Do strategic human resource management practices contribute to increased firm performance

By  Adil Waseem 


HRM has been defined as a branch of science which deals with employment relationship of issues, actions, and decisions (Gerald, Sherman & Darold, 1995). The strategic Human Resources management is concerned with the organization strategic resources to achieve the competitive gains (Armstrong, 2008). Armstrong says it is activities and actions by human resource manager to solve people related problems. According to Kalyani & Sahoo (2011) that the purpose of the strategic human resources management to ensure that organizations have the requisite skilled and motivated employees for getting sustained competitive advantages in the world. Kalyani & Sahoo say that HR strategy means accepting the HR function as a strategic process in the implementation of those strategies through HR activities such as recruiting, retaining, motivating, rotating and rewarding employees. Authors further state that whatever is the organization strategy; in the end everything on organization does depend on people.

Gerald, Sherman & Darold (1995) narrate that HRM development in different stages and according to them, first stage of the HRM started in preindustrial era from 1400 lasted till the industrialized revolution. Second stage, the industrialization till modern era, generated the unprecedented demand for the HRM for producing the good in cheapest ways and to gain competitive advantages. In the final stage, the emergence of corporation and big influx of international trade volume led to the development of modern HRM practices. The modern era was ushered the demand the HRM practices to apply strategic tool in accordance with the empirical studies to achieve more accuracy and predictable results.

Armstrong (2008) provided the list of the studies conducted by various researchers to establish the link between strategic human resource management and performance. The most of prominent studies in strategic HRM were conducted by Arthurs (1992), Huselid (1995), and Guest (2002). Armstrong mentions that Rogg (2001) study established that there is weak relation between strategic HRM practices and performance but the study found that strategic HRM practices produce favorable climate. In addition to these studies, there are various researchers propounded various theories to establish link between HRM and performance such as Expectancy theory, Contingency theory, etc. These theories provided the grounds for the researcher to conduct the empirical studies. The impact of strategic HRM on the organization performance can be best explained in following Diagram of Armstrong.

HRM practice and empirical study

The pro supporters of strategic HRM practices reason that the strategic practices result in increase of the organization performance while relying on different studies. According to Neal, David & David (1998) state that Huselid (1995) conducted the study on impact the HRM practice on the organization productivity and profitability by collecting data of 293 firms’ performance and HRM practices used by these firms. The study concluded that HRM practices correlate with outcome of the organization performance. The study also concluded that the HRM practices contribute the organization effectiveness but the practices must first fit the organization goals and strategies. Zhang & Li (2009) states that the bundle of HRM work practices consisting of training, participation, job analysis, performance appraisal, promotion from within, and compensation has a positive association with firms’ market performance. Another study conducted by Huang which also shows a significant relationship between performance and the effectiveness of their HR functions (Alan, 2007).

The cons relying on researchers finding such as Patrick, Timothy, Lisa & Mathew (2004) who concluded that HRM empirical study does not provide the organizations a foundation for drawing valid causal inferences and such causal inferences should drawn with extreme caution. According to authors the models of the process through which HR practices impact performance have progressed but they have not been properly empirically tested. Question is which side of story is correct? It is true that causal interference should not be drawn from the empirical studies on strategic HRM but the way subject focuses on human relations as a science and conduct all experiments in scientific manners. It is hard to refute the facts that many of empirical studies on conducted on HRM do not depicted 100% accurate and reliability but strategic HRM practices hold great importance for the employer to use as the tools for enhancing the organization performance.

Strategic HRM Selection and organization performance

According to Robert, Hubert & Murray (2010) that there is a correlation between the predictor scores of job test and job performance. The rationale is that the predictors designed in the selection process for testing the KSAs are key factors identifying the performance of the applicants and a good selection process can predict the future performance of the applicants. Paul (2009) concludes that a set of predictors can be used to forecast the employees’ performance to get exact ideas about the expected performance of the employee. The researchers agree that the use of effective selection process in different organization can produce different results because difference in size, culture, goals, structure of the organizations (Neal, David & David (1998). Authors state that Terpstera and Rozell (1993) conducted the study among the relationship of various selection SHRM practices and employee performance and the study found that the employers who use the various selection practices have more growth rate and overall performance. Terpstera and Rozell examined the cognitive ability test, structured interview, BIB/WIB were the most valid predictors of the employee performance.

