Introduction
The goal of any company or organization is to consistently maximize performance and efficiency. In the past several decades, companies have started to conduct research regarding the easiest and most effective way to maximize their output. One of the many ways this can be achieved is through Human Resources Management (HRM). HRM focuses on recruiting qualified employees and retaining them within the organization by improving overall working conditions in order to create more productive individuals, thus leading to an altogether more successful company. HRM is believed to create a competitive advantage which leads to organizational results. It is used to improve attitudes and behaviors of employees in order to create more effective employees leading to improved company performance. It has evolved into a fundamental piece of strategic planning because of its capacity to add value to an organization. Today, the majority of all larger and some smaller companies have a HR department.
Theory
The theory that investing in HRM policy and practice holds the ability to significantly and positively affect organizational performance has become popular knowledge. However, it is still not widely accepted. While there is a great deal of evidence proving that HRM policy and practice is associated with high performance, the research is inconclusive due to the lack of consistency between what practices prove most effective. There are a number of favorable services that HR provides which would appear to lead to a higher performance organization. In order to analyze each aspect of HRM, researchers have used several theoretical models to find which component is most effective in regards to organizational outcomes.
Research and Models
The first model to appear was the Harvard Model, also referred to as A Multiple-Stakeholders’ Perspective. It was created at Harvard Business School by Beer et al (1994) and is said to be the “brain child” of other models of HRM. The Harvard Model recognizes that there are many stakeholders that exist within an organization. The model notes that employees are equally as important as stakeholders in creating organizational outcomes. The Harvard Model has six components: situation factors, stakeholder interests, HRM policy choices, HR outcomes, Long-term consequences, and a feedback loop. Beer believed this would solve issues revolving around people’s problems by creating policies and practices based on the relationship between the company and the employee. Beer emphasizes that the focus of effective HRM teams will not be on short-term financial benefits, but, rather, the health of the overall organization. The identification of multiple legitimate stakeholders portrays this approach as a softer side of HRM.
(Boselie, 2015)
The Contingency Model is one of the most widely known models, and it requires the most “appropriate” approach to HRM depending upon each situation. Also called the “best fit” model, it suggests that there should be no single, rigid way to approach all situations. Instead, it suggests that HRM should adopt different styles based on the situations context. HRM strategy is more efficient when it is in context of the business when using the contingency model (Baird and Meshoulam, 1988). This model proves useful in not just present situations, but when a situation reoccurs and managers are able to reapply a similar approach. This creates well rounded managers that are able to learn from previous circumstances and adjust their management approach.
The Ethical Approach centers around the well-being of people and the emphasis on organizational ethics. Typically, these organizational ethics are introduced in the ignition orientation for the company. The HR department will display the rules and norms for how to treat fellow members of staff and what is expected of each employee in accordance to organizational quality. Each company varies in core values, but generally the expectation for staff quality and work ethics are similar.
The models listed previously can also be categorized into two broader types of model; the hard or soft model. The criteria for the divide between the two is based upon views of human nature and control. The hard model is formed “based on notions of: i) tight strategic control, and ii) an economic model of man, according to McGregor's Theory X (Weerasooriya, 2008) McGregor’s Theory is a two factor theory that helps to determine the needs and actions of HR. Theory X “assumes that employee or employees at certain occasions feel attitudes and behaviors like, lazy to work, bear pale and negative attitudes, reactive, de-motivated, ill-treated, stubborn and harassed, ignored and not cared and respected hence the employees become a hindrance to organization and they are not creative and not innovative and these employees are a burden and they never substantially contribute to the organization (Weerasooriya, 2008)” This model takes more of an authoritarian approach, with strict rules and boundaries that employees are expected to adhere to.
The soft model is primarily “based on: i) managing human resource through commitment and ii) through cohesion or Theory Y. Where Theory Y “deduces that employee or employees feel attitudes and behaviors like happier and satisfied, interesting to work, positive, proactive, friendly, cared, equally and well treated, fully motivated, highly respected hence these employees are a valuable asset and they are very creative and innovative and bring new things to organization (Weerasooriya, 2008)” The soft model focuses on creating a friendly and productive environment that encourages effective work. It requires the active and willing participation of employees, as they are generally given less supervisory instruction. Like the Harvard Model, the soft model sees employees as valuable assets.
There are many field and case studies that have been done to attempt to test the relationship between Human Resources and performance. In 1995, McDuffie studied 62 automotive assembly plants and found that those with flexibility, teamwork, commitment to HR, combined with low inventory consistently performed better than other plants. Delaney and Huselid tested the theory that HR practices that effect employee skills, motivation, and structure are positively related to organizational performance. They measured this by looking at the perceived organizational performance and compared it to competitors. In 1996 Delery and Doty claimed that profit sharing, job security, and result-focused appraisals effected organizations positively. These studies in the 1990’s were the foundation for assuming that HRM leads to higher organizational performance. On first glance, these studies are convincing, but upon deeper inspection, many flaws arise. There is little actual evidence presented in each study, but that did not stop millions of companies from installing HR departments worldwide.
