Human Resources Management Influence on Financial and Social Performance of Business - Literature review Example

Running Head: Human Resources Management and how it influences the financial and social performance of a business organization Student’s name Institution Course Professor Date Human resource management involves the general practices and policies that govern the various parties at the work place. Human resource management has been a subject of debate all over the world on its ability to influence the financial and social performance of a business organization. The issue of the adoption of effective human resource management should be the main objective of many organizations given the fact that there has been considerable evidence to suggest a positive relationship between human resource management and organizational performance. Despite the high evidence on this link, it is worthwhile noting that there are some studies, which contradict this view. Human resource management comprises policies and practices like concerning staffing, out sizing, outsourcing, designing the employment system, leadership, organization, learning and staff development, performance management, rewarding employees i.e. using the performance based pay system among other roles of the HRM department. Human resource generally coordinates the total personnel activities of the business. In carrying out this they adopt several management and leadership styles. The human resources practices are argued to influence the financial and the social performance of the business. According to Cullinane and Dundon, 2006) social performance of the organization generally deals with the job satisfaction of the employees of the organization in carrying out their duties. On the other hand according to McDuffie, 1995; Youndt, Snell, Dean, & Lepak, 1996) the financial performance of the business involves mainly the current and the long-term net worth of the business. Human resource management directly influences the performance of the business. With effective and efficient Human Resource Management in place, the performance of the business is likely to increase more than when there is poor one in place. Various studies carried out by different scholars clearly show the existing link between HRM the performance of the business. Various scholars have carried out research concerning the financial profitability, social performance and their link to the existing HRM. Some of the studies carried out in this area include the following: Past scholars, such as Noe, Hollenbeck, Gerhart and Wright (2000) in their extensive research contended that human resource management (HRM) is known to be a central business or organization concern. They agreed that HRM shapes the general behavior, attitudes and the performance of the organization workers. In their findings, they recognized human resource practices as important tools for the organization performance. Hom and Griffeth, (1995) come up with an analogy that if employees of an organization are not committed to the organization, they will result to profitability reduction, poor quality production and service delivery, lost business profitable opportunities and high increase in the administrative costs used in the running of the organization. Ramsey, Scholario and Harley (2000) also conducted a research on the link between human resource and productivity and found that they in fact positively correlated. They concluded that various companies’ performance improves with the introduction of effective and efficient human resource system. The impact of human resource management in the organization performance both in increasing the financial and social performance has been analyzed depending on the practices influence on the various aspects sectors of the organization. They practices like incentives and salary awards, employee training, performance appraisal and technology use. Incentives use as a practice of management is one means of improving the organization performance. Organizations usually give incentives in form of increase in salaries after achieving certain performance, job promotions after good performance, awarding of bonuses among other motivating things after achieving good performance by an employee. Incentives motivate employees hence making them more hard working to achieve certain targets in order to get rewards. Various theoretical studies on motivation show that rewards improve performance of the organization. The expectation theory of Victor Vroom is one of such theories. This theory asserts that employees are motivated by the expectation of the rewards which results from the efforts they put at the work place. If a worker feels that greater efforts will translate directly to higher performance and he/she values higher performance because of the expected rewards like promotions, pay increases, etc. his/her level of expectancy will be high and the ultimate reward associated with the performance will be the driving force of the motivation to the employees. This theory thus shows the necessity of incentives to motivate employees towards performance improvement. Reinforcement theories also support the need of offering incentives to good performance. This is because a behavior rewarded tends to be repeated and that which is not rewarded tends to be discontinued. Different researchers and scholars have linked the role of incentives in the organization and the general profitability of the firm. They mainly relay on the agency theory that advocates for the risk-neutral principals to depend on their agents to maximize their profits and returns. Armstrong (2001) in his study “The role incentives towards improving organization performance.” has linked the role played by incentive in improving performance. Armstrong shows the role played by incentives in achieving the previously set targets and goals of the organization. He argues that incentives motivate people/workers towards being more productive to achieve high level of firm performance. Jim, Ian and Will (2004) concurred with Armstrong findings that incentives improves the performance of the organization. They recommend that incentives should be incorporated to the organization strategies as a technique of achieving higher productivity in accordance with achieving the general goals of the organization. Other researchers like Prasnikar, Ferligoj, Cirman, & Valentincic (1999) found that the role of incentives have expanded to include motivating the management towards entering into risky but very profitable business ventures that improve on the productivity of the business. Incentive thus from this research shows that they improve the performance of the business. Management in improving the performance of their organization should therefore use incentives. They usually put in place effective and efficient incentives systems in the organization in order to realize the intended purpose of them rather than the incentives creating some dissatisfaction to part of the employees that may eventually see the organization social and financial performance deteriorating. The human resource management use of the incentives practice has seen the performance of the organizations that use them gaining more in terms of profitability and the general social performance of their workers than those that do not use this system. This is thus on area of human resource management practice which shows the advantage of it in improving the performance. Another area of great importance of human resource management in improving both the financial and social performance of the organization is the employee training and development practice. Training of employees is a short-term process through which aptitudes, skills and capabilities for the non-managerial employees are improved by systematic and original procedures to enable them to be more productive. Managerial development on the other hand refers to the training given to the management personnel in the organization to enable them carry out