The effect of strategic human resource management practices on the performance of multinational companies.
CHAPTER ONE
INTRODUCTION
Background of the Study
To successfully compete in the global business environment, multination corporations are required to improve the performance through cost reduction, product and process improvement, quality improvement, enhance productivity and speed to the market. According to Tiwari (2012), the human resource department play important role in competitiveness of the multinational corporations.
Sparrow & Jackson, 2005 argues that as the global business continue to become more unstable, dynamic and competitive, multinational companies are seeking to gain competitive through improvement of human resource management practices (HRMP). Human resource management requires multinational corporations to develop effective human resource management systems. HRM practices play critical role in employee’s management which result to achievement of the company strategic goal.
Study by Edwards & Wright, 2001 demonstrates a direct relationship between strategic human resource management practices and organization performance. Pfeffer & Viega (1999) identify seven human resource management practices which include target selection, employment security, reduction of status differentials, employee training, high compensation contingent on multinational corporation performance and sharing of important information and data that increase business revenue, profit, corporate survival rate and market value. Employee plays important role organization sustainability. It is therefore important to ensure employees are motivated and have the required skills so as to improve the performance of the organization. The type of HRM practice adopted by the company is very important and has effect on the business performance in term of market value, revenue growth per employee, overall revenue growth, return on capital employed, productivity, capital utilization and quality of company goods and services. Intellectual and knowledge capital have also increasing their importance in the success and competitiveness of the business in global markets.
Strategic human resource management have transformed from just mare policies to practices that yield results to the organization. SHRM practices help in creation of corporations that are more competent, flexible and intelligent as compared to their competitors via the application of practices and policies that focus on recruitment, selection, training and development of skilled employees as well direct employee’s energy to activities that reduce the cost of production. This can help performance consolidation and creation of competitive advantage environment because of the complex human resource policies and practice that cannot be replicated or imitated by their rivals (Gong et al., 2013).
Multination Corporation use talented human resource as strategic asset to achieve their superior performance. Human resource management practices must therefore be aligned with the organization strategy for multinational corporation success. No matter the level of mechanization and technology development, JRM remain the major resource for any resource-oriented corporation (Lawler, 2012). It is therefore good to note that all successful corporations are founded on strength of their human resource team. Human resource management has gained significance in academic and business. Snape et al. (2010) define human resource management as set of activities adopted by the organization with objective of managing human resource and make sure that the human capital is directed toward achievement of the corporation strategic objective.
The adoption of specific SHRM practice positively influence the performance of the organization by creating significant relationship (Thompson, 2012). The organization HRM practices can also have a negative influence on the performance of the organization if it is not aligned to the organization strategic goal. Previous empirical studies have demonstrated nexus between strategic human resource management policies and organization performance. hence in order to enhance positive performance in the organization, the management is need to develop talented and skilled employees who are able to execute and implement the company strategic plan (Thompson, 2012).
Efficient and effect exploitation of corporate resources play critical role in helping the company achieve better performance. it also help the organization to create and sustain competitive position both domestically and internationally. SHRM practice in recruitment, training, compensation, performance appraisal, promotion, work design, incentives, employment security, involvement, participation and communication must be designed and implemented by SHRM expert (Van Jaarssveld et al., 2011). The HRM experts should work together with the company management so as to achieve the following results: competence, cooperation among employees, cooperation with management, commitment, motivation, and satisfaction and employee retention. Ahmad and Schroeder (2003) states that strategic human resource management practice (recruitment, extensive training, information sharing, compensation and incentives, employment security, status difference and democratic leadership) have positive influence on organization performance (cost reduction, quality, flexibility, commitment and deliverability).
Concept of Strategic Human Resource Management
Strategic human resource management refers to the system of planned human resource activities and deployments intended to help a company to achieve it strategic goals. According Pfeffer & Viega (1999) SHRM refers to systems designed by the organizations to help in achieving sustainable competitive advantage via people. Ulrich and Lake (1991) defines it as the process of connecting the human resource policies and multinational strategy. in addition Bamberger and Meshoulam (2000) describe SHRM practice as competency based strategy for managing people that concentrate on the imperfectly imitable, development of durable and non-tradable people resources.
Statement of the Problem
Dynamic legislations, technology advancement and globalization are some of factors that affect human resource management today. Lack of the human resource management practices result to inaccurate strategic practices, organization culture and planning and control mechanism.
