The Impact of Strategic Human Resource Management

on Organizational Performance
ABSTRACT
Organizational performance is getting more and more important, especially in a
market
with greater competition and dynamic. Organizational
performance is measured through
different indicators. It guarantees the continuity of the organization to be
competitive in a
global marketplace. Normally, the implementation of performance indicators
achieved
through human resources. Human resources are t
he key for keeping the organization in the
market so competitive. These human resources need to be managed effectively
to achieve
the required performance of the organization. It is necessary to manage
strategica
lly the
human resources and to
adapt at its
strategy with organizational strategy. The aim of this
study i
s focused on the impact of the
strategic
management of human resource in
achieving
organizational performance. This study was conducted based on primary and
secondary
sources. How much organizat
ions appear competitive in the market through achieving the
performance indicators? How important is the management of human resources
in
achieving organizational performance?
So, through the skills, behaviors and attitudes
would be expected by human resou
rces to achieve the required performance in the
organization.

KEYWORDS:
strategic HRM, organizational performance, effective management, HR
outcomes.

JEL CLASSIFICATION:
L25, O15, P17
INTRODUCTION
Organizations are seeking to create much competition
between them, taking more market,
more customers, more sales, etc. Rapid changes stemming from globalization,
advancement
of information systems and other factors have caused higher competition. Many
organizations are driven by the market to set their goal
s in their performance. Some of the
goals are: cost reduction, achieving sales levels, increasing the number of
customers,
increasing the market percentage, improving productivity and quality, innovative
products.
The realization of these goals will be ach
ieved through the human resources management in
organizations. Workforce, as the key to success, will enable the achievement of
organizational performance.
Human resources are regarded as one of the most important sources of today's
firms.
Human resources management is more important than other competitive sources
because
these people use other assets in organization, create competitiveness and realize
object
ives.Thus firstly, organizations must understand the expectations of their
workforce
in order to achieve the desired performance. The realization of the expectations
of
employees will enable the desired behavior of employees in the organization.
Some of th
e
1
Phd.Candidate,
European University of Tirana, Albania, E
-
mail: luftimcania@yahoo.com

Luftim CANIA
374
desired outcomes of the organization in managing their workforce are:
competence,
cooperation of employees with managers, cooperation of employees between
them,
showing the capabilities of employees; motivation, commitment and satisfaction;
attitude
and
presence; employee behaviors.
The overall goal of performance management is to create a culture as high
performance in
which individuals and teams to take responsibility for the continuous improvement
of
business processes and their skills and contribute
in achieving the targets set by managers.
In particular, management performance can be expressed as the approximation
of
individual objectives of employees with organizational objectives provided that
employees
support the culture of the organization. It p
rovides for expectations to be defined and agreed
in terms of role responsibilities and accountabilities (expected to do), skills
(expected to
have) and behaviors (expected to be)(Armstrong, 2006).
The purpose of strategic human resource management is to i
mprove business performance
through people management. The organizations need to manage their human
resources
effectively and efficiently to achieve the desired goals and objectives. The
achievement the
goals and objectives translate also in better perform
ance. So, the issues raised for
discussion are: How should organizations manage their main source
–
human resources?
Does strategic human resource management help to meet the needs, the goals
and
objectives of the business?
As should be adapted strategic h
uman resource management to
realize the performance?
How should adapt strategic management of human resources to
increase organizational performance?
The main objectives of the study
are:
a.
To observe closely how applicable is in practice the theoretical asp
ect of strategic
human resource management for the achievement the organizational
performance.
b.
To observe if organizations use the strategy of human resource management for
the achievement of their performance objectives.
c.
To observe the importance of these
strategies in the organization and in their
performance.
1.
LITERATURE REVIEW
The achievements of organizational objectives can be different in different
organizations.
The studies emphasize the impact of HRM on organizational performance.
Basically, and
ot
her studies in this area, point out that it is necessary to achieve organizational
objectives
and management of human resources should be strategic. Also, the strategies of
human
resource management should be integrated with the overall organizational stra
tegy in the
context of achieving the required performance. There has been much research
on strategic
human resource management that affects organizational performance. The
discussions and
definitions will be divided in two parts of speech: the strategic ma
nagement of human
resources and organizational performance.
1
.1 Strategic HRM concept
Strategic HRM is a process that involves the use of overarching approaches to
the
development of HR strategies, which are integrated vertically with the business
strateg
y
and horizontally with one another. These strategies define intentions and plans
related to
the overall organizational considerations, such as organizational effectiveness,
and to more
specific aspects of people management, such as; resourcing, learning
and development,
reward and employee relations. Strategic HRM focuses on actions that
differentiate the firm
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from its competitors (Purcell, 1999). It is suggested by Hendry and Pettigrew
(1986) that it
has seven meanings:

