The Role Of Strategic Human Resource Practices On Business Performance

Cemal Zehir* ,
Büşra Müceldili ,
Songül Zehir

Abstract

Social and economic environment have affected HRM for 1400s and have prompted the development of strategic HRM. Initially personnel function, then labor relations and lastly strategic HRM function played crucial role for gaining business performance. Human resources are important for firms desiring to gain competitive advantage and superior performance. In this way, our study focuses the role of strategic human resources practices namely are; staffing, staffing, training and participation to provide learning-oriented employees. This study offers an integrated framework with empirical support that demonstrates SHRM practices learning orientation and business performance. With a sample of 396 managers (low-middle-top) we investigated whether learning orientation mediated the effects of strategic human resource practices on business performance. Results indicate that SHRM practices supporting learning orientation and business performance. Moreover, the study identifies key SHRM practices that enable firms to be more successful and thus better able to gain superior performance. This study concludes with various practical and theoretical implications.

Keywords: Strategic Human Resource ManagementLearning orientationBusiness performanceHR practices

Introduction

For the last two decades, the reasons of changing employer preferences, globalization and changing political philosophies generate a significant trend to transform human resource management (HRM) into strategic human resource management (SHRM). Hence, HRM has become less employee focused and more organization and strategy focused (Buren, Greenwood, & Sheean, 2011). While traditional HR focuses individual job performance, SHRM focuses business and strategic level outcomes (Huselid & Becker, 2011). Because of this reason Wright and Boswell (2002) called traditional HR as micro research and strategic HR as macro research. The Strategic Human Resource Management discipline is developed by the integration of Human Resource Management practices into the strategic management process (Wright & McMahan, 1992). The aim of the integration is enhancing the superior performance. The term “Strategic Human Resource Management” firstly took place in literature in 1981 with an article titled “Human Resource Management: A strategic Perspective” (Wright & Snell, 1998). Following this publication, there has been dramatically increase on the publication number in the 50-plus years four of the ten most cited papers are in the field of SHRM of the Academy of Management Journal. And approximately 300 articles on HR strategy have been published since the early 1990s (Huselid & Becker, 2011). Although the publications have been written for last 30 years, the intellectual roots of the field can go back to the post- World War 2 (Kaufman, 2001). After World War 2, scholars have frequently used business strategy concept at management, industrial organization and behavioral science. The theoretical motivations of the concepts at these fields benefit from the strategy literature. SHRM theoretical background exploited from the strategy literature too (Becker & Huselid, 2010). In the meantime, SHRM has been defined by varied authors. Guest (1989) defined SHRM, as integration HRM policies into strategic planning. According to Wright and McMahan (1992) Strategic HRM is “the pattern of planned human resource deployments and activities intended to enable the firm to achieve its goals.” The common theme of the definitions is HR practices are accordant with the overall business strategy of the organization. Martell and Carroll (1995) reviewed the literature and classified the characteristic of strategic human resource management based on the different definitions. The first characteristic is SHRM has a long-term focus. Strategic plans for human resources comprise multiple-years. The other characteristic of SHRM is the connection between HRM and strategic planning. The third characteristic is the relationship between SHRM and gaining competitive advantage and enhancing organizational performance. Competitive advantage can be provided by accomplishing valuable goals. Last one is the importance of the increasing responsibility of HRM managers. In the SHRM discipline for supporting different business strategies scholars have been focused both horizontal and vertical fit. Fit demonstrates the pattern of human resources for achieving goals. Horizontal fit can be named as internal fit and emphasizes the harmony of HR practices with other departments in the organizations. Horizontal fit allows the integration of HR functions with other organizational functions. On the other hand, vertical fit can be named as external fit and focuses harmony between HRM practices and organizational context (Green, Wu, Whitten, & Medlin, 2006). At the vertical fit, the strategic management process is harmonized with HRM practices (Schuler & Jackson, 1987). Vertical fit and horizontal fit help HR activities for enhancing the harmony between inside and outside of the organization. Both horizontal and vertical fit contribute the competitiveness of the firm by providing this harmony (Wei, 2006).

