Banking Service Industry: HRM's Power Index and Organizational Performance - Literature review Example

? Aspects of Power in Organisations: Establishing Equilibrium between HRM Power Index and Organizational Performance in Banking Service Industry 0 Introduction The concept of human resource management (HRM) has drastically changed over the course of time due to extent of globalization, change in organizational thinking, global economic change etc. According to Bae and Lawler (2000), Guthrie (2001) and Boxall and Macky (2007), human resource department has evolved from being a mere operational unit to become strategic driver for improving overall performance of organizations. Gratton and Truss (2003) and Gong et al (2009) argued that the HRM functions have certain power indexes such as people management, employee satisfaction, performance measurement etc which can drive the organizational performance. However, careful consideration of the research works of Vlachos (2008) and Weir (2002) reveals the fact that very few researchers ever succeeded in establishing clear route map for addressing the question “How HRM can direct performance in service driven organization?” It is evident from the above discussion that significant amount of argument exists among scholars regarding role of HRM in improving performance in service organization. Therefore, the study will try to dig deep on the topic “Establishing Equilibrium between HRM Power Index and Organizational Performance in Banking Service Industry” with the help of existing literature in order to understand whether HRM power indexes play significant role in improving service organizational performance or not? Banking sector has been selected as representative of service industry in this literature review. 2.0 Key Discussion 2.1 HRM Power Index and Organizational Performance Guthrie, Spell and Nyamori (2002), Huang (2001) and Gollan (2005) defined HRM power indexes as the different role performed by the human resource departments such as training and development, performance measurement, recruitment etc which can influence operational performance of organizations. Taking help of the research works of Bae and Lawler (2000) and Collins and Smith (2006) reveals the fact that high-involvement HRM practices accompanied by selective staffing, performance management, employee empowerment and extensive training might develop the employees to handle grater work responsibilities and increase sustainability in organizational environment. Although, these scholars identified four HRM power indexes such as performance management, employee empowerment, selective staffing and extensive training but these scholars never tried to highlight how HRM practices can improve organizational performance. In such context, Snape and Redman (2010) and Sun, Aryee and Law (2007) argued that organizational performance is a multidimensional term which can be effected by strategic initiatives and operational activities of companies. These scholars also argued that HRM might be used to increase employee productivity but organizational performance can not only be driven by employee productivity. In such context, Wall and Wood (2005) and Collins and Smith (2006) found it very difficult to link the integration of HRM, power indexes with the financial performance improvement in companies. Let’s take example of Company A which is performing well in terms of increase in financial revenue or capex building but it will be very difficult to separate the role of HRM in improving overall performance of the company because vertical integration of supply chain activities, business strategies, technology implementation and many others might have influence the performance. While conducting research on Arabian countries, Al-Hamadi, Budhwar and Shipton (2007) and Budhwar, Al-Yahmadi and Debrah (2002) found that there are organizations which not even consider HRM as the important vertical in improving performance of the organization. These scholars also pointed out that in case of service organization, employees frequently interact with customers and poorly managed employees might not be able to provide services to customers with required responsiveness. Hope-Hailey, Farndale and Truss (2005) also found that link between integration of HRM power indexes such as performance management, training & develop, recruitment and performance management with organizational performance improvement is most dependent on tacit understanding without having any proper way to prove the relationship. Although there is no doubt that human resource department play important role in case of product centric organization but focus of this paper is banking service organization hence the paper will not discuss about role of HRM power index integration in improving performance of product centric organizations. Delery and Shaw (2001) and De Mello, Wildermuth, and Pauken (2008) clearly mentioned that would be wrong to link HRM with organizational performance due to presence of large number of performance predictors such as technology adaptation, business strategy, product performance, shift in political environment etc. De Mello, Wildermuth, and Pauken (2008) suggested that the puzzled relationship between HRM practices and performance improvement of service organization can only be realized from employee engagement perspectives. Ulrich and Beatty (2001) and Van Vuuren, De Jong and Seydel (2008) also found that service organizations might not be able to provide services in responsive manner without getting support from engaged and motivated employee pool. So, what we are left with? Basically, we are left with an alternate path which tries to link HRM power indices integration with