Human resources (HR) are often underestimated but are the most important factor for the success of any organization. In modern organizations, it is considered as a fundamental concept of competitive advantage. Employees are the most difficult to manage, but they are also the most important asset a company can leverage upon to gain competitive advantage. Several studies have highlighted an optimistic relationship between organizational performance and Strategic Human Resource Management (SHRM) and some have exhibited a direct relationship (Alaraqi, 2017). While on the other hand, some studies suggest that SHRM affects attitudes and behavior, which consequently reflects in the performance of the organization.
Organizational performance is the most common dependent variable used by researchers in the human resource function.Strategic human resource management represents a new transformation in the HR function. It majorly concerns the role of HRM in the organizations performance particularly focused on leveraging HR to gain competitive advantage. Moideenkutty(2011), Organizational awareness towards the role of HRM is constantly increasing and it is now recognized to have a positive impact on different areas such as productivity, financial performance and the quality of products and service.
This essay discusses importance of SHRMamp relationship of SHRM and organisational performance and further attempts to understand the relationship between SHRM and organizational performance through various literatures and examples. Moreover, this report attempts to understanding and identifying the various challenges that the researchers and practitioners face while studying the relationship between SHRM and performance.
Strategic human resource management focuses on implementing strategic change along with investing to upgrade the skill set of the organizational workforce which, in turn,providesbetter competitive performance in the long run (Holbeche, 2004). The HR strategy is an important part of the overall organizational strategy that focuses on the objectives set out by the organization. Campbell (1999), defined performance as the measurable and scaled action or behavior relevant to attain organizational goals. The theory also states that all measuring options like ratings should be valid, enough, reliable and free from contamination from external sources.
There has been extensive research with the aim of identifying the relationship between strategic HRM and performance. Most of the studies and publications in this field have identified it as a function of individual practices. Noe et al. (2007), identified important practices which have a positive impact on performance such as HR planning and recruitment, training and development, selection, performance management, compensation and employee relationship. Michael Armstrong (2006), also developed a model to depict the relationship between HRM practices and performance.
This model reflected performance as a derivative of AMO which means ability, motivation and opportunity. Strategic human resources relate to a new field of HRM in a Transformational module. It enables a regular flow of communication among managers and subordinate employeesregarding the performance related needs and development of the firm. Brewster et al. (2000), describes that it has many organization related benefits like contributing towards the goal achievement, creating and maintaining a competitive advantage, successful implementation of the corporate strategies, improving innovation potential, improving the cooperation between HRM department and the line managers. Therefore, proper management of the human resources enables the organization to achieve their objectives (Armstrong, 2006). What kinds of objectives do you refer to here Who are they set by, and why are achieving them so important for an organization In any organization, the output is directly related to the input. A study conducted by Cania (2014), found that 70 of organizations had proven that significant changes occur in their performance because of SHRM practices and implementation, while 16.7 organizations admitted to minimal changes, which later attributed to poor management and the strategies not being in harmony with the organization objectives.
There were 13.3 of organizations that recorded no change because of the absence of a genuine business strategy and HRM. The organizations to strategically manage their HR paid attention to functions like, recruitment, career management, job satisfaction, the motivation of employees, creating a dynamic growth environment and training and development of employees.
It was therefore concluded by the study that SHRM does impact organizational performance and further identified SHRM to be an effective tool that supports the continuity of the organization. The studies and previous literature related to the topic highlights that SHRM has a significant impact on organizational performance in terms of employee turnover, financial performance, productivity, and quality. Katau and Budwar (2006), conducted an in-depth study with a sample of 178 manufacturing firms that concluded that SHRM roles such as training, staffing and others were connected to organizational performance measure like productivity, the gratification of customers and also innovation. Moreover, Singh (2004), in a study on 82 Indian organizations observed a positive impact of SHRM on the performance of the companies. The employee productivity was increased significantly that affected the overall financial performance of the organization.
