Journal of Business Research xxx (xxxx) xxx–xxx

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Journal of Business Research

journal homepage: www.elsevier.com/locate/jbusres

The internal ecosystem of high performance work system and employee

service-providing capability: A contingency approach for servitizing firms
⁎,1
Kibok Baika,1, Kyoung Yong Kimb, , Pankaj C. Patelc,1
a
Kookmin University, College of Business Administration, Business Administration Building #607, Seoul 02707, South Korea
b
City University of Hong Kong, Department of Management, College of Business, 10-254 Academic 3, Kowloon Tong, Hong Kong
c
Villanova University, Department of Management and Operations, Villanova School of Business, 800 Lancaster Ave., Villanova, PA 19085, United States of America

A R T I C LE I N FO A B S T R A C T

Keywords: Servitization, or expanding service offerings associated with products, is increasingly central to sustaining
High performance work systems competitive advantage in manufacturing industries. We propose the role of an internal ecosystem of human
Servitization resource practices—High Performance Work System (HPWS)—and the contingent effects of environmental
Service-providing capability conditions—industry dynamism and industry complexity—as drivers of employee service-providing capability.
Environmental conditions
Based on longitudinal data from 217 firms representing 718 firm-years, HPWS is positively associated with the
service-providing capability of employees, and this association is stronger at higher levels of environmental
dynamism or environmental complexity. This research contributes to the servitization literature by examining
how employee service-providing capability relies on the internal ecology of employee practices and changes in
the external environment.

1. Introduction outcomes, but there remains a limited understanding of the human

Manufacturers are increasingly competing through product-service
systems. According to Brax and Visintin (2017), servitization is “a
change process whereby a manufacturing company deliberately or in an
emergent fashion introduces service elements in its business model” (p.
18). Servitization requires a transition to providing services to the in-
stalled user base and making services a strategic mainstay for an ex-
isting product portfolio (Böhm & Eggert, 2017; Fang, Palmatier, &
Steenkamp, 2008). However, studies have found that servitization ef-
forts result in mixed returns (Kastalli & Van Looy, 2013; Luoto, Brax, &
Kohtamäki, 2017).
Despite the critical role of employees in servitization efforts, the
influence of the internal ecology of human resource (HR) practices on
employee service-providing capability remains unexplored. Ecology is
the science of interaction between an organism and its environment.
Employees and their interrelationships, undergirded by HR practices,
support the internal ecology necessary for servitization efforts. While
external ecology (e.g., stakeholders) is important, internal ecology (e.g.,
HR practices) could be equally critical for improving employees' in-
teractions with their internal work environment and honing their ser-
vice-providing capabilities. The broader servitization literature has
identified the key role of employees in improving servitization
resource architecture that nurtures and enhances the role of employees
in servitization efforts. In their qualitative study, Baines and Lightfoot
(2013b) found that operating facilities and their geographic locations,
micro-vertical and horizontal integration related to the distribution of
services, information technologies, employees' human capital, perfor-
mance assessment and value demonstration, deployment of employees,
and business models and relationships with customers [are] “combined
in an integrative framework that illustrates how operations are con-
figured to successfully deliver advanced services” (p. 2).
HR practices using a people-centric approach could offer such an
integration. Baines and Lightfoot (2013a) lamented that people skills
are seldom studied in the servitization literature. However, there re-
mains a dearth of studies on the necessary architecture of practices that
can help firms develop a people-centric service infrastructure. Indeed,
in the top-down implementation of competing logics of product and
service orientations (Lenka, Parida, Sjödin, & Wincent, 2018b), HR
practices could provide the necessary multilevel foundation for lever-
aging employee skills in servitization. Relatedly, in terms of motivating
and sustaining employee efforts, HR practices could provide the in-
ternal ecology of microfoundational dynamics to facilitate “evange-
lizing, bootlegging, leveraging, and collaboration” to promote serviti-
zation and to manage “need uncertainty; process uncertainty; and

⁎
Corresponding author.
E-mail addresses: baik@kookmin.ac.kr (K. Baik), kimky.yong@cityu.edu.hk (K.Y. Kim), pankaj.patel@villanova.edu (P.C. Patel).
1
Authors contributed equally.

https://doi.org/10.1016/j.jbusres.2019.02.028
Received 24 August 2017; Received in revised form 11 February 2019; Accepted 13 February 2019
0148-2963/ © 2019 Elsevier Inc. All rights reserved.

