External and internal labour flexibility in Spain: a substitute or complementary effect on firm performance?

Abstract

The contingent perspective in strategic human resource management maintains that it is necessary to observe the interaction between human resource practices by encouraging external and internal labour flexibility. An issue still to be resolved is whether this fit leads to a complementary or substitute effect on firm performance. In order to contribute to this debate, we examine how the relationship between external labour flexibility and firm performance is moderated by the degree of internal labour flexibility. To do this, we use the Survey on Business Strategies of the Ministry of Industry, Tourism and Trade on a sample of 1,403 Spanish industrial firms. The results show the existence of a substitute effect between the two types of labour flexibility. Using them simultaneously does not lead to greater benefits for firms.

Keywords:

• firm performance
• internal fit
• labour flexibility
• strategic human resource management

Acknowledgements

This work was carried out as a part of a research project (ref. GV05/125) funded by the Generalitat Valenciana. It was also supported by a grant from the Bancaixa Foundation (ref. P1 1A2005-11).

Notes

1. Very diverse classifications have broken down these two types into different subcategories (e.g. Valverde et al. 2000; Lepak and Snell 2002; Ruiz-Santos et al. 2003), and have even identified other types of secondary flexibility, such as financial flexibility (Atkinson 1984; Atkinson and Meager 1986). However, a common feature of all these studies is their emphasis and continuous reference to these two essential types.

2. More detailed information on the Survey on Business Strategies – Encuesta sobre Estrategias Empresariales (ESEE) – characteristics can be consulted at http://www.funep.es/esee/ing/i_esee.asp