‘Strategic Hrm and Performance Essay
‘Strategic Hrm and Performance
The people in an organization are considered to be one of the most valuable resources of today’s firms. Other resources such as brands, products, processes, technological advancement, economies of scale can still provide a competitive advantage but an organisation’s human capital are more vital for its sustainability. The idea that an organisation’s Human Resource can play a strategic role in determining its success has led to the development of a field of research commonly referred to as Strategic Human Resource Management.
The understanding of the causal relationship between HR and organisational performance helps HR managers to design policies that will bring forth better operational efficiency to achieve higher organizational performance. The emergence of ‘strategic’ HRM represents a paradigm shift from the traditional HRM models. It is concerned more specifically with the relationship between HRM and the strategic context. (Wood, Holman and Stride, 2006: 100)
HR practices are the main tool which an organisation can use to change the pool of human capital as well as an attempt to shift and align organisational behaviours which leads to organisational success. The skills, behaviour and attitudes of employees must fit the strategic needs of the firm in order for it to develop a competitive advantage. However, the singular focus on the strategic interests of an organisation have been criticised by some who suggest that this may be to the detriment of the employees (Van Buren, Greenwood and Sheehan, 2011: 209) There has been a steady growth over the last two decades of research literature around strategic HRM and according to Gooderham, Parry and Ringdal (2008: 2042), this can be broadly divided into three main kinds of theories – Universalistic, Contingency and Configurational.
Universalistic theories have an underlying assumption that there is a direct link between some human resource practices and organisational performance across all organisations and under all conditions (Lengnick-Hall, Lengnick-Hall, Andrade, and Drake, 2009: 68) and are concerned with ‘best practice’.
Contingency theories reject the universal applicability of human resource practices, therefore supposing that the relationship between them and performance will differ depending on various external and internal factors and influences.
Configurational theories suggest that the impact of strategic HRM on organisational performance is dependent on the use of an effective combination of interconnected human resource practices. This provides a useful framework for closer examination of the link between theory and practice.
In relation to the universalistic theory, the current literature provides much empirical evidence for a direct and linear link between strategic HRM and a positive impact on organisational performance (Boselie, Dietz and Boon, 2005: 67; Combs, Liu, Hall and Ketchen, 2006: 501; Katou and Budhwar, 2006: 1248; Stavrou, Brewster and Charalambous, 2010: 952). In their study of the retail industry, Chuang and Liao (2010: 185) concluded there was a clear link between strategic HRM and performance. They found that human resource practices can facilitate a “climate of concern” for both customers and employees which subsequently encourages employees to work well with their customers and co-workers which is essential in achieving higher levels of market performance. However the specific ways in which human resource practices impact on organisational outcomes are not always clear and their level of impact has been subject to criticism.
Whilst there is strong evidence to support the view that universal ‘best practices’ provide a strong foundation for strategic HRM, other factors need to be considered in order to achieve a higher level of performance. (Lengnick-Hall, Lengnick-Hall, Andrade, and Drake, 2009: 68). Despite the volume of evidence to suggest the contrary, there is also an increasing consensus in the current literature amongst researchers that human resource practices themselves do not directly impact on performance. Instead, it is suggested that they merely influence resources, such as the human capital, or how employees behave, and it is these, rather than the practices themselves, that subsequently lead to performance. (Katou and Budhwar, 2006: 1224). The ability to influence through strong leadership plays an important role in helping employees to be aware of the sets of HR best practices.
These best practices need the support of top-level managers to adopt them in the first place, which in turn will greatly influence the buy-in from the rest of the employees in the organization. If these so called ‘best practices’ are mainly from the perspective of top management and shareholders, while there is no room for employees’ voices to be heard, the theoretical aspect of strategic HRM will not work. In their study of performance and strategic HRM in Call Centres across the UK, Wood, Holman and Stride (2006: 120) found very limited support for the human resource-performance relationship and identified inconsistent results across practices and performance.