Please cite this article as: Kibok Baik, Kyoung Yong Kim and Pankaj C. Patel, Journal of Business Research,
https://doi.org/10.1016/j.jbusres.2019.02.028
K. Baik, et al.
Fig. 1. Proposed model.
outcome uncertainty to facilitate four stages of a solution process —
requirements definition, customization and integration, deployment,
and post-deployment support” (Ulaga & Kohli, 2018, p. 161).
We propose that High Performance Work Systems (HPWS) con-
stitute an internal ecology necessary for servitization efforts. HPWS
refer to a bundle of HR practices that synergistically enhance firm
performance through recruitment, incentives, appraisal, and partici-
pation (Jiang, Lepak, Hu, & Baer, 2012). The notion of HPWS as an
internal ecosystem is rooted in Gebauer and Friedli (2005) framework,
which explains that HR practices are essential to strengthening the link
between service and manufacturing, as well as enhancing interactions
within and outside the organization (cf. Oliva, Gebauer, & Brann,
2012).
Two key examples of HPWS improving performance in manu-
facturing and services are Toyota and Starbucks. A classic example of a
well-executed HPWS is the Toyota Production System (TPS) (Wright,
Gardner, Moynihan, & Allen, 2005). Strongly focused on staffing and
training, TPS requires managers to be teachers and use day-to-day ac-
tivities to train employees by relying on the 14 guiding principles of the
Toyota Way. In addition to training after initial recruitment, ongoing
and 360-degree training are deeply embedded into the workplace cul-
ture. Employees and managers are directly engaged in performance
evaluation through the plan-do-check-act approach, enjoy considerable
job autonomy through Kaizen and are directly involved in developing
work practices. Relatedly, HPWS can be central to improving em-
ployees' service providing capability. Starbucks is another exemplar of
leveraging employee service providing capability to enhance growth.
Relying on Partner Resources that includes HPWS, Starbucks aligns
systems and efficiency through its people strategy. At the center of its
enhanced service delivery are the principles of empowerment, owner-
ship, and feedback. Its recruitment strategy relies on identification with
brand reputation. Building on internal commitment enhances percep-
tions of ownership and empowerment. Finally, performance appraisals
are based on accountability, self-motivation, and self-actualization ef-
forts that drive a meaningful work experience.
Tying in the examples of Toyota and Starbucks with the increasing
need for a “combination of product and service elements [that] create
synergy” (Kuijken, Gemser, & Wijnberg, 2017, p. 33), HPWS sustains an
internal ecology that strengthens the synergy among internal structures
and processes to facilitate servitization. Rabetino, Kohtamäki, and
Gebauer (2017) also highlight the role of human capital in improving
service delivery processes. Whereas other approaches – including the
platform approach (Cenamor, Rönnberg, & Parida, 2017) and the in-
ternet of things (Rymaszewska, Helo, & Gunasekaran, 2017) – provide
2
Journal of Business Research xxx (xxxx) xxx–xxx
the technology and tools to interact with the external servitization
ecology, HPWS could explain how the internal ecology can improve
employee service-providing capability. Overall, in addition to stake-
holders in the external ecology (Story, Raddats, Burton, Zolkiewski, &
Baines, 2017), HPWS could provide the internal ecological foundation
necessary to enhance employee service-providing capability.
Employee service providing capability, our outcome measure, is
rooted in improving both internal and external customer satisfaction.
More specifically, it focuses on the internal marketing of resources and
work in process exchanges, coupled with the internal service philo-
sophy rooted in total quality management (Marshall, Greg, Baker, &
Finn, 1998). Both internal marketing and internal service orientations
are rooted in customer orientation and cross-functional cooperation to
improve servitization outcomes (Varey, 1995). External customer sa-
tisfaction elicits satisfaction, retention, and repurchase behaviors while
overcoming intangibility, perishability, and inseparability of services in
servitization context. Such capability is rooted in the SERVQUAL model
wherein employees play an active role in closing the gap between the
perceptions of services provided with customer expectations
(Parasuraman, Zeithaml, & Berry, 1988).
Furthermore, the value of HPWS as an internal ecology that im-
proves service-providing capability could be conditional on the external
environment (Brashear, Gebauer, & Kowalkowski, 2012). We propose
two moderators—industry dynamism (i.e., variation in sales), and in-
dustry complexity (i.e., the concentration of competitors in an in-
dustry). These two key environmental factors could influence the ef-
fectiveness with which the internal ecology of HPWS enhances
employee service-providing capability.
We present a model of this proposed framework in Fig. 1. The
findings make the following contributions. First, beyond front-line or
customer-facing employees, employees across all levels play an im-
portant role in servitization efforts (Bowen, 2016; Bowen, Siehl, &
Schneider, 1989; Ostrom, Parasuraman, Bowen, Patricio, & Voss,
2015). Although a significant body of work has also proposed the cri-
tical role played by employees in service provision (Liao, Toya, Lepak,
& Hong, 2009), viewing HPWS as an internal ecosystem could provide a
complementary lens for understanding how employees in servitization
contexts develop and maintain customer orientation (Lengnick-Hall &
Lengnick-Hall, 1999), improve service-related operational capabilities
(Baines et al., 2009; Neely, 2008), implement marketing strategies
(Mohrw-Jackson, 1991), and enhance customer satisfaction (Bowen,
1996). Given that servitization is rooted in building service capabilities
(Roy et al., 2009), an HPWS-based internal ecology may make these
systematic efforts more feasible. Second, based on Dess and Beard
K. Baik, et al.
(1984), highly dynamic environments are more unstable and un-
predictable, and they require more rapid realignment of product and
service interfaces. As a result, environmental dynamism – which varies
by industry – could influence the efficacy of HPWS. Overall, we propose
that HPWS contributes to the internal ecosystem of HR practices by
improving the coordination and combination of information across
organizational units and with customers in order to maintain the fide-
lity of servitization efforts.
2. Theoretical development and hypotheses
We start by providing a brief review of HPWS, followed by our
proposition of HPWS as an internal ecosystem. We posit that HPWS
practices will be positively associated with the service-providing cap-
ability of employees.
2.1. High-performance work systems
HPWS consists of a bundle of synergistic and mutually reinforcing
practices – including staffing, training, rewards and incentives, and
appraisal systems – that are central to improving firm performance. As a
synergistic system of practices collating across multiple levels (Boxall &
