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Human Resource Management Practices and Organizational Performance

Human Resource Management Practices and Organizational Performance

Human resource is considered the most important asset of an organization, but very few organizations are able to fully harness its potential. Human resource management (HRM) is defined as composed of policies, practices and systems which influence employees’ behaviour, attitude and performance. Paying special attention to the HRM is an important requirement for every organization. HRM practices and processes are part of the management of the human resource in the organization. There are several HRM practices which have potential to improve and sustain the organizational performance.

The concept of human resource developed from the workers in the USA in 1960s and 1970s. In Europe and Australia the idea of human resource as an ideological framework to effectively and efficiently manage labour, tool kit and managerial profession got importance in the late 1972s, since then it has been adopted increasingly around the world. Competition has compelled many of the organizational managements to embrace HRM practices.

Human resource management does not only have a limited role in the organization, rather, it is to support the organizational goal and objectives. It is to ensure that the HRM processes and practices are aligned towards the employees’ motivation and satisfaction so that the organization can grow and be productive. HRM practices and processes are also to be effective in order to present the organization a competitive advantage as well as provide environment for achieving the set targets.

It is well known that the human resource of the organization gives it the competitive strength. Human resource in the organization can constitute technological, marketing, financial, transportation and logistics, and many other experts, managers, supervisors, and the workforce. Further, the success of even a very visionary management of the organization at a time of unparalleled technology development depends on the organizational human resource. Hence, for the organizational management to succeed, it is essential that proper and effective HRM practices and processes are developed in the organization.

In an organization, HRM means a system of human resource practices for a particular job or collection of jobs aimed at the best employee performance possible to meet the organizational goal and objectives. This definition of HRM emphasizes the system of HR practices, because it is the broad array of practices which matter in terms of employees’ performance. It is also important to remember that HRM practices are best designed and implemented for suiting the organizational environment. In some organizations all the employees are treated equally while in other organizations, there are different criteria for the executive employees and the non- executive employees. Some organizations even differentiate the criteria between the operational departments and the service departments.

HRM practices can play three major roles, namely (i) building of critical organizational capabilities, (ii) enhancing employees’ satisfaction, and (iii) improving customer and stakeholder satisfaction. Proper HRM practices do make a difference in the working efficiency of the organization. They enhance internal capabilities of the organization to deal with current challenges being faced or future challenges to be faced by the organization. Positive HRM practices also promote the well-being of the employees of the organization. The commitment and motivation built through good HRM practices can lead to hard work and can have a very big influence on the performance of the organization. Organizations with right HRM practices can create a sustainable and lasting capability of the organization to manage internal performance and face external challenges.

Any practice which deals with the enhancing of competencies, satisfaction, commitment, and culture building in the organization can be considered as HRM practice. The practice can take the form of a system, a process, an activity, a norm, a rule, or just a way of doing things. Right types of the HRM practices do make a difference in the functioning of the organization. HRM practices are those practices which contribute to one or more of the three C’s namely (i) competencies, (ii) commitment, and (iii) culture. These practices are to be identified in the organization, to be implemented in a cost-effective manner, and to be reviewed and revised from time to time to enhance their effectiveness and appropriateness.

HRM practices in the organization are to be developed so that the organization can function smoothly and effectively. The practices are to meet the operational requirement of the organization. The practices are also to satisfy the statutory and regulatory requirements. The practices are to be developed in such a manner that by implementing them, not only the quality of work life improves in the organization, but also the internal organizational processes improve dramatically.

HRM practices can be classified into the four concepts of (i) information sharing, (ii) knowledge/skill, (iii) power (decision making), and (iv) incentives and rewards.  Major HRM practices include (i) HR planning, (ii) recruitment and selection, (iii) induction, (iv) training and development, (v) performance appraisal, (vi) empowerment and task autonomy, (vii) career planning, (viii) compensation and fringe benefits, (ix) promotion and transfers, (x) job rotation, (xi) reward and recognition, (xii) participation in decision making processes, (xiii) collaborative teamwork, (xiv) conduct and discipline, (xv) leave policy, (xvi) travel and travel expenses, (xvii) employees’ welfare activities, (xviii) activities related to employees’ safety and occupational health, (xix) suggestions scheme, and (xx) exit and retirement policy etc. A very important feature of the HRM practices is that the practices are to be impartial and are to be implemented without any bias and showing favours to a certain categories of employees.

