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Published: Mon, 5 Dec 2016
Today organizations especially large ones are very complicated, because they are in a continuously changing business and economic environment. Moreover consumer’s demand is high, constantly changes and all that force organisations to be in an intensive competition and to increase the standards of performance. Companies have established Human resource departments or senior managers to perform human resource management functions and use practices in order to try to improve and sustain a better organisational performance. Every company has to know their employees, their capabilities to actually get best of them because it is believed to be the most valuable capital and main source of competitive advantage. In 2001, Calkin claimed, that ‘more than 30 studies in the US and UK leave no room for doubt; how organizations mange and develop people has a powerful-perhaps the most powerful-effect on overall performance, including the bottom line’. The main ones have been done in the past starts in 1990s by Arthur in 1992, 1994; MacDuffie in 1995; Martell and Carroll in 1995b; Huselid in 1995; Delaney and Huselid in 1996; Wood in 1996; Guest in 2001 which claim to prove statistically the bond between both HRM practises and organizational performance because of increased productivity. The results of their studies are that the HRM activities such as decentralisation of authority will result in lower degree of turnover (Arthur, 1994) or Bundles of internally consistent HRM practices are associated with higher productivity and quality ( McDuffie, 1995) are to support the hypothesis that there is a link between HRM and the HRM outcomes on performance. Also looking through studies established in the UK call centres, US firms, Australia and New Zealand manufactures, Norway, those cases do identify a relevance in favour that there is a relationship between human resource management and organisational performance. However there is a strong criticism about them, especially how the research was performed, evaluation methods used and the data interpreted.
Before linking HRM and performance it is important to understand what it is. First of all human resource management in many textbooks is simply explained as getting things done through the people. A more objective definition would be proposed by Storey (1998) where he states that HRM is “a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques”. Additionally it useful to mention that is the strategic perspective of HR, which actually presents the importance of human resource practices for organisational performance Companies try to achieve significant superior performance by using HRM and different practices. The US academic Jeffrey Pfeffer (1998) identified seven main HR practices in the successful organisations. According Pfeffer human resource practices for performance improvement are: employment security, selective hiring, self-managed work teams, high pay contingent on company performance, extensive training, reduction of status differences, sharing information. Later European researchers Den Hartog and Verbug (2004) complemented Pfeffer’s job by distinguishing eight key practices which help to understand the association between HR and organizational performance. They are: employment skills, autonomy, pay-for-performance, profit-sharing, performance appraisal, team performance, information-sharing, job evaluation. Thus there is different ways to recognise how HR policies and practices actually contribute, because only certain ones might always result in high performance. This approach is called universalistic approach. The contingency approach proposes that that variety of practices needed to make a difference also taking into account environment and business strategy. Another view is that we have to realise that every organisation has its own culture, unique employees and because of that the set of HR practices and polices which will be the best will also be unique to that company. This approach is call as resource-based view (D.Torrington, L.Hall, S.Taylor, 2008 p.256). Every organisation has different outcomes and according Brattson and Gold this organisational performance can be measured from two sides (2007 4thed:527). The first measure is operating performance what includes reduced unit costs, improved product/service quality, labour productivity, innovation of products and processes all those are employee related indicators. Another measure of a performance is by financial performance such as profit, market share, and return on investment. Because companies can quite easily copy one another’s technology, but not human resource capabilities if an organisation has well working HR practices that is a big advantage to achieve sustainable competitive advantage. (Toby D. Wall and Stephen J. Wood, 2005)
For instance not a long time ago Stephen Wood, David Holman and Christopher Stride (2006) did a research on HRM and performance in UK call centres. They have use data from a sample of 145 UK call centres and the research has found direct relationships between human resource practices and performance. However the represented response rate was only 20per cent. It is very low response rate, but it allowed for the authors to make conclusions from what was detected that firstly, that performance appraisal was negatively associated with unauthorised absence. Secondly, systematic selection tests, longer initial training and higher levels of internal recruitment were positively associated with achieving target times and suggestion making. Also there was significant links between relationship-building and both work discretion and teamworking, task discretion is associated with both training and improvement teams as well as internal recruitment seems to improve performance and innovation, customers satisfaction.(p:117-120) This example identifies relevance that practices and their implementation are vital ingredient in linking employees especially management to overall organisational performance.
