The Correlation between Firm Performance and High-Performance Work Practices - Essay Example

?BARCLAYS & HSBC - IMPROVING ORGANISATIONAL PERFORMANCE of Introduction HSBC and Barclays are rated among the companies which have the largest revenues and assets in UK. HSBC services include; personal loans and mortgages, debit and credit cards and payment services. It has a total of 295,061 employees and total assets of $2,454,689,000,000. On the other hand, Barclays is an international company that offers financial services. The company operates in 50 countries and has employed a total of147, 500 employees. The company constitutes of two clusters. The first cluster entails Global Retail Banking while the other deals with investment and Corporate Banking and the Wealth Man. HSBC Company services are saturated in most parts of the Asian regions whereas Barclays has concentrated its services in Spain. Emerging companies are economic growth foundations in the contemporary business world. However, little is acknowledged about factors contributing to the failure and success of both developing and developed organisations. The purpose of the paper is to address the role played by High Performance Work practices in HSBC and Barclays banks. The research paper will clearly outline the correlation between firm performance and High Performance Work Practices and challenges experienced by both. Importance of High Performance Work Practices in HSBC and Barclays High Performance Work Practices are bundles or set of human resource management practices that corresponds to the selection, performance management, training, information sharing, and compensation. All these practices are designed to retrain, attract, and motivate organisation employees (Way 2002, Guthrie 2001). The practices are labelled highly performing because they are intended to enhance performance that is superior to employees. It is argued that, these practices if used appropriately can result in an organisation sustainable success through empowering and building organisation social and human capital. There exists positive correlation between various HPWP and various firm-level of outcomes (Guthrie 2005, MacDuffie, 1995). Financial performance among HSBC’s and Barclays highlights only one significant dimension of the Companies success. As such, it is vital for managers to understand the importance of HPWP in producing innovation at company’s level (Rogers& Wright 1998). It is hypothesized that companies employing HPWP achieves greater innovation levels than companies which ignore the relevance of HPWP. Company’s innovation can be broadly classified into three types; organizational, Process, and products (Zahra et al. 2000). Product innovation entails coming up with new products. Process constitutes the innovation and the development of new technologies by an organisation. Organisation innovation refers to designing of new administration and management programs. In retail section, Barclays bank intends to include ethics in marketing. It offers incentive to customers via its credit card. Entrepreneurship and company’s-level innovation is inflamed by practices carried out by human resource management. For Barclays and HSBC to remain innovative, they should strive to pay wages that are above market level. This is because, individuals must be compelled to invest and take risks in projects that are entrepreneurial (Hayton 2005). In addition, compensation that is incentive-based should be correlated to company innovativeness and entrepreneurial behaviours (Carlson et al 2006, Hostager, et al., 1998). On the contrary, it is argued that, adoption of a paying structure that is based on interior equity perceptions results in innovation higher levels (Hayton 2005). Hayton states that, HPWP are often associated with surroundings that promote organisational citizenship behaviours (OCBs). These behaviours are significant in promoting communication, sharing of knowledge and enhancing ideas that are innovative. According to Hayton (2005), the employment of team work, innovative-incentive plans, employment security, flexibility in Job assignment, and sharing of information by an organisation results in development and designing of new processes and products that outshines those of their competitors. Furthermore, employment of organic structure in an organization results in production of innovative services and products (Damanpour 1991). For continued growth and investment, both Barclays and HSBC are planning to expand their infrastructure and increase the number of employees. The banks need to employ individuals selectively. In addition to that, the employees need to be developed completely. Employees should also be rewarded in accordance to their contribution in the company. The outcome is higher innovation levels than the competitors who are not in possession of HPWP principles and elements. How the Adoption of High Performance Work Practices assists an organisation Theoretically, the establishment of a culture that is commitment-based through the adoption of HPWP by a company, should record minimal turn over. High Performance Work Practices (HPWP) results in voluntary turnovers that are low. For instance, companies that employ a formal approach while selecting employees always exhibit substantial level of fitness among employees in an organisation. This helps in reducing the selection of employees with expectation that are not in line with the goals and objectives of an organisation. The ultimate outcome is effective selection and improved retention of employees. Investing in employee development by an organisation helps in improving individual’s knowledge that is organisation specific hence decreasing their departure to other organisations. High Performance Work Practices moderates the link between corporate finance performance and corporate social responsibility. As a matter of fact, recent research performed by Human Resource Management in 2005 in United Kingdom observed that, High Performance Work Practices promotes human capital and helps in strengthening social capital of the organisation (Evans & David 2005). According to organisation perspective, social capital enhances the organisation flexibility whereby an organisation has the capability of transforming corporate social responsibility into financial outputs. For example, High Performance Work Practices are known to enhance reciprocity of employees’ norms as a way of social capital (Evans & David 2005). Social exchange theory highlights that, members of organisations such as Barclays and HBSC who hold powerful reciprocity norms often enjoy exchanges that are open ended with little concern on instant self interests. In addition, they form a relationship that is flexible with these organisations. High Performance Work Practices moderates the connection between social corporate responsibility and corporate finance performance