Before looking at how HRM affects performance it’s important to note what organisational performance is. Organizational Performance" is a broad construct which captures what agencies do, produce, and accomplish for the various constituencies with which they interact. There are six dimensions in which for measuring organisational performance these are Productivity
Resource acquisition and domain maintenance
Organisations will always strive to achieve the best structure and performance possible. In order to maximise the effectiveness of this a good use of HRM will be required. The way HRM is best used to improve organisational performance is by implementing a good strategy. The strategy in relation to HRM can be split into two terms strategy as a plan and strategy as a system of management.
Strategy as a plan is when an organisation uses there strategy as a way of interacting with the competitive environment. It’s derived from the term “military strategy” and what it means is that an organisation will use this as their corporate strategy and will expect all employees to adhere to it strictly. This type of strategy is usually constructed by those at the highest levels of an organisation i.e. the senior executives’ and have a significant impact on the way the organisation is run. As mentioned earlier the second type of strategy is strategy as a system of management this strategy unlike strategy as a plan is less formal and regulated. The main difference between the two strategies is the first strategy focuses on using it strategy as a set way of running the organisation where as this one offers guidelines and offers principles in the way the company should be run. An organisation who adopts a strong strategic plan will benefit from having a corporate direction e.g. they will have an idea where they want to be in the long term(e.g. 15-20 years )having a good strategy is the foundation for both deciding how to run HRM as well as how the actual organisation should be run. The different types of strategy all fall into the strategic fit. This is supported by Hogue who when examining the relationship between HRM and Performance in the UK, hotel industry, Hogue (1999) found that “The relationship between HRM and performance is dependent upon the business strategy the hotel is pursuing: that hotels pursuing an HRM approach coupled with a Quality focus within their business strategy perform best”
In order to fully understand how the link between HRM and performance is you have to understand the key concepts of HR theory for these strategies to be effective (Wood 1999) stated there are four key points organisation should take on board before trying to adopt a particular HR strategy these are. Firstly different human resource practices should be coherent and complement each other. Secondly, there should be a fit between the coherent sets of human resource practices and other systems within the organisation. Thirdly, the human resource systems should be in line with the business or competitive...