SUPERIOR UNIVERSITY

Impact of Supportive Human Resource Practices on Employee Performance

BUSINESS RESEARCH METHODS

Submission to :

Miss Khansa, Miss Aqeela

Submitted by:

Mamoon Shafqat (10332)

Class:

MBA 3-B

Acknowledgement

This report has been prepared on the final project of business research method in Superior University We are very thankful to our teacher Miss Khansa & Miss Aqeela, because her help and guidance make us able to complete our project of BRM (Business Research Method). She teaches us all the related topics which we understand very well.
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Dedication

I dedicated that project to my Parents, Respected elders who gives me wise advices, guidance and help who have valued for me and Our honorable Teachers Miss Khansa & Miss Aqeela who facilitated us during MBA.

Table of Contents
1) Introduction 2) Literature Review 3) Theoretical Model 4) Validity and Reliability 5) Further Research 6) Framework and Hypothesis 7) Limitations and Delimitations 8) References

Introduction
Human resource management (HRM) is the effective management of people at work. Since a firms human resources are an important potential source of sustained competitive advantage, managing them well helps create unique competencies that differentiate products and services and, in turn, drive competitiveness (Ivancevich, 2003; Cappelli and Crocker-Hefter, 1996). This link, in principle, facilitates successful corporate performance. Firm performance is a multiaspect phenomenon that is both difficult to measure and is influenced by several factors. Studies have shown that organizational performance can be influenced by human resource management (HRM) practices, by leadership, by the environment, by market orientation, by strategy, and by organizational structure, among many other determinants (Racelis, 2006). This paper inspects only one of such determinants: HRM policies and practices. HRM activities play a major role in ensuring that an organization will prosper and succeed. In most organizations, such success is measured by the balance of such complementary characteristics as reaching goals, employing the skills and abilities of employees efficiently, and ensuring the influx and retention of well-trained and motivated employees (Ivancevich, 2003). Thus, top managers have learned to treat the human resources of the organization as the key to effectiveness. This realization has led to increased interest in the impact of HRM on organizational performance, and a number of studies have found a positive relationship between HRM practices and policies, and different measures of company performance (Fey and Bjrkman, 2001). This is what this paper sets out to do: to gather empirical evidence for whether indeed there is a positive relationship between HRM and firm performance.

Research Question
The Research Question that this study will seek to address is: What is the relationship between Human Resource Management (HRM) policies and practices and Firm Performance? Specifically, what is the relationship between rewards and recognition practices and firm performance, as well as between recruitment and retention systems and firm performance?

Literature Review
Interestingly, these same types of HR practices should be important for the development of individual. A supportive HR practice in this context is one that indicates investment in the employee or recognition of employee contributions, and is discretionary in the sense that the organization is not obligated to offer the practice to everyone. The growth opportunities signal that the organization recognizes and values the employees contributions and imply future support from the organization; they found a significant positive relationship between both promotions and developmental experiences. Similarly, allowing employee participation should signal that the employees contributions are valued. Having the influence over policy should be examined as possible to which extent. Being recognized and rewarded fairly would seem to signal that an organization cares about the well-being of the employee and is willing to invest in them. The perceptions of organizational rewards and procedural justice. The importance of employee perceptions of such HR practices. Employees may not always perceive the objective existence of certain practices as the organization intends. For example, an organization may encourage participation in decision making, and may even have a formal mechanism for incorporating participation. However, if employees do not perceive that the organization or its agents are open to receiving input and likely to act on it, they are unlikely to feel the organization truly offers participation. Similarly, most organizations probably believe their reward systems are relatively fair; however, many employees would not agree. Thus, perceptions of the extent to which the organization offers supportive HR practices are likely to influence employee attitudinal and behavioral responses. We propose that perceptions of supportive HR practices affect withdrawal through effects on Percieved Organizational Support (POS). Thus, perceptions of supportive HR practices are positively related to POS, which mediates relationships with commitment and satisfaction. The common theme linking such antecedents to commitment is the extent to which the antecedents signal that the company is supportive of the employee, consistent with the view that they operate via POS. The POS-mediated relationships of perceptions of organizational rewards, procedural justice, and supervisory support with commitment. We test this proposition with a different set of