HRM practices have a continuing and significant influence on the working output of the employees. The good HRM practices in the organization are able to cope with the challenges faced by the organization such as an increasing number of employees, encountering new working environments, cultures, preparing employees foe change, restructuring and the pervasive and often deleterious effects of the technology. Further HRM practices are not to be static. The practices are to be continuously revised to meet effectively the challenges thrown by the changing environment in the organization.

Key HRM practices help to achieve results in the organization. The practices help (i) establish an operational excellence team to drive continuous improvement, (ii) define standard operating procedures to provide consistency across the HRM functions in the organization, (iii) manage processes from end-to-end, (iv) rationalize applications of HRM practices, (v) develop training programmes to emphasize continuous learning, (vi) establish rigorous governance processes for improving organizational discipline and accountability as well as for improving the discipline and compliance, (vii) measure performance against industry benchmarks, and (viii) communicate and add more value to the organization by adopting strategic moves. A typical model of HRM practices linked to organizational performance is shown in Fig 1.

Fig 1 Typical model of HRM practices linked to organizational performance

There is no single best HRM practice which suits all the organizations. Good HRM practices vary from organization to organization. The practices which are good for one organization may not fulfill the needs of other organization since the organization can be functioning in different type of environment. In fact good HRM practices do not constitute a set of discrete actions but an approach to the organizational management. Hence, every organization is required to develop distinct system of HRM practices which is peculiar to the organization itself.

HRM practices are normally developed in an integrated manner and are to be consistent with the organizational strategies in order to achieve the goal and the objectives of the organization. These practices are required for ensuring quality of work life as well as high commitment and performance of the employees.

HRM practices of the organization are to ensure that the employees are satisfied, skilled and productive so that they further contribute significantly towards the growth of the organization. Implementation of HRM practices ultimately has a significant impact upon the relationship among the employees and the organization. HRM practices aid to build viable exchange connections between the organization and the employees in view of shared trust and duties, which is the central underpinning theory, also known as the ‘social exchange theory’. As per this theory, employees offer their services to the organization in exchange of the perks and other benefits which they receive from the organization. The sense of job satisfaction depends upon the employees’ achievements and on their working capability.

HRM practices are critical in execution of effective training to the employees and enhancing their inspiration.  Functions of HRM practices include enhancement of the employees’ skills, commitment and effort, with a view to enhance, in turn, organizational performance. HRM practices influence immaterial satisfaction, which, in turn, positively impacts the performance of the organization. However, the impact of the different HRM practices is not the same.

HRM practices leads to enhancement in the employees’ commitment which in turn has a positive influence on the organizational performance. The relationship between HRM practices and the organizational performance has been validated in various studies and surveys. Some studies have also developed a framework for assessing the impact.

Organizational commitment is one of the measures or a standard which affirms whether the HRM practices of the organization can cultivate mental connections between the organizational objectives and the objectives of the employees. The strategies of the organization are to ensure this alignment and this can be achieved by the implementation of the proper HRM practices. In today’s environment, where the organization functioning is being affected by the technology, the importance of the employees’ organizational commitment has increased many folds for the smooth functioning of the organization.

Multiple studies have emphasized upon increased employees’ performance and quality of life which can be achieved through employee commitment, employee satisfaction, employee loyalty, customer satisfaction, and customer loyalty by improvising efficient HRM practices. Hence, there is a compelling need of implementing viable HRM practices in the organization to make its performance healthy.

The high organizational commitment of the employees is an affirmative reflection of sound HRM practices employed in the work place to nurture the links between the organizational and employees’ goals. Commitment towards the organization is an intangible outcome of the HRM practices and is important for getting the required employees’ behaviour so that these can be exploited to their potential to the fullest extent over time.

The proper HRM practices always stay focused on getting the best performance from employees. Normally, this means getting employees to (i) have something (e.g. skills, competencies, and abilities), (ii) feel something (e.g. commitment, engagement, and motivation), (iii) do something (e.g. come to work, be productive, serve customers, and stay with the organization). If the HRM practices are correctly designed and put in place, then the organization gets the best employees’ performance, which means also, the organization getting the best overall performance as well.

There are three types of common HRM practices. The first one is high-performance work system (HPWS) approach. This approach concentrates for achieving high performance of the work systems in the organization and the approach considered is probably in the best interest of the organization. HPWS improves the organizational performance and works well across the organization.

