Relationship between Human Resource Management Practices and Organizational Performance

This research proposal studies on the relationship between Human Resource Management Practices and organizational performance. Six Human Resource Management Practices are used as independent variables to determine its relationship towards organizational performance.

1.1 Objectives:

To identify the extent of Human Resource Management practices.

To investigate the relationship between Human Resource Management practices and organization’s performance.

To investigate the relationship between selective staffing and organizational performance.

To determine how extensive training and empowerment contribute to organizational performance.

To identify the influence of job design towards organizational performance.

To find out if performance evaluation and performance-based pay effect organizational performance.

1.2 Research Questions:

What is the extent of Human Resource Management practices?

Does Human Resource Management influence the organization’s performance?

Does selective staffing related to organizational performance?

How intensive training and empowerment relate to organizational performance?

What is the relationship between job design and organizational performance?

How performance evaluation and performance-based pay effect organizational performance?

2.0 Introduction

After World War II, many organizations were planning significant expansion. During this period, many organizations realized that Human Resource Management (HRM) is the key to produce adequate supply of skilled workforce to this era. As a result, various multinational organizations emphasize on the development of Human Resource Management. At 21st century, globalized workforce becomes the basis of competition among all level of organizations.

‘In general, human resource management refers to the process of managing diverse people talent to achieve a common goal. According to Dessler (2001), human resource management refers to the policies and practices you need to carry out the people or human resource aspects of your management job.’

Despite of technological resources, human resource is an important resource to an organization.

In order to achieve competitive advantage, human resource management is highly demanded to manage and conduct employees effectively. It is also responsible for managing structural changes in an organization, such as downsizing, rightsizing, outsourcing and reengineering.

‘Llyod L. Byars and Leslie W. Rue (2008) in their Human Resource Management Ninth Edition demonstrated that downsizing means dismiss large number of workforce in an organization whereas rightsizing means continuous and proactive assessment of mission-critical work and its staffing requirement. Outsourcing is subcontracting work to an outside company that possesses expertise in particular type of work. Reengineering is fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, services, and speed.’

Normally, human resource management practices of small organization are employed by its owner or operation manager and apart from business strategy planning. For a medium-sized organization, it usually employs a manager or personnel to execute all matters related to human resource and most of them are not specialize in this field. On the contrary, well-developed organizations possess a specialized department named Human Resource Department that has its own expertise to employ human resource functions and helps to improve the organizational effectiveness. Nowadays, one more factor has been pointed out by some organizations which are known as Human Resource Planning (HRP) as the personnel tools of organizations. In essence, it aims to capture the people element of what an organization is hoping to achieve in the medium to long term, ensuring that, has the right people in the right place, has the right mix of skills, employees display the right attitudes and behaviors, and employees are developed in the right way. Besides that, companies attempted to forecast their human resource requirements in the medium to long term and then to analyze their ability to achieve the forecast levels. There are very few analyzing tools available and so, many organizations eager to find out the most appropriate technique and tool to assist all matters pertaining to human resource. And this helps organization to improve employees productivity, financial performance, organization’s image and else.

3.0 Significance of Study:

This study aims at find out the relationship between Human Resource Management Practices and organizational performance. Due to the emergence of globalization, the competition among multinational companies has become aggressive. Organizations with knowledge-based workforce will have higher growth rate in their business. According to Huang (2000), HRM practice is one area that influences employees’ intention to leave, levels of job satisfaction, and organizational commitment. Organizations with high turnover rate will tend to have low organizational performance and always failed to meet the expectation of organization.

4.0 Literature Review

There are six factors are used to measure Human Resource Management Practices, such as selective staffing, extensive training, empowerment, job design, performance evaluation, and performance-based pay. This statement is written in a journal named Strategic Human Resource Management and Organizational Performance in Singapore (David Wan, 2002; Chin Huat Ong, 2002; Victor Kok, 2002).

Organizational performance is the measurement of the actual output for an organization towards its objectives and goals. Nowadays, the balanced scorecard methodology takes place in many organizations to manage their organizational performance. This methodology will measure and track into multi-dimension, such as financial performance, customer service, social responsibility and employee stewardship. Furthermore, factors that involve in organizational performance are employee job satisfaction, employee commitment or loyalty to the firm, public image and goodwill, growth rate of sales or revenues, product or service quality, employee productivity and financial strength (Khandwalla, n.d.). The direct impacts in between human resource practices and organizational performance are reducing unnecessary overtime expenses, reducing absenteeism, eliminating unproductive time, minimizing employee turnover, monitoring safety and health within organization, provide training and development to entire employees, reduce waste material, maintain high competitive advantages, increase organizational benefits and else.

Organizations often advertise the vacancies via employment agencies or an executive search company. Applicants are required to fill in the application form either through online or written paper, and then the data will be passed to particular organizations. For the first procedure of selective staffing, hiring manager will screen out unqualified applicants based on the application data of each job applicant. Secondly, hiring manager will invite qualified applicants to attend preliminary interview. In this procedure, hiring manager will determine applicant’s skills, abilities and job preferences that match any vacancy in organization. Hiring manager will explain to applicant available vacancy, their requirement, job description and job specification, so that hiring manager can screen out uninterested or unqualified applicants. Thirdly, a formal testing will be employed to applicants, such as aptitude tests, psychomotor tests, job knowledge and proficiency tests, interest tests, personality tests, polygraph tests (Lie Detector), graphology (handwriting analysis), drug and AIDS testing and genetic testing. After that, applicant may be invited by hiring manager to attend a second interview as this helps to capture more qualified applicants. Hiring manager will do reference checking either before or after the second interview. Then, hiring manager will make final selection decision. Finally, peer involvement will take place to ensure that hiring manager recruits qualified applicants with the minimum biases. Huselid (1995) proved that total turnover rate is related to selective staffing. This is because high turnover rate will bring down organizational performance and organization does not possess enough skilled workforces to implement organization’s strategy.

