Table of Contents

• Human Resource Strategy and Firm Performance
• Performance Management
• Performance as a Dependent Measure
• Links
• References

Human Resource Strategy and Firm Performance

The relationship between human resource management strategy (HRM) and firm performance often seems to be a tenuous one at best. HRM functions are often working at odds with each other as well as with other departments. Wright and McMahan (1992) agree and suggest that HRM can become a competitive advantage (see Porter, 1980; 1985) for organizations in terms of improving performance if it more closely aligns its practices with strategic management efforts.

Strategic human resource management is concerned with creating a competitive advantage for organizations by closely aligning human resource processes, such as recruitment, selection, training, appraisal, and reward systems (Fornbrum, Tichy, & Devanna, 1984) with strategic management processes. Wright and McMahan (1992) define strategic human resource management (SHRM - pronounced "Sherm") as "the pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals" (p. 298). They go on to describe several theoretical perspectives for that have evolved over the past decade:

• Resource-based Perspective - According to this view, "competitive advantage can only occur oin situations of firm resource heterogeneity and firm resource immobility" (p. 301). In other words, competitive advantage is possible only in situtions where the resources needed vary across the organization and they are difficult for competitors to obtain (also see Barney, 1991). A resource is capable of sustained competitive advantage when it (1) adds positive value, (2) is unique, (3) is imperfectly imitable, and (4) is not substitutable.

• Behavioral Perspective - According to this view, employee behavior acts as a mediator between the management's strategy and firm performance (see contingency theory - Fisher, 1989). It assumes that the purpose of HRM and management practices is to "elicit and control employee attitudes and behaviors" (p. 303). Schuler and Jackson (1987) propose that innovative strategies require role behaviors reflecting innovative behavior, a long-term focus, high cooperation, moderate concern for quality and quantity, and a higher degree of risk taking. In this model, HRM practices are viewed as a menu of management tools.

• Cybernetic Systems Perspective - This view looks at organizational behavior from either a closed or open systems perspective (Wright and Snell, 1991). HRM is seen as an input-throughput-output model, with a focus on throughput transformation. According to this model, SHRM has two general responsibilities: competence management (competence acquisition, utilization, retention, and displacement) and behavior management (behavior control and coordination).

• Agency / Transaction Cost Theory - Transaction costs are those "associated with negotiating, monitoring, evaluating, and enforcing exchanges between parties" (p. 309). This model views the sum performance of an organization as dependent upon the control systems used to monitor employee behavior. Measurement and reward are key to aligning strategies with performance (see Jones, 1984).

• Resource Dependence / Power Models - Pfeffer and Cohen (1984) propose a politics and power view of HRM. They suggest that decisions in the real world are made based on who controls the resources most valued by the firm.

• Institutionalism - In this model, process are social phenomena in which individuals working together come to accept a common reality (see Meyer & Rowan, 1977 and Scott, 1987). As a result, organizational structures and processes may appear to be rationally-derived or need-driven when in fact they may not be. Practices can be institutionalized through external mandates, through organizations seeking certification, through rewards, through benchmarking, and simply through historical artifacts. Once institutionalized, practices gain "a mythical sense of legitimacy" (p. 314).

Performance Management

What is management? Management is a field of study and of practice dedicated to improving how organizational resources are used in the pursuit of its mission.

What do managers do? In a general sense, managers act as lynch-pins within societies, joining organizational resources (e.g., workers, capital, and technology) with stakeholders (e.g., consumers, shareholders, owners, employees, government, and the communittee). They are entrusted by those stakeholders with optimizing the organization's resources in the pursuit of some goal. In that respect, managers are agents who act on behalf of their stakeholders and who thereby carry a moral, ethical, and often legal obligation to act in the best interest of those stakeholders. Managers often act in the role of administrators, supervisors, and auditors. They're responsibilities vary from hiring, training, and developing workers to budgeting, performance appraisal, resource allocating.

