The Effects of Human Resources Management Practices on the Company's Performance - Essay Example

HRM PRACTICES Introduction HRM practices refer to a system that develops, attracts, retains and motivates employees to achieve efficient implementation of the policies of the organisation and the survival of the business and the members. HRM practices are also a range of internally dependable policies that aim at ensuring that the human capital of an organisation contributes optimally to the achievement of the goals of the organisation. In other words, HRM practices consist of a set of actions that the organisation employs to achieve effective management of human resources by enabling the development of the key competencies required by the organisation. Through these practices, the organisation aims at producing multifaceted social relationships as well as knowledge for sustaining the competitive advantage of the organisation. This research will explore the effects of HRM practices on the performance of the organisation. The effects of HRM practices The resource-based theory suggests that the HRM practices influence the performance of an organisation based on the human capital that the organisation holds. The organisation’s human capital refers to the people who work in the organisation and are therefore the ones who determine the success of the organisation. In a condition where all the other resources such as technology, finance and information are available, the only factor that determines the performance of the organisation in the market is the level of contribution of its employees. Therefore, any organisation with the intention of performing well in the current globalised and dynamic market must have the capability of acquiring and developing the skills of its employees. The organisation must ensure that its workers have the skills or capabilities that are higher than the capabilities or skills of the workers in the other rivalry organisations. This therefore means that organisations whose employees lack the skills and capabilities required in the modern business operations are most likely going to record poor performance. A particular resource can only be a competitive advantage if it is unique, scarce, inimitable, non-substitutable and valuable. This implies that HRM practices of any particular organisation can result in a competitive strategy by establishing a pool of human capital that is unique and valuable (Ling & Nasurdin 2011). According to this resource-based theory, good performance comes because of high performance management practices. This means that the organisation has to develop a set of interconnected HRM methods that altogether will improve the performance of the organisation. A high commitment management practice enables the development of joint commitment in the organisation. This will base on high degree of trust that finally influences high performance for the organisation. In addition, a high involvement management practice entails the treatment of workers as good partners within the organisation. This comes through good communication as well as involvement of employees in the management that finally, will motivate them and contribute to high performance. An organisation that fails to implement these practices in a desirable manner is less likely going to perform well (Peteraf 1993). The integration theory to HRM practices mostly deals with the connection between the formulation of HRM practices and the performance of the organisation. The theory puts more emphasis on the relationship between HRM policies or practices and the strategies of the organisation out of the HRM environment. This leads to the identification of three forms of integration that the organisation must consider if it aims at producing good effects on its level of performance. They include vertical integration, horizontal integration and combined form of integration (Ling & Nasurdin 2010). In horizontal integration, the organisation has to focus on establishing a set of interrelated and jointly reinforcing practices of HRM. This will enable the organisation to produce desirable results under all prevailing conditions in the market. This idea relies on the belief that it is always possible for an HRM team to identify best practices that fit together and reinforce each other to produce the best results. The performance of the organisation will therefore depend on its ability to identify these HRM practices and facilitate the process of integration through high level of flexibility. Synergy is a very important emphasis regarding horizontal integration. Synergy can only come if the joint performance of the given set of HRM practices is larger than the overall sum of performance of individuals. The universalistic model describes the idea that best HRM practices produce good results in all the conditions that the organisation comes across in its daily operations. The model suggests that the organisation has to establish a linear relationship between the HRM practices and its performance. The organisation must also adopt the best HRM practices that can find good application in all the conditions prevailing and finally, the organisation must understand that internal fit is the most important concept. Here, among the best HRM practices include job security, selective recruitment, high payments, incentive payments, employee ownership, sharing information, employee participation in decision making, employee empowerment, redesigning jobs to suit employee capabilities, training and employee skill development, symbolic egalitarianism, cross training as well as promotion and wage compensation. Thus, numerous combinations can result to good performance for the organisation expressed by the doctrine of Equifinality (Ling & Nasurdin 2010). With vertical integration, the organisation should seek to establish a set of HRM practices that align with business strategies out of the HRM environment of the business. This is because performance can only improve if there is a good match between the HRM practices and the business strategies of the organisation. When the organisation is pursuing any innovation strategy, there should be good emphasis on the HRM practices that encourage cooperation, interdependence behaviour and encourage risk taking and exchange of ideas. For the most appropriate strategy, great emphasis will be looking for means of improving quality by encouraging a high