The Impact of Management Development on Perceptions of Organizational Performance in European Firms Christopher Mabey', Paul N Gooderham2

The impact of management development on perceptions of organizational performance in European firms Christopher Mabey', Paul N Gooderham2

'School of Management and Organizational Psychology, Birkbeck College, University of London, London, UK; 2Department of Strategy and Management, Norwegian School of Economics and Business Administration, Breiviksvn, Bergen, Norway

Correspondence: C Mabey, School of Management and Organizational Psychology, Birkbeck College, University of London, London WC1 E 7HX, UK. Tel: +44 20 7631 6753; E-mail: [email protected]

~~ ~

Abstract Management development is generally regarded as a key element in a strategic approach to human resource management. Yet there is still little empirical evidence that it actually contributes significantly to superior firm performance, and if it does, precisely which aspects of management development policy and practice lead to these positive outcomes. The purpose of this paper is to test these relationships. Based on interviews with human resource development and line managers in 499 European firms, contextual factors like sales turnover, size and country explained some variance in perceptions of performance. However, the degree of variance explained is considerably enhanced when variables are introduced, which capture the way management development is conceived and implemented. Causal path analysis shows that a favorable strategic fit and organizational fit significantly predicts line manager perceptions of the importance given to management development, which in turn, distinguishes high- from low-performing companies. European Management Review (2005) 2, 1 31-1 42. doi:l0.1057/palgrave.emr.l500032 Keywords: management training and development; European firms; organization performance: HRM

Introduction he primary research question addressed by this paper what disparate practices by tracking the impact of single is: what impact, if any, does management development HRM practices. We have chosen management development T have upon perceptions of organizational performance as our subject matter because, despite being a key if not in firms drawn from six European countries. A supple- central element of HRM, we argue that treatment of mentary goal is to test a causal path of this relationship. management development in the literature has been largely Our choice of title for this paper is intended to signal a atheoretical and the assumed positive organizational out- significant degree of overlap with Delaney and Huselid's comes have not been convincingly demonstrated. (1996) seminal paper, not least in terms of our use of their Initially, we review previous research on the impact of index of organizational performance and their choice of key HRM, and more specifically management development, on respondent. Our paper does however differ in a number of performance with reference to Wood's (1999) best-practice/ ways. Whereas, Delaney and Huselid chose to explore contingency theory dichotomy. Thereafter, we employ variations in human resource management (HRM) per se, regression analysis to analyse the impact of various we have chosen to focus on one specific HRM practice, that management development practices on performance. We of management development. Other high-performance take this analysis one stage further by proposing a causal HRM practices would typically include recruitment, selec- path model that represents an attempt to specify the inter- tion procedures and compensation systems (Becker et al., relationships between the key constructs and performance. 1997). Like Wright and Boswell (2002) our paper is an Previous studies have successfully applied an open systems acknowledgement of the need to distinguish these some- model to management development (Garavan et a]., 1995; Organizational performance in European finns Christopher Mabey and Paul N Gooderham 132

Mabey, 2002). Building on this model, the study described deliver their management development activities leads to in this paper seeks to measure: the inputs to management superior performance (as explained more fully later, our development (the relatively predetermined context within index of performance is provided by human resource which training occurs); the training processes adopted by development (HRD) managers and comprises a bench- organizations to deliver and design management develop- marked measure of seven items). Breadth is gained by ment (which are the result of discretionary choices made by conducting the research across a number of countries. In HRM specialists); the outputs (the degree of importance framing of our analysis of management development and accorded to these training activities as viewed by line performance we will retain Wood’s (1999) generic dicho- managers); and finally, the outcomes (the impact of tomy. The first of our four hypotheses is derived from the management development on the performance of the best-practice perspective while the other three reflect the organization). contingency perspective.

The impact of HRM and management development on Determinants of performance performance In recent years there has been a concerted attempt to Management development systems demonstrate that HRM systems are strategic assets that It has been consistently theorized that the means by which a enhance organizational performance and therefore value firm develops its managers in the long term and addresses creation. As Wood (1999) has argued, on a general level, skills gaps in the short term are key determinants of its studies of this relationship fall into two categories. First market performance (Schuler and Jackson, 1987; Butler there are those that seek to demonstrate that HRM systems et al., 1991). Although the number of empirical studies confer superior performance regardless of the circum- demonstrating this is small, as noted above, it may be stances of the firm, referred to as a ‘best-practice’ surmised that the presence of management training and perspective, and second those that emphasize contingencies development systems can potentially make a material such as the degree to which the firm has aligned its HRM difference to an organization’s performance. A number of practices with its competitive strategy. An example of the such systems can be gleaned from the literature. first approach is the work of Pfeffer (1994). Drawing on A policy statement. The first system, or indication of best secondary data, from the global automobile industry and practice, in this arena is the formulation of some kind of other industries, as well as case study evidence of best management development policy, signifying its strategic practice, he has shown that the ways in which organizations importance for the organization (Garavan, 1991). Although manage their people are enduring sources of competitive it is generally recognized that such policy documents often advantage. This universalistic approach to HRM policies represent statements of intent rather than actual practice and practices which are held to attract, then foster and (Gratton et al., 1999), they do nevertheless suggest a develop superior capabilities has been found to, among considered and often consultative, rather than an ad hoc other things, improve export performance (Gomez-Meija, approach to the way managers are developed. Other best 1988), increase productivity and profitability (Patterson practices, usually articulated in this policy statement, et al., 1997) and enhance employee satisfaction and concern the procedures governing the appraisal of devel- financial indicators (Bowen and Lawler, 1995). opment needs and the planning of career development An alternative approach posits that for HRM systems to activities, the intensive development of ‘high potential’ have a major impact on organizational performance they managers, and mechanisms for the systematic monitoring must be embedded in a firm’s management infrastructure and evaluating management development. We consider (‘organizational fit’) and aligned with corporate strategy each of these in turn, noting that the literature is actually (‘strategic fit’). For example, research by Huselid and quite mixed with regard to their demonstrated efficacy. Becker (1995) infers that it is not just the number of best Appraisals, where managers have the opportunity to practices that influences the market value of a firm, but also discuss their development needs with their line manager, the degree to which those practices are integrated into an are cited as pivotal to effective management development internally coherent system that fits with the firm’s (Bevan and Thomson, 1992; Fletcher, 1997). This is partly individual situation and business priorities. It is also because feedback, when sensitively handled, can be a argued that a properly aligned HRM system constitutes a catalyst to real learning (Alimo-Metcalfe, 1998) and core capability in the sense that it not only confers development (Fletcher, 1997). However, it has been noted competitive advantage but that it is complex, firm-specific, that there is relatively little theoretical basis for the use of and not readily imitated by competitors (Becker and appraisal for development other than in terms of objective Gerhart, 1996). Studies designed to assess the specific setting (Fletcher, 2001). Indeed, there are a number of impact of management development on organizational questions concerning this so-called best practice. First, outcomes are few in number, and generally adopt a best- much of the supporting literature is still prescriptive with practice approach (Barling et al., 1996; Winterton and only a limited evidence base (Industrial Society, 1997). Winterton, 1997; Yeung and Berman, 1997; Horne and Second, studies of appraisal often reveal that practice falls Jones, 2001; Mabey, 2002). some way behind exhortation, either in terms of quality The intention of this study is to explore management (Raper et al., 1997) and/or variability of usage by development more deeply and widely than has previously organizations in Europe (Mabey and Ramirez, 2004). Third, been attempted. Depth is achieved by seeking to identify the conducting of appraisals itself can be problematic, which, if any, dimensions of the way organizations plan and either on ideological grounds (Townley, 1993; Newton and Organizational performance in European firms Christopher Mabey and Paul N Cooderharn 133

