The efficiency paradox: How high-performance work systems interact with entrepreneurial orientation in hostile environments to impact firm performance in US firms

Abstract This study investigates the complex relationships between high-performance work systems, entrepreneurial orientation, and firm performance under varying levels of environmental hostility. Using empirical data from a representative sample of 263 US firms, the paper explores these dynamics through the lens of the resource-based view and configurational theory. The study is the first one to analyze how high-performance work systems and environmental hostility interact to influence the relationship between entrepreneurial orientation and firm performance. The findings challenge the traditional notion of high-performance work systems as universally beneficial, revealing their potential to constrain firm performance, possibly due to structural rigidity inherent in centralized systems and standardization procedures and the contextual misalignment between human resource practices and employee work and business environments. While high-performance work systems seem to stifle the display of entrepreneurial behaviors, environmental hostility enhances firm performance by activating entrepreneurial orientation in hostile conditions. In benign environments, entrepreneurial orientation’s impact on performance is less pronounced. The study also uncovers the complex dynamics of the three-way interaction, showing that in highly hostile environments, entrepreneurial orientation can thrive even without well-developed high-performance work systems, making the case for flexibility and adaptability for activating entrepreneurial behavior in firms. These insights contribute to a nuanced theoretical understanding of how internal and external factors interact to influence firm performance. We provide actionable insights for managers on how to strategize about high-performance work systems to support entrepreneurial orientation effectively, especially in challenging and hostile environments, and offer specific guidance on the optimum configurations of high-performance work systems and entrepreneurial orientation for firm performance in benign and hostile environments. Finally, we present the study’s limitations and outline the future research agenda for scholars, calling on them to incorporate longitudinal and configurational approaches to understand the complex relationship between entrepreneurial orientation and firm performance.