Furthermore, in other research conducted by Hesketh and Fleetwood (2006: 678), they conclude that “the empirical evidence for the existence of an HRM–performance link is inconclusive”. In real life, companies may need to respond to external pressures which creates problems of treating employees with consistency of treatment, especially over time and may cause problems of retaining good and loyal staff. Simply developing the appropriate HR practices in theory will not be enough because HR advantages also depend on how these practices are implemented on the ground.
For example, an organisation that focuses on the well-being of their employees in an economic recession or times of increased competition may be forced to decide between commitment to employees and a need to cut costs, restructure or lay-offs in order to stay solvent. Therefore, looking for a link between HR practices and performance is a futile effort because the main focus needs to be on the relationship between policy, practices, processes, implementation and performance. This is a huge effort that is not easily and practically achieved in many organisations today.
In relation to the contingency theory described by Gooderham, Parry and Ringdal (2008: 2042), whereby the relationship between strategic HRM practices and performance is said to vary according to different external and internal factors and contextual variables, there is some support. Internal influences identified in the literature include factors such as technology, structure and size of the organisation and business strategy, and external influences include factors such as the legal, social and political environment (Lengnick-Hall, Lengnick-Hall, Andrade, and Drake, 2009: 66). For instance, within Wal-Mart, those in charge of logistics have extremely valuable and unique skills, much more so than the average sales associate. On the other hand, at Nordstrom’s, because customer service is important, sales associate skills are more critical to the strategy than those of the logistics employees.
Indeed Godard (2010: 466) argues that a key criticism of the current research around strategic HRM practices is its failure to pay sufficient systematic attention to these variables and to the impact that historical, institutional and socioeconomic conditions may have had on human resource practices over time. Similarly, Hueslid and Becker (2001: 427) suggest that whilst the nature of work and organisations has undergone considerable change over the past two decades, the practice of strategic HRM has changed much less and this failure to adapt and be flexible has a direct impact on how well it works in practice and how much influence it has on organisational performance.
Relating to this, Kim (2010: 42) asserts that understanding employees’ expectations for their work environment is fundamental to developing successful human resource practices including expectations around merit awards, promotion and career development opportunities and organisational rules. Critics of the contingency theory approach, however, suggest that whilst the arguments surrounding it build a theoretical foundation that is more solid that that of the universalistic approach, the evidence of its effectiveness in practice does not reach the same level of statistical validity. (Martin-Alcazar, Romero-Fernandez and Sanchez-Gardey, 2005: 636).
Finally, with regard to the third theory proposed by Gooderham, Parry and Ringdal (2008: 2042), there appears to be a strong evidence base of support in the current literature for configurational theory. This theory suggests that the impact of strategic HRM is dependent on the effective combination of a range of interrelated and multi-dimensional practices that must work well with one another in order to achieve positive performance outcomes. In their study of strategic HRM and organisational development in British manufacturing firms, De Menezes, Wood and Gelade (2010: 468), concur with this and argue that strategic HRM only has the ability to achieve multiple goals and higher organisational performance, when it is fully integrated with other practices.
Similarly, Boxall and Purcell (2000: 186) note that too often there remains a marked tendency in organisations to view human resource practices as an end in themselves, rather than as integral to the organisation and they are therefore are not appropriately linked in to one another and to other management practices, which subsequently impacts on how effectively they operate.
The role and skills of human resource practitioners has also been the subject of much research in relation to what impact they have in making strategic HRM work in practice. Some commentators suggest that in order for practices to be effective, practitioners need to possess key strategic skills and core abilities including a high level of knowledge about the business and the environment in which it operates, organisational effectiveness skills, and conflict management skills (Ingham, 2010: 32). Furthermore, Van Buren, Greenwood and Sheehan (2011: 210) propose that the duality of roles that human resource practitioners have historically played, as both employer representatives and as employee advocates, has led to complications and may impact on how effective human resource management is in practice.
They go on to suggest that human resource managers face pressures to emphasise employer goals, and often this impacts negatively on their role of advocating for employee welfare, and that they are constrained by demands of their managers and the organisational cultures in which they operate. (2011: 211). Related to this, another feature of the current literature is how human resource practices are implemented and by whom within organisations. The evidence suggests that rather than being seen as a ‘specialist’ role, much of the work around human resource practice is increasingly being delegated to middle managers to implement. Critics of this approach suggest that these managers are not equipped with the essential skills and time needed to effectively implement strategic HRM.
