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The Impact Of Hrm On Organisational Performance

3635 words - 15 pages

Essay Title: ‘Assess the state of the evidence in favour of HRM’s impact on organisational performance. Do the supporters of HRM’s strategic contribution have enough of a case?’

Word Count: 3,105


The evidence in favor of HRM’s impact on organizational performance is growing, however some doubt has cast on these studies. Thus, this essay suggests that the evidence of HRM-performance linkage is weak because theoretical and methodological issues remain among most of these studies. So, this essay will mainly analyze theories concerning on HRM and firm performance relationships and methodological problems in empirical studies. As there are flaws in both theories and the ...view middle of the document...

For instance, Guest (1987, cited in Paauwe, 2009) presented the achievement of HRM outcomes, like commitment, flexibility and quality, could impact on organisational outcomes, such as job performance, low turnover, low absence and high cost-effectiveness. Huselid(1995) demonstrated in his ground-breaking paper that HRM was expected to have contribution to firm performance. Since this paper was published, the studies concerning the HRM-Performance relationship expanded rapidly. While, theoretical and methodological issues remain in these studies (Paauwe, 2009). Guest (1997) points out, in order to get a deeper understanding of the relationship between HRM and performance, we need a theory about HRM, a theory about performance and a theory about how they are linked. When it comes to methodological issues, Wright, Gardner, Mognihan and Allen(2005) report that the deficiency of a sufficient and widely accepted methodology to demonstrate the linkage between HRM and performance makes the evidence much weaker.

Thus, this essay will argue that HRM is weakly related to the organisational performance through the existing available evidence. Namely, the evidence in favor of HRM’s impact on organisational performance should be treated with caution because there are theoretical and methodological weaknesses in the evidence. In order to demonstrate this, initially this essay will review some previous studies regarding the HRM-performance relationships. These studies indicate a need of theories and the weaknesses of methodologies ( the two factors will be analyzed respectively in the next two sections). After that, theories concerning the HRM-Performance linkages will be presented, but there are flaws in these theories. Finally, the methodological issue within some empirical studies will be discussed.

2. Evidence of previous studies

Most studies conducted before 1997 suggesting positive links between HRM and organisational performance. In the middle 1980s, both Fombrun er al. and Beer et al. published books postulating HRM-performance links, which were the two dominant classics (Paauwe, 2009). According to Fombrun et al.(1984, cited in Hiltrrop, 1996), when HRM strategies, which are selection, performance, appraisal, rewards and development, fit both external environment of the overall strategies of business and internal human resource practices, HRM will become more effective and the achievement of ‘fit’ could speed up the implementation of certain HRM strategy to business and then result in high organisational performance, which has been called a contingency approach to HRM. But Wright and McMahan (1992, cited in Hiltrrop, 1996) deem critically that it is the culture of the firm rather than the HRM contributes to the effective strategical implementation. In other words, it is the value of the organization gives rise to the high organizational performance. Based on the theory of Fombrun et al.(1984), Beer et al.(1984) describe HRM policy with a...

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