Hrm practices on financial performance


In this article, Mark A. Huselid, evaluates the theories that explain the relationship between firm performance and the High Performances Practices. Previous researches and performance reports confirm that the current and future human resources significantly contribute to the development and execution of an effective strategic business plan. In the article, Huselid seeks to assess the effects of HRM practices on the corporate performance. He establishes that when the practices are aligned with the firm's overall direction, though largely abstract, the human resources management practices help build a sustained competitive advantage.

These findings agree with the previous researches that Human resource policies, properly aligned to the organizations competitive strategy, enable significant economical contribution to the firm's performance. Huselid contends that little has been done to credit or discredit the presumption that effective HRM systems concurrently exploit the potential prowess of staff and help to implement a specific firm's competitive strategy.

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Over and above what has already been researched, Huselid seek to expand the level of analysis used to evaluate the firm-level impact of HRM practices to go beyond the specific functional strategic objective to system-oriented mechanisms of analysis. Huselid's theory attempts to give a more comprehensive and a specific focus simultaneously. His approach explicitly addresses two procedural problems facing survey-based research on the subject, which include the possibility for simultaneity or reverse causality, between High Performance Work Practices and firm performance and survey response bias. Huselid's study also attempts to establish to test existence of a relationship between the impact of High Performance Work Practices on firm performance and the degree of alignment or relatedness between a firm's system of such practices and its competitive strategy.

Theoretical Background

Several theories have been put forward to explain the relationship between HRM policies with the organization achievement of objectives. For a long time in the industry, it has been believed that individual employee performance has implications on the firm-level outcomes. One of the theories is Barney's (1991) resource-based theory in which he contended that human resources can provide a source of sustained competitive advantage when four basic requirements are met. They must add value to the firm's production processes; the skills the firm seeks must be rare; the combined human capital investments a firm's employees represent cannot be easily imitated; and that a firm's human resources must not be subject to replacement by technological advances or other substitutes.

His 1993 new approach contended that human resources are frequently "underutilized" because employees often perform below their maximum potential and that organizational efforts to elicit discretionary effort from employees are likely to provide returns in excess of any relevant costs.


The author has given considerable justification to the relationship between High Performance Work Practices or HRM policies on firm-level performances. The impact of High Performance Work Practices on corporate financial performance is in partly attributed to due to their influence on employee turnover and productivity.

As for HRM policy, the author found out modest evidence of an effect for internal fit and little evidence for external fit; findings which are in line with recent attempts to model fit in the organizational strategy literature. As also acclaimed by Venkatraman, (1989) the phenomena are perhaps conventional given the preliminary nature of the measures of fit researchers will continue to developed.


The methodology used for testing the set hypotheses involved both qualitative as well quantitative. The tools of measuring spread and distribution such as means, standard deviation, and variance were used to quantitatively evaluate the degree of relatedness between factors of high performance and the company level parameters such as turnover. Regressions analysis was used to determine the quality of relationship between the two phenomena under study.


The employee skills, motivational factors and the working environment reflect an average of standard scores, so their means are very near zero implying these are control parameters of evaluation. Generally, these findings allude that the supervisory teams were concerned with achieving the shareholder interests at all costs.

Surprisingly and as anticipated, despite employee skills and organizational structures both having a positive relationship with to productivity and corporate financial performance; the two factors were inversely associated to each other. The regression analysis test indicated significant level sensitivity of individual facets of High Performance Work Practices on the turnover and productivity among the staff.

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Conclusions and limitations

Having discussed sufficient evidence, the author concludes by asserting that there is a relationship between the Work Practices and the reflected firm performance. One of the shortcomings of the theories is like the previous; it fails to suggest mechanisms of how firms can indeed obtain substantial financial benefits from investing in the HR practices studied by Huselid, 1995. One of the other short coming associated with the Huselid's studies is the lack of guideline on how to establishing a constant level of constant level of investment in terms of a one-time expense; these values have been underestimated by the of the impact of High Performance Work Practices on firm performance.

In addition, some of the finding's influence on firm profits is not accounted for. Having delved in justifying the substantial effects associated with systems of High Performance Work Practices, and HRM practices, the studies leaves serious room for speculation. One might easily conclude that the simple adoption of such practices overtakes any other effort to ensure HR policies are internally consistent or aligned with firm competitive strategy.

Implications for practice

The findings of this study have created a new avenue of improving the HR practices. The insights of these findings call for the HR mangers or consulting companies to re-evaluate their strategies and approach to Human resource policy. High performance factors properly fitted in line with organization strategic objective can enhance its competiveness. Turnover, Productivity, and Corporate Financial Performance are highly sensitive to employee high performance practices.

This implies that if they are properly managed they can propel the company's strategic position in the respective industry, but contrary to this, the organization may be paralyzed in some or all of its operation due ineffective, ineffective, and costly workforce. Human Resource managers therefore need to conduct through auditing to determine the relevant high performance practices relevant to the organization. This audit will enable the organization assess the potentials among the employees and how better theses potentials can be optimizes for a better performance of the company.