AN ANALYSIS OF THE EFFECTS OF SELECTED HUMAN RESOURCE MANAGEMENT PRACTICES ON THE CORPORATE PERFORMANCE

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AN ANALYSIS OF THE EFFECTS OF SELECTED HUMAN RESOURCE MANAGEMENT PRACTICES ON THE CORPORATE PERFORMANCE

 

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Contemporary organizations are constantly confronting pressures to improve service and productivity. The precariousness of the external working environment and the rapid rate of technological change increasingly demand innovative means of improving business performance and securing competitive advantage. People are the recognized prime determinants of competitive advantage and the need for effective manpower management has become more important than ever before.

The task of effective human resource management in 21st century organizations has gone beyond just the HR unit of the organization alone. The responsibility for exploring the potentials of the people in an organization for maximum performance is now shared between senior managers, HR professionals and line managers. However, the challenges facing today’s organization provides an ideal occasion for the diverse HR practices to prove its ability to contribute towards corporate performance.

HR in organizations of the 21st century is viewed as been a critical component in the maintenance and improvement of corporate performance (Bowen & Ostroff, 2004; Ostroff & Bowen, 2000). HR is assumed to affect knowledge, skills, abilities (Schuler & Jackson, 1995), attitudes and behaviour of employees (Guest, 1997), and may affect the performance of an organisation (Den Hartog, Boselie, & Paauwe, 2004). Research shows that the human element in organisations is an indispensable variable as organizations try to stay ahead of competition. Research further reveals that HR can play a decisive role in organisational performance (Arthur, 1994; Becker & Gerhart, 1996; Boselie, Dietz, & Boon, 2005; Guest, Michie, Conway, & Sheehan, 2003; Wood, 1999; Youndt, Snell, James, & Lepak, 1996).

Two factors have been assumed to be important factors in explaining the link between HR and corporate performance. Baron and Kreps (1999) identified these two factors as:

The alignment of HR with the organisation strategy (strategic fit) and

 The alignment of the various HR practices, such as career opportunities, training and appraisal, within the organisation (internal fit)

Baron and Kreps hypothesize that when HR within an organisation is well aligned, and employees know what is expected of them, they will invariably act similarly and have uniform expectations about work and behaviour.

For this purpose of this study, I have adapted Som’s (2006) definition Innovative HR practices. He defined innovative HR practices as any intentional introduction or change of HR program, policy, practice or system designed to influence or adapt employee skills, behaviours, and interactions of employees and have the potential to provide both the foundation for strategy formulation and the means for strategy implementation that is perceived to be new and creates current capabilities and competencies.

Scholars have attempted to recommend designs of various HR systems to achieve organizational goals as well as determine best set of complementing HR practices that will indeed boost performance. However, several limitations spanning from different levels of analysis, size of firm, union status of organizations and business environment has limited the acceptability of several advancements, hence, the need for a contextual study such as this.

STATEMENT OF RESEARCH PROBLEM

With the increasing significance of the ‘human factor’ in contemporary organizations, HR-issues have become core to organizations that deem people as their most essential advantage in achieving organizational goals. Trend in recent times have shown some considerable level of research concentration on the link between HR and corporate performance.

However, a set of issues deeply in need of more consideration is aimed at the identification of strategic HR practices (Wright & Boswell, 2002). Steadiness in the classification or determination of HR practices is rather low. An evaluation of the universalistic perspective of theorizing the HR-performancelink reveals that much is still to be learnt about the combination of practices that produces high performance work systems. The impression given by Becker and Gerhart (1996) reveal that studies vary greatly as to the practices identified as ‘best’ and sometimes even as to whether a HR practice is likely to be positively or negatively related to high performance.

Little is known about how and through which processes HR practices influences corporate performance (Guest, 1997; Becker, Huselid, Pickus & Spratt, 1997; Ostroff & Bowen, 2000). Intermediate processes that ultimately affect performance outcomes are referred to as the ‘black box’ of the HR-outcome link (e.g. Wright & Gardner, 2003). Unlocking the ‘black box’ means identifying HR-objects that are relevant to corporate performance. This remark is concerned with the explanation of the mechanisms linking HR practices to key aspects of corporate performance i.e. how ‘specific’ bundles of HR practices influence performance. Several authors identified the lack of theoretical models to demystify this shortcoming (Ferris et al., 1998; Guest, 1997; Peccei and Rosenthal, 2001; Truss, 2001). It is however pertinent to give attention not only to traditional financial outcomes but also to intermediate and process-related criteria that show the path towards achieving the financial results (Becker and Gerhart, 1996; Becker and Huselid, 1998).

RESEARCH OBJECTIVES

This study is aimed at furthering research on the HR-Firm Performance link by providing answers to the identified conceptual flaws.