antecedents, and also include POS, commitment, satisfaction, turnover intentions, and turnover in the same process model. Satisfaction is an important omitted variable in the study, given its relationship with withdrawal associated with the POS. We believe the HR practices under investigation are likely to be attributed by employees as being offered by the organization, not as necessarily being associated with a specific job. Thus, we propose that POS will also mediate relationships between HR practices and job satisfaction. We expect POS will be positively related to both commitment and satisfaction, and they in turn will mediate relationships with withdrawal. Research and theory emphasize that POS is strongly related to organizational commitment and job satisfaction, and yet these are distinct constructs. The longitudinal evidence that POS leads to commitment. Any complete model of the turnover process, then, would need to include POS as an important antecedent of organizational commitment. Job satisfaction is also included since commitment and satisfaction are two of the most important constructs in turnover research (Cappelli, Peter and Anne Crocker-Hefter) (1996),. The suggestion that the relationship between POS and turnover is mediated is consistent with many contemporary turnover theories intermediate linkages that envision voluntary turnover as a process in which antecedents (e.g., job, person, or environmental characteristics) influence major attitudinal responses (e.g., organizational commitment and job satisfaction) which in turn influence intentions to leave which lead to actual turnover behavior. A great deal of research has validated this process approach to turnover and the important mediating roles played by commitment, satisfaction, and turnover intentions. Finally, commitment and satisfaction should be negatively related to intentions to quit, and turnover intentions should be positively related to turnover. The relationships among commitment, satisfaction, turnover intentions, and turnover, including the mediating role of intentions, have been well documented (Terpstra, David E. and Elizabeth J. Rozell) (1993). We incorporate a reciprocal relationship between commitment and satisfaction. A number of studies have investigated the direction of causality between these constructs, with mixed results. Several studies have suggested a cyclical or reciprocal relationship between the two, and since the exact nature of this complex relationship is not the focus of this study, a reciprocal relationship is examined. This study examined the relationship between human resource practices, employee quit rates, and organizational performance in the service sector. Drawing on a unique, nationally

representative sample of call centers, multivariate analyses showed that quit rates were lower and sales growth was higher in establishments that emphasized high skills, employee participation in decision making and in teams, and human resource incentives such as high relative pay and employment security (Fey and Bjrkman, 2001). Quit rates partially mediated the relationship hetween human resource practices and sales growth. These relationships were also moderated hy the customer segment served. In each of these areas, a business unit (or a plant) must make a number of decisions; the first choice involving where to recruit employees. Companies can rely on the internal labor market, e.g., other departments in the firm and other levels in the organizational hierarchy, or they can rely on the external labor market exclusively. Although this decision may not be significant for entry-level jobs, it is very important for most other jobs. Recruiting internally essentially means a policy of promotion from within. While this policy can serve as an effective reward, it commits a firm to providing training and career development opportunities if the promoted employees are to perform well (McMahan and Abagail McWilliams) (1994). Here, the company must decide whether to establish broad or narrow career paths for its employees. The broader the paths, the greater the opportunity for employees to acquire skills that are relevant to many functional areas and to gain exposure and visibility within the firm. Either a broad or a narrow career path may enhance an employee's acquisition of skills and opportunities for promotion, but the time frame is likely to be much longer for broad skill acquisition than for the acquisition of a more limited skill base (Terpstra, David E. and Elizabeth J. Rozell (1993). Although promotion may be quicker under a policy of narrow career paths, an employee's career opportunities may be more limited over the long run. Another stafiing decision to be made is whether to establish one or several promotion ladders. Establishing several ladders enlarges the opportunities for employees to be promoted and yet stay within a given technical specialty without having to assume managerial responsibilities. Establishing just one promotion ladder enhances the relative value of a promotion and increases the competition for it. Part and parcel of a promotion system are the criteria used in deciding who to promote. The criteria can vary from the very explicit to the very implicit (Terpstra, David E. and Elizabeth J. Rozell) (1993). The more explicit the criteria, the less adaptable the promotion system is to exceptions and changing circumstances. What the firm loses in fiexibility, the employee may gain in clarity. This clarity,

