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 plays an important role in the competitiveness of multinational corporations.
Sparrow & Jackson, 2005 argues that as the global business continues to become more unstable, dynamic, and competitive, multinational companies are seeking to gain competitiveness through the improvement of human resource management practices (HRMP). Human resource management requires multinational corporations to develop effective human resource management systems. HRM practices play a critical role in employee management which results in the achievement of the company’s strategic goal.
A study by Edwards & Wright, 2001 demonstrates a direct relationship between strategic human resource management practices and organizational 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. An employee plays an important role in organizational sustainability. It is therefore important to ensure employees are motivated and have the required skills to improve the performance of the organization. The type of HRM practice adopted by the company is very important and affects the business performance in terms 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 increased their importance in the success and competitiveness of the business in global markets.
Strategic human resource management has transformed from just mare policies to practices that yield results to the organization. SHRM practices help in the 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 a competitive advantage environment because of the complex human resource policies and practices that cannot be replicated or imitated by their rivals (Gong et al., 2013).
Multinational corporations use talented human resources as a 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 remains the major resource for any resource-oriented corporation (Lawler, 2012). It is therefore good to note that all successful corporations are founded on the strength of their human resource team. Human resource management has gained significance in academics and business. Snape et al. (2010) define human resource management as a set of activities adopted by the organization to manage human resources and make sure that the human capital is directed toward the achievement of the corporate strategic objective.
The adoption of specific SHRM practices positively influences the performance of the organization by creating a 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 with the organization’s strategic goal. Previous empirical studies have demonstrated the nexus between strategic human resource management policies and organization performance. hence to enhance positive performance in the organization, the management is needed to develop talented and skilled employees who can execute and implement the company’s strategic plan (Thompson, 2012).
The efficient and effective exploitation of corporate resources plays a critical role in helping the company achieve better performance. it also helps 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 managed to achieve the following results: competence, cooperation among employees, cooperation with management, commitment, motivation, and satisfaction, and employee retention. Ahmad and Schroeder (2003) state that strategic human resource management practice (recruitment, extensive training, information sharing, compensation and incentives, employment security, status difference, and democratic leadership) have a 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 its strategic goals. According to Pfeffer & Viega (1999), SHRM refers to systems designed by the organizations to help in achieving sustainable competitive advantage via people. Ulrich and Lake (1991) define it as the process of connecting the human resource policies and multinational strategy. also, Bamberger and Meshoulam (2000) describe SHRM practice as a 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 the factors that affect human resource management today. Lack of human resource management practices results in inaccurate strategic practices, organization culture and planning, and control mechanisms.
International corporation employees must improve the customer experience and respond to the shareholder expectation for efficient operations that result in improved financial performance (Adegoroye & Moruf, 2012). The study by Genga, (2014) on the application of HRM practices in developing nations indicates most 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 for the best strategic human resource management practices and their effects on multinational performance. The objective of this study, therefore, is to access the effect of strategic human resource management practices on the performance of Multinational corporations a case study of Standard Charter Bank concerning 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 the 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 the performance of multinational corporations.
- To establish the influence of strategic training and development practices on the performance of multinational corporations.
- To ascertain the effect of strategic performance management practices on the 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 the performance of multinational corporations?
- What is the influence of strategic training and development practices on the performance of multinational corporations?
- What is the effect of strategic performance management practices on the 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 a review of the 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 argues 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 refers to the process of negotiated exchange that occurs between parties involves in exchange of responsibility from one individual to another. Moreover, the interaction between individuals seems as contingent and mutually dependent on the action of the other individual. According to Cropanzano& Mitchell (2007), the social exchange relationship in the organization determines the individual behavior in the organization which in the long-run influences their performance in the business. In worthwhile relation, employees are likely to be productive and efficient hence reducing the cost of production in the organization.
