Exploration, exploitation and human resource management practices ...

The International Journal of Human Resource Management, 2013 Vol. 24, No. 15, 2911–2926, http://dx.doi.org/10.1080/09585192.2012.756055

Exploration, exploitation and human resource management practices in cooperative and entrepreneurial HR configurations John W. Medcof a and Lynda J. Songb* a

DeGroote School of Business, McMaster University, Hamilton, Canada; bSchool of Business, Renmin University of China, Beijing, People’s Republic of China Human resource (HR) practices for selection, performance appraisal, performance– compensation linkage and training are found to be less formalized in entrepreneurial HR configurations (exploratory) than in cooperative HR configurations (exploitative). Although less formalization may support more flexibility and improvisation, it was found to have the disadvantage of reducing process transparency, developmental feedback, performance – compensation linkage strength and the amount of training available. These findings are consistent with theories of exploration and exploitation, with their extensions to human resource management and leadership, and the view that HR systems and practice should be varied in light of the organizational processes to which they are being applied. Keywords: exploitation; exploration; HR configurations; leadership; strategy; structure

The terms exploration and exploitation have been used increasingly in recent years to articulate one of the very significant challenges confronting organizations in the twentyfirst century, the need to explore and execute new avenues of significant innovation while at the same time successfully exploiting current capabilities efficiently, in order to meet business goals (Gupta, Smith and Shalley 2006; Graetz and Smith 2007; Raisch, Birkinshaw, Probst and Tushman 2009). Exploration and exploitation are contradictory in some ways and complementary in others. Orchestrating their complementary synergies along with their inherent contradictions is a challenging management task. Tushman and O’Reilly (1996) called organizations that perform this orchestration successfully ‘ambidextrous organizations’. Gibson and Birkinshaw (2004) propose that exploration and exploitation can be effectively managed through ‘contextual ambidexterity’ at the business unit level, which can ameliorate the contradictions and extract the value from both. Nemanich, Keller and Vera (2007) showed that, in new product development, exploration predominates in the early stages and exploitation in the later. Kang, Morris and Snell (2007) have conceptually linked exploration and exploitation to human resource management (HRM), drawing on March’s (1991) ideas about exploratory and exploitative learning. They propose that all organizational learning takes place through social interactions which can be characterized with two broad relational archetypes, the entrepreneurial and the cooperative, associated with exploratory and exploitative learning, respectively. The two relational archetypes require different HRM configurations. The ‘entrepreneurial HR configuration’ includes flexible work structures,

*Corresponding author. Email: [email protected] q 2013 Taylor & Francis

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result-based initiatives and trans-specialist development. The ‘cooperative HR configuration’ includes interdependent work structures, clan fostering initiatives and broader skill development. The proposal that different human resource (HR) practices should be associated with exploration and exploitation is a robust proposal, which has implications beyond the particular expression of it presented by Kang et al. (2007). It is consistent with those who have recently argued that HR practices should vary, depending on the organizational challenges with which they are associated (e.g. Lepak, Liao, Chung and Hardy 2006; Chow, Huang and Liu 2008; Ulrich, Younger and Brockbank 2008; Hong et al. 2009). It is proposed here that the entrepreneurial HR configuration is less formalized than the cooperative HR configuration, and this has implications for the kinds of organizational activities that take place within them. The degree of formality influences, and is influenced by, a variety of work practices, including leadership. We show that leaders working in an exploratory context have less formalized HR configurations than those working in an exploitative context and, further, that lessened formality is associated with a number of deficiencies in HR practice. This finding links HR practice to leadership and supports Kang et al.’s (2007) model of exploration, exploitation and HR configurations, and the extensions to it developed here. We will now explain the extension of Kang et al.’s (2007) model to include degree of formalization. Kang et al. (2007) start with the proposition that all organizational learning takes place through social interactions among people. The social relationships involved can be subsumed under two broad relational archetypes, the entrepreneurial and the cooperative. In Kang et al.’s own words: At one extreme, the cooperative relational archetype is characterized by a dense social network with strong ties among its members, generalized trust based on shared norms of reciprocity, and a common architectural knowledge that provides the basis for combination and integration . . . The cooperative archetype is logically consistent with the efforts of employees to exchange, combine, and integrate fine-grained, in-depth knowledge with related parties, which is aligned with the requirements of exploitative learning . . . The entrepreneurial relational archetype is characterized by more sparse and nonredundant network patterns with relatively weak and intermittent ties among its members. The social connections are based on dyadic trust among some of the parties, rather than generalized trust over the whole unit. And while common component knowledge provides a common frame of reference for exchange, there is not necessarily a shared architectural linkage for deep integration . . . this more loosely connected system is consistent with the entrepreneurial requirements of an organization’s efforts to explore novel and diverse knowledge in new or unfamiliar domains, which is logically aligned with the requirements of exploratory learning. (2007, p. 242)

The differences between exploratory and exploitative learning align with more general models of exploration and exploitation (Gupta et al. 2006; Graetz and Smith 2007; Raisch et al. 2009). These general models propose that exploratory activity is most effective in dynamic and complex environments in which a high level of improvisation is required to meet the challenges of the changing, difficult to understand, environment. Exploitative activity is more appropriate in more stable environments with less need for improvisation. Organizations confront multiple challenges, some of which are best met with exploratory activity (e.g. dealing with the introduction of a radical new product by a competitor) and others with exploitative activity (e.g. improving the quality of current products in light of customer feedback). Within an organization, there can be differentiated pockets of activity which vary in the dynamism of their challenges and therefore in the value of exploratory and exploitative approaches.