The second one includes two very different overall HRM practices which are labeled as ‘commitment’ and ‘control’.  The ‘commitment’ HRM practices include (i) broadly defined tasks, (ii) high levels of employee participation, (iii) highly skilled employees, (iv) extensive training, (v) high wages, and (vi) high benefits. On the other hand, the ‘control’ HRM practices represent the opposite such as (i) narrowly defined jobs, (ii) low participation, (iii) low skill requirements, (iv) intense supervision or control, (v) limited training, (v) low wages, and low benefits.

In practice, the ‘commitment’ HRM practices generally leads to the best organizational performance for those using a differentiation organizational strategy, but the ‘control’ HRM practices  work best for the organization having a cost strategy in focus.

The third one is the ‘value matrix approach’. In this approach the organization can implement four possible HRM practices consisting of (i) commitment, (ii) performance, (iii) compliance, and (iv) partnership which are tied to four distinct job groups representing different types of employees consisting of (i) strategic, (ii) core, (iii) support, or (iv) collaborative. The organization can distinguish the skill sets of the particular jobs in terms of their value to the organization and their uniqueness.

What employees do is largely a function of what they have, since they cannot be productive if they do not have the right skills. What they do is also a function of what they feel, since they choose not to be productive if they have negative feelings towards the organization. HRM practices have the most significant impact on what employees actually do on the job. For example, if the practices focus on the efficiency, then they encourage the employees to look for ways to lower costs or operate more efficiently. Also, what employees do is the critical link in executing strategy. Since what employees do depends on what they have and feel, HRM practices need to focus simultaneously on building skills, motivation and behaviour for the success of the organization.

There are five types of employee behaviours which are relevant to the improvement in the organization performance. These are (i) task behaviour, (ii) discretionary behaviour, (iii) counter-productive behaviour, (iv) attendance, and (v) turnover. Task behaviour refers to the things which employees are supposed to do as part of their jobs (from the bare minimum to the maximum). Discretionary behaviour refers to the employees using their discretion to go above and beyond their job descriptions. Counter-productive behaviour is all those things which the organizational management do not want to see the employees doing such as stealing supplies, taking long personal calls, even sabotaging products or equipment.  Attendance is the extent to which employees show up on time. Although perfect attendance is neither possible nor even desired, employees who pretend to be sick when they feel fine create scheduling issues and reduce productivity. Turnover refers to the employee leaving the organization. Again, zero turnovers is neither possible nor desired, but excessive turnover of average employees results in additional replacement costs, and turnover of an outstanding employee (if replaced by a less skilled employee) can result in a permanent decrease in the productivity.

HRM practices affect the employees what they do. The practices are required to focus that the employees are engaged in positive behaviours. The primary impact of HRM practices is on the employees themselves, in terms of what they have, feel and do. Commitment HRM practices have a positive effect on how employees feel and increase their satisfaction. These practices mean better performance on core tasks, more going beyond the call of duty, greater willingness to share knowledge, and generally lower quit rates or turnover.

Theoretical framework

The relationship between HRM practices and the organizational performance is the subject of various studies for decades. On this subject, the paradigmatic study was of Dewey, which established that human satisfaction is achieved when individuals can express creativity and critical thought. These aspects are merged in his notion of ‘creative intelligence’ (CI), or the capacity of individuals to challenge existing beliefs and habits of thought by assessing and shaping action. In the context of organizations, the use of CI takes the form of a meaningful interaction between the individual and the organizational environment, as the individual strives to satisfy particular aspirations. The exercise of CI is a potential which can be developed from HRM practices. In this sense, HRM practices can be considered like a domain where the employees can apply CI and achieve immaterial satisfaction, thus impacting on the organizational performance.

In some of the studies existing HRM practices have been placed in into three categories. These are (i) strategic, (ii) descriptive, and (iii) normative. Under the strategic HRM practices, the organization which is adhering to proper HR practices, internally and externally, performs better than the organizations which do not adhere to. Under the strategic category, the organization tries to strike a balance among the organizational strategies, structure and HRM practices for achieving the performance. The category, descriptive is primarily non-prescriptive, and either lists areas of HRM practices and outcomes or uses a system-based approach which describes the relationships among employee levels. The normative category views the organization for establishing rigid standards of best HRM practices.