Macky, 2009), involving employees in HPWS can help promote a
shared understanding of goals and activities to improve performance
(Evans & Davis, 2005). If an HPWS simply exists as a policy but is not
actually implemented across the firm, its full potential cannot be rea-
lized. HPWS facilitates the accumulation of human capital through
path-dependent processes and forms the basis of a complex, dynamic
and causally ambiguous bundle of resources. Two meta-analyses show a
positive link between HPWS and employee performance (Combs, Liu,
Hall, & Ketchen, 2006; Jiang et al., 2012). Overall, when implemented
across a variety of employees at multiple levels of an organization
(Aryee, Walumbwa, Seidu, & Otaye, 2012; Huselid & Becker, 2011), by
strengthening interactions between employees and their intra-organi-
zational environment, HPWS can bolster the organization's internal
ecosystem. Next, we discuss the role of HPWS as an internal ecosystem
in the servitization context.
2.2. HPWS as an internal ecological perspective for servitization
According to the Merriam-Webster Dictionary, ecology refers to the
“interrelationship of organisms and their environments.” The external
view of organizational ecology focuses on how firms coordinate and
manage interdependencies, as well as the potential conflicts that arise
from such efforts. The concept of internal ecology is explored in the
human capital (Evans & Davis, 2005; Grimm et al., 2005; Kuijken et al.,
2017) and corporate entrepreneurship literature (Floyd & Wooldridge,
1999). Adner and Kapoor (2010) discuss the concept of the ecosystem
as a “way of making interdependencies more explicit,” (p. 309).
HPWS, as an internal perspective of ecology, makes the interrela-
tions between employees and the internal organizational environment
more explicit. The internal ecosystem lens is particularly salient to
servitization, as integrating service and manufacturing activities re-
quires multi- and cross-level employee and departmental inter-
dependence (Kuijken et al., 2017). Supporting the notion that HPWS
could be a critical factor in developing an internal ecosystem, re-
searchers (Batt & Doellgast, 2005; Gebauer & Friedli, 2005; Neu &
Brown, 2005) highlight several factors necessary for aligning service
strategy with service performance (e.g., decision making processes,
organizational structure, human resources, and reward systems). HPWS
can strengthen the backbone of a firm's internal ecology by promoting
joint decision making among employees at multiple levels and by
providing the organizational structure needed to integrate service and
manufacturing activities successfully.
Past work has shown a positive association between HPWS and
service delivery in a wide range of service settings, including banking
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Journal of Business Research xxx (xxxx) xxx–xxx
(Aryee et al., 2012), insurance (Takeuchi, Lepak, Wang, & Takeuchi,
2007), and healthcare (Gittell, Seidner, & Wimbush, 2010). In the
servitization context, as firms attempt to change their internal resources
to align with external customer needs, employee support for organi-
zational goals is critical. Servitization increases the pressure on em-
ployees not only to stretch manufacturing-related resources but also to
meet the concurrent demands of service production and consumption.
Increasing the scope of service demands requires improved task per-
formance and more discretionary behaviors (Bell & Menguc, 2002).
HPWS could facilitate such internal ecological structures. Based on the
organizational ecology literature (Hannan & Freeman, 1993), HPWS
can enhance the internal ecosystem by providing the necessary stability
to internal structures, processes, and exchanges, thereby promoting the
servitization activities necessary for higher performance.
Next, we discuss how HPWS can be an enabler of service providing
capability.
2.3. HPWS and employee service providing capability
Building on work by Gebauer and Friedli (2005), HPWS can serve as
an effective foundation for an internal ecosystem by adding structure
and processes for hiring employees, training and skill improvement,
and refining value creation in service quality by implementing mea-
surement and control systems. As an internal ecosystem of HR practices,
HPWS strengthens employees' ability to perceive and meet customer
needs, link manufacturing resources with service needs, and sharpen
the focus on service quality as the root of a firm's competitive success to
improve the fit between servitization goals and internal resources.
HPWS could help overcome first-order challenges aimed at addressing
symptoms and overcoming structural problems by improving service
quality and performance and also provides structures and processes to
build a second-order system conducive to service providing capabilities
(Heskett & Schlesinger, 1997).
Given prior meta-analytic findings linking HPWS and performance
(Jiang et al., 2012), we expect that HPWS should be positively linked
with employee service-providing ability. HPWS is positively related to
customer service orientation, as well as customer perceptions of service
quality (Schneider & Bowen, 1993) and delivery (Schneider,
Parkington, & Buxton, 1980). Because servitization requires increased
contact with customers, employees become even more important to
understanding customer needs and expectations (Hennig-Thurau,
Gwinner, Walsh, & Gremler, 2004). HWPS should allow employees to
enhance their ability to deliver this level of customized service (Chuang
& Liao, 2010). Based on Gustafsson, Edvardsson, and Brax (2005),
HPWS could be a lynchpin in connecting manufacturing capability with
new and existing service initiatives (Baines & Lightfoot, 2013a). The
internal ecology facilitated by HPWS could contribute to improved
service delivery by supplying the commitment and motivation needed
to handle increasingly challenging demands at the product-service in-
terface. Reward structures and employee participation help build
complementary webs of internal and external service infrastructure that
foster better employee service delivery.
Overall, we posit that:
H1. HPWS is positively associated with employee service providing
capability.
2.4. Industry conditions and internal servitization ecology
In organizational research, two key environmental con-
tingencies—environmental dynamism (for a review, refer to Miller,
Ogilvie, & Glick, 2006) and environmental complexity (for a review,
refer to Cannon & St. John, 2007)—may pose unique challenges to
servitization.
K. Baik, et al.
2.4.1. Environmental dynamism
Environmental dynamism is characterized by instability and un-
predictability and requires adaptation through a rapid understanding of
the changing environment. With increasing dynamism, firms must
“perform limited search in their assessment of the environmental si-
tuation, develop solutions by taking concrete actions quickly, and at-
tempt less integration of various emergent responses” (Simerly & Li,
2000, p. 71). As firms rely increasingly on ‘local’ searches to manage
environmental dynamism (Knight et al., 1999; Simons, Pelled, & Smith,