Each of these models and studies take a different approach to HRM policy and practice, and all seem to prove a positive relationship between HRM policy and performance. With so many models that all claim to be the best approach to HRM in order to achieve maximum performance, how are we supposed to choose which one is actually the best? It is not possible for every single model to be the most effective in creating a significant improvement in organizational performance, so there have to be holes within the measurements used to evaluate the models. The studies each took a different approach to evaluate the HR tactics and the performance of the organization, and every researcher came up with different results. This lack of contingency is what leads many researchers to believe the link between HRM policy and practice and high organizational performance is inconclusive.
The Validity of HRM Research
In examining research design flaws, we will look at the variety of HRM practices that are theoretically sound, define the appropriate level of analysis, construction and measurement of performance, and the collection of data.
The first faults to examine are those involved with researchers. Many of them look at individual performance indicators. They ignore the many components that make up performance. They also neglect relationships between the many measures used in each study. Many researchers also attempt to use the same indicators to judge performance for dissimilar work environments. This attempt to enforce continuity between divergent companies creates major issues in the accountability of the data. Failure to research properly creates false and inconclusive results.
Another reason to question the reliability of conclusions made about the effects of HRM on organizational performance are the data collection methods used. Many researchers use quantitative research which leaves large gaps in evidence. They also focus on measuring casual relationships rather than looking at how things actually happen. Instead of looking at the reality of the chain of processing, the researchers look at the chain of command as it is read on paper. They also have a normative bias of managers, so regardless of the actuality of a situation, the researchers are likely to consider the word of the manager as the truth. During the survey the researcher will hear about the social atmosphere of the company, this includes the drama that is often present within coworkers. There is danger that the researcher may get caught up in the talk amongst the employees and form unfair opinions of said people. All of these factors lead to a falsified view of the organization which then causes an incorrect evaluation of a company.
There are also theoretical issues in regards to the logic having to do with causality. Many studies lack a clear answer as to how exactly HRM increases performance. Studies are lacking in “robust evidence governing direction of causation” (Bratton, Gold 2017). This lack of evidence is often called the “HR black box.” No one can tell what leads to what, and so researchers make assumptions which removes the accuracy of the study.
The validity of data collected by researchers is often questioned. In order for measurements to be reliable, there would need to be evaluations from at least two respondents. Many measurements only have evaluations from a single respondent which makes it hard to determine what studies are sound. Further, in order to avoid contamination of the measurements, the respondents should be unaware of the performance of the company.
A common objection to the validity of the claim that HRM policy and practice effect an organizations performance in a positive manner, is the accessibility to have an HRM department. Is it correct to assume that companies who are performing better have the means and are more willing to invest in HR practices? If a company is doing extremely poorly, they will be less likely to have available resources to put toward an HRM team. This would give the illusion that HRM and performance are positively tied, even if the HR department was installed after the company was successful.
Researchers have failed to provide hard prove that HRM practice and policy result in higher organizational performance. However, it is still highly possible that there is a positive correlation between the two. Research needs to be able to explain more clearly how HRM works and its specific effects in order to provide guidance for the decision makers. Based on current measurements and the amount of data collected, regardless of its validity, it is highly likely that HRM does lead to better performance. This paired with the fact that there are very few studies that result in the conclusion that HRM negatively effects performance, shows great potential for the abilities of HRM. Researchers will continue to study HRM and in the future, they will hopefully be able to provide a firm answer as to how exactly HRM policy and practice effects organizational performance.
The Future
In order to prove that there is a positive link between HRM policy and practice and organizational performance, researchers need to return to the drawing board. A major focus should be on expanding the scope for the multiple-stakeholder’s perspective in order to make a larger impact on how HR is organized. It is important to take the interests of multiple stakeholders seriously while also involving them in the molding of employee and management relationships.
Another crucial component of proving a positive correlation is to bridge the gap between HR theory and evidence based management principles defined by academics. More action based research is crucial to link HR research to HR practice. Once a clear link between theory and practice is made, it will be simple to prove whether or not HRM has a positive relationship with organizational performance. Until then, we are only able to say that this positive relationship is probable, but not certain.
Conclusion
Overall, there is heavy discussion regarding Human Resource Management practice and policy and its effects on organizational performance. The relationship is seemingly positive, but there are major gaps in the research. We have seen a variety of studies and evidence that provides evidence that there is a positive link between HRM policy and practices and organizational performance of a company. However, this evidence is lacking in validity and therefore many consider the link between HRM and organizational performance a “’black box’ lacking in clarity on ‘what leads to what’ (Gerhart, 2005). Although it is widely accepted and assumed that HRM policy and practice are positively related to organizational performance, there is a necessity for further research and more sound evidence in order to come to a final conclusion.