The association between strategic human resource management and performance

The resource-based view identifies how SHRM could enhance an entity’s outcomes. In line with this view, sustainable competitive advantage arises when an organization builds its resources and capabilities to make it unique from competing firms (Andersen 2010). Human resources are one of the strategic resources that an entity controls. For instance, differences in the outcome of business strategies may reflect the different attitudes and behaviors that employees exhibit in implementing such strategies (Ismail, Omar & Bidmeshgipour 2010). Additionally, the HR policies that an entity implements determine the type of responses that employees exhibit (Ismail, Omar & Bidmeshgipour 2010). Accordingly, to ensure that employee attitudes and behavior reflect the perspective embodied in the business strategy, it is critical to align the HR strategy to such a business strategy. Therefore, in accordance to the resource-based perspective, SHRM would enhance an entity’s performance.

One way that SHRM could enhance business performance is enhancing HRM effectiveness and labor productivity. A study by Wang and Shyu (2008), for instance evaluates how the fit between business and HR strategies affects effectiveness of HR practices and organizational performance. The study obtained its sample from the top 1000 manufacturing companies in Taiwan, from which 181 HRM executives responded to a questionnaire designed to elucidate various variables e.g. the HR strategy, the firm strategy, and labor productivity. The authors posited that a strategy fit occurred where the HR strategy was congruent to the competitive strategy of the business. For instance, when the entity pursued a defender competitive strategy, the fitting HRM strategy was that of accumulation. In a defender business strategy, the entity does not focus on the pursuit of external opportunities but seeks to enhance organization effectiveness internally (Bird & Beecher 1995).   The accumulation HRM strategy seeks to create an environment where the human resources are involved to the maximum to provide skilled services (Bird & Beecher 1995). When the competitive strategy was prospective, Wang and Shyu (2008) considered the fitting HRM strategy to be that of utilization. The utilization HRM strategy involves the acquisition and dismissal of human resources in accordance with short-term business needs (Bird & Beecher 1995).

The findings from the study by Wang and Shyu (2008) indicated that the fit between business and HR strategies directly enhanced HRM effectiveness. Such enhanced effectiveness in turn had a positive effect on labor productivity. The fit between the two strategies also indirectly enhanced the relationship between HRM effectiveness and labor productivity. Such effect of alignment evidences a positive impact of SHRM on performance.

A second perspective linking SHRM to better performance is that of knowledge management. For instance, studies on knowledge management indicate that effective knowledge management enhances employee outcomes such as satisfaction with their jobs (Singh & Sharma 2011). Job satisfaction is one of the determinants of employee turnover. Accordingly, effective knowledge management practices save the entity the costs it would incur in such aspects as recruiting new staff and training them to meet the shortfall created by departing employees. By aligning the HR strategy to the business strategy, entities are in a better position to implement HR policies that help to develop their HR (Ismail, Omar & Bidmeshgipour 2010).

A third perspective linking SHRM and business performance is that of innovation. In a dynamic and highly competitive business environment, innovation is a core ingredient ensuring survival and success (Cohen 2004). To enhance its innovative capacity, Cohen (2004) notes that an entity should create an environment that builds entrepreneurial leadership throughout the organization. Building such leadership is possible only with HR policies that motivate the employees thus encouraging them to remain committed to the organization’s vision. For instance, HR policies that reward employee initiative motivate risk-taking thus resulting into innovative solutions to doing business (Cohen 2004). Evaluating the link between SHRM and performance, Zheng et al. (2007) for instance note that SHRM helps HR practitioners to modify the HR practices and policies to achieve positive business outcomes. Positive outcomes that could result from such alignment, according to the study, include enhanced innovation, improved employee commitment and cost efficiency. Go to part three here.

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