1999; Wiersema & Bantel, 1992), employees become critical in re-
sponding to rapidly changing servitization needs and thereby in pro-
viding higher-quality service. As environmental unpredictability in-
creases, customer service and sales are critical (Borucki & Burke, 1999).
In the strategic HR literature, dynamism requires a greater need for
HPWS to improve internal fit and increase responsiveness (Roche,
1999).
HPWS is more positively associated with financial performance in
dynamic environments (Ordiz & Fernández, 2005). Elsewhere, others
have found that the HWPS-firm performance relationship is stronger in
dynamic environments (Ketkar & Sett, 2010). In the context of servi-
tization, HPWS should enhance knowledge diversity, promote the in-
dependence necessary to meet various product-service requirements
(Wright & McMahan, 1992), and help employees adapt to the serviti-
zation efforts that accompany increasing dynamism. As dynamism re-
quires the integration of knowledge across different organizational le-
vels and the consideration of diverse courses of action at faster speeds
(Lepak, Takeuchi, & Snell, 2003), employee support could be more
important for servitization success in a dynamic environment. HPWS
should improve perceptual accuracy at different organization levels
(Rau, 2006). The employee cooperation and commitment that develop
from HPWS should allow for better “novelty, complexity, and open-
mindedness” (Mintzberg, Raisinghani, & Theoret, 1976, p. 250) in
seeking and pursuing solutions to improve service-providing capability.
H2. The positive association between HPWS and employee service
providing capability is stronger when environmental dynamism is
higher.
2.4.2. Environmental complexity
Environmental complexity refers to the breadth and heterogeneity
of industry factors that increase information processing demands
(Bantel, 1993). Servitization becomes more challenging in a complex
environment, as coordinating heterogeneous knowledge in the external
ecosystem requires a greater internal scope of servitization re-
combinations. Due to information processing challenges, division and
coordination of labor are needed to combine diverse sets of knowledge.
As such, using HPWS to frame the internal ecosystem can facilitate the
necessary ‘architecture of complexity’ (Simon, 1962) to coordinate and
aggregate customer and product knowledge and ultimately strengthen
service-related activities.
Based on an information processing perspective, internal complexity
must match external complexity. The internal ecosystem nurtured by
HPWS could help employees scan for a variety of industry factors and
develop the knowledge base that allows for equally informed service
responses. Because HPWS emphasize synergy of HR practices, they
provide the coordination needed to manage cognitive complexity and
improve problem-solving (Batt & Doellgast, 2005; Chiang, Hsu, & Shih,
2015). HPWS could improve the joint interpretation of complex
knowledge (Preuss, 2003), as well as the identification, search, and
combination of service knowledge in collective organizational memory.
Developing interconnected task and knowledge structures can help
aggregate the diverse collective cognition of employees in devising and
sustaining service capabilities. With increasing environmental com-
plexity, we expect service-providing capability to be higher for firms
with higher levels of HPWS.
4
Journal of Business Research xxx (xxxx) xxx–xxx
H3. The positive association between HPWS and employee service-
providing capability is stronger when environmental complexity is
higher.
3. Method
We used Human Capital Corporate database to test our hypotheses.
The data is a four-wave panel data (2005, 2007, 2009, & 2011) col-
lected by Research Institute of Vocational Education and Training in
South Korea in tandem with the Korean Ministry of Labor. The sampled
firms are from various industries (e.g., manufacturing, finance) and
have > 100 employees. The dataset consists of organization level and
employee level survey data. Human resources (HR) and strategy man-
agers answered the organization level survey, whereas randomly se-
lected employees answered the employee level survey. Surveys were
administered to a total of 454 firms in 2005, 467 firms in 2007, 473
firms in 2009, and 500 firms in 2011. In terms of the employee survey,
13,101 employees, 11,473 employees, 10,019 employees, and 10,064
employees participated in the surveys in 2005, 2007, 2009, and 2011,
respectively.
We merged the organizational and employee data with archival
measures of financial performance. Our dependent variable, employee
service-providing capability (rated by HR managers), is not available in
the 2005 dataset. Thus, we used the remaining three waves in our study
(2007, 2009, and 2011). Additionally, as our focus is on manufacturing
firms, we included firms only from the manufacturing industry.
Excluding observations with missing values on the variables of interest,
our sample consists of 718 firms and 17,510 employees. The resulting
unbalanced panel dataset includes 224 firms and 6234 employees in
2007, 222 firms and 4955 employees in 2009, and 272 firms and 6321
employees in 2011.
3.1. Measures
3.1.1. Employee service-providing capability
Sung and Choi (2014, 2016) used manager-rated capability items to
measure employees' competence or human capital. An item that was
used was concerned with sales and service employees' capability. Spe-
cifically, HR managers in each firm rated their sales and service em-
ployees' job capability using a five-point Likert-type scale (1 = lower
than required; 5 = higher than required). This item could be a good
proxy for employees' service-providing capability in manufacturing
firms. Thus, we used the item to measure employee service-providing
capability.
3.1.2. High performance work systems
To measure HPWS, we used staffing, training, pay practices, pay
level, benefits level, performance evaluation, communication, and job
autonomy (e.g., Wright et al., 2005). For staffing, we divided the total
expense of staffing by the number of applicants. Training was measured
as training expense per capita. We measured pay practices using the
following four practices: team-based pay, department-based pay, em-
ployee ownership, and gain-sharing. HR managers indicated whether or
not they use each practice (1 = yes, 0 = no), and we averaged the four
practices for the index of pay practices (Shaw, Park, & Kim, 2013). We
measured pay level and benefits level using employees' average pay and
employees' average level of benefits, respectively. For performance
evaluation, we took an average of the use of balanced scorecards,
competency evaluations, and performance feedback. HR managers in-
dicated whether or not each practice is being used (1 = yes, 0 = no).
All necessary items for the above-mentioned six HR practices were
available in the organization level survey.
To measure communication, we included two communication items
in the employee survey. A sample item is “in our company employees
can freely voice their opinions.” Employees responded using a 5-point
K. Baik, et al. Journal of Business Research xxx (xxxx) xxx–xxx

