moderating effect of external fit in the relationship between HPWS and financial performance in public enterprises in Ethiopia

This study examined the direct moderating effect of external fit in the relationship among the High Performance Work Systems (HPWS), Human Resource (HR) outcome, operational outcome, and financial performance of public enterprises in Ethiopia. It also assessed the moderated indirect relationships between the HPWS and financial performance of the enterprises via the HR outcome and operational outcome mediators. Contingency theory was used as an analytical framework as the theory examines the impact of vertical integration between HPWS and competitive business strategy on organizational performance. The research is a cross-sectional quantitative study. The organization was the unit of analysis of the study while the units of observation were top, middle, and lower level managers. The study covered nine public enterprises, and collected data from 480 managers by using validated structured questionnaire. Structural Equation Modeling (SEM) technique was used to perform the data analysis of the study. The data were analyzed by using Analysis of Moment Structures (AMOS) 26 and Statistical Package for the Social Sciences (SPSS) 27 software. The results of the research show that the direct relationship between HPWS, HR outcome, operational outcome, and financial performance were not moderated by external fit. External fit did not also moderate the indirect relationship between HPWS and financial performance. As the research used cross-sectional data, future research might use a longitudinal research design to collect data on both HPWS practices and organizational outcome constructs to conclusively understand the nature of relationship and causality between HPWS and financial performance. The study recommends the public enterprises in Ethiopia to focus more on strengthening the main effect of the HPWS than trying to ensure the existence of alignment between the HPWS practices with the competitive strategies of the public enterprises.