HR Practices and Organizational Strategy

My general criticisms do not lie in theoretical similarities and overlaps, instead I find fault with the general simplicity and simulated version of reality that these models present, for example it is easy to theoretically state that HR practices should horizontally fit with each other and vertically fit with the organizational strategy, however I am not convinced that this theory is transferable to be implemented in a dynamic organizational structure. For example it takes time, money and effort to develop a configurational HR practices ‘cluster’ which is vertically fit to an organizational strategy that is itself matched to the external market environment. However, in real life, these environments are constantly changing, and will occasionally significantly change enough to demand new organizational strategy, which the HR practices will again have to be reorganized and fitted into alignment with.

However, the universal model seems to fare better under the same scrutiny. If a certain set of ‘best practice’ models is found to exist AND have a positive impact on organizational performance for all industries (of which there is still a debate), then the changing external market environment would not be an influencing factor. Although, this raises the issue of national context, if a set of practices are found to be universal for the UK or US, are the same practices universal for other countries? If not, then how much must a national culture differ for there to be a difference in the practices constituting the universal bundle of practices. Is it simply acceptable enough to define a set of universal bundles, which are limited to their own national context, or does this undermine the true ‘universal’ foundations of this theory? These answers are still very much unknown.

Throughout this discussion, I have criticised almost all theories, studies and models on the HRM and performance link. Considering that my criticisms are valid, which I appreciate they may not depending on the perspective one takes, then what we have in the field of HRM and performance is a plethora of deficient findings, and simply because there is a large quantity of literature, I believe to a certain extent hides the fact that a lot of theories do not accurately address the issues and provide a adequate answer to this immeasurably complicated subject. Is it possible that there is no single answer to the HRM and performance link? I believe so and perhaps the main reason for it is that the area is simply to intangible, subjective, varied and complicated to measure, research and quantify in a common theoretical framework, the shear nature of causality is more complex than statistical research techniques can capture.

However, academics should not lose all hope, further research into the linkage mechanism between HRM and performance could establish this area into a platform of theory which can significantly improve organizational performance in marketplaces. In addition, research focusing in more detail on organizational behaviour, through a qualitative case study approach could be a prudent direction to advance this area of study.

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HRM and Performance

This discussion will now move on to address the popular approaches to HRM and performance. Delery and Doty (1996) defined three broach perspectives, of which Purcell (1999) builds upon.

Universalistic, where a bundle of strategic HR practices are identified to be implemented successfully by all organizations to improve performance.

Contingency approach, focus on aligning HR practices and with business strategy. Certain practices are selected, to achieve the ‘best fit’ with organizational strategy

Configurational approach, individual HR practices are arranged in ‘clusters’ which horizontally fit with each other and these clusters achieve a vertical fit with the organizational strategy. Wood (1999) argued that ‘strategic fit’ similar to vertical fit is the most critical element to yield performance gains.
 
The configurational model can be seen as ‘multiplicative’ whereby the effect of certain practices on the firm’s performance is enhanced by the presence of other, complimentary practices, i.e. achieving synthesis. In contrast Proctor (2006) defined a non-configurational model, where the HP practices are seen as ‘additive’ in that they are mutually exclusive when implemented alongside each other.

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HRM and Performance

The methodological implications of this area are one of the main limiting forces preventing advancement in this field. How should we measure performance? Financially such as with sales or profit figures or with production output?
Ichniowski et al. (1996) argue that financial performance is important because this is what organizations themselves are focused on. However, Inchiowski did recognize that these financial objectives are quite removed from the employees producing the products and services, who are the main focus of HP management. In addition, not all objectives for organizations are financial, they may aim to grow and capture market share at a financial loss, or they may aim to damage competitors by competitively pricing below cost margins, in order to preserve long-term market share. Would it be appropriate for the same conclusion to draw a link between HRM and performance? If one company defined their performance gains in terms of financial profit, and another company experienced a 10% rise in market share, however profits actually reduced, could the same theoretical HP model be able to explain both circumstances, I am skeptical of this, it could be possible for a universal ‘best practice’ model to achieve these, although much more research is required.

Alternatively, Appelbaum et al.’s (2000) three-industry study in the US, for example emphasized a variety of different performance measures for each industry such as: ‘uptime’ of capital in the steel industry and throughput time in the clothing industry. These in some ways can provide a truer test of effectiveness, since these are the kind of measures that the managers themselves are directing their efforts towards.  The disadvantage is that the variety of these performance measures makes it difficult to compare results and to make generalizations, which form the basis of many theories.

Buyens and Dellos (2001) found that ‘top managers’ claim that the HR function added value through its change programmes following restructuring and downsizing. In contrast, HR managers noted the importance of management of the employee as an area of added value. This presents some interesting implications for the single-respondent influence on methodological validity of the results. However, this research was highly subjective and the academics were unable to quantify the magnitude of the value added of the HR function.