Growing workloads and rising expectations of their roles have increased tensions within their position as middle managers, with their perception that they do not have the time or resources to effectively manage their staff (McConville and Holden, 1999: 406). In a study of line manager involvement in human resource practice in the NHS, Currie and Proctor (2001: 53) found that line managers are important to strategic change within the organisation when given discretion to implement human resource strategies within their own teams.
However, managers may not place the same value on strategic HRM, and managers are much more reactive than proactive, and are not likely to prioritise human resource issues unless any problems associated with them become critical. Many managers in today’s organisations are more task oriented because of the demands of multi-tasking, while ideally they should be spending most of their time really managing their staff and departments.
This may not be entirely their fault because many organisations today are often dominated by cost-benefit analysis and talk a lot about trade-offs rather than the emotional and mental well-being of their employees. Another key feature of the literature is associated with the methodological challenges that exist in assessing to what extent strategic HRM theory works in practice. These challenges arise from the lack of a single agreed definition or list of human resource practices or systems to measure the relationship between strategic HRM and organisational performance (Paauwe, 2009: 136). The absence of this means that performance may only be ascribed to the specific effects of single interventions rather than measured as a whole. It has been recognised that the development and evaluation of a more comprehensive model demonstrating a causal link between strategic HRM and performance is needed.
(Huselid and Becker, 2011: 422). Wright and McMahan (2011: 95) propose that there are three key measures that exist whereby the effectiveness of human capital and therefore human resource practices can be measured. These include: subjective measures such as employee perceptions; proxy measures which are used as alternatives where aspects of practice are difficult to quantify; and direct assessments which involves measuring tangible factors such as levels of academic attainment of employees or productivity. However, they acknowledge that these measures are not necessarily easy to implement and that all pose challenges for those wanting to research and measure the effectiveness of human resource practices. Others argue that any measures of the impact of strategic HRM and human resource practices are at high risk of bias and misinterpretation and any results relating to this should therefore be treated with caution (Gardner and Wright, 2009: 68).
The purpose of this paper is not to ignore the importance of Strategic Human Resource Management theories and the benefits it brings to organisations’ competitive advantage. The studies put in by many renowned theorists seemed to show that there is indeed a link between well executed Human Resource policies and strategies with organizational performance:
Table 1: Outcomes of research on the link between HR and organizational performance. Source: Michael Armstrong (2006). Strategic Human Resource Management: A Guide to Action. Kogan Page. London. p. 73-74
The current research literature provides a very mixed view of how well the theory of strategic HRM works in practice. Whilst some studies provide convincing evidence to point to a direct causal link with strategic HRM and high organisational performance, others provide equally compelling evidence to suggest that there is no link and in some cases, even a negative correlation with good performance.
In addition, many studies suggest that there are a wide range of variables which impact on how effectively the theory of strategic HRM translates into practice, and which make it difficult to differentiate the impact of strategic HRM from other management activities, and other factors including internal and external organisational pressures and drivers, the type and size of the organisation, and the skill base and strategic placement of human resource management related roles within the organisation. It also depends on whether the organisation has the capability and the skilled resources to communicate and implement the HR strategies across all level in the organisation.
For example, from top management to department heads or from line managers to service staff as well as interactions between departments and employees. The issue is additionally problematic when combined with the lack of consensus on the measures to be used to assess the impact of strategic HRM on performance. A major challenge for Strategic Human Resource Management in the near future is to is to establish a clear and consistent construct for organisational performance. Despite the strong theoretical grounds for believing that strategic HRM should be beneficial for organisational performance, the evidence in practice is ambiguous. Strategic HRM is a complex and ever evolving process and given the contesting evidence and the lack of agreed metrics, the debate around whether or not strategic HRM works in practice will continue on. One aspect of this debate, however, where there does seem to be consensus, is around the need for further research in this area, and perhaps only with this, can the debate ever be truly settled.
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