The Impact of Human Resources Management on Organizational Performance: Progress and Prospects

Introduction

Human resources decisions are likely to have an important and unique influence on organization performance according to Becker and Gerhart, authors of "the impact of human resources management on organizational performance: progress and prospects". Based on their research provided in this journal, our team has identified five key issues that both authors have identified. The top five issues, in order of importance, are:

1. Human Resources as a unique source of competitive advantage;

2. Best practices and management practices;

3. The downside to strategic fit;

4. Labour cost and

5. Economic environment.

We have reviewed each issue, simplified it and related it to day to day business environment. Our goal is to emphasize the significance and impact of these issues faced by HR professionals and the HR industry in context that undergraduates can comprehend.

Human Resources as a Unique Source of Competitive Advantage

Companies can develop a competitive advantage solely by creating value that is inimitable through their human resources structure. Common sources of competitive advantage, often used by companies are technology, natural resources etc., are easy to imitate by the competition, therefore, not sustainable. When human resources systems are in line with company's strategic goals, it forms a very complex social structure that is unique to the company. Human resources can then be seen as the strategic asset of the company. According to Becker and Gerhart, strategic assets are a combination of hard-to-trade, reproduce, scarce, specialized resources and capabilities that give a company competitive edge making any human resources system an "invisible asset".

A well implemented human resources structure is difficult to imitate because it is deeply embedded in an organization. It is the human capital of the company that give the company its value in the market. To imitate a system, as complex as an organization's human resources, it is important to understand its nature. However, it is difficult to understand and pin point exactly what occurs in a human resources practice and policies that generate value. Since researchers are yet close to understanding the exact nature of these interactions, it is assumed that a human resources system is difficult to imitate.

HR systems are made up of policies that are developed over time and potentially grow with the company so it cannot be simply purchased in the market. Although competitors understand how valuable a system is, they are not able to immediately copy and fully implement it.

As part of a company's strategic planning process, its management must determine its competitive position and advantage so as to create a notch in the market. The competitive advantage of a company is its ability to deliver the same or better quality of goods or service at a lower cost thereby generating more profit than its competitors (Belcourt & McBey, 2010).

The main purpose of an HR strategy is to capitalize on the unique goal of the company and add value through the effective use of human capital. The world wide quest for the "best CEO" and their extremely high pay for performance are both examples of what organizations' believe an effective use of human capital that can significantly impact its future.

Lastly, most companies create a set of competencies that enable them to strategically foster behaviours that make them unique. HR is a significant element of a firm's total expense, hence its ability to influence the outcome of the company.

Best Practices and Management Practices Becker and Gerhart identified that much research on the link between human resources and firm performance has looked at single human resources practices such as compensation and selection.

There is an assumption that the effects of different HR decisions adds up. This idea is not consistent with the resource-based view of firms that suggests that resources should be complementary and those individual policies and practices have a limited ability to generate competitive advantage in isolation. However in combination, they can enable a firm to realize its full competitive advantage.

It was argued that a "best practice" perspective should be the preferred approach; however researchers still have much to learn about what constitutes a high performance human resources strategy. The notion of best practices probably requires some clarification as well. This term is typically used in a way that connotes both the level of policy and the breadth of effect. At the level of policy, best practice brings to mind very specific forms of human resources practices such as performance appraisal or team incentive systems that might be benchmarked. It is assumed that with benchmarking, the effects of a best practice can apply generally and not be firm specific. It is believed that there may be some confusion regarding the level of analysis (policies and practices) and its overall effects.

Moreover, the authors have identified that there are varying opinions as to what constitutes a good strategy that results in high performance. While some studies show that a particular human resources system results in high performance, others argue that the same system results in low performance. The example given in the article is a perfect situation where those HR strategies that rely on internal promotions and provide access to employee grievance procedures was described as a high performance practice. While in other studies, these same practices has been identified as elements of more rigid HRM systems often associated with less productive unionized environments.

If there would be a best practice that can be used generally across firms it would be in the architecture of the system and this system was referred to as "management practices". For example, one architectural element of a high performance HR system might be that employee performance is valued and rewarded. It is this architectural characteristic that would be expected to have a general (best practice) effect on firm performance.

Individual practices must be aligned with one another and be consistent with the HR architecture if they are ultimately to have an effect on firm performance. Becker and Gerhart believe that to have a high potential for resource-based results, after best practices add value to the firm, firms may extract additional benefits by adding complexity to the program and integrating it with other firm