Effectiveness of HRM to Improve Business Performance

With specific reference to the acquisition and development of employee skills, how can Human Resource Management improve business performance?

1.0 Rational

Many commentators on human resource management have sought to establish a clear positive link between HRM practices and organisational performance. There has been considerable research over the last decade which has attempted to answer two basic questions:

Do HR practices make a positive impact on organisational performance?

How is the impact achieved?

Legge, (2001, quoted in Armstrong & Baron, 2005, p.114) along with researchers such as Guest, (1997) argue that research on HR practices and performance is methodologically flawed, therefore providing the means for exploring particular HR practices more intricately with a more suitable research design. There is no agreement on a definitive of ‘best’ practices that will give improved performance, however the acquisition and development of employee skills is argued by Patterson et al (1997) and Huselid (1995) as significant. For that reason, the research will be aimed specifically at training and development, and the extent of the effect this particular practice has on business performance. It is hoped that the conclusions will provide a more detailed knowledge on this subject area as well as resolve theoretical problems.

2.0 Research Aim

To determine the extent of the effectiveness human resource management has on improving business performance, by examining the acquisition and development of employee skills.

3.0 Research Objectives

Obtain secondary data from written and non-written materials to determine and analyse the following:

Human Resource Management – its role within the organisation and the practices commonly used in a strategic business environment.

‘Business Performance’.

Acknowledge which ‘Employee skills’ are most important and why, and ways of assessing/measuring them.

Methods of implementing training and development schemes.

Evaluate existing literature and theories on the subject of training and development of employee skills, and the effectiveness this has on business performance.

Conduct primary research to determine which training schemes are most effective and why.

Analyse and triangulate secondary and primary research findings.

4.0 Literature Review

This study will draw upon the diverse approaches to HR practices and the effects they truly have on business performance, concentrating specifically on the acquisition and development of employee skills. Previous literature and studies have shown that the criteria for the definition of human resource management and its role within a business has differed as organisations change and develop to gain a competitive advantage in the ever more challenging environments. Many business managers are still not aware of the key role that training could play in their company’s success, and often fail to take advantage of the possible benefits by implementing a clear training scheme. Therefore the proposed research project will examine in detail the main role of training and development, what it entails and why it is important. In order to understand how best to implement this role, the position of the HR function will also be analysed.

4.1 Training and Development

Training and development is a learning process that involves the acquisition of knowledge, enhancing of skills through assessment and planning, or changing of attitudes and behaviours to enhance employee performance, and it continues to be a valued component in the modern management of human resources (Kraiger, McLinden, Casper, 2004). More of the components of training will be covered more explicitly within the final project, however implementation of training functions such as appraisal systems, coaching and mentoring, project working and e-learning, has been found to increase levels of employee productivity, employee commitment, contribution and greater flexibility which in turn is linked with higher productivity, quality of product and service, therefore leading to higher estimates of financial performance, especially when aligned with a firm’s competitive strategy (Huselid, 1995; Wright and McMahan, 1992). Morrow, Jarrett and Rupinski (1997) reported results from an investigation, in response to a CEO’s request to experimentally evaluate training and ensure that it is strategically aligned with an organisations business goals, thereby demonstrating a worthwhile investment (Kraiger, McLinden & Casper, 2004). The results highlighted that the courses studied, showed high return-on-investment (ROI).

Noe and Colquitt’s (2002) training effectiveness model implies that motivation, work environment and post-training climate are all key resources needed for training effectiveness. Lack of technical knowledge by training professionals when regarding measurement and design as well as lack of knowledge of how to determine ROI (Wang & Li, 2003) are also factors that result to ineffective training or even failure. This suggests that training is an important feature across the whole of the organisation on all levels, including top management. However some training professionals perceive that they are not consulted in planning strategic initiatives, making it both difficult to provide performance support and be seen as a valued business partner.

