Strategic human resource management in European transition ...

Strategic human resource management inEuropean transition economies: building aconceptual model on the case of Slovenia

Nada Zupan and Robert Kase

Abstract The general SHRM models explain the link between HR and companyperformance; however, due to several specific internal and external factors, they have to bemodified in order to be applied to companies in European transition economies (ETEs). Byanalysing the current state of HRM and the HR context in Slovenia, we develop aconceptual SHRM model for ETEs. The model introduces a new specification of theHR context, emphasizing HR facilitators, and an additional moderating construct the HRpower, to have more explanatory power for studying the HR–company performance linkin ETEs. The paper also addresses the importance of issues relating to the empiricalvalidation of the model in ETEs and suggests ways to further develop SHRM in thesecountries.

Keywords Human resource management; conceptual model; transition economies;HR strategy; performance; Slovenia; Central and Eastern Europe.

Introduction

Searching for ways to increase competitiveness is a dominant theme in the modernbusiness world. With the acknowledgement that human resources can be one of the keycontributors in this quest, the field of strategic human resources management (SHRM)has gained legitimacy and attention. The early writings on SHRM go back to the early1980 s and were dominated by US authors, such as Dyer (1984), Beer et al. (1984) andFombrum et al. (1984). Their efforts primarily aimed to explain the role of humanresources in improving company performance and to design models of variouscontextual and HRM elements in establishing the HR–company performance link. In the1990 s the focus of US research shifted to which particular HRM processes and practices,and how they are actually integrated, add value and contribute to company performance(e.g. Wright and McMahan, 1992; Wright et al., 1994, 2001; Huselid, 1995; MacDuffie,1995; Becker and Gerhart, 1996; Delery and Doty, 1996; Youndt et al., 1996; Huselidet al., 1997; Wright and Snell, 1998; Delery, 1998; Lepak and Snell, 1999, 2002). Earlyin the same decade, the European response from mostly UK authors raised the questionof whether the US models could be applied in Europe, emphasizing that Europeanenterprises operate in a different contextual setting involving the stronger role of the state

The International Journal of Human Resource Management

ISSN 0958-5192 print/ISSN 1466-4399 online q 2005 Taylor & Francis Group Ltd

http://www.tandf.co.uk/journals

DOI: 10.1080/09585190500120525

Nada Zupan and Robert Kase, Faculty of Economics, University of Ljubljana, Kardeljeva pl. 17,

1000 Ljubljana, Slovenia (tel: þ386 1 5892 400; fax: þ386 1 5892 698; e-mail

[email protected]).

Int. J. of Human Resource Management 16:6 June 2005 882–906

and trade unions as well as public sector enterprises, different cultures and traditions (e.g.Guest, 1990, 1991; Brewster, 1995). Western European research in strategic HRMgained momentum towards the second half of the 1990s, mostly describing HR as it isembedded in various national contexts and thereby emphasizing the firm-externalperspective rather than the firm-internal perspective mostly found in the US research(e.g. Camuffo and Costa, 1993; Hiltrop, 1996; Tyson, 1995; Guest, 1997; Paauwe, 1996;Boxall and Purcell, 2000; Boselie et al., 2001; Camelo et al., 2004; Cabral-Cardoso,2004).

Nevertheless, there is still an important part of Europe about which we know verylittle in terms of human resource management. These are the so-called Europeantransition economies (ETEs), meaning the Central and Eastern European countries thatstarted their transition from centrally planned (Soviet bloc) or labour-managedeconomies (ex-Yugoslavia) to market economies at the start of the 1990s. We believethat knowledge about HRM in these transition countries is important for several reasons.ETE companies and their HRM operate in specific external and internal conditions due tothe transition process; thus general SHRM models may not have sufficient explanatorypower. Eight of ETE countries (Czech Republic, Estonia, Hungary, Latvia, Lithuania,Poland, Slovakia and Slovenia) joined the European Union (EU) in May 2004 and willbring their diversity into common EU market and institutions, while many others aspireto join in the next phase. Further, ETEs cover a large geographical area and comprise asignificant market, so they are important not only as trading and business partners but,due to their market potential, relatively low labour costs and skilled workforce, they arealso attractive to foreign direct investment (Carstensen and Toubal, 2004). Knowingmore about HRM in ETEs would thus also facilitate the development of more effectivebusiness ventures.

Recently, some ETEs (Bulgaria, Czech Republic, Estonia, Hungary, Poland, Sloveniaand Russia) were included in the CRANET research comparative studies of EuropeanHRM, while four of them (Bulgaria, Czech Republic, Estonia and Slovenia) have alreadyreceived attention in the latest CRANET publication (Brewster et al., 2004). Thus, somesystematic information on the development of the HRM function in these countries hasbecome available. However, studies exploring the area of strategic HRM in ETEs are stillvery rare. Although at first glance there seems to be a lot of literature describing HRM indifferent ETEs (Jankowicz, 1998), a closer look reveals that most articles deal with casestudies, focus on foreign MNC subsidiaries or draw conclusions from small andunrepresentative samples. There are either general descriptions of HRM in specific ETEssuch as the Czech Republic (Koubek and Brewster, 1995; Tung and Havlovic, 1996;Mills, 1998), Slovenia (Zupan, 1998), Hungary (Pearce, 1991; Bangert and Poor, 1993),Poland (Tung and Havlovic, 1996; Crow, 1998), Russia (Fey et al., 1999; May et al.,1998; Shekshnia, 1998), or a discussion of specific HR practices like selection, trainingand development, performance management, motivation, and compensation (e.g. Cakrt,1993; Puffer, 1993; Vikhanski and Puffer, 1993; Kiriazov et al., 2000; Szalkowski andJankowicz, 2004). On the other hand, only a few texts refer to strategic HRM issues(Garavan et al., 1998; Jankowicz, 1998; Letiche, 1998; Fey et al., 2000; Fey andBjorkman, 2001; Weinstein and Obloj, 2002; Zupan and Ograjensek, 2004). We see thislack of a strategic perspective for HRM in ETEs as an opportunity for our contribution toimprove understanding of HRM and its effects in ETEs, as well as to bring new oradapted concepts to the forefront of SHRM discussions in general. We do not claim thatETEs are a completely homogeneous group with regard to their HRM contexts andpractices, but we believe there are enough similarities to allow a conceptual model ofstrategic HRM in ETEs to be developed. We will develop the model based on the analysis