via building trust that is of high quality in an organisation. Trust is founded on the idea that, parties in relationship will work in a collaborative manner and their behaviours are predictable and reliable. For instance, if work practices administered to the employees are predictable and reliable, they then develop a strong trust towards the organisation. In addition, their trust extends beyond obligations that are contractual and specified. Employees’ relationship that is built on trust with organisation allows corporate social responsibility to produce outcomes that are financial in nature. Despite of the exploitation of High Performance Working Practices, there exist various challenges as discussed below Challenges Elevated operational cost is one of the biggest challenges facing High Performance Working Practices in Barclays and HSBC banks. According to David (2010 p. 3), high enumeration cost is rated as one of the main justification for the increased operational cost in the two banks. In 2009/ 2010 financial year, Barclays bank incurred six percent rise in its operation cost. Barclays bank incurred an income ratio of 58.6 percent during the initial half of 2010. This was facilitated by investments in technology, businesses and increased charges which were brought about by previous year compensation deferment. In the same financial year, the operation cost in HSBC rose by 8.7 percent from the previous year. The high operational outlays have been a big challenge in the High Performance Working Practices among the two banks. The operational expenditure has negatively impacted on the management of Barclays and HSBC banks. As observed by David (2010, p.3), appropriate management was lacking among the two banks during the 2009 financial year. Inappropriate management led to the increase in the operation cost. Managers have the responsibility of ensuring the management is superb to facilitate High Performance Working practice David (2010, p. 3). Barclays and HSBC banks have suffered significantly from the effective tax. There were differences in the effective tax rate for the two banks by mid 2010. During this time, Barclays bank suffered the lowest effective tax rate of 26 percent. The HSBC was at the centre of the United Kingdom banks with an effective tax rate of 35%. The productivity, profitability, and performance of Barclays and HSBC banks suffered from the negative outcome of the effective tax rate. The inconsistency experienced in the tax rate is an immense challenge in the management of the two banks. The frequent variations in the tax rate have also affected the recruitment, training, and motivation of the employees. The effect is more apparent in HSBC bank as compared to Barclays bank. According to David (2010, P. 3), the tax rate bears the acclaim of reduced performance working practice in both banks. On the other hand, Barclays bank reported a challenge of communication and feedback in their operation. As observed by David (2010, P. 3) feedback is very significant in an organisation. In the case of HSBC the operational managers were reported to be less involved in the decision making process. Lack of proper communication within the banks led to reduce High Working Practice among the two banks during the 2009/2010 financial year. Proper communication mechanisms are therefore very important in addressing the communication problem which faced the two banks in 2009/2010 fiscal year. The enumeration practice was a profound challenge faced by Barclays and HSBC bank in maintaining and advancing the High Performance Working Practice. The impacts became extremely significant from the beginning of financial crises in the world economy. During the first half of 2010 financial year, Barclays bank was at affix on whether to trim down the number of employees and hike their salaries or increase the number of employees and reduce their salaries. During the same financial period, the HSBC bank was at a crossroad on whether to lower the percentage of bonuses paid in liquid form or to increases the same bonuses to the employees to boost their motivation. The two challenges encountered by the two banks in the first half of 2010 had a very outrageous consequence in the High Performance Working Practice. Adequate number of sound motivated and enumerated employees is very healthy in improving the productivity, performance, and management level in any organisation. Additionally, inconsistence in an organisation has been rated as on of the main hindrance in the High Performance Working Practice. During the 2009/2010 financial year, Barclays bank conducted several reshuffle in their management position. This challenged the performance of the managers in the new posts. In the same period, HSBC was faced with a problem of reward inconsistency. Outstanding performers were not rewarded during that period. According to David (2010, p. 4), consistency in the operation of an organisation is very crucial to enhance High Performance Working Practice. During the first half of 2010, geographical impact challenged the High Performance Working Practices among the two banks differently. As confirmed by David (2010, p 5), the geographical challenges have destructive impacts on an organisation performance culture. The Barclays bank which has concentrated its businesses in the Western Europe lowered its performance practices during the first half of 2010. This was as a result of financial crises in Europe in 2010. This was contrary to the HSBC bank which had invested a lot in Asia and Latin America. Out of its saturation in Western Europe, Barclays bank was vastly hit by the harm in Spain economic crises. This altered the Barclays bank performance culture during the 2010 performance year. On the other hand, the stable Asian financial system provided a stronger growing prospect to the HSBC bank. The bank (HSBC) expanded its working force to fit in Asian economic stipulation. The consistence growth and development of the HSBC bank which was facilitated by excellent economic geographical location necessitated the maintenance of its performance culture. The regulatory strain has a collective unenthusiastic impact on the High Performance Working Practice to both Barclays and HSBC banks. This has to do with the regulation contents and the cost connected with the regulations. The two banks were concerned and disturbed by the prospect guideline, structure, its impact on the economy, and their performance. The indefinite future policies have been reported to condense the loyalty of the two banks in skilling their employees thus diminishing the bank High Performance Working Practice due to their status in United Kingdom, the two banks are under pressure to loan to individual and other states investments. In the first half of 2010, the two banks encountered a drop in the net lending due to customer disbursed down balances. . Ways of improving