The aim of this study is to extend the relationship among strategic human resource practices and business performance. This paper has been divided into three parts. The first section of this paper provides a brief overview of strategic human resource practices, learning orientation and the relationship between the variables, in the second section statistical analyses were done, and findings were compared with recent researches, and lastly conclusion were presented.

  • Literature Review and Hypotheses Development

The Relationship between SHRM Practices and Business Performance

In SHRM literature, most of the scholars paid attention to investigate the relationship between SHRM and performance. While traditional HRM focuses individual performance, SHRM focuses business and strategic level outcomes (Becker & Huselid, 2010) such as business performance, innovation performance. Strategic HR practices should identify and support critical resources, and practices should be internally aligned with one another while managing employees to achieve competitive advantage (Collins & Clark, 2003). Strategic HR practices enable the firms to discover and utilize knowledge and expertise in the organizations (Scarbrough, 2003). Scholars used different SHR practices to measure different performance types. For example, Delery and Doty (1996) emphasized seven key strategic human resource practices while investigating the relationship between financial performance and HR practices. In their study, SHR practices are, career ladders, training, results-oriented appraisal, compensation, employment security, employee voice and broadly defined job. In Currie and Kerrin’s (2003) study, performance management, recruitment and selection, employee interaction and career development are the strategic human resource practices. Chen and Huang (2009) categorize strategic HRM practices as; staffing, training, participation, performance appraisal and compensation. Accordingly, this study focuses five dimensions of SHR practices, including training, compensation, performance appraisal, staffing and participation while investigating the relationship between business performance and SHRM practices.

With the integration of strategic planning and HRM practices, needs of employee skills and abilities is revealed. Training is an important component of HRM practices (Hargis & Bradley, 2011). Organizations target improve job performance via enhancing and increasing employer’s skills, knowledge and abilities by training programs. Training also has positive effects such as providing teamwork among employees and employee productivity. Moreover, training may enhance the competence of employees for higher performance (Paul & Anantharaman, 2003). Organizations become more strategically when applying formal education and training programs. In training programs strategic HR emphasize organizational theory, culture, change, strategic management and job design while traditional HR emphasize limited business acumen (Bectun & Schraeder, 2009).

Performance appraisal is an important human resource management practice that gets attention for more decades by academicians and practitioners. Performance appraisal is the formal process of evaluating organizational members. PA is an important part of strategic approach of the integration HR activities and business plans (Kuvaas, 2006) because the importance of the role of PA in the organization, researchers focuses on the relationship between PA and positive outcomes. The employees’ perception of being valued and being part of an organization affects organizational commitment. Kuvaas (2006) demonstrated the positive relationship between organizational commitment and PA. This human resource practice creates organizational commitment that motivates employees and motivated employees increase performance (Gittell, Seidner, & Wimbush, 2010). Additionally, Roberts and Reed (1996) revealed the positive relationship between PA and workforce performance in their studies.

Beside performance appraisals the other essential strategic HR practice is compensation. For enhancing success in business strategies desirable employee behaviors are promoted by compensation systems (Yanadori & Marler, 2006). According to Delaney and Huselid (1996), employee should focus compensation system for providing employee motivation which is strongly related to high performance.

Organizations provide capabilities and advantage at multiple levels in organization with staffing. Staffing is the process of attracting, selecting, and retaining component individuals to achieve organizational goals (Ployhart, 2006). The design of the selection system, matching key executives to fit strategies and matching the flow of personnel to emerging business strategies comprise the three strategic domain of staffing. Scholars draw attention to systematic implementation of staffing practices in strategic HRM recently because human capital is the key principle of strategic HRM in firm strategy and competition (Colbert, 2004). Strategic human resource researchers argue that high quality human capital has an important role for gaining sustained competitive advantage (Yanadori & Marler, 2006). According to strategic HRM perspective, human capital affects firm performance much more than other forms of capital such as financial or productive capital. Moreover, human capital is important for internal development. Firms succeed internal development if human capital is high in strategic value and uniqueness (Munyon, Summers, & Ferris, 2011).

