract 3. Finally, survey data from 68 managers (SD 0.88) and 7373 employees (SD 1.10) in the 45 companies provided the information needed to test the hypothesis proposed. Procedure The surveys were collected by consultants of Otalora which is the Organizational and Cooperative Development Centre for MHW. The process in which the survey was applied was as follows: all employees were invited to answer the survey; every participant that arrived to the classroom in which the survey was applied, was allowed to answer it, but, probably not all participants arrived to the site; in some organizations, all employees answered the questionnaire due to some pressure received to complete the survey. Finally, surveys were entered in a database by an external company, hardcopies are stored for three months, and the original data file and syntaxes are kept safely by the external company and MHW. The interest from the organizations in participating in the study arises from the fact that they will be able to get benchmark data about their employees. Measures The survey for managers and employees included the same items, but with a different reference point. The survey was called Organizational Culture Survey, where the next constructs were obtained to analyze the model proposed at the organizational level: managers support of HPWS, employees perceptions of HPWS and transformational leadership. The whole survey also included questions about: employee outcomes, perceived organizational culture, and team level climate. All scales were previous tested with a pilot sample for reliability obtaining a satisfactory alpha (α > 0.5). Perceived and Supported HPWS. Supported and Perceived HPWS were measured with four dimensions with three items each, based on Morgeson and Humprey (2006) studies and on self-developed measures from HPWS research of Appelbaum et al. (2000), Becker & Huselid (1998), Arthur (1994), 2 Information about managers type of contract was not available in the database. 3 Employees and managers demographic information about gender, tenure, age, and education level was not included in order to maintain the confidentiality of their answers. 14 P a g e

15 Gardner et al. (2000), and Delery & Doty (1996). The four dimensions consisted of training, participation in strategic decision making, autonomy for work methods and, information sharing. Questions were given on a 6-point Likert-scale ranging from 1- strongly disagree to 6-strongly agree. Perceived HPWS. Factor analysis using Kaiser s criterium (eigenvalue > 1) indicated the predicted four-dimensional structure in the sample for perceived HPWS. The complete list of items can be found in the appendix (see appendix A). One item on the scale of information sharing was deleted, because 66% of responses were missing (see appendix B). The four dimensions yielded a reliability of α = 0.92 (training), α = 0.87 (participation), α = 0.92 (autonomy) and α = (information). Perceived HPWS as an overall construct (items of training, participation, information and autonomy) was subjected to factor analysis. The analysis revealed that all items loaded on one main component above.30.the explained variance of the scale for employees shared average perception was 56%. The analysis showed 2 Eigenvalues. Even though, there are 2 Eigenvalues higher than 1, the first eigenvalue indicates that the variables are well summarized by one factor. Besides, inspection of the scree plot affirmed a clear break after the first component (see appendix C). The reliability of the scale was 0.92(Cronbach s Alpha) (see appendix A). The high loadings and high reliability support the idea that all the variables were measuring one construct for further investigation (employees perceptions on HPWS). Example items of employees perceptions of HPWS are: 1) Training, I feel that the company provides me enough training to perform my job ; 2) Participation, I participate in the definition, control and monitoring of the business plan on an annual basis ; 3) Autonomy, The job allows me to make a lot of decisions on my own ; 4) Information, I have enough information to do my job properly. Supported HPWS. As well, factor analysis using Kaiser s criterium (eigenvalue > 1) indicated the predicted four-dimensional structure in the sample for supported HPWS. The complete list of items can be found in the appendix (see appendix D). The four dimensions yielded a reliability of α = 0.88 (training), α = 0.90 (participation), α = 0.93 (autonomy) and α = 0.87 (information). Support of HPWS as an overall construct (items of training, participation, information and autonomy) was subjected to factor analysis. The analysis revealed that all items loaded on one main component above.30. The explained 15 P a g e

