The other model is ‘external fit’ whereby the business strategies are developed under influence of HRM practices and both collaborate to bring about high business performance (Huselid, 1995). In this case, both the business strategy and HRM strategy play imperative role in determining high performance for the companies.
The third model is configurative where a fit between three main variables namely external environment of organization, the business strategy and HRM practices is ensured to determine organizational performance (Huselid and Becker, 1996).
Irrespective of the models followed, the majority of researchers agree that high performance HRM strategies influence the organizational performance in a direct fashion. Now, it is important to look into what these high performance HRM practices are, that influence the organizational performance positively. These high performance HRM practices and strategies have been given numerous names by the researchers like ‘best HRM practices’ in words of Pfeffer (1994), ‘high performance work systems or practices’ (Appelbaum and Batt, 1994), ‘high-involvement practices’ according to Lawler (1986) and last but not the least, the ‘higher productivity and product quality practices’ by Ichniowski and colleagues (1996). As part of the business strategy, these best HRM strategies tend to reap competitive advantage for organizations. A research study explored relationship between these two variables and reported that in case best HRM practices are applied to the organizational setting, the organizations’ market share can increase up to 30 percent (Human Capital, A Key to Higher Market Value, 1999).
It is suggested by researchers that high performance HRM practices not only influence the business performance on the whole, but also lead to enhanced individual performance (Ichniowski et al. 1996). The commonality in these high performance HRM practices is the enhancement in skill set, knowledge base and overall capacity of the people of organization, thereby increasing their motivation and satisfaction as well as their retention (Robbins and Coulter, 2004).
Also it is important to notify that whether the set of high performance HR practices is implemented on the whole or not, there are some activities that need to be accomplished in order to make sure that the company’s human resource is competent enough to perform the tasks assigned to them and meet the business goals. These activities mainly constitute the common HRM functions including recruitment, selection, orientation, training and development, pay and compensation as well as performance management (Amit and Schoemaker, 1993).
One such imperative activity is the recruitment and selection activity whereby the aim is to select people that match job requirements and are capable of achieving high performance standards. In case, this function works appropriately and effectively, it is no way that the business would face failure (Ahmad and Schroeder, 2002).
Another main function that is believed to be having direct relationship with enhancing organizational performance is the training and development function of HRM, whereby the enhancement of people’s skill set and knowledge base is done to ensure that they are able to perform even better and meet as well as exceed business expectations. This way the function directly impacts existing profitability and productivity graph in a positive way (Marchinton and Wilkinson, 2003). Jennings and Banfield, (1993) assert that ‘training can, and should be a powerful agent of change, facilitating and enabling a company to grow, expand and develop its capabilities thus enhancing profitability’ (p.3).
Researchers assert that compensation and benefits also has a direct link with the enhanced performance results as it is evident that in case, people of the organization have a share in the profitability of company, they later exhibit improved work outcomes (Nicole and Baptiste, 2008). Therefore, appropriate compensation strategy can help the company achieve high organizational performance through high performance compensation practices. This also results in development of high commitment bond between the employer and employees that is guided by trust and loyalty.
Also the high performance HRM practices include involvement of employees in decision making process; this can be done through arrangement of open house sessions where opinions are gathered from employees regarding pressing issues of organization. This lets people feel that they are important and also helps in developing trust within their relationship with the employer. In turn, the people tend to exhibit high performance for the sake of meeting business goals (Roberts, 2001).
Researchers avow that it depends on the organizational context as to what high performance HR practices should be applied, however the common set of functions that are discussed above are essential for all organizations irrespective of their organizational context in which they operate. It is important that the managers consider the implementation of these practices in an effective manner as this is imperative for organizational success (Storey, 2004; Roberts, 2001).
It is important to notice that the list of these essential high performance activities varies from researcher to researcher; yet there are some that are common to all frameworks including team work, performance based evaluations and consequent pay plans, involvement of employees in decision making, open communication, rigorous recruitment and selection plan and comprehensive training and development initiatives (Pfeffer, 1994; Milgrom and Roberts, 1995).