Table 1
Descriptive statistics and correlations.
Mean SD 1 2 3 4 5 6 7 8 9 10 11

1 Organizational age 32.34 17.03 –

2 Organizational size 2.63 0.46 0.21⁎⁎ –
3 Employees' average education 1.92 0.40 0.07 0.03 –
4 Prospector 0.35 0.48 0.07⁎ 0.17⁎⁎ 0.12⁎⁎ –
5 Analyzer 0.41 0.49 −0.01 −0.05 0.00 −0.61⁎⁎ –
6 Management quality 3.41 0.38 0.04 0.27⁎⁎ 0.27⁎⁎ 0.27⁎⁎ −0.14⁎⁎ –
7 Service quality 3.83 0.54 0.10⁎⁎ 0.25⁎⁎ 0.08⁎ 0.28⁎⁎ −0.19⁎⁎ 0.37⁎⁎ –
8 Workforce productivity 4.27 0.56 0.07 0.20⁎⁎ 0.20⁎⁎ 0.12⁎⁎ −0.09⁎ 0.31⁎⁎ 0.21⁎⁎ –
9 Environmental dynamism 0.00 1.00 0.12⁎⁎ 0.08⁎ 0.09⁎ 0.10⁎⁎ −0.07⁎ 0.10⁎⁎ 0.09⁎ 0.12⁎⁎ –
10 Environmental complexity 0.00 1.00 0.04 0.12⁎⁎ 0.20⁎⁎ −0.01 0.03 0.09⁎ 0.05 0.14⁎⁎ 0.04 –
11 HPWS 0.00 1.00 0.05 0.42⁎⁎ 0.33⁎⁎ 0.24⁎⁎ −0.12⁎⁎ 0.61⁎⁎ 0.32⁎⁎ 0.27⁎⁎ 0.09⁎ 0.15⁎⁎ –
12 Employee service-providing capability 2.99 0.63 0.03 0.13⁎⁎ 0.13⁎⁎ 0.09⁎ −0.06 0.21⁎⁎ 0.21⁎⁎ 0.12⁎⁎ 0.05 0.02 0.23⁎⁎

Note. N = 718. HPWS = high performance work systems.

