How environmental changes and cooperation moderate labour flexibility and firm performance?

The purpose of this paper is to further explore the relationship between several dimensions of human resource (HR) flexibility and firm performance by introducing two moderator effects: inter-organizational cooperation and environmental changes. There is need for such studies because the relationship between HR flexibility and firm performance remains ambiguous and inconclusive. Whereas some theoretical perspectives and empirical evidences suggest the need to develop and support full-time and permanent employees, others argue that flexible labour relations are beneficial to firm performance. One of the reasons that could explain the lack of conclusive evidences is the scarce use of moderator effects.

Research hypotheses are tested by structural equation analysis with data from a sample of 156 Spanish companies from different sectors.

The results confirm the positive influence of internal HR flexibility on firm performance whereas the influence of external flexibility depends of each dimension in relation to the level of knowledge involved. However, the main finding is that environmental changes and cooperation moderate positively the relationship between functional flexibility and financial performance, as well as between external high skilled expertise and performance (at total level and its subcategories) which focus the importance of flexibility in their contribution to accessing and deploying knowledge into the firm.

Main limitations are the small sample size, the use of cross-sectional data and a structured questionnaire. Longitudinal studies and larger samples should test the causal relationships suggested by the results of the paper. The assessment of flexibility at the enterprise level could also be extended in future studies at the network level since some firms may obtain functional and numerical flexibility through its relationships with other companies in networks. The study of the relationships between different combinations of flexible work and firm performance, considering different groups of employees, could follow from the recommendations of moderator effects found in this research.

Executives need to consider how the different units in the organizational structure interface with the contextual environmental, and they also need to understand the performance implications of different HR flexibility practices because their implications may change according to the exogenous business environment. The authors have found that the contribution of high skilled expertise from consulting/contracting firms is going to be more important than the contribution of short-term hires and temporary agency workers. Experts from outside not only bring knowledge of industry best practices into the firm that supports the innovative output, but they can also contribute to improve financial and relational performance. The results also suggest that external high skilled expertise may be more beneficial to the firm in highly changing environments than in more stable environments.

Two are the main contributions of the paper: first, it analyses the influence of a comprehensive group of HR flexible practices on three different dimensions of firm performance which helps to understand in greater detail the causal mechanisms that link HR flexibility and firm performance in comparison to other studies that are more focused on singular flexible practices and measures of firm performance; and second, the paper analyses the moderator effect of both environmental dynamism and inter-organizational cooperation, which advances the theoretical understanding of flexibility and firm performance by studying different scenarios of HR flexibilities with these two moderators. The results of the paper could help managers to take advantage of different combinations of flexibility dimensions according to contingent situations and in order to improve firm performance.