International corporation employees must improve the customer experience and respond to the shareholder expectation for efficient operations that result to improved financial performance (Adegoroye & Moruf, 2012). Study by Genga, (2014) on application of HRM practices in developing nations indicate most of organizations lack HRM guidelines and hence the need of adopting human resource management practices and policies to be applied. Currently most of the organizations are adopting HRM practices to make them remain competitive. This suggests that there is a need of the best strategic human resource management practices and their effects to multinational performance. The objective of this study therefore is to access the effect of strategic human resource management practices to the performance of Multinational Corporation a case study of Standard Charter Bank with respect to training and development, organizational communication, recruitment and selection and performance management systems.
Objectives of the Study
The main objective of this study is to access the effect of strategic human resource management practices on performance of international companies. This study will be guided by the following specific objectives
- To access the effect of strategic recruitment and selection practices on performance of multinational corporations.
- To establish the influence of strategic training and development practices on performance of multinational corporations.
- To ascertain the effect of strategic performance management practices on performance of multinational corporations.
- To determine the effect of strategic communication practices on the performance of multinational corporations.
Research Questions
- What is the effect of strategic recruitment and selection practices on performance of multinational corporations?
- What is the influence of strategic training and development practices on performance of multinational corporations?
- What is the effect of strategic performance management practices on performance of multinational corporations?
- What is the effect of strategic communication practices on the performance of multinational corporations?
Literature review
Introduction
This section is aimed at presenting review of literature that explains the relationship between strategic human resource practices and the performance of both local and global corporations. The chapter will present different theories related to SHRM practices and organization performance. the researcher will also look at human resource practices/policies and empirical review of the connection between the strategic practices and organization performance.
2.1 Theoretical Review
The theoretical framework for this study includes the social exchange theory and resource based view theory.
Social Exchange Theory
Social exchange theory argue that human relations are founded by the application of subjective cost-cost benefit analysis , which is founded on the following areas: sociology, psychology and economics. Social exchange refer to the process of negotiated exchange that occur between parties involves in exchange of responsibility from one individual to another. Moreover, the interaction between individuals is seem as contingent and mutually dependent on the action of the other individual. According Cropanzano& Mitchell (2007), social exchange relationship in the organization determine the individual behavior in the organization which in long-run influence their performance in the business. In worthwhile relation employees are likely to be productive and for efficient hence reducing the cost of production in the organization.
In relation human resource management practices and organization performance, the social exchange theory argues that employment relationship comprise of economic or social exchange. Economic exchange relationship is concerned with exchange of economic benefits that is incentives and rewards the services offered by the employees. Unfair and insufficient rewards by corporations are likely to adversary affect the performance of the employees (Meyer & Smith 2009). According to Gould & Davies, (2005), Social exchange on the other hand are refers to voluntary action which describe how organization treat employees with assumption their performance depend on the company reward system . Meyer & Smith (2009), argues that human beings are social being whose aim is to improve the quality of other peoples life. Perceived conducive working environment have a great influence on job satisfaction, team morale and employee motivation which in long run promote productivity of the employees in the organization. on the other hand unfair working condition result to negative energy which is manifested by bad work attitude such as absenteeism and lateness in the workplace hence reducing the productivity of the employees. Sumner (2017), states that an ideal work environment should be characterized good compensation, good reward system, training and development and work life balance.
The Resource Based View (RBV)
The resource based view theory was discovered by economist Edith Penrose. The resource based view defines the organization resources which include business partners and employee systems (Shaun Tyson, 2006). To remain competitive the management should ensure that the company resources are directed to its strategic plan. Human resource system develops a pool of human capital with skilled individuals so as to sustain the organization strategic behavior (Wright et al, 2001).
Organizations are able to achieve and attain sustainable competitive advantage through the available workforce. How can only realized when the organization has a pool of human capital that cannot be substituted or imitated by its competitors or rivals. The resource based view primarily lies on efficient and effective allocation of the available resources. The corporations are therefore required to identify the key human capital to fulfill the criteria of being rare, variable, non-substitutable and in-imitable by the organization competitors in the firm area of operation (Galbreath, 2005).