The cons of selection of recruitment and selection caution that current and future performance of employee based on empirical studies have red flags (Patrick, Timothy, Lisa & Mathew (2004). In conclusion, based on these observations, the predictive studies about employee performance that simply explore the relationship with future performance may be misleading. Furthermore, the cons of selection process as a tool to enhance the organization performance have substantial reasoning flaws because of the rationale given these studies are general and broad that it make it difficult to fit them into the employer specific needs. I disagree with cons supporters because I found cons arguments superficial and devoid of valid rationale.

It shall be interesting to study how the court interprets the different selection process which aimed at enhancing the organization performance. In re Ricci v. DeStefano, 57 U.S. 557; 129 S. Ct. 2658; 174 L. Ed. 2d 490; in which the petitioners, white and Hispanic firefighters, brought actions against respondent city which to certify promotion examination because there was fear that it will result in disparate racial impact against black applicants. The white and Hispanic firefighters contended that they were subjected to disparate treatment in the denial of promotions on the basis of their races in violation of Title VII of the Civil Rights Act. The U.S. Supreme Court held that the city improperly discarded the examination to achieve a more desirable racial distribution of promotion-eligible candidates, since there was no strong basis in evidence that the examination was deficient and that discarding the examination was necessary to avoid disparate impact. Issue is whether any selection processes which enhance the organization performance should be discarded that creates fear that it may cause disparate impact against the covered employees. The court opinion provided clear guidance that the selection process is valid and legal if results in enhancement of the organization performance because of business necessity doctrine.

Training for increasing organization performance

The empirical study shows that there is relationship between the training and firm performance in SMEs (Pratyush, In & Abhijit (2010). Lex (2010) argues that the training and organization performance has strong correlation when training is wide spread and if training is not job specific and it does not produce that desired results. Lex states that the training has to be updated and should target areas which hamper the employee performance. The effectiveness of training programs depends in part on the organizational conditions that facilitate or inhibit learning process (Daniel, Jerome, Harold & National Research Council (U.S)., 1997).

On the cons side of story tell that the training where the difference in performance (DP) exceed the cost of training. According to Jean (2006) that Cost-benefit analysis of employee training is important to get ideas what extend the employee benefit shall be profitable for the organization. The cost-benefit can be conducted by the dividing the numbers of employee going to send on training program and the multiple by cost of training divided by how much employee performance shall be increased if any such training shall be conducted. Therefore, the conclusion is that the employee training can increase performance of the organization but a proper analysis should be conducted to evaluate the cost of that training on the employee performance.

In re United Steelworkers v. Weber, 443 U.S. 193; 99 S. Ct. 2721; 61 L. Ed. 2d 480; in which petitioners challenged the judgment of the court on ground that that employer action for affirmative action did not violated the Civil Right Act of 1964.
The employer and the union collectively bargained for an affirmative action plan that reserved for black employees 50 percent of the openings in a training program until the percentage of black craft workers in the plant was commensurate with the percentage of blacks in the local labor force. The complaint/respondent, a white employee, challenged the legality of the plan under Title VII of the Civil Rights Act of 1964 (Title VII).The district court held that the plan violated Title VII, and the court of appeals affirmed and in appeal, the United States Supreme Court reversed, holding that Title VII's prohibition against racial discrimination did not condemn all private, voluntary, race-conscious affirmative action plans. The court also noted that the plan did not unnecessarily infringe the interests of the white employees and such affirmative by action are justifiable to correct the imbalance in his workforce performance in the organization.

