The link between HRM and Organization Performance

The link between HRM and Organization Performance

Introduction

There exist a significant link between HRM and organizational performance in most of the organization. How a firm manages its stock of competence directly determines its overall performance, the firm’s culture, as well as the masterplan, both internal and external, utilized to control the links between human resource management and the performance of the firm. Therefore, HRM plays a vital role in ensuring the effective management of every organization. Given the fact that there is stiff competition in the job market, the resource that is used by most firms focus on increasing the theoretically and empirically is the stocks of competence or human capital.

Human resource management (HRM) refers to the bustle concerning the control of the stock of competence (Roca-Puig & Escrig-Tena, 2016). For a firm to be considered successful, various factors need to be fabricated together and utilized at the optimum for it to yield results and perform better. Among them is the link between human resource management and organizational performance. There are various theories used to explain the relationship between human resource management and performance, and they include; ability, motivation and opportunity theory, contingency theory, and resource-based view theory.

The contingency theory

The contingency theory holds the belief that there isn’t any universal human resource management (HRM) structure that can be utilized evenly in all organizations in every situation that will give out similar performance. However, the consequences of a specific human resource rely significantly on the master plan of the firm (Fleetwood and Hesketh (2018). It is concerned with the structure of the organization and interrelating factors such as socialization in the firm, political issues, and the culture of the firm. Tessema and Soeters (2016) denote that the theory majorly involves modifying the human resource management activities for it to function for both intrinsic and extrinsic situations to get final production in the firm. However, factors within the context have to interplay for there to be performed in the firm. It means that HRM must act accordingly to the firm’s environment, such as working closely with the business master plan or strategy (Tessema & Soeters, 2016).

Resource-based View theory

The second theoretical framework is the Resource-based View theory. Guedri and Hatt (2018) hold that this theory is constructed with the view that the firm’s presentation is as a result of its production. It focuses on achieving competitive advantages and argues that for better performance of the firm. Applying the theory requires an organization to look keenly within its structure so that it may come up with the resource that gives it competitive advantages as opposed to focusing on the competitive environment. It goes further to explain that for a firm to outdo its rivals in the arena, it should pay much attention to its internal resources, which mostly focuses on the stock of competence; this refers to the human capital. Its primary philosophical basis of this theory is that HRM policies play a crucial function in developing a share of competence

The theory suggests that the unique or outstanding historical circumstances of an organization make it hard for the competing firms to achieve the equal quality and level of the human capital that is the skills, abilities as well as the knowledge within the firm. The RBV framework implies that human resources management may be of even greater significance for smaller firms, for they can generate more through the use of the scarce available resource to remain competitive in the market.

According to this theory, having strategic resources gives an upper hand for a firm to outdo its competitors (Hesketh, 2016). A strategic resource is that which can seldom be found almost impossible to ape and cannot be substituted. The strategic resources of the firm need not be cash and machinery but rather the culture of the organization. Being in possession of both tangible and intangible properties such as knowledge and skills of the workers, the reputation of the firm and culture is a significant determinant of the performance link. Paying close attention in this area enables the firm to compete favorably with its opponents. Also, it is vital to understand that in the small firm context, either the stocks of competence practices are formal or informal, it must be considered very carefully.

Ability, motivation and opportunity theory (AMO)

This theory provides a useful link between human resource management and organizational performance. Faems and Forrier (2016) denote that AMO theory is based on three dimensions that work together to shape the personalities of the stock of competence in the organization, which in turn fosters the growth of the firm. According to this theory, the distinct features that may facilitate the performance of the firm are ability, motivation, and opportunity. Ability refers to the knowledge or the knowhow and the extend of expertise the stock of competence has to tackle the assigned work. This dimension is abbreviated by KSA (knowledge skills and ability); thus, fostering practice leads to improving the three parts (Salas-Vallina & Fernandez, 2017). The seriousness gave during the recruitment of workers in terms of their competence and passion for working fabricated. It also involves offering further training and providing the right equipment that enables the employees to work at their optimum significantly translates to the performance of the firm. When the abilities of the workers have been enhanced either through training or exhibitions, there is a general increase in productivity.

Increased competition for talented employees has also provided the firms an added incentive that they can use to review their worker’s relations strategies to attract, retain and motivate the type of workforce that will help in the enhancement of the firm’s success. According to Salas-Vallina & Fernandez (2017), the policies of HRM and practices may impact multiple measures of organizational effectiveness. More so, human resource outcome. For instance, according to the research done on health care employees.

Furthermore, AMO theory relates human resource management to the performance of the firm through motivation. Whether intrinsic or extrinsic motivation, it plays a vital role in the general productivity of the firm. The motivation of an employee may be influenced by several factors such as employment security, the equilibrium between life and work, reports on performance, and the environment of work, among many others. It is giving priority to those elements that influence the extent of energy put in place. The stock of competence is of great help to the firm that wishes to improve its performance. A more significant percentage of managers use AMO theory to practice HRM. Motivational effects on performance depend significantly on the ability of the stock of competence, as pointed out by Tessema and Soeters (2016).

How can tremendous & positive employee relations impact ROA? The presence of good employee relations may influence the environment which intern will enhance the performance of individual

In this context, motivation refers to the driving force that pushes an employee to work hard; some of these motives include rewards, incentives, or opportunity to develop the carrier of the worker. (muntanu, 2014) this framework model has undergone an evolution, and according to some writers, it is not only the three factors that influence the performance of the firm but rather other sophisticated issues such as the understanding of the stock of competence on these HRM practices.

