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1
THE EFFECTS OF STRATEGIC HUMAN RESOURCE
MANAGEMENT ON ORGANIZATIONAL SUCCESS
SUBMITTED BY:
OYELEYE EMMANUEL FUNMI
MATRIC NO: 07/07/006884
SUBMITTED TO:
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF SOCIAL AND MANAGEMENT SCIENCES
OLABISI ONABANJO UNIVERSITY
RESEARCH SUPERVISOR
DR. OBASAN.
2
CHAPTER 1
1.0 INTRODUCTION
The word organization implies that there is a holistic system, members of this system are
in some way committed or obligated to it, and that the system is arranged according to
some kind of designated design or structure (April Younglove 2006). The organizations
usually have resources at their disposal which they deploy to realizing their goals and
objectives. These resources are: Capital, Land, Labor (Human) and Technology. Humans
are an organization's greatest assets; humans and the potential they possess drive an
organization (Christine Jahn 2007). Today's organizations are continuously changing.
Organizational change impacts not only the business but also its employees. In order to
maximize organizational effectiveness, human potential—individuals' capabilities, time,
and talents—must be managed.
Human resource management therefore can be said to be
the strategic and coherent approach to the management of an organization's most valued
assets - the people working there who individually and collectively contribute to the
achievement of the objectives of the business. The terms "human resource management"
and "human resources" (HR) have largely replaced the term "personnel management" as
a description of the processes involved in managing people in organizations. In simple
words, HRM means employing people, developing their capacities, utilizing, maintaining
and compensating their services in tune with the job and organizational requirement.
Strategic human resource management however defined by John Bratton (2001) is the
process of linking the human resource function of an organization with the strategic
objectives of the organization in order to improve performance. Human Resource
3
Alignment as Strategic Human Resource Management is also called (U.S. Office of
Personnel Management; Office of Merit Systems Oversight and Effectiveness 1999)
means integrating decisions about people with decisions about the results an organization
is trying to obtain. By integrating human resources management (HRM) into the
organization planning process, emphasizing human resources (HR) activities that support
broad organization mission, goals, and building a strong relationship between HR and
management, agencies are able to ensure that the management of human resources
contributes to mission accomplishment and that managers are held accountable for their
HRM decisions.
Since the success of an organization is hinged on achievement of set goals and objectives
with the instrumentality of manpower, it then means that organizations should pay more
attention to Strategic Human Resource Management (SHRM). This study is aimed at
determining whether Nigerian firms have embraced and if they have what is the effect or
impact of SHRM in achieving organizational success.
1.1 STATEMENT OF THE PROBLEM
Nigerian firms are not globally competitive in the face of current trend and dynamic
nature of global business environment. Many of these firms are still struggling to perform
locally. This has resulted in some of them not being able to remain in business. This
failure is largely due to the inability of both public and private firms to recognize the
potentials of their human resource. Hence they are missing out on the benefits derivable
from aligning those human resources at their disposal in a way that they can achieve
organization’s set goals.
4
As a result of their inability to achieve these increasingly challenging set goals, they fall
short on the competitiveness that they require both to retain their competent human
resources as well as their ability to remain in business. This situation if not addressed
could undermine the competitiveness of Nigerian firms and in deed the achievement of
desired national goals and objectives in form of Vision 20:20:20:20 and the Millennium
Development Goals.
This study is therefore out to determine whether Nigerian firms practice Strategic Human
Resource Management and if they do to what extent has that contributed to the success of
those organizations.
1.2 OBJECTIVES OF THE STUDY
General Objective
The study intends to determine how Strategic Human Resource Management contributes
to organizational success in Nigerian firms.
Specific Objectives
• To determine if there is relationship between strategic HRM and performance in
Nigerian firms.
• To determine whether SHRM contributes to organizational success and to what
extent.
• To determine whether Nigerian firms are practicing SHRM or not.
1.3 RESEARCH QUESTIONS
• Is there any relationship between Strategic Human Resource Management and
Organizational success in Nigerian firms?
• Do Nigerian firms practice SHRM differently?
5
• Does Strategic HRM have any significant effect on organizational performance?
• Does SHRM give some organizations an edge over others that do not practice it?
1.4 JUSTIFICATION
This study has become very important in the face of the dynamic nature of today’s
business environment. Every organization aspires to be a major player in their industry
not only at the local or national environment but also globally. Nigerian firms therefore
need to embrace Strategic Human Resource Management to be able to meet the
increasing challenge of maintaining viable organizations that can meet the expectation of
stakeholders and enable them to keep up with the pace and competition of the global
business environment.
1.5 HYPOTHESIS
1. Ho= There is no significant relationship between SHRM and organizational
performance.
2. Ho= Strategic Human Resources has no significant effect on organizational
performance.
