Assess the state of the evidence in favor of HRMs impact on organizational performance.

by janeyz (student)

University Degree Business and Administrative studies

Assess the state of the evidence in favor of HRM’s impact on organizational performance. Do the supporters of HRM’s strategic contribution have enough of a case?

Introduction

“Research into the links between HR（human resource） practices and organizational performance has become one of the main areas, some would say the main area of study, in the field of human resource management”(Purcell and Kinnie 2007, in Redman and Wilkinson, 2009:23).Out of this research two opposing views seem to be emerging. Becker and Gerhart (1996, in Wall and Wood, 2005) argued that the role of HRM in organization could be considerable. However, in contrary, Wright and Gardner (2003:) suggested that increasing evidence show that HR practices are at least “weakly related to firm performance”. These contrasting positions of HRM and performance will be considered and this essay will attempt to demonstrate that supporters who believe in the strategic contribution of HRM may have insufficient evidence.

Guest (1997:263) pointed out a clear way to analyze this issue. He argued “If we are to improve our understanding of the impact of HRM on performance, we need a theory about HRM, a theory of performance, and a theory about how they linked.” With this in mind, this essay will focus on some core aspects. Firstly look at the HRM measurement, then analyze performance measurement, afterwards assess the HRM’s impact on performance.

2.0 HRM measurement

It is useful to consider what HRM is before studying how to measure it. Dessler(2010:2) suggested HRM could be defined as “the policies and practices involved in carrying out the ‘people’ or human resource aspects of a management position, including recruiting, screening, training, rewarding, and appraising.” Figure 1 shows a relatively clear relationship between HRM activities, HRM outcomes and performance.

FIGURE 1 HRM activities in relation to HRM outcomes and performance

(Paauwe and Richardson,1997, in Boselie and Dietz and Boon, 2005:68)

In order to demonstrate the link between HRM and performance, it is useful to look at how to measure HRM. “In measuring HRM, it is vital to distinguish between policies and practices”(Boselie and Dietz and Boon, 2005:74). According to Boselie and Dietz and Boon(2005), practices make polices into actual activities related to employees work. In this way, measuring HRM is to measure HRM practice and ascertain whether they are effective or not. Guest(1997:266), who reviewed three theories about HRM and measurement, claimed that “they are not really sufficiently precise”. Furthermore, there are few studies taking into account employees’ experience and ideas, which are main points in measuring HRM. Therefore, the results gathered may either be insufficient, overlooking certain factures and imprecise. Thus one aspect of the link between HRM and organizational performance may be regarded as unreliable.

Organizational performance measurement

This is a preview of the whole essay

Organizational performance measurement

The other aspect that should be mentioned in advance before discussing the link between HRM and performance is performance measurement. Rogers and Wright(1998:315) pointed out four types of measurement of organizational performance, namely “(1) HR outcomes (tum-over, absenteeism, job satisfaction), (2) organizational outcomes (productivity, quality, service), (3) financial accounting outcomes (ROA, profitability), and (4) capital market outcomes, (stock price, growth, returns)”. According to Boselie and Dietz and Boon(2005:75), most studies regard financial outcomes as the most important criterion to measure organizational performance and success of a firm. More importantly, they stated there is no clear definition about productivity and quality, which are two indexes for financial outcomes. In addition, performance measurement sometimes may rely on managers’ personal estimates. Therefore, another aspect of the link between HRM and performance may be discussed an unreliable form of measurement. Having looked at the HRM and performance separately, this essay will now discuss the relationship between the two.

The link between HRM and performance

Support of HRM’s impact on organizational performance

One of the main reasons why supporters believe HRM has a positive impact on organizational performance is because there are best practices leading to improvements in performance. Pfeffer(1998, in Redman and Wilkinson 2009:29) developed seven best practices, which are “employment security, selective hiring, self-managed teams/teamworking, high compensation contingent on organizational performance, extensive training, reduction of status differentials, and sharing information”. In support this, Gust, with Michie, Conway and Sheehan(2003:311), after exploring 366 UK companies, admitted HR practices could help reduce employees turn over and boost profitability.

Another view of positive HRM’s impact on organizational performance is “best-fit” theory, which means the closer HR practices fit with external and internal environment of the organization, the more effective they are. Also, company will benefit most from HR practices if they adapt to the competitive strategy (Redman and Wilkinson, 2009:32).