Zupan and Kase: SHRM in European transition economies 883

of HRM in Slovenia because two large research projects resulting in extensive reportson HRM and its context were carried out when analysing the transition period(Prasnikar, 1999; Svetlik and Ilic, 2004). Thus, we will be able to incorporate bothcontextual and firm perspectives. By doing so, we will link the two prevailing paradigmsin SHRM research, namely, the universalist and contextualist (Brewster, 1999). The firstcontinues to search for ways to improve the way human resources are managed withincompanies by finding general rules of enhancing the HR–performance link. Thecontextualist paradigm is less concerned with the final impact of HR on performance, butaims instead at understanding the difference in HRM that occurs due to the variouscontexts in which companies operate. Brewster believes this second approach is morevalid for the European setting because institutional factors play an important role withregard to HRM. We argue that, for ETEs, it is also very important to analyse the specificlinks between the use of resources (including HR) and company performance becausemost ETE companies are struggling to improve their competitiveness in order to catch upwith their competitors from more developed countries. Thus, there are two aims of thispaper. By assessing the current state of HRM in ETEs we will follow the contextualistparadigm and try to find explanations of how and why HRM in ETEs, and particularly inSlovenia, differs from other European regions and the US. Our second aim is more in linewith the universalistic paradigm of SHRM since we will try to design a conceptual modelof SHRM for ETEs. This could also serve as a useful tool for improving companyperformance through HR. We believe that combining both paradigms can bring valuabletheoretical contributions to the field of SHRM as well as useful guidelines for HR policy-makers and HRM practitioners.

Key characteristics of European transition economies with regard to HRM

The beginning of the 1990s saw the collapse of both Soviet-type state socialism andworkers’ self-management in Yugoslavia, in turn opening the door for the process oftransition to open market economies. Also, many independent countries (from ex-Sovietand Yugoslav republics and former Czechoslovakia) emerged and had to adapt theirpolitical and economic systems to their new status. Therefore, most ETEs had toimplement widespread and simultaneous changes to their political, social and economicsystems. Although the approaches taken to change and the success rates have differedamong ETEs, there are some common factors of the transition period. With regard to thetransition to a market economy, three main and systematic developments can bedescribed (Svejnar, 2000): 1) by establishing a market system and new firms economiesnow operate under a market mechanism (sometimes still imperfect, but functioning,especially in countries that recently joined the EU): most prices are free and reflect therelative scarcity of resources and new private firms are rapidly growing; 2) trade has beenreoriented from east to west, thereby entering much more competitive markets; and 3) thesocial security net has been built through unemployment benefits and the broadly definedwelfare system (welfare, pension and health care benefits), the system that in mostcountries (except Russia) prevented the emergence of major income inequality andpoverty. A tripartite system of managing industrial relations has emerged in most ETEs,involving the state, employers and trade unions developing social pacts onmacroeconomic objectives, helping to promote social peace, even though typically themain burden of economic restructuring was typically on wage earners (ILO, 1995).In general, the situation regarding industrial relations institutions and the power of labouris more favourable in those ETEs that joined the EU in May 2004 because they had tosynchronize their institutional framework and practices with EU standards (Martin and

884 The International Journal of Human Resource Management

Cristescu-Martin, 2003). Elsewhere, organized labour remains weak under high levels ofunemployment although it has been able to exert some political influence on the revisionsof Labour Codes.

Throughout the transition period, the main economic issues were privatization andeconomic restructuring at both national and company levels. With regard toprivatization, several models can be described (Gray, 1996; Svejnar, 2000). Forexample, in Hungary, due to its large international debt most state-owned enterpriseswere quickly sold off to the highest bidder (mostly foreign investors). In the CzechRepublic and Slovakia, state enterprises were privatized chiefly to outsiders through avoucher method. In Russia and Slovenia, on the other hand, a voucher method was alsoused but insiders held major stakes in the privatization process. This issue of insider vsoutsider privatization is important because research (Frydman et al., 1999) suggests thatthe second approach leads to faster restructuring and improved performance. It isespecially by acquiring resources from foreign investors, as well as gaining access toassets and capabilities, that transition companies can build an important competitiveadvantage (Fahy et al., 2003). The privatization method also largely influenced corporategovernance, but in most cases where ownership remained in the hands of domesticowners the power of managers and workers (insiders) is significant and neither thegovernment nor the new (largely dispersed) private owners provide effective control(Svejnar, 2000).

Economic restructuring was aimed at resolving several of the inefficiencies allowedby previous socialist systems such as over-employment due to full-employment policies,disregard of labour costs issues, the inefficient use of resources and the protection of poorperformers against bankruptcy (Aghion et al., 1996; Prasnikar et al., 1994). In ETEsthere are two distinct approaches to enterprise restructuring (Grosfeld and Roland, 1997):defensive (cost-related) and strategic (revenue-focused). Research findings suggest that,among investments, those in research and development, marketing and HR development(especially the development of managers) are more important for effective restructuringthan an investment in physical capital (Prasnikar et al., 2000).

With regard to human resources, the need to move away from mostly administrativetowards more strategic and business-oriented HRM has emerged. Although, these days,managers in transition economies mostly follow their global counterparts by claimingthat people are their crucial source of competitiveness, there is little evidence that thisshift in conceptual understanding has actually contributed to the development of HRM.Top managers were often preoccupied with the privatization processes and thus did notpay sufficient attention to other business functions (Gray, 1996), including HRM. Whilesome changes in HR practices and HR roles during the past decade have emerged inETEs and most countries have moved away from the old models, the extent and successof changes varies a lot (Hanel et al., 1997; Brewster et al., 2000). In general, we canobserve that the strategic component of HRM has so far been poorly developed:consistent HR strategies are rarely designed, HR managers are often not members of topmanagement and consequently do not get involved in managing strategic business issues,while HR practices supporting business needs are not effectively implemented (Garavanet al., 1998; Zupan, 1998).

Yet, a more significant transformation of the HR function could be observed inforeign-owned companies which bring in their own HRM models and practices (Mills,1998; Kiriazov et al., 2000). In the foreign subsidiaries of MNCs, the reform of selectionprocedures, compensation and performance management systems is the first step takenby HR departments. These reforms are used as instruments of the management of changefor shaping a new corporate culture (Taylor and Walley, 2002). These Western HRM


models are then often disseminated to the domestic sector through the foreign

subsidiaries of MNCs and HR consulting services. They are accepted on a wide

continuum that ranges from uncritically accepting them through misusing these practices

for power and influence to strong resistance (Taylor and Walley, 2002). The result is

immense differences in how HR practices are adopted both between and within industries

in transition countries, especially when comparing the domestic and international

sectors. HR departments in the domestic sector of ETEs which had Soviet-type, centrally

planned state socialism were stigmatized by their previous role as state administrators.

