Measurement of Impacts of SHRM in Organisations - Literature review Example

Name Department Professor December 11, 2012 The nature of business in the past decade has undergone fundamental changes. These changes have mandated incorporation of value-added contributions, new and more powerful, from organisations’ human resource people. The changes have been brought about by several factors, some of which are related to technological innovation; others to good information, transporting capital, social, political and regulatory environments. The businesses have, by and large, crossed border at ease and the competition that has ensued has resulted into greater competitiveness and demand among shareholders, consumers and human resource. The direct aftermath of this trend has been a mounting pressure on organisations to be more productive, agile, faster and quality-driven. In the service sector the thrust has shifted to deliverance of better service and yet be profitable. The focus, thus, has shifted to flawless utilisation of people working in these organisations at different levels, who form the cornerstones of either pre-empting or responding to all these demands. To gain a deeper insight in this direction, University of Michigan conducted first of its kind Human Resource Competency Study in 2002. By far, dubbed as one of the largest such study, it involved 27,000 human resource professionals drawn from 241 companies working in diverse segments and including 7,100 respondents. The companies that were roped into this study belonged to large, small and medium sizes of which 10 percent were from Europe, 12 percent from Asia and 36 percent from Latin America. This study gave clear indicators of the impacts human resource competency has on an organisation. Besides the four major domains that led to the progress of the organisations, strategic contribution was found to be centrally-aligned to the rest, which included business knowledge, personal credibility, human resource delivery and human resource technology. The results indicated that organisations that outshined others had human resource professionals working at the strategic level, main features of which included managing culture, execute strategic decisions, create connectivity that is market-driven, and facilitate change which is fast. Strategic human resource management is largely dependent on these four factors, and impact of the strategic contribution alone is around 43 percent of total human resource impact on an organisation's business performance. That means it is twice than that of any other competency domain (Brockbank & Ulrich , 2002). Over the last few years, given the edge high performing organisations have gained over low performing ones, the myth that SHRM was a mere rhetoric than a reality has been busted. As on date, it is often measured when strategic management processes are integrated in the human resource function of an organisation, or when managers are brought under the purview of several human resource practices. At the end, it is analysed how strategic human resource initiatives have impacted an organisation's financial performance. Three researchers from Monash University, Andersen, Cooper and Jiuhua Zhu (2005), conducted a survey among 66 firms based in Australia and publicly listed in the country, to assess the impact of SHRM on these organisations. Despite the fact that SHRM is supported by some empirical evidence (Wright, Gardner and Snell, 2001) and resource-based view (Wright, Dunford and Snell, 2001), Budhwar and Khatri (2001) argue that its contribution to organisational performance in a measurable way still needs to be ascertained. Buyens and De Vos (2001) have opined that when organisations consider human resource as an organisational asset which is dealt with strategically rather than administratively, reactively and prescriptively, it could be said that SHRM is in practice. This practice is mostly brought about by the integration of human resource with corporate management and strategies. In other words, a synergy is established between an organisation's strategic need and human resource management. Several researcher like Black and Boal (1994) and Teece, Pisano and Shuen (1997) have provided evidence which reveal that this integration results in enhanced congruence, competence and cost-effectiveness. Since results are encouraging, many scholars have argued in favour of the need to make human resource managers partners in strategic decision-making so that human resource goal can be aligned with corporate objectives, practices, and philosophies. This, opines Teo (2002), can be accomplished when an organisation's senior management team is inclusive of human resource manager memberships. The research that has taken place on measurable outcomes of the link between SHRM and organisational performance have mainly concentrated on intermediary performance indicators like commitment, absenteeism, innovation and customer satisfaction (Galang and Pillai, 2002). Richard and Johnson (2001) have, however, stressed the need to focus research on bottom-line indicators like profitability and return on equity. Andersen, Cooper and Jiuhua Zhu study (2005) used a 10-item, 5-point scale measurement tool for checking SHRM alignment with business strategies and objectives. The scale ranged from '1' (not at all) to '5' (to a great extent). Items were developed from the literature available on the subject (Budhwar 2000b; Teo 2002) and included questions on: i) do human resource practices aid in achieving business objectives, ii) use of human resource practices vis-à-vis business strategies, iii) involvement of human resource management in business decision-making, iv) formulation of human resource strategy on business