Strategic Human Resource

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© Oxford University Press, 2018. All rights reserved.

Strategic Human Resource Management, 2nd edition

Chapter 8: SHRM and

performance

Bailey, Mankin, Kelliher, and Garavan

Bailey et al: Strategic Human Resource Management 2e

Learning objectives

By the end of this session you will be able to:

• critically evaluate the claim that SHRM can impact on firm performance;
• explain the significance of the ‘black box’ between HRM and performance outcomes;
• be aware of the possible HR outcomes at the individual, unit, organizational, societal, and environmental levels;
• understand some of the theories that seek to explain why and how HRM impacts on performance;
• explain the relevance of ‘sustainable HRM’;
• appreciate how organizations may go about measuring the outcomes of HRM and be aware of the complexities and difficulties involved.

Bailey et al: Strategic Human Resource Management 2e

What research has revealed about performance

• A very large number of studies have suggested that SHRM can impact on organizational performance.
• However, a broad array of performance outcomes have been explored at the individual, unit, and organizational levels.
• It is therefore important to bear in mind, when reading analyses of the impact of HRM on performance, that performance may be conceptualized in different ways.

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• The CIPD concluded in 2001 that there is ‘no room for doubt’ that it is.
• Others have said the evidence is unclear; Guest (2011: 3) said ‘we are still unable to answer core questions about the relationship between HRM and performance’.
• Outcomes can be measured at different levels e.g. individual, unit, and organization

Is SHRM linked to performance?

Bailey et al: Strategic Human Resource Management 2e

• Increasing commitment-based HR practices leads to a 16.9% increase in sales from new products and services, and an 18.8% growth in sales in high-tech firms (Collins & Smith, 2006).
• There is a link between high-performance work systems (HPWSs) and firm performance in Japanese, Tunisian, and Jordanian companies (Takeuchi et al., 2007; Mitchell et al., 2013; Mansour et al., 2014).
• HPWSs have a stronger effect on firm performance than single practices, and this is particularly true in manufacturing compared with service firms (Combs et al., 2006).
• Recruitment and selection, training, and internal career opportunities impact positively on firm financial performance, as measured by return on assets and equity. However, there is no evidence to suggest that a bundle of practices impacts more strongly on performance than do individual practices (Darwish et al., 2013).
• High-involvement HR practices are associated with the ratio of market value to book value in 87 companies in Oman (Moideenkutty et al., 2011).

SHRM and organizational performance: Some research findings

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• Little consistency in measurement of HR practices.
• Hard to determine direction of causality – are firms successful because they implement HRM or are successful firms more able to implement HRM than others?
• Contextual issues rarely taken into account e.g. industry, national context, firm size.

Problems with evidence base

Bailey et al: Strategic Human Resource Management 2e

• Some studies have focused on performance at the work group or unit level; this is a more proximal outcome (e.g. Vermeeren, 2014)
• Recently, the main focus has been on individual level outcomes e.g.:
• HR practices that foster a positive attitude towards the organization also led to raised levels of discretionary effort and motivation, reduced intent to quit, and lower stress levels among 3,000 staff in 47 local authorities in England (Gould-Williams, 2007).
• HR management and commitment, intent to quit, and well-being were found to be linked in 2 studies, and these relationships are largely invariant across different job levels (Clinton & Guest, 2013).

SHRM and unit/individual performance

Bailey et al: Strategic Human Resource Management 2e

• Some research suggests a win-win relationship between outcomes beneficial for the individual and the employer (Van de Voorde et al., 2012) – the ‘mutual gains’ approach.
• However, some have asked whether outcomes important to the individual e.g. wellbeing will be sacrificed, the ‘competing outcomes’ perspective (Ehrnrooth & Bjorkman, 2012).
• Research has found that wellbeing e.g. happiness and relationship wellbeing are congruent with performance but health-related wellbeing is not (Van de Voorde et al., 2012).

SHRM and individual level outcomes

Bailey et al: Strategic Human Resource Management 2e

• The link between HRM and performance has been referred to as the ‘black box’ (Sanders et al., 2014).
• Theories previously considered:
• Resource based view (Chapter 7)
• Universalist
• Contingency
• Configurational (Chapter 6)

Theorizing the link

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• Ability–motivation–opportunity (AMO) theory is based on the view that implementing HRM practices and systems that enhance employees’ ability to perform (e.g. through training and development), motivation to perform (e.g. through employee engagement), and opportunity to perform (e.g. through job design) will lead to higher levels of individual performance.

Ability Motivation Opportunity theory (AMO)

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• Theory developed by Purcell et al.(2003).
• Research on HPWSs has used AMO as an explanatory framework.
• For example, Mitchell et al. (2013) used the AMO framework to explain how the components of an HPWSs are linked with performance, categorizing the various elements of the HR system as contributing to ability, motivation, or opportunity.
• Bello-Pintado (2015) found a hierarchy within AMO with motivation-enhancing practices emerging as the most important overall.

AMO theory cont.

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• Social exchange theory (SET) is based on ‘norms of reciprocity within social relationships. It is argued that employees are motivated within the employment relationship to demonstrate positive attitudes and behaviours when they perceive that their employer values them and their contribution’ (Alfes et al., 2013: 842).
• Research suggests that HR practices send ‘signals’ to employees about how committed the organization is to developing a positive long-term relationship with them, e.g. via HPWSs; when these exist, employees are more likely to reciprocate by investing in their work.