⁎
p < .05.
⁎⁎
p < .01.

scale. Cronbach's alphas were 0.66, 0.71, and 0.75 in 2007, 2009, and
2011 respectively. As the items were available at the employee level,
we aggregated the employee ratings to the organizational level. rwg and
ICCs justified the aggregation: rwg was 0.84, ICC(1) was 0.14, and
ICC(2) was 0.83 in 2007. rwg was 0.84, ICC(1) was 0.15, and ICC(2) was
0.80 in 2009. rwg was 0.85, ICC(1) was 0.15, and ICC(2) was 0.80 in
2011. For job autonomy, employees assessed the degree to which they
have autonomy in performing their job using a 5-point scale. We
averaged employee ratings for each organization to create an index of
job autonomy: rwg was 0.75, ICC(1) was 0.07, and ICC(2) was 0.30 in
2007. rwg was 0.77, ICC(1) was 0.15, and ICC(2) was 0.46 in 2009. rwg
was 0.79, ICC(1) was 0.15, and ICC(2) was 0.45 in 2011. Following past
research, we standardized the eight practices and added up the stan-
dardized scores to create an additive index of HPWS.
3.1.3. Environmental dynamism
To measure environmental dynamism, following past research
(Keats & Hitt, 1988), we employed the anti-logarithm of the standard
errors of regression coefficients in industry growth equations. We used
firms' sales data from four waves of the panel dataset to allow more
stable estimates. Specifically, we first performed the logarithm of total
sales for each firm and used it as the dependent variable in the growth
equation. We then added year into the equation as the predictor. We
ran the growth equation analysis for each industry based on the first
two-digit Korean Standard Industry Classification code (Rev. 9). From
the analysis results, we obtained standard errors of regression coeffi-
cients. We performed the anti-logs of the standard errors and standar-
dized them. We used them as an index of environmental dynamism.
3.1.4. Environmental complexity
We operationalized environmental complexity as the degree to
which firms' market share (measured as the percentage of net income in
an industry) changes in an industry. This is similar to Keats and Hitt's
(1988) operationalization. We first calculated each firm's current share
by dividing the firm's net income by the industry's average net income.
This value served as the predictor. Then, following the same procedure,
we calculated the firm's share in the following year (as opposed to the
current year) and used it as the dependent variable. We ran the equa-
tions with the predictor and dependent variable for each industry. We
obtained regression coefficients and standardized them. We used them
as an index of environmental complexity.
3.1.5. Control variables
We controlled for variables that are conceptually relevant to our
study (i.e., organizational age [years since founding], organizational
size [log of the total number of full-time employees], employees'
average education, strategic orientation, management quality, service
quality, and firm performance). We measured educational level with a
weighted averaged (1 = high school diploma, 5 = doctoral degree). We
also included the firm's strategic orientation as a control variable as it
may be related to both the usage of HPWS and firm performance.
Definitions of a prospector, analyzer, and defender (Miles, Snow,
Meyer, & Coleman, 1978) were provided to strategic planning man-
agers in each firm. Based on the definitions, they indicated whether the
firm is a defender, prospector, or analyzer in the industry. We dummy-
coded the prospector and analyzer responses such that “defender” was
used as the reference group. Firm performance (log of net income per
employee), management quality, and service quality may be related to
HPWS (Jiang et al., 2012).
For service quality, we used the firm's service/product quality item
that was assessed by employees. We aggregated these employee ratings
to the organization level to create an index of service quality (rwg was
0.80, ICC(1) was 0.28, and ICC(2) was 0.70 in 2007. rwg was 0.76,
ICC(1) was 0.29, and ICC(2) was 0.67 in 2009. rwg was 0.80, ICC(1) was
0.34, and ICC(2) was 0.70 in 2011). We used four items to measure
management quality. Employees rated the degree to which the orga-
nization values talented employees, retains talented employees, informs
them of organization's situations, and is being managed by effective
leaders. We averaged the four items. Cronbach's alphas were 0.68, 0.72,
and 0.71 in 2007, 2009, and 2011 respectively. We then aggregated the
employees' ratings to the organizational level. rwg was 0.92, ICC(1) was
0.18, and ICC(2) was 0.86 in 2007. rwg was 0.92, ICC(1) was 0.17, and
ICC(2) was 0.82 in 2009. rwg was 0.92, ICC(1) was 0.17, and ICC(2) was
0.83 in 2011.
3.2. Results
Descriptive statistics (including means and standard deviations) and
inter-correlations among study variables are reported in Table 1. Our
dataset is multi-level because firms are nested within industries
(Hough, 2006; Kim & Patel, 2017). We ran HLM to test our hypotheses,
the results of which are reported in Table 2.
As shown in Table 2, HPWS was significant in predicting employee
service-providing capability (γ = 0.07, SE = 0.03, p < .05) above and
beyond the control variables. Hypothesis 1 was supported. To test
Hypothesis 2, we included the interaction term between HPWS and
environmental dynamism in the analysis model. As Table 2 shows, the
moderation effect of environmental dynamism for the HPWS-employee
service-providing capability was positive and significant (γ = 0.05,
SE = 0.02, p < .05). We plotted the interaction effect (see Fig. 2(a))
after mean-centering the variables. The effect of HPWS on employee
service-providing capability was stronger for high environmental dy-
namism than low dynamism. Simple slopes tests confirmed our inter-
pretations. The effect of HPWS for high environmental dynamism was