Regarding human resource management practices and organization performance, the social exchange theory argues that employment relationships comprise economic or social exchange. An economic exchange relationship is concerned with the exchange of economic benefits that is incentives and rewards the services offered by the employees. Unfair and insufficient rewards by corporations are likely to adversely 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 describes how the organization treats employees with the assumption their performance depends on the company reward system . Meyer & Smith (2009), argues that human beings are social beings whose aim is to improve the quality of other peoples life. A perceived conducive working environment has a great influence on job satisfaction, team morale, and employee motivation which in the long run promote the productivity of the employees in the organization. on the other hand, unfair working conditions result in negative energy which is manifested by bad work attitudes 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 by 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. The human resource system develops a pool of human capital with skilled individuals to sustain the organization’s strategic behavior (Wright et al, 2001).
Organizations can achieve and attain sustainable competitive advantage through the available workforce. How can only be 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 in the 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 the key factor in sustainable competitive. The value accrued from the human resource is critical as it helps 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 evaluates 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 its weakness or outperforming its competitor. The available resources are required to be rare or limited. In a perfectly competitive market, the price of resources reflects 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 benefit can be sustained in the long-run. Even if resources are rare imperfectly imitable and potentially create value it is also important for human resources 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’s performance.
Strategic Human Resource Management Practices
The term strategy explains both the company process (for example corporate restructuring) and the results/outcomes (market structure). According to Boxall and Purcell (2003), the strategic choice is the approach chosen to solve the business strategic problems. The business strategy aims to maintain organization viability as well as the production of sustained competitive advantage in the market where the company operates. Business strategy asks the answer to the question of how business issues will be solved. Human resource management influences the business vision and mission and also shapes the evolvement of the business strategy. HMR is considered an integral part of achieving the organization’s 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’s 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 resources is been directed to implementation and continuous improvement of the company’s strategic position (Esther, Elegwa, & James, 2012). The reason why companies are moving towards Strategic Human Resource Management is the help in the adoption of tactical choices and patterns relate to the management of human resources.
Global competition of multinational corporations depends on the uniqueness of the corporate human resource and their ability to effectively manage human resources 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 intellectual capital.
Relationship between SHRM and firm performance
Several scholars have studied the relationship between strategic human resource management practices and organizational performance.
An empirical study on human resource management performance indicators in the USA demonstrated that performance indicators are widely applied to measure employees’ performance. Reforms in compensation and recruitment play an important role in the performance of the company. The study by Boxall and Purcell (2003), broad support, and mission orientation influence the application of performance measures in human resource management and HR technical ability to gather information on industry information. A study by Arthur (1994) on the effect on different HRM practices on corporation productivity in the 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 influences the correlation between turnover and organization performance.
Further research was carried on the relationship between 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 organization 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
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. It is a directed search of published work which includes books and periodicals discussing the theories and the empirical results relevant to human resource in an organization. There are various studies that have been conducted to aid in determining the influence of human resource practices on the performance of the employees. This section of the empirical review will cover several sections such as recruitment and selection, organization communication, performance management system and training and development.
Recruitment and selection and employee performance
The process of recruitment and selection involves the following steps; job vacancy, job analysis, attracting candidates, screening candidates, interviewing candidates, selecting and appointing candidates, induction and training and employee evaluation.
The general recruitment theories are well highlighted by Cole (2002), providing the facts that the employees need to effectively perform in an organization. The strategies of recruitment in an organization are supposed to be tailored based on specific positions. These strategies in the current business environment include print and electronic media, agencies, colleges, schools and universities forums.
Recruitment is an activity that is considered to be central in any management process of an organization. Failure of the process to take place in the right way may result to increased difficulties that might reduce the profitability.
Training and Development and Employee Performance
The two activities of training and development are usually conducted following a series of steps such as; the analysis stage, the design stage, the development stage, and the implementation stage and finally the evaluation stage. A study was conducted by Robert, Jane, Iravo and Maurice (2013) to establish the relationship that exists between training and development on the performance of different organization. The research was conducted using an explanatory research design where inferential statistics was used in analyzing the quantitative data. After analysis, the research indicated some positive correlation of training and development towards the performance of different organizations thus recommending that every organization is supposed to focus strictly on training and development to improve organization performance.