The RBV focus more on internal resources which are key factor in sustainable competitive. The valued accrued from human resource is critical as it help in productivity optimization as well as cost reduction through increased efficiency. The RBV theory focuses on making sure that the organization has the right resources and also evaluate whether the available resources are valuable limited Non-substitutable and in-imitable. The resource available must be variable to help the corporation to apply value addition strategy through reducing it own weakness or outperforming its competitor. The available resources are required to be rare or limited. In a perfectly competitive market, the price of resources reflect the expected future return. Valuable resources are said to be in-imitable if only one firm is in control of the competitive advantage of the company source. When the competitors of the corporations are not able to duplicate the human resource strategic asset perfectly the benefic can be sustained in long-run. Even if resources are rare imperfectly imitable and potential create value it is also important for human resource to lack substitutability. According to crook, et.al, 2008 companies have to provide protection of and care for the resources that possess the evaluation as it can help in improving the organization performance.
Strategic Human Resource Management Practices
The term strategy explain both the company process (for example corporate restructuring) and the results/outcomes (market structure). According to Boxall and Purcell (2003), strategic choice is the approach chosen to solve the business strategic problems. The aim of business strategy is to maintain organization viability as well as production of sustained competitive advantage in the market where the company operates. Business strategy asks the answer the question how of how business issues will be solved. Human resource management influences the business vision and mission and also shape the evolvement of the business strategy. HMR is considered as an integral part of achieving the organization strategic goal.
According to Armstrong (2012), strategic human resource practice refers to the approaches applied by the management to manage people in the organization to achieve the organization strategic goal. Here are seven strategic human resource practices to influence the performance of the organization. These SHRM practices include targeted selection, employment security, pay contingent on organizational performance, workplace teams and decentralization, business information sharing and reduction of status differentials. Today the focus of human resource is been directed to implementation and continuous improvement of the company strategic position (Esther, Elegwa, & James, 2012). The reason why companies are moving towards Strategic Human Resource Management is the help in adoption of tactical choices and patterns relate to management of human resource.
Global competition of multinational corporation depend on the uniqueness of the corporate human resource and their ability to effectively manage human resource to achieve competitive advantage. Human resource is the principle and driver value creator of the productive industry. Human resource also acts as the infrastructure investment or the intellectual capital.
Relationship between SHRM and firm performance
Several scholars have studied the relationship between strategic human resource management practices and organization performance.
Empirical study on the on human resource management performance indicators in USA demonstrated that performance indicators are widely applied to measure employees performance. Reforms in compensation and recruitment play important role in the performance of the company. Study by Boxall and Purcell (2003), broad support and mission orientation influence application of performance measures in human resource management and HR technical ability to gather information on industry information. Study by Arthur (1994) on the effect on different HRM practices on corporation productivity in USA found that companies with well human resource management practices lower employee turnover, lower scrap rates and higher productivity compared to the companies with control systems. Human resource practice influence the correlation between turnover and organization performance.
Further research was carried on relationship between the human resource management and strategy and firm performance and the research finding supported the HRM contingency approach. To achieve this relationship between strategic practice and firm performance was accessed.
This early research is useful in raising two issues, first concern about measurement and variables that might be used. Second, issues of whether a functional level study is better than a business or corporation level study are considered. This research raises similar themes to that of Hutchinson. Kinnie, & Purcell, (2001). Guest et al. (2003) undertook a study of 366 companies using objective and subjective performance measures and cross-sectional and longitudinal data. The study confirms an association between HRM and performance but fails to show a causal relationship between HRM and performance in other work.
Purcell (2004) undertook a three year study to assess the impact of people management on organizational performance. Purcell noted, while some have been able to show an association between human resource (HR) policies used and performance outcomes it was often hard to explain when, why and how this association existed and to identify the interconnections. Purcell (2004) refers to this as the ‘black box’. He concluded that the impact of people management on organisation performance is more obvious in the medium 19 than it is in the short term and it is here that investigations of high commitment management are particularly relevant. Harper and Vilkinas (2005) consider performance management systems (PMS) from key stakeholders, managers’ and employees* perspectives. Their study makes two key points. First, the stakeholders and managers stated that the PMS had a more positive impact on the performance than did the employees and second the study highlights the difficulties encountered when evaluating PMS. This research notes that differing evaluations of impact will arise according to the perspective from which the impact is being observed.
Empirical Review
This section will cover empirical review of the previous research work in relation to the strategic human resource practices and their effect to employee performance in an organization. t