Findlay, 1996) or more pragmatically, due to organizational management development, is probably far lower (DEE, constraints (Maurer and Tarulli, 1996). 1998). The only favourable, if somewhat inferential, Career planning has long been considered an essential evidence for the efficacy of evaluation comes from those management development system (Kanter, 1989; Herriot studies of organizations adopting IiP, a national accredita- and Pemberton, 1995). When working effectively, this tion in the UK. A central dimension of IiP concerns the process helps fulfil organizational skilllknowledge require- strategic evaluation of training, and studies suggest ments and facilitates succession planning; at the same time favourable outcomes for those that monitor training individuals feel that personal and professional development outcomes (Rix et al., 1993; Hillage and Moralee, 1996; aspirations are being attended to (Gunz, 1989). For DEE, 1998). example, in a study of 524 organizations, Baruch and Given that the evidence for each of these five manage- Peiperl (1997) found that active career planning, character- ment development systems is by no means compelling, an ized by performance appraisals, career counselling and empirical assessment of the impact of these five manage- succession planning correlated highly with organizations ment development systems or best practices on perfor- described as having dynamic, open and pro-active climates. mance is overdue. Therefore, we test the hypothesis that: Yet Arnold (1997) concludes his review of a range of career planning interventions by noting the paucity of information Hypothesis 1: There will be a positive relationship between upon which to evaluate their impact. the degree to which an organization utilizes ‘best-practice’ Fast-track development for selected managers is an management development systems and perceived organiza- associated management development system or best tional performance. practice, utilized by many organizations especially large, international companies and usually with high, perceived success (Arthur et al., 1989; Clark, 1992). Larsen (2000), in a The degree of strategic and organizational fit pan-European study of HRM in 15 countries, reports that In contrast to the universal or best-practices approach, a nearly two-thirds of all companies have a formal or number of scholars have long emphasized a contingency or ‘unwritten’ high-flyer policy. A UK study of 500 organiza- best-fit approach to HRM, composed of strategic and tions found HRD managers were twice as likely to rate organization fit. Dealing with strategic fit first, this management development as having high organizational concerns the need to align HRM policies to the business impact where fast-track development was used (Thomson or strategic priorities of the organization concerned, and et al., 2001). However, as Clark (1992) notes, criticisms for the HR manager to play an active role in terms of include that fast-tracking managers represents an elitist strategy development (Fombrun et al., 1984; Schuler and system of development, that it is difficult to manage, that it Jackson, 1987). While there is some empirical support for can create unrealistically high expectations in participants, the value of integrating business objectives and human that it discriminates against those taking career breaks resource policies (Becker et al., 1997; Gratton et al., 1999), it (usually women) and that it discourages innovative should be noted that there are also some more equivocal behaviour (Larsen, 2000). Moreover, published evaluation results (Guest and Hoque, 1994; Raghuram and Arvey, of fast-track development is sparse and tends to assess 1995). In only one of Gratton et al.’s (1999) eight case individual rather than organizational benefits (Jones and organizations was there a sophisticated attempt to link Whitmore, 1995; Arnold, 1997). business strategy to human resource strategy (1999: 204). Systematic evaluation of management development is a The same appears to apply to management development. In final best practice and concerns attempts by the organiza- a study of 22 US ‘leading firms’, Seibert and Hall (1995) tion to measure the benefits deriving from management found that only two companies, 3M and Motorola, development activities. Here the rationale is as follows. If an conducted their training of managers in an outwardly organization invests in strategically oriented management focused way in the sense that business priorities were the development then, as part of this process, some effort trigger for development. should be made to assess the degree to which management The presence of a dedicated HR specialist to support the capability has been enhanced as a result of training and development and implementation of strategy at workplace development interventions (Holton, 2002). This line of level has been argued by Ulrich (1997a) and Becker et al. reasoning makes several assumptions of course. First, that (2001). However, again in practice, there is evidence to any such effects can be meaningfully measured and directly show that HR functions tend to have more technical attributed to training interventions (Burgoyne et al., 2004). competence than strategic capability (Huselid et al., 1997). Second, that in striving for strategic value the organiza- Furthermore, Caldwell (2003) has noted that HR profes- tional imperative is dominant, which means that more sionals remain a politically weak occupational group due, diverse, counter-cultural, even conflictual outcomes are of not least, to their role ambiguity. Notwithstanding this gap less or no relevance (Kamoche, 1994). Third, that the inputs between theory and practice, it can be hypothesized that to training and development will inevitably lead to desired when companies do manage to create a strategic role for outputs, in the form of productive learning, when this is by management development, the performance benefits can be no means inevitable (Antonacopoulou, 1999). Possibly due impressive. to these conceptual leaps, the best practice of evaluation is more advocated than practised. The proportion of Eur- Hypothesis 2: There will be a positive relationship between opean organizations claiming to monitor the effectiveness the degree to which management development is aimed at of their training generally is 64% (Brewster and Hegewisch, achieving strategic fit and perceived organizational perfor- 1993). In reality the actual figure, especially in regard to mance. Organizational performance in European firms Christopher Mabey and Paul N Cooderham 134