customer service improvement of service organizations through the help employee engagement. How service organizations like banks, food outlets, hospitality firms can improve their customer driven performance through employee engagement? Well, that is an interesting question and scholars like Tseng, Pai and Hung (2011) and Turban, et al. (2001) tried to answer the question from knowledge management and service profit chain perspectives. However, Delery and Shaw (2001) and Petrescu and Simmons (2008) tried to answer the above question in following manner; Capability of employees is an inimitable resource for service organizations and competitors find it difficult to replicate the similar kind of engagement level of employees of other companies (Pryce-Jones, 2010). For example, in case of banking sector, customers frequently contact with employees in the counter and customers might prefer to use the banking service in repeated fashion if they get responsive and cordial service from employees of the bank. Rao (2009) found that that it becomes easier to retain engaged employees during the time of recession and economic crisis and companies can even reduce the cost of operation by deploying engaged employees in different job responsibilities without hiring new workers. Considering research works of Boselie and Dietz (2003) and Delery and Shaw (2001) reveals the fact that HRM functions or better to say HRM power indices such as recruitment, training, empowerment and performance management can enhance customer driven performance in service organization either through casual pathway or strategic human resource pathway. 2.1.1 Casual Pathway Human resource department of service organizations should increase the engagement level of employees by selecting qualified candidates, providing them proper training, managing their performance and providing them power to make decisions during contingent situation. As mentioned above, engaged employees are expected to provide efficient service to customers and they would also be able to customize the service offerings in accordance with the requirement of customers (Delery and Shaw, 2001). The whole conjunction will work in favour of improving customer driven performance of the service firm. 2.1.2 Strategic Human Resource Pathway Boselie and Dietz (2003) found casual pathway as pretty much mechanical and non-representative in context to actual HRM functions. Consideration of the research works of Maslach, Schaufeli and Leiter (2001) and May, Gilson and Harter (2004) reveals the fact that HRM can influence the behavioural change among workers regarding their engagement level towards job responsibilities in the firm. In such context, human resource department should try to establish psychological contract with workers by providing them proper behavioural training. May, Gilson and Harter (2004) stressed on the fact that HRM professionals can design proper training or mentoring program that can influence commitment level of workers and simultaneously, committed and engaged workers of service organizations become able to provide better services to customers. In this way, integration of HRM power indices can influences customer driven performances of service organizations. It is evident from the research works of Storey (2002) and Marques (2006) that banking service is heavily dependent on responsiveness of staff while making customer interaction. Lack of engagement level might result lack of supportive behaviour from staff while providing service to customers. Morley et al. (2006) argued that it is responsibility of HRM division of the service organizations like banking, restaurants to provide proper training to employees so that they can provide not only responsive but also sensible service to customers. Average revenue per customers automatically increases with the increase of purchase frequency in banks and this can only be possible if these customers get responsive service from workers in the bank. Hence it can be assumed that integration of HRM power indices might influence customer driven performance of banks and financial institutions. . 3.0 Conclusion Beltran-Martin et al (2012) found that HRM might be useful in developing employee commitment and engagement level in service organization but there are very few evidences available which show direct relationship between performance improvement in service organization and role of HRM. However, Wood and de Menezes (2008) and Fabling and Grimes (2010) found positive correlation between influence of HRM power indexes on improvement of organizational performance. It is evident from this discussion that significant amount of confusion exist regarding relationship between HRM and performance management. Although, the study has tried to establish equilibrium between HRM power indices and performance of service organization (banking sector) through the involvement of strategic human resource management but further research works are needed in order to clear out confusions regarding the role of HRM functions in service organizations. Hence, future researchers are welcome to conduct research on the research problems depicted in the paper in order to fill the gap in the literature. Words Count: 1564 Reference List Al-Hamadi, A. B., Budhwar, P. S. and Shipton, H., 2007. Management of human resources in Oman. The International Journal of Human Resource Management, 18(1), pp. 100-13. Bae, J. and Lawler, J. J., 2000. Organizational and HRM strategies in Korea: Impact on firm performance in an emerging economy. Academy of Management Journal, 43, pp. 502-17. Beltran-Martin, I., Roca-Puig, V., Escrig-Tena, A. and Bou-Llusar, J. C., 2012. 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