4.2 Aligning the HR strategy with Business Objectives

The increasingly global nature of competition requires that firms utilise all of their available resources in order to survive and succeed. This has resulted in an emphasis on the alignment of all functional activities of the firm toward the achievement of strategic objectives. There has been a call by many for a new strategic role for the HR function, (Martell & Carroll, 1995) which entails two major aspects including providing input to the firms strategy, (ensuring the firm has the human resource capabilities to implement it) and secondly to ensure programs and practices such as training and development schemes are in place to effectively implement the strategy (Wright & McMahan, 1992). The HR function however, has not traditionally been viewed as a department that can demonstrate contribution to firm performance and therefore seen as non effective (Thornburg, 1991). Therefore to prove the effectiveness of training and development of employee skills, and thus the HR function, evidence will need to be attained. Most training professionals realise that a high level of evidence is not achievable without substantial costs, time and personnel (Kraiger, McLinden & Casper, 2004). Therefore HR managers will need to determine whether or not unequivocal evidence of impact is required, or if lesser evidence is substantial enough to gain a strategic position within the organisation. Once this position is gained, the HR function would be allowed to act as a more effective department, contributing to the performance of the firm. Torrington and Halls five levels of integration examine the ‘holistic’ relationship between the organisational strategy and the HR strategy, arguing that with this strategy, employees are recognised as a key to competitive advantage and in turn financial performance (Beardwell and Claydon, 2007).

The literature demonstrates that the role of human resource management has yet to achieve the position of a strategic partner within the organisation. As well as this, it is evident that there is a need for an evaluation and proof of a positive effect HR practices such as training and development have on business performance, in order to justify the position of HR in a competitive, strategic business.

5.0 Methodology

To achieve the research aim and objectives, the study will be divided into two sections. The first section will be an in-depth critical analysis of secondary data, and the second will involve collecting primary data in the form of a case study. It will be a cross-sectional study due to a limited time frame, approached primarily from an interpretivist or social constructionist perspective, in that there are multiple realities to be understood (Saunders, Lewis & Thornhill, 2007). It will not be from a positivist perspective as no truth or absolute reality is to be discovered. Owing to the exploratory and descriptive nature of this research, a hybrid/inductive approach will be used in order to make use of a flexible structure to permit changes of research emphasis as the research progresses, (Saunders et al, 2007) and the use of an established theoretical framework to help make sense of my findings.

5.1 Section 1

Secondary data will be used as the main source of answering the research question. By using documentary secondary data in the form of both written and non-written materials such as journals, organisations databases and books, I will be able to triangulate these findings along with the primary data collected through my case study. Secondary data has already been examined to gain a broad knowledge of the subject area however further use of specific secondary data will be used to critically evaluate previous research that has tried to measure the direct effectiveness, training and development has on business performance, in the hope to achieve objectives 1 and 2. This method of data collection is best suited to the research aim as there is limited time and access to the resources that would enable the study to gather all the relevant information required to achieve research aim. Once the effectiveness of the acquisition and development of employee skills has on business performance has been determined, primary data will then be used to answer how best this can be achieved and implemented.

5.2 Section 2

A multi-method qualitative study in the form of a case study will be used to create an in-depth, rich account of how one organisation, uses human resource management to create efficient and successful training schemes that will develop employee skills. By conducting a holistic case study, the collected data will be examined and analysed in detail, therefore enabling theoretical problems in this area of research to be resolved.

The case study will concentrate solely on one privately owned company from the service sector which currently employs 1700 workers worldwide. When considering the style of research collection, an in-depth, semi-structured interview was chosen, (to narrow observer bias) due to the fact questionnaire results would be more prone to invalid data, and not as in-depth detail. The interview would question one of the HR managers from this company, who is currently in charge of designing and implementing training schemes. This style of interview will aid to build rapport with the participant to elicit rich descriptions of knowledge, experiences, behaviour, feelings and perceptions. Non-directive questions will allow the participant to answer freely and express added education on topics not fully understood within the organisation. This method is reliable as the participant will have no reason to be subject to bias or error as the primary focus of this interview will be to gain a different, qualitative perspective on the role of training and development from within that company, and how this particular HR practice is implemented and improved to create efficiency within the organisation. As the research develops, a clearer and more refined aim of the interview will be constructed.