In another study, HRM practices have been divided under the heads (i) contingency, (ii) resource, and (iii) ability-motivation-opportunity set. Contingency category is the one which sees HRM practices as is influenced by the organizational environment and circumstances. Resource category is the one which sees HRM practices delivering value through the strategic development of the organizational unique human resources. Ability-motivation-opportunity (AMO) category is one which views performance as a combination of ability, motivation, and opportunity to participate. AMO category provides the base for HRM practices to be developed to cater to employees’ primary interests which are, for example, their skill enhancement, motivation, and quality of job.

There are several models which have been developed for the HRM practices. Out of these four important models are (i) the Harvard model, (ii) the Michigan model, (iii) The Guest model, and (iv) the Warwick model. The Harvard model promotes the soft aspect of HRM practices and can be used by all the organizations. Additionally, the Harvard Model focuses on employee commitment to the job and the employees’ job compatibility, competence, and cost-effectiveness. The Michigan model views employees as any other organizational resource is thus called ‘hard HRM practices’. Under this model employees are to be recruited at minimal cost to the organization, used only as required, developed to meet needs, and maximized their output. The Guest model is based on the belief that an integrated set of HRM practices are required for better individual and organizational performance. With the Warwick model, the inner (corporate) and external (environmental) contexts of HRM practices needs identification as personnel impacts HR strategy content.

In conventional HRM practices, autonomy implies that the individual can enjoy substantial freedom, independence, and discretion in scheduling the work and in determining the procedures to be used in carrying it out. However, autonomy can imply more than the degree of discretion being exerted in the implementation of day-to-day activities. More fundamentally, autonomy directs to the use of CI to problematize situations, find appropriate ways of acting and set objectives which reflect desired outcomes. This means that the employees not only can select routines which are relevant to the solution of particular problems, or appropriate to habitual circumstances but they are also able to discover new situations where they are more likely to act creatively, intelligently and morally when the organizational context allows them to do so. Existing views are that there are positive impact of autonomy on the satisfaction and the organizational performance and the task autonomy positively impacts the organizational performance.

Other important HRM practice is the collaborative teamwork. Collaborative teamwork can substantially enlarge the amount and quality of resources available to the employees, mainly in terms of supporting relations, reciprocal trust, and knowledge sharing. Through these resources, the team defines a domain where commitment and participation favour the transposition of CI into new action in general, therefore possibly impacting on satisfaction. This supports the possibility of a positive relation between teamwork and immaterial satisfaction. As for performance, in general, a positive relationship is observed. One of the studies has found that there is a strong positive link between teamwork cohesion, organizational learning, and technical and administrative innovation as measures of the organizational performance. Another study has found a positive impact of HR practices, including teamwork, on the organizational performance (measured as production efficiency).

The study of the nexus between HRM practices and performance has been tested in several studies. However, findings are not always consistent, leaving a question mark on what conditions make specific organizational features effective or not effective. Particularly, the role of employees’ satisfaction has not received sufficient attention until recently. In an organization, the immaterial satisfaction like part of the CI can be higher (i) when the organizational context favours inclusion as a way to promote sense-making, critical enquiry, learning and compatibility between individual and the organizational objectives, and (ii) when employees have or can develop the skills to meaningfully engage in both autonomous and collaborative work. Hence, according to this idea, it is possible to define many   working hypothesis for the HRM practices. Two important working hypotheses are described here.

Hypothesis A (HA) considers that HRM practices positively influence immaterial satisfaction. The rejection of HA implies that HRM practices cannot influence immaterial satisfaction. In other words, they are not a way to develop the individual CI and achieve human fulfillment. In contrast, if HA is not rejected, then it implies that HRM practices constitute an element in the organization which can be used by the HRM to define the working environment of the organization. It is well known that the work environment can influence the organizational performance. Several studies have explored the effects of work environment and the organizational performance. These studies have the common view that the satisfaction can represent an important link between HRM practices and the organizational outcomes. As a consequence, this hypothesis is meaningful.

Hypothesis B (HB) considers that immaterial satisfaction positively impacts on organizational performance. The rejection of HB is means disagreement with the various studies and then it is to be believed that the immaterial satisfaction is not an element which is able to improve the organizational performance. However, if HB is not rejected, then the immaterial satisfaction and the work environment can influence the organizational performance. In this case, it becomes necessary to study the HRM practices which can be applied in the organization like a tool to improve satisfaction and organizational performance. There are several HRM practices which can be studied in the organization for this purpose. Autonomy, collaborative teamwork, involvement, and workload pressure can be some of the areas of the study.

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