16 variance of top managers support of HPWS was 53%. The reliability of the scale was 0.91 (Cronbach s Alpha) (see appendix D). As well, the high loadings and high reliability support the idea that all the variables were measuring one construct for further investigation (top managers support of HPWS). Top managers support on HPWS examples are: 1) Training, for all the teams, the organization provides enough training to the workers in order to be able to perform well in their jobs ; 2) Participation, in the different teams, we offer the workers the opportunity to participate in the definition, control and monitoring of the business plan on an annual basis in systematically manner ; 3) Autonomy, in the different teams, we have designed the job positions in order to make workers able to make decisions by themself ; 4) Information, we ensure that in a systematically and strict way within the different teams, the workers have enough information to perform their job properly. ICC values for supported and perceived HPWS. Because the employees and top managers were organized within each company, it was very likely that the perceptions of employees and managers within a company showed similarities. It could be said that the employees and managers were nested in these companies and therefore, their responses were also nested. This generated the idea that the variances in the variables, employees perceptions on HPWS and top managers support of HPWS, were not solely due to differences between individuals, but also based on differences between the companies in which the individuals were nested. In this case, linear regression at the individual level was not used. To actually test this idea, an intraclass (ICC) correlation was conducted. This method allowed an evaluation of the explained variance in perceptions by being part of a specific company. If the value of ICC is 0, then not being an employee or top manager of a company does not influence ones perceptions (Bliese, 2000). The ICC values for the construct of employees perceptions on HPWS had a significant impact: 12% (WaldZ=4.12, p<0.01) of the variance in perceived HPWS is due to the clustering in empresas (see Table 1). The ICC values for the construct top managers support of HPWS had as well a significant impact: 18% (WaldZ=1.24, p= 0.21) of the variance in supported HPWS is due to the clustering in empresas (see Table 1). These findings justified the endeavor to analyze data at the organizational level 16 P a g e

17 (aggregate data) and describe results about employees shared average perceptions of HPWS and not individual perception. Table 1 ICC for Perceived and Supported HPWS Employees shared average perceptions on HPWS Top managers' support of HPWS Residual Intercept variance Wald Z Sig. (empresa) 1,098 0,150 4, ,645 0,141 1,248 0,212 Note: the intraclass correlation is obtained by dividing the intercept variance between the sum of the values of the residual and the intercept variance Perceived Transformational Leadership. Perceived transformational leadership was measured with twelve items based on Rafferty & Griffin (2004) transformational leadership theory and Cooke and Lafferty (1987) organizational inventory. Employees responded about the perceived transformational leadership of their immediate manager. The items covered the content of the perceived transformational leadership with the next four dimensions: vision, inspirational communications, goal emphasis and supportive leadership. Questions were given on a 6-point Likert scale ranging from 1-strongly disagree to 6 strongly agree. Vision example item is My supervisor has a clear understanding where we are going. Inspirational communications example item is My supervisor says things that make us proud to be part of this organization. Goal emphasis example is My supervisor maintains a high level of performance. Supportive leadership example item is My supervisor pays attention to my opinions. The complete list of items can be found in the appendix (see appendix E). A factor analysis using Kaiser s criterium (eigenvalue > 1) indicated the predicted four-dimensional structure in the sample for employees perceptions on transformational leadership. The four dimensions yielded a reliability of α = 0.85 (vision), α = 0.85 (inspirational communications), α = 0.86 (goal emphasis) and α = 0.92 (supportive leadership) (see appendix E). 17 P a g e

18 Perceived transformational leadership as an overall construct (items of vision, inspirational communications, goal emphasis and supportive leadership) were subjected to factor analysis. The analysis revealed that all items loaded on one main component above.30. The explained variance of the scale for employees shared average perception of transformational leadership was 67%. The reliability of the scale was 0.95(Cronbach s Alpha). The high loadings and high reliability support the idea that all the variables were measuring one construct for further investigation (employees perceptions on transformational leadership). (See appendix E) The perceptions on the managerial leadership were also possibly influenced within a company. Therefore, the same procedure was conducted in order to obtain aggregated data. First ICC was performed to test if the managerial leadership perceptions were nested within companies. The ICC values for the construct of employees perceptions of transformational leadership had a significant impact: 14% (WaldZ=4.22, p<0.01) of the variance in perceived transformational leadership can be explained by the grouping variable empresas (See table 2). These findings justified to analyze data at the company level (aggregate data) and describe results about employees shared average perceptions of transformational leadership. Table 2 ICC for Perceived Transformational Leadership Perceived transformational leadership Residual Intercept variance (empresa) Wald Z Sig. 1,244 0, , Note: the intraclass correlation is obtained by dividing the intercept variance between the sum of the values of the residual and the intercept variance Control variables. Because the research question considers the employees within a company as the unit of analysis, type of companies size was included as control variable in order to control for spuriousness between model variables. 18 P a g e

