THE IMPACT OF STRATEGIC

HUMAN RESOURCE
MANAGEMENT ON
ORGANIZATIONAL PERFORMANCE
 INTRODUCTION
Economic environment is changing rapidly and this change is characterized by such phenomena
as the globalization, changing customer and investor demands, ever-increasing product-market
competition. To compete successfully in this environment organization continually need to
improve their performance by reducing costs, innovating products and processes and improving
quality, productivity and speed to market.

The people who make up an organization -human resources- are considered to be one of the most
important resources of today’s firms. People and how they are managed are becoming more
important because many other sources of competitive success are less powerful than they used
to. Recognizing that the basis for competitive advantage has changed is essential to develop a
different frame of reference for considering issues of human resource management and strategy.
Traditional sources of success such as product and process technology, protected markets,
economies of scale, etc. can still provide competitive leverage but an organization’s human
resources are more vital for its sustainability.

Parallel to the understanding that human resources are vital for an organization, human resource
management function is also going up in organizational hierarchy. Human resource management
aims to ensure that the organization obtains and retains the skilled, committed and well-
motivated workforce it needs. This means taking steps to assess and satisfy future people needs
and to enhance and develop the inherent capacities of people – their contributions, potential and
employability – by providing learning and continuous development opportunities. It involves the
operation of recruitment and selection procedures, management development and training
activities linked to the needs of the business.

Strategic human resource management (SHRM) represents a relatively new transformation in the
field of human resource management. SHRM is concerned with the role human resource
management systems play in firm performance, particularly focusing on the alignment of human
resources as a means of gaining competitive advantage. Organizations are becoming aware that
successful human resource policies and practices may increase performance in different areas
such as productivity, quality and financial performance.
HUMAN RESOURCES AS A SOURCE OF COMPETITIVE ADVANTAGE

The concept of competitive advantage was formulated by Michael Porter. Competitive

advantage, Porter asserts, arises out of a firm creating value for its customers. Porter emphasized
the importance of differentiation, which consists of offering a product or service ‘that is
perceived industry-wise as being unique’, and focus – seeing a particular buyer group or product
market ‘more effectively or efficiently than competitors who compete more broadly’. He then
developed his well-known framework of three generic strategies, -cost leadership,
differentiation, focus- that organizations can use to gain competitive advantage. Porter’s widely
accepted view suggests that the industry – environmental determinants- affects a firm’s
performance.

Resource-based view, on the other hand, asserts that the basis for a competitive advantage of a
firm lies primarily in the application of the bundle of valuable resources at the firm's disposal.
Competitive advantage, according to this view differs from the environmentally focused strategic
management paradigm in that its emphasis is on the links between the internal resources of the
firm, its strategy and its performance.

The resource-based view suggests that human resource systems can contribute to sustained
competitive advantage through facilitating the development of competencies that are firm
specific. The sustained superior performance of many companies has been attributed to unique
capabilities for managing human resources to gain competitive advantage. Conversely, to the
extent that HR systems inhibit the mobilization of new competencies and/or destroy existing
competencies, they may contribute to organizational vulnerability and competitive disadvantage.

In the closing years of the twentieth century, management has come to accept that people, not
products, markets, cash, buildings, or equipment, are the critical differentiators of a business
enterprise. All the assets of an organization, other than people, are inert. They are passive
resources that require human application to generate value. The key to sustaining a profitable
company or a healthy economy is the productivity of the workforce.
What is important to recognize is why success through human resources can be sustained and
cannot readily be imitated by competitors. The reason is that the success that comes from
managing people effectively is often not as visible or transparent as to its source. Culture, how
people are managed, and the effects of this on their behaviour and skills are sometimes seen as
the "soft" side of business, occasionally dismissed. Even when they are not dismissed, it is often
hard to comprehend the dynamics of a particular company and how it operates because the way
people are managed often fits together in a system. It is easy to copy one thing but much more
difficult to copy numerous things.

HRM needs to achieve the following strategic goals in order for the company to gain and sustain
competitive advantage:

 to invest in people through the introduction and encouragement of learning processes

designed to increase capability and align skills to organizational needs,
 to ensure that the organization identifies the knowledge required to meet its goals and
satisfy its customers and takes steps to acquire and develop its intellectual capital,
 to define the behaviours required for organizational success and ensure that these
behaviours are encouraged, valued and rewarded,
 to encourage people to engage whole heartedly in the work they do for the organization,
 to gain the commitment of people to the organization’s mission and values.

To achieve these goals it is necessary to understand the linkage between HRM and business
strategy.
 LITERATURE REVIEW
The achievements of organizational objectives can be different in different organizations. The
studies emphasize the impact of HRM on organizational performance. Basically, and other
studies in this area, point out that it is necessary to achieve organizational objectives and
management of human resources should be strategic. Also, the strategies of human resource
management should be integrated with the overall organizational strategy in the context of
achieving the required performance. There has been much research on strategic human resource
management that affects organizational performance. The discussions and definitions will be
divided in two parts of speech: the strategic management of human resources and organizational
performance.

1.1 Strategic HRM concept

Strategic HRM is a process that involves the use of overarching approaches to the
development of HR strategies, which are integrated vertically with the business strategy and
horizontally with one another. These strategies define intentions and plans related to the
overall organizational considerations, such as organizational effectiveness, and to more
specific aspects of people management, such as; resourcing, learning and development,
reward and employee relations. Strategic HRM focuses on actions that differentiate the firm
from its competitors (Purcell, 1999). It is suggested by Hendry and Pettigrew (1986) that it
has seven meanings: the use of planning; a coherent approach to the design and management
of personnel; systems based on an employment policy and workforce strategy; often
underpinned by a “philosophy”; matching HRM activities and policies to some explicit
business strategy; seeing the people of the organization as a strategic resource; achievement
of competitive advantage (Armstrong, 2006).
Strategic HRM has a clear focus on implementing strategic change and growing the skill base
of the organization to ensure that the organization can compete effectively in the future
(Holbeche, 2004). SHRM facilitates the development of a human capital that meets the
requirements of business competitive strategy, so that organizational goals and mission will
be achieved (Guest, 1987). Strategy of human resource management is an integral part of
business strategy. The main focus of this strategy is to achieve organizational objectives. So,
 strategy, then, is a set of strategic choices, some of which may be formally planned. It is
inevitable that much, if not most, of a firm’s strategy emerges in a stream of action over time
(Boxall and Purcell, 2003).

