Different Business Objectives Require Different HR Practices

Different Business Objectives Require Different HR Practices 1

Running head: DIFFERENT BUSINESS OBJECTIVES REQUIRE DIFFERENT HR

PRACTICES

Different Business Objectives Require Different HR Practices

Walter A. Van Stone

Address: 4607 Spring Creek Arlington, TX 76017

Phone: Email: [email protected]


Abstract

Today, organizations are increasing their competitive advantage by becoming an international

firm; through mergers and acquisitions activity. Not all organizations have the same objectives in

acquiring a firm; cost reduction, retention, or key acquisition of key talent. Thus firms that have

different objectives require the use of different HR practices. Moreover, acquiring an

international firm with objectives of improving both value and efficiency in the global

marketplace will require a focus on the developmental practices of HR executives, such as

mentoring, training, compensation, and cultural differences. This paper will attempt to research

the best HR practices to deal with human behavior challenges; such as stress, negative attitudes,

reduced cooperation and loyalty as well as and turnover.

Introduction

Human resource management is based on multiple HR practices, not separate practices

when investigating the effect of HR methods on individual and organizational performance. In

theory HR practices in an organizational system can be favorable or unfavorable practices.

Understanding the relationship of practices and concepts of HR systems helps the HR function

with its strategic human resource management. Moreover, research in strategic human resource

management (SHRM) has uncovered the relationship between HR practices and organizational

performance. Therefore HR must establish valuable human capital measurements to outcomes-

linking HR practices to business performance. Measurements in most HR functions have been in

processes, and cost rather than delivering value-added outcomes. In today’s competitive business

environment human resource management must rid itself of the old customary HR practices and

reinvent itself by developing and acknowledging new and innovative HR practices. Most


organizations and their employees’ mind-set of innovative HR practices stem from the amount of

innovated changes that occurred rather than the added value of the innovation. Firms with

synergetic high performance work systems, benefit through innovative work practices. To

promote workplace innovation and performance firms must enhance “workplace commitment by

putting people first” (McElroy, 2001, p.327). To do so, employers must earn their employees

trust. Employee trust can play an important part in the success or failure of HR practices. HR

practices must create trust; trust in management, employment, compensation, individuals, groups

and organizationally.

Human Resource System Conceptualization

Jiang, et al. (2009) states the research of human resource management was based on

multiple HR practices, not separate practices when investigating the effect of HR methods on

individual and organizational performance. The authors argue that separate HR practices are not

isolated practices and the employees are affected by multiple practices concurrently. Therefore

there is a need to focus on a human resource system conceptualization.

In theory HR practices in an organizational system can be favorable or unfavorable

practices. The authors argue that there is a need to understand the HR system; “mechanisms

through which HR systems impact employee and organizational performance.”(p.1). Thus a need

to examine an identify components of an HR system.

Within a HR system there are two levels; practice level (higher) and the policies level

(lower). At the highest level HR practices are implemented in organizations so that they may

accomplish their objectives and goals. For example a practice in an HR system might include

performance, innovative and organizational contribution work practices. In the lower level HR

policies are programs, process, and techniques used to accomplish work practices. For example


performance rewards, or pay-for-performance compensation. As a result an HR system

establishes employee behaviors that enhance an organizations effectiveness to realize its goals

(practices) and employee behaviors influence choices about HR practices (policies). Therefore

HR must understand the relationships of practices and concepts of the HR system. (Jiang et al.,

2009)

Understanding the relationship of practices and concepts of the HR system helps the HR

function with its strategic human resource management. According to Jiang et al. (2009) some

HR system practices have an additive, substitutive or synergy outcome. On the other hand some

practices are redundant. The additive relationship is a practice that has “non-overlapping effects

on employee outcomes…two might generate greater effect on the outcome than either one used

alone” (p.2). In the substitutive practice one practice is replaced with another practice, and in a

synergetic practice one practice can build-interact on another practice.

Implicit Human Resource Management Theory

Research in Strategic Human Resource Management (SHRM) has uncovered the

relationship between HR practices and organizational performance. According to Gardner and

Wright (2009) measuring human resource outcomes on business performance is very important.

HR must understand and use measurement systems that show the value of human resources.