19 Statistical procedure All data collected was analyzed using SPSS software, and the hypotheses were tested at a level of significance of α The variable of interest (dependent variable) was the employees shared average perception about HPWS in MHW. The independent variables in this study were the top managers support of HPWS and employees transformational leadership shared average perceptions of their immediate managers. The latter variable played the role of moderating the relationship between managers support of HPWS and employees shared average HPWS perceptions. The model also included the control variable mentioned above. As suggested previously, the fact that employees work in teams created a certain configuration of perceptions, which are dependent on belonging to a certain company and not so much on individual differences. In this case the linear regression at the individual level was not used because the assumption of independence of measurement does not hold. Therefore, to find the relations hypothesized by the model, it used the employees shared average perceptions within a company as the unit of analysis. Linear regression was conducted, with the dependent variable (HPWS shared average perceptions of employees) and the independent variables (shared average perceived managerial leadership and supported HPWS from top managers) as variables measured at the company level (aggregated level). SPSS software was used to conduct ICC and the regression analyses. Testing the interaction was conducted with centered values of the independent variables in order to correct for individual differences in scale use and followed the same procedure with a linear regression. The only difference was the way the interpretation was stated. A new variable was computed as the product of the centered variable top managers supported of HPWS (sum score) and the centered variable shared average perceived leadership (average sum score). The expectation about the impact of the moderator was as follows: with higher supported HPWS from managers, the higher the employees shared average perceptions about HPWS when shared average perceived leadership is high, but a lower 19 P a g e

20 level of employees shared average perceptions about HPWS when the shared perceived leadership is decreasing. Results This section consists of two main parts. First, descriptive statistics and correlations for the different constructs are provided where means, standard deviations and correlations of variables are presented. Next, results of the regression analyses to test the hypotheses and general model are explained. Descriptive statistics and correlations Table 3 provides descriptive statistics of the data that was used to obtain the aggregated values. At the individual level, the mean of the HPWS perceptions from employees is 3.45(SD = 1.1) while the HPWS support of managers are at a higher level, with a mean of 4.26 (SD = 0.88). Perceived transformational leadership has a mean of 3.80 (SD = 1.18), which indicates that on average the perceptions are most likely positive. When aggregating this information, 45 cases were obtained which corresponded to the companies (empresas) to which the employees and managers belong. One case needed to be eliminated because in company 38 there was no information for the employees available (only managers had filled in the questionnaire). The data for the 44 cases was aggregated from 113 managers and 7901 employees. The mean and standard deviation of employee s shared average perceptions on HPWS and manager s shared average support of HPWS is shown in table 3 as well as the shared average perceived transformational leadership of employees. Before testing the hypothesis, the correlations between the main three variables (at the aggregate level) were computed (table 3). There was only one correlation significant, which was the one between shared average transformational leadership perceptions and shared average perceptions on HPWS from employees (r=0.780, p<0.001). The other variables did not correlate significantly. (See Appendix G for the table of complete correlations). 20 P a g e