1.2 Organizational performance concept

Campbell’s (1999) theory defines performance as behavior or action relevant to the
attainment of an organization’s goals that can be scaled, that is, measured. Moreover, job
performance is defined as what one is paid to do, or what one should be paid to do. The
theory states that the measurement options, be they ratings from a supervisor, peer, or self, a
simulated work sample, or hard criteria (e.g. tallying revenue generated, costs saved,
customer complaints, or some variant of a computerized performance assessment) besides
being valid, reliable, and not deficient should be free of contamination from sources of
variation that are not under the control of the individual (e.g. differences in technology
impacting a person’s performance). Situational enhancers or constraints, if not taken into
account in an appraisal, can contaminate the mean, variance, or both with regard to an
individual’s performance. Observation and interpretation hold the key to the establishment
of effective criteria. Yet, an ongoing problem in appraising people is the lack of reliability in
the observation of their behavior (Ronan and Prien 1971). This unreliability is largely
attributed to well-known rating errors such as “first impressions”, “halo”, and “similar-
tome”. Lifson (1953) found that up to one-third of performance measurement variance is due
to rater differences despite the fact that the observers had considerable experience in
observing and evaluating people in the workplace. Lance (1994) corroborated this finding.
Experience, however, is not a substitute for training. To solve the problem regarding lack of
reliability, an observer must be trained. In this section, training programs that have been
shown to be effective are described, and the necessity of taking context into account is
explained (Boxall, Purcell and Wright, 2007).
Organizational performance is one of the most broadly and extensively used dependent
variable in organizational studies today, and yet, at the same time, it remains one of the most
imprecise and loosely-defined constructs (Rogers and Wright, 1998). In the strategy
literature, the focus of attention on this construct has been concerned almost entirely with
financial measures of performance. Conceptually, organizational performance has been
defined as the comparison of the value produced by a company with the value owners
expected to receive from the company (Alchian and Demsetz 1972). Venkatraman and
Ramanujam (1986) indicate that a narrow definition of performance focus on the use of
simple outcome-based financial indicators that are assumed to reflect the fulfillment of the
economic goals of the firm. The literature reveals that studies into the HRM performance
have not determined a specific and precise meaning for the organizational performance
construct. Some studies have used subjective measures to evaluate firms’ performance, such
as employee satisfaction, customer satisfaction, executives’ perceptions about the company’s
performance, absenteeism, employee commitment, and other behavior aspects. Other studies
reference various objective measures for evaluating firms’ performance, such as financial and
market indicators. As a result, there is no common theory concerning organizational
performance, and researchers utilize different indicators or variables to measure this
construct. For this reason, there is also a call for a precise theory of organizational
performance (Janssens and Steyaert, 2009) and HRM researchers and professionals might
give crucial and special consideration to filling such a gap (Guest, 2011). Another way, the
concept of performance has been expressed by Brumbrach (1988) as follows: performance
means both behaviors and results. Behaviors emanate from the performer and transform
performance from abstraction to action. Not just the instruments for results, behaviors are
also outcomes in their own right – the product of mental and physical effort applied to tasks –
and can be judged apart from results. This definition of performance leads to the conclusion
that when managing performance both inputs (behavior) and outputs (results) need to be
considered. It is not a question of simply considering the achievement of targets, as used to
happen in ‘management by objectives’ schemes. Competency factors need to be included in
the process (Armstrong, 2006). In short, a theory of performance is necessary to determine:
relevant dimensions of performance, performance standards or expectations related to
performance levels, restrictions on how the situation should be measured when assessing
performance, the number of performance levels or gradient and the extent to which
performance should be based upon absolute vs. relative comparison standards (Boxall,
Purcell and Wright, 2007).
Theoretical Review

In an attempt to explain the relationship between SHRM and firm performance, the researchers
have focused on three competing normative theories as debated by numerous researchers:
universalistic, contingency and configurational theories.

2.1 Universalistic theory

It is also referred to as the best practice model, which is based on the assumption that there is a
set of superior/best HRM practices, and that adopting them will inevitably lead to superior
organizational performance (Luthans & Summer, 2005). The notion of best practice was
identified initially in the early US models of HRM, many of which mooted the idea that the
adoption of certain ‘best’ human resource practices would result in enhanced organizational
performance, manifested in improved employee attitudes and behaviors, lower levels of
absenteeism and turnover, higher levels of skills and therefore higher productivity, enhanced
quality and efficiency and of course increased profitability (Marchington & Wilkinson, 2008).
Here, it is argued that all organizations will benefit and see improvements in organizational
performance if they can identify, gain commitment to and implement a set of best HRM
practices. Thus, universalistic perspective maintains that firms will see performance gains by
identifying and implementing best practice irrespective of the product market situation, industry
or location of the firm (Pfeffer, 2001).

However, the notion of a single set of best HRM practices has been overstated. There are
examples in every industry of firms that have very distinctive management practices, distinctive
human resources practices which shape the core competences that determine how firms compete.
What works well in one organization will not necessary work well in another because it may not
fit its strategy, technology or working practices. According to Becker et al (2001),
organizational high performance work systems are highly idiosyncratic and must be tailored
carefully to each firm’s individual situation and specific context in order to provide maximum
performance. These high performance work practices will only have a strategic impact therefore,
if they are aligned and integrated with each other and if the total HRM system supports key
business priorities. This approach therefore ignores potentially significant differences between
organizations, industries, sectors and countries.

The idea of best practice might be more appropriate for identifying the choices of practices as
opposed to the practices themselves. The good practices that do well in one successful
environment should not be ignored altogether. Benchmarking is a valuable way of identifying
areas of innovation and development that are practiced to good effect elsewhere by leading
companies. But it is up to the firm to decide what may be relevant in general terms and what
lessons can be learnt that can be adopted to fit its particular strategic and operational
requirements.

