The Contribution of Human Resource Management to Organisational Performance

The human resources of an organization consist of all people who perform its activities. For the purpose of this article, it is important to define further what human resource management is and what it is used for:

"Human resource management (HRM) is concerned with the personnel policies and managerial practices and systems that influence the workforce. In broader terms, all decisions that affect the workforce of the organization concern the HRM function." (Bernadin, H.J.2007). Furthermore Armstrong (2006, p.4) defined it as a strategic and coherent approach of an organisation's most valued assets. - the people working there, who individually and collectively contribute to the achievements of the objectives of the business.

The term Human resource management is therefore also widely known as "Personnel Management" as a description of the process of managing people in organisations.

In a constantly changing world, which requires flexible responses, with strong competition from nearly every continent, due to increased globalisation, it is important for organisations to have some kind of competitive edge. Especially in the service industry, but more generally spoken throughout every industry, the human leverage is the most contributing factor to being competitive and making a difference to customer satisfaction and general organisational performance. Other elements effecting HRM and increasing its importance are technological changes, increasing litigations due to changes in legislations worldwide (e.g. EU) and the changing characteristics of the workforce (e.g. diversity). That is why HRM is important for an organisation to improve the competitive advantage. Professor Pfeffer (cited by Bernadin, H.J., Chapter1, 2007) notes that "traditional sources of success (e.g., speed to market, financial, technological) can still provide competitive leverage, but to a lesser degree now than in the past, leaving organizational culture and capabilities, derived from how people are managed, as comparatively more vital."

The main functions of HRM (Human Resource Management) are to employ people, to develop their resources and to utilises maintain and compensate their services for the organisation. Other HRM functions and activities are falling under the following categories: Firstly the organisational design, because acquiring HRM capability should begin at the origins and involves interactions between people, technology and the tasks to be performed in context with the organisations objectives, goals and strategic plan (e.g. job design, team building, restructuring etc.). Furthermore the staffing, which involves recruitment, employee orientation, selection, promotion and termination processes and the performance management including individual assessments, improving and measuring work performance. HRM is also concerned with employee and organisational development programs to maintain and improve employee skills as well as reward systems, benefits and compliance available for staff (also: laws, policies, health and safety). (Bernadin, H.J., 2007).

Each and every of these functions influences simultaneously organisational performance. One can say that HMR is concerned with maintaining and ideally maximising organisational performance and profit. This is done by managing the human resources with a focus on expanding customer base that gives profit to the company. Under this directive it is obvious that there are many opportunities for HRM to influence organisational performance as HRM plays an important part for the functioning of every single department in an organisation due to the fact that it can take direct influence on the people working there.

HRM practices can be classified in terms of their impact on organisational performance through employee's skills, ability, motivation and the way that work is structured:

Firstly, organisations can adopt various HRM practices to enhance their staff's skills.

HRM cares for the professional development of their workforce and the planning, who is working where with which skills needed. This is mostly done through a job description and people get hired to for fill a certain position in the organisation. For this reason HRM can influence organisational performance beforehand through hiring highly qualified, educated and/or skilled people, which bring all of the required and desired characteristics with them to enhance organisational performance through effective work performance delivered through optimised work processes. Employees can be hired through sophisticated selection procedures designed to screen out the best potential employees. Additionally it would be a cut above to hire multi skilled staff, which is able to cover other staff in cases of sickness, maternity leave and so on. As a practical example one could name Lufthansa, which has deliberate hiring practices. The candidate has to go through several different stages of their selection process starting with sending their CV, making an online test, then a telephone interview and if successful completing an assessment centre with many other candidates over several days, testing team competencies, knowledge, education and required and desired skills. To find out which candidate is the right one to fill the vacancy Lufthansa tests in detail the concentration, analytical thinking, vocabulary and arithmetic competencies as well as tests the behaviour in specific work situations and let them complete online or e-mail tasks. Because of their excellent and complex selection procedures Lufthansa can pride themselves for having highly qualified staff and being very successful in their industry since decades. (Source: http://www.be-lufthansa.com/#/en/lounge/trainingsparcours/)

Second, Delaney et al (1996) suggested that organisations could improve the quality of current employees by providing comprehensive training and development activities.