Recent developments in human resource management and organizational science reflect the importance of employee involvement for sustainable competitive advantage and organizational performance. Many researchers conceive employee involvement is a primary determinant of organizational effectiveness (Pfeffer, 1994). Employee involvement has effects on work outcomes such as absenteeism, turnover, performance and job satisfaction.

Employee involvement includes a wide scope of practices. According to O’Creevy (2001), employee involvement demonstrated the employees’ influences while their working organized and carried out. Employee involvements comprise some practices such as participative decision making, consultation and empowerment. According to Morgan and Zeffane (2003) the scope of decision making is a key element of involvement. The decision-making process contains; problem identification, generating alternatives, selection of solutions, planning implementation and evaluation.

In the SHRM literature relationship between business or firm performance with HR practices is the most common empirical study (Becker & Huselid, 2010). While investigating the SHRM field, it can be seen that there are a lot of academic work on HPWS (Boxall & Macky, 2009). The system of HR practices is sometimes called a high performance works system (HPWS). HPWS is established on base that there exists a system of work practices for core workers in an organization generate superior performance. Scholars point out the harmony between HRM practices and business strategy for achieving superior performance. This view is supported by Chow and Gong (2010) who showed the integration of HRM practices and business strategy and their effects of business performance. The interaction between HRM practices and business strategies can help business effectiveness (Youndt, Snell, & Dean, 1996). According to literature discussed regarding the relationship between strategic human resource practices and business performance the hypotheses can be formulated as follows:

H1: SHRM practice is positively associated with business performance.

The Relationship between Strategic Human Resource Practices and Learning Orientation

Although the importance of learning orientation in the workplace is supported by many researchers, the key role of HR practices on learning orientation is poorly understood. In this study, the impact of strategic HR practices on learning orientation will be investigated.

Firms can use some strategic HR practices such as staffing, training and participation to provide learning-oriented employees.

For organizational success, effective selection and training programs is critical. Poor selection and inadequate training induce high dollar and time costs in organizations. Training is a good way to deal with problems which cause to decrease employee performance and satisfaction. Moreover, training help employees increase qualifications and problems (Schmelter, Mauer, Borsch, & Brettel, 2010). Martocchio and Hertenstein (2003) highlight the impacts of training on learning orientation. Training programs can help HRM researchers and practitioners by building continuous learning philosophy. Training programs reinforce employees to share expertise and experience and utilize what they learn in the work (Chen & Huang, 2009). Learning-oriented employees care about the gaining new skills and expert. These people’s abilities are shapeable, and they try to improve their abilities (Matzler, Renzl, Mooradian, Krogh, & Mueller, 2011) and they can combine skills and knowledge (Gong, Huang, & Farh, 2009). Acquiring employees with trying to improve their ability and focusing learning from new experience is crucial for learning-oriented firms. Having an effective staffing system can help firms in selecting and allocating qualified workforce to do the required tasks (Chen & Huang, 2009). The relationship between learning and involvement is examined in the literature is inadequate. Involvement may attract employees to positively contribute in learning activities (Chen & Huang, 2009). Felstead, Gallie, Green, & Zhou (2010) pointed out that learning can be provided if employees involve in organizing, planning and checking the quality of work.

According to above reasoning, strategic HR practices are helpful to develop learning-oriented employees.

H2: Strategic human resource practices are positively associated with learning orientation.