2.2 Contingency theory

The contingency theory, otherwise known as best fit HRM, there are no universal prescription of
HR policies and practices. It is all contingent on the organization’s context, culture and its
business strategy (Wright & Snell, 2005). Contingency scholars have argued that HR strategy
would be more effective only when appropriately integrated with a specific organizational and
environmental context. The best fit theory emphasizes the importance of ensuring that HR
strategies are appropriate to the circumstances of the organization, including the culture,
operational processes and external environment. HR strategies have to take account of the
particular needs of both the organization and its people. It explores the close link between
strategic management and HRM by assessing the extent to which there is vertical integration
between an organization’s business strategy and its HRM policies and practices (Schuler &
Jackson, 1987; Dyer, 2005; Mahoney & Decktop, 2006).

Wright, McMahan and McWilliams (2004) state that vertical integration between business
strategies or the objective of the business and individual behavior and ultimately individual, team
and organizational performance is at the fore of core models of SHRM. Inherent in most
treatments of fit is the premise that organizations are more efficient and/or effective when they
achieve fit relative to when a lack of fit exists (Legge, 2005). This vertical integration or ‘fit’
where ‘leverage’ is gained through procedures, policies and processes is widely acknowledged to
be a crucial part of any strategic approach to the management of people (Dyer, 2005).The best fit
therefore ensures an explicit link or relationship between internal people processes and policies
and the external market in business strategy, and thereby ensures that competences are created
which have a potential to be a key source of competitive advantage (Wright, Gardner & Allen,
2005).

According to the contingency approach, SHRM is not the ultimate factor that contributes to
improved firm performance; it has to be integrated with other factors and the impact of HR
practices in firm performance is conditioned by an organization’s strategic posture. A firm’s
approach to competition depends on, or makes use of the talents and capabilities of employees,
then HR practices would be more likely to have an impact on performance; otherwise the
connection between HR and performance might be minimal.

One criticism often leveled at the contingency model is that it tends to over-simplify
organizational reality. In attempting to relate one dominant variable to the organization (for
example, compete on innovation, quality or cost) to another internal variable, they tend to
assume a linear, non-problematic relationship.

According to Purcell (2001), this theory is limited by the impossibility of modeling all the
contingent variables, the difficult of showing their interconnection, and the way in which
changes in one variable have an impact on others. Boxall and Purcell (2003) further emphasize
the complexity of matching HR and business strategy by stating the need to keep up with
ongoing environmental change. They bring attention to a model by Wright (2005) asserting that
SHRM should simultaneously promote fit and flexibility to cope with the future. However,
responding to those external demands may undermine the possibility of achieving internal fit
(Legge, 2005). Models of external fit fail to recognize the needs of employees. More evident in
highly competitive markets, businesses cannot survive without balancing the pressures from
social norms, labour laws and critical employee interests. Conclusively, an alignment of business
and employee needs is needed. The best fit school also lacks emphasis on the internal context of
individual businesses within the same sector and the unique characteristics and practices that
may provide its main source of sustainable competitive advantage.

2.3 Configurational theory

A strategy’s success turns on combining external fit and internal fit. A firm with bundles of HR
practices should have a high level of performance, provided it also achieves high levels of fit
with its competitive strategy (Richard & Thompson, 1999). Emphasis is given to the importance
of bundling SHRM practices and competitive strategy so that they are interrelated and therefore
complement and reinforce each other. Implicit in is the idea that practices within bundles are
interrelated and internally consistent, and has an impact on performance because of multiple
practices. Employee performance is a function of both ability and motivation. Thus; there are
several ways in which employees can acquire needed skills (such as careful selection and
training) and multiple incentives to enhance motivation (different forms of financial and non-
financial rewards.)

A key theme that emerges in relation to best-practice HRM is that individual practices cannot be
implemented effectively in isolation (Storey, 2007)) but rather combining them into integrated
and complementary bundles is crucial. MacDuffie (2005) argues that a ‘bundle’ creates the
multiple, reinforcing conditions that support employee motivation, given that employees have
the necessary knowledge and skills to perform their work effectively (Stavrou & Brewster,
2005). In the configuration school, cohesion is thought likely to create synergistic benefits which
in turn enable the organization’s strategic goals to be met.

The aim of bundling is to achieve coherence which exists when a mutually reinforcing set of HR
practices have been developed that jointly contribute to the attainment of the organization’s
strategies for matching resources to organization needs, improving performance and quality and
achieving competitive advantage in commercial enterprises. The approach of bundling is holistic
as it is concerned with the organization as a total entity and addresses what needs to be done as a
whole in order to enable it to achieve its corporate strategic objectives. The notion of a link
between business strategy and the performance of every individual in the organization is central
to ‘fit’ or vertical integration. Internal fit advocates bundles of practice, to ensure that
organizations gain benefits from implementing a number of complementary practices rather than
only a single practice (MacDuffie, 2005).Most models of best fit focus on ways to achieve
external fit. The most influential model of external fit is that from Schuler and Jackson (1987)
which argues that business performance will improve if their HR practices support their choice
of competitive strategy: cost leadership, quality enhancement and innovation. Under this model,
organizations need to work out the required employee behaviors to implement a chosen
competitive strategy and devise supporting HR practices to enable those behaviors to be
encouraged in the workforce. Vertical integration can be explicitly demonstrated through the
linking of a business goal to individual objective setting, to the measurement and rewarding of
attainment of that business goal.

Schuler and Jackson (1987) defined the appropriate HR policies and practices to ‘fit’ the generic
strategies of cost reduction, quality enhancement and innovation. The significant difference
between the contingency and configurational approach is that these configurations represent non-
linear synergistic effects and high-order interactions that can result in maximum performance
(Delery & Doty, 2000).

Wilkinson (2002) note that the key point about configurational perspective is that it seeks to
derive an internally consistent set of HR practices that maximize horizontal integration and then
link these to alternative strategic configurations in order to maximize vertical integration and
therefore organizational performance. Thus put simply, SHRM according to configuration
theorists requires an organization to develop a HR system that achieves both horizontal and
vertical integration. The configuration approach contributes to the SHRM debate in recognizing
the need for organizations to achieve both vertical and horizontal fit through their HR practices,
so as to contribute to an organization’s competitive advantage and therefore be deemed strategic.
The use of performance management practices and competency frameworks are typically
adopted to provide for coherence across a range of HR activities.