21 Table 3 Descriptive Means, Standard Deviations and Pearson Correlations Total o f cases Mean Std. Deviation Employee s HPWS perceptions ,450 1,100 Manager s HPWS support 68 4,260 0,880 Employee s Transformational Leadership Perceptions ,800 1,180 Aggregated level 1.Employee s shared average perceptions on HPWS 44 3,589 0,424-2.Managers' shared average supported of HPWS 28 4,337 0,652 0,630-3.Employees' shared average perceptions of Transformational Leadership 44 3,796 0,480 0,000** 0,870-4.Small Companies 9 0,205 0,408 0,055 0,615 0,149-5.Medium companies 17 0,386 0,493 0,258 0,571 0,653 0,007 - Note: Correlations were tested only for aggregated data as shown by ICC results. The correlations were also tested with centered values. ** Correlation is significant at the 0.01 level (2-tailed)

22 Testing the hypotheses In order to test the three hypotheses, linear regression method was used. First, the expectation of hypothesis one, that higher manager s support of HPWS positively influence the shared average HPWS perceptions of employees is tested by using a multiple regression with size of the company included as a control variable (coded as two dummies, 1=small, 2=medium, with the large companies as the reference category, see table 3 for descriptive statistics). Hypothesis one was not supported, exhibiting that higher top manager s shared support of HPWS in a company is not related to higher employees shared average perceptions on HPWS (β=0.138, p=0.259; see Table 4, model 1). However, it could be state that perceptions in small and medium companies are significantly higher (more positive) than in the big ones (small companies, β=.616, p=0.008; medium companies, β=.394, p=0.033; see Table 4, model 1). In other words, the shared average perceptions from employees in a big company are lower than the shared average perceptions in a small company and smaller than in a medium company. There was no interaction between the control variables and the main independent variable. The variance in the shared perceptions of employees explained by this model is 28 %. The second model tested the hypothesis 2a which stated that high shared average transformational leadership perceptions exerted from managers are related to higher employee s shared average HPWS perceptions. Another multiple regression was applied, again having the size of the company as the control variable. This model was able to explain 71% of the variance in the dependent variable. Even when controlling for the size of the company, the increase in shared leadership perceptions is suggesting higher HPWS shared average perceptions (β=0.652, p<.01; see Table 4, model 2). Furthermore, it could be state that perceptions in small and medium companies are significantly higher (more positive) than in the big ones (small companies, β=0.267, p=.009; medium companies, β=0.281, p=.001 see Table 6, model 2). In other words, employees shared average perceptions of transformational leadership in a big company are lower than the shared average perceptions in a small company and smaller than in a medium company.

23 Finally, the full model (hypothesis 2b) included the independent variables manager s support of HPWS perceptions, shared average transformational leadership perceptions from employees and the two dummy variables. Using a hierarchical regression, the interaction between the two main predictors (manager s support of HPWS and employee s leadership perceptions) was also tested, using the interaction term in the second stage of the regression. In the first stage (no interaction, see Table 4, model 3) the variables included in the model explain 79% of the variation in the employee s shared average perceptions of HPWS. Controlling for the leadership perceptions, the manager s support of HPWS is marginally significant (β=0.135, p=.052) suggesting that with higher manager s support of HPWS, there are higher employee s shared average perceptions on HPWS. When including the interaction term in the second stage, there was no improvement in the explained variance (R² Change = 0.003, p=0.589; see Table 4, model 4). It can be concluded that there is no interaction between the manager s support of HPWS and perceptions of transformational leadership from immediate managers in employee s HPWS shared average perceptions. 23 P a g e

24 Table 4 Regression Analysis - Dependent Variable: Employee's Shared Average Perceptions of HPWS Model 1 Model 2 Model 3 Model 4 β β β β Manager's support of HPWS 0,138 0,135* 0,125 Employee's shared average perceptions of 0,652**,645** 0,627** transformational Leadership Manager's support of HPWS x Perceived leadership of employees 0,098 Small companies 0,616** 0,267** 0,355* Medium companies 0,394* 0,281** 0,385** R² 28% 71% 79% 79% R² Change % F Change ,301 Sig. F Change Ns Ns Ns 0,589 Note: *= p <.05, **= p <.01. Independent variables were centered in order to correct for individual differences in scale use Based on the analysis that was conducted, evidence was found which supports Hypothesis 2a and partially Hypothesis 2b. Hypothesis one is not supported. The results provide reasons to say that a higher leadership shared perception exerted from immediate managers relates to a higher employees shared average perception of HPWS and higher HPWS support from top managers relates to a higher HPWS shared average perception of employees. Although there is evidence for these results, it is only found when including both leadership and manager s support of HPWS. There was no significant interaction between the independent variables. Additional analysis Because the different constructs for supported and perceived HPWS are composed of four dimensions, further analysis at the aggregated level was conducted. The analysis was conducted by using a correlation analysis. The results have shown no significant correlation between each dimension so it can 24 P a g e

