Issues in Human Resource Strategies That Improve Organizational Performance Essay

A rapidly changing economic environment, characterized by such phenomena as the globalization, and deregulation of markets, changing customer and investor demands, and ever increasing product market competition, has become the norm for most organization. To compete, they must continually improve their performance by reducing costs; innovating products and processes; improving quality, productivity, and speed to market; and more importantly by improving their individual performance within the organization. In order to do this, a set of distinctive human resource strategies, defined as internally consistent bundles of human resource practices (Dyer & Reeves, 1995), is clearly essential. Sparrow and Marchington (1998) suggested that HR practices are the most advanced, the most sophisticated, and the most efficient basis for organizing and for obtaining high performance from employees since it seeks to strategically integrate the interests of an organization and its employees. In addition, a number of studies have also indicated that there is a positive relationship between effective HR strategies and organizational performance. Specifically, it is suggested that HR practices can improve organizational and operational performance when matched with quality manufacturing strategies (Stone, 2002). Nevertheless, despite the positive relationship found between HR practices and firm performance, there are a number of issues and questions surrounding them. One problem in relating HRM and performance is the lack of theoretical background; resulting in both terms remain ambiguous concepts. Other questions arise in relation with the link between HR strategies and performance are the inconsistent findings in regards to what constitutes a high performance HR strategy (Becker & Gerhart, 1996; Cooke, 2001) and the problems with HRM and performance measurements (Guest et al. , 2003). The aim of this essay is to outline and explain the issues in developing human resource strategies that improve organizational performance. Specifically, the essay shall begin with presenting the issue of theoretical background of the concept of HRM and organizational performance. Subsequently, it shall discuss the issue about diversified strategies used to improve performance, and the problems in measuring HRM and performance. ?HRM and Organizational Performance: The Lack of Theoretical Background Guest (1997) pointed out that to improve our understanding of the impact of HRM on performance; we need a theory about HRM, a theory about performance, and a theory about how they are linked. Unfortunately, there has been a great deal of debates amongst leading researchers and practitioners about the concept and contributions of HRM practice in managing employees in overall organizational objectives (Loosemore, Dainty & Lingard, 2003; Analoui, 1998; Sparrow & Marchington, 1998). McCarthy and Stone (1986) argued that the concept of HRM is ambiguous and that its contribution to organizational performance remains unclear and is not well understood. In addition, Sparrow and Marchington (1998) pointed out that rather than adding value to the business through its strategic integration with managerial objectives, HRM can remain a disappointingly mechanistic function. Similarly, there is no universal theory about performance (Guest, 1997). It was proposed that the meaning of performance involves two dimensions; the types of criteria and the weight of each. Organizations have different interpretations of performance according to the sector of their industries. Service providers, for example, might consider customer satisfaction as their top performance indicator, while manufacturers might view inventory level as an important criterion to measure their performance level. In addition, some organizations put financial results on top of their performance indicator list and employee’s job satisfaction at the bottom, but others may view this in the opposite position. As a result, it is hard, if not impossible, to define the concept of performance that applicable for all organizations. The impact of HR practices on firm performance is without a doubt an important topic in the fields of human resource management, industrial relations, and industrial and organizational psychology (Huselid, 1995; Jones & Wright, 1992). This literature, although largely conceptual, concludes that HR practices can help to create a source of sustained competitive advantage, especially when they are aligned with a firm’s competitive strategy (Jackson & Schuler, 1995; Wright & McMahan, 1992, both as cited in Huselid, 1995). Specifically, a large majority of published studies found an association between HR practices and firm performance, regardless of whether they are cross-sectional or longitudinal, whether conducted at establishment or company level, whether based on strong performance data or subjective estimates, whatever sector they are based on, whatever operational definition of HRM is used, and wherever they are conducted (Guest et al. , 2003). Nevertheless, despite the positive thrust of most empirical findings, Wood and de Menezes (1998, as cited in Guest et al. 2003) failed to find consistent associations between HRM and performance. Furthermore, Wood (1999) has also argued that the relationship between HRM and performance is relatively weak. One possible explanation lies in the various contingency factors, other than HR activities, that might contribute to organizational performance such as organizational culture (Kotter & Heskett, 1992; Van der Post et al. , 1998), business strategy (Richard & Brown Johnson, 1999), and political considerations (Ferris et al. 1998). ?Improvement Strategies: Is There One Best Way? Much of the research on the link between HRM and firm performance has looked at single HR practice such as compensation or selection, while others attempted to look on the impact of combining different HR practices to improve firm performance (Becker & Gerhart, 1996). Pfeffer (1998, as cited in Tyson, 1997), for instance, put forward a seven-principle best practice which he believed is universally applicable. The seven best practice HRM elements include; employment security, selective hiring, self managed teams, high compensation contingent on organizational performance, extensive training, reduction of status difference, and information sharing. Theoretically, bundling several HR practices should produce greater performance effects than any of the individual human practices (Dyer & Reeves, 1995). However, in reality, there is no single standardized bundle of HR strategies that is universally applicable for all organizations. Each firm might require different bundles of HR strategies to improve its organizational performance.