Strategic Human Resource Management and Firm Performance

According to Armstrong and Baron (2004), people and their collective skills, abilities and
experience, coupled with their ability to deploy these in the interests of the employing
organization, are now recognized as making a significant contribution to organizational success
and as constituting a major source of competitive advantage. The practices of SHRM such as
resourcing, training and development, employee relations and reward management are concerned
with how people are employed and managed in organizations so as to achieve competitive
advantage through the strategic deployment of a highly committed and capable workforce. Cole
(2004) emphasize that the HR function brings in the strategic value of people in organization by
making contribution to value added and contribution to competitive advantage. The organization
relies on HR as its employees. Effective HRM strategy systematically organizes all individual
HRM measures to directly influence employee attitude and behavior in a way that leads business
to achieve its competitive strategy (Huang, 2001). In view of the fact that the goals and the
necessities of each of the competitive strategy types are different, the management of HR of the
firm should be aligned with the overall corporate strategy. The firm can thus obtain a competitive
advantage and thus achieve superior performance (Kelliher & Perret, 2001).

There has been a debate by numerous researchers whether SHRM should always be positively
related to firm performance. Universalistic scholars argue that there is a universal set of HRM
best practices that can maintain a firm’s performance (Lau & Ngo, 2004). Contingency scholars
hold different points of view and argue that the assumptions underlying the HRM strategy-
performance link are applicable only under high external fit conditions, termed the ‘best fit’
school (Boxall & Purcell, 2000; Bamberger & Meshoulam, 2000).

Delery and Doty (2000) proposed the notion of the configurational perspective which focuses on
how unique patterns or configurations of multiple independent variables are related to the
dependent variable, by aiming to identify ideal type categories of not only the organizations but
also the HR strategy. In most firms today, it is the employees’ skills and commitment that create
competitive advantage for an organization. It is, therefore, important that organizations truly
leverage on the workforce as a competitive weapon to develop a competitive advantage.

Although most of the studies speak of SHRM practices leading to performance, such a one-way
line of causation is unsatisfied (Edwards & Wright,2001).The usual key critique of SHRM and
organizational performance is that sound theoretical development that explains how such HR
practices operate is absent (Becker, Guest & Huselid,2001). In an effort to address such
theoretical developments in this area, researchers have proposed further studies to consider
intermediate linkages between SHRM and organizational performance (Ferns et al., 2008).
Accordingly, a better understanding of the role of SHRM in creating and sustaining
organizational performance and competitive advantage should be achieved through further
theoretical development and empirical evidence.

Most studies examining the relationship between SHRM practices and organization’s
performance have been conducted mostly in developed countries like United States and United
Kingdom,(Purcell,2003; Guest,2003; Marchington & Wilkinson,2007; Leung,2003;Grant,2008)
and that only a few researchers have measured the mediators and addressed their importance.

The majority of this work in SHRM adopts the resource-based view perspective which tends to
ignore contextual variables, particularly competitive strategies, which influence organizational
performance.

CASE STUDY

ASDA is one of the reputed retailer companies of WAL-MART which was formed in 1965 by a
group of farmers from Yorkshire and its activities are still mainly based in the north of Britain. It
expanded south in 70's and 80's , in 1989 buying rival change Gateways Superstores which is
offering shoppers everything from Frank furthers to Diamond rings. ASDA is the second largest
food seller that operates 370 stores from where primarily sell groceries and apparel, also the
stores which are situated in different parts of the UK sell CDs, books, DVD's, House wear
financial services, take away meal etc.

The Strategic Human Resource Management of ASDA which has developed its overall
activities, because every year ASDA recruits 10,000 workers, 10,000 permanent staffs to work as
little as 10 weeks a year. ASDA always targeted people over 50 and it has already employed
22,000 people aged over 50. For managing their SHRM ASDA's employee’s trainings is the
highest in the market. Every year they recruit fresh trainee employee to build a proactive team
for the management. (http://www.allbusiness.com/retail-treade/4297631-1.html)

As the part of SHRM management ASDA follows following structures of management:

ASDA

Corporate level Business level Operational level

Board of Directors All regional managers Line managers

Chief executive officer (CEO) Line Supervisors etc.

Country Directors

Chairman
Chief Financial Officer (CFO)

Chief Technical Officer (CTO)

Divisional Head

By this structure ASDA monitored and supervised all the activities while they ensure the power
and position of that structure by its unique policy. For managing Strategic Human Resource
Management ASDA assists organization to meet the needs of their employees in the best way
they can, so that company goals can be promoted. It also manages people proactively, because it
requires planning ways for ASDA to meet the needs of its employees, thinking ahead and also
helping the employees to meet the needs of the organization. This process changes the outlook
and affects the way things are done at this business site, in others words it help to integrate
modern ideas and models into the traditional Human Resource practices to come up with better
solutions which not only benefit the employees, but the organization. It helps the organization
from the hiring of employees, to the training, assessment and discipline

For proper employee management by ASDA it has affected the organization significantly,
because ASDA be aware about the employees career and development resulting reducing time
frame of recruitment and selection process, retention staff in the organization, creates the
productivity of the employee by developing training programs. It also arranges career programs
for the employee which builds the employees loyalty towards ASDA which gives them unique
efforts to fight with competitors in the market.

Strategic Human Resource Management is the process of Human resource Management for a
long period of time which helps organization to achieve its long term goals. As a part of this
activities, ASDA maintains high standard of Human Resource Management through its unfair
and competitive employee’s selection, motivation and training which given ASDA to be almost a
market leader in the UK super market. It has established companies overall growth, revenue and
satisfaction of stakeholders. (According to my understanding during the class period)

From the ASDA business site it is viewed that it has announced plans to create 9000 jobs in the
UK through a mixture of new stores (20+new stores + extensions to existing stores), product
range extensions in terms of non-food selling space named 'ASDA living' and others business
expansion like home shopping, online shopping via-ASDA direct.
It sounds like an ambitious growth plan, although ASDA needs to keep growing quickly just to
maintain its relative market share, where ASDA planed 179000 employees employ in the year.