The International Journal of Human Resource Management

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Some recent HR theory proposes that HR systems should be differentiated to deal optimally with the organizational challenges with which they are associated (Lepak et al. 2006; Hong et al. 2009). One basis for such differentiation is the dynamism of the organizational activities to which the HR systems are applied. In departments charged with relatively stable, exploitative tasks, it is desirable and possible to establish formalized HR systems. In this context, with a stable set of tasks, an enduring set of jobs can be designed and described. People can be recruited for and selected into them. Effectiveness data can be collected and used to improve recruitment, selection, compensation and training. A set of formalized procedures can be developed to administer these standardized processes in a transparent, efficient and effective way. It is worthwhile to invest time and money in these formalized systems because they will be effective with only minor changes over an extended period of time. In contrast, entrepreneurial HR configurations, because they are not being applied to stable tasks and processes, are unable to reach the degree of formalization characteristics of cooperative configurations. In unstable situations, much of the work is ad hoc, taken on to accomplish tasks that are unique and unprecedented. ‘Job descriptions’ have to be improvised as fresh challenges appear. Required knowledge, skills, and abilities (KSAs) are uncertain and changing. Performance appraisal is equally uncertain and probably of limited value when selecting people for future, dissimilar, ad hoc tasks. In these circumstances, the use of stable, formalized HR systems may be counterproductive, delaying timely action and consuming resources. With limited time periods to reap their value, they are unlikely to pay back the resources put into their development. Stable, formalized HR systems have less operational value in entrepreneurial HR configurations than in cooperative HR configurations, and are less likely to be used there. Hypothesis 1:

The HR practices applied in entrepreneurial HR configurations are less formalized than those in cooperative HR configurations.

The hypotheses that follow are based on the assumption that this general hypothesis applies to specific HR practices. It should be evidenced in selection, performance appraisal, compensation, training and job design, all important facets of high-performance work systems (Combs, Liu, Hall and Ketchen 2006). We begin with selection. Hypothesis 2:

HR practices for selection are less formalized in entrepreneurial than in cooperative HR configurations.

One of the advantages of formalized HR practices is that they can increase process transparency. Formalized processes are committed to writing and usually made available to all who have an interest in them, facilitating their understanding of the process. Formalized processes usually require ‘public’ procedures, such as the posting of job openings with clear job descriptions and application deadlines, for specified periods of time. Informal processes are less likely to include these transparency-enhancing practices. Hypothesis 3:

HR practices for selection are less transparent in entrepreneurial than in cooperative HR configurations.

The logic for Hypothesis 1 also applies to performance appraisal. Hypothesis 4:

HR practices for performance appraisal are less formalized in entrepreneurial than in cooperative HR configurations.

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Well-designed, formal performance appraisal systems usually provide for developmental feedback, which may or may not be delivered as part of the performance appraisal process itself. Hypothesis 5:

HR practices provide less developmental feedback in entrepreneurial than in cooperative HR configurations.

Well-designed, formal HR systems also link compensation to performance appraisal. Hypothesis 6:

HR practices for linking compensation to performance are less formal in entrepreneurial than in cooperative HR configurations.

Well-designed, formal, transparent HR practices provide employees with knowledge of how their performance is measured and how it is linked to compensation. In addition, there are feedback systems that facilitate the correction of anomalies. These provide a stronger mechanism to link compensation to performance than is found in informal systems. The latter may not include all of these elements and/or may not do them as systematically or as transparently. It follows that the performance –compensation link will be weaker in entrepreneurial HR configurations. Hypothesis 7:

HR practices provide a weaker mechanism for linking compensation to performance in entrepreneurial than in cooperative HR configurations.

Formal training systems are premised on stable sets of job requirements that are known well enough in advance to provide time to develop and deploy appropriate training. Although this may occur with the cooperative HR configuration, it is much less likely with the entrepreneurial. If challenges are novel, there will be little advance knowledge of what skills are needed to deal with them. The skill requirements are assessed as the challenge is being met. Opportunities to design training are limited, so training on the ascertained skills probably will not be available. And, even if the training needs were known, and the training were available, there might not be sufficient time to engage in it, given the time constraints for meeting a challenge. In contrast, in cooperative HR configurations, there are stable jobs for which training can be designed, delivered, evaluated and improved. Hypothesis 8:

HR practices will provide less training for work in entrepreneurial than in cooperative HR configurations.

Job design under the cooperative HR configuration reflects its more constrained nature and the tightly knit relationships among different jobs. These relationships and the activities associated with them are formalized in job descriptions. As a result, incumbents are required to follow standard operating procedures, leaving limited room to make discretionary decisions. Under the entrepreneurial HR configuration, jobs are less formalized and workers more empowered to make decisions where no formalized prescriptions exist. Hypothesis 9:

There will be more empowerment to make decisions in the entrepreneurial than in the cooperative HR configuration.

Complementing this empowerment are the rules and procedures that curtail action more stringently in the cooperative HR configuration than in the entrepreneurial. Hypothesis 10:

Formalized constraints (rules and procedures) will curtail action less in the entrepreneurial than in the cooperative HR configuration.


