CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Contemporary organizations are constantly confronting pressures to improve service and productivity. The precariousness of the external working environment and the rapid rate of technological change increasingly demand innovative means of improving business performance and securing competitive advantage. People are the recognized prime determinants of competitive advantage and the need for effective manpower management has become more important than ever before.

The task of effective human resource management in 21st century organizations has gone beyond just the HR unit of the organization alone. The responsibility for exploring the potentials of the people in an organization for maximum performance is now shared between senior managers, HR professionals and line managers. However, the challenges facing today’s organization provides an ideal occasion for the diverse HR practices to prove its ability to contribute towards corporate performance.

HR in organizations of the 21st century is viewed as been a critical component in the maintenance and improvement of corporate performance (Bowen & Ostroff, 2004; Ostroff & Bowen, 2000). HR is assumed to affect knowledge, skills, abilities (Schuler & Jackson, 1995), attitudes and behaviour of employees (Guest, 1997), and may affect the performance of an organisation (Den Hartog, Boselie, & Paauwe, 2004). Research shows that the human element in organisations is an indispensable variable as organizations try to stay ahead of competition. Research further reveals that HR can play a decisive role in organisational performance (Arthur, 1994; Becker & Gerhart, 1996; Boselie, Dietz, & Boon, 2005; Guest, Michie, Conway, & Sheehan, 2003; Wood, 1999; Youndt, Snell, James, & Lepak, 1996).

Two factors have been assumed to be important factors in explaining the link between HR and corporate performance. Baron and Kreps (1999) identified these two factors as:

The alignment of HR with the organisation strategy (strategic fit) and

 The alignment of the various HR practices, such as career opportunities, training and appraisal, within the organisation (internal fit)

Baron and Kreps hypothesize that when HR within an organisation is well aligned, and employees know what is expected of them, they will invariably act similarly and have uniform expectations about work and behaviour.

For this purpose of this study, I have adapted Som’s (2006) definition Innovative HR practices. He defined innovative HR practices as any intentional introduction or change of HR program, policy, practice or system designed to influence or adapt employee skills, behaviours, and interactions of employees and have the potential to provide both the foundation for strategy formulation and the means for strategy implementation that is perceived to be new and creates current capabilities and competencies.

Scholars have attempted to recommend designs of various HR systems to achieve organizational goals as well as determine best set of complementing HR practices that will indeed boost performance. However, several limitations spanning from different levels of analysis, size of firm, union status of organizations and business environment has limited the acceptability of several advancements, hence, the need for a contextual study such as this.

STATEMENT OF RESEARCH PROBLEM

With the increasing significance of the ‘human factor’ in contemporary organizations, HR-issues have become core to organizations that deem people as their most essential advantage in achieving organizational goals. Trend in recent times have shown some considerable level of research concentration on the link between HR and corporate performance.

However, a set of issues deeply in need of more consideration is aimed at the identification of strategic HR practices (Wright & Boswell, 2002). Steadiness in the classification or determination of HR practices is rather low. An evaluation of the universalistic perspective of theorizing the HR-performancelink reveals that much is still to be learnt about the combination of practices that produces high performance work systems. The impression given by Becker and Gerhart (1996) reveal that studies vary greatly as to the practices identified as ‘best’ and sometimes even as to whether a HR practice is likely to be positively or negatively related to high performance.

Little is known about how and through which processes HR practices influences corporate performance (Guest, 1997; Becker, Huselid, Pickus & Spratt, 1997; Ostroff & Bowen, 2000). Intermediate processes that ultimately affect performance outcomes are referred to as the ‘black box’ of the HR-outcome link (e.g. Wright & Gardner, 2003). Unlocking the ‘black box’ means identifying HR-objects that are relevant to corporate performance. This remark is concerned with the explanation of the mechanisms linking HR practices to key aspects of corporate performance i.e. how ‘specific’ bundles of HR practices influence performance. Several authors identified the lack of theoretical models to demystify this shortcoming (Ferris et al., 1998; Guest, 1997; Peccei and Rosenthal, 2001; Truss, 2001). It is however pertinent to give attention not only to traditional financial outcomes but also to intermediate and process-related criteria that show the path towards achieving the financial results (Becker and Gerhart, 1996; Becker and Huselid, 1998).

RESEARCH OBJECTIVES

This study is aimed at furthering research on the HR-Firm Performance link by providing answers to the identified conceptual flaws.

The study examines the contribution of consistency among HR practices to corporate performance.

This study seeks to evaluate the combinations of Human Resource Management practices that influence a high performance system in an organization.