President and CEO of Wal-Mart International, Dong McMillan thanked Andy Clarke for his
leadership role in the development of the ASDA business during his times as president and CEO
and in other roles during his 16 year career at the retailer ''I am extremely proud of the
management team at ASDA and the contribution that each of our nearly 170,000 colleagues
makes every to serve our customer. We are very well positioned to continue to win in the UK
market'' [http://your.asda.com/2010/4/12]

From the discussion above it has been found that ASDA has been serve the customer promptly
through their proactive management team which has impacted ASDA to improve its business
growth revenue which attracts stakeholders such as employees, customers, suppliers,
government, local community and competitors etc. Nowadays ASDA stakeholders feel confident
as they invest as they could. Therefore, as a global company ASDA which is maintain its SHRM
policies resulting to achieve overall growth of its business.

Conclusion

As a part of HRM development ASDA has been taking more initiatives in its operation, because
every year ASDA recruited highly educated trainee officer in their organization. As well as they
arranges graduate programs for hunting talents to their organization. Moreover, they provide
training for improving the skills of employees and prepared them to perform duties for next
designation. There are so many others programs which has been conducted by ASDA such as
communication with all levels of employees, stakeholders etc. Therefore, the HRM management
of ASDA has got success in its operation by which organization achieves its strategic goals.

.
STATEMENT OF THE PROBLEM

Impact of Human Resource Management practices on organizational performance has been a

widely researched area. Result of studies, from developed countries to developing countries;
have been time and again showing that HR practices have significant impact on organizational
performance. This study assessed the impact of strategic human resource management on
organizational performance and investigates impact of strategic human resource practices on
organization performance. Although, it was accepted that HRM is positively related to
organizational performance. There is a great need for additional evidence to support the HRM-
performance relationship from different contexts. As a result to develop a better understanding
the research is carried to know the benefits to practice the HR on organizational performance.

OBJECTIVE OF THE STUDY

In order to materialize this objective, the following specific objectives were considered.

 To address the linkage between HR practices and organizational performance.

 To understand the impact of SHRM on organizational performance.

HYPOTHESES

On the basis of extensive literature review the hypotheses were developed for the study.

They are:

Hypothesis 1: SHRM has an impact on organizational performance.

RESEARCH METHODOLOGY

The aim of this study is focused on the impact that has strategic management of human resources
in achieving organizational performance. This study is based on secondary sources of data. The
study was conducted through the collection and analysis of various publications on this field.
The secondary source, refer various publications that have been made in this area about
empirical studies, various academic debates and analyzes the different findings. These
publications have been published in various journals, conferences, books and websites

LIMITATION OF THE STUDY

 The study focused on the impact of Human Resource Management practices on

organizational performance.
 The study further limited to data collected through secondary sources.
 DATA COLLECTION, ANALYSIS AND PRESENTATION
STRATEGIC HUMAN RESOURCE MANAGEMENT

According to Werbel and DeMarie (2005), HRM practices create procedures that constitute the
building of employees’ knowledge and skills throughout the organization to promote valued and
unique organizational competencies which support competitive advantage. Strategic HRM is a
new paradigm in managing HR in the modern organization which is hinged on the understanding
that the most critical resource that any organization must provide itself of is HR, since it is the
HR that is responsible for coordinating the other factors of production to spur corporate
performance. Strategic HRM aims to achieve strategic fit. It produces HR strategies that are
integrated vertically with the business strategy and are ideally an integral part of that strategy.
Vertical integration is necessary to provide congruence between business and HR strategy so that
the latter supports the accomplishment of the business strategy and helps to define it. SHRM is
also about horizontal integration which aims to ensure that the different elements of the HR
strategy fit together and are mutually supportive (Armstrong, 2008). It enables strategic decisions
to be made that have a major and long-term impact on the behavior and success of the
organization by ensuring that the organization has the skilled, committed and well-motivated
employees it needs to achieve competitive advantage.

Cooke et al (2005) asserted that SHRM is an efficient function that copes with environmental
changes. It directly and indirectly benefits companies because it changes passivity into initiative,
transmits organizational goals clearly and encourages the involvement of line managers.
Marchington (2008) argue that SHRM positively influences firm performance because it
generates structural cohesion, an employee-generated synergy that propels a company forward,
enabling the firm to respond to its environment while still moving forward. Cooke et al (2005)
investigated the HRM practices of firms in declining industries. They found that most high
performance firms adopted SHRM measures. Conversely, low performance firms tended to
employ conventional methods. Various researchers (Appelbaum et al., 2000; Guest et al., 2000;
West et al., 2002; Purcell et al. 2007) have found a positive relation between HRM practices and
firm financial performance. They found that the strategic orientation of HR in high productivity
firms differed obviously from that in low productivity firms.

Developments in SHRM thinking are thus explored through the best-fit, best-practice and
configurational approaches which have a profound impact in the understanding of the
contribution SHRM can enhance organizational performance, through increased competitive
advantage and added value. Indeed, it becomes clear that whether the focus of SHRM is on
alignment with the external context or on the internal context of the firm, the meaning of SHRM
can only be really understood in the context of organizational performance, whether that be in
terms of economic value added and increased shareholder value; customer value added and
increased market share or people added value through increased employee commitment and
reservoirs of employee skills, knowledge and talent. According to Guest (2001), theoretical
research shows that SHRM practices are not standardized and as such researchers tend to select a
set of SHRM practices depending on the theoretical perspective used. Regarding which HR
practices are relevant, the literature often focuses on bundles of HR practices as determinants of
firm performance (Lepak et al., 2005). The bundle of HRM practices for this study is adopted
from the study by Ahmad and Schroeder (2003) and includes: selective resourcing, training and
development, use of teams and decentralization, sharing information and incentives on
performance.
STRATEGIC HRM AND PERFORMANCE