strategy, v) involvement of human resource in accessibility of human resource information and coordination of the business, vi) alignment between human resource strategies and business, vii) senior human resource manager as a line manager's strategic partner, viii) involvement of human resource management in employee development programs, ix) role of human resource management in the making of work procedures, and x) human resource department as an organisation's mission statement's part. Organisation's financial performance was taken as a dependent variable when a multiple regression analysis was run on the data collected. This variable was regressed on to the variables of line management development, committee membership, and strategic human resource alignment. Z-score conversion was done on all variables prior to analysis so that a standardised regression model could be generated (Tabachnick and Fidell, 2011). The results indicated positive outcomes on SHRM-financial performance relationship. The study concluded that when human resource strategy was aligned through implementation and development of organisational strategies, it resulted in a positive predictor of the organisation's performance. Positive outcomes have also been reported by Nigam et al (2011) by studying the impact of SHRM on the performance of service sector firms in India. The researchers, apart from understanding the SHRM-service sector relationship in these firms, also attempted to see whether contingency, universalistic and configurational approaches, which form three main SHRM approaches, hold true in this particular setting. Two sets of questionnaires were used to collect data from 25 organisation. The first set of questionnaire focused on business strategy measures 9n=98) and the second set comprised questions on SHRM measures (n-750). Two-level regression analysis was carried out; one at industry and another at overall level. The results revealed a positive relationship between SHRM and organisational effectiveness. But the study came out negative on the universality theory as the researchers did not find its relevance to this industry in the country. In all, SHRM, as the study revealed, has a tremendous role to play in the service sector industry on account of the diversity and number of people involved in the same. Human resource was found to be more critical to this sector in comparison to any other sector. Katou and Budhwar (2006) and Dimba and K’Óbonyo (2009) realise that for enhanced private sector organisational performance, SHRM practices play an important role. But the research is parse in case of public sector organisations. To report on this gap, Ayanda and Sani (2010) conducted a study among 255 civil servants in the Niger state. These civil servants belonged to 30 ministries and agencies. Multiple and correlation regression analysis was done and it indicated that the SHRM practice in public sector was only sparsely in use. But wherever they were in use, a positive impact was found on the objectives set by these public sector organisations and the impact was uniformly divided on line management development, compensation, training and development, employee participation, and career planning system. Budhwar and Boyne (2004) have opined that a rational approach towards implementing SHRM is used by the private-sector firms in comparison to their public sector counterparts. Green (2006) has opined that organisations which integrate horizontally and align vertically human resource practices perform better and have satisfied and more committed human resource staff who, on account of this commitment, give the best performances individually. A study by Perry and Mesch (2006), which used logistic regression analysis, attempted to link SHRM performance measurements or outcomes for welfare reform. They used data from a North Carolina County survey among social service professional. In this case the results were not as encouraging as in the corporate world. Adeyeye (2009) analysed the subject empirically by studying the relationship between SHRM practices with respect to the size of the organisation. The idea was to see how organisational performance is dependent on both these factors. The results, however, did not reveal any major impact of the size on overall performance, and found that similar SHRM practices were followed by both. SHRM has also been studied in the Chinese context. Three researchers, Hang-Yue Ngo, Chung-Ming Lau and Sharon Folley (2008) examined human resource practices and SHRM to assess the outcome of these practices on employee relations and performance climate. This study went a little ahead in analysing how these relationships were moderated by firm ownership. Foreign-invested firm in China were seen a following SHRM more dedicatedly than state-owned enterprises (SOEs). The index was higher for privately-owned enterprises (POEs) too. Financial performance, stated the researchers, was positively affected by SHRM. Firm resources that are valuable, rare, non-substitutable and inimitable lead to competitive advantage which is sustainable, according to the resource-based view, which is considered as a founding pillar of SHRM. Law et al. (2003) have stated that for a firm's performance, it is important to strategise human resource, more so in joint ventures. Scholars like Fan and Bjorkman (2002) have expressed support for SHRM with a belief that they bear a positive impact on an organisation. They opined that human resource practices alone were not as powerful and impactful as strategic human resource practices as the latter formed an important predictor of performance. This thought has been seconded by Mitsuhashi, Park, Wright, and Chua (2000) who state that when organisations perform poorly, managers normally attribute failures to practices not having been implemented strategically. According to Zhu, Cooper, De Cieri, and Dowling (2005) this is one reason why managers have begun to realise the importance of strategic decision-making. This is exclusive of which type of an organisation is being strategised. Arguably, empirical and theoretical practices support SHRM as a positive predictor of an organisation's performance. Debating further on the Chinese context, Zhu et al.