25 be argued that the first hypothesis is still not supported. The correlation table can be found in the Appendix F. Conclusion and discussion The purpose of this study was to examine elements that are likely to increase employees perceptions of HPWS as suggested by the HRM system strength theory (Bowen & Ostroff, 2004). Specifically, this paper looked at the relationship between the top management support of HPWS and the shared average perceptions from employees between a network of industrial companies on HPWS. Furthermore, this study examined if the transformational leadership exerted from immediate managers would influence this relationship. The study was performed in the context of Mondragon Humanity at Work with an industry sample. The sample was aggregated at company level, which consisted of 44 companies with 7373 employees and 68 managers. Aggregate-level data allowed examining comparisons between companies within MHW. Within the aggregated level, explanatory factors are shared with managers and employees within all companies at MHW. In order to examine these relationships, the following research question was proposed: To what extent do transformational leadership and top managers support of HPWS lead to strong shared average perceptions of HPWS by employees between a network of industrial companies? The study found a significant positive effect on shared average perceptions of transformational leadership exerted by immediate managers on the employees shared average perceptions on HPWS. Second, the data did not support the hypothesis in which higher top managers support of HPWS related to higher employees shared average perceptions on HPWS. Nevertheless, for small and medium companies, a significant positive effect on the employees shared average perception on HPWS was found. Finally, the interaction between perceived transformational leadership exerted from immediate managers and top managers support of HPWS did not show an effect on the shared average perceptions from employees of HPWS. 25 P a g e

26 An additional finding was the marginal significant positive effect of the top managers support of HPWS on employees shared average perceptions on HPWS, when controlling for transformational leadership. Top management support of HPWS With regard to top management support of HPWS, results did not disclose a significant direct effect on employees shared average perceptions of HPWS. An explanation for the rejection of the hypothesis can be found in the HPWS theory stated by Boxall and Macky (2007) and HRM system strength theory (Bowen & Ostroff, 2004). Boxall and Macky (2007) explained that HRM process is a chain of associations between HR intentions, management intentions, employee reactions and, organizational performance. Within this chain, top management intentions can differ from what, for instance, line managers actually do with regard to HR practices. Line managers are more likely to connect top management s HR intentions with employees through actual HR practices (Purcell and Hutchinson, 2007; Yang et al., 2010). This argument is also aligned with HRM strength theory (Bowen & Ostroff, 2004). This theory argued that, in order for employees to have a positive experience from HR systems (HPWS e.g.), the system has to be communicated in a consistent manner. Therefore, it can be argued that there may be discrepancies in the communication process of the system among top management, line managers and employees. On the basis of these theories, the findings demonstrated that there might be a long distance between top management support of HPWS and employees' perceptions on this system. The findings that the perception in small and medium companies are significantly higher (more positive) than in the big ones, might be related to the efforts of MHW to maintain the essential characteristics of the cooperative. These characteristics refer to keep alternative, non-capitalist forms of small, medium and democratic enterprises (Flecha & Santa Cruz, 2011) which are related to HPWS features which enable employees collaboration in problem solving and achieve high organizational outcomes. However, MHW has been growing, providing space to further explore the factors in larger companies that can support the essential features of the cooperative through HPWS. 26 P a g e