Social Exchange Theory (SET)

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• Simply having a set of HR practices doesn’t necessarily affect employee behaviours and attitudes.
• Employees have a deep-seated need to understand their environment and will make attributions about the HRM they experience; there is therefore often a gap between ‘intended’ and ‘experienced’ HRM.
• It is employees’ attributions that may give rise to performance outcomes (Nishii et al., 2008).

Attribution theory

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• Two types of gap between intended and experienced HRM:

• Implementation gap: between intended and implemented HRM.
• Interpretation gap: between implementation and perceptions.

• Piening et al. (2014) found that where there is a ‘strong’ HRM system (i.e. consistent, distinctive, consensus-based) then there is likely to be a link with performance.

Attribution theory cont.

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‘The reviews of research findings have consistently shown that, irrespective of business strategy and context, there is a strong association between the adoption of more ‘progressive’, ‘high performance’, or ‘high commitment’ HR practices and organizational outcomes. The challenge . . . lies in providing a convincing explanation of this association so that we are in a good position to offer evidence-based advice about how organizations should manage employees to achieve the greatest benefits.’

(Paauwe et al., 2013: 197-8)

Evaluating the evidence

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• How to define SHRM?
• The rhetoric-reality gap
• Specifying the outcomes
• Theoretical linkage
• Methodology
• Perspective

Issues in evaluating the evidence

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• When SHRM originally emerged as a field of study, a key focus was on the wider human and social contribution of HRM.
• Since then, the focus has shifted to performance.
• We are now seeing a return to considerations of HRM’s ‘green’ or ‘sustainable’ credentials and the viewpoints of different stakeholders.
• HR risks being marginalized if it does not demonstrate a greater understanding of its political and social environment (Thompson, 2011).

The future: Sustainable SHRM

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• taking an explicit moral stance about the desired short- and long-term outcomes of SHRM interventions;
• refusing to adopt HRM practices that would be damaging to employees’ well-being, such as work intensification, zero-hours employment contracts, or ambiguous job roles;
• focusing on fairness, participative structures, and collaborative approaches to managing people that enable the individual to have a say, create a climate of trust, and build on employee strengths;
• adopting a holistic approach to managing the workforce and not focusing on a core elite at the expense of others;
• an increased focus on the potential wider social outcomes of HRM in terms of the welfare and well-being of society, such as creating meaningful employment for underrepresented groups;

Sustainable HRM

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• an emphasis on longer-term investment in sustainable HRM interventions, such as employee development, rather than only considering short-term performance outcomes;
• considering the environmental impact of HRM activities and also how HRM interventions can support the organization’s wider environmental goals;
• awareness of the increasingly connected nature of organizations, and the need to engage in collaborative problem-solving and learning together with partners or others in the supply chain to develop solutions that take into account a range of stakeholders;
• ensuring that partners, suppliers, and others in the supply chain also adopt ethical and sustainable approaches to HRM.

(Schuler & Jackson, 2011  ; Taylor et al., 2012; Kramar, 2014; Marchington, 2015).

Sustainable HRM cont.

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Domains of HR measurement

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Mooney’s HR data collection mix

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The practicalities of measuring SHRM outcomes

• Marchington & Wilkinson (2012) show how service-level agreements (SLAs) are becoming an increasingly common approach to evaluating HR’s contribution.
  
• SLAs comprise a series of statements about the level of service that the HR function is expected to provide for the organization.

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CIPD (2016c) HR analytics

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Boudreau & Ramstad’s (2007)
LAMP model

• Logic: the chosen measurement system should focus on the factors that are logically most relevant to performance.
• Analytics: effective data analysis is important in order to interpret the data correctly.
• Measures: should be of high quality and focus on what matters.
• Process: measuring HR outcomes should be part of an overarching strategic change management process, and a key element of this is educating line managers to accept that HR measures are an important component of the change process.

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The HR Balanced Scorecard
(Kaplan & Norton, 1998)

• A methodology for linking strategic objectives with a range of performance outcomes from 4 perspectives (Kaplan & Norton, 1998):

• Customers
• Organizational learning and growth
• Internal business processes
• Financial performance

• The concern was to move away from simplistic performance evaluations based purely on financial outcomes, and instead to consider performance from a more holistic perspective in terms of their contribution to the overarching aims of the organization.

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Issues in HR measurement

• Seeking to quantify HR’s contribution places the emphasis on areas that can easily be measured, rather than what is necessarily most important.
• Service-level agreements can lead to an overemphasis on meeting the needs of other departments, and downplay longer-term HR strategic objectives.
• Relevant data may not be easy to obtain. Boudreau & Ramstad (2007) cite the example of turnover measures – the greatest value is knowing why people are leaving and where they are going, which are rarely measured.

Bailey et al: Strategic Human Resource Management 2e

Issues in HR measurement (cont.)

• The link between HR interventions and organizational performance is complex and multilayered; the collection of HR metrics risks oversimplifying the process and creating a misleading impression.
• Simply measuring outcomes does not lead to change or improvement.
• The relevance of different measures varies between industries and organizations. What is relevant in one context may be less so in another. Benchmarking may therefore not be as useful as managers believe.
• To be useful, HR measures need to focus on people outputs rather than HR processes.