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This completes the development of hypotheses about HR practices. We will now go on to describe how leadership is different in exploratory and exploitative contexts and, therefore, in entrepreneurial and cooperative HR configurations. These differences will allow us to test the hypotheses about HR practices as they are applied to leaders in the two configurations. In most organizations, managers occupy positions in which they are assigned responsibility for a particular organizational unit. It is the manger’s role to ensure that the unit, be it a group, department, business unit, division or the whole organization, operates efficiently and effectively. We will use the term department to refer generically to these formally defined organizational units, which are usually represented by boxes on organizational charts. Although mangers’ primary roles are to lead their home departments, most are also called upon to take on ad hoc assignments outside those departments. For example, a manger might be asked to lead the implementation of a quality initiative, organization wide. Another might be asked to lead the exploratory negotiations with a potential alliance partner. In some cases, managers take the initiative themselves to champion particular projects, as shown in the work on project champions by Howell (2004) and Markham (2000). Typically, these extra-departmental leadership roles are taken on in addition to the intra-departmental role of leading the home department. These extradepartmental roles may take up a significant part of the manger’s workday (Medcof 2008). Intra- and extra-departmental leaderships differ in significant ways. Medcof (2009) proposed that extra-departmental leadership involves more uncertainty, more complexity, less formal authority and a greater variety of tasks, than does intra-departmental leadership. He proposed that this is so because intra-departmental leadership is more concerned with exploitation tasks. These are well understood and have been systematically codified and formally defined, with a place in the organization’s structure. In contrast, extradepartmental work is more concerned with exploratory tasks, which are not well understood, require significant new learning and problem solving, and may involve unexpected challenges coming from the organization’s environment. Extra-departmental leadership usually involves engaging people from multiple different departments who have to improvise in a collaborative way to accomplish their multifaceted challenges (Medcof 2009). Intra-departmental leadership primarily involves engaging people from the home department, most of whom already know each other and are performing tasks that are comparatively well defined, and with which they are already familiar. Medcof (2008) also proposed that extra-departmental leadership be called ‘expeditionary leadership’, to reflect its exploratory, improvisational nature. Here, we will use the terms ‘extra-departmental’ and ‘expeditionary’ interchangeably to refer to this kind of leadership. The work on extra-departmental leadership shares common intellectual roots with that of Kang et al. (2007). Medcof (2009) positions extra-departmental leadership firmly in the exploration –exploitation framework through the work of Gibson and Birkinshaw (2004), Graetz and Smith (2007), Mom, Van Den Bosch and Volberda (2007) and O’Reilly and Tushman (2004). Kang et al. (2007) trace their roots back to March (1991) through the literature on exploratory and exploitative learning. These common roots provide the conceptual links between the models. Extra-departmental leadership is exploration oriented, and intra-departmental leadership is exploitation oriented. The entrepreneurial relational archetype and the entrepreneurial HR configuration are exploration oriented, and the cooperative relational archetype and cooperative HR configuration are exploitation oriented. It follows that extra-departmental leadership will be more effectively supported by an entrepreneurial HR configuration, while intra-departmental leadership will be more effectively supported by a cooperative HR configuration. The entrepreneurial and cooperative relational archetypes should also be aligned.

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J.W. Medcof and L.J. Song Exploratory Paradigm

Exploitative Paradigm

Exploration

Exploitation

Exploratory Learning

Exploitative Learning

Entrepreneurial Relational Archetype

Cooperative Relational Archetype

Entrepreneurial HR Configuration

Cooperative HR Configuration

Flexible Work Structures

Interdependent Work Structures

Results–based Incentives

Clan Fostering Initiatives

Transspecialist Development

Broader Skill Development

Less Formalized HR Processes

More Formalized HR Processes

Extra-Departmental Leadership

Intra-Departmental Leadership

Figure 1. The exploratory and exploitative paradigms.

Figure 1, which is an extension and revision of Kang et al.’s figures (2007; Figures 4 and 5), captures the correspondences among the several conceptual systems involved. At the top and at the most general level is the distinction between exploration and exploitation in organizations (Graetz and Smith 2007; Raisch et al. 2009). This distinction covers a wide range of organizational elements such as structure, leadership, culture, learning and HR systems. The distinction is theoretically linked to environmental dynamism and the need for improvisational, dynamic capabilities (Hitt, Keats and DeMarie 1998). Next in Figure 1, subsumed under the broad models of exploration and exploitation, are the two more specific activities that are the focus of this paper, learning and leadership. Learning can be exploratory or exploitative (Kang et al. 2007) and leadership can be extradepartmental (expeditionary) or intra-departmental (Medcof 2008, 2009) depending on the context. Continuing in Figure 1, under learning, each learning mode has a particular relational archetype associated with it, entrepreneurial or cooperative, and these are associated, in turn, with the entrepreneurial and cooperative HR configurations. Under each HR configuration are listed the three attributes that Kang et al. (2007) proposed and the one proposed here, formalization. Finally, at the bottom of the figure, the two kinds of leadership are nested within their respective HR processes. This shows that although leadership approaches are broadly set by the exploratory or exploitative context in which they are being executed, they are also affected by the particular HR configurations in which they are nested. In the ideal case, leadership and HR configurations are appropriately aligned with their wider exploratory or exploitative paradigms, and operate synergistically together. In unbalanced systems, leadership and/or the HR configuration may be inconsistent with the broader paradigm, leading to less than optimal performance.