Less disputed is the notion that management develop- achieving organizational fit and perceived organizational ment will remain relatively ineffective if it is not sufficiently performance. integrated in terms of the structural and competency configuration of the organization. With regard to manage- The perceived importance of management development ment development, the literature contains six indicators of When reporting on the activities and impact of manage- ‘organizational fit’. ment training and development, the studies reported above Organizational responsibility for the training and devel- have relied on the views of HR managers and/or the senior opment of managers. Ulrich (1997b) argues that if manage- management team. Wood (1999) has criticized studies of ment development is to be successful it must be actively HRM because they neglect the psychological processes that managed by the organization. This is because those in mediate or moderate the link between HR practices and leadership are seen to be better informed and positioned to performance. In a similar vein, Guest (2001) has argued advise on the future capabilities necessary to generate rents that members of staff who are on the receiving-end of HR for the firm (Castanias and Helfat, 1991). In practice, it is initiatives are a key and neglected group in HR research. not unusual for employees in firms to select from a menu of In other words, while the views of HR managers are development courses and programmes; for instance, Storey appropriate sources of information concerning the context et al. (1997) find this to be typical of British companies and systems of management development, when it comes to and note that this can lead to a reactive, ad hoc and reporting the experience of management development it is uncoordinated approach to development. those managers participating in development activities who Competency-based management development. Gratton are the key informants. et al. (1999) contend that successful firms possess a clear Research which has solicited the views of those on the articulation of the skills or competencies management experiencing end of management development points to the development is seeking to strategically address. This is importance of at least three dimensions. First, positive increasingly found in an organizationally specific set of perceptions concerning strategic relevance of development skills or competences. Indeed a benchmarking exercise in activities are of importance. For example, a study of 450 the UK suggests that over 3.2 million employees are covered MBA graduates in the UK found that positive outcomes by such competency schemes (Rankin, 2001) and there is were associated with high-profile endorsement of manage- evidence that competency-based management development ment development by their respective employers (Mabey leads to superior organizational outcomes (Winterton and and Thompson, 2000). Second, there is evidence that when Winterton, 1997). managers perceive that they are being developed against a A long-term development of managers represents a third set organizationally specific skills or competency frame- way in which organization fit is achieved. In a longitudinal works this leads to favourable performance outcomes study of HR choices made by UK firms, Patterson et al. (Winterton and Winterton, 1997). Third, the priority (1997) found evidence that those organizations which place accorded to management development as perceived by an emphasis on the long-term acquisition and development those on the receiving end of training and development, has of managers over time will perform more successfully in a positive impact on organization performance (Mabey and terms of both productivity and profitability than those that Thomson, 2000; Thomson et al., 2001). In other words, the do not. contingency approach also implies that line managers must Also supporting the notion of fit is the resource-based actually believe that development initiatives are relevant in view (RBV) of human resources which highlights the value terms of organizational and strategic fit and that top of nurturing internal talent (Wright et al., 1998). This management is committed to management development perspective highlights the need to retain high performers for organizational performance to be enhanced. Thus we and to absorb the value of their knowledge, skills and hypothesize that: abilities within the organizational routines in order to sustain competitive advantage (Kamoche and Mueller, Hypothesis 4: There will be a positive relationship between 1995). From this RBV literature three further aspects of the degree to which managers perceive training and organizational fit can be identified: using management development to be of importance for their organizations development as a means to develop individual potential and perceived organizational performance. (rather than just as a means to meet immediate skills gaps) since this helps to create intangible assets which are difficult for competitors to imitate; promoting from within Method wherever possible in order to cultivate an internal labour market of managerial talent; and finally seeking to retain Sample managers over the long term, because ‘corporate prosperity In order to test our hypotheses we draw on a data set typically rests in the social architecture that emerges slowly containing responses from 600 European firms equally and incrementally over time, and often predates the tenure distributed across six European countries. Our choice of of the current senior management’ (Mueller, 1996: 164). countries is derived from one of the few earlier studies of Perhaps more than most other HR policies, management management training in Europe (Bournois et al., 1994). development plays a key role in the achievement of this They derived typologies of management training and kind of organization fit, which leads to the third hypothesis. development according to three criteria: seniority of decision-making, training procedures and career manage- Hypothesis 3: There will be a positive relationship between ment planning. From 12 countries they identified five the degree to which management development is aimed at tentative groups. Participating countries in our study were Organizational performance in European firms Christopher Mabey and Paul N Cooderham * 135 selected from each of these groups as follows: Germany to management development. This provides a different (group l), Denmark and France (group 2), Spain (group 3), perspective to the view of the HRD manager. Although they United Kingdom (group 4) and Norway (group 5). were asked to respond on behalf of line managers in general The study was conducted as part of a larger project within their organizations we concede that their responses researching management training and development sys- may not be entirely representative. However, it should be tems in Europe, funded by the European Commission. The noted that when we compared line manager assessments of research partners from each of the participating countries the quantity of management development conducted in agreed a stratified sampling frame, which provided a their organizations measured as number of training days reasonable representation of organizations by size, sector per manager (8.8 days) these were similar to the assess- and annual turnover, within an overall design constraint of ments of their HRD managers (9.3 days). In other words the 100 firms per country. Using local databases, contact was line managers we interviewed appeared to be well-informed made by the research team with the HRD manager or in regard to management development. equivalent, targeting only host country privately owned firms in each respective country. Foreign-owned firms were excluded in order to avoid any possible ‘contamination’ in the sense of country-of-origin effects. Each HRD manager Key variables was asked to identify some line managers in their Here we explain how the key variables in our proposed organization who might be willing to participate in the model were operationalized. For all independent and study. We followed this procedure until each country dependent variables (DVs) we devised constructs rather reached its quota of 100 organizations with matched pair than relying on single items. These measures were rated on data (separate interviews with the HRD manager and one five or three point Likert scales together with an occasional line manager). In all, respondents in 600 organizations were dichotomous answer. These are summarized in Table 1. The interviewed from the 1007 initially contacted, representing reliabilities for these measures, as measured by Cronbach an initial response rate of 60% However, due to missing alpha where appropriate, are generally satisfactory in that data on one or more of the factor analysed variables, the they are either close to 0.70 or higher (Nunnally, 1978). actual number used for our analysis is 499. However, some discussion is required of the DV Orgunizu- An early design decision was to limit our country tional Performance. In order to derive a quantifiable samples to domestically owned private companies (and to measure of benchmarked performance for each participat- omit foreign-owned MNCs, public sector and not-for-profit ing organization, the seven-item index, developed by organizations) to avoid sub-samples with too few cases. The Delaney and Huselid (1996) for their study of HRM sector distribution across the total sample was as follows: practices, was utilized. Like Delaney and Huselid, we asked manufacturing 34.3% transport and distribution 21.3% and the person responsible for HRD about their firm’s quality of the services sector (including financial and insurance products/services and customer relations, their ability to companies as well as legal, business and management recruit and retain essential staff, and the quality of consultancy firms) 44.3%. All countries broadly mirrored relationships between staff. A variable was created from this breakdown, with the exception of Germany where the sum of the mean ratings given to these seven items. In services was over-represented at the expense of transport all cases respondents rated their organization’s outcomes and distribution. For more details on the sample structure over the past 3 years compared to competitors in their see Appendix A. sector. It is recognized that recent management studies of The interview schedule was based on that used in earlier organizational performance have increasingly adopted studies of management development in the UK (Thomson financial indicators like return on equity/assets (Park, et al., 2001; Mabey, 2002). However, we made every effort to 2003; King et al., 2004), employee productivity (Youndt ensure dynamic equivalence of all terms, definitions and et al., 1996), market value (Becker and Huselid, 1998) or meanings in each of the six countries. To this end each sales per employee (Lawler et al., 1998). However, the use of country interview schedule was back-translated. The inter- a self-report measure of outcomes should not be dis- views were arranged in advance by country partners and counted. First, as pointed out by Machin and Stewart respondents were asked to prepare factual data like number (1996), more objective measures of performance, such as of staff, annual turnover, and training budgets. Interviews those created by accountants for annual reports, are often were conducted in native language by telephone, and lasted socially constructed and therefore distorted. Second, it between 20-30min for HRD managers and somewhat less could be argued that it is the perceived view of corporate for line managers. Logistical constraints made it impossible outcomes rather than more remote, financial measures, that to conduct interviews face-to-face. However, using the actually influences the way managers act and the way telephone allowed a structured and uniform protocol to be decisions are made (Mayo, 2000; Guest, 2001). Third, an followed while at the same time building some degree of extensive review by Wall et al. (2004) comparing the rapport with the interviewees; this led to more authentic validity between objective and self-report measures of and thoughtful responses than would have been achieved in company performance found, in all the cases they a mailed survey. Other than clarifymg terms and providing examined, convergent, discriminant and construct validity some examples with responses to open-ended questions, between the two measures. They conclude that: ‘the degree no prompting was done by interviewers. Although as of equivalence between the findings for subjective and with Delaney and Huselid (1996) the HRD manager is objective measures means we can have some confidence in our primary source of data, we have used line managers findings from studies so far that have been based on to assess their perception of the importance accorded subjective company performance’ (2004: 111). Organizational performance In European firms Christopher Mabey and Paul N Gooderham 136

