Critically explore the link between HRM and business performance.
This essay will seek to explore the link between Human resource management and business performance. To be successful in this, a number of resources will be used. To get a sound basis, definitions of HRM and performance will first be made. Once definitions have been made, the essay can then explore the link. High performance work practices (HPWP) will be the main theory examined in this essay and others will be used to be able to provide a critical view. The models will include the AMO model also the best fit and best practice view will also be considered. A range of references will also be used to get the views from a range of studies these include Guest, Sels at el and Huselid. It is important to examine the link between HRM and business performance because more and more organisations are seeking out ways to gain competitive advantages over their competitors and one way of achieving this is to link HRM to performance.
To critically explore the link between HRM and performance we first need to look at the concept of HRM. There is not one constant definition for HRM and those that exist encompass similar undertones but may have different approaches. Armstrong & Baron (2002) p.3 define HRM as “a strategic and coherent approach to the management of organisation’s most valued assets - the people working there who individually and collectively contribute to the achievement of its objectives”. Boxall & Purcell (2003) p.1 simply define HRM as “the most popular term in the English-speaking world referring to the activities of management in the employment relationship”.
In a HRM context there is no single definition that constitutes to explaining what performance actually means, Huselid concentrated on financial performances while MacDuffie measures productivity and quality. Without a general agreement on the definition of performance it makes the comparisons of any theories difficult. HRM does have impact on an organisations performance, in Patterson, West, Lawthom & Nickell’s (1997) study they found “Human resource management practices explained 19 per cent of the variation in profitability and 18 per cent of the variation in productivity” (Armstrong & Baron (2002) p.112) which clearly show a strong link between HRM practices and performance.
The reason why an increasing number of organisations are linking performance and HRM is because is can be rewarding for both the employee and the organisation “Employers are continually searching for more effective ways to manage labour to gain maximum organisational performance, while workers are keen to increase the benefits from employment, both in material terms and in opportunities for more interesting and stimulating work patterns.” (Marchington & Zagelmeyer (2005) p.3) Much of the research presented in this essay supports the view that there is definite link between HRM and performance, especially when looking at the practices the HR department implement, for example when analysing recruitment there is an importance on recruiting the right people in the right way to get the best people and minimise costs, which then contributes to a positive outcome on business performance “HRM is now often seen as the major factor differentiating between successful and unsuccessful organisations, more important than technology or finance in achieving competitive advantage” (Marchington & Wilkinson (2005) p.3) Increasingly more organisations are using HRM to give them that competitive advantage they are often aiming for. Linking HRM to performance can attract a better workforce as the stronger performing organisations are likely to be more sought after by perspective employees.
High performance work practices are a set of practices that can improve business performance regardless of the organisation, industry or strategy which lead it to being a universal practice, there is not one agreed...
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