The aims of this chapter are to describe how SHRM makes an impact on organizational performance and to look at what actions can be taken to achieve that impact, bearing in mind the view expressed by Delery (1998) that firms gain a competitive advantage from the human resources that they attract and retain rather than from their HR practices per se. As Guest (1997: argued: ‘The distinctive feature of HRM is its assumption that improved performance is achieved through the people in the organization’. If, therefore, appropriate HR policies and processes are introduced, it may also be assumed that HRM will improve firm performance. To back up these assumptions, three questions need to be answered: (1) what is performance? (2) what impact does HRM make on performance? and (3) how does HRM make that impact?
It is first necessary to understand what is meant by performance in order to establish appropriate measures for assessing the impact of HRM. What impact HRM makes is good to know, if only to demonstrate to dubious chief executives and line managers that HRM is a good thing. A considerable amount of research has been conducted recently on the impact of HRM, which is discussed in the second section of this chapter. Ulrich (1997a) commented that managers and HR professionals need to be able to explain how and why HR practices lead to their outcomes. So it is also necessary to understand as far as possible how that impact is made in order to justify, develop and implement effective HR policies and practices, and this is dealt with in the third section. Finally, in the light of the research, consideration is given to how strategic HRM can make a contribution to improving business performance.