Table 1 Study variables (with Cronbach alpha value where appropriate) Structured interview items Alpha Control variables Size Number of employees N/a Sales turnover Recentlfuture change in annual sales turnover N/a Sector Manufacturing; distribution and transport; Services N/a Country Norway; Denmark; Germany; France; Spain; UK N/a

Independent variables Strategic fit 1. We link HR to business strategy (1-5) 0.75 2. HR plays active role in formulating business strategy (1-5) Organizational fit 1. The responsibility for MD taken by organization (1-5) 0.68 2. We are developing managers against a specific set of skills/ competences (1-5) 3. We are primarily concerned with the long-term development of managers (1-5) 4. The emphasis of training in this organization is to develop individual potential (1-5) 5. When filling management vacancies we promote from within wherever possible (1-5) 6. We expect to retain managers for 5 years or more (1-5)

Management development systems 1. We have regular appraisals at which development needs are 0.67 discussed (1-3) 2. Do you plan managers’ careers in your organization? (y/n) 3. Do you select high potential managers for intensive development? (y/n) 4. We evaluate MD activities in a systematic way (1-5)

Perceived importance (Line Managers) 1. My organization’s MD policy reflects business strategy (1 -5) 0.74 2. My organization is developing managers against a specific set of skiWcompetences (I -5) 3. My organization gives a high priority to developing its managers (1 -5)

Dependent variable Org. performance How would you compare your organization’s performance over the 0.75 past three years with that of other competitors in your sector? 0 Quality of productskiervices (1-5) 0 Development of new products/services (1-5) Ability to recruit essential employees (1-5) Ability to retain essential employees (1-5) 0 Customer/client satisfaction (1-5) 0 Manager-employee relations (1-5) 0 General employee relations (1-5) Italics denote line manager responses.

