CHANAKYA NATIONAL LAW UNIVERSITY, NYAYA NAGAR,

MITHAPUR, PATNA-800001

“THE IMPACT OF HUMAN RESOURCE MANAGEMENT ON

ORGANIZATIONAL PERFORMANCE”

FINAL DRAFT SUBMITTED IN THE PARTIAL FUILFILMENT OF THE COURSE

TITLED-

HUMAN RESOURCE MANAGEMENT

SUBMITTED TO: SUBMITTED BY:

MS. KIRTI NAME: AAYUSH KUMAR

FACULTY OF HUMAN RESOURCE COURSE: BBA LL.B (HONS.)

MANAGEMENT
SEMESTER: 1ST

ROLL NO. : 2201

DECLARATION BY THE CANDIDATE

I, AAYUSH KUMAR, student of Chanakya National Law University, hereby declare that
the work reported in the BBA LL.B (Hons.) Project Report titled “THE IMPACT OF
HUMAN RESOURCE MANAGEMENT ON ORGANIZATIONAL PERFORMANCE”
submitted at Chanakya National Law University is an authentic record of my work carried
out under the supervision of Ms Kirti. I have not submitted this work elsewhere for any other
degree or diploma. I am fully responsible for the contents of my Project Report.

(SIGNATURE OF CANDIDATE)

NAME OF CANDIDATE: AAYUSH KUMAR

ROLL NO: 2201

COURSE: B.B.A LL.B ( Hons.)

SEMESTER : 1st

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

ACKNOWLEDGEMENT

I would like to thank my faculty Ms. Kirti whose guidance helped me a lot with structuring
my project.

I owe the present accomplishment of my project to my friends, who helped me immensely

with materials throughout the project and without whom I couldn’t have completed it in the
present way.

I would also like to extend my gratitude to my parents and all those unseen hands that helped
me out at every stage of my project.

THANK YOU,

NAME: Aayush Kumar

COURSE: BBA. LL.B. (Hons.)

ROLL NO: 2201

SEMESTER – 1ST
 Index

1) Introduction
2) Organizational Performance in Strategic HRM
3) Frequency of Use of Different Measures of Firm Performance
4) Considering Organizational Purpose and Stakeholders
5) Resource Based View of the firm
6) AMO theory and KSA theory
7) Other theories on an individual level
8) HR As a Unique Source of Sustained Competitive Advangate
9) Bibliography

Introduction

Human resource management (HRM) is a relatively young field, which has undergone a rapid
evolution. From its initial roots as the function involved in the administrative aspects of
hiring, firing, and payroll, it has seen stages where Union relations/avoidance, employee
satisfaction, and legal compliance have served as dominant areas of emphasis and expertise.
Most recently a trend has developed toward justifying the expenditures for and existence of
the HR function. HR departments and programs have become an element of the firm's profit
equation to be minimized as a cost and maximized as a value-adding component of firm
strategy. In fact, some in the popular business press have characterized HR departments as
bureaucratic wastelands and suggested doing away with them. Consequently, HR
practitioners have become preoccupied with demonstrating the value of the HR function,
particularly through showing its impact on firm performance. We can trace the origins of
HRM all the way back to Frederick Taylor and Scientific Management. Taylor‘s accounts for
his experiments and ways of ensuring and increasing effectiveness are similar to what we
now know as job analysis, selection, training, and motivation through compensation. From
the early steps of Frederick Taylor, HRM came to be through influences from industrial
psychology, industrial sociology and labour economics theory. The Hawthorne studies of the
1930s further induced the interest in how to make the jobs and work place motivational and
how to enhance employee commitment. During the era of Industrial Relations, the
organisational activities centred on people and employees were grouped together under the
name of Personnel Administration (PA). Here, each activity had a clear objective based on
one specific theoretical model tied to a distinct problem; however, the overall objective of PA
was yet to be stated. Recent academic research has attempted to demonstrate the impact of
HRM on firm performance. Not surprisingly, first attempts at empirical linkage looked in
areas of HRM that were already the most brightly lit by prior research. Early in this stream,
research linked individual HR practices such as training, selection, appraisals and
compensation to firm financial performance. Huselid‘s work linking an index of HR practices
to both financial and market outcomes and MacDuffie‘s study linking bundles of HR
practices to productivity and quality exemplified a progression toward examining the link
between systems of HR practices and performance.

Organizational Performance in Strategic HRM

Wright and McMahan defined strategic HRM as “the pattern of planned human resource
deployments and activities intended to enable the firm to achieve its goals”.

Implicit in this definition is that the ultimate goal of strategic HRM is to contribute to
organizational performance (i.e., the achievement of the firm‘s goals), however that
performance is defined. Considerable research has attempted to test strategic HRM
propositions, usually with the ultimate criterion being how strategic HRM contributes to firm
financial performance. Within the field of strategic HRM, Dyer and Reeves, in their review
of research on the efficacy of “bundling” HR practices, proposed four possible types of
measurement for organizational performance:

1) HR outcomes (turnover, absenteeism, job satisfaction),

2) organizational outcomes (productivity, quality, service),

3) financial accounting outcomes (ROA, profitability), and

4) capital market outcomes, (stock price, growth, returns).

They proposed that HR strategies were most likely to directly impact human resource
outcomes, followed by organizational, financial, and capital market outcomes. This stemmed
both from the facts that HR strategies are primarily designed to impact HR outcomes, and
that the increasing complexity of factors which influence higher level outcomes would
diminish the relative contribution of HR factors to those outcomes. They suggested these
facts, coupled with the reality that human resource outcomes are deficient from the standpoint
of most executives might explain why most of the strategic HR research has focused on
organizational outcomes rather than the other three.