their duties effectively and efficiently. Training and the development of personnel in organization is very crucial towards the achievement of profitability of the organization due to the wide range of benefits it offers to both the employees and the organization at large. It has advantages like minimizing production cost, minimizing production time, improving on workers retention, and satisfying employees in their jobs, enhancing portfolio of skills, meeting the employee’s social benefits, improving the organization image among other many more advantages. Past researchers have found many benefits on the impact of very efficient training on the productivity of both the employees at the personal level and at the organization at large. Dearden, Lorraine, Reed and Van Reenen (2006) carried out various trainings on the impacts of various trainings on the functionality of various employees and the improvement of the productivity of the organizations involved. They studied the performance of the organizations before and after certain kinds of training were offered to its workers. Their findings clearly showed that the productivity of the organizations involved improved after the training offered. Lynch and Black researched on the generality of training to the organizational performance. Their intensive research revealed that off-the-job training has positive influence on the organizational performance. Compton, Nankervis and McCarthy (1999) were of the opinion that effective training would not only equip employee with most of the required knowledge and skills required in performance of duties but will also help the organization in achieving its overall goals by improving the firms or organizations productivity and the general employee satisfactions. Past researchers also like Drummond (2000) also revealed training provides adequate skills to an individual to perform better in a given task and subsequently contribute to the firm performance. Training as shown by the various researchers highly contributes towards the improvement of the financial profitability of an organization. Organizations that implement well designed form of training and human resource development usually earn more profits because of the improvement in their productivities. The workers also becomes satisfactory in their jobs because they fell most of their portfolio needs are satisfied. This as a human resource management practice shows the importance of the sector towards improving the performance of the organization. Performance appraisal is another important area of human resource management practices. Performance appraisal is the process of defining the expectations for employee’s performance, measuring, evaluating and recording employee performance relative to those expectations and giving them a feedback. Appraisals generally are carried to improve the performance of the workers. Use of appraisals has seen many companies improve their performance. According to Mullins (2000) comprehensive appraisals systems forms the yardstick for the future career advancement and importantly improve the performance of the organization. Mullins studied its role in various companies and came up with the wide importance of the appraisals towards improving performance. Lecky (1999) studies its roles and comes out with the following conclusions: it is defines and evaluate current performance, it improves performance and requires supportive incentives. The findings of the researchers clearly show the advantages of the performance appraisals. As a human resource practice, it is a good instrument for the various managers of the organizations to implement its use for performance improvement. Performance-based pay is another crucial human resource practice that improves the performance of the organization. This is a variable compensation scheme practice of management of workers. It involves paying workers salaries depending on their output that is depending on their productivity. Workers output individually or collectively as a team is measured and then compensated depending on their output. This practice is very important in improving workers productivity given the fact that by having high performance they earn more. Dock and Fortsin JK (2001) compares performance of companies that use performance based pay system and those that does not use it. They came out with the findings that clearly showed that those companies which uses this kind of pay structure usually perform well financially compared to the rest. This style is usually motivating and gives the workers a drive to work extra hard given the fruits in terms of bonuses and increased salary or promotion awarded. From these, examples, the role of HRM in improving social and financial performance of an organization can be clearly seen. However, the other hand various studies have been carried out to show that certain human resource management styles and practices may not necessarily improve social and financial performance of an organization. Some even suggest that there exist no relationship between the organization performance and its performance. Dave and Wayne (2005) in their study “Performance appraisal and performance of organizations.” argued that performance appraisal is the instrument where an individual is retaliated by his or her assessment because of his personal dissatisfaction and therefore affects future performance of the organization. They argued that by undertaking such kind of HRM practice intended by the managers to improve the performance of the organization may eventually lead to the opposite. This is because of the poor attitude of the workers towards it. Drucker (1999) in his study on training and organizational profitability argues that training and development of workers is very costly to the organization. He states that organizations usually use many funds in these trainings of workers and is very costly in the long run than the resulting profits. He sees the training of workers as a bad and unprofitable HRM practice. However, many studies have not been carried out concerning the influence of human resource practices on improving the social performance of an organization. Conclusion Human resource management has become one of the key departments in ensuring the success of the business. This is because of its direct impact on business financial and social performance of the business unit. HRM departments in businesses are the main areas in them that nearly control every activity of the unit directly or indirectly. There is therefore the need of each business unit to develop efficient and effective human resource systems that can implement good management practices and styles necessary for the successes of the business venture. Reference Boselie, P Dietz, G., & Boon, C. (2005). Commonalities and contradictions in research on Human Resource Management and Performance. Human Resource Management Journal Becker, B., & Gerhart, B. (1996). The impact of Human Resource Management on Organizational Performance: Progress and Prospects. Academy of Management Journal Guest, D.E. 2001. Human resource management: when research confronts theory. International Journal of Human Resource Management, 12 (7): 1092-1106. Guest, D. E. (1997). Human Resource Management and Performance: A Review and Research Agenda. International Journal of Human Resource Management, 8(3), 263- 276. Huselid, M. A. (1995). The impact of Human Resource Management Practices on Turnover, Productivity and Corporate Financial Performance. Academy of Management Journal, 38(3), 635-672. Noe, R. A. (1996). Is career management related to employee development and performance? Journal of Organizational Behavior, 17(2), 119-133. Paauwe, J. 2009. HRM and Performance: Achievement, methodological issues and prospects. Journal of Management Studies, 46(1): 129-142. Purcell, J. 1993. The challenge of human resource management for industrial relations research and practice. International Journal of Human Resource Management, 4(3):511-527. Read More