In another study, (Saba & Fizza, 2015) carried out a research to investigate the impact of training and development to the performance and productivity of the employees. The case study conducted in Pakistan the researcher used quantitative approach. The target population of the research was the employees in Baria a city in Pakistan. Random sampling technique was applied involving a sample size of employees from Bahria town. The research used questionnaires as the data collecting tool and the SPSS 16.0 for analyzing the data. The results of the research were that there was a positive impact of the training and development activities to the employee’s performances in different jobs.
Performance Management system and Employee Performance
Some of the practices that are included in performance management include; definition of employees roles and goals in an organization, developing the employees capabilities and also evaluating and rewarding the efforts of the employees in an organization to boost performance and achieveing of the companies goals.
Armstrong & Stephens, (2006) states that performance management is an integrated and strategic process that enhances the sustained success of an organization by boosting both team work and individuals performance.
In another study by (Anu, & Devina, 2012) to establish the impacts and effectiveness of the performance management system on the employee’s commitment and satisfaction, the researcher used the mean and convenience sampling, correlation, and regression to analyze the data. At the end of the study, the researcher established that there was an existing correlation between employees satisfaction and performance management, there was also moderate correlation existing between the employees commitment to work and job satisfaction.
A research carried out by Gacheru (2015) concerning the relationship existing between employee performance and performance management system included around 175 staff associated to a particular organization in the market. The research used both primary and secondary data where the Cronbach alpha coefficients were used to measure the reliability of the scale. The average internal consistency of the measurement tool was 0.787. From the results of the study, Performance management systems have some linear significance that influences the performance of the employees. The Performance reward were also identified to have the greatest influence to the employees performance have in a value of 3.106 closely followed by the performance appraisal system and finally the performance contracts having the following values; 3.106 and 3.074 respectively. The study also indicated that there was a positive correlation coefficient of 0.784 between employee performance and performance management system. The conclusion of the study was that employee performance was greatly improved by performance management systems giving a recommendation that in it are of great significance for the organization to improve its workplace efficiency through providing performance management.
Organizational Communication and Employee Performance
Communication in an organization is a critical tool with the potential of improving the employee’s performance. Communication involves the following five key steps; idea development, encoding of the message, transmission of the message through a channel, decoding of the message and finally the feedback. From different studies that have been conducted in several organizations, the results reveal that there is a very close relation with performance of the employees.
In the study conducted by Owusug and Jeduah (2014) on the impacts of organizational communication on employee performance, the research was done on the Agricultural Development Bank in Ghana using both random sampling and stratified sampling, inferential and descriptive statistics were used in data analysis process. The results of the study proved that information about the organizations that was published on the websites or on other platforms equipped the employees with more knowledge related to the performance of the bank improving their work. The results showed that the top-down communication channel was used in most of the successful organizations in the market recommending that adoption of the same by the other organization would boost their performance in one way or the other.
According to Nebo, Chidiebere, Okonkwo, and Rita (2015) who conducted a study on the role of effective communication to the performance of an organization using survey, random and stratified random sampling, and Chi-square x2 in hypothesis analysis. The results of the study concluded that there was a crucial relationship existing between employee performance and effective communication in most of the organizations. The results also revealed that effective communication in an organization can be used as a measure of efficiency and effectiveness of management performance of the employees in an organization.
The recommendation of the research was that it is of great importance for every organization to add efforts in improving the state of communication as a tool of effective management strategy such as installing strategic ways of information storage, to secure it from loss or damage, ensure there is a high level of clarity to avoid misunderstanding and finally enhancing information management.
Research Gap
The above empirical study shows some varied research done to investigate the effect of human resource management practices on the performance of the employees in different organizations in various places of the world. Many studies have been carried out in the developing and the developed countries with the result revealing that human resource practice have a great influence on the performance of the employees in most of the places. In order to justify the studies done previously as recommended by (Guest, 1997), it is important that the HRM practices is examined in as many settings as possible due to the many factors affecting HRM practices.