Organizational performance

“Research into the links between HRi? human resourcei? 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 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.