5
K. Baik, et al. Journal of Business Research xxx (xxxx) xxx–xxx

Table 2
Hierarchical linear modeling results – effect of HPWS on employee service-providing capability.
Predictor Dependent variable: employee service-providing capability

Model 1 Model 2 Model 3 Model 4

γ (s.e.) γ (s.e.) γ (s.e.) γ (s.e.)

Intercept 3.01 (0.05)⁎⁎ 3.01 (0.05)⁎⁎ 3.00 (0.05)⁎⁎ 2.99 (0.05)⁎⁎

Control variables
Organizational age 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00)
Organizational size 0.09 (0.05)† 0.05 (0.06) 0.04 (0.06) 0.04 (0.06)
Employees' average education 0.13 (0.06)⁎ 0.10 (0.06) 0.10 (0.06)† 0.10 (0.06)
Prospector −0.02 (0.06) −0.03 (0.06) −0.02 (0.06) −0.01 (0.06)
Analyzer −0.03 (0.06) −0.02 (0.06) −0.02 (0.06) −0.01 (0.06)
Management quality 0.17 (0.07)⁎ 0.08 (0.08) 0.10 (0.08) 0.09 (0.08)
Service quality 0.17 (0.05)⁎⁎ 0.16 (0.05)⁎⁎ 0.17 (0.05)⁎⁎ 0.17 (0.05)⁎⁎
Workforce productivity 0.03 (0.04) 0.03 (0.04) 0.03 (0.04) 0.02 (0.04)
Independent variables
Environmental dynamism (ED) 0.01 (0.02) −0.01 (0.02) −0.02 (0.03)
Environmental complexity (EC) −0.02 (0.02) −0.01 (0.02) −0.01 (0.02)
HPWS [H1] 0.07 (0.03)⁎ 0.06 (0.03)† 0.06 (0.03)†
HPWS × X ED [H2] 0.05 (0.02)⁎ 0.03 (0.03)
HPWS × EC [H3] 0.04 (0.02)† 0.04 (0.02)†
ED × EC −0.02 (0.03)
HPWS × ED × EC 0.06 (0.03)⁎
Pseudo R2

Note. N = 718. HPWS = high performance work systems.

†
p < .10.
⁎
p < .05.
⁎⁎
p < .01.

Hypothesis 3 predicts that the positive association between HPWS

and employee service-providing capability is stronger at high levels of
environmental complexity. As shown in Table 2, the interaction effect
between HPWS and environmental complexity was marginally sig-
nificant (γ = 0.04, SE = 0.02, p < .10). However, because we specified
the directionality of Hypothesis 3, when we used a one-tailed test, the
interaction effect was significant and positive with respect to service-
providing employee capability (γ = 0.04, SE = 0.02, p < .05) (Hays,
1994). We plotted the interaction effect in Fig. 2(b). The simple slopes
tests indicated that the effect of HPWS on service-providing employee
capability was significant and positive for high environmental com-
plexity (γ = 0.09, SE = 0.03, p < .01) but not for low complexity
(γ = 0.02, SE = 0.04, ns). Hypothesis 3 was marginally supported.

3.3. Robustness checks

3.3.1. Three-way interaction

Fig. 2. Two-way moderation effects.
(a) Employees service-providing capability regressed on HPWS and environ-
mental dynamism.
(b) Employees service-providing capability regressed on HPWS and environ-
mental complexity.
significant (γ = 0.11, SE = 0.04, p < .01), whereas the effect for low
environmental dynamism was not significant (γ = 0.01, SE = 0.04, ns).
Hypothesis 2 was supported.
We tested the potential three-way interaction among HPWS, en-
vironmental dynamism, and environmental complexity. As shown in
Table 2, the three-way interaction was significant and positive with
respect to service-providing employees' capability (γ = 0.06,
SE = 0.03, p < .05). To confirm if the interaction effects were con-
sistent with our expectations, we plotted the three-way interaction ef-
fect in Fig. 3 with one slope for each of four different combinations
(Stone & Hollenbeck, 1989). As expected, the effect of HPWS was
strongest for high complexity and high dynamism (simple slope:
γ = 0.19, SE = 0.04, p < .01). On the contrary, simple slopes tests
showed that HPWS was not significantly related to service-providing
employee capability for the other three groups - group 2 (HC & LD):
γ = 0.01, SE = 0.04, ns; group 3 (LC & HD): γ = −0.00, SE = 0.06, ns;
group 4 (LC & LD): γ = 0.05, SE = 0.07, ns. Following Dawson and
Richter (2006), we also performed slope difference tests. The results,
available from the authors, show that the effect of HPWS on high
complexity and high dynamism is significantly different from the effects
for the other groups.

