High performance work systems and performance: The role of adaptive capability

High performance work systems (HPWS) represent a systematic and integrated approach of managing human resources toward the alignment of HR functions and the achievement of firm strategy. The relationship of HPWS with firm performance has been extensively examined, though the mechanism underlying HPWS- performance relationship is not well researched, especially at the organizational level. Based on the dynamic capabilities perspective, this study examines a model with adaptive capability as the mediator in the relationship between HPWS and firm performance, aiming to understand how HPWS is positively associated with organizational outcomes. Institutional environment as a contextual factor that influences the relationship between adaptive capability and performance is also examined. Empirical results from a sample of Chinese firms indicated that HPWS-firm performance linkage was partially mediated by adaptive capability. In addition, the effect of HPWS on adaptive capability was stronger for firms in an institutional environment with location advantage than firms in other environments.