To guarantee discontinuation of such practices, HR departments were deliberately kept

out of strategic decision-making in the early transition before they were thoroughly

restructured and re-staffed (Soulsby and Clark, 1998). In addition, the lack of managerial

skills and strategic insight has prevented HR specialists and especially line managers

from developing strategic HRM. Even if pro forma HR strategies are designed they do

not fit business strategies well, for these have mainly been dealing with business

restructuring and downsizing, while adequate HR activities are rarely implemented

(Kiriazov et al., 2000; Uhlenbruck et al., 2003). Thus, we may conclude that, in many

ETE companies with a majority of domestic ownership, centralized and administrative

HR practices prevail.Another reason for this slow transformation is also found in the lack of HRM

tradition and systems prior to the transition, which has been recognized as an obstacle

to HRM development (Jennings et al., 1995). For the Soviet-bloc ETEs, all important

HRM issues (e.g. compensation, manpower planning and staffing) in the previous

system were determined by the state and often discussed in the political arena

(Prokopenko, 1994). The head of an HR department in state-owned enterprises was

mostly involved with staffing issues. The main goal was to ensure that workers,

especially those holding important jobs, had a proper political background. At the

operational level, tasks were merely administrative in their nature, strictly following the

legislation and imposed guidelines. The Yugoslav system was more market-oriented

and open towards the West (Prasnikar and Svejnar, 1988). It also gave the company

level more freedom to make decisions and thus management was slowly evolving and,

throughout the pre-transition period, it became better developed than in other socialist

countries. With regard to HRM other than administrative and legal issues, some

professional topics were emerging such as job design, job safety, job evaluation,

selection, training and development. Of course, most attention had to be paid to those

issues emphasized by the personnel policy guidelines at the state/political party levels.

Although the HR function gained some importance, in reality the administrative role at

the company level still prevailed (Brekic, 1983).From the above discussion we may conclude that, after more than a decade of

transition efforts, the future challenges for ETEs relate to their struggle for sustainable

economic growth. In this respect, the issues of human capital development and

deployment are becoming crucial (Svejnar, 2000). At the company level, this means that

the HRM agenda has to shift towards developing HR and improving the link between HR

and company performance. We believe that for this shift to happen there needs to be an

overall development of HRM knowledge for ETEs, from which policy-makers and HRM

practitioners can draw useful ideas. Before presenting a conceptual model of strategic

HRM in ETEs, which may yet be one of the contributions to developing this HRM body

of knowledge, we examine the Slovenian HRM situation in more detail.


HRM in Slovenia

Slovenia is an ex-Yugoslav republic that gained its independence in June 1991. Slovenia,with its two million inhabitants, was the most developed Yugoslav republic, with theothers achieving only from 10 per cent to 65 per cent of Slovenian GDP (gross domesticproduct) per capita, while, due to its position in the north-west of the former country, itdeveloped many business ties with Western Europe even prior to the transition period(Gligorov, 2004: 27). In May 2004 Slovenia joined the EU and, with its GDP per capita at70 per cent of the EU average, it remains the most developed country in the region ofCentral and Eastern Europe (Inotai and Stanovnik, 2004).

The HRM context during the transition period

The whole process of Slovenia’s transition from a Yugoslav republic to an EU memberstate is explained in great detail in a recent book by Mrak et al. (2004). Here, we willbriefly summarize the main contextual characteristics, especially as they pertain to HRM.In general, there are three key features of the Slovenian transition process: 1) Sloveniachose a gradual approach to transition which gives economic agents more room to adaptand thus they are able to better absorb the changes, a strategy that seemed to work forSlovenia (as the economic indicators suggest); 2) as a new independent state, Sloveniamoved from a regional to a national economy, so many important transition tasks werenot related to economic issues but to those crucial for creating a sovereign state(e.g. national currency, customs system, diplomatic network); and 3) the legacy offormer Yugoslavia with a strong tradition of a quasi-market system, with relativelyindependent enterprise management structures and workers’ self-management givingworkers an important role in enterprise decision-making, influenced transition processesand institutions. For example, Slovenia opted for the strong role of insiders (managersand employees) in the privatization process. This has led to a dispersed ownershipstructure in Slovenian enterprises and very low involvement of foreign capital inprivatization. Therefore, in many companies the effects of ‘employee-ism’ could beobserved, whereby an important proportion of added value goes to wages and other formsof income rather than investment (Prasnikar et al., 2000).

Transition has also brought major changes to the labour market. Due to the moreliberal labour legislation, enterprises were allowed to lay off redundant workers (buthad to pay relatively high levels of severance pay). Mass downsizing together withcompany closures increased the numbers of the registered unemployed from 35,000 in1990 to 138,000 in 1994 and then, due to new job creation and lower job destructionrates, registered unemployment dropped to 103,000 in 2001 or, using the ILO’smeasure, the unemployment rate in 2001 was 5.9 per cent (Vodopivec, 2004). Theaverage gross monthly wage in 2003 was around EUR 1,083 (Statistical Office of theRepublic of Slovenia, September 2004). Further, Slovenia introduced mandatoryminimum wages in 1995, with their level remaining relatively stable at around 40 percent of the average wage. Finally, high taxes on labour have been imposed (the taxwedge of 48 per cent here being defined as the sum of social security contributions andpersonal income taxes as a proportion of total labour costs) and, compared to otherETEs, both job security and labour costs in Slovenia are relatively high which, in turn,reduces the labour market’s flexibility.

With regard to the industrial relations system and institutions, similarly to otherETEs, Slovenia has put in place a tripartite model of social dialogue and collectivebargaining at both national and industry levels. The role of trade unions had to changeas well, for today they have to fight for employee protection, wages and employee


rights, things that were more or less guaranteed under the previous system of socialistself-management. Unionization levels in Slovenia are still relatively high, especiallycompared to some Western European countries, although there has been a significantdrop in trade union membership from 58.6 per cent in 1994 to 42.8 per cent in 1999,with a steady decline of 2 percentage points per year since 1995 (Stanojevic, 2000).In addition, due to the 1993 Codetermination Act, employees have the right toparticipate in company decision-making through the workers’ council and employeerepresentation on supervisory boards.

Some major changes in labour legislation were brought by the Slovenian LabourRelations Law of 1991, and some additional labour legislation adopted in 1994.Beside establishing managers as the main decision-makers with regard to HR issues, themost visible area of change was ‘employee termination’. Some new reasons forterminating an employment contract were added: incompetence, refusal to performassigned tasks and, most importantly, redundancy due to operational, technological ororganizational company circumstances. In 2002 a new Labour Law was passed, whichenhances the contractual (emphasizing the employment contract) and individual natureof the employment relationship, enforces only minimal standards of the (individual)employment relationship, leaving any higher standards to be determined by means of acollective agreement, and introduces more flexibility into the employment relationship.

With regard to enterprise restructuring, the evidence shows that Slovenian privatizedenterprises have undertaken limited defensive restructuring and relatively successfulstrategic restructuring compared to other ETEs (Domadenik and Prasnikar, 2004). At theforefront of restructuring efforts was a group of leading, internationally well-positionedSlovenian companies, involving many modern managerial practices and approachesbeing successfully implemented. On the other hand, many enterprises (especially frommore domestically oriented industries) have lagged behind in their adjustment to the newopen-market system.