Frequency of Use of Different Measures of Firm Performance

To assess the different types of measures of firm performance that have been used in strategic
HRM research, we examined the published literature linking HR practices to organizational-
level measures of performance. Studies were gathered from the three special issues noted
above, along with other studies of a similar calibre that have appeared in top level HR
journals. We limited our search to published studies because we felt it important to examine
only those measures used in research studies which have passed a refereeing process. We
recognize that this may skew the results if studies using certain types of measures are being
systematically rejected (i.e., it is the referee process, and not the research designs which have
limited the types of measures). However, if that were the case, the implication might only be
that our suggestions regarding performance measures might apply more to reviewers than to
researchers.

Considering Organizational Purpose and Stakeholders

Related to the issue of efficiency/effectiveness is the issue of purpose. To clarify

organizational performance, it is necessary to consider notions of organizational purpose
since outcome evaluation dictates an articulation of purpose.
Purpose is necessary for performance measurement because it is not the simple possession of
an attribute (say a high sales volume or low turnover) but the utilization of that attribute
toward some end that reflects on performance. A specific utilization implies a purpose or goal
toward which the resource can either be used efficiently (and achieve the goal) or used
poorly, not used or used for alternatives). For example, a high sales volume could be used to
pay high wages or it could be used to increase stockholder returns or even to pay for toxic
waste cleanup. Thus having a high sales volume in itself does not necessarily indicate
organizational performance.

Kaplan and Norton (1996) have established the practice of designing performance indicators
around the various stakeholders at the individual level as a means to align managerial
incentive systems with broader organizational goals. This ―balanced scorecard‖ approach
entails identifying the 3-4 major stakeholder groups (usually including shareholders,
employees, and customers), and then developing objective indicators of performance with
regard to each group (e.g., ROE, turnover, and market share, respectively). This balanced
Measuring Organizational Performance scorecard approach has similarly been advocated as a
way for HR to demonstrate its impact on firm performance (Ulrich, 1997; Yeung & Berman,
1997). Another approach has been to combine a variety of seemingly disparate measures into
a composite score for performance. Martell and Carroll's (1995) study of SBU performance is
an example of this multi-dimensional weighted performance measurement system (MDWP).
The items on a MDWP type of measure do not necessarily correlate with each other. In fact,
they are theoretically selected specifically because they do not load onto a single factor.
Maximizing product quality may not maximize profits or minimize costs. It is the Platonic
approach to performance measurement, "moderation in all things," as the key to a long and
satisfied organizational life. The questions remains of how to build a meaningful performance
construct from multi-item factors that must be optimized together.

Resource Based View of the firm

The Resource Based View of the firm (RBV) has also been applied to the HRM-performance
link. RBV is a general way of theorising about how competitive advantage can be achieved
through the possession of valuable and rare resources that are hard to imitate by other
competitors. When applied to the HRM-performance link, one is to consider the employees
as a resource similar to other organisational resources, where the main goal for the HR
practices is to build up the human capital and stimulate the kind of behaviour that creates
advantages for the organisation.

AMO theory and KSA theory

Another theory that has gained much support lately is AMO theory. The idea is that HR
practices influencing the employees Abilities, Motivation and Opportunity to participate are
the practices that will have an impact on organisational performance. This is very similar to
what some researchers call KSA theory. It is advocated that the use of HR practices that:

1) increase the employees‘ knowledge, skills, and abilities (KSAs),

2) motivate employees to leverage their KSAs, and,

3) empowering the employees to do so, will consistently create growth and prosper for its
organisations.

Other theories on an individual level

In addition to perspectives and theories concerning the HR practices and how to view the
HRM potential, there also exist theories that are more specific. These are located at an
individual level and have been applied to the HRM-performance link often related to attempts
at explaining the potential link. Examples of such theories are social exchange theory,
psychological contracts and job characteristics theory. When applying social exchange theory
to the link between HRM and performance, the proposed idea is that organisations that invest
in their employees, will experience employees reciprocating these investment with efforts
directed towards the organisations‘ benefit and interest. This is somewhat similar to the way
of theorising about psychological contracts and HRM-performance. Here, HRM is believed
to contribute to a strong psychological contract between the employer and the employee, with
reciprocating characteristics and expectations. According to job characteristics theory the
core characteristic of autonomy/discretion produces a “critical psychological state” of
experienced responsibility for the work, which in turn leads to improved work effectiveness.
For example, many HR practices, such as those focused on building employee skills and
abilities, empowering the employees, and involving the employees, may contribute to
increase the level of discretion employees have in their role.

HR As a Unique Source of Sustained Competitive Advangate

Recent theoretical work in business strategy has given a boost to the prominence of HR in
generating sustained competitive advantage. According to the resource-based view of the
firm, firms can develop sustained competitive advantage only by creating value in a way that
is rare and difficult for competitors to imitate. Although traditional sources of competitive
advantage such as natural resources, technology, economies of scale, and so forth, create
value, the resource-based argument is that these sources are increasingly easy to imitate,
especially in comparison to a complex social structure such as an employment system is so,
human resource strategies may be an especially important source of sustained competitive
advantage.
 Bibliography

Books

1) Edward E. Lawler III; John W. Boudreau, Achieving Excellence in Human Resources

Management: An Assessment of Human Resource Functions
2) Edward E. Lawler III; John W. Boudreau, Effective Human Resource Management:
A Global Analysis.
3) Ken N. Kamoche ,Understanding Human Resource Management.

Journals

1) Academy of Management Journal

2) South Asian Journal of Management, Vol. 18, No. 1, January-March 2011

Websites

1) https://www.griffith.ie
2) https://www.academia.edu