the use of planning;

a coherent ap
proach to the design and management of personnel;

systems based on an employment policy and workforce strategy;

often underpinned by a “philosophy”;

matching HRM activities and policies to some explicit business strategy;

seeing the people of the
organization as a strategic resource;

achievement of competitive advantage (Armstrong, 2006).
Strategic HRM has a clear focus on implementing strategic change and growing
the skill
base of the organization to ensure that the organization can compete effect
ively in the
future (Holbeche, 2004). SHRM facilitates the development of a human capital
that meets
the requirements of business competitive strategy, so that organizational goals
and mission
will be achieved (Guest, 1987). Strategy of human resource mana
gement is an integral part
of business strategy. The main focus of this strategy is to achieve organizational
objectives.
So, strategy, then, is a set of strategic choices, some of which may be formally
planned. It is
inevitable that much, if not most, of
a firm’s strategy emerges in a stream of action over
time (Boxall and Purcell, 2003).
1
.2 Organizational performance concept
Campbell’s (1999) theory defines performance as behavior or action relevant to
the
attainment of an organization’s goals that can b
e scaled, that is, measured. Moreover, job
performance is defined as what one is paid to do, or what one should be paid to
do. The
theory states that the measurement options, be they ratings from a supervisor,
peer, or self,
a simulated work sample, or har
d criteria (e.g. tallying revenue generated, costs saved,
customer complaints, or some variant of a computerized performance
assessment) besides
being valid, reliable, and not deficient should be free of contamination from
sources of
variation that are not
under the control of the individual (e.g. differences in technology
impacting a person’s performance). Situational enhancers or constraints, if not
taken into
account in an appraisal, can contaminate the mean, variance, or both with regard
to an
individua
l’s performance. Observation and interpretation hold the key to the establishment
of effective criteria. Yet, an ongoing problem in appraising people is the lack of
reliability
in the observation of their behavior (Ronan and Prien 1971). This unreliabilit
y is largely
attributed to well
-
known rating errors such as “first impressions”, “halo”, and “similar
-
to
-
me”. Lifson (1953) found that up to one
-
third of performance measurement variance is due
to rater differences despite the fact that the observers had
considerable experience in
observing and evaluating people in the workplace. Lance (1994) corroborated
this finding.
Experience, however, is not a substitute for training. To solve the problem
regarding lack of
reliability, an observer must be trained. In
this section, training programs that have been
shown to be effective are described, and the necessity of taking context into
account is
explained (Boxall, Purcell and Wright, 2007).
Organizational performance is one of the most broadly and extensively used
dependent
variables in organizational studies today, and yet, at the same time, it remains
one of the
most imprecise and loosely
-
defined constructs (Rogers and Wright, 1998). In the strategy
literature, the focus of attention on this construct has been co
ncerned almost entirely with
financial measures of performance. Conceptually, organizational performance
has been
defined as the comparison of the value produced by a company with the value
owners
expected to receive from the company (Alchian and Demsetz 1
972). Venkatraman and
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376
Ramanujam (1986) indicate that a narrow definition of performance focus on the
use of
simple outcome
-
based financial indicators that are assumed to reflect the fulfillment of the
economic goals of the firm.
The literature reveals that
studies into the HRM performance have not determined a specific
and precise meaning for the organizational performance construct. Some studies
have used
subjective measures to evaluate firms’ performance, such as employee
satisfaction,
customer satisfacti
on, executives’ perceptions about the company’s performance,
absenteeism, employee commitment, and other behavior aspects. Other studies
reference
various objective measures for evaluating firms’ performance, such as financial
and market
indicators. As a r
esult, there is no common theory concerning organizational performance,
and researchers utilize different indicators or variables to measure this construct.
For this
reason, there is also a call for a precise theory of organizational performance
(Janssens
and
Steyaert, 2009) and HRM researchers and professionals might give crucial and
special
consideration to filling such a gap (Guest, 2011).
Another way, the concept of performance has been expressed by Brumbrach
(1988) as
follows: performance means both be
haviors and results. Behaviors emanate from the
performer and transform performance from abstraction to action. Not just the
instruments
for results, behaviors are also outcomes in their own right
–
the product of mental and
physical effort applied to task
s
–
and can be judged apart from results. This definition of
performance leads to the conclusion that when managing performance both
inputs
(behavior) and outputs (results) need to be considered. It is not a question of
simply
considering the achievement o
f targets, as used to happen in ‘management by objectives’
schemes. Competency factors need to be included in the process (Armstrong,
2006).
In short, a theory of performance is necessary to determine: relevant dimensions
of
performance, performance
standards or expectations related to performance levels,
restrictions on how the situation should be measured when assessing
performance, the
number of performance levels or gradient and the extent to which performance