Research between strategic HRM and business performance has dominated the academic and
practitioner debate for more than two decades. However, most studies and publications in the
field of HRM have defined the concept in terms of individual practices. According to Noe et al.
(2007), refers HRM practices and policies that influence behaviours, attitudes and performance
of employees. They are focused on several important practices which, in turn, can positively
impact organizational performance, such as human resource planning, recruitment, selection,
training and development, compensation, performance management and employee relations.
Pfeffer reshapes these practices into seven HRM practices; these practices are expected to
enhance organizational performance and enable the organization to gain a competitive advantage
(1998). Such practices are detailed as follows (Boxall, Purcell and Wright, 2007):

 Employment security.
 Selective hiring of new personnel.
 Self-managed teams and decentralization of decision-making as the basic principles of
organizational design.
 Comparatively high compensation contingent on organizational performance. o Extensive
training.
 Reduce status distinctions and barriers, including dress, language, office arrangements,
and wage differences across levels.
 Extensive sharing of financial and performance information throughout the organization.

Figure 1 shows the pattern of connectivity between HRM and performance. Through this model
is reflected in detail the connection that exists from business strategies to organizational
performance measured by financial indicators. According to Michael Armstrong (2006), in the
center of this model is the performance as a function of the Ability + Motivation + Opportunity
(AMO). Development of human resources strategy comes after is crafted business strategy. But
before the drafting and formulation of business strategy should have analyzed competences of
the staff, the way how they motivate, the types of skills and knowledge employees. It is precisely
this workforce that will achieve the performance indicators. So, the realization of business
strategy comes through integration of workforce opportunities, their expectations and other
factors that influence inside and outside the organization. So, it is easier tracking of a human
resources strategy and adaptation strategies with previous practice and practice to be followed
for the implementation of performance. The performance will be implemented successfully to
achieve organizational performance satisfaction from reaching employees, their motivation,
effective management of HR by production high quality products.

HR EFFECTIVESS

BUSINESS

STRATEGY
HR QUALITY OF
PRACTICES HR OUTCOMES GOODS &
SERVICES FINANCIAL
EMPLOYEE PERFORMA
COMPETENCE NCE
COMMITMENT
HR
FLEXIBILITY PRODUCTIVIT
STRATEGY
Y

Figure 1
In HRM-performance research, the performance outcomes of HRM can be viewed in different
ways. HRM researchers have mostly referred to Dyer and Reeves’ (1995) classification of
performance outcomes as follows:

 HR-related outcomes, such as turnover, absenteeism, job satisfaction, commitment.

 Organizational outcomes, such as productivity, quality, service, efficiencies, customer
satisfaction.
 Financial accounting outcomes, such as profits, sales, return on assets, return on
investment.
 Capital market outcomes, such as market share, stock price, growth (Boxall, Purcell and
Wright, 2007).
THE ROLE OF STRATEGIC HRM ON PERFORMANCE

Strategic management of human resources represents a transformation that is relatively new in

the field of human resource management. An important role of strategic human resource
management is about focusing the management in employees as a tool to gain competitive
advantage. Now, organizations are made aware that successful human resources policies and
practices of appropriate can increase performance in various areas such as productivity, quality
and financial performance.

Performance management is a planned process in which key elements are different

measurement, feedback, positive reinforcement and ongoing dialogue between managers and
employees. It has to do with measurement results in the form of performance achieved in
comparison with the expectations expressed as objectives. Also, it has to do with the inputs and
values. Inputs are the knowledge, skills and behaviors necessary to produce the expected results.
Needs are identified by defining these requirements and evaluate the degree to which the
expected levels of performance are achieved through effective use of knowledge and skills,
appropriate behavior.

Performance management strategy has to do with all the business and not just the managers. So
managers are not only responsible for delivering the required performance. Managers should
have the confidence to distribute authority and responsibility throughout the organization. In a
sense, managers need to collaborate and consider as part of their own people in order to report on
achieving the required performance. Managers and their teams are jointly responsible for the
results and are both involved in agreeing what they should do and how they should do it.
Performance management processes are part of sweeping across the organization. Managers and
other employees of the organization should work together to jointly commit to achieving the
performance.

Performance management strategy should focus on the development to a continuous and flexible
process involving managers and all the organization that operate as a single team. This should
determine how they can best work together to achieve the required results. This makes it possible
to focus on the planning of future performance and performance improvements existing. HRM
Strategy provides the basis for regular dialogue and frequent between managers and other
employees about performance needs and further development of the organization. Strategic
human resource management may bring a number of benefits to the organization (Brewster et al.,
2000):

1) Contributing to the goal accomplishment and the survival of the company,

2) Supporting and successfully implementing business strategies of the company,

3) Creating and maintaining a competitive advantage for the company,

4) Improving the responsiveness and innovation potential of the company,

5) Increasing the number of feasible strategic options available to the company,

6) Participating in strategic planning and influencing the strategic direction of the company as an
equally entitled member of top management,

7) Improving cooperation between the HRM department and line managers.

HOW SHRM IMPACTS ON ORGANIZATIONAL PERFORMANCE

Many organizations face a volatile market situation. In order to create and sustain competitive
advantage in this type of environment, organizations must continually improve their business
performance. Increasingly, organizations are recognizing the potential of their human resources
as a source of sustained competitive advantage. Linked to this, more and more organizations are
relying on measurement approaches, such as workforce scorecards, in order to gain insight into
how the human resources in their organization add value.

The increasing interest in measurement is further stimulated by a growing number of studies that
show a positive relationship between human resource management and organizational
performance. The relationship between HRM and firm performance has been a hotly debated
topic over the last two decades, with the great bulk of the primary scientific research coming
from the USA and, to a lesser extent, the United Kingdom. Both organizations and academics are
striving to prove that HRM has a positive impact on bottom line productivity. The published
research generally reports positive statistical relationships between the greater adoption of HR
practices and business performance .Sample research on the link between HR and organizational
performance can be seen in Table 1.

In a world in which financial results are measured, a failure to measure human resource policy
and practice implementation dooms this to second-class status, oversight, neglect, and potential
failure. The feedback from the measurements is essential to refine and further develop
implementation ideas as well as to learn how well the practices are actually achieving their
intended results.