27 Transformational leadership exerted from top management As predicted, transformational leadership exerted from immediate managers was related to employees shared average perceptions on HPWS. Therefore, it can be argued that transformational leadership is aligned with the features of HPWS. This alignment resulted in a positive impact on employees shared average perceptions on HPWS through the behaviors exerted from transformational leaders, in this case, the immediate managers. This relationship may influence employees attitudes and behaviors within the company and may have created higher contributions to organizational outcomes. It may however be argued that immediate managers transformational leadership should also be accompanied by top managers' support of HPWS in order to be effective in creating an impact on employees perceptions of HPWS (Biswas, 2009). This accompaniment may prevent the creation of confusion among employees perceptions between the behaviors exerted from a transformational leader (Podsakoff et al., 1996) and, the impacts expected from HR practices within HPWS (Boxall & Macky, 2007). This last argument is aligned with the marginal significant positive effect of the top managers support of HPWS which was found in employees shared average perceptions on HPWS, when controlling for transformational leadership. This result cannot be conclusive because of the limitations of the size of the sample. Transformational leadership and top managers support of HPWS The moderation effect of the employees perceptions of transformational leadership on the relationship between the managers support and employees perceptions of HPWS appeared insignificant. An explanation for the rejection of the hypothesis can be found within the HRM system strength theory (Bowen & Ostroff, 2004). This theory explained that HRM systems (HPWS, e.g.) should create strong situations among employees in order to be effective. In these strong situations, high levels of perception of distinctiveness, consistency, and consensus are needed. As it was mentioned in the theoretical framework, distinctiveness is promoted by the legitimacy of authority, in this case by transformational leadership of immediate managers. However, consistency and consensus should be accompanied by distinctiveness to create these strong situations as Bowen and Ostroff mentioned (2004), and then, be able 27 P a g e

28 to have an impact on employees perceptions of the HPWS. Consistency refers to establishing a repetitive effect of the system, regardless of the different forms of interactions within the system. In this case, aligned with the results showed for the first hypothesis, it can be argued that the top managers might not be consistent when applying HR practices on employees. Considering consensus, it is produced when there are agreements among different groups of stakeholders, in this case managers and employees, regarding to the effect produced by HPWS (Bowen & Ostroff, 2004). In this case, this study did not look for evidence about consensus. Nevertheless, consistency and consensus are interrelated concepts. For instance, when employees within a company experience a HPWS consistently, consensus is more likely to arise. Hence, it can be argued that may be there is a lack of consensus between employees perceptions of HPWS. Limitations and Implications for further research Findings in this research need to be taken with some limitations. First, since the data was collected through convenience sampling, generalizing results of this study may be limited. At the same time, the results are limited within a cooperative context. However the diversified sample of companies and the size of them provide enough justification to generalize the data in the industry sector of a cooperative context. Because of the use of aggregated data, the results of this study are generalized to average perceptions of employees within a company. It cannot be assumed that results reflect individual level perceptions. Furthermore, aggregated data may demonstrate trends from company to company, but not necessarily among all the employees across companies. For instance, there cannot be any statements made about the variance (SD) regarding answering values for the constructs HPWS (employees perceptions and managers support). This example can be seen in the (SD) showed in table 3 for these constructs at the individual and aggregated level. Besides, when aggregating data, the sample size was affected. The sample was reduced to 44 cases that may undermine the power of the test. Nevertheless, the ICC test performed, suggested that aggregating employees within certain companies had a significant impact (see Table 1, 2). The ICC showed to some extent a general measurement of agreement or consensus within the 28 P a g e