In addition there is a reason given to believe in a linkage because of Peter’s H. van der Meer and Kristen’s Ringdal’s research which was conducted in Norway (2003) findings were positive after organisation introduced job rotation which appeared to reduce labour costs per unit produced by having lower wage cost. Also the productivity increased more than in the organisations without job rotations. However the critique here would be that like in other similar works that there is n obvious limitation in data collection, because results could be affected by selectivity and response of respondents, also there is not enough of the evidence to prove.
Graeme Salaman, John Storey and Jon Billsberry state that it is very important to identify the best HRM practices, those whose adoption generally leads to valued firm-level outcomes (2005:p122) Authors have extinguished that as extensive recruitment, selection, and training policies; formal information sharing, attitude assessment, job design, grievance procedures, and labour management participation programs; performance appraisals, promotion, and incentive compensation systems that recognise and reward employees practices. Than the research was given which was held in the US 3,452 firms participating. There were thirteen High performance practices to analyse the independent contribution of each practice to firm performance. The results showed that before the research there was a strong support for the hypotheses predicting that High performance work Practices will affect firm performance and important employment outcomes, the results justified it and that also significant effects of High performance practices found are also financially meaningful as Graeme Salaman, John Storey and Jon Billsberry state.(2005: p140)
Although all those studies propose that there is a synergy among increasing productivity and HRM especially strategic HRM, what is “the overall combination of HR philosophy, processes, policies, programmes and practices creating the human performance desired and it is doing so at a reasonable cost” (Gordan 2001). However not all of the studies finds only positive results. For instance it was thought because of the previous studies that one of the main HR practices are training and team working, from the example of NHS. Thus the research does identify a link; it can not be taken for granted that HR really helps to reduce mortality rates. Yes training helps to develop skills, and company expects them to be transferred into work floor, but does it happen straight after employees have been trained. Moreover according the D. Challis, D.Salmon and B.Lawson research done in the Australia and New Zeland 1024 manufacturing sites indicates that organizational and human resource practices are significant additional variance in both employee and manufacturing performance. The results have showed that ‘both training and teams are important in weak manufacturing environments, but are not significant in strong manufacturing environments. Moreover although training helps develop worker skills, it may not be enough to guarantee that skills employee got will actually be transferred to the factory floor.'(2005 vol. 43(1) p.103) So it is very difficult to prove and there are some disadvantages of the processed studies and the results. First of all because of the evaluation of a study is very subjective. There are different available methods used in evaluating results.
People have their own interpretation, opinions, such as about the turnover, in one case it can be assumed to be a good thing because constantly changing employees bring new ideas into the organisation. And on the other hand if employees today do not have job satisfaction, do not have their career developing, do not get higher wages or better working conditions they leave. Some people’s answers depend upon the way questioned employees feel that day, or because after the notice of research taking place makes them feel suspicious maybe and work harder. Also it depends on the bundles of practices used in the research and put together. Sometimes it can be forgotten that practices used or implemented can bring benefits after long term. The author Phillips (1991) in his book states that external factors can influence and change the performance, government regulation, labour market conditions, and union strength. For instance the economic recession determines workers to work hard and not to lose jobs in the case of reduction of staff. A very relevant critique was found in an article called ‘The romance of human resource management and business performance, and the case for big science’ written by Toby D. Wall and Stephen J. Wood(2005), they argue that the studies done before have created wrong expectations of the effect of HRM practices on performance. Their critique upon the studies done, what they call as a ‘romance’ is containing errors; Wall and Wood identify that the reliability is often tolerant although the sizes of effects are typically small in prior research. Also in some cases measures of performance chosen might not be appropriate; they have to look at the environment of a business. Authors judge the studies because they are not done properly, and say that in the future it should be used better research methods and design, and also should be large-size long-term research when you can look what it was like before and what is after implementation and use of HRM. Otherwise it is like a failure of to see the certified link between HRM and performance.
In the conclusion nowadays business world is changing very rapidly and both people and organisations which vary in size, aims, functions, construction, the nature of their product or service are complicated and because of that to be the best in the industry firms have to have a well established human resource management according main studies. Organizations have to have their HRM working at a strategic level because then practices are focused on a short or better on a long term results when the improved performance could have an added-value and benefits. However the discussion about the link between the HRM and performance is under investigation for about more than 20 years and nobody is sure about it. Yes it is known that HRM management is working and do have the impact on employees and might make organisation successful but which particular practice or bundle to use universally is not known, because one thing combines with another, one organisation is different than another. However to apply studies and believe in all the results of practices or practice make a different would be violent interpretation. Because in studies done to prove the link of HRM and organizational performance there are limitations and it is very important to understand bias as well as that how the research been conducted and interpreted.
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