1.6 SCOPE OF STUDY
As defined above, this research focuses on the Effects of Strategic Human Resource
Management on Organizational Success of a chosen group of Nigerian
Telecommunication companies, Banks and Hospitals. Since the objectives set for this
research is to articulate and examine the role that strategic human resource management
play in creating organizational success, practical implications for Nigerian firms that
6
consider human resources management as a strategic partner are to be studied. However,
the number of Nigerian firms at this time that were considered for selection was not large.
Hence, the focus of the research was concentrated on the Nigerian telecommunications
companies (firms Airtel, Globacom, MTN and Visafone), Banks (GTBank, Zenith, UBA,
FCMB and Intercontinental) and Hospitals (University College Hospital, Ibadan and
State Hospital, Ijebu Ode). The emperical data that are used in this research should not be
confused with the theoretical focus of the research. The purpose of the data is to make it
possible to test hypotheses of how strategic human resources management can result in
organizational success. The results of the tests are then to be generalized from this rather
specific sample of firms to the entire population of organizational and institutional
companies/firms that incorporate Human Resources Departments as a strategic partner in
their organizational map. The data for this study is intended to be collected between
August and October, 2011.
7
CHAPTER 2
LITERATURE REVIEW
2.0 Introduction
The forces of globalization have changed the way work is done. Some of the principal
changes have been the emphasis on competitiveness, a more mobile and diverse work-
force and growth in part-time and flexible work. Globalization is often seen as a new
stage in world development (Sparrow et al 2004),which is characterized by intensified
competition and continuing technological innovation, which have emphasized the
importance of product quality and customer care which in turn has increased the
emphasis on people management (Hucysnki et al2002). To meet some of the challenges
posed by intense competition, organization’s structure have been altered inform of
downsizing, delayering, decentralizing and are less hierarchical in nature. These changes
have subsequently lead to many developments in HRM, as employers have to cope with
the challenges posed by a competitive global economic environment.(Redman et al
2001), organizations are increasingly turning to the unique contribution provided to them
by their human resources as a source of competitive advantage (Wright et al in Morley et
al 2004).
Organizations and institutions are increasingly realizing the importance of human
competitiveness as essential to organizational survival and economic progress. There is
also a growing belief that if organizations have to survive and thrive in a global economy,
they require world-class human resource (HR) competencies and the processes for
managing them (Khandekar et al 2005) and this is in line with the Resource Base View
(RBV) perspective of Strategic HRM, which states that employee knowledge, skills,
8
talents and know-how are the central source of organizational performance, human
resources are more likely to produce competitive advantage because they often are truly
rare and can be more difficult for competitors to imitate (Jackson et al 2004) and that the
effective management of human resources is critical to obtaining organizational success.
The basic premise on which strategic human resource management is based is that human
resources are strategic valued assets and a source of competitive advantage (Khanderkar
et al 2005). Competitive advantage are those abilities, capacities, resources and decisions
that undermine an organization’s capacity to survive and maintain its position.
Management of people is increasingly being considered as one of the key links to
generating a competitive advantage.
2.1 Competitive Advantage
When two or more firms compete within the same market, one firm possesses a
competitive advantage over its rivals when it earns (or has the potential to earn) a
persistently higher rate of profit (Grant, 2002). It is argued that this is a too narrow
definition, because competitive advantage is also about a growing market share, a better
image rating, a better credit rating etc. (Wheelen & Hunger, 1998). Nonetheless, all these
standards must lead to higher profits in the long run. To put it simply, competitive
advantage is the ability to outperform rivals. There are many ways to gain competitive
advantage, e.g. responsiveness to change processes, predicting consumer’s prospective
wants, economies of scale, economies of scope, possessing a patent and last, but not least:
a sound HRM. HRM can help a firm obtaining competitive advantage by lowering costs
and by increasing sources of product and service differentiation. Achieving competitive
advantage by human resources requires that these activities are managed from a strategic
9
perspective (Lengnick-Hall & Lengnick-Hall, 1988), so that HRM and strategy are
closely related.
Competitive advantage leads to organizational effectiveness. (Lengnick in Khanderker et
al 2005).Among a firm’s intangible resources ‘Human Resources’ with their tacit
knowledge, skills and talents are more likely to produce competitive advantage, as these
constitute the core competencies of the organization, which will enable an organization to
capitalize on opportunities in the market place and avoid threats to its desired position
(Jackson et al in Khanderkar et al 2005). Researchers like (Wright et al in Morley et al
2004) have argued that HRM capability is a source of competitive advantage, as it is
embedded in the collective knowledge of the firm members (inimitable) which is
developed over a period of time(rare) and valuable as the firm’s routines for managing
people can direct employees talent and behavior to meet objectives and create
value.(Handy et al 1990) Attracting and retaining individuals with skills related to the
core competencies of the organization are key H.R activities directly relevant to building
organizational capability. In the same vein, organizations are increasingly relying on
‘HRC’ Human Resource Capabilities’ to cope with the challenges posed by globalization
and rapid change.
