During such times of economic turmoil, a growing emphasis is building upon an organisations capability to remain strategic, whilst battling through such fiscal uncertainty. Despite the insecurity, all core business functions within organisations are remaining stringent towards long-term, strategic thinking, in order to maintain their current performance. As like many other core central business units and divisions; human resource management (HRM) remains pivotal in today's climate of maintaining the current workforces in place. However, questions have arisen of whether strategic thinking in terms of HRM, can lead to a higher organisational performance as opposed to the outdated and reactive HRM policies of the past. Though the current health of the global economy may persuade many an organisation to adopt short-term, reactive HRM policies, growing empirical research is showing strong links between organisational performance and strategic HRM policies.
This essay will observe some of varied theories based upon strategic HRM and will look into the links concerning organisational performance. Each theory will be reinforced with some of the latest empirical evidence & research available in HRM, whilst analysing each one's crucial link to achieving higher organisational performance. By scrutinising the relationship of strategic HRM / organisation performance, this essay will also 'shed light' upon some of the difficulties and limitations surrounding the topic. Once all of the research has been analysed, scrutinised and evaluated, this essay will provide an overall conclusion from the evidence available.
Before we begin looking into some well known and studied theories of SHRM / organisational performance; a definition of 'organisation performance' is crucial in order to answer the fore-front question. As stated by Pierre Richard in 2009,
Organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives)
Stemming from this rather broad definition, Richard believes that organisational performance can be segregated and defined by three separate indicators. These indicators of performance include; financial performance (including profits, return on investment etc), product market performance (sales, market share etc) and shareholder return (dividends paid). Though this essay understands and appreciates the focus of 'so-called' financial indicator's of performance, one feels that this is a limited view of organisational performance as a whole. Just as in any business, I feel that other indicators of performance shouldn't be abandoned in favour of pure financial indicators. With this in mind, this essay will adopt the view shared by Caroline Truss that organisational performance can be broken down into four separate fields; individual employee, business unit, organisational and financial performance. Such is the extensive definition that this will allow the essay to build a 'bottom-to-top' view of organisational, as opposed to the conventional and managerial favourite 'top-to-bottom' approach.
The AMO (Ability, Motivation & Opportunity) model was conceived to highlight the importance of the employee in terms of achieving organisational performance. Appelbaum stated that each employee must have the necessary skills & knowledge to perform their job roles and the motivation to complete all tasks. This will then induce a higher performance providing that the working environment sustains the necessary support. As stated in the original research, for the AMO model to remain effective within an organisation, the HRM practises involved utilising the AMO concept must be horizontally and vertically integrated and aligned, in order to support the business prioritises. For the AMO concept to be successful, the HR practises involved have to be 'well embedded' within the firm's working philosophy, in order for the employee's / individual's performance to effect the organisation's performance. Without the ingrained practises, an organisation could not expect high employee performance to extend to organisational success. This trail of thought is backed up by Purcell, who stated that AMO's success is heavily reliant upon organisation's values and missions, which must be heavily embedded, connected, enduring, collective and routinely measured. Through various studies that Purcell undertook; he concluded that the AMO concept used in alignment with measured HR practises, could give rise to positive attitudes for the employee. Purcell theorised that job satisfaction and commitment would improve amongst the workforce, directly causing higher levels of performance.
The research undertaken by Purcell is providing the empirical research needed to conclude such a link exists between implemented HR practises and organisational performance. However, I firmly believe that this concluding statement made by Purcell has limitations in terms of overstating the perceived effects. There's no doubting that the eleven HR policies and practises, introduced as AMO enablers have had a last effect on employee performance. It's easy to imagine that HR interventions in job design, appraisals and work-life balances would positively affect the employee's performance. However, it's seems rather naive to expect high employee performance to transcend through the various business levels (business unit, organisation) and positively influence the whole organisational performance. Though it seems in this modern age, which every CEO seems to mutter the age, old saying 'our employees are our most important asset', it becomes all the more important to see how high employee performance transcends to affect the overall organisation. There now becomes a greater importance of calculating how this high performing workforce directly affects the business level above, the business unit.