Therefore HR must become an income creator and a cost demolisher. To do so they must

establish valuable human capital measurements to outcomes-linking HR practices to business

performance. ( Ramlall, 2003; Wright et al., 2001).

Measurement in most HR functions have been in processes, and cost rather than

delivering value-added outcomes. According to Ramlall (2003) “the new HR is a transformed

role comparing itself to any other function, not only through espoused value creation strategies,


but also through outcomes, qualitative and quantitative measurements and direct relationships to

profitability.” (p.53). However, Wright et al. (2001) suggest that measurement error might exist

in the measures of HR practices that have been used in past research; suggesting “the need to

exercise caution in interpreting…relationship between HR and firm performance” (896); such as

sample size, single-respondent (raters), and systematic errors. The authors recommend that

measures must be taken to lessen the measurement errors. Wright et al. (2003) states, in order for

measurement to be trustworthy reliable and valid “attention should focus on ensuring that the

most knowledgeable rater(s) are used” (p.897), and that instructions are clear as to whom should

complete the survey. In addition it should also be narrowly focused. For example a specific job,

business, and location.

According to Gardner and Wright (2009) relying “on just one informant makes the

measurement of the human resource management construct susceptible to excessive random (i.e.,

unreliability) and systematic (i.e., bias measurement error) measurement error” (p.57). One such

systematic bias measurement error is “implicit theory of informants. Informants; such as

researchers, have implicit theories of human resource management” (p.58). The authors suggest

that in a large organization the complexities of a long survey across numerous functions,

positions, employees, divisions, locations, and job groups that “implicit theory might impact

respondents reports of HR practices” (p.59). Thus implicit theory might influence the validity of

human resource practice measures.

In addition to implicit theory Gardner and Wright (2009) also identify attribution theory

has a possibility to influence the soundness of human resource practice measures. Attribution

theory “assumes that all individuals behave as naïve scientists seeking to understand the causes

of salient outcomes…based on the subject‘s experience in observing cause-and-effect


relationships…manipulate possible causal factors…implicit and explicit teachings” (p.58-59).

HR Practices and Organizational Commitment

In today’s competitive business environment human resource management must rid itself

of the old customary HR practices and reinvent itself by developing and acknowledging new and

innovative HR practices. According to Agarwala (2003) in the past, research in innovative HR

practice stemmed from two theoretical concepts. In these studies the basis of the concepts were

built on terms such as, process (Damanpour, 1991) of; new product, equipment, programs, and

systems and the object (Rogers, 1983); such as product, equipment, programs and systems. Later

innovated HR practices were defined by Wolf (1995) “as ideas, programs, practices or systems

related to the HR function and new to the adopting organization” (p.176). Moreover, innovative

HR practices must be viewed as developments in an organizations social system that advances an

organizations efficiency through changing employee mind-sets and performance.

Most organizations and their employees’ mind-sets of innovative HR practices stem from

the amount of innovated changes that occurred rather than the added value of the innovation.

Moreover, organizations must focus on the effectiveness of the innovation and the resultant

performance outcomes not the quick fix to an environmental force that initiated the innovation.

However, “the relationship of innovative human resource practices and organizational

performance still remains spare. Given the importance of the HRM function to organizational

competitiveness, successful HRM innovations can be important determinants of organizational

success” (Agarwala, 2003, p.177). On the other hand, Agarwala (2003) who cites Huselid’s

(1994) view on HR practices and firm performance “ that the relationship between HR practices

and firm performance does not make it clear whether sophisticated HR practices caused the

higher performance or if higher-performing organizations chose to invest in more sophisticated


HRM practices” (p.178).

Nonetheless, whether its sophisticated HR practices or higher performing

organizations investing in sophisticated HRM practices, firms must evaluate the

usefulness of their HR practice and the influence of HR practices on commitment. The

main intention of HR practice is to establish a link between practices and organizational

commitment. Agarwala (2003) points out that evidence of “linking HR practices to

organizational commitment focuses on single HR practices , such as reward systems,

selection practices, etc., rather than the HR system as a whole” (p.178). Therefore firms

must invest in innovative work practices that creates synergetic high performance work

systems; thus increasing employee attraction, retention, and productivity.