6
K. Baik, et al.
Fig. 3. Employees service-providing capability regressed on HPWS, environmental dynamism, and environmental complexity.
4. Discussion
We proposed and found support for the positive association between
HPWS and employee service-providing capability. Dynamism and
complexity further strengthened the efficacy of HPWS in improving
service-providing capability. These findings have several practical and
theoretical implications.
4.1. Theoretical implications
The findings make the following contributions. First, the servitiza-
tion literature has focused on the importance of the product portfolio,
managerial abilities in identifying servitization capabilities, inter-firm
networks, resources and capabilities, and industry factors, among
others (Baines et al., 2017; Brax & Visintin, 2017; Luoto et al., 2017).
HPWS helps facilitate micro-vertical integration, enhance performance
measurement, and improve customer relationships (Baines & Lightfoot,
2013b). HPWS also facilitate a range of top-down (Lenka et al., 2018b)
and bottom-up practices to enhance servitization outcomes (Lenka,
Parida, Sjödin, & Wincent, 2018a). Extending this literature, HPWS
practices provide an underlying ecosystem that builds, develops, and
sustains the human capital needed for servitization. HPWS improves
attention, facilitates the cognitive complexity needed to deliver servi-
tization, and enhances the cooperation needed to deliver customer
needs. HPWS is an important internal ecosystem necessary as a system
of linkages between employee relationships, structures, and processes
that help access, integrate, and implement complex knowledge at the
product-service interface.
Second, we introduce the important role of external environmental
conditions in strengthening the association between HPWS and em-
ployee service-providing capabilities. Work in organizational theory
has highlighted the importance of shared mental models (Hollenbeck,
DeRue, & Guzzo, 2004), cooperation (Hollenbeck et al., 2004), con-
sensus (Flynn & Wiltermuth, 2010), cohesion (Carless & De Paola,
2000), and joint decision making (Korsgaard, Schweiger, & Sapienza,
1995). HPWS facilitates these valuable shared frameworks, and they
can help organizations pursue servitization efforts by better matching
external needs with internal resources. Third, given that the link be-
tween servitization and firm performance has received mixed support,
the role of employees has yet to be fully understood in servitization
literature. A plausible explanation for these mixed findings could relate
to the importance of HR practices (which can drive the effectiveness of
servitization efforts at multiple levels of the firm), as well as industry
7
Journal of Business Research xxx (xxxx) xxx–xxx
conditions (which can influence the structure, renewal, and dynamics
of the servitization ecosystem).
4.2. Managerial implications
For managers in servitizing firms, our study highlights the critical
role of HR practices in improving the service-provision capabilities of
employees. First, in addition to the importance of external ecosystems
in executing servitization efforts, HPWS can form the basis of an in-
ternal ecosystem that facilitates employee interactions across multiple
levels. Organizations thus can complement investments in external re-
lationships by also using HPWS to improve aspects of the internal
ecological infrastructure. The second managerial insight is that the ef-
ficacy of HPWS in enhancing service-providing capabilities is con-
tingent on the industry. The rate of volatility in the external environ-
ment (dynamism) and the concentration of firms in the environment
(complexity) strengthen the relationship between HPWS and service-
providing capability. Therefore, organizations must develop and
leverage HPWS in the context of the industry environment in order to
maximize employee service-providing potential.
4.3. Limitations and future research directions
The findings of this study must be interpreted considering its lim-
itations. First, based on the broader service literature, we operationalize
service capability using reports from HR managers. Whereas this
measure is robust compared with alternative measures of service cap-
abilities (i.e., it moves away from self-reported measures either from
managers or employees), future researchers could develop a quantita-
tive measure of service-providing capability that uses micro-level em-
ployee performance data or data envelopment analysis at the firm level.
Second, as in most HPWS studies, we do not consider HPWS prac-
tices in isolation. As theoretical perspectives have called for a separate
analysis of HPWS components – ability, motivation, and opportunity –
we call on future research to assess the association between these in-
dividual HPWS components and servitization capabilities. We call on
future researchers to assess the degree to which HPWS and service
capabilities influence a variety of servitization outcomes (e.g., meeting
customer needs, product innovation, seeking new servitization oppor-
tunities, improving competitor positioning). In conclusion, the findings
highlight the key role of HPWS in servitization success. HPWS helps
develop, strengthen, and sustain an internal ecosystem of HR practices
to facilitate the coordination and combination of manufacturing and
K. Baik, et al.
service resources across organizational levels and with customers to
leverage servitization efforts. The external environment also has a
contingency effect on the value of internal alignment in improving firm
performance.
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