Improving business performance through strategic HRM

Strategic HRM is about improving business performance through people. Organizations in all sectors (private, public or voluntary) have to be business-like in the sense that they are in the business of effectively and efficiently achieving their purpose, whether this is to make profits, deliver a public service or undertake charitable functions. The major concerns of strategic HRM are to meet the business needs of the organization and the individual and collective needs of the people employed in it. Aconsiderable amount of research has been conducted recently on how HRM impacts on organizational performance, and this is summarized in the first section of this chapter. The second part of the chapter explores the general lessons that can be learnt from this research and other relevant research projects. Finally, consideration is given to how, in the light of the research, strategic HRM can make a contribution to improving business performance.


The assumption underpinning the practice of HRM is that people are the organization’s key resource and organizational performance largely depends on them. If, therefore, and appropriate range of HR policies and processes is developed and implemented effectively, then HR will make a substantial impact on firm performance.

The Holy Grail sought by many commentators on human resource management is to establish that a clear positive link between HRM practices and organizational performance exists. There has been much research, summarized in Table 6.1, over the last decade or so that has attempted to answer two basic questions: 1) ‘Do HR practices make a positive impact on organizational performance?’ and 2) ‘If so, how is the impact achieved?’ The second question is the more important one. It is not enough to justify HRM by proving that it is a good thing. What counts is what can be done to ensure that it is a good thing. This is the ‘black box’ mentioned by Purcell et al (2003) that lies between intentions and outcomes.

Ulrich (1998) has pointed out that: ‘HR practices seem to matter; logic says it is so; survey findings confirm it. Direct relationships between investment and attention to HR practices are often fuzzy, however, and vary according to the population sampled and the measures used.’

Purcell et al (2003) have cast doubts on the validity of some of the attempts through research to make the connection: ‘Our study has demonstrated convincingly that research which only asks about the number and extent of HR practices can never be sufficient to understand the link between HR practices and business performance. As we have discussed it is misleading to assume that simply because HR policies are present that they will be implemented as intended.’

Further comments about attempts to trace the link have been made by Truss (1999), who, following research in Hewlett-Packard, remarked that:

Our findings did lend strong support to the argument put forward by Mueller (1996) that the informal organization has a key role to play in the HRM process such that informal practice and norms of behaviour interact with formal HR policies… We cannot consider how HRM and performance are linked without analysing, in some detail, how policy is turned into practice through the lens of the informal organization.

a commitment strategy – a strategy, as described by Walton (1985), that promotes mutuality between employers and employees;

- a control strategy – as described by Walton (1985), one in which the aim is to establish order, exercise control and achieve efficiency in the application of the workforce but where employees do not have a voice except through their unions;

- high-performance work systems – these aim to impact on performance through people by the use of such practices as rigorous recruitment and selection procedures, extensive and relevant training and management development activities, incentive pay systems and performance management processes.


In Guest et al (2000b) the relationship between HRM and performance was modelled as shown in Figure 6.1.

The Bath People and Performance Model developed by Purcell et al (2003) is shown in Figure 6.2.

Central to this model is the concept that performance is a function of Ability + Motivation + Opportunity (AMO). On the outside ring, 11 policy or practice areas are identified to feed into and give meaning to AMO. The second crucial feature of the model is the central box – front-line management – which draws attention to the fact that nearly all HR policies are applied through and by line managers. It is these managers who bring policies to life. Organizational commitment, motivation and job satisfaction all lead to discretionary behaviour, which in turn generates performance outcomes, which in themselves contribute to commitment, motivation and job satisfaction.

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