The study examines the contribution of consistency among HR practices to corporate performance. This study seeks to evaluate the combinations of Human Resource Management practices that influence a high performance system in an organization.

SIGNIFICANCE OF THE STUDY

Many scholars have asserted that the human resources of the organization are potentially one of the most potent sources of continuous competitive advantage for organizations and have tried to reveal the positive relationship between HR and corporate performance (Ferris, et al, 1999). Nevertheless, there has been imprecision as to which of the many “high performance” HR practices (Delaney et al., 1989) that have been identified aid better performance (Collins and Smith, 2006; Ferris, et al, 1999).

The results derived from the study will enable HR managers understand the impact of the strategies employed on employee productivity. Many a time top management considers a single approach towards achieving corporate goals, they engage practices that they consider best fit to realizing set targets; however, this study shows that the combination of complementing HR practices can best align employee attitudes and behaviours towards achieving corporate agenda.

RESEARCH QUESTIONS

The central inquiry in this study is centered on the linkage between HR Practices and Corporate performance as can be explained by the effect of the internal fit on the supportive activities of employees towards their colleagues and employer. However, further specific inquiries are posed below:

What is the relationship between HR practices and corporate performance?

What combinations of HR practices determine a high performance work system?

RESEARCH HYPOTHESES

Using longitudinal data from 30 steel plants, Ichniowski et al (1993), found the impact of ‘cooperative and innovative’ HR practices to have a positive and considerable effect on firm efficiency. Similarly, Arthur (1994) found in 30 steel ‘minimills’ that those with ‘collaborative’ HR systems had lower turnover rates and higher productivity than firms with ‘calculative’ systems whose emphasis is

efficiency and the reduction of labour costs. MacDuffie (1995) found that ‘combinations’ of internally consistent HR practices were linked with greater productivity and quality in 62 automotive plants. Delaney and Huselid (1996) established that the extensive utilization of innovative HR practices have a strong and negative effect on corporate turnover in the manufacturing sector.

Each of these studies has focused on the impact of high performance work practices on employee turnover or productivity. Although a growing empirical literature focuses generally on the impact of High performance work practices, prior work has been limited in terms of the range of practices evaluated. It could thus be hypothesized that:

H1: Systems of high-performance HR practices will not boost productivity.

Baird and Meshoulam (1988) asserted that corporate performance will be improved to the degree that organizations engage HR practices that support one another (the internal fit). Similarly, Osterman (1987) argued that an underlying logic to a firm’s system of HR practices be put in place. He holds that certain HR policies and practices should fit together. Osterman (1994) found that organizations that place high value on employee commitment, for example, are not likely to use term employees rather they are likely to invest in innovative work practices such as skills training and incentive compensation. Huselid (1995) posits that the effectiveness of employee participation systems will be improved if employees are aware of their efforts that will be rewarded and has the tendency to ensure their advancement. Based on these arguments a testable proposition is therefore set out thus:

H2: Complementing high-performance HR practices will not boost productivity.

RESEARCH METHODOLOGY

Welman & Kruger (1997) describes methodology as the use of diverse methods, techniques and principles to create scientifically based knowledge. It is constrained to objective methods and procedures that are relevant within a particular discipline. The focus of methodology is on exact ways and methods that can be useful to better comprehend the field and scope of study. This study shall engage a non-experimental research design with the use of survey method. The principal advantage of survey studies is that they provide information on large groups of people, with very little effort, and in a cost effective manner. Surveys allow researchers to assess a wider variety of behaviors and other phenomena than can be studied in a typical naturalistic observation study. This study can also be referred to as a correlation study because it tries to determine the relationship between HR practices and corporate performance. Data will be analysed using descriptive statistics, analysis of variance, multiple regression and Pearson’s product-moment correlation coefficient since this study intends to establish a relationship between HR practices and employees performance as well as determine the degree of contribution of independent variables to dependent variables.

SOURCES OF DATA

The data collecting method for this study is the questionnaire. This will present us with the primary data required for the research study.

SCOPE OF STUDY

This study will focus on two indicators of operational performance in the organization – voluntary employee turnover and productivity. High performance HR practices that will be adopted for this study have been categorized as either calculative HR practice or collaborative HR practice. Hence, the practices under study will be limited to training, performance appraisal, career planning, employee participation, job definition, compensation and selection.

1.10. OPERATIONALISATION

Operationalisation is the distinction between dependent and independent variables in a research study. The independent variable is the factor that is manipulated or controlled by the researcher. The dependent variable is a measure of the effect (if any) of the independent variable. Most researchers are interested in probing the effects of the independent variable on something, and that something is the dependentvariable (Isaac & Michael, 1997).

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