Overall, we may conclude that the Slovenian transition was relatively successfulcompared to other ETEs (Svejnar, 2002), but we must note here that Slovenia’s initialconditions were much better in terms of economic development and better developedmanagerial and market know-how. However, as described in the book by Mrak et al.,(2004), many challenges remain, mostly related to the curtailing of inflation, institutionalreforms of the pension and health-care systems, doing away with the imperfections ofcapital and labour markets and further restructuring of the corporate and private sectors(e.g. ownership consolidation and effective corporate governance).

The current state of HRM in Slovenia

As indicated in the introduction, we have had the opportunity to explore the SlovenianHRM situation in detail, since at the end of the 1990s we took part in a data-abundantresearch project conducted by a group of researchers at the Faculty of Economics inLjubljana called the ‘Behaviour of Slovenian Enterprises during the Period of Transitionto a Market Economy’ (BSET research). During the 1996–8 period, 112 large andmedium-sized companies, which were socially owned and had to go through theprivatization process, participated in the research. Companies in the sample employedabout 10 per cent of the total Slovenian workforce. Data were collected for different areas(e.g. corporate governance, business strategy, marketing, finance, HR), with thefunctional managers in each company providing the data. The questionnaire regardingthe HR function was filled in by the HR manager, while questions pertaining to thecompany strategy were answered by the general manager. The advantage of the sample is


that it does not only include extremes (either success stories or failures), as most often

described in case studies, but instead includes a set of companies with varying degrees of

success in transforming their business. We may therefore make some generalizations

with regard to the overall state of HRM development. In addition to the questionnaires,

we also conducted several interviews to collect in-depth information about particular

issues.The analysis of our data confirms that in general Slovenian companies have not been

very successful in transforming their HRM function towards a more strategic partner

role, as described, for example, by Ulrich (1997). The research has shown that in practice

we can find several models of HRM, which differ with regard to the complexity of the

HR activities involved and the overall strategic orientation of the function. Similar to the

findings of Monks (1992) for Ireland, our data suggest that we can observe conservative

or administrative models, as well as more professional and strategic HRM models, with

the latter mostly being seen in those companies mainly competing in international

markets (Zupan and Ograjensek, 2004). In our sample, about half of the companies

reported that they have a written statement of their HR strategy, which is not very

different from other European countries in about the same time period (Table 1). But a

closer look reveals that such an HR strategy was usually just a small part (e.g. half a page

of data with manpower projections) of the business strategy.Further, HR managers in our research reported that they have little impact on strategic

business decisions and only one-third of them are organizationally positioned as

members of top management (lower numbers than in most European countries, as seen in

Table 1). With regard to the power of the HR department it is also important to mention

that in Slovenia the number of HR specialists per 100 employees is only 0.29, which is

much lower than in other European countries. Thus, it is probably not surprising that

most of the time HR strategies are poorly formulated and HRM activities do not support

business needs (Dmitrovic and Zupan, 2001). This claim is confirmed in the research

report based on CRANET data analysis (Svetlik and Ilic, 2004). They found that

Slovenia falls into a Central-South European cluster (together with Germany, Austria,

Spain, Czech Republic, Italy and Portugal), characterized by a non-intensive model of

HRM: companies operate in a relatively stable and rigid environment, with the internal

labour market being important, the number and sophistication of HR activities low

compared to the European average, HR development and training neglected, HR

departments professionally weak and line managers not considering their role in HRM as

one of their priorities.If we look at the main HR activities, such as employment, training and compensation,

some overall conclusions can be drawn. As we can observe in Table 2, cutting the

number of employees has not resulted in any significant improvements in the education

levels of employees or managers. New, more flexible forms of employment have not yet

been established, while contract work is mainly used as a safety measure for new

employment because of the difficult contract termination procedures involved once

employees are fully employed by a company.According to some of the data (number of participants and hours of education) the

training of the employees appears to be quite satisfactory (Table 3). On the other hand,

the fact remains that this training is mostly reactive (filling in gaps in knowledge) and

not proactive (learning for the future); also, the effectiveness of training is rarely

measured. Thus, training does not prepare companies for the challenges of the future.

We can therefore expect the knowledge gap between developed and most transition

companies to widen.


Table

1S

om

ein

dic

ato

rso

fth

eH

RM

po

siti

on

inS

love

nia

nco

mp

an

ies

Ca

teg

ory

CH

DL

DK

EF

IN

NL

SU

KSLO

HRmanager

ismem

ber

ofa

company’s

topmanagem

ent(%

ofcompanies)

58

19

53

80

83

18

67

44

87

47

32

HRstrategy(%

ofcompanies):

†written

58

20

61

40

29

33

74

54

68

45

50

†notwritten

32

43

22

40

46

40

16

30

23

27

24

†does

notexist

10

37

17

20

25

27

10

16

928

26

Number

ofHRspecialists

1.82

1.39

1.28

1.38

1.49

1.45

1.85

1.56

1.25

1.07

0.29

per

100em

ployees

Sourc

es:Brewster

andHegew

isch

(1993:38–9);BSETResearch(1996–8)

Note

CH:Switzerland;DL:Germany;DK:Denmark:E:Spain;F:France;I:Italy;N:Norw

ay:NL:Netherlands;S:Sweden;UK:Great

Britain;SLO:Slovenia.


Deviations from common trends in the developed countries are biggest with regard tocompensation, which is in a state of utter disorder. Not only is the labour marketinefficient (huge differences in salaries between enterprises, not justified by the businessresults). An even bigger cause of discomfort is the fact that fixed elements comprisedabout 90 per cent of the salaries throughout the period. Managers even tend to have lessvariable salaries than the other employees (the largest variable part is for productionworkers), which is against the usual practice. The reasons here can be found in the factthat the tax legislation is not supportive of any long-term incentive plans and also that theperformance of production employees seems easier to measure.

Throughout the analysis of the reasons why HRM in general and strategic HRM inparticular are not better developed, several issues pertaining to the low power of HRmanagers and staff have been revealed in both our research and that of Svetlik and Ilic(2004). In most cases, we can find a poor HR knowledge base within companies. Lessthan half of HR managers have more than a high school education and most receivedlittle or no HR training during their formal education and not much thereafter. It is alsovery typical that HR managers have little work experience outside the HR function in thecompany, which leaves them with limited business knowledge. We have already pointedout the low number of HR professionals; in addition, we can also observe thefeminization of the HR profession since 90 per cent of HR managers are women, whichpossibly affects their power (similar observations were made for Poland (Crow, 1998)).HR managers are rarely involved in the process of formulating business strategy and thelack of business information also leads to a poor link with business needs.