reliable practice from people who understand the objectives of the organisation. For a strategy that aims at minimizing the cost of operations, HRM practices must seek to optimize efficiency via managerial supervision and good control of the activities of employees. External fitting, best fitting and strategic fitting are all alternative expressions for vertical fitting that make up the contingency model. According to the contingency model, the organisation must establish a non-linear relationship between its HRM practices and the performance of the business. The effect of the HRM practices on the performance of the business is very different depending on the difference in the levels of the important variable of the contingency. Finally, according to this model, external match should be the core concept of the organization (Ling & Nasurdin 2010). With combined integration, the organisation must design its policy by combining both external and internal fit. This strategy utilizes a large group of HRM practices. The idea here is that, depending on the context of the organisation, various combinations of HRM practices will assist in achieving the highest level of performance. Therefore, an organisation with a large group of interconnected HRM practices, which match and reinforce one another, will achieve the highest degree of performance. However, this is only possible if there is a high level of matching between the HRM practices and the business strategies of the organisation. This method of combination, the configurational model, requires that the organisation have to establish a non-linear relationship between the configuration of the HRM practices and the configuration of business performance. Furthermore, a set of exceptional configurations of HRM practices must produce optimal business performance in the name of Equifinality. The configurations should also be ideal and the key concepts are internal and external match (Katou 2008). The AMO model suggests that high performance comes if the organisation acquires workers that have the important knowledge and skills. It proposes that the workers must have the necessary motivation with the capability of arranging their skills for doing the work. According to this model, high performance comes from a combination of three variables, ability, motivation and opportunity. The model explains the absence of specific HRM practices that influence the performance of an organisation. This means that the overall process relies on the HRM architecture, which incorporates the policies placed to establish and maintain human capital and influencing the behaviour of employees. Therefore, according to the concept of HRM architecture, a set of HRM practice domains exist. The determination of these domains depends largely on the context of the organisation, which includes the industry, country and the culture. The fundamental HRM practices needed to make the AMO model relevant to the organisation include recruitment and selection, career opportunities, training and development that all connect to ability. The other practices include rewards, benefits, which all connect to motivation. Finally, we have incentive, involvement, work-life balancing, team working, autonomy and job challenge, which all connect to opportunity (Purcell & Kinnie 2007). Good implementation of the AMO approach will enable the employees to respond by developing high commitment in serving the organisation, high motivation as well as job satisfaction, which all constitutes the attitudinal results. These good attitudes will make employees to start demonstrating a set of desirable behavioural results. Discretionary conduct, which entails taking the most appropriate option in the manner of performing a particular task, such as care, speed, style and innovation, and the behaviour of citizenship about the organisation will be at the centre of the employee relationship. Therefore, the behaviour reflects to the performance of the organisation. A team of employees with high commitment, motivation and satisfaction is most likely going to engage into discretionary conduct that will help the organisation to achieve high performance. This means that AMO strategies is the means of helping an organisation to build the attitudes and feelings of commitment, satisfaction and motivation in the hearts of employees that in turn reflect to discretionary conduct (Luna-Arocas & Camps 2007). Nevertheless, the connection between HRM practices and attitudinal results depends on the conduct of the top management of the organisation. This is because, the application of almost all the policies depend on the level of commitment of these managers. The manner that they implement the policies whether in a consistent or inconsistent manner, correctly or wrongly, will dictate the outcome on the performance of the organisation. Organisations that wish to achieve positive results will thus implement the policies in a correct and consistent manner. Moderation is the term that describes this process of external influence in the implementation of these policies. The results of the implementation of AMO policies may take the form of operational, like effectiveness if the organisation manages to reach its set targets, and efficiency, if the organisation manages to use the lowest amount of resources to achieve its goals. The outcome may also be in terms of finance such as the return on investment, return on equity and return on the capital employed. Lastly, encountering reverse causality may be from attitudes of employees to performance that indicates that the achievement of the organisation will help to cultivate good attitudes to the employees (Katou 2009). This is because the employees feel more proud to inform other people about whom they work for and will want to remain in the organisation throughout their lives. This explanation tells why some organisations are capable of retaining their high skilled and experienced employees and others cannot. The performance of the organisation will depend on its ability to develop and retain its skilled labour to encourage invention, innovation and efficiency in the performance of its operations. This can be the reason of failure and success for a business organisation. The learning process in an organisation aims at improving the available knowledge to the organisation to magnify the value of the rational assets, like capital innovation through the acquisition