H.R. capabilities are the routines embedded in the tacit and implicit knowledge of the
members of an organization functioning to acquire, develop, nurture, and re-deploy
human resources through HRM practices in a dynamic competitive environment.(Ulrich
et al 1990) HRM practices includes, HR functions like staffing, performance appraisals,
training and development, rewards and career planning. ‘HRC’ enhances the firm’s
competitive position by creating superior human capital skills, experience and knowledge
10
that contributes to a firm’s economic value and this substantiates the (RBV) perspective
of Strategic HRM as the basis for organization’s competitive advantage and a contributor
towards organizational success. The RBV argues that resources such as H.R capabilities
are important for firm’s purpose.(Khanderkar et al 2005). (Pfeffer 1994) asserted that
H.R capabilities are the pre-eminent organizational resource and the key to achieve
outstanding performance. (Huselid et al 1997) found that firms’ effectiveness was
associated with H.R capabilities and its attributes. All these changes are indicative of new
ways of managing people which have been mentioned in an influential book to appear in
France recently entitled the ‘Type 3 Company’ which points to the need for organizations
to transform themselves into high performance companies that can harness the support,
the ideas and energy of the front-line troops and is evidence of the new people-first
approach to strategy and is testimony to the RBV perspective which sees employees as a
source of competitive advantage. (Handy et al 1990).
2.2 Human Resources Defined
Human Resources (HR) has been given many definitions over the years, but the two most
popular definitions given by the American Heritage Dictionary are “the persons
employed in a business or organization” (Houghton Mifflin Company [HMC], 2000) and
“the field of personnel recruitment and management”(HMC). Both definitions fail to
provide the key insight into the power of HR policies, strategies and quality personnel to
be able to create substantial competitive advantage for an organization. The HR field has
changed dramatically from the original HR departments of the early and mid twentieth
century to today. These original HR departments (called personnel departments at the
time) existed primarily to hire new employees and administer employee benefits. The
11
latter half of the twentieth century found HR departments morphing into more of a
strategic group that could provide much more value and competitive advantage by
helping companies deal with ever-changing business environments.
In the past, the HR department was viewed as an operational entity that handled the day
to- day activities of paying employees, administering benefits, hiring new employees and
other operational activities. There are still many companies who consider the HR group
within an organization to be a necessary overhead that must be incurred to run a business.
Utilizing the HR department in this manner will probably allow an organization to run
effectively, but it will be very difficult to create the necessary synchronicity between
corporate strategy and HR that is needed to create any advantage in the marketplace with
the human capital within the organization. Organizations have realized that their success
is dependant on their ability to hire, develop and keep quality employees. Robert Reich
explains that “to attract and keep talented people, companies today are not just
experimenting with how they approach the competitive marketplace of goods and
services; they are also experimenting with how they approach the competitive
marketplace of talent” (Reich, 1998). Reich expands on how companies are
experimenting with new methods of defining the relationship between employer and
employee when he states:
Companies are experimenting with a new operating system for the employer-employee
relationship - one to replace the old set of practices that put employers and employees on
opposite sides of the table. The model for the organization of the future aims to create
tangible and intangible value that both sides can share and enjoy. It accepts as a core
reality - rather than as a pleasant fantasy - the old saw that a company's people are its
12
most important asset. And it builds on that reality to create a way of working that is
profoundly human and fundamentally humane (Reich, 1998).
To compete in the ever-changing environment of business today, organizations must
create ways to engage their employees in the success of the organization. In the past,
employees were loyal to their employer and could count on their employer providing a
paycheck to them as long as they did what was asked of them. This is no longer the case
after the emergence in the late twentieth century of reengineering, layoffs and
outsourcing initiatives that have taken over Strategic Use of Human Resources corporate
life. Employees can no longer count on their employer to provide for them; therefore,
they no longer have long term loyalty to that organization. It is for this reason that
organizations must find a way to engage their employees in the success of the
organization while at the same time providing value to the employee so that they feel a
connection and remain with the organization.
To engage employees, HR must create value for their employees beyond a paycheck. To
do this, the employee must take on a role that highlights their value to the organization
and the organization’s marketplace. In order to do this, the organization’s human
resources must be utilized in such a way to get the greatest benefit to the employee and
employer. To get the greatest benefit from their employees, an organization should take
the view that HR is more than an operational entity and that HR an human capital can be
utilized in a strategic manner to achieve as much of a competitive advantage as possible.
13
2.3 Strategy and Human Resources Management
In their seminal thesis on the development of HR function, Jamrog & Overholt (2004:1)
declared that “over the past 100 years the HRM professional has been continuously
evolving and changing, adding more and different responsibilities”. The authors’ account
shows that the HRM function has evolved through many stages, from the medieval time
through the industrial revolution, the scientific management, the human relations
movement, etc., to the present strategic business partner model. For most of its history,
HR has mainly focused on the administrative aspects of HRM, except recently, with the
strident call for HRM to become a strategic business partner (Ulrich, 1997; Brockbank
1999; Lawler III & Mohrman, 2000; and Lawler III & Mohrman, 2003). Some scholars
therefore, are wont to differentiate between the traditional HRM and SHRM. Traditional
HRM is transactional in nature, concerned essentially with providing administrative
support in terms of staffing, recruitment, compensation and benefits (Rowden, 1999; and
Wei, 2006). Ulrich (1997) argues that the HR function has been an administrative
function headed by personnel whose roles are essentially focused on cost control and
administrative activities. Managing people is therefore the responsibility of HR manager.