Additional reasons why HRM is not more developed in Slovenian transitionalcompanies can be found in the history of the HRM function’s development as well as inthe problems relating to the transition to an open-market economy. We have already seenthat under the previous system the personnel function was regarded mostly as anadministrative and not a managerial one. Hence, managers as well as HR staff lack theknowledge and experience to deal with the current HRM challenges. Responsibilitiesregarding human resources are unclear and HRM departments are often poorlyorganized. On the other hand, managers at all levels also lack the skills and knowledge tosupport decentralized HRM. In addition, HRM discipline is poorly developed both as anacademic and professional field so it is not easy to acquire knowledge or obtain goodconsultation on HR issues. For example, only recently has HRM become part of thecurriculum in business schools while there are just two university programmes thatspecialize in HRM. As Mrak et al. (2004) describe, the process of transition to a marketeconomy has diverted the attention of managers to issues of privatization and hard factorsrelated to enterprise restructuring (e.g. financial resources, technology), thereby often

Table 2 Education structure of employees in Slovenian companies in the 1996–8 period

Category 1996 % 1998 %

Employees with less than a high school certificate 73.5 71.1

Employees with a high school certificate 19.0 20.4

Employees with a college or higher degree 7.4 8.2

Managers with less than college degree 36.4 35.5

Managers with a college or higher degree 63.6 64.5

Employees on a fixed term contract 6.3 9.7

Newcomers on a fixed term contract 74.2 74.5

Source: BSET Research (1996–8)


Table

3E

mp

loye

etr

ain

ing

for

Slo

ven

ian

com

pa

nie

sin

the

19

96

–8

per

iod

Pro

du

ctio

nw

ork

ers

Ad

min

istr

ati

vest

aff

Pro

fess

ion

als

Ma

na

ger

s

Averagehours

oftrainingper

employee

in1996

36

12

58

64

Averagehours

oftrainingper

employee

in1998

33

10

52

68

Mostcommontopicsoftraining

†jobsafety

†computerskills

†computerskills

†leadership

skills

†quality

†legal

changes

†languages

†languages

†work

procedures

†languages

†quality

†quality

Sourc

e:BSETResearch(1996–8)


leaving HR issues behind except for the constant pressure to lower labour costs. With theneed to balance out the various stakeholders’ interests within the Slovenian industrialrelations framework, there has generally been little room to develop a more professionaland strategic approach to HRM.

The conceptual model of SHRM in ETEs

Given the previously described state of HRM in ETEs, we may conclude that, althoughpeople are becoming widely recognized as a source of competitive advantage, the actualtransformation of the HR function shows a significant gap between the rhetoric andactual practice. The administrative approach to HRM prevails over the strategic one and,as a consequence, people often remain just a potential source of competitiveness that isnot effectively utilized. We may argue that there are still many reserves with regard toattaining the long-term competitiveness and high performance of companies in ETEs.We believe that one important way of improving this situation is to design a usefulconceptual SHRMmodel for ETEs because the general SHRMmodels may neglect someof the key features affecting the HR–company performance link that are specific to thecontext of ETEs. This model should not only be conceptually well designed but alsoempirically tested to reveal the strength and causal relationship between the key SHRMconstructs. Such a model could then serve as a framework for both learning and acting tobolster the strategic component of HRM in ETEs.

In our opinion, any attempt to develop a conceptual model of SHRM for ETEs shouldsatisfy three basic conditions: 1) it should be built on theoretical and empirical findings inthe SHRM field in general to improve the model’s validity and enable its comparability;2) it should include specific constructs and variables that have been revealed throughempirical findings as having an important impact on SHRM in ETEs to have moreexplanatory power; and 3) it should be both rigorous and simple enough to besuccessfully empirically tested.

To date, many general conceptual SHRM models studying the HR–companyperformance link have been developed. They have been classified as ‘best practice’models(Pfeffer, 1994, 1998; Purcell, 1999) or high performance working systems (AppelbaumandBatt, 1994) and ‘best fit’ models (Miles and Snow, 1984;Wright andMcMahan, 1992;Youndt et al., 1996; Delery, 1998; Wright and Snell, 1998). Delery and Doty (1996)further divide the best fit models up into those emphasizing a contingency perspective andthose following a configurational approach. Contingency models are either very narrow,and focus on a single contextual variable such as business strategy (Schuler and Jackson,1987) or a firm’s capital intensity (Richard and Brown Johnson, 2001), or very broad andenter numerous contextual variables into the model (Jackson and Schuler, 1995; Tayeb,1995). In discussing the available types of conceptual SHRM models, Brewster (1995)suggests a broader contextual approach for European countries due to the limitedautonomy of a typical European organization in HR-related issues and the large number ofexternal contingencies. In addition, he argues for improved explanatory power andapplicability of contextual models to ETEs (Brewster, 1999).

Frequently, conceptual SHRM models assume linear relationships between theconstructs of the model (Boselie et al., 2001). As an example, the SHRMmodel proposedby Becker et al. (1997) suggests that business and strategic initiatives are the basis fordesigning HRM systems, thus affecting employee skills and motivation as well as jobdesign and work structures. These systems result in creativity, productivity anddiscretionary effort that lead to improved organizational performance. In our opinion,such simple linear models neglect some moderating variables that are important for ETEs


and consequently they omit certain causality links. Therefore, the SHRM model forETEs should include the core constructs reported in the SHRM literature (Paauwe andRichardson, 1997): the HR context, HR activities, HR outcomes and companyperformance, but should also introduce moderating variables specific to the ETE setting.

Further, the majority of models derived from this basic linear framework remain staticand ignore lagged variables (or the implementation to benefit lag), which can distort therelationship between HRM and company performance (Huselid and Becker, 1996). Theinternal validity of such static SHRM models is threatened because certain effects ofHRM on firm performance can be long term. Also, since so far the causality issue has notbeen properly empirically resolved (Gerhart, 1999; Wright and Gardner, 2003), thereremains the question of reverse causality (i.e. high performing companies invest more inHRM activities and therefore develop more complex HR activities) in the general SHRMmodel. The need to analyse not just the strength but also the causality of the HRM–company performance relationship should lead to the development of longitudinalresearch designs for studying HRM in ETEs as well.

Finally, one of the criticisms in the SHRM literature is that conceptual and empiricalmodels are outnumbered by normative models (Truss and Gratton, 1994). Evenconceptual SHRM models often remain prescriptive, more useful for academicdiscussions compared to their practical ability to convert models into effective execution.Considering the current state of SHRM in ETEs and the growing need to develop the fieldin these countries SHRM models should have different characteristics. They should bepositive and show the appropriate actions to be taken in order to accelerate thedevelopment of the SHRM field among managers, HR professionals and academia.