As expected, any theoretical foundations linking business unit performance to organisational wide-performance will be strongly based on the current workforce. One theory which aims to examine the link between business unit / organisation performance is the organisational citizenship behavioural model (OCB), which has a strong focus on the employee's attitudes to work. The theory encompasses three core competences of employee's attitudes including in-role behaviour, extra role behaviour and dysfunctional behaviour, which can all be found in a single business unit. As a whole, OCB tends to 'shy' away from purely focussing on the individual and instead, focuses on the variety of different 'roles' that employee's may take within a business unit. As expected, in-role behaviour is the standard behaviour expected of the employee with the current array of HR policies being utilised. Meanwhile, extra-role behaviour is when the employee in question goes beyond the normal expectations of their specific job role for the benefit of the organisation. Lastly, dysfunctional behaviour focuses on the disruption of harmony that can be caused by a single employee within the business unit. These three different behaviours defined by OCB, possess the ability to directly influence how business units may operate within an organisation. Despite OCB first being conceived in the 1970's, recent empirical research will allow us to critic the strength of the relationship between OCB and organisational performance.
Empirical research supplied by Lee in 2004, looks into detail how each of the core components of OCB theory may have positive or detrimental effects on a business unit's performance. From the study, Lee concluded that employee's who could be classified as showing signs of in-role and extra-role behaviour, had very little impact upon the business unit's performance. Despite the employee's willingness to go over and beyond their usual job roles, being categorised as extra-role behaviour, Lee downplayed its importance. However, Lee's findings suggested that dysfunctional behaviour amongst employees would have negatively and significantly affect the business unit's performance.
that the presence of deviant employees among business units impinges upon the performance of the business unit as a whole, whereas OCBs had comparatively little effect.
Though Lee's research seems to undermine the importance of in-role and extra-role behaviour within the workforce, further research provided by Nielsen values the use of OCB analysed at a group level. Nielsen's research valued the different categories of the OCB model, but believed that these different categories of behaviour could have both positive and negative effects on others. As an example that Nielsen proposed, an employee showing signs of extra-role behaviour would often be willing to help others in their specific business unit. As expected, this would prove to boost the productivity of the employee being helped, therefore helping to boost the performance of the group. On the other hand, Nielsen believed that such extra-role behaviour would also be detrimental for the group, as the employee would have to sacrifice time to help others, negatively affecting that employee's own efficiency. From his research unlike Lee, Nielsen believed that in-role and extra-role behaviour could directly affect the group's performance level, citing that group-level OCB could help regulate social interaction and influence social identity. Both however, came to the reassuring conclusion that dysfunctional behaviour in any shape or form would indeed have detrimental effects on the group's performance levels.
Now that we've focused on the theoretical and empirical evidence for the individual employee & business units; it's time that we turn our attention to the organisation as a whole. By taking the focus away from the individual employee and their contribution to organisation wide performance, this allows us to focus on specific business units contributions. Well known in the world of SHRM, the resource based view (RBV) model would be the ideal theoretical base to allow us to observe a specific unit's contribution to performance. The concept of RBV was first detailed by Penrose back in 1959, stating that internal factors of organisations are just as an important as the external factors from the surrounding environment. Since the concept has been described by Penrose, many a theorist have added and furthered the model; focusing on organisation's resources and capabilities. The most recognised addition to the RBV model is noted as Barney's VRIO framework, allowing us to distinguish key attributes of the available resources to a firm. These four different attributes which stand for valuable, rare, inimitable and organised, would constitute the very basis of competitive advantage, vital for higher organisational performance. By applying this theory into the context of an organisation, as an example the human recourses department have to meet all four of these conditions in order for them to achieve higher performance. The overall idea is for SHRM to deploy these resources effectively in order to achieve sustained competitive advantage.
Wright was one of the first theorists to look into the empirical evidence surrounding the RBV model constituting higher organisational performance through the workforce. In Wright's 1994 paper, he believed that there was a clear divide between the human capital pool available and the HR policies and practises used to govern the pool. Wright's argument against the earlier findings of Capelli and Singh in 1992, was that by looking at the key attributes as originally described by Barney, HR policies and practises could never be described as a source of sustained competitive advantage. Wright argued that HR policies can be copied and re-applied in other organisations, thus making the HR practise neither rare nor inimitable. With this in mind, Wright proposed the idea that the human capital pool, would be better to constitute the very foundations of competitive advantage. Wright went on to suggest that individual's ability, motivation and opportunities, combined with their behaviour could provide a source of competitive advantage. From just this essay, we can begin to see the interlinking of many different theories with which Wright has stated; a combination of the AMO model and OCB behaviours effecting whether SHRM can achieve a higher organisational performance.
