Impact of the fitness between business strategy and HRM system on sustained competitive advantage

Abstract

Based on contingency theory and the resource-based view of firms, this paper summarizes hypotheses of Business strategies, HRM systems and sustained competitive advantage of firms, and uses the data from 263 Chinese listed companies to empirically test for the hypotheses. The results show that companies that pursue different business strategies implement different HRM systems to match with them. Those that pursue cost leadership strategy would implement external HRM system, and those that pursue differentiation strategy tend to implement internal HRM system. Moreover, companies whose HRM system matches with business strategy do not have necessarily higher short-term performance while companies whose HRM system matches with business strategy always have higher long-term performance than those whose HRM system does not match.