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The proposition that many mangers engage in significant amounts of both intra- and extra-departmental leaderships (Medcof 2009) suggests an opportunity to empirically compare cooperative and entrepreneurial HR configurations. Managers who engage in both kinds of leadership have direct experience of both and are well positioned to make comparisons between them. The empirical test of our hypotheses takes advantage of this circumstance by asking experienced managers to compare HR practices in the two configurations, as they have experienced them, through intra- and extra-departmental leadership. Methodology The data reported in this paper were gathered as part of a larger study comparing intra- and extra-departmental leaderships. A questionnaire was developed to empirically test a number of hypotheses about the differences between the two, including those concerning HR described above. The findings not directly related to HR are not reported here.

Questionnaire The questionnaire was originally developed in English to test hypotheses based on a literature search for papers on leadership inside and outside of the leader’s home department, i.e. in both exploratory and exploitative contexts. Interviews were then conducted with 23 executives to elicit their perceptions of the differences between intraand extra-departmental leaderships, the potential value of researching the differences and the appropriateness of the questionnaire. Executives were chosen on the assumption that they would have personal experience of both kinds of leadership. The feedback from this sample was generally positive and consistent with our theory and research plans. Changes were made to the questionnaire in response to some of their suggestions. The questionnaire was then translated into Chinese. Two Chinese-speaking managers and two Chinese-speaking master’s level students completed the questionnaire and vetted it for clarity and meaningfulness. It took approximately 30 minutes to complete. Changes were made in light of their suggestions. Back translation was used (Brislin 1970) and some adjustments for cultural context made. English and Chinese versions were finalized. Not all the items on the questionnaire are used in the research reported here. The difference between intra- and extra-departmental leaderships was described on the first page of the questionnaire, followed by an assurance of confidentiality and instructions for the completion of the rating scales. Questions on respondent demographics followed. Next, two questions were asked which were intended to confirm that respondents had significant extra-departmental experience. One asked, ‘What percentage of your work time do you spend in non-leadership, extra-departmental activities?’ and the other, ‘What percentage of your time do you spend in expeditionary leadership?’ They responded by writing the percentage in a space provided. Next were five questions that served as a manipulation check to confirm that intra- and extra-departmental leaderships differ in ways that are consistent with the distinction between the exploratory and exploitative paradigms, and the entrepreneurial and cooperative HR configurations. The research on exploration and exploitation (Gupta et al. 2006; Graetz and Smith 2007; Raisch et al. 2009) indicates that exploratory activity is most effective in dynamic, complex environments that require improvisation. Exploitative activity is suitable when there is more stability, less complexity and less of a need for improvisation. To check whether the distinction between intra- and extra-departmental leaderships does capture this

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difference, respondents were asked to compare the two leadership contexts on their levels of uncertainty, complexity and improvisation. If the premises developed above are correct, we would expect the entrepreneurial paradigm to be higher on all three of these indices. Kang et al. (2007), in their discussion of the entrepreneurial and cooperative HR configurations, suggest that they differ in the strength and density of their social networks. In the entrepreneurial, the relationships are weak and non-redundant, with individuals acting as brokers in wide but not very deep relationships. This suggests that, in these circumstances, individuals encounter a wider variety of people than in the cooperative, which is characterized by strong, dense networks with fewer people. Kang et al.’s (2007) description of the social relationships also suggests that informal networking is more characteristic of the entrepreneurial configuration than the cooperative. Given this, the difference between the leadership contexts was checked by asking respondents about the variety of people and the importance of informal networking in the two contexts. If the two leadership contexts do capture the entrepreneurial/cooperative distinction, there should be higher levels of people variety and networking with extra-departmental leadership. So, five questions were asked to check if the distinction between intra- and extra-departmental leaderships captures the differences between exploration and exploitation, and the cooperative and entrepreneurial HR configurations. The format of these five questions is the same as that used to determine the differences in HR practice, which will now be described. Ten questions were used to tap the differences between HR practices in the cooperative and entrepreneurial HR configurations, one question for each of the hypotheses developed above. These questions asked respondents to make direct comparisons between the HR practices under the two configurations. They all had the following format. Selection formality: Low formality means ‘formalized procedures are not normally used in manager selection’ and high formality means ‘formalized procedures are normally used in manager selection’. Rate the degree to which the selection of managers to take up expeditionary and intra-departmental leadership roles follows formalized procedures which are part of the established human resource management system of your firm.

45. 46.

Selection formality, Expeditionary Leadership Selection formality, Intra-departmental leadership

1234567 1234567

The question stems for the five manipulation check and ten HR practice questions are shown in the Appendix. Note that both the manipulation check and HR practice questions were phrased in terms of leadership situations, rather than about practices, in general, or the organizational situation, in general. This was done to standardize the focus of the respondents. With more general questions, different respondents might base their answers on different aspects of their experiences. Focusing on leadership may limit the generality of the findings to some extent but it does clarify which aspects of their experiences are the bases for respondents’ answers. Procedure and analysis Questionnaires were distributed in an MBA class (n ¼ 176) at a distinguished university in Beijing and collected after completion, with a response rate of 100%. They were also distributed in an EMBA class (n ¼ 38) and collected at the next class. The EMBA response rate was 78.9%, giving an overall response rate of 96.26%. The sample includes 206 useable questionnaires.