By applying Barney's VRIO framework to the current human capital pool; it becomes clear to see how we define the attributes. A valuable resource of the capital pool could be the few employees's which show high levels of skill and ability in their current job roles. Such performance in their job role means that we can easily link this to extra-role behaviour, exhibited in the OCB trail of thought. Many highly skilled employees can be rare and hard to find, in the current financial crisis, proving their importance to the organisation. Due to the diversity of the human capital pool available in organisations, a variety of skills will be on offer, many of which organisations will struggle to copy and deploy practises to encourage the specific skill's growth. Keeping in relation to Barney's framework, it would then be the HR department's role to keep and manage such resources strategically, in order to achieve a higher organisational performance level.
By reviewing the employee, business unit and organisation at different levels, we begin to see the impacts each level can have upon the organisational performance. However for the benefit of my conclusion, we need to put these effects into 'real terms' to gain a better understanding. Studies by Huselid begin to define the importance of SHRM practise in relation to performance by creating 'real dollar' values for the organisation. In Huselid's research, he contacted one thousand United States firms who stated that they actively using HR bundling method of policies and practises. The results from these organisations showed large increase in various different financial measures for any organisation. On average, companies utilising high performance work systems as described by Huselid, would experience a thirty thousand dollar increase in sales, an eighteen thousand dollar increase in market share and a four thousand dollar rise in profits per employee. To date, this research shows the most staggering correlation between strategically managed human resources, creating high performance work systems and an overall higher organisational performance. Further research completed by Collins and Smith in 2006, agrees with the findings of Huselid in terms of boosting financial performance. The research found that commitment-based HR practises improved sales by over sixteen point eight percent and boosted sales growth overall by eighteen point seven percent.
By analysing the different levels of any organisation, we can see their individual impact which may hamper or positively boost the performance of the organisation, providing the external environment allows so. However, what does become apparent are they ways in which we try to place tangible values on intangible practises, positioned by SHRM. Recent models have been developed in the past ten years or so, in order for organisations to measure certain policies and practises that may affect organisational wide performance. Bordreau and Ramstad's LAMP model devised in 2007, has created a credible system whereby HR practises can be measured by their logic, analytics, measurements and processes. Though, it is important to note that even this model fails to address the issue of creating 'actual value' but instead ranks certain practises. In the same category as the LAMP model, the Balance Scorecard developed by Kaplan and Norton divested into a series of different performance outcomes. This approach looked at several different levels of the business, similar to what this essay has achieved, instead of just focussing on the financial aspects. Though the original balanced scorecard was created for the purpose of business wide performance indicators, later theorists have developed HR Balanced Scorecards as a way of mapping where high performance may stem from.
Despite such theorists creating models to gauge the performance of HR departments, it's still apparent even today, the difficulty surrounding the actual measurement. It becomes an almost impossible task to quantify the HR department's contribution to specific tasks and practises within an organisation. In terms of providing some critical thought to the topic, organisation's HR practises and policies need to be measured but in areas which they can be easily measured. The more complex the measurement becomes, the more likely it becomes that externalities will hinder the final measurement of performance. Also, by adopting this concept of simple measurements, it is likely that the data is going to be more and more relevant to the HR department, which in course can lead to changes in HR practises and protocols. One last point, is that with all the measurements in place, whether at business unit level or financial performance in relation to HR, the important matter is what the HR departments do with the new found information. If the data isn't used for further improvements, then nothing positive can come from the process. This then leads us back perfectly to SHRM, as such practises and protocols would be monitored and evaluated in terms of their independent measurements.
To conclude from the available theories and empirical research undertaken, SHRM possess the capabilities and resources to measure the organisational performance. But the question remains about whether such measurements would be beneficial enough for SHRM departments to measure and monitor them. In effect, SHRM needs to map how specific individuals, business units and groups contribute to the performance of the organisation. Such a mapping system would enable SHRM to pinpoint specific areas whereby performance may be either lacking or exceeding expectations. Then with such information about the specific areas, SHRM will possess the capabilities to configure their practises and protocols to deal with the current performance issue. Building such a system for SHRM will allow them to strategically prepare for the future by actively learning from different attitudes and behaviours observed, by different parts of the organisation. However, we must emphasize the point that without relevant measures for different levels of the organisation, the HR department will lack in strategy to overcome problems with the workforce, should they arise. HR departments would just simply 'react' to the specific problems, as opposed to the measuring, quantifying, analysing and implementation strategies that SHRM offers. Though the economic outlook may be dire at the moment, SHRM may just provide the correct strategy for the workforce to flourish.