Firms with synergetic high performance work systems, benefit through innovative work

practices. To create such systems organizations’ must scan their environment and the wants and

needs of their workforce; thus identifying explicit innovative HR practices that fit the particular

requirements of the firm and its workforce. So the question becomes what innovated HR

practices should firms consider creating a synergetic high performance work system? Agarwala

(2003) suggest the following innovation HR practices:

Employee acquisition strategies (e.g. greater importance to be attached to fit

between person and company culture, emphasizing career’ not ‘job’ and selling

company image to attract potential employees…etc.)

Employee retention strategies (e.g. evolving a pleasant work environment,

deferred compensation, competitive salaries, faster promotions…etc.)

Compensation and incentives (e.g. increasing component of variable pay, stock

options, combining individual and team incentives, performance-linked


incentives, customization of perks to individual needs, offering a variety of

allowances, conducting compensation surveys, etc.)

Technical training (e.g. systematic training needs assessment, cross

functional training, providing job relevant training, facilitation transfer of

training…etc.)

Management development (e.g. linking MD to individual needs, linking MD to

organizational objectives, using innovative MD methods, like stress management

programmers, adventure training, leadership and attitudinal training…etc.)

Performance appraisals (e.g. giving weight to individual, team and organizational

performance while appraising; using quantifiable criteria for appraisals;

participative appraisals; open appraisals to increase transparency; giving appraisal

feedback…etc.)

Succession planning: MD program aimed at filling specific position with one of

the two potential candidates (e.g. indentifying replacements, provision of fall-

back positions in case of failure, preparing to assume higher responsibility, etc.)

Employee relations with a human face: treating employees with concern (e.g.

information sharing, open and transparent communication, family get-togethers,

humanizing work environment, respecting employees, ensuring fairness in

management practices, encouraging risk-taking, etc.)

Employee exit and separation management (e.g. extending benefits to retirees for

lifetime, retirement planning workshops for about-to-retire employees,

conducting exit interviews, outplacement services, VRS, etc.). (p.191-192)

The above lists of innovated HR practices are nine of the fourteen suggested HR practices that


would enhance high performance work organizations.

McElroy (2001) suggests to enhance workplace commitment firms must manage

“workplace commitment by putting people first” (327), which will require HR practices that will

cultivate employee- managerial interaction. As the author cites Meyer and Herscovitch (2001)

work on commitment in the workplace that commitment is a “mindset” that is developed in

employees through mutual values, interest or recognition with an emotional objective attachment

(affective commitment) or through an awareness of loss if the employee-managerial interaction

is achieved (continuance commitment) or through a necessity to give back for rewards received

(normative commitment) for traditional employees. However, this mindset will not work for

contingent-temporary help services (THS) (Gallagher and Parks 2001) employees. The author

examined the effects of HR practices “that put people first” (p.329) on the three types of

commitment; affective, normative, and continuance on organizational commitment. For example

employment security and self-managed teams-decentralization has a positive result on all three

types of commitment. Therefore, to increase organizational commitment employers must put

people first, show respect and indicates that they are committed to developing employees.

HR Practices and Employee Trust

Employee trust can play an important part in the success or failure of HR practices. HR

practices are designed to create trust: trust in management, employment, compensation,

individuals, groups, and organizational. Developing a trust relationship between employees and

management will increase the perceptions of fairness within an organization. To develop the trust

relationship firms must communicate openly, share information, and be perceived as being

ingenuous in their HR practices (exchange theory). According to Barney and Hansen (1994);

Gould-Williams (2003); Schuler (1992); Tan and Lim (2009); Tan and Tan (2000) Tzafrir et al.,


(2004), and Zeffane and Connell (2003) developing HR practices that enhance fairness,

(procedural justice theory) open communication and confidence with employees will increase the

manger-employee relationship trust. Moreover, development of trust will create employee loyalty

and trust in employment relationships.

Employment relationship trust altitude stems from psychological and transactional

contracts. According to Whitener (1997) and others the “employees’ expectations develop

incrementally in the employment relationship and become embedded in a psychological contract

reflecting their beliefs about the nature of the reciprocal exchange agreement between

themselves and their employer” (p.392). In other words the employee believes that management

will naturally have the best interest of the employee in mind and the employee responds; where

later the belief changes for expectation to obligation-increased responsibilities without

compensation.