Finally, it is recognized that such factors as size, sector, In order to test our four hypotheses we felt it crucial to country of origin and sales turnover may well influence the control for whether the hypothesized effects between the relationship between management development and per- constructs and organization performance were consistent formance, so these have been included as control variables. across the six countries represented in the data set. In addition we controlled for size, recent changes in sales turnover and sector. The possibility of such moderating Results effects was tested by use of moderated multiple regression Bivariate relationships between the constructs allocated to (MMR) with Organization Performance ratings as the DV. the process output and outcome levels are reported as MMR is a multiple step variant of conventional multiple Pearson Product Moment correlation values in Table 2. All regression (MR) where ‘interaction terms’ are introduced as four of the IVs are significantly correlated with organiza- additional independent variables (IVs) on the final step of tion performance. modelling. Inclusion of the additional predictors allows Organizational performance in European firms Christopher Mabey and Paul N Gooderham 3x. 137

Table 2 Correlation matrix of independent and dependent variables (n=499) Variable (rating) Mean s.d. 1 2 3 4

1. Strategic fit (1-5) 3.5 1.oo 2. Organizational fit (1-5) 3.8 0.62 0.42** 3. MD Systems (yln; no. of systems used, from 5) 2.5 1.47 0.26** 0.46** 4. Perceived importance (I -5) 3.3 0.98 0.18** 0.24** 0.22** 5. Organization Performance (1-5) 3.8 0.48 0.31** 0.33** 0.11* 0.13* *P<0.05; **P

Table 3 Moderated multiple regression: overall statistics

Step (variables entered) R R2 Ecij F d.f: P Rzha Fcha d.f: P

1 Control variables 0.30 0.09 0.07 5.27 9489 <0.01 2 Above+key constructs 0.46 0.22 0.19 10.23 13,485 <0.01 0.13 19.58 4485 0.01 3 Above+interaction terms 0.50 0.25 0.19 4.61 33,465 <0.01 0.03 0.97 20,465 0.50

MMR model details - step 3

Predictor B P P

Dummy Dk 0.05 0.04 0.47 Dummy Fr -0.20 -0.15 <0.01 Dummy Ge -0.07 -0.05 0.33 Dummy No 0.00 0.00 0.99 Dummy Sp 0.10 0.08 0.14

Dummy manufacturing 0.02 0.02 0.68 Dummy distribution -0.12 -0.10 <0.05

Size -0.07 -0.13 <0.01 Sales turnover 0.11 0.09 <0.05

Strategic fit 0.06 0.13 <0.01 Organization fit 0.22 0.29 <0.01 MD systems 0.01 0.01 0.88 Perceived importance 0.02 0.04 0.37 Constant 2.62 <0.01

separate regression weight estimates to be calculated for As this table shows, statistically significant increases in each level of the moderating variable being tested. Here the RZ (from 9 to 22% of variance explained) were found as the key moderating variable was nationality of firm ownership, model evolved through steps one and two, but not at step or country. Should overall explained variance (R2)increase three. Closer scrutiny of step three reveals that some of the significantly at this final step, this would be evidence that impact on performance is derived from the size and sales inter-relationships between the other IVs and/or IVIDV trajectory of the firm: smaller firms and those that are relationships are moderated by country. expanding are more likely to register superior organization For current purposes a three-step MMR was undertaken performance. When interpreting the country-coefficients it with country (UK as reference category), sector (Services as is important to remember that the UK is the reference reference category), sales turnover and size entered as category. The regression constant may be interpreted as the control variables on the first step. Strategic fit, organiza- predicted value on organizational performance for UK tional fit and management development (MD) Systems were firms when the remaining regressors are set to zero. The included at step two with the interaction terms finally coefficients for Germany, Norway, Denmark and Spain are added at step three. Summary statistics relating to each step not statistically significant, indicating that firms in these of the model building are displayed in Table 3. countries resemble those in the UK with respect to Organizational performance in European firms Christopher Mabey and Paul N Gooderham 138 organizational performance. The coefficient for France is negative and statistically significant, showing that French Sales firms have a more negative perception of their organiza-

shown diaerammaticallvU in FigureU 1. Choice of data The regression analysis indicates that the overwhelming source was determined on the basis of who was felt to be explanation of variance in performance occurs at step 2, the better source of accurate information in each instance. and that this is primarily due to two variables: strategic fit The pattern of sources determines that any relationships and organizational fit. From this we can conclude that some established between Process and Output is measuring the of the impact on performance is derived directly from impact of HRD processes upon line manager perceptions; attempts to integrate HR with an organization’s business and the relationship between Outcome and Output levels is strategy and the degree to which HR specialists play an indicating an effect of these line managers perceptions active role in formulating that strategy. The significant upon overall firm performance as reported by HRD relationship between Organizational Fit and Organizational Organizational performance in European firms Christopher Mabey and Paul N Gooderham 139

