The relationship between trust, HRM The relationship between trust, HRM

practices and firm performancepractices and firm performance

Dr. Shay S. TzafrirDr. Shay S. Tzafrir

UniversityUniversity of Haifa, Israelof Haifa, Israel

The ProblemThe Problem 1.1.Many researchers have begun to examine Many researchers have begun to examine

organizational trust and its influence on the organizational trust and its influence on the workforce. workforce. 2.2.Little empirical research has focused on the Little empirical research has focused on the conditions that cause organizational trust. conditions that cause organizational trust. 3.3.The major objective of this study is to develop The major objective of this study is to develop a framework for examining the impact that a framework for examining the impact that managerial trust in employees has on human managerial trust in employees has on human resource management practices as well as on resource management practices as well as on organization performance.organization performance.

Review of literatureReview of literature 11..Trust represents a significant variable that inTrust represents a significant variable that in

fluences organizational productivity. fluences organizational productivity. (Kramer and (Kramer and Tyler, 1996)Tyler, 1996)

22..Positive managerial expectations may translatPositive managerial expectations may translate into managerial behaviours such as providing e into managerial behaviours such as providing training, and permitting participation in decision-training, and permitting participation in decision-making. making. (Liden et al., 1993)(Liden et al., 1993)

3.3.Extensive research has begun to examine orgExtensive research has begun to examine organizational trust and its influence on theanizational trust and its influence on the

workforce. workforce. (Mayer and Davis, 1999; Spreitzer and Mi(Mayer and Davis, 1999; Spreitzer and Mishra, 1999) shra, 1999)

Theory and hypothesesTheory and hypotheses

1.1.Trust in this study is defined as the Trust in this study is defined as the willingness to increase the resources willingness to increase the resources invested in another party, based on invested in another party, based on positive expectations resulting from pastpositive expectations resulting from past

positive mutual interactions.positive mutual interactions.

2.2.Social exchange theory– the norm of reciSocial exchange theory– the norm of reciprocityprocity

This norm establishes the expectations thaThis norm establishes the expectations that recognition, empowerment, investment in t recognition, empowerment, investment in human assets, and other favours will be rethuman assets, and other favours will be returned. The norm of reciprocity has a negatiurned. The norm of reciprocity has a negative side as well, which includes the expectave side as well, which includes the expectation that hostilities, fear, insincerity, and othtion that hostilities, fear, insincerity, and other distrusting acts will be dealt with in the ser distrusting acts will be dealt with in the same way.ame way.

Theory and hypothesesTheory and hypotheses (continued) (continued)

33..HypothesisHypothesis Hypothesis1Hypothesis1: Managers are more likely to offer : Managers are more likely to offer

incentive compensation plans when trust is incentive compensation plans when trust is high.high.

Hypothesis 2Hypothesis 2: Managers are more likely to allow : Managers are more likely to allow employees to participate in decision making employees to participate in decision making when trust is high.when trust is high.

Hypothesis 3Hypothesis 3: Managers are more likely to use : Managers are more likely to use internal promotion (ILM) when trust is high.internal promotion (ILM) when trust is high.

Hypothesis 4Hypothesis 4: Trust will be positively related to : Trust will be positively related to training; therefore, the higher the level of trust, training; therefore, the higher the level of trust, the larger the number of employees who the larger the number of employees who receive training activities. receive training activities.

Hypothesis 5Hypothesis 5: HRM practices will be positively : HRM practices will be positively related to perceived organizational related to perceived organizational performance.performance.

MethodMethod 11..sample---275 organizations were sample---275 organizations were

selected from both the public and private selected from both the public and private sectors, each employing 200 or more sectors, each employing 200 or more workers. 104 of the 275 designated workers. 104 of the 275 designated companies completed the questionnaires. companies completed the questionnaires. Ninety-five per cent of the respondents(99) Ninety-five per cent of the respondents(99) were vice-presidents or HR managers.were vice-presidents or HR managers.

22..Measurement of variables—correlation researMeasurement of variables—correlation research design using chi-square test and AMOS struch design using chi-square test and AMOS structural equation modelling software.ctural equation modelling software.

Four sets of measures were used to assessFour sets of measures were used to assess

a. HRM characteristics and practicesa. HRM characteristics and practices

b. organizational infrastructure datab. organizational infrastructure data

c. organizational and employee performance ic. organizational and employee performance indicatorsndicators

d. HR managers’ trust in their employeesd. HR managers’ trust in their employees

(1) Dependent variables--(1) Dependent variables--

a. organizational performance--quality of the a. organizational performance--quality of the product/service, new product development, eproduct/service, new product development, employees’ retention, customer satisfaction, etmployees’ retention, customer satisfaction, etc. c.

b. market performance--product price, sales ib. market performance--product price, sales increase, profitability, and so forth. ncrease, profitability, and so forth.