Presentation of the conceptual SHRM model for ETEs

Building on the definition of SHRM byWright and McMahan (1992) and general SHRMmodels, our model for ETEs includes all core constructs reported in the literature on thehorizontal axis (see Figure 1). Namely, the HR context shapes HR strategy developmentand execution (usually joined together as HRM activities), which results in HR outcomesand, finally, company performance. The model considers all relevant links between theseconstructs including reverse causality links originating in the constructs ‘companyperformance’ and ‘HR outcomes’. At the same time, the specifics of the ETEs setting areincorporated in the model by: 1) emphasizing particular dimensions of the HR context;2) using ETE-specific variables within constructs; 3) adding a moderating construct; and4) the special arrangement of some causal links in the model. The model incorporates

Figure 1 The conceptual SHRM model for ETEs


various dimensions of a broadly defined HR context: external HR context, HRfacilitators, internal HR context and non-HR factors. The internal HR context directlyaffects HR strategy development, HR strategy execution and HR power. HR outcomesare specified as a mediator between HR strategy execution and company performance,while HR power moderates the effectiveness of HR strategy development and HRstrategy execution. Finally, HR outcomes–HR power and company performance–internal HR context relationships are predicted as recursive links.

The HR context is split into four constructs – the internal HR context, the external HRcontext, HR facilitators and non-HR factors – to help lay emphasis on importantcontextual issues in ETEs. By HR facilitators we understand all the support (knowledge,information and financial resources) from various sources (e.g. government, academia,professionals) that facilitates the development of the HRM field in general and companypractices. Similarly, we divided non-HR factors (e.g. product or services development,introducing a new technology to operations) from the internal organizational context toenable us to control for the effect of other functional areas within the organization onHR outcomes and company performance. Whereas the external HR context and HRfacilitators mostly have indirect effects on other constructs in the model, the internalHR context and non-HR factors have both direct and indirect effects. Apart from theimproved explanatory power in ETEs, this specification of the HR context enables us todiscover problematic areas in the HR context and to take appropriate action.

With regard to variables within the constructs external HR context and internal HRcontext we build on contextual variables reported in the literature (Jackson and Schuler,1995) and add ETE-specific variables. Further, within the constructs external HR contextand HR facilitators we also introduce variables that have been discussed as determinantsof the HRM institutional setting (Paauwe and Boselie, 2003), and emphasize thosereported to be important for ETEs. Labour legislation, labour market characteristics,trade unions’ role and collective bargaining, macro-economic conditions(e.g. growth/recession, size of the grey sector) and taxation system, the extent offoreign direct investment, culture and tradition are possibly the most important variablesshaping the external HR context. Based on our analysis of the state of HRM in ETEs(and particularly in Slovenia), HR facilitators are emphasized in the model as importantfactors for the development of SHRM in ETEs. They include factors such as the creationof an HR knowledge base, the availability of information resources (e.g. HR research andeducation, transfer of HR knowledge to organizations, professional associations andnetworking, access to the HR literature), the availability of HR services (HR trainingprogrammes, HR consulting, HR employment agencies, etc.) and government policiesand programmes (e.g. action programmes regarding specific HR issues, financial supportfor company HR programmes). Within the internal HR context, company size,ownership, corporate governance type, business strategy, relative competitive position(e.g. business up or down-turn, availability of resources), capital intensity, technology,organizational structure, life-cycle stage, employee characteristics and corporate cultureand values could all be meaningful variables. Measures of external and internal contextshave mostly been defined for use as exogenous controlling variables when testing theconceptual model empirically. Namely, the ‘external HR context’ and ‘HR facilitators’variables control for differences between ETEs, while the internal HR context and non-HR factors control for differences between companies.

The next pair of constructs, HR strategy development and HR strategy execution,explains the effectiveness of strategic HRM. General SHRM models seem todifferentiate between intended and emergent HR strategies (Dyer, 1985), intended andactual HR practices (Wright and Snell, 1998) or intended HR strategy and realized HR


interventions (Truss and Gratton, 1994). Drawing from the description of the currentstate of SHRM in ETEs reported above, these discrepancies are also very obvious inETEs. It is somewhat implicit in general SHRM models that the intended HR strategyreflects business needs. We believe that in ETEs this may not be the case due to the poorstrategic integration of HRM. Thus, also the quality of the intended HR strategy becomesan important issue. Then we presume that, even when a good quality HR strategy isdesigned in ETEs, its execution is often weak. This discrepancy between HR strategydevelopment and HR strategy execution could be labelled the HR strategic gap. TheHR strategy development construct could be described by the presence of an HR strategy,strategic fit (e.g. type of linkage as suggested by Golden and Ramanujam (1985)) or theappropriateness of an HR strategy according to business strategy, type of HR strategy,intended HR practices bundles and time and resources spent by managers and HRspecialists on HR strategy development. On the other hand, the share of strategic plansexecuted, the rhetoric/de facto ratio of strategic HR planning, extent and quality ofemergent HR practices bundles and some composite measure of HR strategyeffectiveness and efficiency could be used as measures of HR strategy execution.

An additional construct, labelled HR power, has been introduced to the general SHRMmodel as a moderating variable because the empirical findings from ETEs describedabove suggest that the low power base of both managers dealing with HR issues and HRspecialists is an important reason for transition companies’ failure to implement SHRM.The issue of the power and influence of HRM is not new (Galang and Ferris, 1997; Russet al., 1998) although it is often neglected in the SHRM literature. Commonly, the notionof power and HRM is presented through a focus on the position of HR on the board(Purcell, 1994; Kelly and Gennard, 1996) through the role and status of the HR function,the HR department (Truss et al., 2002; Bowen et al., 2002) and the HR manager (Ulrich,1997) or through the HR role and competence (Sparrow and Hiltrop, 1997). Theconstruct HR power in our model is even broader in the sense that it tackles the issues ofthe HR power base in general and considers all HR actors of an organization: the HRspecialist, line managers, top managers and, to some extent, even trade unions andemployee representatives because they play an important role as co-determinators insome HR-related decision-making, especially in collective dismissals and compensationsystem designs. The construct HR power is related to both the presence and quality of HRstrategy development (i.e. the ability to establish the fit between business and HRstrategy) and to the efficiency and effectiveness of strategy execution. HR power couldbe assessed through the following variables: HR competencies for both managers (topand line) and HR specialists, the status and role of HR manager and HR department (e.g.an HR manager as a member of the top management team, formal authority, access tobusiness information, the interpretation of labour legislation to top management, thedepartment’s position in organizational structure), positioning of HR strategy incomparison to other functional strategies, HRM reputation, resources allocated to the HRfunction (e.g. financial resources, number of HR specialists), the HR information systemand stakeholders’ support of HR (especially important during organizationalrestructuring, which is often the first stage of restructuring firms in ETEs).

