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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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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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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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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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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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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Truss, (2001) highlights the importance of how policy is translated into practice through the lens of the informal organization. In a study of Hewlett-Packard, Truss identifies the importance of the informal organisation as a mediator between HRM policy and the individual employee. It is these informal networks of communication that are seen to have the greatest influence over the impact of HPWS. However, due to the HPWS close link to formal policy and practices, this incompatibility in communication delivery to employees will result in many organisations failing to achieve the performance gains they expect.

Other issues to consider in this debate is the national context in relation to HP model diffusion. Lismen et al (2004) in a study of multiple industries in Hong Kong found that Hong Kong organisations tend to focus heavily on short-term results.
This has created a unique HR market in Hong Kong, with many organisations experiencing very high levels of employee turnover, as workers show little long-term loyalty to any single organisation. This is obviously incompatible, with the long-term commitments needed by organisations to invest in HPWS, which rely on permanent staff on which performance gains can ensue.

The majority of evidence shows that there are certain HR practices such as employee involvement, training, alternative pay systems, which have significant positive (additive) relationships on organisational performance. Furthermore, there is evidence that when these practices are used together in a system, there is an even greater (multiplicative) productivity improvement. However, despite this, it is still not possible to find a causal relationship between HPWS and organisational performance.

Another significant reason for the limited widespread use of these systems is the financial and opportunity costs of implementation. This is something that is generally outside HR academics comfort zones, which means it tends to be overlooked in research. However if the continuing costs of implementing these systems outweighs the marginal gains in performance, then it is clearly best to abstain implementation of HPWS.

In addition, when deciding an organisational budget that is closely linked to the corporate strategy, top management may find it difficult to divert resources to such ‘unknown’ area as SHRM, than to more understandable and tangible areas such as Marketing or Production. Management draw upon their experience to make key decisions, so the limited widespread use of these HPWS may simply be due to management not understanding them, and as a result do not allocate sufficient resources, which does not allow a complementary bundle of HR activities to be implemented, which is a core criteria for achieving performance gains.

Also, widespread use indicates cross-market applicability of HPWS, however there is evidence to suggest that these HPWS will benefit organisations more in some markets over others. For example, those organisations in manufacturing and internationally competitive industries, where there is a greater objective and quantitative measure of performance are expected to have clearer tangible achievements than those organisations in customer orientated industries, such as service organisations and consultants.

It is also apparent, that good leadership is crucial to the success of HPWS 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.

HPWS are about creating a working environment that encourages and facilitates improved productivity. However we must not lose sight of the wider environmental influences on organisational performance. Although, it is relatively safe to conclude that if all other elements of the organisation remain ceteris paribus, the implementation of HPWS will produce performance gains. However, this argument is largely academic and bears little use in the rapidly changing environment of business reality and because of this complexity, the application of these HPWS is significantly limited. Let us remember that in many struggling industries, organisations first method of cutting costs is to reduce staff.

Until industries and markets begin to widely appreciate the strategic value of HPWS their will continue to be low usage. Once appreciated, it will become valuable to management to be educated in SHRM and as such either a standardisation of universal ‘best practice’ bundles of HR activities will become widespread, or the research will fragment and specialise into certain industries for which a ‘best fit’ bundle of HR activities will be specifically chosen for the organisation in their market. However, until this time, there is much opportunity for further research and theory on this subject.

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The exact performance gains of HPWS are poorly specified. It is often the case that performance gains may come more from increased employee effort rather than because of the activities of a HPWS. Edwards and Wright (2001) argue that High Involvement Work Systems may simply remove prior inefficiencies rather than make new contributions of its own. This means that the scope for performance gains is seen as limited, once any obvious problems have been addressed. However it is clearly possible that any effective HR manager could resolve these inefficiencies without the aid of HPWS.

Their has been criticism for the short term productivity decreases caused by HPWS, due to the process of removing employees from their specific job. However, in response to this, Huselid and Becker (1996) argue that when these HPWS are vertically aligned in conjunction with a corporate strategy then organisational performance is more likely enhanced, although many organisations find this a difficult and complex process due to the changing external environment, forcing changes in strategy, limiting its widespread application.

The use of different terminology by researchers has caused much confusion. In some cases HPWS are called ‘high-commitment management’, ‘high involvement management’ ‘high performance work organisations’ ‘high involvement work practices’ (Wood, Lawler). Whilst these studies are referring to the same general phenomena the use of different ‘labels’ has undoubtedly added to the confusion. Without a single and well defined term, researchers have missed many opportunities to sell the ideas to the business communities.

Wood and de Menezes, (1998) argue that there is a ‘pick and mix’ approach to the HR practices bundles. For example, The DTI (2005) identified 35 practices, while Guest (2000) used 18 practices in his UK study and Pfeffer (1994) identified 16 then reduced this to 7 in 1998. The use of different ‘lists’ of HR practices which are seen to contribute to these HPWS only adds to the confusion and detracts from the overall credibility of the research.

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Appelbaum and Batt (1994) in their review of various surveys of work practices showed that many organisations are failing to recognize the importance of HR practices. Many firms implemented a few innovative work practices but these practices were not widespread throughout the organisation.

Ichniowski et al. (1996) identified some barriers to diffusion such as; labour-management distrust and restrictive institutional and public policy.  In addition, Appelbaum and Batt (1994) argue their is the dilemmas facing firms and managers; union and worker resistance and institutional barriers.   However, these are merely suggestions as these academics did not undertake any systematic investigation of these barriers to diffusion of the HPWS.

There is also an issue with the relationship between the effectiveness of HPWS and organisational resources. Orlando and Johnson (2001) argue that firms with higher performance may simply have more resources to devote to their HR practices, despite any positive correlation between SHRM effectiveness and performance.  In addition, some cross-sectional studies have identified a reverse causality with higher performing organisations implementing more effective HP practices and systems through changes in employee attitudes (Schneider et al 2003).

Also, the organisational strategy will influence the effectiveness of HPWS. Guthrie et al (2002) show that organisations which pursue a differentiation strategy, will benefit much more leading to increased levels of productivity. This is congruent with the research of Whitfield and Poole (1997) who state that organisational structure and culture can create problems, for example, HIWP in highly bureaucratic and formal organisations will be particularly problematic due to the resistant and rigid nature of change.

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HPWS are collections of High Performance Work Practices (HPWP), which together act as a set of complementary ‘bundles’ of activities which are seen to improve productivity, employee satisfaction and the general working environment.

There is a wealth of strong evidence for the organisational performance gains of HPWS. MacDuffe (1995) in a study of an US Automobile manufacturers found that by using a system of practices such as training, job rotation and team working, the production time per vehicle was significantly reduced. Additionally, Huselid (1994) found that by using a HPWS of practices focused around employee involvement and skills motivation, sales per worker increased by 16%.

The Department of Trade and Industry (DTI) in 2005 conducted an extensive study of HPWS, they described 35 HPWP linked to organisational performance. The study found that organisations which adopted more of the 35 HPWP had higher levels of employee involvement and greater effectiveness in many areas, not just HRM activities.

Pringle and Kroll (1997), argue that employees are more likely to lead to a sustainable competitive advantage when the environment is changing rapidly. Youndt et al (1996) also comments that due to the forces of globalisation and international economic change, which are seen to weaken traditional market assets such as financial resources and economies of scale. It follows that people may be the “ultimate source of sustained advantage” since their value can never diminish or be imitated.

The literature shows that numerous studies have found ‘relationships’ between HPWS and organisational performance, however none have been able to determine a causal relationship and it is arguable that HPWS cannot be tested in isolation of all other business components.

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