With respect to compensation, “employees trust their supervisors more if they had

received good feedback on their performance and the reasons for the pay decisions and if they

felt they had open and fair recourse by which they could appeal their decisions” (p.392)

In individual level trust, trust is developed from a constructive relationship between two

people through self-assurance and security. Therefore if an organization invests in an employee’s

development individual trust increases because the employee (individual) perceives an intuitive

reaction of employment certainty through acquired “skills, competencies and characteristics that

enable a person to have influence in a specific domain” (group level trust). (Tan and Lim, 2008,

p.49). Consequently, HR practices become important to individual trust because it establishes a

constructive relationship between two identities; individual-managers and organization-employee

trust.


In addition to individual trust in organizations there is also group trust in

organizations. Intuitively, group trust augments group efficiency. According to Whitener

(1997) “group-level trust is not just a collection of dyadic trust relationships or a simple

average of the trust between each dyad but reflects group members’ expectations and

beliefs about the other group members as a whole” (p.398). Individuals in a group adhere

to predetermined shared goals, information and decisions; putting self-interest and power

behind them. Thus HR practices that will help increase group trust would be practices of

“information sharing, open and transparent communication, family get-togethers,

humanizing work environment, respecting employees, ensuring fairness in management

practices, and encouraging risk-taking” (Agarwala, 2003, p.192).

One of the emergent concerns for human resource practices is building organizational

trust. To do so, firms must send its employees messages of innovated HR practices that cry, we

support our employees’. These practices are not the same practices that an employee hears about

from your competitors. They are practices that make a firm unique to its employees; the kind that

articulates development, motivation, performance, capabilities, and contributions and most

importantly support. By doing so an organization can generate a unique culture of trust; one that

cannot be easily copied because it is embedded in the firm’s historical culture which results in

organizational growth and sustainable competitive advantage.

HR practices and Firm Growth

Organizational growth is usually measured by market acceptance. Vlachos (2009) argues

that for most firms’ growth is the most important strategy. However, some firms do not even

achieve growth let alone sustain it. Achieving growth requires strategic planning rather than just

letting it happen. So the question becomes how do HR practices play a role in afirm’s growth?


So the better question becomes which HR practices do and which practices do not play a

role in a firm’s growth? Therefore the following set of HR practices will be examined to see if

they contribute to an organizations growth; compensation, decentralization and self-managed

teams, hiring, and training and development.

The most widely utilized compensation practice is performance-based pay. According to

Vlachos (2009) studies show that “performance-based pay has a positive effect upon employee

and organizational performance…however, there is scarce evidence on the effects of

compensation policy of firm growth” (p.18). To obtain growth firms must increase their

employee’s performance, to do so there must be an incentive such as rewards, recognition,

performance bonuses, and the alike as part of their employee’s total compensation. Moreover an

employer that provides incentives to their employees will decrease employee turnover therefore

diminished turnover will decrease cost and increase earnings. However, other studies (Lawler

and Rhode, 1976) have argued that performance-based pay may create a reverse effect;

employees view performance-base pay as a behavioral controlling device resulting in decreased

loyalty and commitment and increasing cost to organizations. In addition Vlachos (2009) study

suggests that compensation practices were “related to all perceived firm growth measures, being

the strongest predictor of sales growth and the weakest of firm growth” (p.30).

With respect to decentralization and self-managed team practices the author suggests that

several studies offer evidence that “self-managed teams and decentralization as important high-

performance HRM practices” (p. 19). For example self-managed teams had positive effects on

firm’s performance such as social networks (incentives, perks and information sharing) and

decentralized team such as flexibility and time.

Adopting information sharing practices in firms lends toward employee-organizational


trust. It also gives employees important information in formulating critical performance

decisions thus resulting in decreased turnover and increased, productivity, profitability and

encouraged a synergistic work-team environment. However information sharing does have its

shortcomings; sharing critical information increases employee power and decreases control. In

addition it may create information leaks, intentionally or unintentionally, to firm’s competitors

(Vlachos, 2009).

Hiring practices, especially selective hiring practices are supreme practices that

contribute to increased profits by hiring the right employees that can hit the ground running.