The development and execution of the HR strategy result in HR outcomes. Thisconstruct has been included in empirical investigations of general SHRM models, withmeasures such as absenteeism, turnover and individual/group performance (Dyer andReeves, 1995), dismissals, social climate, employee involvement, trust, loyalty (Paauweand Richardson, 1997), employee satisfaction and commitment, employee motivation(Boselie et al., 2001) and organizational climate (Bowen and Ostroff, 2004) mediatingeffects between HRM activities and company performance. In ETEs we could measure


HR outcomes according to the attainment of universalistic HR goals suggested by Boxall

and Purcell (2003). They suggest multiple tiers for HR goal-setting because of the

embeddedness of HR goals in each other. Recognizing multiple layers in the attainment

of HR goals, we could develop layered measures for HR outcomes. We rely on Boxall

and Purcell and develop universalistic dimensions of HR outcomes: labour productivity,

short- and long-term organizational flexibility and social legitimacy. By adopting this

approach we will be able to compare the HR outcomes of companies in various ETEs

with differing business and HR strategies. However, when estimating the measures of

these three dimensions the specific features of different transition countries should be

taken into consideration and measures developed accordingly. Also, some otherwise

typical HR outcomes measures, such as turnover and employee satisfaction, may be

problematic in ETEs and have to be introduced into the model carefully. Turnover, for

example, may not be a relevant measure in conditions of relatively high unemployment

or low workforce mobility, which are often present in transition economies (Vodopivec,

2004; Svejnar, 2002); in these circumstances turnover becomes low and does not reflect

internal HR dysfunctions properly. Therefore, we suggest the following measures of HR

outcomes: labour productivity, generalized and mutual trust in organization, work

organization efficiency, relative employee satisfaction (comparisons over time or

benchmarking against other companies), absenteeism, learning capabilities and

flexibility, relative labour costs and commitment.In general, SHRM models company performance is usually measured by some profit-

or market-value-related measures. So far, researchers have been more eager to use

market-based measures of financial performance because accounting-based profitability

indicators seem to be subject to numerous biases (Huselid, 1995; Huselid et al., 1997).

While similar observations could be made for accounting measures in ETEs, their

shallow capital markets with relatively low liquidity (Koke and Schroder, 2003) also cast

doubt on market-based measures. Even the maximization of a company’s market value as

the ultimate goal can be doubted and it has already been empirically rejected for the case

of Slovenia (Mramor and Valentincic, 2001). Further, inefficient capital markets,

different taxation systems and accounting practices make the comparability of profit and

market-value related measures between companies in ETEs quite low. In addition, static

company performance measures are less appropriate for companies in ETEs, since

frequently it is the relative performance over time that is more important, especially

when an organization is in recovery (often the case in ETEs after downsizing or

restructuring). Finally, using only accounting and market-value related measures such as

company performance indicators is too narrow to estimate a company’s long-run

viability, which than calls for performance measures concerning more stakeholders

(Rouse and Putterill, 2003). Therefore, we propose a more balanced set of measures,

including both static and dynamic indicators of a company’s performance. The construct

company performance could thus be measured by various robust financial and market-

value indicators (Dyer and Reeves, 1995; Huselid et al., 1997; Truss, 2001; Guest et al.,

2003) like ROA, EBIT per employee, ROI, Tobin’s q, value added per employee, market

value of the company, market to book (value) ratio, and by non-financial measures of

corporate performance, such as customer satisfaction, product/service quality, relative

competitive position, development of new products/services and company reputation.

All of these measures should also be included as differentials (e.g. growth/decline of

value added per employee, change in product/service quality, etc).


Issues regarding the empirical testing of the conceptual SHRM model for transition

economies

The next important step in developing a proactive and action-oriented conceptual modelof SHRM for ETEs is empirical testing in order to find the best explanatory variables

within the constructs and establish the links between them. We have suggested severalvariables describing each construct based on previous research findings. The question

remains, however, which of them are to be included in the empirical model? Theresearchers would thus need to understand each variable and its relationship with other

variables, which could be achieved through the process of structural equation modelling(Bollen, 1989). Since we stressed the importance of introducing lagged variables, theresult of empirical testing should be a fitting dynamic structural model based on panel

data. The model could then serve as a basis for identifying those variables andcorresponding time lags that have an important impact on company performance and, as

such, must be in the centre of practitioners’ attention in order to improve their company’sperformance. Supporting this research strategy, Wright and Gardner (2003) argue that

the potential to add complexity through adding constructs, dimensions and variablesexplaining the HRM–company performance link is virtually infinite and a better

question is not how many, but which, constructs and variables to include in the model tomake it useful for theoretical and empirical purposes at the same time. The problem is

that, while new elements in the model may increase the conceptual understanding of therelationship(s), the complexity makes it difficult to conduct empirical tests of the model

because data are difficult both to obtain and to analyse because the model remains under-defined.

The way we have defined the conceptual SHRM model for ETEs makes multi-level

empirical analysis almost unavoidable because the measures we suggest originate frommultiple levels of analysis. Consistent with the default level of analysis in the SHRM

field (Wright and Boswell, 2002), the data from national, industry, organization andemployee levels should be carefully translated (aggregated or disaggregated) to the

organizational level. Where data translation causes unsolvable problems, a partialempirical investigation of the model should be performed. For example, the model can be

used to investigate SHRM within a single ETE where most of the external contextualvariables fall off. More generally, one advantage of our model is that, by reducing the

model (fixing certain, especially contextual, variables), the focus of investigation of theempirical model can be customized to suit current research questions. For example, Kase

and Zupan (2004) performed an analysis of HRM for Slovenian manufacturingcompanies with downsizing strategies. Usually there are just one-level measures within a

construct, but multiple levels can be observed for some constructs in the model. Althoughthe analysis of such a construct demands more effort, it can also provide benefits forresearch, as the case of HR outcomes demonstrates. By aggregating employee- and

group-based measures of the HR outcomes construct to the organizational level, we canobtain a more realistic estimate of reality. Namely, the disconnection between the

rhetoric about HRM of a single respondent from an HR department (organization-leveldata) and the reality actually experienced by employees (individual-level data) may be

significant (Truss, 2001).The issue of data availability is a real concern for ETEs. As Carlin et al. (1995) andMills

(1998) noted, HRM research in ETEs is mostly anecdotal or descriptive due to the lack ofempirical evidence or because of its inadequacy. Non-existent or poorly developed HR

information systemsdo not provide sufficient quantitative data to enable rigorous systematicresearch. Existing databases mostly contain mostly administrative records with a low


information value and few performance-related data. Further, in ETEs large-scale HRbenchmarking analyses containing information frommore than one ETE that could providebackground for research in the SHRM field are rarely available or are under-explored.Therefore, companies that can provide data are usually to be found as units in samples ofSHRM research. Such sampling and data sourcing is obviously biased and does not allowgeneralizations. The problem of the availability of quantitative data and possibility of thereduced reliability of questionnaires puts systematic quantitative research into question.Namely, even in the US the low inter-rater reliability of questionnaires in HRM research isreported and multiple respondents are suggested to improve questionnaires’ reliability(Gerhart et al., 2000). According to the history of HR departments in ETEs in the pre-transition period and the level of generalized trust in these countries, the mistrust ofrespondents inETEs could lead to the even lower reliability ofmeasures inquestionnaires. Inaddition, the low share of companies that adopt SHRM inETEs seems to support alternativeresearch designs. In-depth multiple case studies are reported to be the best methodologicalalternative, as Fey and Bjorkman (2001) suggest for Russia.