Researcher / Author Research Outcome

Arthur (1990, 1992, 1994) Data from 30 US strip mills Firms with a high commitment
used to assess impact on strategy had significantly
labour efficiency and scrap higher levels of both
rate by reference to the productivity and quality than
existence of either a high- those with a control strategy.
commitment strategy or a
control strategy.
Huselid (1995) Analysis of the responses of Productivity is influenced by
968 US firms to a employee motivation;
questionnaire exploring the financial performance is
use of high performance work influenced by employee skills,
practices, the development of motivation and organizational
synergies between them and structures.
the alignment of these
practices with the competitive
strategy.
Huselid and Becker (1996) An index of HR systems in Firms with high values on the
740 firms was created to index had economically and
indicate the degree to which statistically higher levels of
each firm adopted a high- performance.
performance work system.
Becker et al (1997) Outcomes of a number of High-performance systems
research projects were make an impact as long as
analyzed to assess the strategic they are embedded in the
impact on shareholder value of management infrastructure.
high performance work
systems.
Patterson et al (1997) The research examined the HR practices explained
link between business significant variations in
performance and organization profitability and productivity
culture and the use of a (19% and 18% respectively).
number of HR practices Two HR practices were
 particularly significant: (1) the
acquisition and development
of employee skills and (2) job
design including flexibility,
responsibility, variety and the
use of formal teams.
Thompson (1998) A study of the impact of high The number of HR practices
performance work practices and the proportion of the
such as team working, workforce covered appeared
appraisal, job rotation, broad- to be the key differentiating
banded grade structures and factors between more and less
sharing of business successful firms.
information in 623 UK
aerospace establishments.
The 1998 Workplace An analysis of the survey, A strong association exists
Employee Relations Survey which sampled some 2,000 between HRM and both
workplaces and obtained the employee attitudes and
views of about 28,000 workplace performance.
employees
The Future of Work Survey, 835 private sector A greater use of HR practices
Guest et al (2000). organizations were surveyed is associated with higher
and interviews were carried levels of employee
out with 610 HR professionals commitment and contribution
and 462 chief executives. and is in turn linked to higher
levels of productivity and
quality of services.
Purcell et al (2003) A University of Bath The most successful
longitudinal study of 12 companies had what the
companies to establish how researchers called ‘the big
people management impacts idea’. The companies had a
on organizational clear vision and a set of
performance. integrated values which were
 embedded, enduring, and
collective, measured and
managed. Clear evidence
existed between positive
attitudes towards HR policies
and practices, levels of
satisfaction, motivation and
commitment, and operational
performance.

Table 1. Outcomes Of Research On The Link Between HR And Organizational Performance

Source: Michael Armstrong (2006). Strategic Human Resource Management : A Guide to
Action. Kogan Page. London. p. 73-74.
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, an appropriate
range of HR policies and processes is developed and implemented effectively, then HR will
make a substantial impact on firm performance. Much of the research over the last two decades
has attempted to answer two basic questions: ‘Do HR practices make a positive impact on
organizational performance?’; ‘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.

Guest et al. modeled the relationship between HRM and performance as shown in Figure 1.
Although there are various stakeholders in an organization, the chief strategic goal of any
business is higher financial performance or maximization of wealth for the shareholders.
Financial performance of an organization depends to a large extent on effective operational
performance. The operational performance of an organization is a function of people, process
and technology. For effective interaction of people with technology and process, the people in
the organization have to be competent enough, with the required knowledge, skill and abilities.
Competence of the individual is an important factor that decides operational effectiveness in
terms of providing quality products and services within a short time. HRM practices such as
selection, training, work environment and performance appraisal may enhance the competence of
employees for higher performance.

Obviously, human resources rarely has a direct effect on firm performance. This is particularly
true when the business logic of HR’s effect requires that human resources drive firm
performance through its contribution to effective strategy execution. HR professionals (and line
managers) need to recognize that effective strategy execution is the basis of shareholder value
and that effective strategy execution is a system of intermediate outcomes. Thinking like a
strategy manager means recognizing the importance of the causal relationships between HR
decisions and these intermediate outcomes that ultimately drive strategic success in
organizations. The practice areas covered by HR strategies that impact on performance are
summarized in Table 2.

HR practice area How it impacts

Attracting, developing and retaining high- Matches people to the strategic and operational
quality people needs of the organization. Provides for the
acquisition, development and retention of
talented employees who can deliver superior
performance, productivity, flexibility,
innovation and high levels of personal
customer service and who ‘fit’ the culture and
the strategic requirements of the organization
Talent management Wins ‘war for talent’ by ensuring that the
talented and well-motivated people required by
the organization to meet present and future
needs are available.
Working environment – core values, Develops ‘the big idea’, i.e. a clear vision and a
leadership, work– life balance, managing set of integrated values. Makes the
diversity, secure employment organization ‘a great place to work’.
Job and work design Provides individuals with stimulating and
interesting work and gives them the autonomy
and flexibility to perform their jobs well.
Enhances job satisfaction and flexibility, which
 encourages high performance and productivity
Learning and development Enlarges the skill base and develops the levels
of competence required in the workforce.
Encourages discretionary learning, which
happens when individuals actively seek to
acquire the knowledge and skills that promote
the organization’s objectives. Develops a
climate of learning – a growth medium in
which self-managed learning as well as
coaching, mentoring and training flourish.
Managing knowledge and intellectual capital Focuses on both organizational and individual
learning and on providing learning
opportunities and opportunities to share
knowledge in a systematic way. Ensures that
vital stocks of knowledge are retained and
deals with improving the flow of knowledge,
information and learning within the
organization.
Increasing motivation, commitment and role Encourages people to identify themselves with
engagement and act upon the core values of the
organization and willingly to contribute to the
achievement of organizational goals. Develops
a climate of cooperation and trust, clarifying
the psychological contract.
High-performance management Develops a performance culture that
encourages high performance in such areas as
productivity, quality, levels of customer
service, growth, profits and, ultimately, the
delivery of increased shareholder value.
Empowers employees to exhibit the
discretionary behaviours most closely
associated with higher business performance
 such as risk taking, innovation, knowledge
sharing and establishing trust between
managers and subordinates.
Reward management Develops motivation, commitment, job
engagement and discretionary behaviour by
valuing and rewarding people in accordance
with their contribution.