Performance underscores the value of firms taking the activity could actually be construed as counter-productive responsibility for management development, focusing on by various organizational stakeholders. For example, line long-term development, seeking to develop an individual’s managers may feel encumbered, poorly equipped and/or potential (rather than just training for the next job), rewarded for devoting time to appraising, planning and promoting managers internally where possible and expect- assessing the development of their team (Shipton and ing to retain them, and linking their training and Shackleton, 1998). For their part, top managers may form development to a competency framework. In contrast, the the view that such activities are costly and diverting time regression analysis shows that the Management Develop- and effort away from immediate business concerns; and HR ment Systems variable, incorporating a number of systems specialists may lament the frequent changes in strategic conventionally viewed as best practice, does not have a priorities, which undermine successive attempts to embed significant impact on Organizational Performance. learning into organizational routines as a way of life We noted earlier that the literature is largely silent on the (Ashton et al., 1975; Mueller, 1996). linkages between investment in management development By contrast, the presence of three factors appear to be and the anticipated valued outcomes. For this reason we set pivotal for turning the considerable investment implied by out to establish a coherent theory of management devel- management development into demonstrable benefit for opment using SEM analysis. One potential weakness of the the organization. First, there needs to be a close connection MMR results is the possibility that respondents will answer between the business and the HR strategy. Second, questions in a way that they feel is internally consistent. It management development must be long term, related to was with this possibility of common method variance in firm-specific competency needs and involve an internal mind that the SEM analysis was conducted. The introduc- labor-market approach to manager development. Third, tion of a line manager construct as an intervening variable line managers must believe that top management is actually between the management development process variables ‘walking the talk’ in regard to management development. (Systems and Organization Fit) and the overall DV of The findings demonstrate that the best-fit approach Organizational Performance was designed to overcome, or incorporates a causal path which proceeds via the line at least minimize, this methodological problem. manager perceptions of Importance given to management First, we observe that larger firms are more likely to have development as a significant and revealing pre-requisite to management development systems in place. It would seem superior performance. The added value of SEM is that it that once they have reached a certain size, firms give shows us how this relationship comes about. In short, we concerted attention to the infrastructure, which promotes find line manager perceptions mediate this relationship and and supports their management development efforts. This play a significant role in the enhancement of a firm’s manifests itself in a published policy and a greater performance. This finding is, we believe, of immense value sophistication of training practices for managers including for senior teams and HR departments. It also resonates with appraisal, career planning, fast-tracking and evaluation the results of other studies. Purcell et al. (2003) identified systems. Interestingly, strategic fit does not have a employee commitment and motivation to be important significant impact on management development systems mediators between people practices, including training, and but both strategic fit and sales turnover have the effect of the engagement of discretionary behaviours to help the firm stimulating a degree of Organizational Fit. That is, those be successful; and Truss (2001) is among many to find line firms that enjoy good sales growth and those which place a manager perceptions as highly influential in determining premium on their HR Strategy are also those firms that HR outcomes. prioritize, for example, the long-term development and To return to our hypotheses, we find considerable retention of their managers. evidence that fit is important: strategic, organizational Moving to the next level of the model, it is no surprise to and in the form of line manager perceptions. Our findings find that having management development systems or ‘best support the idea that a contingent, as against a best practices’ in place significantly enhances the likelihood of practice, approach to management development systems Organizational Fit. This is presumably because the setting confers competitive advantage through enhanced organiza- up of MD systems stimulates reflection on how such tional performance. As such a properly aligned, and investment might be deployed in order to yield strategic therefore distinctive and idiosyncratic, management devel- impact and it would be difficult to mobilize a progressive opment system represents a core capability (Becker and and sustained approach to management development Gerhart, 1996). The fact that these findings take into without them. However, this relationship is not recipro- account the various institutional, cultural and macroeco- cated the presence of organizational fit does not necessarily nomic influences of six national settings, as well as the or significantly lead to the formal installation of manage- impact of sector, firm size and sales turnover of the firms in ment development systems. We also find a positive causal our sample, underlines not only the robustness of our path from Organizational Fit to Perceived Importance, and findings, but also their broad applicability. Thus, it is then from this to Organizational Performance. Noticeable is reasonable to suppose that investing in properly configured the absence of a link between MD systems and Perceived management development represents a worthwhile invest- Importance. ment for European firms in general. However, we do not This is a striking result, which exposes the critical links underestimate the challenge of creating a consistent, longer in the chain between a firm’s HR investment in managers term and strategic approach to fitting management devel- and its performance. In short, management development opment. Indeed one should construe our findings as a systems appear to be necessary but not sufficient. Indeed, it warning to managers that there are no off-the-shelf ‘quick- is conceivable that too much management development fixes’. & Organizational performance in European firms Christopher Mabey and Paul N Gooderham 140

