THE IMPACT OF HUMAN RESOURCE MANAGEMENT ON ORGANIZATIONAL PERFORMANCE: PROGRESS AND PROSPECTS BRIAN BECKER State University of New York at Buffalo BARRY GERHART Vanderbilt University We describe why human resource management (HRM) decisions are likely to have an important and unique influence on organizational performance. Our hope is that this research forum will help advance research on the link between HRM and organizational performance. We identify key unresolved questions in need of future study and make several suggestions intended to help researchers studying these questions build a more cumulative body of knowledge that will have key implications for both theory and practice.
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 organizations. To compete, they must continually improve their performance by reducing costs, innovating products and processes, and improving quality, productivity, and speed to market. With this Special Research Forum on Human Resource Management and Organizational Performance, we hope to contribute to a better understanding of the role of human resource decisions in creating and sustaining organizational performance and competitive advantage. The conceptual and empirical work relevant to this question has progressed far enough to suggest that the role of human resources can be crucial (Arthur, 1994; Cutcher-Gershenfeld, 1991; Huselid, 1995; Huselid & Becker, 1996; Gerhart & Milkovich, 1990; Ichniowski, Shaw, & Prennushi, 1994; MacDuffie, 1995). However, given the importance and complexities of the issue, this body of work is relatively small, and most of the key questions are sorely in need of further attention. We hope that the publication of this special forum will encourage and reinforce interest in this area, as well as
The authors contributed equally and are listed in alphabetical order. We thank Lee Dyer, Mark Huselid, Susan Jackson, Charles Trevor, and Patrick Wright for comments on an earlier version of this article. 779
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help researchers in their decisions regarding what to study and how to study it. We also hope that it will demonstrate to senior human resources (HR) and line managers that their HR systems represent a largely untapped opportunity to improve firm performance. How do human resource decisions influence organizational performance? In the simplest terms, they must either improve efficiency or contrihute to revenue growth. Human resources, hoth as labor and as a business function, has traditionally been viewed as a cost to he minimized and a potential source of efficiency gains. Very seldom have HR decisions been considered a source of value creation, or what Hamel and Prahalad (1994) termed "numerator management." Lahor costs continue to he the single largest operating cost in many organizations (Saratoga Institute, 1994), and reductions in employment continue to he a major aspect of strategies to restructure operations and reduce these costs (e.g., Uchitelle & Kleinfield, 1996). Do these decisions create value, or just reduce costs? Empirically, the challenge is to distinguish hetween staffing reductions that are purely costcutting measures and restructurings that require fewer employees hut create value hecause the new structures are more appropriate for the firms' particular strategies. The positive stock market reactions to employment reductions reported in Davidson, Worrell, and Fox (this issue) are consistent with hoth interpretations. The new interest in human resources as a strategic lever that can have economically significant effects on a firm's hottom line, however, aims to shift the focus more toward value creation. This new perspective, addressed hy...