HRM is then a “formal system for the management of people within the organization”
(Bateman & Zeithaml, 1993:346). For Inyang (2001:8), HRM is simply “organization’s
activities, which are directed at attracting, developing and maintaining an effective
workforce”.
The many transactional or administrative activities involved in managing the human
resources of an organization – training and development, staff motivation, compensation,
staff commitment, quality performance, etc. are meant to be carried out effectively to
14
influence the achievement of corporate objectives (Inynag, 2008a). The paradigm shift
from the administrative aspects of HRM led to the emergence of SHRM as a new
generation of value-added core responsibility or function of HRM. The emphasis of
SHRM is that of a strategic business partner. It now supports the company’s competitive
advantage by providing high quality people and by helping business managers
strategically plans the functions of the human capital within the organizations (Rowden,
1999). SHRM strongly beliefs that critical organizational capabilities or performance
behaviors are sine qua non, for the attainment of a particular business strategy or goal.
Unlike the traditional HRM which covers a wide range of employment practices,
including recruitment, selection, performance appraisal, training and development and
administration of compensation and benefits, SHRM reflects a more flexible arrangement
and utilization of human resources to achieve organizational goals, and accordingly helps
organizations gain competitive advantage (Wei, 2006).
2.4 Strategic Human Resources Management
Strategic human resource management is a complex process which is constantly evolving
and being studied and discussed by academics and commentators. Its definition and
relationships with other aspects of business planning and strategy is not absolute and
opinion varies between writers. The definitions below are from the CIPD book Strategic
HRM: the key to improved business performance (Armstrong, M et al 2002) within
which there is comprehensive coverage of the various definitions and approaches to
HRM, strategy and strategic HRM. Strategic HRM can be regarded as a general approach
to the strategic management of human resources in accordance with the intentions of the
organization on the future direction it wants to take. It is concerned with longer-term
15
people issues and macro-concerns about structure, quality, culture, values, commitment
and matching resources to future need. It has been defined as:
All those activities affecting the behaviour of individuals in their efforts to formulate
and implement the strategic needs of business (Schuler, R.S. 1992). The pattern of
planned human resource deployments and activities intended to enable the forms to
achieve its goals Wright, P.M. et al 1992).
Strategic HRM can encompass a number of HR strategies. There may be strategies to
deliver fair and equitable reward, to improve performance or to streamline structure.
However, in themselves these strategies are not strategic HRM. Strategic HRM is the
overall framework which determines the shape and delivery of the individual strategies.
Boxall and Purcell (2003) argue that strategic HRM is concerned with explaining how
HRM influences organizational performance. They also point out that strategy is not the
same as strategic plans. Strategic planning is the formal process that takes place, usually
in larger organizations, defining how things will be done. However strategy exists in all
organizations even though it may not be written down and articulated. It defines the
organization’s behaviour and how it tries to cope with its environment. Strategic HRM is
based on HRM principles incorporating the concept of strategy. So if HRM is a coherent
approach to the management of people, strategic HRM now implies that that is done in a
planned way that integrates organizational goals with policies and action sequences.
2.5 Strategic HRM and Business Strategy
A good business strategy, one which is likely to succeed, is informed by people factors.
One of the driving factors behind the evaluation and reporting of human capital data is
16
the need for better information to feed into the business strategy formulation process. In
the majority of organizations people are now the biggest asset. The knowledge, skills and
abilities have to be deployed and used to the maximum effect if the organization is to
create value. The intangible value of an organization which lies in the people it employs
is gaining recognition by accountants and investors, and it is generally now accepted that
this has implications for long term sustained performance. It is therefore too simplistic to
say that strategic human resource management stems from the business strategy. The two
must be mutually informative. The way in which people are managed, motivated and
deployed, and the availability of skills and knowledge will all shape the business strategy.
It is now more common to find business strategies which are inextricably linked with and
incorporated into strategic HRM, defining the management of all resources within the
organization. Individual HR strategies may then be shaped by the business strategy. So if
the business strategy is about improving customer service this may be translated into
training plans or performance improvement plans.
2.6 Strategic HRM and Human Capital Management
A number of writers have argued that strategic HRM and human capital management
(HCM) are one and the same thing, and indeed the concept of strategic HRM matches
that of the broader definition of HCM quite well as the following definition of the main
features of strategic HRM by Dyer and Holder (1998) shows:
• Organizational level - because strategies involve decisions about key goals,
major policies and the allocation of resources they tend to be formulated at the
top.