Con c Iu s i o n References Studies tracking the performance impact of progressive Alimo-Metcalfe, B. (1998). 360 degree feedback and leadership development. HRM practices have invariably included management International Journal of Selection and Assessment, 6 35-44. training as key element. By definition such research Anon (2004). Developing managers: A European perspective. London: Chartered explains much about the collective impact of HRM Management Institute. practices but does not allow us to assess the specific Antonacopoulou, E. (1999). Training does not imply learning: The contribution of management training and development individual's perspective. International Journal of Training and Development, practices. Of the few that have taken the training of 3 14-33. managers as their exclusive focus, none have identified the Arnold, J. (1997). Managing careers into the twenty first century. London: Paul Chapman Publishing Ltd. particular aspects of policy or practice, diagnosis or design, Arthur, M., Hall, D. and Lawrence, B. (eds) (1989). Handbook ofcareer theory. content or process, which prove to be influential. The result Cambridge: Cambridge University Press. is that we lack a theoretically driven model of management Ashton, D., Easterby-Smith, M. and Irvine, C. (1975). Management development in organizations. We recognize that by development: Theory and practice. Bradford: MCB. isolating management training and development from Barling, J., Weber, T. and Kelloway, E. (1996). Effects of transformational other HR practices like recruitment, selection and incentive leadership training on attitudinal and financial outcomes: A field experiment. systems, we lose the opportunity to assess potential Journal of Applied Psychology, 81: 827-832. synergies deriving from internal fit, which are arguably Barney, J. (1995). Looking inside for competitive advantage. Academy of Management Executive, 9: 49-61. the central benefit of high performance, or high involve- Baruch, Y. and Peiperl, M.A. (1997). High flyers: Glorious past, gloomy present, ment work practices (Barney, 1995). However, it should be any future? Career Development International, 2: 354-358. noted that among the study variables reported here are Becker, B. and Gerhart, B. (1996). The impact of human resource management wider HR variables like the quality of appraisal discussions, on organizational performance: Progress and prospects. Academy of succession planning (as a result of fast-tracking) and career Management Journal, 39 779-801. development. Becker, B. and Huselid, M. (1998). High performance work systems and firm A second problem when reporting on the activities and performance: A synthesis of research and managerial implications. In G. Ferris (ed.) Research in Personnel and Human Resource Management, Vol 16, impact of human resource policies is that previous studies pp. 53-101. have tended to rely on a single respondent in the Becker, B., Huselid, M. and Ulrich, D. (2001). The HR scorecard. New York: organization, invariably the custodian of HRM or HRD. Harvard Business School Press. This study confirms this to be an important omission. In Becker, B.E., Huselid, M.A., Pickus, P.S. and Spratt, M.F. (1997). HR as a source the eyes of line managers as participants in management of shareholder value: Research and recommendations. Human Resource development, the importance ascribed to management Management, 36 39-47. development by their organization proves to be a Bevan, S. and Thomson, M. (1992). Performance management in the UK: An analysis of the issues. London: Institute of Personnel Management. significant precursor of firm performance. (It should be Bournois, F., Chauchat, J.-H. and Rousillon, S. (1994). Training and noted, however, that, given the cross-sectional nature of our management development in Europe. In C. Brewster and A. Hegewisch (eds.) research design, any single direction causality in Figure 1 Policy and practice in European human resource management. London: should be treated with caution.) Routledge. Why should this be the case? Other recent studies on the Bowen, D. and Lawler, E. (1995). Empowering service employees. Sloan antecedents of performance show that the thought and Management Review, Summer: 73-84. effort invested in HR policies appears to be the trigger Brewster, C. and Hegewisch, A. (1993). Policies and practices in European human resource management. London: Routledge. which engenders a sense of motivation and commitment in Burgoyne, J., Hirsch, W. and Williams, S. (2004), The development of their managers, which in turn leads to improvements in management and leadership capability and its contribution to performance: performance (Guest et al., 2001; Purcell et al., 2003). The The evidence, the prospects and the research needed, sheffeld, department performance measure in our study embraces the quality of for education and skills, Research report rr560. services and products, the quality of relationships in the Butler, J., Ferris, G. and Napier, N. (1991). Strategy and human resource organization and the recruitment and retention rates management. Cincinnati: South Western Publishing, pp: 9-59. Caldwell, R. (2003). The changing roles of personnel managers: Old ambiguities, achieved. We might surmise that management development new uncertainties. Journal of Management Studies, 40 983-1004. variables have a significant impact on such outcomes, Cappelli, P. and Crocker-Hefter, A. (1996). Distinctive human resources are benchmarked against other same-sector organizations, for firms' core competencies. Organizational Dynamics, 24 7-21. similar reasons. Indeed, these factors explain a good deal Castanias, R. and Helfat, C. (1991). Managerial resources and rents. Journal of more variance in performance than the size, sector and Management, 17: 155-171. country in which the firm is located. The fact that it is the Clarke, M. (1992). Total Career Management. Berkshire: McGraw Hill. Delaney, J. and Huselid, M.A. (1996). The impact of human resource discretionary variables which make the difference, as management practices on perceptions of organisational performance. against those over which they have no control, should Academy of Management Journal, 3 949-969. come as some encouragement to HRD managers seeking DfEE (1998). Towards a national skills agenda. Sheffield Department for to justify investment in strategically oriented and thought- Education and Employment. fully implemented management training and development Fletcher, C. (1997). Appraisal. Routes to improved performance, 2nd edn. activities. London: Institute of Personnel and Development. Fletcher, C (2001). The psychological management of individual performance. In S. Sonnentag (ed) Handbook of the Psychology of Management in Organizations. Chichester: Wiley. Acknowledgements Fombrun, C., Tichy, N. and Devanna, M. (1984). Strategic human resource The findings of this paper arise from a study funded by the management. New York Wiley. European Commission Leonard0 da Vinci Procedure C, Ref RF Garavan, T. (1991). Strategic human resource development. Journal of 81505. We are most grateful for their sponsorship. European Industrial Training, 15: 17-30. Organlzatlonal performance in European firms Christopher Mabey and Paul N Cooderham 3x. 141