the High Performance Working Practice There are several ways of improving the High Performance Working Practice in an organisation. Some of them are inward while other involves the concerned organisation. Adequate motivation of the employee through both tangible and intangible reward is very paramount and relevant in improving the High Performance Working Practice. Promotion based on merit and the individual output in an organisation is also very profound in enhancing improved performance in an organization. The organization and the employees have a role to play in enhancing High Performance Working Practice (Carlson et al 2006, Hostager, et al., 1998). . Proposal to Address the Challenges See (2004, p. 90) stated that, to address the regulation strait repercussions, bank officials and policy makers have to work collectively in policy making process. This can create an avenue for interaction and sharing of ideas, opinions, and concerns. Tangible interaction in policy making process reduces the policy resistance level. Interactions have the potential of developing well compromised policies which reduces the negative effect on the world economy and the High Performance Working Practices in the banking sector. Frequent regular crises management exercise is the paramount proposal in addressing the effect of economic crises in the banking sector. This will aid in developing the necessary co-ordinations and policies to deal with operational disruptions and fiscal shortcomings. During this management exercise, the involved stakeholders have the consent of conducting widespread market testing of business continuity in financial crises situation. Appropriate management and prediction of future crises will enhance preparedness among banking sectors hence reducing its impact in the management and in performance of banks. The geographical impact has a very significant impact on the management of international banks. Investment in different geographical areas is the most imperative solution in this problem. International bank should balance all regions in their investments. Culture and management barriers challenged the performance of both Barclays and HSBC banks. According to Evans & David (2005, p. 54) an organisation culture has a significant impact in the performance of an organisation. Low performance culture has a negative impact to the performance of an organisation. Unproductive cultures should therefore be countered to address the performance in an organisation. On the other hand, management have very profound impact to the performance of an organisation Reduction in the management hierarchy is very appropriate in reducing the operation cost in the banking sector. Proper employment of the available resources in the banking sector has proved to amplify High performance Working Practice. The saved resources can be used in enumerating more employees and motivating the employed workers. Limitations There are some restrictions in addressing and implementing of the proposed ideas. It is sometimes very hard for competitors to confine a meeting and arrive at a practical agreement. Banks plans their policies privately to outfit other in the market. Well established banks are likely to come up with ideologies and policies which will favour them in expense of the less established banks. Policy makers and legislatures are driven by their political ideologies and beliefs in designing policies and regulations. The inclusion of the bank officials in the policy making process can therefore attract corruption in policy making process. Although some crises are predictable through management crises exercise, it is sometimes very difficult to predict the outcome and duration of a financial crisis. Many international banks may lack the financial capability of investing in all parts of the world. It is very expensive and complicated to initiate and promote a new financial sector in the region dominated by another sector offering the same services. On the other hand, different countries have different policies and regulations which oversee foreign banks. The different regulations between countries can limit international bank from operating in some regions. Conclusion High Performance Working Practice in banking sector is very fundamental. The motivation of employees and appropriate management of the banking resources and assets is very crucial in the entire economy. There are some challenges which are exceedingly reflective in High Performance Working Practice among different banks. The challenges range from individual perceptions towards the management and performance in an organization to the entire geographical conditions. On the other hand, there are some realistic and helpful proposal to the problem touching the concert and management in the banking sector. Apposite coordination between all the involved players is the main solution to the predicament affecting banking sectors. Well designed and practical policies can also serve as a concrete solution in addressing the predicament in the banking sector. The success of an organisation depends on its employees. Human resource practices configuration results to higher firms performance level and becomes a company competitive advantage that is sustained. Similarly, businesses have diverted all their attention to employees’ roles in the production or in other words human resource department. This is done for the purposes of triggering organisational performance and development of competitive advantages that is sustainable. Human resource plays an essential role in improving the performance of a company. The competence is rooted in the culture and history of the firm. Furthermore, the culture of an organization is crucial in unleashing valuable leadership that supports in work coordination and employee control for purposes of achieving the desired outcomes in an organisation. Business organisation that are sustainable are equated to goals that encompasses environmental, social and economic Despite of the organisational sustainability importance, the exploitation of High Performance Work Practices can effectively combine an organizations environment or social endeavours with goals that are instrumental. To gain a sustained competitive advantage, HBSC and Barclays bank should study the principal elements of High Performance Work Practices and apply them effectively in their organisation. References Carlson, D S., Upton, N., & Seaman, S. (2006). The impact of human resource practices and compensation design on performance: An analysis of family-owned firms. Journal of Small Business Management, vol.44, no.4, pp.531–543. Damanpour, F. (1991). Organizational innovation: A metaanalysis of effects of determinants and moderators. Academy of Management Journal, vol.34, no.3, pp. 555–590. David S. (2010). UK Banks performance benchmarking survey. 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