Performance P=f (A, M, O)

According to Hesketh (2016), AMO is taking into consideration the ability of the stock of competence fabricated with the necessary motivation in the presence of opportunity to be involved in the task rendered by the manager results in increased performance of the firm. This leads to the formulation of a high-performance work system (Stanton & Nankervis, 2011). This framework has it that for the stock of competence to be at their optimal performance, they ought to be with the relevant skills, appropriate stimulation, or incentives in the presence of the opportunistic environment. Researchers argue that flexible, motivated, and skilled employees will enhance the expansion of susceptible capabilities, which will cause even the workers not to exit the firm.

Empirical evidence of the performance link

There is an extensive amount of research that shows the existing proof of HRM practices and various types of performance which is significantly positive. Huselid (1995) and Delaney and Huselid (1996) use a more comprehensive range of businesses from several firms to show this. Taking a keen interest in sector-specific studies, chniowski et al. (1997) through the use of the steel industry.

According to (Huselid 1995), shows how HPWS significantly leads to increased market as well as financial performance, lowers turnover, and expanded productivity. Through the use of the actual values, the evidence shows that the HPWS increase of a single standard deviation results in an $18,641rise in the market value for each worker. The evidence further showed that an increase in one standard deviation increased cash flow.

From MacDuffie (1995) research of nearly 62 automotive assembly plants located in America, showed that for those firms which were flexible and the stocks of competence engaged in teamwork and high commitment HRM practices in addition to the low inventor as well as the repair buffers persistently outwitted rest of the firms in the market.

From the hypothesis tested by Delery and Doty (1996) concerning the employee’s skills and ability and effects of motivation on workers together with the structure of work, they realized that regular HRM practices which encompassed selectivity in staffing, training, and issuing of incentives and compensation to workers positively related to perceptual measures on organizational performance.

Furthermore, the research carried out by Ichniowski 1997 on 47 steel companies comparing the HR practices in Japan and the US, including the details of machinery control. They collected data using onsite visits, interviews, and comparing monthly productively, indicated that there is a definite link between HRM environment and organizational performance. Through the division of the environment into four categories (environment with extensive use of HRM practices and those without HRM practices. The research on the four categories clearly showed the hierarchical differences between the performance of the firm. Surprisingly, those companies that in Japan that used HRM practices such as the teams in charge of solving problems, training employees in their careers, extensive orientation, job rotation as well as profit sharing outperformed the US companies that did not apply the HRM practices.

Lastly, Paauwe and Richardson 1997 also proved the link between performance and HR practices from their summarized analysis, which included more than 30. Their research justified this by affirming that the firm’s productivity was greatly affected by absenteeism, motivation, engagement, and turnovers.

These studies show that organizational performance can well be fabricated through the implementation of particular HRM practices. This research gave a more empirical foundation for the assumption that HRM leads to better organizational performance. These practices can also be applied to organizations that deal with services and nonmanufacturing plants.

Lee and colleagues (2010) also found out that there exists a very positive and significant correlation between HPWP and organizational results. Just like Doty, they found out that activities such as the use of incentives, teamwork motivation, and further training of employees facilitate the performance of the company.

Implications of the analysis

The more sophisticated the performance of the HRM system, the higher the chances of performance (Stanton & Nankervis, 2011). For better performance of an organization, the stock of competence should be motivated, as suggested by the AMO theory. The use of HR practices such as incentives, training, profit division, further training of workers in their line of career significantly leads to high performance and productivity of the firm.

Conclusion

The application of the theoretical framework to the management of HRM is more effective if the right factors are considered, such as competitive strategies. It involves building on the tangible and intangible aspects of the firm, such as culture skills and knowledge. Firms should also pay much attention to their non-substantive rare and competitive resource for it to work well.

References

Faems, D., & Forrier, A. (2016). Unraveling the HRM-Performance Link: Value-Creating and Cost-Increasing Effects of Small Business HRM. Journal Of Management Studies, 43(2), 319-342. doi:10.1111/j.1467-6486.2006.00592.x

Fleetwood, S., & Hesketh, A. (2018). Theorizing under-theorization in research on the HRM-Performance Link. Personnel Review, 37(2), 126-144.

Guedri, Z., & Hatt, F. (2018). New insights into the link between HRM integration and organizational performance: the moderating role of influence distribution between HRM specialists and line managers. International Journal Of Human Resource Management, 19(11), 2095-2112. doi:10.1080/09585190802404320

Hesketh, A. (2016). HRM-performance research: under-theorized and lacking explanatory power. International Journal Of Human Resource Management, 17(12), 1977-1993. doi:10.1080/09585190601041026

Roca-Puig, V., & Escrig-Tena, A. B. (2016). Single- and Multiple-Informant Research Designs to Examine the Human Resource Management−Performance Relationship. British Journal Of Management, 27(3), 646-668. doi:10.1111/1467-8551.12177

Salas-Vallina, A., & Fernandez, R. (2017). The HRM-performance relationship revisited. Employee Relations, 39(5), 626-642. doi:10.1108/ER-12-2016-0245

Stanton, P., & Nankervis, A. (2011). Linking strategic HRM, performance management, and organizational effectiveness: perceptions of managers in Singapore. Asia Pacific Business Review, 17(1), 67-84. doi:10.1080/13602381003790382

Tessema, M. T., & Soeters, J. L. (2016). Challenges and prospects of HRM in developing countries: testing the HRM–performance link in the Eritrean civil service. International Journal Of Human Resource Management, 17(1), 86-105. doi:10.1080/09585190500366532