should be
based upon absolute vs. rel
ative comparison standards (Boxall, Purcell and Wright, 2007).
2.
THE METHODOLOGY
The aim of this study is focused on the impact that has strategic management of
human
resources in achieving organizational performance. This study is based on two
major
source
s of research. This study was conducted through the collection and analysis of
various publications on this field. The secondary source, refer various
publications that
have been made in this area about empirical studies, various academic debates
and analy
zes
the different findings. These publications have been published in various journals,
conferences and books. The primary source is based in the collection of data
through
questionnaires. The study is focused on the city of Durres. This is the second city
in
Albania for the importance in contributing to the Albanian economy. Data
collection is
concentrated in two sectors, which are: the manufacturing sector and the service
sector.
These questionnaires were completed by general manager and in some cases
eve
n by
human resource managers. I have analyzed 30 organizations, which are 16
organizations in
the service sector and 14 other organizations are production sector.
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3.
STRATEGIC HRM AND PERFORMANCE
Research between strategic HRM and business performance
has dominated the academic
and practitioner debate for more than two decades. However, most studies and
publications
in the field of HRM have defined the concept in terms of individual practices.
According to
Noe et al. (2007), refers HRM practices and pol
icies that influence behaviors, attitudes and
performance of employees. They are focused on several important practices
which, in turn,
can positively impact organizational performance, such as human resource
planning,
recruitment, selection, training and
development, compensation, performance management
and employee relations.
Pfeffer reshapes these practices into seven HRM practices; these practices are
expected to
enhance organizational performance and enable the organization to gain a
competitive
advant
age (1998). Such practices are detailed as follows (Boxall, Purcell and Wright,
2007):
o
Employment security.
o
Selective hiring of new personnel.
o
Self
-
managed teams and decentralization of decision
-
making as the basic
principles of organizational design.
o
Comp
aratively high compensation contingent on organizational performance.
o
Extensive training.
o
Reduce status distinctions and barriers, including dress, language, office
arrangements, and wage differences across levels.
o
Extensive sharing of financial and perfor
mance information throughout the
organization.
Figure 1 shows the pattern of connectivity between HRM and performance.
Through this
model is reflected in detail the connection that exists from business strategies to
organizational performance measured by f
inancial indicators. According to Michael
Armstrong (2006), in the center of this model is the performance as a function of
the
Ability + Motivation + Opportunity (AMO). Development of human resources
strategy
comes after is crafted business strategy. But
before the drafting and formulation of business
strategy should have analyzed competences of the staff, the way how they
motivate, the
types of skills and knowledge employees. It is precisely this workforce that will
achieve the
performance indicators. So,
the realization of business strategy comes through integration
of workforce opportunities, their expectations and other factors that influence
inside and
outside the organization. So, it is easier tracking of a human resources strategy
and
adaptation stra
tegies with previous practice and practice to be followed for the
implementation of performance. The performance will be implemented
successfully to
achieve organizational performance satisfaction from reaching employees, their
motivation,
effective manage
ment of HR by production high quality products.
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378
Figure 1. The relationship between strategic HRM and performance
Source:
Armstrong (2006, p. 75).
In HRM
-
performance research, the performance outcomes of HRM can be viewed in
different ways. HRM
researchers have mostly referred to Dyer and Reeves’ (1995)
classification of performance outcomes as follows:
o
HR
-
related outcomes, such as turnover, absenteeism, job satisfaction,
commitment.
o
Organizational outcomes, such as productivity, quality,
service, efficiencies,
customer satisfaction.
o
Financial accounting outcomes, such as profits, sales, return on assets, return on
investment.
o
Capital market outcomes, such as market share, stock price, growth (Boxall,
Purcell and Wright, 2007).
4.
THE ROLE OF
STRATEGIC HRM ON PERFORMANCE
Strategic management of human resources represents a transformation that is
relatively new
in the field of human resource management. An important role of strategic human
resource
management is about focusing the management i
n employees as a tool to gain competitive
advantage. Now, organizations are made
aware that successful human resources policies
and practices of appropriate can increase performance in various areas such as
productivity,
quality and financial performance
.
Performance management is a planned process in which key elements are
different
measurement, feedback, positive reinforcement and ongoing dialogue between
managers
and employees. It has to do with measurement results in the form of performance
achieved
in comparison with the expectations expressed as objectives. Also, it has to do
with the
inputs and values. Inputs are the knowledge, skills and behaviors necessary to
produce the
expected results. Needs are identified by defining these requirements and ev
aluate the
degree to which the expected levels of performance are achieved through
effective use of