He also states that there is considerable evidence that these investments in training and staff development produce beneficial organisational outcomes. HRM for instance determines the interactions between people and technology, which requires extensive training to keep staff up-to-date with new technology changes to beware the competitive edge and may even make the organisation even a leader in terms of new innovations.

Furthermore HRM supporting staff training and development can influence organisational performance through lower staff turnover. Huselid (1995) found that HRM practices such as employee recruitment and selection procedures, compensation and performance management systems, employee involvement, and employee training have a significant impact on employee turnover. This can be seen on the example of Grupo VIPS a Spanish retail and restaurant business, which used diversity HRM approaches to hire foreigners and offered them excellent training and development opportunities. In improving their recruitment, selection and employee training procedures, Grupo VISP was able to expand to 450 establishments in 2007, to lower their staff turnover to an amazing 1.4%, to increase staff loyalty, conscious and sales orientation. (Source: SHRM 1998) Lower staff turnover ensures also that important key staff stays loyal to the organisation as well as that the financial resources for staff training and development are not wasted. Another industry example drawing a connection between staff development and lower staff turnover is the Hilton Hotel group. In a worldwide survey of 1500 'team members' conducted anonymously in May 2006, 40 per cent said that the opportunity for development through Hilton University, the group's online learning platform, was the main reason why they intended to continue their careers with Hilton. A further 49 per cent said it was not the main factor but being given the chance to develop professionally was very important to them. Over 70 per cent of respondents stated that what they learned yesterday during a learning activity can be used in their work today. Kevin Young, General Manager of SkillSoft EMEA commented: "The fact that such a significant number of people are so quickly putting into practice what they've learned is a good example of the value of just-in-time learning. Being able to use new skills and knowledge immediately means that they are more likely to be retained and used again." Maarten Staps, International Learning and Development Manager at Hilton who had responsibility for the study, said: "After conducting this study for the second year, it is encouraging to see that an even greater proportion of team members are remaining loyal to Hilton due to the development opportunities offered through Hilton University. This will have an inevitable impact on the business, both in terms of increased productivity as well as in reduced recruitment costs." (Source: HRM Guide, 5^th August 2006)

But however well the staff might be trained, this is worth nothing without a certain level of motivation. Many factors influence staff's motivation and attitude to work.

HRM can effect the motivation in several ways, for example it can implement merit pay or incentive compensation systems for achieving specific goals. For example, changes in pay and promotion policies might be expected to alter employee perceptions of reward orientation and possibly of equity and fairness. If a retail business like Marks & Spencer offers its employees rewards in relations to their individual sales it will increase their motivation and make them more sales oriented and competitive, due to the personal advantage. This will simultaneous increase the sales of the organisation and thus the profit. Marks and Spencer's have more detailed three-month bonus periods in which if a store makes a higher profit than what is predicted they will receive a bonus. Marks and Spencer's also gives gift vouchers for hard work, staff discount scheme of 20%. The company also works with motivational theories: "M&S use Maslow's theory by helping staff set and reach their goals at work, they encourage their staff and praise them when they are doing well and staff also receive rewards for good work. M&S use Herzberg's two factor theory by treated their employees well by giving them a good salary, good working conditions and by giving them sick pays and pension's schemes, they also give their staff responsibilities to make them feel like there are important to the company and motivate them. M&S use Mcgregor's theory by having managers who have trust in the workers and help them improve and do their best and also by giving managers bonuses to motivate them." (123helpme.com, 26^th March 2009)

Reward systems will also affect organisational performance through increasing quality of products and services, as it is proven that in companies with a focus on enhancing human capital the quality of their outcomes is much higher than in organisations without a progressive HRM policy. (Gelade, A. et al, 2003). Especially in the service industry, where the products are intangible, inseparable and that is why highly dependent on the staff, which delivers them. The quality of the service is highly influenced by the motivation, spirit, training and choice of staff. There is just one chance to get a service right and it is HRM's duty to enhance their staff to achieve a perfect outcome.

"The organisational performance is also influenced through a favourable work climate, which is the "weather" in an organisation, because progressive HRM practices foster employee's well being and motivation and this in turn leads to enhanced performance."( Stem, K.December 2006) How managers and the HRM department perform and treat their staff is crucial for a good work climate and thus the organisational performance. "One example would be to protect staff from arbitrary treatment, perhaps through formal grievance procedures."(Source: Ichniowski, 1994) To provide employees with the needed support (back-up), challenges to for fill their needs and stretch their abilities and clarity will increase motivation and loyalty because it is important to know their roles and responsibilities within the overall organisation to be able to work effectively.