Extensive training is provided by organization so that it can produce a skilled or knowledge-based workforce. Extensive training is a learning process for employees that involve acquisition of skills, concepts, rules and attitudes. The reasons why organization conducts training to its employees are environmental uncertainty, government changes, emergence of new technology, planned organizational changes, performance problem within organization, regulatory, contractual, professional and certification issues. Furthermore, skills or knowledge that you have learned today may be obsolete in the future. On-the-job training, job rotation, apprenticeship training and classroom training are the common training within organization to enhance greater organizational performance. “Firms introducing extensive training and development opportunities for their employees had a 6% increase in value added per employee in the years of adoption. Introducing empowerment and extensive training together resulted in a 9% increase in value added per employee.” Cited from an article named Empowerment and Training Enhance Organizational Performance: An Interview with UK Researchers.

Empowerment can be interpreted as developing individual’s confidence, spiritual, political, social, or economic strength in its own capacities. In organization, empowerment is interpreted as passing more operational management responsibilities to individuals or teams rather than keeping management line to make decision. This also comprises job enrichment and quality circles. According to article named Empowerment and Training Enhance Organizational Performance: An Interview with UK Researchers, the author writes that ‘We found that firms adopting empowerment strategies (i.e. greater devolution of decision-making responsibility to front-line employees) showed a 7% increase in their value added per employee in the years subsequent to adoption.’

Job design is a process of designating specific work activities of an individual or a team to achieve certain organizational objectives. Commonly, job designer prefers to structure specific work activities for an individual or a team as specialization as possible. This is mainly due to job specialization requires fewer skills employees, increased proficiency through repetition, master certain skills more efficiently, low wages, more conformity and different tasks performed concurrently. Besides that, job design can be measured by job scope and job depth. Nowadays, job design should be designated together with technical system and the accompanying social system. According to Michael A. Campion (1983); Paul W. Thayer (1983) in their journal named Job Design: Approaches, Outcomes and Trade-offs have shown that there are four different types of job design in an organization. They are mechanistic approach, biological approach, motivational approach and Perceptual/Motor approach. Motivational approach will produce high job performance, greater job involvement, high job commitment, lower absenteeism, high job satisfaction and high motivation whereas other approaches will produce negative incomes, such as high absenteeism, high financial cost, lower job satisfaction and so on.

According to Intelligence Community Directive Number 654, the author stated that ‘Performance evaluation is the formal review of an employee’s performance against performance objectives and performance elements that result in an evaluation of record. Performance evaluation period is the period of time established under a performance management system for reviewing and rating employee performance.’ A minimum level of proficiency is designed as a reference for performance evaluation in each of the performance components. With the aid of performance evaluation, employees will have a clear understanding of their roles so that they will not be misdirected towards their work activities. For example, an employee possesses excellent abilities put tremendous effort into his or her work, but lack of clear understanding of his or her roles. In this case, managers will probably not consider this employee as a good and potential employee. There are several techniques can be used to evaluate employee’s performance and performance appraisal, such as graphic rating scale, Behaviorally Anchored Rating Scale (BARS), critical-incident appraisal, essay appraisal, checklist, forced-choice rating, various ranking methods and work standard. On the other hands, performance evaluation also can be measured by employees themselves which is named as self evaluation. In this process, organization provides employees an opportunity to assess their performance and this helps to increase employees’ perceived fairness on the appraisal process.

Performance Based pay can be defined as “The explicit link of financial reward to individual, group or company performance” (Armstrong and Murliss, 1991). It plays a vital part of re-orientation of pay and reward systems; and also named as performance appraisal. Mostly, it is used to recognize employee’s contributions and evaluate their performance. It is the process of evaluating and communicating to an employee of how he or she is performing the job to achieve organization’s goals. By implementing this process, employees will identify how well is theirs performance, their level of effort, select task direction that are more important to organizational goals and else. Performance-based pay can be divided into intrinsic reward and extrinsic reward. Intrinsic reward is derived from individual or groups towards their performance, such as job satisfaction and feelings of accomplishment whereas extrinsic reward is directly controlled by organization and more tangible than intrinsic reward, such as promotions, firings, layoffs and merit pay increases. In addition, performance-based pay enables organization to dismiss employees whose performances and contributions are less than desirable. As a result, it helps to reduce involuntary turnover and improve organizational performance. This is because poor performances employees will be terminated and good performances employees will be promoted or rewarded that greatly increase their job satisfaction. Longenecker and Fink (1999) cited the practice of effective performance-based pay system is one of the top ten vehicles for creating competitive advantage. However, ineffective performance-based pay system can bring unwanted issues, such as low morale, decreased employee productivity, job dissatisfaction and disloyalty towards organization (Somerick, 1993).