The purpose of using this research strategy is to provide additional theory to existing literature and the secondary data collected, as well as to achieve objectives 1c, 3 and 4. The primary data results will not be generalised due to limited results collected from one organisation only, however, it is hoped that the conclusions from this research will add to existing theory and help to demonstrate connections that are worth exploring further on the literature of HR practices and their effectiveness on business performance.

6.0 Project plan

To achieve my research aim and conduct an efficient and effective research plan, a specific timetable of tasks and duration has been drawn in order to aid with time management and completion of objectives. See Appendix 1 for a Gantt Chart presentation.

7.0 Ethical Considerations

Mary Irwin (the participant) will be interviewed over a period 3 days. She has been fully informed of the project and the nature of the research, and is aware that she can disengage herself from the project at any time. An ethical form has also been attached. She will be interviewed in Glasgow at the company’s main office.

8.0 Bibliography

Armstrong, M. & Baron, A. (2005). Strategic HRM: The key to improved business performance. London, Chartered Institute of Personnel and Development.

Arthur, W., Bennet, W., Jr., Edens, P., & Bell, S. (2003). Effectiveness of training in organisations: A meta-analysis of design and evaluation features. Journal of Applied Psychology. Vol. 88. Pp 234-245.

Beardwell, J. & Claydon, T. (2007). Human Resource Management: A contemporary approach. 5th Ed. Essex, England, Pearson Education Limited.

Colquitt, J. A., LePine, J. A., & Noe, R. A. (2000). Towards an integrative theory of training motivation: A meta-analytic path analysis of 20 years of research. Journal of Applied Psychology. Vol. 85. Pp 678-807.

Guest D. E. (1997). ‘Human Resource Management: the workers’ verdict’. Human Resource Management Journal. Vol. 9, No. 2. Pp5-25.

Guest D., Michie J., Sheehan M., & Conway N. (2000b). Employee Relations, HRM and Business performance: An analysis of the 1998 Workplace Employee Relations Survey. London, Institute of Personnel and Development.

Hendry C. & Pettigrew A. (1986). ‘The Practice of Strategic Human Resource Management’. Personnel Review. Vol. 15. Pp2-8.

Huselid, M. A. (1995). The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal. Vol. 38. Pp 635-672.

Huselid, M. A., Jackson, S. E., & Schuler, R. S. (1997). Technical and strategic human resource management effectiveness as determinants of firm performance. Academy of Management Journal. Vol. 40. Pp 171-188.

Kraiger, K., McLinden, D., & Casper, J. W. (2004). Collaborative Planning for Training Impact. Human Resource Management. Vol. 43, No. 4. Pp. 337-351.

Martell, K., & Carroll, S. (1995). How strategic is HRM? Human Resource Management. Vol. 34. Pp 253-267.

Morrow, C. C., Jarrett, M. J., & Rupinski, M. T. (1997). An investigation of the effect and economic utility of corporate-wide training. Personnel Psychology. Vol. 50. Pp 91-119.

Patterson M. G., West M. A., Lawthom R. & Nickell S. (1997). The Impact of People Management Practices on Business Performance. London, Institute of Personnel and Development.

Pfeffer, J. (1998). The Human Equation: Building Profits by Putting People First. Boston USA, Dow Jones & Company, Inc.

Saunders, M., Lewis, P. & Thornhill, A. (2007). Research Methods for Business Students. 4th Ed. Essex, England, Pearson Professional Limited.

Thornburg, L. (1991). HR executives focus on strategic partner role. HRMagazine. July, Pp 62-63.

Wang, G., & Li, G. (2003). Measuring HPT interventions: The dilemma, challenges and solutions. Performance Improvement. Vol. 42, issue 10. Pp 17-23.

Wright, P. M., & McMahan, G. C. (1992). Alternative theoretical perspectives for strategic human resource management. Journal of management. Vol. 18. Pp 295-320.

Wright, P. M., & McMahan, G. C., McCormick, B., & Sherman, W. S. (1998). Strategy, core competence, and HR involvement as determinants of HR effectiveness and refinery performance. Human Resource Management. Vol. 37, issue 1. Pp 17-29.