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The following analyses were conducted. For the two measures of time spent in extradepartmental activities, means of the respondents’ percentage estimates were taken. For the manipulation checks and questions about HR practices, paired comparison t-tests (SPSS 2004) were used. In this procedure, the difference between the ratings for the cooperative and entrepreneurial configurations for each respondent, on each question, was calculated. The mean of these differences for all respondents for each question was then calculated and then t-tested for its difference from 0. Results The sample demographics are as follow. The respondents were 60.8% male, had an average age of 30.7, with 8.4 years of work experience and 5.3 years with their current employers. The results for the questions on percentage of time spent in extra-departmental activities suggest that respondents had significant experience with both the cooperative and entrepreneurial HR configurations. On average, respondents reported spending 20% of their time on non-leadership extra-departmental activities and 13% on extra-departmental leadership. Together, these amount to 33% of respondents’ work time spent in the entrepreneurial HR configuration. The results for the manipulation check show that the intra- and extra-departmental work milieux differ in ways consistent with the entrepreneurial/cooperative distinction. As shown in Table 1, the entrepreneurial HR configuration involves a greater variety of people encountered, more significant networking, higher task uncertainty and complexity, and more improvisation. The tests of Hypotheses 1 through 8 were supportive, as shown in Table 2. The data indicate that HR practices in general are less formal in the entrepreneurial than in the cooperative configuration (Hypothesis 1). Selection practices are also less formal (Hypothesis 2) and less transparent (Hypothesis 3). HR practices for performance appraisal are less formal (Hypothesis 4) and provide less developmental feedback (Hypothesis 5). HR practices for linking performance to compensation are less formal (Hypothesis 6) and weaker (Hypothesis 7) in the entrepreneurial configuration. There was also less leadership training available in the entrepreneurial configuration (Hypothesis 8).

Table 1. Differences between the work in cooperative and entrepreneurial HR configurations (manipulation checks). Differences between HR configurations Variety of people encountered Importance of informal networking Level of task uncertainty Level of task complexity Level of improvisation required

Mean difference

SD

t

df

Significance (two-tailed)

1.81 1.14 1.17 0.63 1.18

2.35 2.54 2.27 1.95 1.90

11.04 6.41 7.40 4.65 8.86

204 202 204 204 203

0.000 0.000 0.000 0.000 0.000

Notes: Values in the ‘mean difference’ column were calculated by first taking the difference between each respondent’s rating for entrepreneurial and cooperative configurations, on each point of comparison. Then the mean of all respondents’ differences for a point was calculated and reported in the ‘mean difference’ column. The standard deviation of those differences is in the third column. The mean was then t-tested for its difference from 0. The significance column shows the significance level of the difference from 0. A positive sign in the ‘mean difference’ column indicates that the entrepreneurial HR configuration was rated more highly on the point of comparison than the cooperative.

1: HR practices in general, formality 2: Selection practices, formality 3: Selection transparency 4: Performance appraisal, formality 5: Developmental feedback 6: Performance – compensation link, formality 7: Performance – compensation link, strength 8: Training provided by formal system 9: Empowerment 10: Formalized work constraints

SD 1.98 2.40 2.33 2.36 2.06 2.48 2.28 2.54 2.21 2.445

Mean difference 2 1.39 2 1.49 2 1.12 2 1.49 2 1.36 2 1.64 2 0.78 2 1.09 2 0.564 2 0.03

29.95 28.79 26.86 28.96 29.39 29.43 24.85 26.11 23.65 20.202

t 201 201 201 201 200 202 201 200 203 201

df

0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.840

Significance (two-tailed)

Notes: Values in the ‘mean difference’ column were calculated by first taking the difference between each respondent’s rating for entrepreneurial and cooperative configurations, on a given point of comparison. Then the mean of all respondents’ differences for that point of comparison was calculated and reported in the ‘mean difference’ column. The standard deviation of those differences is in the third column. The mean was then t-tested for its difference from 0. The significance column shows the significance level of the difference from 0. A negative sign in the ‘mean’ column indicates that formal HR procedures were applied less in the entrepreneurial than in the cooperative configuration, and that empowerment was lower in the entrepreneurial than in the cooperative configuration.

Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis

Hypothesized differences between HR configurations

Table 2. Differences in HR practices under cooperative and entrepreneurial HR configurations.

