HRM and Firm Performance

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22nd Jun 2020 Business Question Reference this

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Question

Do high-performance human resource practices increase the overall performance of a firm?

Answer

The notion that human resource management (HRM) practices have an impact on overall firm performance has long attracted interest from both academics and practitioners (Hyde et al, 2013). The concept of high-performance HRM refers to the use of a set of HRM practices which are considered to enhance organisational competitiveness and innovation (Kalleberg et al., 2006). According to Taylor et al. (2008) high-performance HRM practices are those which impact on employees’ levels of organisational commitment and are designed to enhance individual performance whilst encouraging mutual respect and responsibility (Lindorff, 2009). Furthermore, they are said to increase efficiency and productivity by facilitating employees to identify with strategic objectives and values (Giauque, Anderfuhren-Biget and Varone, 2013). Within the realms of universalistic theory, the current literature provides much support for a direct and linear link between high-performance HRM and performance (Stavrou, Brewster and Charalambous, 2010). According to Chuang and Liao (2010), high-performance HRM promotes a ‘climate of concern’ for both customers and employees which then inspires them to engage cooperatively and achieve enhanced performance. However, despite this, some argue that the empirical evidence varies (Stavrou, Brewster and Charalambous, 2010), ranging from a positive association with all HRM practices, to a negative correlation between the two (De Menezes, Wood and Gelade, 2010). Others suggest that the causal relationship between high-performance HRM and performance is influenced by other management interventions (Birdi et al., 2008) or that rather than HRM practices driving performance, it is instead high performing firms who can invest in more sophisticated HRM practices (Katou and Budhwar, 2006). In conclusion, the current literature provides a mixed view on the extent to which high-performance HRM practices influence performance. Although, convincing evidence exists in some studies to point to a direct causal correlation, others provide equally compelling evidence to suggest otherwise.

References

Birdi, K., Clegg, C., Patterson, M., Robinson, A., Stride, C.B., Wall, T.D., and Wood, S.J. (2008) “The Impact of Human Resource and Operational Management Practices on Company Productivity: A Longitudinal Study”, Personnel Psychology, Vol. 61, pp. 467-501. Chuang, C.H. and Liao, H. (2010) “Strategic Human Resource Management in Service Context: Taking Care of Business by Taking Care of Employees and Customers”, Personnel Psychology, Vol. 63, pp. 153-196. De Menezes, L.M., Wood, S. and Gelade, G. (2010) “The integration of human resource and operation management practices and its link with performance: A longitudinal latent class study”, Journal of Operations Management, Vol. 28, pp. 455-471. Hyde, P., Sparrow, P., Boaden, R. and Harris, C. (2013) “High performance HRM: NHS employee perspectives”, Journal of health organization and management, Vol. 27(3), pp.296-311. Giauque, D., Anderfuhren-Biget, S. and Varone, F. (2013) “HRM practices, intrinsic motivators, and organizational performance in the public sector”, Public Personnel Management, Vol. 42(2), pp.123-150. Kalleberg, A. L., Marsden, P. V., Reynolds, J. and Knoke, D. (2006) “Beyond profit? Sectoral differences in high-performance work practices”, Work and Occupations, Vol. 33, pp. 271-302. Katou, A.A. and Budhwar, P.S. (2006) “Human resource management systems and organizational performance: a test of a mediating model in the Greek manufacturing context”, International Journal of Human Resource Management, Vol. 17 (7), pp.1223-1253. Lindorff, M. (2009) “We’re not all happy yet: Attitudes to work, leadership, and high performance work practices among managers in the public sector”, Australian Journal of Public Administration, Vol. 68, pp. 429-445. Stavrou, E.T., Brewster, C. and Charalambous, C. (2010) “Human resource management and firm performance in Europe through the lens of business systems: best fit, best practice or both?”, The International Journal of Human Resource Management, Vol. 21 (7), pp. 933-962. Taylor, S., Levy, O., Boyacigiller, N. A. and Beechler, S. (2008) “Employee commitment in MNCs: HRM and top management orientations”, International Journal of Human Resource Management, Vol. 19, pp. 501-527.

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