In addition to this, various authors like Paauwe (2009), Guest (2011), Mayrhofer and Henrik (2006) and Taylor (2010), in their respective researches also concluded that across diverse settings, strategic HR practices and organizational performance are strongly linked. Alaraqi (2017), studies the impact of SHRM on the performance of the company among the Iraqi Oil Companies which commented on the impact of four major SHRM practices. The results of the study also concluded that activities such as strategic recruitment and selection have a positive impact on organizational performance. A similar relationship was concluded about strategic training, compensation and rewards practices. While a negative impact was observed between organizational performance and performance appraisal. However, as a whole SHRM was identified as an important tool to drive organizational performance.
The key challenges faced by practitioners and researchers who study the relationship between SHRM and the organizational performance can be classified broadly into theoretical and empirical challenges (Wright amp Gardner, 2000). The researchers have recently started studying SHRM practices and their impacts in a vigorous manner however, in this process, they face a number of challenges. On the theoretical front, one of the major issues faced by researchers is the unavailability of relevant theoretical application. While most theories clarify the consequences and determinants of HR practices, most of them fail to enhance the understanding of the relationship between SHRM practices and firm performance. Most of the theories have a macro-level viewpoint to explain the reason behind the existence of HR practices. They lack in providing a precise framework to define a mechanism which could specifically deduce the impact of SHRM practices on a firms performance.
Empirical challenges, however, focus on primary research execution levels such as analysis, statistical issues, and measurement. There is a large variance in the level of analysis at which HR and firm performance relationship are being studied. While there might not be any right or wrong level of analysis, but each level surely has its own pros and cons therefore the researchers need to be careful while choosing their relevant analysis level in order to effectively comprehend information collected. Measurement related research in this HR faces issues like lack of consensus on the roles of various variables in the data, cross-industry studies lead to difficulties in comparing and measuring quality or performance due to the variety of KPIs for the variety of business and industries. Within-industry studies often face difficulty in terms of data collection, as the competing organizations are reluctant to share their data. In addition to this, comparability issues exist due to different measures of employee and customer satisfaction for different companies. These are common challenges being faced by researchers in this area. Specific data availability and analysis is a difficult task because companies feel that by participating in such studies the result might lead to spread of confidential information related to their practices and help the competitors in increasing their advantage.
After studying relevant journals, research reports and articles, it can be said that SHRM has a significant impact on organizations performance. Most companies use SHRM tools to gain a competitive advantage over competitors. Providing flexible work environment like as compressed work week, telecommuting, job sharing and adjustable schedule all are part of Strategic HRM.
Studies have also identified the impact of specific SHRM tools on the performance and established a positive relationship between SHRM practices and performance of the organization. Organizations are consistently working towards gaining competitive advantage in their market and thereby, focusing on managing their human resources strategically in order to achieve required organizational performance levels. Strategic human resources practices are found to enhance employee productivity and increase the efficiency of the firm to achieve their mission. The focus of the HR managers must, therefore, be towards aligning their SHRM activities to the organizational strategies, to yield required results.
There are many voluntary benefits that are associated with implementation of SHRM. It helps in analyzing the opportunities and threats existing in the market, formulating strategies on the basis of micro analysis (SWOT) and also helps in evaluating and controlling the internal activities. There are also many challenges faced by the researchers as noticed in various sources which are majorly related to theoretical challenges in terms of lack of consensus and empirical challenges such as level of analysis and measurement-related challenges. These challenges need to be addressed in order to facilitate further research and therefore to increase the efficiency of the present literature available in this field. Therefore, to conclude it can be said that although it has been established that there is a strong link between the SHRM and organizations performance.In order to successfully study and research further on this topic, it is necessary that the identified challenges are overcome, so that the effective research can be done to develop and enhance the understanding in this field.
Alaraqi, A.K., 2017. Relationship between SHRM and organizational performance among Iraqi oil companies. Journal of Global Economics, 5(1), pp.1-12.
Armstrong, M. 2006. Strategic human resource management A guide to action. Dexter Thomson-Shore, Inc.
Brewster et al. 2000. Contemporary issues in human resource management Gaining a competitive advantage. Cape Town Oxford University Press.
Campbell, J. P. 1999. The changing nature of performance. Implications for staffing, motivation, and development. San Francisco Jossey-Bass.
Cania, L. 2014. The impact of strategic human resource management on organizational performance.Economia Seria Management, 17 (2), pp.374-383.
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