HRM also sets the tasks to be performed within the organisation, how many staff are required and which vacancy involves which tasks, that is why the staffing level plays for example an important role for organisational performance and staff's motivation, as it is important to have the right numbers of staff, how much over hours they have to work and the professional development (e.g. percentage of how many staff members are trained for direct customer services). Too less staff might lead to an immense workload for the others, leading further to demotivation, poor customer service and poor organisational processes. Too much staff will increase unnecessary costs, might bore staff because it is to less to do for them and might lead to confusion. If HRM is planning effectively ahead with the number of staff required it reduces costs to an optimum and ensures that working processes are running smooth, this in return leads to effective organisational performance.

HRM should also ensure a realistic level of over hours, which does not leave their employees with too less leisure time. Loyal staff does not mind working a couple hours more as long they are paid but if the pressure is too high, staff will get demotivated, deliver poorer performance and might even leave the organisation. That is why HRM should monitor if their staff is working too many over hours and over think if it might be necessary to hire more employees to assist and facilitate the work for the others. Perfect balance of over hours and staff motivation leads to an optimum of workforce use and to good organisational performance.

On the case study of the Bedruthan Steps Hotel one can see in what extend the staff's motivation influences the performance of the organisation. The hotel was opened in 1959 and is in an ongoing process of "going-green". Until now the organisation won many certificates and awards as well as saved immense costs through their ecological and economic strategy. It was also one of the first hotels in the South West to achieve a Gold Green Tourism Business Scheme (GTBS) certification. All this achievements and certificates would have been never achieved without the commitment of the hotel's highly motivated (through involvement) staff. The hotel spokesperson stated: "Without the dedication of the staff the Hotel's policies, objectives and philosophy wouldn't be any more than documents clogging up the computer server. The motivation of the staff towards improving quality whilst reducing negative environmental impacts has been key to the hotel's success." (Source :www.visitbritain.com/en/Images/CS7%20Bedruthan_tcm12-151587.doc)

Finally, Delaney et al (1996) states that how the workplace is structured should affect organisational performance to the degree that skilled and motivated employees are directly involved in determining what work is performed and how this work gets accomplished.

Examples for a good structure would be internal labour markets giving opportunities to employees to improve their position within their organisation, employee participation systems, and work teams. These systems are proven by many researchers to be effective for improving organisational performance.

Lufthansa again delivers a good example of optimal use of their internal labour market. The company had to undertake major restructurings in 2003, which forced parts of their staff to re-orientate in their profession. To support this without loosing their staff, Lufthansa introduced a new personnel placement procedure to which the Group's companies are now also linked up. This commits them to first register all vacancies with the central placement market "JobChange" and thus make them available to staff seeking new posts. This successfully introduced procedure made the implementation process more effective and economical and thus enhanced Lufthansa's performance. (Source: Lufthansa Annual Report, 2004)

Also job security plays an important role to enhance performance, as employees fearing for their job are unlikely to identify efficiency enhancing changes in the work structure. In 2006 Lufthansa made a deal with over 14,000 flight attendants offering job security and increases in their salaries up to 2.5% in return that the flight attendants agreed to give up two vacation days and work two extra hours a month when needed. Not just the flight attendants joined the strategy also ground workers accepted cut in vacation and salary freeze as well as pilots accepting capped salaries, lower entrance payments or longer working hours. This strategy is part of Lufthansa's saving plan and is supported by their staff to enhance their organisations performance in return for job security. (Source: Bloomberg, 5^th October 2005)

An effective work structure will increased financial performance as indexed by productivity, cash flow, and market value because it increases employee's motivation and thus productivity/ performance.

In conclusion it is to say that many academic studies' findings (see reference list) back-up the hypothesis that progressive HRM practices, including selectivity in staffing, compensation, training etc. are definitely positive related to organisational performance (how well a company is doing). Human resources management comprises several processes. Together they are supposed to achieve organisational goals. These processes can be performed in an HR department, but some tasks can also be outsourced or performed by line-managers or other departments. When effectively integrated they provide significant economic benefit to the company and thus enhance its performance.

References:

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