(2) Independent variables—(2) Independent variables—

a. Trust-- reliability, harmony ,and concerna. Trust-- reliability, harmony ,and concern

b. HRM practices– compensation, participb. HRM practices– compensation, participation, internal labour market and trainingation, internal labour market and training

(3)Control variables(3)Control variables

a. initial trusta. initial trust

b. sectorb. sector

**c. organizational sizec. organizational size

d. union densityd. union density

ResultsResults

11. Hypotheses 1 to 4 concern the relationships . Hypotheses 1 to 4 concern the relationships between between HRMHRM practices and managers’ practices and managers’ trusttrust in in their employees. their employees. The results of the study indicate that organizatiThe results of the study indicate that organizations that exhibited high managerial trust in emplons that exhibited high managerial trust in employees based their compensation systems on peoyees based their compensation systems on performance encouraged employee participation, rformance encouraged employee participation, used the internal labour market for employee reused the internal labour market for employee recruitment and mobility and invested more in traicruitment and mobility and invested more in training than did non-trusting firms. ning than did non-trusting firms.

ResultsResults(continued)(continued)

22. Hypothesis 5 concerns the relationship betw. Hypothesis 5 concerns the relationship between een HRMHRM practices and practices and performanceperformance..

Results indicate that organizations that invested Results indicate that organizations that invested more in training ,encouraged employee participmore in training ,encouraged employee participation and used the internal labour market for eation and used the internal labour market for employee recruitment and mobility demonstrated mployee recruitment and mobility demonstrated significantly higher organizational performance. significantly higher organizational performance.

ResultsResults(continued)(continued)

33. The results of the bivariate correlation ana. The results of the bivariate correlation analysis show that perceived organizational and lysis show that perceived organizational and market market performanceperformance were positively associat were positively associated with dimensions of ed with dimensions of trusttrust. .

ResultsResults(continued)(continued)

44.. The research also suggests that manager The research also suggests that managers’ trust in their employees has a considerable s’ trust in their employees has a considerable impact on shaping an HRM system of ‘high pimpact on shaping an HRM system of ‘high performance work practices’. erformance work practices’.

ResultsResults(continued)(continued)

5.5.AMOS displays a squared multiple correlatioAMOS displays a squared multiple correlation for each variablen for each variable. . (1)HRM practices and trust variables toget (1)HRM practices and trust variables together explain 62 per cent of the variance in perceiveher explain 62 per cent of the variance in perceived organizational performance. d organizational performance. (2)The trust variables together (2)The trust variables together explain 36 per cent of the variance in employee paexplain 36 per cent of the variance in employee participation, 28 per cent of the variance in internal larticipation, 28 per cent of the variance in internal labour market, and 19 per cent of the variance in embour market, and 19 per cent of the variance in employee evaluation.ployee evaluation.

(3) reliability and evaluation together explain 30 p(3) reliability and evaluation together explain 30 per cent of the variance incentive compensation. er cent of the variance incentive compensation. (4)Harmony, concern, and employee participati (4)Harmony, concern, and employee participation together explain 45 per cent of the variance in ton together explain 45 per cent of the variance in training.raining.

The reliability and validityThe reliability and validity

11. . reliability---reliability--- Cronbach’s alpha as estim Cronbach’s alpha as estimates of internal-consistency reliability for thates of internal-consistency reliability for these tests were almost greater than 0.8.ese tests were almost greater than 0.8.

22. . validity----validity---- The validity of the results The validity of the results may be hampered by the fact that may be hampered by the fact that organizational and market performance organizational and market performance mutually influence both trust and HRM mutually influence both trust and HRM practices. practices. Future research should try to collect data Future research should try to collect data with time lags between predictor and with time lags between predictor and outcome measures in order to enableoutcome measures in order to enable

longitudinal analysis. longitudinal analysis.

Research EvaluationResearch Evaluation

11.The criterion of utility--- .The criterion of utility--- (1)This study uses a multidimensional (1)This study uses a multidimensional conception of trust and integrates it with conception of trust and integrates it with several HRM practices and organizational several HRM practices and organizational performance. performance. (2)This study is the first to explore the (2)This study is the first to explore the broader effects of trust in the workplace. broader effects of trust in the workplace. (3)It also makes a unique contribution to (3)It also makes a unique contribution to explore the combined impact of trust on HRM explore the combined impact of trust on HRM practices and organizational performance.practices and organizational performance.

22.The criterion of replication---The other .The criterion of replication---The other researcher can utilize the same procedure to researcher can utilize the same procedure to engender the other research.engender the other research.

33.The criterion of generalization--- .The criterion of generalization--- (1) Its sample transcends industrial and s (1) Its sample transcends industrial and sectorial analysis and thus provides a globaectorial analysis and thus provides a global picture. (2) Datl picture. (2) Data collected within a single national system a collected within a single national system with its unique national culture may cause with its unique national culture may cause some doubt on whether it can be generalizsome doubt on whether it can be generalized to other countries. However, it depened to other countries. However, it depend on whether the Israeli environment provid on whether the Israeli environment provides researchers and practitioners with a cdes researchers and practitioners with a convenient laboratory for studying and analonvenient laboratory for studying and analyzing managerial practices .yzing managerial practices .