The Relationship between Learning Orientation and Firm Financial Performance

The strategic orientation of business is an attractive topic in management literature. Strategic orientations are the guiding principles of the firm that direct and influence the firm’s activities and facilitate to enhance firm performance and to gain competitive advantage. The positive relationship between orientations and organizational performance has been demonstrated in the management literature. Major scholars interested with market, technology, entrepreneurial and learning orientations and their connections between business performance. Organizations have to follow rapid technological evolution, competitors and globalization trends besides internal challenges. Today’s contemporary organizations need a strong learning orientation to deal with external and internal challenges. Due to the importance role of learning process in new theories on competitive advantage and superior performance for the last decade learning orientation is investigated in this study. Learning orientation attain competitive advantage by creating and using knowledge and skill. Learning orientation investigate the processes of matching resources with the environment (Hakala, 2011) by understanding the cause changes in behavior. Although learning orientation increase the rate of change in a company, the process of establishing a learning orientation takes time. This process is formed slowly and steadily over time (Baker & Sinkula, 1999). Learning-oriented individuals strive to develop new skills and try to improve their ability (Matzler et al., 2011). They focus learning from new experiences and they desire to work hard (Dragoni, Tesluk, Russell, & Oh, 2009). Moreover, a learning orientation motivates employee for develop his or her competence (Gong et al., 2009).

With learning orientation firms get feedback from customers, channels, and competitors. This feedback is used to develop core competence (Calantone, Cavusgil, & Zhao, 2002). In addition to learning orientation allows firms to predict environmental and market changes and make adjustments (Calantone et al., 2002). Learning oriented firms update their operational systems and they will be driver in the market. These firms are able to learn faster than competitors, and they can gain sustainable competitive advantage. Many scholars have revealed that learning orientation has an important role to firm success. Beside studies show that learning orientation has positive outcomes (Martocchio & Hertenstein, 2003). Learning from markets or technology or process enables to turn opportunities into actions and play a key role of a firm’s performance (Hakala, 2011). A review of the literature finds positive connections between learning orientations and organizational performance. Learning orientation contribute organizational performance directly and indirectly. In the literature, the positive relationship is demonstrated by case studies and empirically. The case studies show the power of learning which was done in the automotive and nuclear industry. In 2002, Calantone et al. extends Baker and Sinkula’s (1999) study and demonstrated the direct effect of learning orientation on firm performance. Therefore,

H3: Learning orientation is positively associated with business performance.

Mediating effect of learning orientation

The preceding hypotheses link the relationships among strategic HR practices, learning orientation and business performance. This paper argues that the relation between SHR practices and performance is mediated by learning orientation. By SHR practices firms strive to generate learning-oriented culture for providing superior performance and sustainable competitive advantage. These ideas and empirical findings point to the mediating role in the relationship between independent variables of SHR practices and dependent variable of performance. Thus, the following hypothesis:

H4: Learning orientation mediates the relationship between strategic human resources practices and business performance.

Figure 1: See figure 01. for hypothesized research model.
See figure 01. for hypothesized research model.
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Figure 2: Hypothesized Research Model
Hypothesized Research Model
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Methodology

Sample and data collection

The data for this study were collected from employees from various size and sector firms in Istanbul. The employees participated to the study are randomly selected completed by managers who are familiar with the strategic human resource practices. Predominantly the companies were from private sector (97.8%). While almost %2 of companies is global, 24% of them are international and most of the participated companies (65%) are national, lastly the rest of companies (9%) are regional. In addition to these categorizing them according to employee number indicates that 45.8 % of companies are small (0-149), 5 % of them are medium-sized (150-249) and 49.2% of the companies are big (more than 250 employment) companies. Demographic profile of participants was determined by frequency analysis as well; mostly (63.1 %) respondents were working on managerial level and most of the respondents have bachelor’s degrees (university: 59.7%, master and doctorate: 18.8 %), moreover participants are 69% male and 31% female.