In relevance to the high performance HR practices, a framework has been developed by Georgios and colleagues (2008), which presents the relationship between these strategies or practices and organizational performance through interaction of HRM activities at the operational as well as strategic business level.
Figure: Proposed “Best HR Practices” System by Theriou G. N. and Chatzoglou P. D. (2008), “Enhancing performance through best HRM practices, organizational learning and knowledge management’, a conceptual framework”, European Business Review, Vol. 20, No. 3.
The framework focuses on the mechanism in the course of which the ‘best HRM practices’ tend to have an impact on the organizational performance; through enhancing the overall organizational performance. Also the framework highlights the activities that must be undertaken to achieve lasting competitive advantage for organizations (Guest, 1999).
High Performance HR Strategies and Organizational Performance: A ‘against’ perspective
Where one group of researchers avow the positive direct relationship between high performance HRM practices and organizational performance, the other group assumes that both may have a positive yet indirect link with one another (Hislop, 2003; Edwards and Wright, 2001).
Some researchers assert the indirect relationship between HR practices and organizational performance asserts in a manner that there is no one way causation link between two variables and thus no direct impact of HR practices is caused on the firm’s bottom line (Edwards and Wright, 2001). Thus, the influence of high performance HR practices is on other variables in organization’s environment like human resource skill set or behaviour and these variables in turn influence the organizational performance. There are variables that mediate this relationship between HR strategies and organizational behaviour; however this mediating relationship has not been studied in detail by the researchers (Huselid, 1995).
Also the researchers assert that though the positivity or negativity of relationship between two variables has been studied thoroughly, yet how the impact of one on the other is made or more precisely, how high performance HRM practices impact on organizational performance has not been studied in detail. Thus, it cannot be factually stated that either there is a direct or indirect relationship between the two variables (Ahmad and Schroeder, 2002).
Also whether the resultant outcome of application of high performance HR practices is high performance or not also depends on the kind of performance management tools that are used for evaluating performance. This is linked with how much perfection the line managers enact the tools for performance evaluation as the consistency of tools and their fair use depends greatly on how the tools are used (Storey, 2004). However, this role has been ignored by the researchers in evaluating performance link with high performance HRM practices (Barney, 1991).
The researchers who do not support the direct relationship between the two variables also avow that the studies conducted in this field are cross-sectional and thus most of the working is presented based on assumptions rather than factual reasoning (Hiltrop, 1999; Guest, 1999). It can be this, that HR is one of the reasons of high organizational performance and yet there is another important aspect related to it that seems to be interesting. It is the reverse link between HR and organizational performance where organizations that have a good business profile and are high on profitability graph are those that tend to invest in high performance HR practices (Alcazar, Fernandez and Gardey, 2005).
Conclusion
Recapitulating the whole discussion, it is known that numerous researches in demonstrating relationship between high performance HRM practices and business performance are carried out that tend to explain the direct link between both variables. However, it is imperative to further investigate the relationship with regards to how the impact is caused instead of what impact is the resultant (Harter, Schmidt, & Hayes, 2002; Purcell & Kinnie, 2007). Furthermore, most of the studies that are conducted to test the causal relationship are conducted in USA or UK; therefore it is important that the research gap is filled by conducting similar studies in developing countries as well to see how the relationship exists in such organizational contexts (Gerhart, 2007).
So far, the research that has been conducted in this field reveals that HR practices need to be used in conjunction with each other, with respect to the context in which business operates as in this manner, the impact on performance can be greater (Guest, 1999). These HRM practices, when applied in ‘bundles’ can help the organizations grow in terms of profitability and growth graph and a dramatic change in performance can be the resultant. This is yet to be investigated in detail whether the causal relationship between high performance HR practices and organizational performance is direct or indirect. However, whatever the case may be, an improved implementation of HR functions has reported to have a positive impact on the overall wellbeing of the organization, thus leading to positive benefits where high performance is one of the major outcomes.
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