How strategic HRM makes an impact

An overall assessment of how SHRM impacts on performance was made by Becker and Huselid (2006) as follows:

Source review How SHRM impacts on performance – Becker and Huselid (2006: 899)

SHRM focuses on organizational performance rather than individual performance… It also emphasizes the role of HR management systems as solutions to business problems (including positive and negative complementarities) rather than individual HR management practices in isolation. But strategic means more than a systems focus or even financial performance. Strategy is about building sustainable competitive advantage that in turn creates above-average financial performance. The simplest depiction of the SHRM model is a relationship between a firm’s HR architecture and firm performance. The HR architecture is composed of the systems, practices, competencies, and employee performance behaviours that reflect the development and management of the firm’s strategic human capital. Above-average firm performance associated with the HR architecture reflects the quasi rents associated with that strategic resource.

This was the subject of research by Rogg et al (2001), who suggested that HRM affects performance by first influencing climate, which then determines performance. They also argued that the direct links between HRM practices and performance are relatively weak because it is not HRM practices (including reward) themselves that affect performance, but rather the extent to which they lead to a favourable climate.

David Guest (1997: 268) stated that: ‘The assumption is that “appropriate” HRM practices tap the motivation and commitment of employees’. He explained how expectancy theory might help to explain the HR/performance link as follows.

Source review How expectancy theory might explain the HR/performance link – Guest (1997: 268)

The expectancy theory of motivation provides one possible basis for developing a more coherent rationale about the link between HRM practices and performance. Although expectancy theory is concerned primarily with motivation, it is also a theory about the link between motivation and performance. Specifically, it proposes that high performance, at the individual level, depends on high motivation plus possession of the necessary skills and abilities and an appropriate role and understanding of that role. It is a short step to specify the HRM practices that encourage high skills and abilities, for example careful selection and high investment in training; high motivation, for example employee involvement and possibly performance-related pay; and an appropriate role structure and role perception, for example job design and extensive communication and feedback.

The conclusion reached by Purcell et al (2003) was that HR practice feeds in as an ‘ingredient’ in the workplace and, through various mechanisms, feeds out through the other side as improved performance. They noted that: ‘There is clear evidence of a link between positive attitudes to HR policies and practices, levels of satisfaction, motivation and commitment and operational performance’ (ibid: 72).

Any theory about the impact of HRM on organizational performance is based on three propositions: (1) that HR practices can enable the organization to attract and retain the skilled and engaged people it needs and make a direct impact on employee characteristics such as engagement, discretionary behaviour and cooperation; (2) that if employees have these characteristics it is probable that organizational performance in terms of productivity, quality and levels of customer satisfaction will improve; and (3) if such aspects of organizational performance improve, the business performance measured by sales, profits, market share and market value will also improve. However,

Reversed causality

according to these propositions, HRM does not make a direct impact and, as pointed out by Paauwe and Richardson (1997), the relationship is further complicated by the possibility of reversed causality and the contingency variables arising from the context in which the organization operates. A model of the impact of HRM that takes these considerations into account, based on a model produced by Paauwe (2004), is shown in Figure 5.1.