Nevertheless, the discussion below will prove the two theories probably lack of enough evidence. Best practices and best fit will be queried respectively.

3.2 Weak link between HRM and performance

However, there is some distinct evidence to prove HRM’s impact on performance is not as strong as supporters believe. Redman and Wilinson(2009:31) put forward a question “which practices should be included?” They pointed out it is probably easier to pick up so-called negative practices that have a negative impact on performance, but it is difficult to agree on what the best practices are. In addition, all the best practices may be unsuitable for every employee (Atkinson 1984, in Redman and Wilkinson,2009:31). Accordingly, there seems to be some difficulties in choosing best practices.

According to Wall and Wood(2005:451), who evaluated key empirical studies, the evidence about HRM’s positive impact is weakened by the lack of consistency. Multiple indicators in performance and HRM measurement mean multiple relationships between HRM and performance. “Only a few studies explored the effect of HR practices on performance in the correct way by assessing HR practices at one point in time and relating them to subsequent performance”(Huselid, 1995; Youndt 1996, in Jaap Paauwe,2009:135). Therefore, it may be difficult to establish whether performance improvement is due to HRM or any other aspects.

In terms of “best fit” theory as mentioned above, Redman and Wilkinson(2009:35) also put forward some inevitably fickle situations, namely the complicated external and internal environment. Meanwhile they believe it is probably impossible to predict what will happen in the future and predict the direction of the changes. Also, HR practices find it hard to keep up with the speed of changes. For this reason, it is even unlikely able to identify exactly what and how HR practices could adapt to the company strategy. This factor moreover suggests if the practices cannot be identified, then the measurement may be questionable.

To continue, not only the two main discussions above are needed, but also there are some other negative aspects which should be discussed below.

Researchers call the link between HRM and performance “black box”. “When we begin to look inside the ‘black box’ we find that there are differences between the espoused practices and the practices in use”. There are probably some differences between what HR department plans to do and what HR department actually does. Although most companies believe training could improve employee skills, fewer than half feel training is relative to their real work (Redman and Wilkinson, 2009:39). Hence, the belief in the positive impact of HRM lacks of practical evidence.

Another issue, which should be considered, is the “effect size”, namely what exactly HRM’s contribution to performance or how big is HRM’s impact. “Effect sizes are typically small, and the criteria used to judge statistical significance, and hence to draw conclusions about the reliability of findings, are often lenient, even in large sample studies”(Wall and Wood, 2005:451). Consequently, the small effect size indicates the literature towards exaggeration of HRM’s impact.

Conclusion

In conclusion, this essay has attempted to demonstrate that although there are supporters of HRM’s impact on performance, it is obvious that the empirical evidence they provided is not yet sufficiently strong to justify the positive influence implied. Indeed, the measurements of HRM and performance are hard to reconcile and probably difficult to measure precisely. Multiple indicators lead to vague links between HRM and performance. If it is unpractical to measure, it is impossible to judge whether HRM has an impact on performance or judge HRM’s strategic contribution.

The “best practice-best fit debates have largely been sidelined by the realization that both fit and flexibility are needed”. For HR to have an advantage it will need to rely on implementation of best practices. Therefore, “looking for a link between HR practices and performance may be a misguided activity”, because the scholars probably should also study the link between organizational performance and policy, processes, implementation as well. (Redman and Wilkinson, 2009:44)

In spite of the small effect size, HR could still function if a company treats its employees as their expected way. At the same time, line managers’ prominent role in the delivery of HR practices has been observed. It probably will be more studies about how line managers could help to improve HRM’s impact on organizational performance. (Redman and Wilkinson, 2009:41)

There is no doubt that more research will continue to examine the link between HRM’s impact and performance. In the future, the supporters of HRM’s strategic contribution may acquire sufficiently evidence to prove their belief. And the positive impact of HRM may be backed up by strong evidence and empirical data.

Reference

1.Boselie, P., Dietz, G. & Boon, C.(2005), “Commonalities and contradictions in HRM and performance research.” Human Resource Management Journal, 15(3).

2.Dessler Gary(2003), Human Resource Management. Eleventh edn. Qing Hua University press.

3.Gust E. (1997),”Human resource management and performance: a review and research agenda”. International Journal of Human Resource Management. 8(3).

4.Guest, D.E., Michie, J., Conway, N. and Sheehan, M. (2003). ‘Human resource

management and corporate performance in the UK’. British Journal of Industrial

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