Walking the Talk: The Impact of High Commitment Values and Practices on Technology Start-ups *

We examine the impact of high commitment work systems (HCWS) on high-technology start-ups. We differentiate two components of a HCWS: the human resource practices and the espoused values of the firm's leadership and demonstrate that both are associated with an increased likelihood of IPO and a decreased likelihood of firm failure. Importantly, there are interactions between practices and values such that the benefit of one tends to amplify the other. Implications of these interactions for future research on high commitment work systems are discussed. INTRODUCTION Among organizational scholars, there has been a long-standing interest in understanding why some firms outperform others. Over the past decade a large number of empirical studies have demonstrated that human resource management systems can explain part of the observed variation in firm performance (Becker & Gerhart 1996). In particular, high-commitment work-systems – which are characterized by high-levels of employee involvement, firm-level investments in employees through training and promotions as well as sharing of firm profits, and concern with finding employees who will fit within the organization – outperform firms with other more traditional work systems. The empirical evidence supporting this claim comes from a variety of settings -everything from manufacturing and service firms to the largest publicly traded firms in the U.S. economy – and demonstrates that, under some conditions, high-commitment work systems (HCWS) are associated with stronger firm financial performance, higher productivity, and lower turnover (Arthur 1992; Huselid 1995; MacDuffie 1995; Ichniowski, Shaw & Prennushi 1997). However, despite a growing number of studies exploring the linkage between high-commitment work systems and firm performance and an emerging consensus that the association is positive, the evidence remains mixed. Some studies fail to document performance improvements (e.g., Capelli & Neumark, 2001; Godard, 2001). Explanations for these conflicting findings have included suggestions that the effects of HCWS may be context-specific (e.g., dependent on the firm or industry) or contingent on the alignment of bundles of complementary practices rather the effects of separate practices. Others have suggested that the link between HCWS and performance may reflect implicit theories of performance rather than actual outcomes (Gardner, Wright & Gerhart, 2000). The goal of this paper is to address these questions by exploring how the combination of HCWS practices and the values of the firm may interact to affect firm performance. We argue that employees interpret the meaning of specific human resource management practices (e.g., investment in training or stock options), based on their perception of management’s motives for implementing these practices or bundles of practices. In this view, the meaning of specific objective HR practices is seen as conditioned 1 by, and interpreted in light of, the information provided by senior management that helps employees understand why certain practices have been adopted. Thus, objectively similar practices may be interpreted differently, and have different effects, contingent on their social meaning. We empirically test this claim using data from a sample of high-technology start-ups in Silicon Valley. THEORETICAL OVERVIEW In the past decade, there have been a number of important studies documenting the positive impact on firm performance of high-commitment work systems (HCWS). For example, in a seminal study of work practices in the worldwide automobile industry, Womack, Jones and Roos (1990) convincingly demonstrated that so-called “lean manufacturing” practices provided significant productivity and quality advantages over conventional manufacturing processes. At the heart of these lean processes were a set of high-commitment work practices characterized by employee involvement, extensive investment in the training and socialization of members, and an egalitarian culture (MacDuffie, 1995). Similar studies in the apparel, steel, semiconductor, and manufacturing industries provided confirming results for the broad applicability of HCWS (e.g., Arthur, 1992; Bailey, 1993; Ichniowski et al, 1997). These focused industry studies were soon followed by a series of large-scale empirical efforts further documenting how high-commitment practices were linked to firm outcomes. For example, in a landmark study of almost 1,000 firms, Huselid (1995) linked HCWS to firm-level turnover, productivity, and financial performance. Consistent with previous research (Delaney, Lewin & Ichniowski, 1989; Pfeffer, 1994), Huselid defined high-commitment systems in terms of a constellation of practices including careful selection of new employees, pay for performance schemes, employee training, extensive information sharing, the use of teams, and attention to employee attitudes. Subsequent studies have continued to demonstrate that these so-called high commitment practices are consistently related to establishment and firm performance as well as other outcomes such as improved product quality, lower employee turnover and enhanced employee morale (Applebaum, Bailey, Berg & Kalleberg, 2000; Arthur, 1994; Becker, Huselid, Pickus & Spratt, 1997; Youndt, Snell, Dean & Lepak, 1996). More recently,