17
• Focus - strategies are business-driven and focus on organizational
effectiveness; thus in this perspective people are viewed primarily as resources
to be managed toward the achievement of strategic business goals.
• Framework - strategies by their very nature provide unifying frameworks which
are at once broad, contingency-based and integrative. They incorporate a full
complement of HR goals and activities designed specifically to fit extant
environments and to be mutually reinforcing or synergistic.
This argument has been based on the fact that both HRM in its proper sense and HCM
rest on the assumption that people are treated as assets rather than costs and both focus on
the importance of adopting an integrated and strategic approach to managing people
which is the concern of all the stakeholders in an organization not just the people
management function. However, the concept of human capital management complements
and strengthens the concept of strategic HRM rather than replaces it (Armstrong, M et al
2002). It does this by:
• drawing attention to the significance of ‘management through measurement’,
the aim being to establish a clear line of sight between HR interventions and
organizational success
• providing guidance on what to measure, how to measure and how to report on
the outcomes of measurement
• underlining the importance of using the measurements to prove that superior
people management is delivering superior results and to indicate the direction
in which HR strategy needs to go
18
• reinforcing attention on the need to base HRM strategies and processes on the
requirement to create value through people and thus further the achievement of
organizational goals
• defining the link between HRM and business strategy
• strengthening the HRM belief that people are assets rather than costs
• emphasizing role of HR specialists as business partners.
Hence both HCM and HRM can be regarded as vital components in the process of people
management and both form the basis for achieving human capital advantage through a
resource-based strategy.
An alternative way of looking at the relationship between strategic HRM and human
capital is in terms of the conversion of human capital into organizational value. Human
capital evaluation is useful in that it provides information about the current and potential
capabilities of human capital to inform the development of strategy. Business success
will be achieved if the organization is successful at managing this human capital to
achieve this potential and embed it in products and services which have a market value.
Strategic HRM could therefore be viewed as the defining framework within which these
evaluation, reporting and management process take place and ensure that they are
iterative and mutually reinforcing. Human capital therefore informs and in turn is shaped
by strategic HRM but it does not replace it.
19
2.7 SHRM and the Resource Based View (RBV) of the Firm
The RBV of the firm is based on the ideas of Penrose (1959), who sees the firm as “an
administrative organization and a collection of productive resources”. A firm that obtains
and develops the human resource can achieve competitive advantage (Hamel & Prahalad
(1989). Other researchers have similarly advocated the need to align HR systems with the
firm’s strategy to create competitive advantage (Barney, 1986, 1991; and Wright &
McMahan, 1992). The underlying assumption of the RBV of the firm is resource
heterogeneity. This means that the resources that different firms own are unlikely to be
identical. Accordingly, these resources owned by the firm that help it achieve sustained
competitive advantage must meet four requirements. The resources must be (i) valuable,
(2) rare, (3) inimitable, and (4) non-substitutable. This follows therefore that if the
resources a firm employs cannot be easily imitated by another firm or substituted by
similar resources another firm employs the firm can easily take advantage of this to gain
competitiveness not simultaneously pursued by other firms. Snell, Youndt & Wright
(1996) argue that human resources meet these four requirements. Others have equally
shown that the linkage of organizational resources and firm strategy cannot be easily
identified and imitated by other firms due to the social complexity and causal ambiguity
(Barney, 1991, Boxall, 1998). Thus, the integration of human resource practices and
policies with the appropriate strategy can generate a sustained competitive advantage for
the firm (Wei, 2006).
The firm’s HR policies, practices and strategies are a unique blend of process,
procedures, personalities, styles, capabilities and organizational culture, which are
difficult to imitate. As Purcell, Kinnie, Hutchinson, Rayton & Swart (2003) point out, the
20
values and HR policies of an organization constitute important non-imitable resources, as
long as they are enacted and implemented effectively. One of the most important factors
of competitive advantage is the ability to differentiate what a business supplies to its
customers from what is supplied by its competitors. Purcell et al (2003) maintain that
such differentiation can be achieved by having HR strategies, policies and practices
which ensure that:
1. The firm has higher quality people than its competitors.
2. The unique intellectual capital possessed by the business is developed and nurtured.
3. Organizational learning is encouraged, and
4. Organizational specific values and a culture exist that ‘bind the organization together
[and] give it focus.
The RBV of the firm is concerned with developing strategic capacity, making adequate
investment in the organization’s human capital to add more value to the firm. According
to Armstrong (2004:108), the aim of RBV “is to improve resource capability - achieving
strategic fit between resources and opportunities, and obtaining added value from the
effective deployment of resources”. It is generally acknowledged that the human resource
is an organizational asset, and when it is adequately trained and effectively deployed can
contribute immensely to the bottom line. Aligning the HR systems with business strategy
is therefore a sine qua non for organizational competitiveness. Business strategies
designed to achieve organizational objectives are not likely to succeed when HRM is not
involved in both strategy formulation and implementation. Organizations must create the
conducive environment for integrating HRM with business strategy since the HR supplies
the energies for driving organization strategies. Wei (2006) notes that the HR system and
21
practices are crucial in facilitating the achievement of business strategy through the
management of people. Several studies have shown that a firm’s HR creates value in the
organization in different ways.