and application process. If an organisation successfully, shows competence in the management of knowledge, then there are high chances of achieving desirable outcomes. The management of knowledge entails a set of activities that assist an organisation to acquire knowledge both within the organisation and outside the organisation. It is the process through which organisation deploys an inclusive system that improves the growth of the knowledge of the organisation. In other words, knowledge management refers to the functions, which cover the process of creating knowledge, managing the way information flows in the organisation as well as the use of the knowledge in the most efficient and effective manner to achieve long term benefits for the organisation. Therefore, the effectiveness of knowledge management is a HRM practice that focuses on the expansion and use of knowledge to support good performance for the organisation. The level of invention and innovation in an organisation depends largely on the ability of the organisation to manage the growth of the knowledge of the organisation. Those organisations that manage their knowledge in an effective manner will achieve high degree of innovation. In the modern globalised market where competition is very stiff, the performance of the organisation greatly depends on the ability to carry out innovation (Alavi & Leidner 2001). The psychological contract model deals with the relationship between the organisation and its employees. Psychological contract refers to a set of believes induced by the organisation, concerning the terms of exchange between the employee and the organization (Anderson & Schalk 1998). These contracts are naturally informal and therefore unwritten, and they depend on the active interaction between the organisation and the employee. These contracts, establish the level of expectation by both the organisation and the employee to the character of the exchange between the organisation and the employee. One type of the contracts is the transactional contracts that involve special and beliefs related to monetary issues usually, established on short-term basis. A good example may include wage rates that are highly competitive and payments based on the level of performance. The second type of the psychological contracts is the rational contracts that deal with long term relationships. They incorporate both monetary and non-monetary rewards such as loyalty, job security, development of opportunity, trust and commitment. One of the key functions of the HRM practice in an organisation is to build a good psychological contract that will cause greater motivation to the employees, satisfaction, commitment as well as the attitudinal results. Psychological contracts constitute a set of beliefs that originate from the HRM practices or policies. According to the psychological model, HRM practices influence the performance of the organisation because of the fulfillment of the psychological contracts. The HRM practices that an organisation is operating determine the nature of the psychological contract. The first experience between the organisation and an employee pass the official terms of employment to the employee and communicates the beliefs of the organisation about the future of the employment. This means that an organisation that stresses on training as well as development, may build an expectation among its employees that they are going to receive permanent jobs. The elements of the reward of the employee can also assist in constructing terms of psychological contract by building the belief in the values perceived by the employees. The employment of good HRM practices will thus help in creating a positive environment in the organisation that will in turn influence the extent of fulfillment of the promises made by both the organisation and employee. Therefore, the HRM practices shape the status of the psychological contract by influencing the daily conduct of employees in the organisation. Generally, the main function of the HRM practices is to construct good psychological contracts that will help to improve the performance of the organisation. An organisation implementing effective HRM practices is capable of producing good psychological contracts, generating good attitudinal outcomes, which will finally improve the performance of the organization (Turnley & Feldman 1999). Conclusion There is a very good relationship between HRM practices and the performance of the organisation. The HRM practices of an organisation should align with the business strategies of the organisation. The performance of the organisation depends on the outcome of the HRM practices such as attitudes, skills as well as the behaviour. Therefore, the emphasis of the establishment of HRM practices should aim at improving the HRM outcomes. Participation, compensation, involvement, incentives, training, communication, promotion and performance evaluation constitutes good HRM practices. The HRM practices of an organisation should focus on establishing positive psychological contracts to help improve the performance of the organisation. The HRM practices should focus on expanding and using the knowledge of the organisation with the aim of enhancing invention and innovation that will finally improve the overall performance of the organisation. Effective implementation of the AMO approach will help the organisation to build positive attitudes and the feelings of motivation, satisfaction and commitment that in turn will greatly contribute to the performance of the organisation. The overall implementation of best HRM practices depends on the attitude and commitment of the top management of the organisation. References Alavi, M & Leidner, DE 2001, ‘Review: Knowledge management and knowledge management systems: Conceptual foundations and research issues’, MIS Quarterly, vol. 25, no. 1, pp. 107-136. Anderson, N & Schalk, R 1998, ‘The psychological contract in retrospect and prospect’, Journal of organizational behavior, vol. 19, special issue, pp. 637-647. Katou, A 2008, ‘Measuring the impact of HRM on organizational performance’, Journal of Industrial Engineering and Management, vol. 1, no. 2, pp. 119-142. Katou, A 2009, ‘The impact of human resource development on organisational performance: Test of a causal model’, Journal of Behavioral & Applied Management, vol. 10, no. 3, pp. 335-356. 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