Uncovering the Role of Human Resource Management in Organizational Turnarounds: Supernumerary or Supporting Actor?

Abstract

The main research question of this dissertation was derived from a few common sense perceptions most people have about health. The question that we address is how to define organizational health and how it relates to firm performance. As the recent economic crisis caused by the failure of financial markets indicates, an unbalanced or biased view of organizational health may have detrimental effects on overall organizational sustainability. This dissertation focuses on the role of human resources (HR) in promoting organizational health. I propose three positive effects of human resource management (HRM) on firm performance in the context of organizational turnarounds. First, the inoculating effect addresses whether HR is a significant factor in determining organizational survival or failure. Second, the mitigating effect addresses the extent to which HR can help "soften" organizational decline. Finally, the restoring effect addresses the extent to which HR plays a role in helping organizations recover from organizational decline. The HR-related information was mostly derived from 10-K annual reports and the Compustat database through content analysis. Two independent coders were selected and trained to achieve inter-coder reliability in order to accurately assess the strength of the statements on the HR index items. This allowed me to estimate firms' relative "Emphasis on HR". The relationship between Emphasis on HR and the prediction of firm performance was analyzed through hierarchical OLS/logistic regression, quantile regression, and structural equation modeling (SEM). I found that the results generally support the inoculating effect, mitigating effect, and restoring effect. The results showed that firms with higher Emphasis on HR are more likely to a) be classified as non-declining b) perform better than other peers in the same industry, c) experience less probability of bankruptcy, d) experience a shorter declining period, and e) recover from a downturn stage even during their declining period. These findings imply that there is a positive relationship between Emphasis on HR and (1) the avoidance of organizational decline and (2) firm performance of the firms that are in a declining stage. Although HR has been neglected in the turnaround process, the results of this research offer a new way to see HR's role: a supporting actor in the drama of organizational turnarounds rather than a supernumerary.