Table 2. How HR Impacts Organizational Performance

Source: Michael Armstrong (2006). Strategic Human Resource Management: A Guide to Action.
Kogan Page. London. p. 77-78.

FINDINGS AND DISCUSSIONS

Performance management can be defined as a systematic process for improving organizational
performance by developing the performance of individuals and teams (Armstrong, 2006).
According to him, it is a means of getting better results from the organization, teams and
individuals by understanding and managing performance within an agreed framework of planned
goals, standard sand competence requirements. Previous studies have emphasized the importance
of human resource management in the organization. Human resources play a key role in order to
be competitive in the market. A proper management of human resources will enable the
achievement of the objectives required by the organization. The potential use of skills,
knowledge and competencies of employees in the organization would make possible the
realization of organizational performance. Basically, it is also confirmed by other research that
strategic management of human resources has an impact on organizational performance. The
structure of the research, to give a better verification assumption or rejection it, is as follows:

a. Organizations know the concepts of organizational performance and strategic management of

human resources. This theoretical knowledge translates in practical implementation in these
organizations.

b. The organizational performance will have impacts from strategic management of human
resources. So, the study is focused on two sections. In the first section, study is focused on the
theoretical aspects of adoption in organizations. While in the second section, study focuses on
the impact that can provide strategic management of human resources in organization
performance.

CONCLUSION
Since it is clearly understood from academic research that human resources are a source of
sustained competitive advantage, while, traditionally, the costs associated with the development
of HR strategy have been regarded as an operating expense, these costs would be better
considered as an investment in capital assets.

The way an organization manages its HR has a significant relationship with the organization’s
results, a revelation that supports the resource-based view, where business competitiveness is
related, at least in part, to the investments in company specific assets. Although the published
research generally reports positive statistical relationships between the greater adoption of HR
practices and business performance, it should also be kept in mind that many other factors
besides HR practices could influence organizational performance. Also, it is possible that there
are complex relationships between HR practices and other resources of the firm.

The causal linkage between HR and organizational performance will enable the HR managers to
design programs that will bring forth better operational results to attain higher organizational
performance. The focus of the HR management should be to understand organizational
performance processes and design HR practices that influence process and outcome variables.

Organizations are trying to create as much competitive in the market, reaching to manage their
human resources in achieving organizational performance required. Some of the goals are cost
reduction, achieving sales levels, increasing the number of customers, increasing the market
percentage, increasing product quality, innovative products, improve productivity. Human
resources are playing an important role in achieving these performance indicators. But before
that, organizations should realize the expectations required from employees and so the
employees show their skills, be motivated and behave in the manner required by the organization
to achieve performance. Strategic HRM is a detailed process for human resource management
throughout the organization that it’s integrated with the organization's overall strategy. It enables
the organization having employees with the right skills and putting them in positions according
to the level of their qualification and skills. Different authors have tried to give different
definitions for organizational performance. In general, organizational performance is related to
the achievement of the objectives required by the organization. The achieving organizational
performance is a result of the behaviour of employees in the organization. Policies and practices
of organizations motivate employees and they give impact on organizational performance. Some
of these are: human resource planning, recruitment, selection, training and development,
compensation, performance management and employee relations. A link between Strategic HRM
and organizational performance has been developed by author Michael Armstrong. According to
him, the performance is a function of the Ability + Motivation + Opportunity (AMO). By
achieving the expectations of employees, it will be reached the performance required by the
organization. Organizations need to consider human resource as a tool to gain competitive
advantage needed to create appropriate policies and practices.

This study has also reviewed the relevant literature and the considerable discussion and
deconstruction of SHRM, various elements of competitive strategies and the links between these
elements. The researchers have examined the way in which HR policies and practices may be
used to provide coherent and comprehensive HR bundles. This has led to suggestions that there
is one best way in which HRM should be delivered and moreover that this has a positive impact
on organizational performance. Review examining how HR strategies can be aligned with wider
organizational goals has also been examined. Best fit HRM is the idea that HR practice should
and does vary between organizations depending on business strategy or product market
circumstances. This approach is useful not only for countering the more simplistic versions to
reflect organizational reality-at least at a broad level. The approaches view HR as having an
important role in supporting organizational strategy and still play an important role in developing
SHRM. Generic HR processes can benefit from best practice theories while best fit should be
applied when context matters to align management and employee interests. Competitive
strategies are deemed strategic in linking HR policies and practices to the goals of the business
and the external context of the firm, and are therefore contributing in different ways to
performance. Increasingly, many firms are pursuing competitive strategies aimed at cost
reduction, quality improvement and innovation with the goal of gaining competitive advantage
through HR. Conclusively, the contribution that SHRM may make to an organization’s
performance and effectiveness is closely linked to the changes in different business environment
including macro and micro contexts, thus the bundling of these practices with the competitive
strategy of the firm.

REFERENCES
[1] Pfeffer, Jeffrey, (1994). Competitive Advantage Through People: Unleashing The Power of
Workforce, Harvard Business School, USA, p.6.
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4th Edition, Kogan Page, London, p.11.

[3] Porter, Michael E., (1985). Competitive Advantage, Creating and Sustaining Superior
Performance, The Free Press, USA, p.38.

[4] Wernerfelt, Birger, (1984). “A Resource-based View of the Firm”, Strategic Management
Journal, Vol.5, p.172, pp.171-180.

[5] Lado, Augustine A., Wilson, Mary C., (1994). “Human Resource Systems And Sustained
Competitive Advantage: A Competency-Based Perspective”, Academy of Management Review,
Vol. 19. No. 4, p.699, pp.699-727.

[6] Fitz-enz, Jac, (2000). The ROI of Human Capital: Measuring the Economic Value of
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[7] Pfeffer, Jeffrey, (1994). Competitive Advantage Through People: Unleashing The Power of
Workforce, Harvard Business School, USA, p.57.