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Hypotheses 9 and 10 were not supported. For Hypothesis 9, respondents indicated, with statistical significance, that they were more empowered in the cooperative configuration than in the entrepreneurial. This is opposite to the prediction. For Hypothesis 10, respondents indicated that there was no difference between the two configurations in the degree to which organizational rules and procedures curtailed action. Discussion The results of this study show that HR practices for selection, performance appraisal, performance –compensation linkage and training are less formalized in entrepreneurial HR configurations (exploratory) than in cooperative HR configurations (exploitative). And, although it is hypothesized that the reduced formalization provides flexibility for greater improvisation in the more dynamic and complex exploratory context, it has the disadvantage of reducing process transparency, developmental feedback, performance – compensation linkage strength and the training available. These findings are consistent with theories of exploration and exploitation such as Graetz and Smith (2007) and their extensions to HRM (Kang et al. 2007) and leadership (Medcof 2008, 2009). They are also consistent with the view that, in HR practice, one size does not fit all, and practices must be varied in light of the organizational processes to which they are being applied (Lepak et al. 2006; Hong et al. 2009). These results confirm that HR decision makers must balance costs and benefits when designing HR systems for specific contexts. An important contribution of this study is its extension of Kang et al.’s (2007) model. Kang et al. position their ideas at a relatively abstract level, discussing archetypes, configurations and the structural, affective and cognitive dimensions of social relationships. This study, by confirming that degree of formalization is an important parameter around which HR systems can be varied, extends the abstract Kang et al. model to specific HR practices such as selection, performance appraisal and compensation. It also identifies transparency, developmental feedback, performance – compensation linkage and training as specific costs or benefits associated with particular HR practices. Future research might search for other parameters around which HR practices might be varied, in light of theoretical considerations such as those of Kang et al. An important implication of these findings is that formalized HR systems are applied less to exploratory activity than to exploitative. Given the significance of exploration and dynamic capabilities for organizational success (Sirmon, Hitt and Ireland 2007), this raises significant questions about how to get the most strategic value from HR. HR systems being applied in exploitative, cooperative HR configurations can strive for high formalization based on the stable tasks to be accomplished. As work demands become more dynamic and complex, formalized systems become less functional and adjustments have to be made. Perhaps the most fundamental strategic question facing HR today is, ‘If traditional, formalized HR systems are not applicable in the entrepreneurial paradigm, what are the alternatives?’ One answer is that the alternatives should be less formal, and this does suggest a path for further investigation. Alternatively, we might look for research on established HR practices in contexts that are exploratory and entrepreneurial. One such context is found in project-oriented companies. For example, Huemann, Keegan and Turner (2007) propose that, in project-oriented companies in which project assignments can be short, HRs are subjected to a highly dynamic environment with endemic discontinuity. People may work on multiple projects at the same time, taking different roles in each project (e.g. leader, team member or sponsor). Selection processes must screen on the ability to multitask, on tolerance for ambiguity and role flexibility, to a greater extent than in more stable

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environments. Career planning takes on quite a different meaning if employees are cycling through several projects a year and one is attempting to match employees with career development opportunities in projects with varying time frames of availability and varying skill demands that may limit the ability of the employee to contribute. Unfortunately, there is little research that takes entrepreneurial HR configurations as its focus (Huemann et al. 2007), a shortcoming that should be rectified. The data in this study are supportive of the theories being tested, but the limitations of the study suggest cautions. The use of experienced individuals to make comparative ratings of practices in the two HR configurations is certainly an advantage, but it brings with it the risk of common method bias. This weakness can be rectified with more independent measures in future research. However, asking separate samples in the two paradigms to rate their own situations has the problem that the samples would be selfselected into their different paradigms, to some extent. That opens many questions about which variables can explain any differences found. Another weakness of the present study is that there are no performance measures. It was found that formalized procedures are not as applied in the entrepreneurial paradigm as in the cooperative. Does this indicate that the practices are not applicable (as argued above) or that they are applicable but that most firms are not applying them, to their detriment? This could be investigated in a number of ways, one of which would be to use the intra- and extra-departmental distinction to operationalize the distinction between entrepreneurial and cooperative paradigms. Performance measures specific to the two configurations could be used to determine which HR practices are most appropriate in each. This approach could complement other studies that look at more general outcome measures. Another weakness of this study is that a sample of convenience was used consisting of MBA students in particular classes, in a particular university, in a particular country. The generalizability of the findings is, therefore, in question and needs to be confirmed with data from more varied samples. Cultural differences are of particular concern in this regard. The interviews with executives carried out during the development of the questionnaire yielded some information, which, although not collected and analyzed with the same rigor as the questionnaire data, is suggestive. Some executives noted that good extra-departmental leaders are harder to find than good intra-departmental leaders. They are more difficult to replace and one is always reluctant to lose them. It was also observed that they are very valuable to the firm because they provide networking to important players in the organization’s environment and play an important role in responding to unexpected changes in the environment. One executive noted that, for this reason, good extra-departmental leaders are more highly paid than good intradepartmental leaders. These observations are consonant with applications of the resource-based view (RBV) to HR theory (Lepak and Snell 2002). From the executive descriptions, it seems that good extra-departmental leaders are more valuable, rare, inimitable and difficult to substitute for, than good intra-departmental leaders. These are the hallmarks of strategically valuable resources in the RBV. It suggests the strategic importance of human capital which can perform expeditionary – exploratory work, and the importance of HR systems and practices which support and enhance such work. Presumably, this applies not just to leaders but to other contributors as well. It suggests the importance of developing a firmer theoretical and practical grasp of best practices for the paradigm. It is also reassuring that the executives’ observations based on long experience are consistent with the findings and theorizing of rigorous research. The executives also had suggestions about what the best practices for the entrepreneurial HR configuration might be. For example, they should involve significant