knowledge and skills, appropriate behavior.
Performance management strategy has to do with all the business and not just
the
managers. So managers are not
only responsible for delivering the required performance.
Managers should have the confidence to distribute authority and responsibility
throughout
the organization. In a sense, managers need to collaborate and consider as part
of their own
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people in order
to report on achieving the required performance. Managers and their teams
are jointly responsible for the results and are both involved in agreeing what they
should do
and how they should do it. Performance management processes are part of
sweeping across
the organization. Managers and other employees of the organization should work
together
to jointly commit to achieving the performance.
Performance management strategy should focus on the development to a
continuous and
flexible process involving manager
s and all the organization that operate as a single team.
This should determine how they can best work together to achieve the required
results. This
makes it possible to focus on the planning of future performance and
performance
improvements existing. HR
M Strategy provides the basis for regular dialogue and frequent
between managers and other employees about performance needs and further
development
of the organization.
Strategic human resource management may bring a number of benefits
to the organization
(Brewster et al., 2000):
o
Contributing to the goal accomplishment and the survival of the company,
o
Supporting and successfully implementing business strategies of the company,
o
Creating and maintaining a competitive advantage for the company,
o
Improving the
responsiveness and innovation potential of the company,
o
Increasing the number of feasible strategic options available to the company,
o
Participating in strategic planning and influencing the strategic direction of the
company as an equally entitled member o
f top management,
o
Improving cooperation between the HRM department and line managers.
5.
FINDINGS AND DISCUSSIONS
Performance management can be defined as a systematic process for improving
organizational performance by developing the performance of individ
uals and teams
(Armstrong,
2006). According to him, it is a means of getting better results from the
organization, teams and individuals by understanding and managing performance
within an
agreed framework of planned goals, standard sand competence require
ments. Previous
studies have emphasized the importance of human resource management in the
organization. Human resources play a key role in order to be competitive in the
market. A
proper management of human resources will enable the achievement of the obj
ectives
required by the organization. The potential use of skills, knowledge and
competencies of
employees in the organization would make possible the realization of
organizational
performance. Basically, it is also confirmed by other research that strateg
ic management of
human resources has an impact on organizational performance. The study
analyzed
30 organizations, which 16 organizations are the service sector and 14
organizations are in
the manufacturing sector. The structure of the research, to give a
better verification
assumption or rejection it, is as follows:
a.
Organizations know the concepts of organizational performance and strategic
management of human resources. This theoretical knowledge translates in
practical implementation in these organizati
ons.
b.
The organizational performance will have impacts from strategic management of
human resources.
So, the study is focused on two sections. In the first section, study is focused on
the
theoretical aspects of adoption in organizations. While in the second section,
study focuses
on the impact that can provide strategic management of human resources in o
rganization
performance.
Luftim CANIA
380
In first section, we will discuss knowledge and practical applicability of the
principles /
concepts of SHRM and organizational performance. The concepts and search
results based
on studies that made to these organizations. So, to
have a clear survey in this study must
first analyze whether organizations are familiar with these concepts and their
evolution.
Application of concepts and knowledge in organizations means that these
organizations
have formulated and developed a general
organizational strategy. Also, they have
developed and follow an assigned strategy for human resource management.
Referring
figure 2, from the study of 30 organizations emerged that 26 (87%) of them were
familiar
with the concepts and implementation in the
ir organization. In other words these
organizations have a specific strategy for managing human resources.
While 4 (13%) of
other organizations were not very familiar with the implementation of
organizational
concepts. This means that these organizations d
o not have a human resources strategy.
These organizations do not implement adequate strategies, which mean that the
required
performance can be hard to achieve. The reason is simple. Organization lacks
planning,
orientation or foremost environmental study
or analysis. The organization operates without
studying environment. So, the organization is “the crossroads where they do not
know
which path will choose to go to the final destination in a shorter time and at a
lower cost”.
There are two organizations i
n the production sector and two organizations in the service
sector were not familiar to apply the concepts in their organizations.
Figure 2. The practical implementation of theoretical knowledge
Source:
made by author
In the second section,
Strategic Human Resource Management is the planned pattern of
human resource deployment and activities intended to enable the organization to
meet
organizational
goals and objectives (Noe et al. 2007). How valid is the strategic