The impact of SHRM on organizational performance is quite obvious. SHRM has
positive effect on business performance (Martell & Carrol, 1995); SHRM can help an
organization to allocate its human 29 resources more effectively, promote operating
efficiency, and encourage creativity and innovation (Dyer, 1983; Walker, 1980); it
enables the firm cope more effectively with the challenges of environmental change
(Cook & Ferris, 1986; Tichy & Barnett, 1985); encourages a more proactive management
style, transmits organizational goals clearly and motivates greater involvement by line
managers in HRM concerns (Gomez-Mejia, Balking & Cardy, 1995); enhances
organizational morale, financial performance, and overall organizational performance
(Huang, 1998; Anderson, Cooper & Zhu, 2007); brings about commitment, customer
satisfaction and innovation (Pfeffer, 1994; Chew & Chong, 1999; Bowen, Galang &
Pillai, 2000; Wright & Kehoe, 2008); enhances market value per employee (Becker &
Huselid, 1998); creates value for customers and stakeholders (Ramlall, 2006);
and brings about return on equity (Delery & Doty, 1996). Garavan (2007:11) sees
strategic human resource development as contributing “to the creation of firm-specific
knowledge and skill when it is aligned with the strategic goals of the organization”.
Increased productivity has also been noted in small enterprises that align or integrate their
formal and informal HR practices and strategies with the business strategies of the
organization (Singh & Vohra, 2005).
22
2.8 Human Behavior Factors
Most managers today understand the strategic implications of the information-based,
knowledge-driven, service-intensive economy. They know what the new game requires:
speed, flexibility and continuous self-renewal. They even are recognizing that skilled and
motivated people are central to the operations of any company that wishes to flourish in
the new age. And yet, a decade of organizational de-layering, de-staffing, re-structuring
and reengineering has produced employees who are more exhausted than empowered,
more cynical than self-renewing. Worse still, in many companies only marginal
managerial attention - if that - is focused on the problems of employee capability and
motivation. Somewhere between theory and practice, precious human capital is being
misused, wasted or lost.
Without “belief in people” no organization can outsmart competition, and develop a
sustainable competitive advantage that ensures its market competitiveness.
Demonstrating genuine belief in people takes more than speech-making to do.
Organizations of today should develop integrated systems that combine selection of the
best fit, job-matching, continuous skills and competencies development, fair
compensation, democratic leadership style, and creating attractive motivating work
environments. In his opinion, Dr. Fathi Al-Nadi (2007) sees that this HR orientation
approach relies on the organization's transparency; its readiness to trust its employees, its
willingness to empower them, and its sincerity to maintain a participative team spirit
where employees assume ownership and a deep sense of belonging. People were and can
always be a competitive advantage in a global market that became more demanding and
23
very sensitive to the quality of services that goes with the product. Nowadays, a shift had
happened in customers’ perception of where the added value rests.
There is an escalating trend that it relies more on the quality of services and the fast
response to the customer needs rather than the product itself; so much so in service
industries. That's why the caliber of people makes the difference in achieving customer
satisfaction on one side and gaining bigger market shares on the other. Dr. Al-Nadi also
sees that HR professionals, especially in developing countries, have a role to play in
making themselves real “strategic partners” in their organizations. They need to have a
cause to promote and defend. They also need to gain more credibility in proving their
value in enhancing organizational performance and keeping it up-to-date on people's
issues and market demands to become customer driven and accomplish sustainable
competitiveness.
2.9 SHRM and Organizational Performance
Although most studies speak of SHRM practices leading to performance, such a one-way line of
causation is unsatisfactory (Edwards and Wright, 2001). The usual key criticism of SHRM
practices and organizational performance is that sound theoretical development that explains how
such SHRM practices operate is absent (Becker and Gerhart, 1996). In an effort to address such
theoretical developments in the area, scholars have proposed to consider intermediate linkages
between SHRM practices and organizational performance (Ferris et al, 1998). Thus the general
consensus developed is that SHRM practices do not lead directly to organizational performance.
Rather they influence firm resources, such as the human capital, or employee behaviors, and it is
these resources and behaviors that ultimately lead to performance; even though only a few
researchers (Katou and Budhwar, 2006) have measured these mediators and addressed their
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importance. Since the SHRM practices are not standardized and they only differ according to the
aims and objectives of each individual research, Katou and Budhwar (2006) suggest use of
“mediating model” which adopts two systems of SHRM practices that are usually present in
almost all works, namely, resourcing/development, aiming at attracting and developing human
resources; and rewards/relations, aiming at retaining and motivating human resources. Similarly,
Gerhart (2005) suggests application of motivation as a mechanism by which SHRM practices
impact organization performance.
