A rapidly changing economic environment, characterized by such phenomena as the globalization, and deregulation of markets, changing customer and investor demands, and ever increasing product market competition, has become the norm for most organization. To compete, they must continually improve their performance by reducing costs; innovating products and processes; improving quality, productivity, and speed to market; and more importantly by improving their individual performance within the organization. In order to do this, a set of distinctive human resource strategies, defined as internally consistent bundles of human resource practices (Dyer & Reeves, 1995), is clearly essential. Sparrow and Marchington (1998) suggested that HR practices are the most advanced, the most sophisticated, and the most efficient basis for organizing and for obtaining high performance from employees since it seeks to strategically integrate the interests of an organization and its employees. In addition, a number of studies have also indicated that there is a positive relationship between effective HR strategies and organizational performance. Specifically, it is suggested that HR practices can improve organizational and operational performance when matched with quality manufacturing strategies (Stone, 2002). Nevertheless, despite the positive relationship found between HR practices and firm performance, there are a number of issues and questions surrounding them. One problem in relating HRM and performance is the lack of theoretical background; resulting in both terms remain ambiguous concepts. Other questions arise in relation with the link between HR strategies and performance are the inconsistent findings in regards to what constitutes a high performance HR strategy (Becker & Gerhart, 1996; Cooke, 2001) and the problems with HRM and performance measurements (Guest et al., 2003). The aim of this essay is to outline and explain the issues in developing human resource strategies that improve organizational performance. Specifically, the essay shall begin with presenting the issue of theoretical background of the concept of HRM and organizational performance. Subsequently, it shall discuss the issue about diversified strategies used to improve performance, and the problems in measuring HRM and performance.
HRM and Organizational Performance: The Lack of Theoretical Background Guest (1997) pointed out that to improve our understanding of the impact of HRM on performance; we need a theory about HRM, a theory about performance, and a theory about how they are linked. Unfortunately, there has been a great deal of debates amongst leading researchers and practitioners about the concept and contributions of HRM practice in managing employees in overall organizational objectives (Loosemore, Dainty & Lingard, 2003; Analoui, 1998; Sparrow & Marchington, 1998). McCarthy and Stone (1986) argued that the concept of HRM is ambiguous and that its contribution to organizational performance remains unclear and is not well understood. In addition, Sparrow and Marchington (1998) pointed out that rather than adding value to the business through its strategic integration with managerial objectives, HRM can remain a disappointingly mechanistic function. Similarly, there is no universal theory about performance (Guest, 1997). It was proposed that the meaning of performance involves two dimensions; the types of criteria and the weight of each. Organizations have different interpretations of performance according to the sector of their industries. Service providers, for example, might consider customer satisfaction as their top performance indicator, while manufacturers might view inventory level as an important criterion to measure their performance level. In addition, some organizations put financial results on top of their performance indicator list and employee’s job satisfaction at the bottom, but others may view this in the opposite...
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