management of human resourc
es in the achievements of organizational performance? Is
important SHRM in terms of its impact on organizational performance? Some of
the goals
are cost reduction, achieving sales levels, increasing the number of customers,
increasing
the market percentage
, increasing product quality, innovative products, improve
productivity.
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Figure 3. The impact of SHRM
on organization performance
Source:
made by author
Organizations choose one or several indicators to measure their performance.
For example,
org
anizations decide as a measure of performance enhancing product quality and
increasing
the level of sales in the market. So, improvement of product quality will enable
increased
sales by increasing profit. The organizations must manage its inputs to achiev
e their
outputs. One of the vital inputs for the organization is human resource. Good
management
of human resources will make possible the achievement of objectives. If we refer
to the
inputs of human resources would be the knowledge, skills, behaviors, co
mpetencies, etc.
Referring figure 3, from the study, it emerged that 21 (70%) organizations had
proven
significantly change their performance through strategic management of human
resources,
while five (16.7%) organizations admitted that the organization h
ad been minor changes in
their performance. These small changes are due to a non
-
proper management. The
development and implemented
of human resources strategies have not been in line with the
strategy of the organization. The
four (13.3%) organizations d
id not have the impact on
organizational performance by strategic human resource management. These
organizations
do not have a genuine business strategy and human resource management.
These
organizations to strategically manage their human resources pay at
tention in:
a.
Recruitment and selection of appropriate staff;
b.
Career Management in the organization;
c.
Training and development of employees;
d.
Job satisfaction;
e.
Creating a dynamic environment;
f.
Motivating employees.
In short, organizational performance has
changed through strategic management of human
resources management. This makes possible the achievement of organizational
performance objectives. It also enables the organization to be competitive. SHRM
is a very
important tool that ensures the continuity
of the organization.
CONCLUSIONS
Organizations are trying to create as much competitive in the market, reaching to
manage
their human resources in achieving organizational performance required. Some
of the goals
are cost reduction, achieving sales levels,
increasing the number of customers, increasing
the market percentage, increasing product quality, innovative products, improve
productivity. Human resources are playing an important role in achieving these
Luftim CANIA
382
performance indicators. But before that, organiza
tions should realize the expectations
required from employees and so the employees show their skills, be motivated
and behave
in the manner required by the organization to achieve performance. Strategic
HRM is a
detailed process for human resource manageme
nt throughout the organization that it’s
integrated with the organization's overall strategy. It enables the organization
having
employees with the right skills and putting them in positions according to the level
of their
qualification and skills. Differe
nt authors have tried to give different definitions for
organizational performance. In general, organizational performance is related to
the
achievement of the objectives required by the organization. The achieving
organizational
performance is a result of
the behavior of employees in the organization. Policies and
practices of organizations motivate employees and they give impact on
organizational
performance. Some of these are: human resource planning, recruitment,
selection, training
and development, com
pensation, performance management and employee relations. A link
between Strategic HRM and organizational performance has been developed by
author
Michael Armstrong. According to him, the performance is a function of the Ability
+
Motivation + Opportunity
(AMO). By achieving the expectations of employees, it will be
reached the performance required by the organization. Organizations need to
consider
human resource as a tool to gain competitive advantage needed to create appro
priate
policies and practices.
A
lso, authority and responsibility must involve in the entire
organization working as a single team and not focus only managers.
Performance
management strategy should focus on the development of a continuous and
flexible
process. The study analyzed 30 orga
nizations, which 16 are the service sector and 14 in the
manufacturing sector. The structure of the research is as follows:
a.
Organizations know the concepts of organizational performance and strategic
management of human resources. This theoretical knowledg
e translates in
practical implementation in these organizations. From 30 organizations emerged
that 26 (87%) of them were familiar with the concepts and implementation in their
organization. These organizations have a specific strategy for managing human
r
esources. While 4 (13%) of other organizations were not very familiar with the
implementation of organizational concepts.
These organizations do not have a
human resources strategy.
b.
The organizational performance will have impacts from strategic management
of
human resources.
From 30 organizations, 21 (70%) organizations had proven
significantly change their performance through strategic management of human
resources, while five (16.7%) organizations admitted that the organization had
been minor changes in
their performance. The four (13.3%) organizations did not
have the impact on organizational performance by strategic human resource
management.
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