The relationship between strategic HRM practices and organizational performance

¶ … organizational performance. This study pointed out that while some association between HR policies and performance was obvious, there were no clearly defined factors as to why and how such an association existed. This, Purcell termed as the 'black box'. Further, Purcell also noted that strategic HRM practices are more productive from a medium to long-term perspective than in the short-term. [David Worland, 2005]

Claire et.al 2007 is a more recent study, which reviewed the processes, practices and the results of several previous studies pertaining to the impact of HRM practices on performance in the healthcare sector. By analyzing and contrasting several such studies Claire et.al concluded that there is a clear association between policies, practices and performance. Though the study revealed that HRM practices ultimately improved patient outcome it concluded that more research has to be focused on how exactly individual performance is affected by HRM practices. The study also found that performance can be optimized when HR polices are more tailored to suit the needs of the particular health care organization. [Claire et.al 2007]

HRM studies elsewhere in China have shown promising results as well. Syed et.al (2008) studied 465 Chinese firms and analyzed the effect of strategic HR policies on organizational performance. Using questionnaires, data pertaining to the seven HR policies namely: internal career opportunities, formal training systems, results-oriented appraisals, employment security, participation, job descriptions, and profit sharing were obtained from the HR directors of the respective companies and responses were marked on a five point scale. The data was then factor analyzed using principal component factor analysis and varimax rotation to identify the individual effects of these seven HRM practices. Regression analysis revealed employment security and job description as two main factors that affected performance while profit sharing distinctly contributed to improved financial performance. [ Syed Akhtar, 2008]

A recent Scottish study compared the strategic HRM practices between two budget level hotels in the UK. FranCo-AI and BritsInn were the two hotels that were included for the study. The researchers used interviews to gather the date. In all, seventeen subjects were interviewed. (respective HR chiefs and 15 SBU level managerial staff). It was found that both the companies followed a mixture of both the 'model of fit' and 'model of best practice'. In particular, FranCo-AI's policy of multifunctional staff training together with the policy of internal transfers has proved every effective for cost reduction in terms of new employee training and in minimizing delays in recruitment process. In effect FranCo-AI follows the utilization and accumulation approaches as described by Jackson and Schuler (1989) in their HRM philosophy. The researchers found that the HRM policies at BritsInn to be a mixture of utilization, facilitation and accumulation approaches (Jackson and Schuler (1989). In particular, policies such as 'New starter champion' to socialize new comers, '90 day retention' internal promotion, training and empowerment have helped the company gain employee confidence and standout as one of the 100 best companies to work for in the UK. [Tze et.al]

The key for the HR professional is to identify the priorities of the organization with respect to its strategic objectives. Designing a strategy contribution matrix is the ideal way to correlate the HR strategies with the overall strategies of the organization.(Jonathan Smilansky, 1997) Motorola incorporation is a case in point that exemplifies the effectiveness of HRD function in implementing strategy. Motorola succeeded in providing structured training (technical expertise) for all its different levels of employees by effective integration of the HRD. (Torraco and Swanson (1995)) Swedish-based Ericsson Corporation is a good example of strategic HRD involvement. Thanks to the excellent HRD training in systems thinking, business process analysis and other technical areas, which enabled the employees themselves to redesign their business process that facilitated much efficient technical information sharing between the company's 40 research labs, leading to more effective and profitable production process. (Torraco and Swanson (1995))

SHRD Characteristics

Garavan (1991) and McCracken and Wallace, (2000) are considered the primary works, which discuss the main characteristics of SHRD in an organization. Chief among these is integration of HRD functions with overall corporate strategy. In other words there is a call for "strategic HRD aligning" wherein the HRD goals are in tune with the overall corporate strategy rather than concentrating on simple vertical integration. As the training maturity model suggested by Lee (1996) indicates strategic HRD is in fact a proactive approach that assigns an active role for the HRD in both formulation as well as implementation of corporate objectives. (Torraco and Swanson (1995)