29 different groups. For future research, multilevel analysis is suggested. Multilevel analysis will offer responses for different levels of perceptions and may reveal data to understand the path between top manager support of HPWS and employees perceptions in the system. This type of analysis can reveal different information among variables (Hox, 2010). In this case, multilevel analysis can demonstrate differences among all employees, top managers, line managers, departments and companies as unit of analysis and provided information to reduce the bridge between intended HR practices and the implementation of these practices. This study was one of the first attempts to introduce behavioral aspects like transformational leadership exerted from top managers as a moderation effect in the relationship between employees and managers perceptions of HPWS. Although the results were not as expected according to the hypothesis posed, a fruitful extension of the research area on HWPS would be to continue investigating the presence of the relationship between the supported HPWS from top managers and their transformational leadership exerted. The results demonstrated a marginal significant positive result in employees perceptions of HPWS with the presence of both constructs (employees shared average perception of transformational leadership & top management support of HPWS). Future research should attempt to enhance the results with methodological improvements with a multilevel analysis and a bigger sample. The control variables in this study were limited to the type of size of the organization, which may undermine the results of the hypotheses proposed. For future research, other control variables like type of contract may offer different responses which influence the perceptions in HPWS from employees. As the level of management quality in the cooperative environment in the Basque Country was founded higher when compared with non cooperative sectors (Abando et al., 2007; Lertxundi, 2011), future research considering variables like the influence of being co-owner or not, may offer new evidence in HPWS perceptions of employees. Practical implications Today, organizations have been paying more attention to HRM through HPWS (Boxal & Macky, 2007). The reason for this is because it has been proven that through HPWS enhancement organizations 29 P a g e

30 may achieve higher results (Boxal & Macky, 2007, 2009). Within HPWS, employees are the most likely element to create impact in organizational results. This study offers results to state that transformational leadership of top management is one of the elements that positively influence employees' perceptions on HPWS. With this result, organizations should consider to enhance transformational leadership features in all supervisory roles (line managers, supervisors, e.g.) in order to improve employees perceptions of HPWS. Similarly, the non-significant results considering the relationship between top management support and employees perceptions in HPWS, gives direction to HRM researches to continue exploring the elements of HRM system strength theory of Bowen and Ostroff (2004) that will help to empower proper implementations of HPWS through employees perceptions in organizations. Conclusion Overall, this study demonstrated that value of team or community aspects in MHW like the leadership style, in this case transformational leadership, play an important role in influencing employees perceptions of HPWS. Furthermore, top management intentions among HPWS and employees perceptions of HPWS within organizations needs more research due to the importance of their roles within HPWS. Considering the growing literature HPWS research, exploring these variables in future research seems both interesting and necessary to provide responses to achieve higher organizational outcomes. Besides, investigating the accompaniment of top management support of HPWS and leadership style seems to be crucial to influence employees as well. Improving these different relationships will impact in the performance of HPWS and, finally support high organizational outcomes. 30 P a g e

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35 Appendix Section Appendix A: Scales for Employees Perceptions on HPWS (*) Scale Items One scale Factor 1 Factor 2 Factor 3 Factor 4 employees' perception on HPWS Training I feel that the company dedicates sufficient resources to foster my professional development. 0,775 0,944 I feel that the company provides me enough training to perform my job. 0,750 0,932 I think that the company values and promotes my training. 0,783 0,924 Participation I participate in the definition of the annual targets for my department/section. 0,735 0,891 Autonomy Information I participate in the definition, control and monitoring of the business plan on an annual basis. 0,758 0,92 I have the chance to participate in important decisions about the future of my department/section. 0,812 0,884 My job allows me a chance to use my personal initiative or judgement in carrying out the 0,794 0,912 work. The job allows me to make a lot of decisions on my own. 0,745 0,951 The job provides me with significant autonomy in making decisions. 0,759 0,94 I have frequently updated information about the performance of my department/section (sales, results, project status, etc.). 0,650 0,880 I have enough information to do my job properly. 0,705 0,880 Cronbach's alpha 0,920 0,926 0,879 0,928 0,703 Answer scale: Strongly disagree, disagree, slightly disagree, agree, strongly agree (*) Dimensions are based on Morgeson and Humprey (2006) studies and on self-developed measures from HPWS research of Appelbaum et al. (2000), Becker and Huselid (1998), Arthur (1994), Gardner et al. (2000), and Delery and Doty (1996) (U. Elorza, personal communication/company results, January, 2013).

36 Appendix B: Item excluded from Dimension Information in Employees' perception of HPWS Item N % I have information about the future of the proyect of the Valid ,6% organization (Challenges, objectives, investments ). Missing ,4% Mean 3,59 SD 1, P a g e

37 Appendix C: Scree plot for Scales for Employees Perceptions on HPWS (*) 37 P a g e