Does Human Resource Management have an effect on Organisational Performance?

University Degree Business and Administrative studies

How can HRM policies effect a firm’s bottom line?

Critically evaluate the evidence that claims to show a link between

HRM practises and superior organisational performance.

Does Human Resource Management have an effect on Organisational Performance? Initial reactions would be that Human Resource Management (HRM) did have an effect on organisational performance. Reasons for this include; labour costs are among the highest controllable costs within organisations, and increased productivity from the workforce would therefore lead to improved performance within the organisation. For organisations in the service area, employees are an essential part of the organisation’s performance, as it is the employees providing the organisation’s service to the customer, therefore from this information alone, there appears to be a strong link between HRM and performance. Difficulties arise however when looking at evidence for this. It is difficult to find evidence in the form of research that has not been carried out by persons with a vested interest in HRM, such as the IPD, which would therefore lead to a biased view from the outset. This has to be considered when looking at the evidence available. It is also difficult to find evidence to support the link between HRM and organisational performance, as it is impossible to measure, organisations do not operate in a vacuum and it is difficult to pinpoint exact reasons behind performance, especially when linking it to HRM.

J. Addison and C. Belfield carried out a survey to test organisation performance using cross-sectional data from the 1998 Workplace Employee Relations Survey (WERS 1998). This review discussed whether HRM, specifically employee representation, contingent pay and efforts to boost employee moral affect a set of economic and industrial relations indicators. This survey was a replicate of earlier research carried out by Fernie and Metcalf (1995) who used data from the 1990 Workplace Employee Relations Survey (WERS 1990). Fernie and Metcalf reported that the presence of communication channels, efforts to boost employee involvement and financial incentive schemes led to improved productivity levels and growth. Therefore linking HRM to the organisation’s bottom line. By carrying out the same survey using data eight years on, J. Addison and C. Belfield were able to test the soundness of the first surveys results. If the results from Fernie and Metcalf’s research were valid, then the results from the later survey should match. However although every effort was made to ensure that the surveys were the same, the results were not consistent which leads to questioning whether there is a link between HRM and Organisational Performance, or the validity of the initial survey.

The results may have been different for several reasons, e.g. the questions in the WERS 1998 were different to the questions asked in the WERS 1990. Also the organisations included in the survey had also changed. Other factors may have also influenced the way the questions were answered e.g. the external economic environment would have changed. I feel these results reinforce how difficult it is to measure and establish a link between HRM and Performance.

B. Becker and B. Gerhart have also carried out a study on whether HRM has an impact on organisation performance. Becker and Gerhart look ...

This is a preview of the whole essay

B. Becker and B. Gerhart have also carried out a study on whether HRM has an impact on organisation performance. Becker and Gerhart look at HRM as source of sustained Competitive Advantage. They argue that in order to complete in the current economic environment, firms must continually improve their performance. As a main issue for organisations is increasing competition, HRM is a means of improving an organisation’s performance in a way that is unattainable by their competitors.

“HR systems represent a largely untapped opportunity to improve firm performance”

This is a quote taken from the article. Becker and Gerhart look to employees as a method of creating value within the organisation, by refining regular employees, so that they can add value to their work, and enhance organisational performance. They claim that “Human resources as a strategic lever that can have economically significant effects on a firm’s bottom line.” With HRM being viewed as a Strategic Partner, it is taking HRM further then its established role within the organisation, dealing with personnel issues.

Becker and Gerhart also argue that with HRM working as a Strategic Partner, working towards the objectives of the organisation, there will be a Synergy Focus within the organisation, with the two complimentary factors adding extra value. If this theory can be established within an organisation, then it would lead to the following competitive advantages. As the HRM Systems are very complex and difficult to understand it will be impracticable for a competitor to be able to copy it. This is due to the fact that the competitors would need to know what the system was and what made it work, which is very difficult to identify this information. Another advantage is that HRM systems and policies are developed over long periods of time within the company, it is not something that can be simply put into place in another organisation. Even if it were possible to identify these systems, trying to implement them in a competitive organisation is likely to cause more harm than good. As the same system may not create the same benefits in a different organisation, due to the differences in company culture, and the resistance to change from the work force. This article is very important, as it shows a strong link between HRM and performance. It argues that HRM is central to the organisation’s performance. However more research is needed, and even with research it is still impossible to measure the results to make this claim.

Another view regarding this issue is that Human Resources (employees) within an organisation can learn, think and create ideas. Which no other resources can do. Therefore as knowledge is a skill that will lead to improved organisational performance, and human resources within the company are the only resources with this skill, HRM and organisational performance are linked. This unique resource is not currently being utilised in many organisations, and it could be argued that by using the people within the organisation to their full potential, there would be an improvement in the firm’s bottom line. An example of a company that has tried to make the most of this knowledge is Shell International Exploration and Production (SIEP). SIEP has a history of investing in HRM, and a recent addition to this is a knowledge-sharing scheme that they have put in place globally.

Since 1998, SIEP have set up 11 global-knowledge networks, they cover the core business, plus support functions, such as HR, Finance, IT and Procurement. These are now one of the key learning tools within SIEP. This is a web-based tool, and each section of the business has it’s own community of users. Each community had a co-ordinator for controlling the content and encourages people to contribute to the network. Employees can ask questions on the network, and receive answers from other Shell employees across the world. Answers are archived, therefore when you have a problem, you can look through the archives to see if you can find an answer, if it is not on there, then you can post a question.

An example of the success of this, is Shell in Brazil required help, when a broken tool was stuck in the borehole, ideas were posted from all over the world, via the global knowledge network, and Shell Brazil received answers world wide, which resulted in savings of US $ 7 million. In total this scheme has saved SIEP over £134 million, plus other savings that cannot be measured. There were some difficulties when implementing the system. Mainly due to employees giving up their time, and their knowledge, as knowledge or ‘trade secrets’ are seen as the reason that they are in their positions, if everyone knew what they knew, then they would not have any advantages when it comes to promotion etc. However SIEP overcame this by recognising employees that shared knowledge as Company Experts. Another drawback was that employees did not want to look as if they didn’t know what they were talking about, when asking for help, but this was over overcome by careful screening of questions and the extensive archive information.

This case study shows that by using employees to the full potential, and recognising that they have more skills then just carrying out tasks, SIEP has been able to implement a HR system, or knowledge-sharing scheme, which has directly led to saving millions of pounds. Therefore directly improving the firm’s bottom line.

In conclusion, from analysing the evidence available, it appears the HRM does have an impact on the firm’s bottom line. It is clear from the research that there are many different theories behind why HRM has such an impact. However from this research I feel that it is difficult to see any distinct or measurable relationship between HRM and organisational performance. Due to the complex nature of HRM, and that fact that it is impractical to separate HRM impacts from all other functions within the organisation, it is impossible to measure this impact. However the arguments for this link are rational and logical, and it makes sense that Human Resources within an organisation, have the ability to impact organisational performance. Therefore the way in which the Human Resources within the organisation are managed is also going to have an impact, although is it necessary to provide evidence for this?

References

Addiston J. T.; Belfield C.R (2001) ‘Updating the Determinants of Firm Performance: Estimation using the 1998 UK Workplace Employee Relations Survey’, British Journal of Insutrial Relations, September vol. 39, no. 3, pp. 341-366 (26)

Becker, B. and Gerhart, B (1996) ‘The impact of human resource management on organisational performance’ Academy of Management Journal 39 (4), pp. 779-801.

Carrington, L (2002) ‘Oiling the Wheels’ People Management, June 2002 pp. 30-34

BABS – Part Time Year 3