(2005) state that both foreign and local firms in the country have a clear understanding on how effective SHRM practices prove for overall performance and how the same offer a firm a competitive edge in a marketplace which is dynamically charged. More often than not SHRM has been discussed in terms of results that it yields with regard to operational and financial performance. It is only rarely being talked about in context of employee relations climate. In the recent past it has been felt that this aspect needs close scrutiny. An organisation may bank on a SHRM practice which is very good, but if implemented poorly, it is almost certain to boomerang. Creation of a social atmosphere through SHRM initiatives is as important as expecting an output which is financially and operationally viable and profitable. Bowen and Ostroff (2004) state that this social atmosphere goes a long way in creating a good employee feeling about the workplace and the organisation as a whole. Collins and Smith (2006) state that an effective SHRM, when implemented in the right earnest, gives rise to open communication, feeling of participation, trust-building relationships and an attitude for sharing. This leads to an overall perception among employees which is based on impeccable and shared values. Riordan, Vandenberg and Richardson (2005) term this very perception as "organisation's climate". This climate impacts the employee level positively and creates an employee-centered atmosphere, where both act as catalysts among the workforce to make value-added contribution to the organisation and its performance. Since the concept of SHRM has garnered attention only in the recent past, attempts are being made to theorise a model for it. Delery & Shaw (2001) state that an integrated theory of SHRM which is strong and can be used for wider application of the same is yet to come up. So far SHRM is being used only as per its definition of being a "planned pattern of workforce management, deployment of activities at a functional level with the sole purpose of achieving better organisational performance and meeting organisational objectives and goals. To date, research has focused primarily on establishing links between organisational effectiveness and human resource initiatives developed and implemented in a strategic manner. Millmore etal (2007) are of the opinion that governing social systems must determine the development of strategy. Since a theoretical framework is absent, there has been a much criticism on the subject as has been the debate in academic circles. Researchers have time and again expressed the need for a theoretical framework since they believe in its absence, not enough insight can be gained on how SHRM adds value to an organisation and can enhance its effectiveness. In this direction, it has also been suggested that a multiple stakeholder perspective is a must for the development of a theoretical framework. At the same time, it has been stated that for any such framework to come into existence, it is first mandatory to conceptualise the concept of organisational effectiveness accurately. Scholars like Murphy, Trailer and Hill (1996) have even gone to the extent of stating that organisational effectiveness as a term is redundant and must be discontinued. Previously, Meyer and Gupta (1994) have remarked that there is a multidimensional aspect to organisational effectiveness. That makes it difficult to establish correct SHRM linkages as the organisational effectiveness is discussed on the very premise of narrow or single perspective. Batt (2002) links it to human resource outcomes as he argues that its outcomes mediate relationship between multidimensional organisational effectiveness and SHRM. This means that how organisational effectiveness is measured in the first place has a direct relevance to how SHRM will impact the organisation. Since strategic human resource management is a goal-directed process, Norton (2001) suggests that it is important to evaluate the extent to which the process meets objectives and goals for which the process was implemented or initiated. Several theoretical foundations are being discussed in order to reach a consensual perspective that could help development of a theoretical framework. These include resource-based view (which is gradually getting widely linked to SHRM), the multiple stakeholder perspective, the concept of horizontal and vertical linkage, systematic agreement theory, structural alignment theory, cultural alignment, performance alignment, environmental alignment, strategic reference points theory, fit and consensus. A strong theoretical framework will be indicative of the fact that the impact of SHRM on organisation will be measured accurately through theoretical tools which will enable the development of valid measures to assess the impact. Such tools will account for different levels of analysis under varying organisational circumstances, thus providing a foundation for accurately evaluating and explicating linkages between SHRM, organisatinal strategies and organisational effectiveness. References Adeyeye, J. O. (2009). An Evaluation of HRM Practices in Nigerian Universities: The Impact of Size. The Social Sciences 4 (5): 494 – 498. 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