The Impact of High Performance Work System Practices on Small Manufacturer Performance

ABSTRACT This paper examines the effect of both quality operations and high performance work system (HPWS) practices on firm performance for 1200 small manufacturers wanting to market their products to a major mass merchandiser. All of these firms participated in a supplier evaluation program that assessed both their management and product characteristics. Performance for each firm in this study was categorized as either low, average, or high by comparing the stated or observed performance on each evaluation criteria to the minimum completion level. Our study found that both quality operations and HPWS practices significantly predicted performance among low, average, and high performing firms. We conclude that small firm managers should investigate and adopt the appropriate quality and human resources practices which will enable their firms to perform at higher levels. INTRODUCTION The bulk of small firm performance research focuses on factors such as TQM and financial management in leading to success. In fact, quite a bit of research has found strong ties between quality management and small firm performance over the last 10 to 15 years. Comparatively, little research has been directed at examining the role of human resource practices in small firm performance. Becker and Huselid's (1998) work on high-performance work systems (HPWS) suggests that high quality HR practices will have a positive effect on the financial performance of a firm. Small firm HRM research in this area has met with mixed results, and little agreement exists on a common canon of HPWS practices used by small businesses today. This paper examines the effect of both quality operations and HPWS practices on small manufacturer performance among firms wishing to market their retail products nationally. First, we briefly examine a sample of both quality operations and human resource management research as they relate to small firm success. Then we describe the results of a study of almost 1700 small U.S. manufacturers and their firm and product characteristics. Finally, we offer suggestions for small firms wanting to use HPWS practices to improve performance. BACKGROUND AND HYPOTHESES Quality Operations Research Performance research for small firms has focused on operational issues such as quality management, quality control, and continuous improvement. For manufacturers, a formalized quality management program tends to be an important success factor (Roth & Miller, 1992); however, smaller firms may use much more informal means of quality assessment, such as inspection rather than sophisticated statistical techniques, because these firms lack skilled personnel (Abdul-Aziz, Chan, & Metcalfe, 2000). For example, Abdul-Aziz, Chan and Metcalfe (2000) noted that use of an in-process inspection system (along with pre- and post-process inspection) was critical for success. Yusof and Aspinwall (2000) found that quality practices such as process improvement, statistical process control, and employee involvement were all characteristics of successful smaller manufacturers. Small firms also tend to place an emphasis on quality control rather than the quality assurance prized by large manufacturing firms (Sun & Cheng, 2002). They may measure customer satisfaction with traditional methods including customer surveys, along with non-traditional approaches such as counting the number of customer complaints and counting the number of items returned under warranty (Kuratko, Goodale, & Hornsby, 2001). Another qualitative control technique, first-piece approval, reflects the tendency of firms to inspect the initial output of their production cycles. While large firms use training to support continuous improvement, smaller firms tend to rely on traditional incentive and suggestion programs (Sun & Cheng, 2002). Yusof and Aspinwall (2000) found that few small firms use continuous improvement tools and techniques. …