Another critical factor that defines the success of strategic HRD in an organization is the degree of support extended by top-level management. Several studies have underlined the active participation of the top-level management as the key for the development of SHRD. Asides the support rendered in terms of their superior position, managers must also view the HRD programs as an opportunity to enhance their personal development. Since, invariably, the role of the HRD in an organization is delimited by the management it assumes all the more significance for the managers to be "key actors" in the HRD programs. (McCracken and Wallace, (2000)) Similarly, the process of 'environmental scanning' whereby businesses keep abreast with the external changes is considered as an exclusive HRD task in most organizations. This strict delineation of tasks excludes the HRD from the strategic planning process of the organization. Once environmental scanning becomes a collaborative responsibility of top management and the HRD department, the strategic HRD implications become more transparent and hence speedily addressed. This facilitates smooth integration of the HRD into the strategic core of the business. An excellent example of strategic HRD integration is that of Bosch Ltd., the leading automotive technologies company. (David Megginson, 48)

It is also essential to emphasize the vital role of the line managers both in terms of implementing as well as providing strategic input to the HRD. The observed trend of delegating the operational details to the line managers is only a one-way process and fairly shortcoming as it precludes them from any contribution to the HRD decision-making process. However, though such a shared responsibility is highly favored, it is not so easy to achieve at an organizational level due to the prevailing structural and cultural constraints. The implicit point is that it is not sufficient for the HRD to just recognize the existing cultural climate but rather it should be able to influence cultural changes that are conducive to strategic growth of the organization. With their evolving role as change consultants, HRD professionals are faced with the delicate task of accomplishing their task without overlapping the professional boundaries. Other difficulties include the resistance to new technology from non-technical managers who perceive the change as a threat to their position.

Key Issues

Having analyzed the characteristics, and the practical status of HRD in an organization using the survey, let us focus on the chief problems that hinder the development of SHRD. HRD should be able to induce a change in corporate culture, which is only possible if it is part of the strategic thinking body of the organization. (Alan Price, 38,1997) the most important and obvious issue is the lack of strategic partnerships with the consequent lack of strategic maturity of the HRD in organizations. Strategic partnerships between the senior management, line managers, staff and the HRD is thus at the very core of the problem. As discussed earlier mature organizations tend to have strong strategic bonds. Strong strategic partnerships between the different stakeholders within the organization can only be sustained if each of the partners understands the role of the others. Effective boundary management becomes an important issue for the HRD professional. Once these core issues are sorted out HRD could contribute as a proactive, strategic body of the organization. Evaluation of training programs (positive results) is suggested as a way of gaining the confidence of the senior management. Only when HRD closes the 'credibility gap' it will be accepted into the strategic fabric of the organization. (Dilworth and McClernon, 2000).

Acquisition and Mergers (Strategic Role of HRD)

Off late there have been an increasing number of mergers and acquisitions in the corporate world. But several studies point to the failure of majority of such mergers and acquisitions. One mainly identified factor is the exclusion of HRD from the pre-acquisition phase (due diligence). This tends to prove the strategic exclusion of HRD and its limited role in companies and the harsh consequences. Six main attributes have been identified with unsuccessful mergers. (Hitt et.al, 1998) it is also ascertained from an extensive case analysis that 66% of attributes that define unsuccessful mergers are a direct result of the absence of HRD intervention. The authors of the case study proposed four levels of HRD strategic involvement during the due diligence phase of the acquisition. HRD involvement during this pre-merger phase would be vital in assessing the HR policies such as employment and staffing procedures and policies. (Shields, 2000). Often obtaining this information from the target company presents a problem due to the lack of trust and credibility on the HRD. However, these can be overcome with communication tactics. (Gundling, 2003). The HRD team should be entrusted with the responsibility of determining the 'cultural fit' of the target organization. HRD again has an important role in the post merger integration. Thus, we see ample scope and need for HRD involvement in all the phases of a merger, which is sadly not the case as reflected by the majority of acquisition failures. (TAMMY L. MCINTYRE)

Conclusion

The changing organizational dynamics imply the need for a reassessment of the role of HRD in an organization. Strategic human resource development is a contemporary, proactive approach, which challenges the traditional reactive theories of HRD. Several studies have reported clear association between strategic HRM policies and improvements in organizational performance and consequently the competitive advantage. As Management theorists have shown there is an evolving strategic role for HRD in modern organizations. HR professionals are no longer viewed as trainers or supervisors of training programs but rather as change consultants who anticipate, innovate, and actuate changes that fit in with the strategic needs of the organization. Such a strategic role for the HRD, though immensely desired, is far from reality for the vast majority of organizations. The lack of support from top management, resistance from line managers, the weak link between the HRD and the HRM are all factors that undermine the flourishing of the SHRD in an organization. Unless businesses embrace a totally open organizational structure, with effective cooperation and with little resistance to change, Strategic HRD will remain a theoretical concept.