Being aware of these problems and alternatives we still believe that systematicquantitative research design offers some important advantages for establishingknowledge about SHRM in European transition economies, which justify the effort ofconducting such research. First, a large-scale balanced sample, consisting of companiesthat adopt SHRM and companies that do not adopt it, provides control units andstrengthens the controlling variables. Second, large samples rich in quantitative data areneeded to be able to apply structural equation modelling. Further, quantitative researchdesigns allow the numerical empirical validation of propositions. Namely, verification ofthe HRM–company performance relationship for ETEs has until recently (Fey et al.,2000; Fey and Bjorkman, 2001; Buck et al., 2003) been only anecdotal. Quantitativeverification is very important in ETEs since usually the lack of such support of argumentsdiminishes the importance of HR departments, HRM in organizations and the evolvingfield of SHRM in general. Finally, systematic quantitative design can gradually evolveinto longitudinal research design, which would enable us to test the causality and reversecausality of the HRM–company performance relationship, which has not yet beensufficiently researched.

To conclude, for the empirical validation of the model, two questions should beanswered. First, are the measures in the model correct and complete for ETEs? Second,can we determine and empirically verify the causality of the SHRM model for ETEs?If the measures are complete and causality is verifiable, then we can determine whichtimeframe is most appropriate for studying the HRM–company performancerelationship. Only then can the model be used as a tool for improving companyperformance and enhancing the development of SHRM in ETEs.

Conclusion

Within the SHRM field there are many efforts to develop theory and relevant models inorder to explain the HR–company performance link. Most of these efforts come fromscholars from the developed Western countries. Yet less is known about how thesetheories and models apply to transition economies. Based on general SHRM models, ouranalysis of the context and current state of HRM in ETEs, we build on both universalisticand contextual paradigms (Brewster, 1999) to develop a conceptual SHRM model forETEs. In comparison to general models of SHRM, the model introduces a newspecification of the HR context and an additional moderating construct, HR power, tohave more explanatory power in ETEs. HR power was defined as a moderating construct


affecting both the quality of HR strategy design as well as the effectiveness of HRstrategy execution, while HR context was split into external HR context, HR facilitators,non-HR factors and internal HR context to identify the crucial dimensions in the contextwhich affect the HR–company performance link. In addition, we proposed specificvariables that could best explain specific constructs in the ETE setting. Apart from thenotion that general SHRMmodels have to be modified to be able to better explain SHRMin ETEs, we depict some other contributions of this model to the general one. We believethat additional moderators can improve the understanding of any conceptual SHRMmodels. Therefore, by studying moderating constructs in the general SHRM model wecould improve the insight into the black box. In addition, various specifications ofcontext could improve the applicability of the general model to different settings. Finally,the way we defined the strategic gap for HR provides background for doubting thefrequently implicit assumption of appropriate business and HR strategy which sometimeslies behind general models as well.

With these characteristics, we believe that our model may serve well as a frameworkfor conducting research in the field of SHRM in ETEs, on one hand, and as aframework used by practitioners in order to design HR strategy and implement activitiesto improve the HR–company performance link, on the other. Nevertheless, finding theright balance between model’s complexity (number and content of variables explainingeach construct) and the viability of empirical testing (availability of data and properanalysis) may still be a considerable challenge. Also, the level of generalization may belimited because, despite the many similarities among ETEs, there are also country-specific issues that need to be taken into account and one model may simply not besufficient for doing so. Being aware of these limitations, we suggest several issues forfurther research.

First, research should try to validate the model empirically in country-specific andcomparative research designs. In the beginning, both research designs should focus onfinding variables with the greatest explanatory power to diminish the complexity of theempirical models. Also, they should determine which dimensions in the HR context aremore important for the HR–company performance link and study the nature of theserelationships (direct and indirect effects). While the conceptual SHRM model for ETEsleaves enough flexibility to conduct a valid country-specific research in a specific ETE, amore cautious approach should be taken for comparative studies due to its greatercomplexity. Next, the conceptual SHRM model for ETEs could be compared withmodels for other transition countries (e.g. Asia) and other regional HRM models inEurope (e.g. northern Europe model, south European model).

These research issues are very important for ETEs because, in order to have a positiveimpact on their SHRM development, the proposed model needs to be empiricallyvalidated. Only then may it shed light on which HR approaches, policies, practices andinterventions prove useful for boosting company performance, and in which context.In addition, by building a large database through systematic longitudinal research designwe could trace the progress in the fields of HRM and SHRM and perform HRbenchmarking. Participation in the research project would probably encouragecompanies to establish or improve their HRIS and HR metric systems. Finally, researchshould help determine which industries and what sorts of businesses can benefit fromadopting SHRM, where it is not cost-effective and where alternative solutions couldbring about better results (Boxall and Purcell, 2003: 8–10).

For practitioners, future HRM challenges in ETEs may not differ a lot from those inthe developed countries. This is especially true for those more developed ETEs thatjoined the European Union in May 2004. Nevertheless, the context in which ETE


companies have to cope with these challenges certainly does differ from those in thedeveloped countries and sometimes this presents an obstacle to HRM development.Therefore, it would be particularly important to systematically improve what we havecalled the HR facilitators at the country level and even across ETEs that have to deal withsimilar HR issues. This would be even more important for those less developed ETEs asthey could develop their policies and actions based on the positive experiences of otherETEs. HRM professional networks, increased research and HRM training programmescould all promote HRM knowledge transfer both within and among countries. Due to thelack of domestic knowledge it is important to find a way to use sources from developedcountries. It would be wrong, however, to rely too much on foreign knowledge due to theimportance of specific features in ETEs. Therefore, the involvement approach (Cheneyand Kozlowski, 1994) would be valuable because it emphasizes the full use of theresources already within the country and combines those with the available foreignresources. It would allow more effective managerial and HR specialists’ training andknowledge transfer. In addition, building HRM knowledge is also a key step towardsboosting what we have broadly termed ‘the power of HRM’, which is necessary if ETEcompanies want to design and implement HR strategies that enhance companyperformance.

Acknowledgement

The authors would like to thank the participants in the conference ‘New Models ofStrategic HRM: An International Perspective’, Cornell University, 9–10 May 2003, fortheir valuable insights and comments on the earlier versions of the paper.

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