In addition, it is my opinion that the literature and research is too narrowly confined to academics own field of expertise. It seems that a more encompassing, common sense and realistic overview of the situation is needed. The current theoretical debate is largely removed from the HR functions seen in the majority of organizations. If this area of research, remains upon this iceberg of theory, I do not think it will offer much merit or advance the area of HRM before it melts under the confusion of thought and theory. However, there is a range of emerging support for more realistic the Resource based view, Boxall & Purcell (2003). This refers to identifying and developing internal resources, mainly employees as a source of adding value and competitive advantage. The advantage of an internal strategy, focusing upon employees as assets to be developed is that it is impossible to imitate. However, this raises a key question, is this strategy universal in nature, should it be used by all organisations in all industries? An internal focus would mean that organisations will place less emphasis on adapting to external consumer trends and changing market forces. There is a deficiency in literature to explain the advantages and disadvantages of an internal strategy vs an external strategy, although there is no shortage of literature describing these approaches. It seems that a balance addressing the benefits of each perspective would aid organizational performance if adapted to suit the individual organizations situation.

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HR Management Approach

The HR management approach also has a significant impact on performance, a focus on employees as assets, that can be developed will encourage performance improvements, rather than managing them as costs, to be minimised and controlled.
Alternatively, this perspective maybe directed by the organisational culture, such as an integrated organisational culture that aims to improve performance through the effective management of its HR practices. However, there are limited studies on the effect that cultural influences have on strategy, although Kirkman et al (1997) argues that cultural values directly affect the success of management initiatives such as teams.

Another emerging issue in this debate is the concept of reverse causality, this refers to the argument that higher performing organisations, will invest greater in bundles of HP practices. This conclusion has been found in numerous cross-sectional studies, which generally see high performing organisations, having more effective HR practices. Although, the methodology is the main issue here, the use of cross-sectional data is not able to show causal relationships, only longitudinal studies are able to do this, since they consider a timeline of events which shows actions and their consequences which are essential to causal relationships, however these are extremely expensive to conduct thoroughly to generate results, limiting their use in academic research.

Employee motivation is another underestimated issue in this debate? Much literature stresses the need for high employee commitment and involvement with very little link to motivation that seems to be integrally linked to these concepts.  Since the main performance effects of HP practices are seen through changes in employee attitudes and behaviour, it is unlikely that an unmotivated employee will be committed to any change. So this raises another question, is the use of HP practices seen to encourage or reduce employee motivation?  It is only recently that academics such as Proctor (2006) have highlighted the role of motivation, under the Ability Motivation Opportunity (AMO) perspective. This refers to a set of HR systems which attends to employees interests, such as job quality, skills development and training.

It is also apparent, that good leadership is another underestimated factor in this debate as without clear direction and clarity of mission, employees maybe pulling in opposite directions, instead of working towards a common goal. “Leadership is the lifting of peoples’ vision to a higher sight, the raising of their performance to a higher standard, the building of their personality beyond its normal limitations” (P.F. Drucker, 2001) Even the best funded SHRM activities may easily fail without clear direction and targets implemented through effective leadership.

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High Performance Systems

Despite marginal differences in some of the terminology, it is important to emphasise the distinction between a High performance practices and high performance systems.
HP practices are in simple terms HR process such as appraisals, training, recruitment which are seen to improve organisational performance. A HP system, is when these practices are ‘bundled’ together, to provide additive or multiplicative gains in performance. However, there are even numerous implications to these very basic assumptions. Can a HR practice be studied in isolation? If so, can it be measured to test for performance improvements? Alternatively, when testing a system of high performance practices for performance links, can the study of processes which are intrinsically integrated into human behaviour, which is extremely subjective, prone to individual differences and has an infinite amount of extraneous variables, be realistically measured and find causal relationships? Many academics have attempted this with varying degrees of success, we will now explore some of these in more detail.

Osterman (1994) identified the link between effective teamwork and performance gains, through his emphasis on ‘self-directed work teams’ Moreover, Eaton and Voos (1992) claim that self-managing work teams and flexible job design have been found to have the greatest potential to enhance productivity at the workplace.

Alternatively Appelbaum et al (2000) argues that employee involvement in the decision making process, is a critical factor in high performance systems. They argue that greater autonomy improves employee commitment, trust and job satisfaction which all have positive effects on performance and productivity.  In addition Arthur (1994) in his study of U.S Steelmills identified that the implementation of a ‘commitment’ bundle of practices resulted in greater organisational performance than the implementation of a ‘control’ bundle in all cases.

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Linking HRM and Performance

It is important to open this debate, with some concerns. This area is riddled with problems, in definition, measurement, agreement, penetration into real life organisations and the shear variety of theories which cumulate to make HRM and performance an academic black hole. In order to produce a valid and realistic conclusion, we must appreciate that the large spectrum of theories in this area, greatly reduces the credibility of research as a whole in achieving a useful answer that can help organisations improve performance. This essay will identify and discuss the key issues surrounding this HRM and performance link and conclude the value of the theory to aid organisations in improving their performance through effective SHRM.

Terminology and Definitions

High performance model, high performance practices, high performance work systems, high-commitment work systems, high-involvement work systems, clearly the terminology is far from clear. These ‘labels’ are largely attributed to US Academics, with European scholars referring simply to HRM with a link to performance, (Guest, 1997; Paauwe, 2004). However, despite this the general content and substance of these terms addresses similar issues and so can be compared and contrasted in a theoretical discussion.

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