Garavan, Y., Costine, P. and Heraty, N. (1995). Training and development in Park, C. (2003). Prior performance characteristics of related and unrelated Ireland: Context, policy and practice. Dublin: Oak Tree Press. acquirors. Academy of Management Journal, 24 471-480. Gomez-Meija, L. (1988). The role of human resource strategy in export Patterson, M., West, M., Lawthom, R. and Nickell, S. (1997). Impact of people performance: A longitudinal study. Strategic Management, 9 493-505. management practices on business performance. London: Institute of Gratton, L., Hope-Hailey, V., Stiles, P. and Truss, C. (1999). Linking individual Personnel and Development. performance to business strategy: A people process model. Human Resource Pfeffer, J. (1994). Competitive advantage through people. Boston: Harvard Management, 38: 17-31. Business School Press. Guest, D. (2001). Human resource management: When research confronts Purcell, J., Kinnie, N., Hutchiison, S., Rayton, B. and Swart, J. (2003). theory. International Journal of Human Resource Management, November: Understanding the people and performance link: Unlocking the black box. 1092-1 106. London: Chartered Institute of People Development. Guest, D. and Hoque, K. (1994). The good, the bad and the ugly: Employee Raghuram, S. and Arvey, R. (1995). Business strategy links with staffing and relations in non-union workplaces. Human Resource Management Journal, training practices. Human Resource Planning, 17: 55-73. 5: 1-14. Rankin, N. (2001). Benchmarking survey of the 8th competency survey: Raising Guest, D., Michie, J., Conway, N. and Sheehan, M. (ZOOl), An international performance through people. London: IRS Eclipse Group Ltd. comparative study of the human resource management-company Raper, P., Ashton, D., Felstead, A. and Storey, J. (1997). Toward the learning performance relationship: Evidence from the UK, New Zealand and organization? Explaining current trends in training practice in the UK. Australia, Paper presented to the ESRC Future of Work Seminar, Birkbeck, International Journal of Training and Development, 1: 9-21. London. Rix, A., Parkinson, R. and Gaunt, R. (1993). Investors in people: A qualitative Gunz, H. (1989). The dual meaning of managerial careers: Organizational and study of employers. London: CRG People at Work. individual levels of analysis. Journal of Management Studies, 26 225-250. Schuler, R. and Jackson, S. (1987). Linking competitive strategies with human Herriot, P. and Pemberton, C. (1995).New Deals. Chichester: Wiley. resource management. Academy of Management Executive, 1: 307-319. Hillage, J. and Moralee, J. (1996). The return on investors. Brighton: Institute of Seibert, K.W. and Hall, D. (1995). Strengthening the weak link in strategic Manpower Studies. executive development: Integrating individual development and global Holton, E. (2002). Theoretical assumptions underlying the performance business strategy. Human Resource Management, 34 549-567. paradigm of human resource development. Human Resource Development Shipton, H. and Shackleton, V. (1998). Management development within the International, 5 199-216. construction industry: Building on success? International Journal of Training Horne, M. and Jones, D. (2001).Leadership: The challenge for all. London: and Development, 2 276-278. Institute for Management. Storey, J., Edwards, P. and Sisson, K. (1997). Managers in the making. London: Huselid, M. and Becker, B. (1995)The strategic impact of high performance Sage. work systems. Paper presented to the 1995 Academy of Management annual Thomson, A., Mabey, C., Storey, J., Gray, C. and Iles, P. (2001). Changing meetings, Vancouver, BC. patterns of management development. Oxford: Blackwell. Huselid, M., Jackson, S. and Schuler, R. (1997). Technical and strategic human Townley, B. (1993). Performance appraisal and the emergence of management. resource management effectiveness as determinants of firm performance. Journal of Management Studies, 30 221-238. Academy of Management Journal, 40 171-188. Truss, C. (2001). Complexities and controversies in linking HRM with Industrial Society (1997) Managing best practice: Management development, organizational outcomes. Journal of Management Studies, 38 1121-1149. 36 1-13. Ulrich, D. (1997a). Human resource champions. New York: Harvard Business School Press. Jones, R.G. and Whitmore, M.D. (1995). Evaluation developmental assessment centers as interventions. Personnel Psychology, 48 377-388. Ulrich, D. (1997b).Measuring human resources: An overview of practice and prescription for results. Human Resource Management, Kamoche, K. (1994). A critique and proposed reformulation of strategic human 36 303-320. Wall, T., Michie, J., Patterson, M., Wood, S., Sheehan, M., Clegg, C. and West, resource management. Human Resource Management Journal, 4 29-47. M. (2004). On the validity of subjective performance measures of company Kamoche, K. and Mueller, F. (1995) Human resources and competitive performance. Personnel Psychology, 57: 95-1 18. advantage: An appropriability-learning perspective, Working paper RP512, Winterton, J. and Winterton, R. Does management development Aston University Business School, UK. (1997). matter? British Journal of Management, 8: S65-S76. Kanter, R. (1989). When giants learn to dance. New York: Simon and Schuster. Wood, S. (1999). Human resource management and performance. International King, H., Dalton, D., Daily, C. and Covin, J. (2004).Meta-analysis of post- Journal of Management Reviews, acquisition performance and equity: indications of unidentified moderators. 1: 367-413. Wright, P. and Boswell, W. (2002).Desegregating HRM A review and synthesis Strategic Management Journal, 25: 187-200. of micro and macro human resource management research. Journal of Larsen, H. (2000). In search of management development in Europe: From self- Management, 82 247-276. fulfding prophecies to organizational competence. In C. Brewster, W. Wright, P., McMahon, G., McCormick, B. and Sherman, S. Strategy, Mayrhofer and M. Morley (eds.) New challenges in european human resource (1998). core competence and HR effectiveness and refinery performance. Human management. London: Macmillan, pp: 168-196. Resource Management, 37 17-29. Lawler, E., Mohrman, S. and Ledford, G. (1998). Strategiesfor high performance Yeung, A. and Berman, B. Adding value through human resources: organizations. San Francisco: Jossey-Bass. (1997). Reorienting human resource measurement to drive business performance. Mabey, C. (2002). Mapping management development practice. Journal of Human Resource Management, 36 321-335. Management Studies, 39 1139-1 160. Youndt, M., Snell, S., Dean, J. and Lepack, D. (1996). Human resource Mabey, C. and Thomson, A. (2000). The determinants of management management, manufacturing strategy and firm performance. Academy of development. British Journal of Management, 11: S3-S16. Management Journal, 39 836-866. Mabey, C and Ramirez, M (2004). Developing Managers: A European Perspective. London: Chartered Management Institute. Machm, S. and Stewart, M. (1996).Trade Unions and economic performance. Oxford Economic Papers, 48: 213-241. Appendix A Sample structure Maurer, T. and Tardi, B. (1996). ‘Acceptance of peerhpward appraisal Given the focus of the study, which was structured systems; Role of work context factors and beliefs about managers’ management development activities (formal or informal) development capability. Human Resource Management, 35 217-241. initiated by the employer, it made sense to only include Mayo, A. (2000). The role of employee development in the growth of intellectual companies with 20 staff or more. The eventual sample capital. Personnel Review, 29 521-533. achieved our goal of being evenly spread across four size Mueller, F. (1996). Human resources as strategic assets: An evolutionary resource-based view. Journal of Management Studies, 33: 757-785. categories: 20-99 employees (25%); 100-249 (23.6%); 250- Newton, T. and Findlay, P. (1996).Playing God? The performance of appraisal. 499 (22%); 500 or more (28.3%). As might be anticipated Human Resource Management Journal, 6 42-56. smaller firms were over-represented in Spain and to a lesser Nunnally, J.C. (1978). Psychometric theory, 2nd ed. New York: McGraw-Hill. degree in Denmark, and also a relative scarcity of firms with 3x- 142

250-499 staff in Spain. In contrast, organizations employing organizations falling within each of the following four more than 5000 staff were over-represented in the highly turnover bands: up to E5.7 m; between E5.7 m and E20.7 m; industrialized German sample and to a lesser extent in between E20.7 m and E93.3 m; and over $93.3 m. Here, the Norway. A final characteristic of the sample was size, as country distribution was far more uneven. As might be measured by annual sales turnover. Structuring the overall anticipated, 81% of German companies registered turnover sample according to the 25th, 50th, and 75th percentiles as more than &20.7m, compared to 49% in UK, 41% in resulted in a distribution of approximately 21% of France, 24% in Spain.