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emphasis on creativity, problem-solving ability with novel problems and the ability to take the initiative. Performance appraisal presents some challenges. For example, different ad hoc tasks have different a priori probabilities of success and these are difficult to discern, so outcome measures of performance have limitations. Likewise, for work process measures, since there are usually no detailed, reliable prescriptions about how ad hoc work should be done. Compensation should also be different, as suggested in the differential pay observation mentioned above. Job rotation through multiple departments and projects is more important for exploratory/extra-departmental training than for exploitative/intradepartmental. Rotation builds an extra-departmental perspective as well as networks for future exploratory work. These executive observations provide a number of suggestions about the differences between cooperative and entrepreneurial HR configurations that might be subjected to systematic research for confirmation. The suggestions made in this study are specific to just one role, leadership, and to one set of activities, HR practice. Extensions to other aspects of the entrepreneurial configuration might also be made. Theoretical advances have also been made in this paper. Kang et al.’s (2007) linking of exploratory and exploitative learning to relational archetypes and HR configurations was a significant advance, and here it has been explicitly linked to the broader exploration/exploitation paradigm, to intra- and extra-departmental leaderships, to the level of formalization of some HR practices and their associated strengths and weaknesses. Such theoretical integration strengthens the explanatory power of all the theoretical models included and contributes to the development of ever more comprehensive theories of organizational function. The next step for theory may be to conceive other ways in which differential formalization contributes to the two paradigms. The theoretical inclusion of formalization as an empirically verified differentiator holds promise for those who argue the value of differentiated HR systems. Formalization and the associated ideas about adaptability to dynamic environments might well provide a theoretical cornerstone for their theorizing. The results of this study show that HR practices for selection, performance appraisal, performance–compensation linkage and training are less formal in entrepreneurial HR configurations than in cooperative HR configurations. This has the disadvantage of reducing process transparency, developmental feedback, performance–compensation linkage strength and the training available. These data are consistent with theories of exploration and exploitation, their extensions to HRM and leadership, and the view that HR practices should be varied depending on their context and purpose. Decision makers must balance costs and benefits when designing an HR system for a particular context. Given the importance of exploratory activity in the dynamic business environment, issues around entrepreneurial HR configurations deserve significant theoretical, empirical and practical attention. Acknowledgements This project has been supported by the National Natural Science Foundation in China (Project no. 71072142, 71202147) and the Management of Innovation and New Technology Research Center, McMaster University.

References Brislin, R.W. (1970), ‘Back-Translation for Cross-Cultural Research,’ Journal of Cross-Cultural Psychology, 1, 3, 185– 216. Chow, I.H., Huang, J.-C., and Liu, S. (2008), ‘Strategic HR in China: Configurations and Competitive Advantage,’ Human Resource Maanagement, 47, 4, 687– 706. Combs, J., Liu, Y., Hall, A., and Ketchen, D. (2006), ‘How Much Do High Performance Work Practices Matter? A Meta-Analysis of Their Effects on Organizational Performance,’ Personnel Psychology, 59, 501– 528.

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Gibson, C.B., and Birkinshaw, J. (2004), ‘The Antecedents, Consequences, and Mediating Role of Organizational Ambidexterity,’ Academy of Management Journal, 47, 2, 209–226. Graetz, F., and Smith, A.C. (2007), ‘The Role of Dualities in Arbitrating Continuity and Change in Forms of Organizing,’ International Journal of Management Reviews, 10, 3, 265– 280. Gupta, A.K., Smith, K.G., and Shalley, C.E. (2006), ‘The Interplay Between Exploration and Exploitation,’ Academy of Management Journal, 40, 4, 693– 706. Hitt, M.A., Keats, B.W., and DeMarie, S. (1998), ‘Navigating in the New Competitive Landscape: Building Strategic Flexibility and Competitive Advantage in the 21st Century,’ The Academy of Management Executive, 12, 4, 22 – 42. Hong, Y.K., Kim, A., Winkler, A., Jiang, K., Kim, M., and Han, K. (2009), ‘General Versus Targeted HR Systems: Striving for Accuracy and Generalizability,’ Paper presented at the Annual Meeting of the Academy of Management, August 7 – 11, Chicago, Illinois, USA. Howell, J.M. (2004), ‘Champions of Technological Innovation: The Influence of Contextual Knowledge, Role Orientation, Idea Generation, and Idea Promotion on Champion Emergence,’ The Leadership Quarterly, 15, 1, 123– 143. Huemann, M.K., Keegan, A., and Turner, J.R. (2007), ‘Human Resource Management in the Project Oriented Company: A Review,’ International Journal of Project Management, 25, 3, 315–323. Kang, S.M., Morris, S.S., and Snell, S.A. (2007), ‘Relational Archetypes, Organizational Learning, and Value Creation: Extending the Human Resource Architecture,’ Academy of Management Review, 32, 1, 236– 256. Lepak, D.P., Liao, H., Chung, Y., and Harden, E.E. (2006), ‘A Conceptual Review of Human Resource Management Systems in Strategic Human Resource Management Research,’ in Research in Personnel and Human Resource Management, ed. J. Martocchio, 25, 217–271. Oxford, UK: Elsevier. Lepak, D.P., and Snell, S.A. (2002), ‘Examining the Human Resource Architecture: The Relationship Among Human Capital Employment and Human Resource Configurations,’ Journal of Management, 28, 517– 543. March, J.G. (1991), ‘Exploration and Exploitation in Organizational Learning,’ Organization Science, 2, 71 – 87. Markham, S.K. (2000), ‘Corporate Championing and Antagonism as Forms of Political Behaviour: An R&D Perspective,’ Organization Science, 11, 4, 429– 447. Medcof, J.W. (2008), Expeditionary Leadership: Leaders Impacting Their Environments. Paper presented at the Annual Meeting of the Academy of Management, August 8 – 13, Anaheim, California, USA. Medcof, J.W. (2009), Expeditionary Leadership on the New Competitive Landscape. Paper presented at the Annual Meeting of the Academy of Management, August 7 – 11, Chicago, Illinois, USA. Mom, T.J.M., Van Den Bosch, F.A.J., and Volberda, H.W. (2007), ‘Investigating Managers’ Exploration and Exploitation Activities: The Influence of Top-down, Bottom-up, and Horizontal Knowledge Flows,’ Journal of Management Studies, 44, 6, 910–931. Nemanich, L.A., Keller, R.T., and Vera, D. (2007), ‘Managing the Exploration/Exploitation Paradox in New Product Development: How Top Executives Define Their Firm’s Innovation Policy,’ International Journal of Innovation and Technology Management, 4, 3, 351– 374. O’Reilly, C.A., and Tushman, M.L. (2004), ‘The Ambidextrous Organization,’ Harvard Business Review, 82, 4, 74 – 81. Raisch, S., Birkinshaw, J., Probst, G., and Tushman, M.L. (2009), ‘Organizational Ambidexterity: Balancing Exploitation and Exploration for Sustained Performance,’ Organization Science, 20, 4, 685– 695. Sirmon, D.G., Hitt, M.A., and Ireland, R.D. (2007), ‘Managing Firm Resources in Dynamic Environments to Create Value: Looking Inside the Black Box,’ Academy of Management Review, 32, 1, 273– 292. SPSS Inc. (2004), SPSS 13.0 Base Users Guide. Chicago, IL: Prentice Hall. Tushman, M.L., and O’Reilly, C.A. (1996), ‘Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change,’ California Management Review, 38, 4, 8 – 30. Ulrich, D.Y., Younger, J., and Brockbank, W. (2008), ‘The Twenty-First-Century HR Organization,’ Human Resource Management, 47, 4, 829– 850.