Finding the right employee organizational fit will reduce cost per hire and increase profits. As the

author points out “selective hiring and organizational performance can be the forging of internal

bonds between managers and employees that creates the right culture for productivity growth”

(Vlachos, 2009, p.20).

Training and development practices increase employee productivity, job satisfaction and

retention thus reducing the cost and risk associated with employee new hires. Therefore training

and development practices contribute in some way to organizational performance and possibly to

firm growth.

Perspectives of HR Practices

In order to retain employees firms must realize the importance of their organizational-

employee relationship practices such as motivation, and recognition, within the employee’s

social and organizational environments. Employee motivation and recognition is perceived as an

organizational management challenge associated with the needs and wants of individuals.

Moreover recognition practices suggests a possible out of the ordinary practice to current

“control and subordination oriented” (Brun and Dugas, 2008, p.716) HR practices. According to


the authors “recognition constitutes the second-largest risk factor for psychological distress in the

workplace...”(p.717). With respect to the social context of recognition employees want and need

to be recognized by their peers, direct reports, and customers, regardless of their position within

an organization. Implementing a recognition practice will enhance the individual’s job

satisfaction. In fact recognition has replaced “social affiliation and become the focal point for the

social bond” (p.717).

Due to the global economy, merger and acquisition, technology, and the fast pace of the

demanding work environment; employees and companies are undergoing contant change. These

changes have damaged the employee-organizational relationship and employees are sensing a

loss of organizational membership, authority, and trust. As the authors point out and who cite

Forest (2001); Collerett, Schneider and Legris (2001) work, the work environment has become

“unfamiliar and often contradictory demands, which can make it a real challenge to achieve

consistency and balance…the extra effort they put in to perform increasingly complex and

burdensome tasks compound their need for true recognition” (p.718). Thus the importance’s of

setting up HR practices that eliminate contradiction and embrace commonalities.

HR Commonalities and Contradiction

According to Boselie, Dietz, and Boon (2005) human resource management (HRM)

activities are sub-divided into practices or techniques such as “selection (a ‘practice’) can

involve psychometric testing, interviews, assessment centers, etc (techniques)” (p.72). Therefore

from an organization’s HRM viewpoint HR practices can be an assembly of separate practices

with no clear common connection linking them.

The author suggests that there is contradiction in HR research that questions what

approach HRM really uses operationally due to past research inconsistencies on what HRM


employs, HR practices or HR systems. For example if an organization’s HRM strategy is to be

strategic then HRM is seen as an integrated process as clusters (commonalities) that reinforce

practices (contradiction). On the other hand if an organization’s HRM strategy is to employ

practices then HRM is seen as a system bundled together. “No accepted theory exists that might

classify different practices into ‘obligatory’ and optional’, hygiene’ factors and ‘motivators’.

Cappelli (1995) makes this point about the purpose of contingent pay: is it a ‘control’ or a

‘motivator’?” (p.73).

According to Boselie, Dietz, and Boon (2005) when measuring HRM organizations must

differentiate among policies and practices. Policies are an “organization state intentions

regarding its various ‘employee management activities’. The latter are the actual functioning,

observable activities, as experienced by employees”. (p.74). The authors states that organizations

can write as many policies as they want and that employees and management may think that the

policies written are being practiced by its workforce. However, until employees and managers

believe that they are important polices and they were implemented to protect the workforce well-

being only then they become meaningful. According to Boselie, Dietz and Boon (2005) when

measuring HRM:

An HRM can be measured in three ways: by its presence (i.e. a dichotomous

scales…‘yes’ or ‘no’) by its coverage (i.e. a continuous scale for degree for the

proportion of the workforce covered by it) or by its intensity (i.e. a continuous

scale for the degree to which an individual employee is exposed to practice or

policy). The overwhelming majority relied only on measures of presence. These

are readily attainable and comparatively easy to analys[z]e, but managers and


employee representatives often disagree considerably on the presence or other

wise of workplace practices, let along on their effectiveness. (p.74)

However, the authors recognizes there are some studies that have “examined the role of

the HR function itself in terms of leadership and change delivery,…immediate line

manager…however the actual enactment process (Purcell et al, 2003) is an

underdeveloped area” (p.74).

