HRM PRACTICES/STRATEGIES & FIRM

PERFORMANCES
‘Literature Review’

ASSIGNMENT # 01

Submitted to:
Uzma Naeem
Submitted by:
Farwa Batool (SP17-BAF-035)

Manaal Nadeem (SP17-BAF-040)

Saad Imran (SP17-BAF-041)

Literature review:
The emergence of HRM is a result of organizations’ strategic management tendencies. In today’s
management practices, all business functions try to link their work methods and practices with firm
strategy to achieve higher organizational performance. So, as it is stated by Miles and Snow (1984),
SHRM emerges when HR departments try to harmonize their strategies, processes and practices with
firm strategies. If you do not observe such a link between HRM and firm strategies, HRM stay as a
functional process in the organization.

There are several standard arguments in the personnel economics literature as to why one
might expect a positive effect of a single workplace HRM practice on firm performance. For
example, increased employee financial participation (FP) can improve goal-alignment and
motivation of employees and lead them to exert more discretionary effort. Increased employee
involment (EI) in firm decision making may lead empowered employees to make business
decision that previously within the realm of managers’ duties and also encourage employees to
share important information with managers and co workers, thus leading to better information
flows within the firm (Jones, Kato & Makinen, 2010).

According to Armstrong and Baron (2004), people and their collective skills, abilities and
experience, coupled with their ability to deploy these in the interests of the employing
organization, are now recognized as making a significant contribution to organizational success
and as constituting a major source of competitive advantage. The practices of SHRM such as
resourcing, training and development, employee relations and reward management are
concerned with how people are employed and managed in organizations so as to achieve
competitive advantage through the strategic deployment of a highly committed and capable
workforce. Cole (2004) emphasize that the HR function brings in the strategic value of people in
organization by making contribution to value added and contribution to competitive advantage.
The organization relies on HR as its employees. Effective HRM strategy systematically organizes
all individual HRM measures to directly influence employee attitude and behavior in a way that
leads business to achieve its competitive strategy (Huang, 2001). In view of the fact that the
goals and the necessities of each of the competitive strategy types are different, the
management of HR of the firm should be aligned with the overall corporate strategy. The firm
can thus obtain a competitive advantage and thus achieve superior performance (Kelliher &
Perret, 2001).

Most studies examining the relationship between SHRM practices and organization’s
performance have been conducted mostly in developed countries like United States and United
Kingdom,(Purcell,2003; Guest,2003; Marchington & Wilkinson,2007; Leung,2003;Grant,2008)
and that only a few researchers have measured the mediators and addressed their importance.
In review of an attempt to explain the relationship between HRM and firm performances, the
researchers have focused on three competing theories by different researches.

Universalistic theory:

It is based on assumptions that there are many sets of HRM practices and their implementation
will leads to superior organizational performances. The notion of best practiced was identified
initially in the early US models of HRM, many of organizational performances, manifested in
improved employee attitudes and behavior, higher levels of skills and therefore higher
productivity, enhanced quality and efficiency and of course increased profitability (
Marchington & Wilkinson, 2008)

There are many examples in every aspects of different companies that have very distinctive
management practices, distinctive human resource practices which shape the core
competence that shows how firm compete.

Contingency theory:

According to this theory, there is no need of universal prescription of HR policies and practices.
Hence, It is all contingent on the organization’s context , culture and its business strategy
(Wright & Snell,2005). Contingency scholars have argued that HR strategy would be more
effective only when appropriately integrated with a specific organizational and environmental
context. The best fit theory emphasizes the importance of ensuring that HR strategies are
appropriate to the circumstances of the organization, including the culture, operational
processes and external environment. HR strategies have to take account of the particular needs
of both the organization and its people. It explores the close link between strategic
management and HRM by assessing the extent to which there is vertical integration between
an organization’s business strategy and its HRM policies and practices (Schuler & Jackson, 1987;
Dyer, 2005; Mahoney & Decktop, 2006).

Configurational theory:

A strategy’s success of any organization turns on combining external and internal fit. A firm with
bundles of HR practices should have a high level of performance, provided it also achieves high
levels of fit with its competitive strategy (Richard & Thompson, 1999). Emphasis is given to the
importance of bundling HRM practices and competitive strategy so that they are interrelated
and therefore complement and reinforce each other. Implicit in is the idea that practices within
bundles are interrelated and internally consistent, and has an impact on performance because
of multiple practices. Employee performance is a function of both ability and motivation. Thus;
there are several ways in which employees can acquire needed skills (such as careful selection
and training) and multiple incentives to enhance motivation.
A key theme that emerges in relation to best-practice HRM is that individual practices cannot
be implemented effectively in isolation (Storey, 2007)) but rather combining them into
integrated and complementary bundles is crucial. MacDuffie (2005) argues that a ‘bundle’
creates the multiple, reinforcing conditions that support employee motivation, given that
employees have the necessary knowledge and skills to perform their work effectively (Stavrou
& Brewster, 2005).