Performance management enhance organization performance

Kandula (2006) states that two researchers, namely, Litwin and Stinger conducted the study and found that there is positive correlation between the achievement motivation and performance. According to Bruce and Benjamin (2011) researched the estimated coefficients are positive in all equations, indicating that firms paying higher annual earnings also provide more HRM services, other things being equal. The cons side of that, Litwin and Stringer analysis clearly presents the dangers of blind use of instruments without adequate reliability and validity analysis (Sims, Henry & William, 1975). The most likely outcomes of these systems are that it further commodification of services and deprofessionalisation of employees (Adcroft, Andy & Willis, Robert (2005). In short, the performance management tool is effective if it used with careful while analyzing and there are danger associated with administrating the HRM practice.

Compensation motivate the employees

The study by Kahn and Sherer (1990) explores that impact of managerial bonus on the managerial performance on next year. The bonus was tied to the salaries and behavioral factors. Managers were given bonus at different rates. Kahn and Sherer found that higher potential bonus rate correlate with the higher performance effects (George, Alexandra & U.S. Committee on Performance Appraisal for Merit Pay, 1991). Similar, study by Gerhart and Milkovich (1990), analyzed that the five years of the performance of professional and mid managerial of 200 large corporations. The managerial and professional that have higher bonus rate showed higher performance in the year following the bonus. Similar finding was observed by Chingos (2002) who states that compensation is the most effective method for improving the organization performance. Robert (2002), states that the research literature on the compensation and organization performance has clearly established the link between the compensation and individual employee performance. Brounstein (2011), states that incentive pay for teams can be a strong human resources tool that drives teamwork and performance because it strikes the key behavior required for the productivity. The expectancy theory of motivation supports the view that the compensation lead to reward when employee perceives that his performance shall result in reward, he perceives put more effort in work (Nelson & Quick, 2010).

The cons of the compensation link with performance state that the compensation creates little impact on the organization performance unless it combined with other factors as a training, performance management, etc. (Grote & Grote, 1992). The labor costs of US workers are getting higher and higher with increase in compensation incremental offer by the organization which is making the US exporting goods less competitive in the world (John, 2060). Issue is whether which side of story is correct? Here, the organizations have to conduct the marginal utility analysis of compensation to determine what extend increase in compensation results in the performance and where the organization competitiveness starting falling due to the labor cost.

If we look into the legal aspect of this matter, in court decision re County of Wash. v. Gunther, 452 U.S. 161; 101 S. Ct. 2242; 68 L. Ed. 2d 751; petitioner alleged she was offered less salary work substantially equal to that performed by male guards under Title VII of the Civil Rights Act of 1964. The lowered court denied the claim of petitioner on the ground that work performed by her is not equal to male guard. On appeal, the court found that the female guards' claims of discriminatory compensation were not barred by Title VII merely because they did not perform work equal to that of the male guards. Issue is whether what considerations the employers have to take into consideration while providing the compensation and bonus as incentive to promote higher productivity. In this case, the male guard might be giving higher performance but there are chances that if any change in incentive given to employee may not result for the action for discrimination because male are more physical strong to perform more work than female. Therefore, the employer should allocate the incentive in such ways that it may not result in discriminatory results on the basis of age, sex, color, creed, or national origin.


The strategic HRM provides the critical analysis of the issues in which the human resources problems can be solved. The practice have many effective management tools for enhancing the organization performance which is empirically test and proven. The employers have the options to use the either one or combination either of selection, recruitment, compensation, etc., to increase the performance of the organization. There are also certain limitations of the strategic HRM practices. The practitioners are required to properly analyze the implications of practice in accordance with nature of the organizations and its goals. The analysis should take in consideration all possible contingent factors which could derail the impact of SHRM practices. There are numbers of Federal and State laws are in place and the detail study is required to remain in full compliance with these laws. Any improper use of The SHRM practices can enhance the organization performance but it can result in civil liability against the organization which could off-set the net benefits drive from these practices.


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