Measures

The demographic properties which were asked to the participants are prepared by the researchers. The other parts of the questionnaires in this study are developed by using scales adopted from prior studies. All independent and dependent variables are measured using five-point Likert scales (from strongly disagree =1 to strongly agree =5). To measure strategic human resource practices, sixteen questions were asked that were adopted from Chen and Huang (2009). The learning orientation items questions were derived from Hult, Snow, and Kandemir, (2003). We asked five questions for learning orientation. For financial and growth performance twelve questions were adopted from Zahra, Neubaum, & El-Hagrassy (2002), and Lynch, Keller, and Ozment (2000) (See table 01 ).

Table 1 -
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** Correlation is significant at the 0.01 level SD = Standard Deviation () = Cronbach’s alpha

Factor Analysis

We carry out exploratory factor analysis to examine factor structure for the variables and use hierarchical regression analysis in SPSS test the proposed hypotheses. Through hierarchical regression analysis the direct effect of strategic human resource practices and the mediating effect of learning orientation on business performance were tested.

For evaluating factor structure for the variables, varimax rotational, exploratory factor analysis in SPSS software was used. KMO (0,891) and significance value (p=0.00) shows that our sample is suitable for the hypothesis analysis. Since some items were below 0.50 or were having collinearity with more than one factor, and some factors contains one item, it is continued to perform factor analyzing by removing the items one by one till the obtained ideal table. The reliability of each scale was measured with Cronbach's Alpha which have been found above ,60 for all scales (Gupta & Somers, 1996). Table 1 presents Cronbach's Alpha values, means, standard deviations and correlations. Cronbach’s Alpha values are shown using parentheses on the cross of the table. According to correlation analysis, all variables are correlated with each other as expected.

Analysis and Findings

In this study, we conduct regression analysis to test the hypotheses and to examine the relationship among variables. To test our hypotheses, we performed hierarchical regression analysis using SPSS. Table 2 shows the relationships among strategic human resource management practices, learning orientation and business performance. According to linear regression findings, strategic human resource practice (i.e. training) is positively related to business performance, (beta value is 0,256, p=0.04). The findings are consistent with previous studies in the literature for example, Zehir and Doğan (2016) indicated the positive relationship among strategic human resource practices and firm performance and emphasized the role of education. For the relationship between strategic human resource practices and learning orientation, we found that training and compensation (β = .21 p.05) is positively related to learning orientation. Findings are parallel with recent studies. To test the relationship between learning orientation and business performance we found that there is not significant relationship between variables and our findings are inconsistent with the literature.

Table 2 -
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DW: Durbin Watson value

Table columns contain standardized beta coefficients. “bold” values are significant. (**p<0.01, *p<0.05)

Conclusion

This study highlighted the relationship among strategic human resources practices namely are; training, compensation, performance appraisal, staffing, participation and learning orientation and business performance. Specifically, our study empirically shows that training practices are related to learning orientation and business performance which supports prior studies. Our study also indicated that training practices influences learning orientation.

The practical implication of the finding is that HR professionals need to encourage their employees’ to participate various training programs to gain new knowledge and skills.

It is important to investigate the effects of strategic human resource practices on creativity and new product development contexts. For example, these activities facilitate to build new conditions for bringing new ideas and brainstorming in turn provide innovative performance.

Finally, this study is not without limitations. There are some methodological limitations to this study. Specifically, we only investigate manager level. Additionally, the study was conducted in Turkey Marmara Region. To generalize the effects of strategic human resources practices effects cross cultural studies are needed.

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Publication Date

20 December 2019

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https://doi.org/10.15405/epsbs.2019.12.03.30

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Management, leadership, motivation, business, innovation, organizational theory, organizational behaviour

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Zehir*, C., Müceldili, B., & Zehir, S. (2019). The Role Of Strategic Human Resource Practices On Business Performance. In C. Zehir, & E. Erzengin (Eds.), Leadership, Technology, Innovation and Business Management, vol 75. European Proceedings of Social and Behavioural Sciences (pp. 366-376). Future Academy. https://doi.org/10.15405/epsbs.2019.12.03.30

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