To respond to their customers’ needs and move forward in their business, companies should
manage their employees’ special skills as they are viewed as an important source of
competitive advantage. Succeeding to attract, retain and motivate a skilled workforce helps
companies to improve their results. Companies are admitted to effectively manage their
different HR activities such as recruiting, selecting, hiring, safety, wellness, training,
organization development, communication and rewarding personnel to ensure they help
positively in their financial growth and meet their challenges in a fast-changing business
environment. A highly committed and competent workforce helps companies succeeding these
strategies and gain competitive advantage as long as these strategies are communicated and
the workforce is involved in both the formulation and implementation phases (Mansoor,
2004)Organizational performance depends on the employee development because employee
development enhances knowledge base of the organization( Hamid, Cheem, Maheen & Yaseen
, 2017)

Construction of hrm goals variable: (Storey, 2006)

A six-factor solution based on recognisability and Cattel’ scree test describing individual goal
dimensions consists of the items most loaded in factoring:

1- Improvement in atmosphere;

2-Strategic use of HRM;

3- Internal images;

4-Maximization of expertise;

5-Responding to market demands; and

6- Minimization of employee costs and the optimization of the level of staffing.

The important thing is to define the boundary of HRM practices. Hornsby & Kuratko (2003)
defined HRM practices in five major areas: job analysis and description, recruiting and selection,
training, performance appraisal and compensation. Huselid ( 1995) defined HRM practices as
employee recruitment and selection procedures, compensation and performance management
systems, employee involvement and employee training. Jeffrey and Donald (2003) viewed HRM
practices as job analysis, recruitment, selection, compensation, benefits, incentive and
performance appraisel.

The question of how human resource management (HRM) policies and practices are linked to
organizational performance has long puzzled both academics and practitioners (Truss 2001,
Wright et al. 1999).

One of the main focuses of strategic HRM researches is to investigate the effect of strategic HR
practices on firm performance (Boxall & Macky, 2007). But most of the previous researches,
except researches in recent years, do not have any mediators to explain the relationship
between HRM and firm performance (Becker & Gerhart, 1996)

HRM practices can be viewed as communications from the employer to employee (Guzzo &
Noonan, 1994; Rousseau, 1995; Tsui, Pearce, Porter, & Tripoli, 1997). The emergence of HRM is
a result of organizations’ strategic management tendencies. In today’s management practices,
all business functions try to link their work methods and practices with firm strategy to achieve
higher organizational performance. HRM emerges when HR departments try to harmonize
their strategies, processes and practices with firm strategies. If you do not observe such a link
between HRM and firm strategies, HRM stay as a functional process in the organization. (Miles
and Snow, 1984)

Organizational performance and productivity is positively affiliated with comprehensive training

activities. The effectiveness and efficiency of public sector depends on the positive future
oriented employee development. The organizational performance depends on the training and
development of human resource and the organization spends millions of money for this
purpose. Organizational performance depends on the employee development because
employee development enhances knowledge base of the organization.
REFRENCES:
Bowen, D., Ostroff, C. (2004). HRM strength and firm performances. Academy of Management
Review, 29(2), 203-221.

Waiganjo, E., Mukulu, E., Kahiri, J. (2012). Relationship between strategic human resource
management and firm performance of Kewaja’s corporate organization. International Tournal
of Humanities and Social Sciences, 2(10).

Zehir, C., Gurol, Y., Karaboga, T., Kole, M. (2016). Strategic Human Resource Management and
Firm Performance: The Mediatinf role of Enterpreneurial orientation. Procedia-Social and
Behavioural Sciences, 235 , 372-381.

Becker, B., Gehart, B. (1996). The impact of human resource management on organizational
performance: Progress ans Prospects. The Academy of Management Journal, 39(4), 779-801.

Hamid., Maheen, S., Cheem, A., Yaseen, R. (2017). Impact of human resource management on
organizational performance. Department of Business Administration,University of Sargodha,
Pakistan, 10(4172), 2168-9601

Lahteenmaki, S., Storey, T., Vanhala, S. (2006). HRM and company performance: The use of
measurement and the influence of economic cycle.Human Resource Management Journal. 8(2),
51-62.

Hassan, S. (2016). Impact of HRM practices on employee’s performance. International Journal f

Academic research in Accounting,Finance and Mnagement Sciences, 6(1), 15-22

https://www.sciencedirect.com/science/article/pii/S1877042816315798