The HR function must understand what and how to measure, and their

effectiveness of human resource practices; the total HR system that resolves the

employee-organization relationship and the assurance of the deliverable outcomes not

just parts of the system. Now that the HR function knows what and how to measure HR

practices the question then becomes who is responsible for implementation? The HR

function is responsible for the upfront process such as the design, evaluation and at the

backend the deliverable. However, the middle- implementation process must be executed

by direct/ line manager. Therefore the HR function must be the coordinator of the

implementation process; guiding, coaching, and training. In addition they must deliver

the importance of the value of the practice thus creating credibility. (Boselie, Dietz and

Boon, 2005)

Organizational Learning and Business Performance

The impact of HR practices and there outcomes are very important to organizations. In

fact some studies (Huselid, 1995; Huselid et al., 1997; Huselid and Becker, 1997; Snell et al.,

1996) claim that “human resource practices are related to business performance, especially those

known as ‘best’ or ‘high performance’ practices, whose objective is to increase employees;

abilities and motivation…They argue that human resource practices may be crucial for


developing organizational learning,…” (Lopez, et al., 2005, p.148). When employees have the

knowledge, abilities, and motivation (with incentives) they contribute to organizational learning.

Organizations that recognize the needs and wants of their employees will become recipients of

innovation and contribute to the firm’s competitive advantage. “Personnel highly involved in the

organization contribute to the fulfillment of their commitments and thus help to build a more

efficient organization that produces greater value for clients” (Lopez et al., 2005, p.149)

Organizations ability to learn result in higher profits and return on investments; they

increase their financial performance. The author’s studies suggest that there is a “positive

association between the learning organization concept and the firm’s financial performance”

(Lopez et al., 2005, p.150). To do so firms must be very knowledgeable about their markets,

customers, and competitors. In addition to financial performance as an indicator of firms learning

sales growth and profit/sales margin also contribute to organizational learning.

HR Professional Practices and Strategic Talent

To drive organizational performance firms must have the talent to implement such

strategies. As Boudreau and Ramstad ( 2005) state “Today’s HR is focused mainly on its

professional practice, which like accounting and sales, is important but incomplete. Full strategic

partnership requires a ‘decision science’ that enhances decision about talent resources;…” (p.17).

Just as finance and marketing functions operate in markets HR operates in a market too, in HR

cases they operate in a talent market. The authors point out that in the past HR has invested in

measurement techniques and studies on human behavior however, which does not gain “insight

into how well we compare with our competitors in creating competitive advantage through

people” (p.18). Therefore the authors suggest like in finance and marketing HR must look out-

side HR; they can enhance their deliverables by adopting a ‘decision science’ approach that


results in better choices. “HR decisions will be revealed not by applying finance and accounting

formulas to HR services, programs, and processes, but rather by learning how fields like

marketing and finance evolved into the powerful, decision-support function…” (p.18).

Conclusion

Human resource management is based on multiple HR practices, not separate practices

when investigating the effect of HR methods on individual and organizational performance. In

theory HR practices in an organizational system can be favorable or unfavorable practices.

Understanding the relationship of practices and concepts of HR systems helps the HR function

with its strategic human resource management. Moreover, research in strategic human resource

management (SHRM) has uncovered the relationship between HR practices and organizational

performance. Therefore HR must establish valuable human capital measurements to outcomes-

linking HR practices to business performance. Measurements in most HR functions have been in

processes, and cost rather than delivering value-added outcomes. In today’s competitive business

environment human resource management must rid itself of the old customary HR practices and

reinvent itself by developing and acknowledging new and innovative HR practices. Most

organizations and their employees’ mind-set of innovative HR practices stem from the amount of

innovative changes that occurred rather than the added value of the innovation. Firms with

synergetic high performance work systems, benefit through innovative work practices. To

promote workplace innovation and performance firms must enhance “workplace commitment by

putting people first” (McElroy, 2001, p.327). To do so, employers must earn their employees

trust. Employee trust can play an important part in the success or failure of HR practices. HR

practices must create trust; trust in management, employment, compensation, individuals, groups

and organizationally.


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Different Business Objectives Require Different HR Practices

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