According to Rummler and Brache (1991), managers perform three critical tasks: they set goals, establish and maintain organizational structures, and manage resources. These tasks are performed across three levels: at the organizational level, at the process/workflow level, and at the job level. Also, they propose that in order to optimize organizational performance, managers must align these tasks at all three levels.

Managers also prioritize. As Gilbert (1978) suggested, not all problems are worth fixing. The benefit of management solutions must be significantly higher than the cost (and opportunity cost) of those solutions.

More rarely seen, managers also serve as leaders. Sometimes, they can even be transformational leaders, people who set out bold visions of change, establish an environment of risk taking, and navigate the unsafe waters of innovation.

Performance as a Dependent Measure

What predicts job performance? Rothwell (1995; 1996) conducted a survey of ISPI members to determine what factors cause performance problems. Among the most common answers was a lack of clear performance expectations and a lack of feedback. This reflects the importance of clearly specifying job expectations and providing clear, timely performance feedback.

How can we measure individual performance? According to Heneman (1992), performance measures for the purpose of determining merit pay increases include trait, behavior, results, and relative performance.

• Traits exhibited in the performance of a job are generally easy to describe but they lack sufficient specificity to ilicit consistency in performance evaluations as well as to motivate workers to improve. In fact, traits are relatively stable personal characteristics.

• Behaviors are more specific though generating an exhaustive list of criterion behaviors can be cumbersome. In instructional systems, criterion-referenced testing and behavioral learning objectives are examples of this type of performance measure.

• Results are likely the clearest performance measures insofar as they are typically numerical. Often used in MBO (management by objectives) programs, results-oriented measures need to be perceived as attainable yet challenging in order to impact individual performance positively.

• Relative measures describe the individual's rank within a group of peers. Normative testing has a tendency to hide poor performance (e.g., bell curve effect) while also generating resentment among individuals. It is often not clear why one person is ranked higher than another.

Of course, other non-performance factors go into pay increase decisions, e.g., pay scale, market worth, seniority, and promotions.

Is there a difference between performance and productivity? Certainly, while productivity is a ratio depicting the volume of work completed in a given amount of time (e.g., produces 4 widgets per hour), performance is broader indicator that can include productivity as well as quality, consistency, and other factors. Productivity measures are typically considered in results-oriented performance evaluation (e.g., how many accounts a sales person is able to close in a month). On the other hand, performance measures can include results, behaviors (criterion-based), and relative (normative) measures.

References

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120.

Fisher, C. (1989). Current and recurrent challenges in HRM. Journal of Management, 15, 157-180.

Fombrum, C., Tichy, N. & Devanna, M. (1984). Strategic Human Resource Management. New York, NY: Wiley.

Gilbert, T.F., (1978). Human Performance Engineering: Worthy Performance. New York: McGraw-Hill.

Heneman, R.L. (1992). Merit Pay: Linking Pay Increases to Performance Ratings. Reading, MA: Addison Wesley.

Jones, G. (1984). Task visibility, free riding, and shirking: Explaining the effect of structure and technology on employee behaviors. Academy of Management Review, 9, 684-695.

Meyer, J.W. & Rowan, E. (1977). Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology, 83, 340-363.

Porter, M. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: Free Press.

Porter, M. (1985). Competitive Advantage. New York, NY: Free Press.

Rothwell, W.J. (1996). Beyond training and development: State-of-the-art strategies for enhancing human performance. New York: AMACOM, a division of the American Management Association.

Rothwell, W.J., (1995). Identifying and solving human performance problems: A survey (unpublished survey results). Pennsylvania State University.

Rummler, G., & Brache, A.P. (1990). Improving performance: How to manage the white space on the institution chart. San Francisco, CA: Jossey-Bass.

Scott, W.R. (1987). The adolescence of institutional theory. Administrative Science Quarterly, 32, 493-511.

Wright, P.M. & McMahan, G.C. (1992). Theoretical perspectives for strategic human resource management. Journal of Management, 18(2), 295-320.

Wright, P.M. & Snell, S.A. (1991). Toward an integrative view of strategic human resource management. Human Resource Management Review, 1, 203-225.