Section Fivethe compensation system also should fit the firm’s
organizational culture, and additional matching will be required
when the firm has several cultures.^104
EMPIRICAL EVIDENCE: THE CASE FOR
UNIVERSAL BEST PRACTICES
One approach for determining the superiority of the universal
practices or contingency approach involves a comparison of the
performance effects of external and internal fit. Such fit should
be absent with a universal approach but present with a
contingency approach. External fit (vertical fit) is defined as the
degree to which a firm’s system of human resource practices
are complementary with its competitive strategies, such as cost
leadership, differentiation, and focus. In contrast, internal fit
(horizontal fit) is defined as the degree to which individual
human resource practices are complementary with each
other.^105 Huselid’s comprehensive study, cited earlier, examined
whether external fit or internal fit would result in improved firm
performance. However, the study found little support for
superiority of either type of fit over the effects of individual best
practices:
But despite the strong theoretical expectation
that better internal and external fit would be