Motivation is affected by a variety of SHRM practices, including recruitment, training and
development, work arrangements, compensation systems, and appraisal systems. However,
considering that the literature highlights that most studies examining the relationship between
SHRM practices and organization’s performance have been conducted mostly in a few developed
countries (US and UK), and that only a few researchers have measured the mediators and
addressed their importance, the question still left unanswered is the influence of SHRM practices
on human capital or specifically, motivation and, consequently organizational performance in
other contexts (Katou and Budhwar, 2006). To fill this gap and to further examine the existence
of such a relationship, it is important to conduct research in non-US/UK contexts.
This study therefore seeks to investigate the association between SHRM practices and
organization performance and also the mediating role of employee motivation in the Nigerian
context. Literature on SHRM shows that primarily there are three school of thoughts related to
implementation of SHRM practices:
• Universalistic approach
This is the simplest approach, which operates with a basic assumption that there is a
linear relationship between variables and that can be extendable to entire population
(Delery and Doty, 1996)
.
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• Contingency approach
Many researchers contend that contingency approach is more complex than universalistic
approach because contingency approach is more inclined towards interactions rather than
simple linear relationship (Schoonhoven, 1981; Van, A, and Drazin, 1985; Venkatraman,
1989).
• Configurational approach
This is the most complex one because this approach is concerned about the synergetic
effect of a certain SHRM practice (Doty, Glick, and Huber, 1994).
Although there is more theoretical significance of contingency and configurational
approach, but both of these approaches lack statistical significance, while on the other
hand, universalistic approach has more empirical significance (Syed et al., 2008). This
study examines the implications of universalistic approach. We are using seven best
practices of HRM that are described by Delery and Doty (1996) and further implemented
by Syed et al., (2008), which are discussed below.
2.1 Internal career opportunities
Internal career opportunities refer to the tendency whether to hire employees mostly from
within the organization or from the outside. According to Delery and Doty (1996),
organizations give importance to internal hiring as compared to external. Pfeffe (1994)
describes it as a give and take process in which managers promote their employees
primarily from within the organization and show trust on them and in return expect
greater performance.
The relationship between internal career opportunities and organizational performance is
empirically supported by Blackwell, Brickley, and Weisbach (1994) and Shay (2006),
who found a positive correlation between these variables. While, on the other hand,
Gaertner and Nollen (1989) relate the promotion rate with psychological commitment.
Furthermore, Ngo and Tsang, (1998) provide support to Gaertner and Nollen’s argument
in their study of 778 business executives in Hong Kong ,who found a positive impact on
commitment.
2.2 Training
Training refers to the quantity of official training given to employees. Organizations may
choose either to provide extensive official training or to rely on attaining expertise
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through selection. Literature on universalistic approach shows that training has the most
significant effect on organization’s performance (Pfeffer, 1998, Pfeffer and Veiga 1999,
Harel and Tzafrirs, 1999, Syed et al., 2008, Shay, 2006). Several researchers are of the
view that training is a universal best practice (Arthur, 1992, Delaney and Huselid, 1996,
Huselid and Becker, 1996, Youndt, Snell, Dean, and Lepak, 1996).
In a study of Chinese firms, Syed et al. (2008) found training as the most influencing
SHRM practice that accounted for 12.17% variance in organizational performance. Hatch
and Dyer, (2004) found that extensive training caused fewer defects in products in their
study of 25 semiconductor manufacturing firms. Huang (2001a, b) studied 568 Taiwan’s
companies and found a significant direct relationship among training and product and
service quality. The findings of the study of managerial attitude toward HRM by
Jennings, Cyr, and Moore, (1995) also found training and development to be the most
significant SHRM practice, thereby supported the earlier studies.
2.3 Employee participation
Several researchers believe that employees participation is directly associated with
organization’s performance (Arthur, 1992, Batt; Pfeffe, 1994; Colvin, and Keefe, 2002;
Hodson, 2002; Kato and Morishima, 2002; Shay, 2006). Batt, Colvin, and Keefe, (2002)
found an indirect relationship between employee participation in decision making and
employee turnover rate. While Hodson, (2002) found another dimension and showed that
workplace conflicts could be reduced through employee participation.
2.4 Result-oriented appraisals
According to Delery and Doty (1996), primarily appraisals are based on two types:
results based and behavior based. Behavior-based appraisals focus on the specific
behaviors that best match the job while result-oriented appraisals focus purely on the
results of those behaviors. In a result-oriented appraisal system, certain incentives are
given to employees on completion of their performance objectives (Pfeffer, 1998). Delery
and Doty, (1996) found a significant positive relationship between result-oriented
appraisal and organizational performance. Furthermore, the study by Syed et al., (2008)
also showed similar results.
2.5 Profit sharing
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Profit sharing refers to the integration of pay with organizational performance. Delery
and Doty, (1996) found a positive significant relationship of profit sharing with
performance. In a study of Chinese firms Syed et al., (2008) investigated the impact of
profit sharing on twofold performance measures and found a unique relation in which
profit sharing had a positive significant relation with only financial measures of
organizational performance and not significant relation with other dimensions of
performance ( product/service quality).