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Appendix: Question stems for manipulation check and HR practice questions Manipulation checks 1. Variety of people: Low variety means ‘usually interact with a relatively small group of people who do not change much’ and high variety means ‘normally work with a wide variety of different people and often encounter new people’. Rate the variety of people you interact with while engaged in each type of leadership. 2. Networking: 1 represents that ‘informal relationships have a modest role’ and 7 represents that ‘informal relationships are critical to success’. Rate the importance of informal, networking relationships for the success of the two types of leadership. 3. Task uncertainty: 1 represents that ‘the work involves little uncertainty’ and 7 represents that ‘the work involves high degrees of uncertainty about what to do and how the results will turn out’. Rate the degree of uncertainty in the work you do in each leadership role. 4. Task complexity: 1 represents that ‘the work is simple and easy to understand’ and 7 represents that ‘the work involves complex issues and relationships that are difficult to understand and to deal with’. Rate the complexity of the work you do in each leadership role. 5. Improvisation: 1 represents that ‘very little improvisation is needed because known solutions to the problems encountered are already available’ and 7 represents that ‘a great deal of improvisation is needed because there is no well accepted set of solutions for the challenges encountered’. Rate the amount of improvisation needed to carry out the tasks associated with each leadership role.

HR practices 6. HRM system: 1 represents that HRM system ‘provides no systems of support for management’ and 7 represents that ‘HRM System provides very useful, effective support for management’. In summary, rate the degree to which the formalized HRM system of your organization provides effective mechanisms to support the management of each kind of leadership. 7. Selection formality: Low formality means ‘formalized procedures are not normally used in manager selection’ and high formality means ‘formalized procedures are normally used in manager selection’. Rate the degree to which the selection of managers to take up expeditionary and intra-departmental leadership roles follows formalized procedures that are part of the established HRM system of your firm. 8. Selection transparency: Low transparency means ‘possible candidates in manager selection are unaware until after the decision is made and do not know the basis for the decision’ and high transparency means ‘possible candidates are aware in advance of the availability of the leadership role to be filled and how they can put their names forward for it’. Rate the degree to which the selection of managers to take up each type of leadership role is done through a clear, open procedure that possible candidates are aware of and understand. 9. Performance appraisal: 1 represents that ‘the system provides no clear place for good or poor performance to be formally assessed, recorded and acted upon’ and 7 represents that ‘the system provides a clear place for good or poor performance to be formally assessed, recorded and acted upon’. Rate the degree to which the

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formal HRM system of the organization provides a specified place for the performance appraisal of activities associated with the two kinds of leadership. 10. Developmental feedback: 1 represents that ‘no systematic feedback on performance is provided’ and 7 represents that ‘there is a well defined formal system which specifies when and how feedback is to be given’. Rate the degree to which developmental feedback on performance for each kind of leadership is provided through the formal HRM system of your organization. 11. Compensation formality: Rate the degree to which the HRM system of your organization provides a formalized mechanism for linking compensation to effective performance in each type of leadership. 12. Compensation: 1 represents that ‘good leadership performance has no effect on compensation’ and 7 represents that ‘good leadership performance is appropriately rewarded through increased compensation’. Rate the degree to which good performance on each kind of leadership affects compensation in your organization. 13. Training: 1 represents that ‘very little is taught in training programs’ and 7 represents that ‘very significant amounts of training are provided’. Rate the degree to which the firm’s training programs teach skills and information for each kind of leadership. 14. Empowerment: 1 represents that ‘you are not empowered to make any important decisions’ and 7 represents that ‘you are empowered to make decisions of very significant importance to the organization’. Rate the degree to which you are empowered to make important decisions in each role. 15. Formalized constraints: 1 represents that ‘formal constraints do not usually prevent effective action I can take’ and 7 represents that ‘formal constraints often interfere with effective action’. Rate the degree to which organizational rules and procedures curtail the actions you can take.