2.6 Employment security
The importance of employment security is emphasized by Pfeffer, (1998) who holds that
it is unrealistic on the part of the organizations to expect hard work, devotion and
commitment from their employees in the absence of employment security. Syed et al.,
(2008) found a positive significant relationship between employment security and
organizational performance. Furthermore, Pfeffer, (1998) describes that the importance of
employment security according to firm’s point of view is twofold: cost; and competition.
If organization does not provide its employees with job security then they obviously
switch towards better opportunities and thus increasing cost (training, selection etc) and
competition.
2.7 Job description
The degree to which job duties are well defined is very important. Delery and Doty,
(1996) find a moderate correlation between job description and a firm’s performance.
Furthermore, the study by Syed et al., (2008) shows that 8.30% variance in organizational
performance is observed due to job description.
What is Performance Measurement?
Performance measurement is simply a method for assessing progress towards stated
goals. It is not intended to act as a reward/punishment mechanism, but rather as a
communication and management tool. In Performance Measurement and Evaluation:
28
Definitions and Relationships (GAO/GGD-98-26), the U.S. General Accounting Office
(GAO) defines performance measurement as the ongoing monitoring and reporting of
program accomplishments, particularly progress towards pre-established goals. It is
typically conducted by program or agency management. Performance measures may
address the type or level of program activities conducted (process), the direct products
and services delivered by a program (outputs), and/or the results of those products and
services (outcomes). A program” may be any activity, project, function, or policy that has
an identifiable purpose or set of objectives.
Performance measures quantitatively tell us something important about our products,
services, and the processes that produce them. They are a tool to help us understand,
manage, and improve what our organizations do. Effective performance measures can let
us know:
• How well we are doing,
• If we are meeting our goals,
• If our customers are satisfied,
• If our processes are in statistical control, and
• If and where improvements are necessary.
They provide us with the information necessary to make intelligent decisions about what
we do. A performance measure is composed of a number and a unit of measure. The
number gives us a magnitude (how much) and the unit gives the number a meaning
(what). Performance measures are always tied to a goal or an objective (the target).
Performance measures can be represented by single-dimensional units like hours, meters,
29
nanoseconds, dollars, number of reports, number of errors, number of CPR-certified
employees, length of time to design hardware, etc. They can show the variation in a
process or deviation from design specifications. Single-dimensional units of measure
usually represent very basic and fundamental measures of some process or product. More
often, multidimensional units of measure are used.
Relationship between SHRM and performance
30
CHAPTER THREE
RESEARCH METHODOLOGY
The following paragraphs discuss the methodology used in the research. First, the steps in
selecting the sample are explained. Then, the process of collecting data from the sample
firms themselves is discussed.
Sampling
Data was collected from 11 firms belonging to three segments of service sector viz.
Telecommunication (4 firms), Banking (5 firms) and Health (2 firms). These firms were
also both from public and private firms.
The universe of the research was chosen based on public perception that some of these
organizations are successful in their respective industries while others are benchmarking
on those who are perceived to be successful and that they consider their human resources
management to be of strategic importance to the organization. Accordingly, the research
sample was derived from one HR manager, two line managers/head of departments and
three employees from each organization. In all 66 responses were obtained in the four
major mobile telecommunications companies: (MTN, Globacom, Zain and Visafone),
banks: (GTBank, Zenith, UBA, FCMB and Intercontinental Bank) and hospitals
(University College Hospital Ibadan and State Hospital, ijebu Ode).
Data Collection
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The literature data were collected from various available secondary resources that include
published articles, books, past studies and website materials. The research concentrates
on the Descriptive and Inferential Analytical Approaches in testing its hypotheses in
order to determine the nature of the relationship between the independent and the
dependent variables. Empirical measures are utilized to establish this relationship through
the aid of statistical analysis software. Descriptive research involves attempting to define
or measure a particular observable fact, usually by attempting to estimate the strength or
intensity of behavior or the relationship between two behaviors. In other words, these
research approaches set out to describe the field in a comprehensive way.
This study used the questionnaire developed by Huselid (1995) to collect data. Huselid’s
instrument contains measures for SHRM practices, motivation and performance.
Huselid’s instrument had also been used in the US in nearly 1000 firms. Hence validity
and reliability of the instrument have been established. The questionnaire was divided
into five sections: Parts A and B asked questions related to demographic characteristics.
Part C, using a scale of 1-6 asked the respondents to give their opinion of the extent to
which they agreed or disagreed with the statements regarding SHRM practices. Bae et al
(1998) found reliability coefficients of 0.70 using similar scales, while Delaney and
Huselid (1996) reported coefficients of between 0.70 and 0.91. Part D asked questions
relating motivation to job and the organization. Delaney and Huselid (1996) found
positive relationships between the variables of interest. In part E the respondent was
asked to give information about organizational performance in the areas of product