however, may benefit only those who fulfill the criteria exactly. On the other hand, the more implicit the criteria, the greater the flexibility to move employees around to develop them more broadly. These descriptions of Frost, Honda, and UPS illustrate how a few organizations systematically match their HRM practices not only with their articulated competitive strategies, but also with their perceptions of needed role behavior from their employees. Although only a beginning, the success of these firms suggests that HRM practices for all levels of employees are affected by strategic considerations. Thus, while it may be important to match the characteristics of top management with the strategy of the organization, it may be as important to do this for all employees. Although the results of these examples generally support the three major hypotheses, they also raise several central issues: Which competitive strategy is best? Is it best to have one competitive strategy or several? What are the implications of a change of competitive strategy? HR management practices are rarely based on academic evidence of what produces good organisational outcomes and what does not, and its just as unusual for practices to be evaluated for their effectiveness (McMahan and Abagail McWilliams) (1994). The Reward Management Symposium 2005 was an attempt to understand why, all too often, practitioners do not act on the research evidence, and what academics need to do to make their research more useful to those working in reward (Cappelli, Peter and Anne Crocker-Hefter) (1996),. Practitioners at the symposium acknowledged that there was a gap between evidence and practice. And, while it was agreed that evaluation of the operation of reward practices and processes would be useful, reward specialists thought there was no obvious easy or useful way to do this. The rise of HR metrics a tool for evidence-based HR is a breakthrough that will enable managers to establish what works for them and for their employees, Professor John Purcell of the University of Bath claimed. This has been made possible by an increase in the use of employee surveys. Paul Bissell of Nationwide showed how his organisation uses HR metrics to identify and then focus on desired characteristics in the workforce, such as longer service, to get better business results. Increasingly, HR policies and practices are now being designed to capture hearts and minds in order to get discretionary effort from employees, and the rise of HR metrics should make it possible to find out which policies achieve this objective and which get in the way. But practitioners at the symposium were nervous about gathering comprehensive HR

metrics, due to the cost involved and the analytical challenge presented by large amounts of data. Templeton Colleges Ian Kessler and Helen Murlis of Hay Group discussed the controversial topic of variable pay controversial because there is conflicting evidence for its efficacy and plenty of evidence that managers use it for irrational reasons. Pay is only one of a number of factors that motivates staff, and may not always be the most important one. The importance of line management capability was stressed throughout the day. Employees experience HR policies through the way their manager interprets them, and the skill he or she brings to the task. Problems with understanding, conviction, capability and consistency were raised, and it was a more or less universal opinion that line managers need more training and support if they are to carry out their HR responsibilities, such as performance management, appraisal or recognition, effectively. A significant increase in the use of employee surveys, according to the first findings of the 2004 Workplace Employee Relations Survey (WERS 2004), means that we can now ask what is the impact on employees of a particular HR practice or set of practices, and what does that do for organisational performance? This is a fundamental shift, according to John Purcell, away from a focus on policies towards how they impact on staff. And its one that enables employers to evaluate the effects of their policies themselves. But in order to understand the effect of a particular HR practice, you need a holistic view of the whole system, Purcell suggested in one of the symposiums two keynote addresses, since the impact of HR practices isnt straightforward. The way HR practices are experienced by employees is affected by organisational values and operational strategies, such as staffing policies or hours of work, as well as the way theyre implemented. And what emerges very clearly from the research is that its front-line managers who make all the difference to the way policies are perceived and put into practice, said Purcell. We know that this is an area of unease. For example, when HR managers are asked about the implementation of almost any HR policy, they report that the way this is done by line managers with greater or lesser enthusiasm and skill is often a cause for concern. Work climate how do you get on in this organisation? and the experience of actually doing the job pace, demand and stress all influence the way employees experience HR practices, and this has an important effect on how they react to

them, and the consequent effect on organisational outcomes. Purcell told delegates that the research suggests that employees react in a number of ways, and this impacts on whether they want to learn more, are committed to the organisation and are satisfied with their jobs. This, in turn, strongly influences how well they do their jobs, whether theyre prepared to contribute discretionary effort going the extra mile for example, coming to work rather than taking sickies and staying with the organisation rather than leaving. And research has shown that people who are committed to their organisations tend to define their jobs in bigger ways. These are the employee outcomes that have a direct effect on organisational performance. The beneficial effects of organisational commitment or employee engagement are being increasingly recognised, so encouraging these is now a priority for organisations. Purcell has been studying the links between a range of HR practices and organisational commitment, and he demonstrated the use of HR metrics when presenting some of the findings of his influential research study for the CIPD into people and performance in 12 excellent organisations. Because these organisations are excellent, they have a wide range of policies, but his analysis showed that some policies had more impact than others on organisational commitment across all occupational groups (namely, managers, professionals, and workers). These were, broadly speaking, rewards and recognition, communication and worklife balance. Performance-related pay, on the other hand, doesnt trigger organisational commitment across the board, and had a slightly negative effect on workers commitment (Cappelli, Peter and Anne Crocker-Hefter) (1996),. Purcell said that HR metrics a tool for evidence-based HR is a breakthrough that will enable managers to establish what works in their organisation and for their employees. The next symposium session demonstrated how Nationwide currently uses them.

Theoretical Model:
Decision Making

Supportive Human Resource Practices

Reward

Effect on Employee Performance

Growth Opportunities

Variables: Independent Variable: Dependent Variable: Mediators:

Supportive Human Resource Practices Employee Performance Decision Making, Reward, Growth Opportunities

Methodology
Quantitative technique has been used.

Paradigm
Positivism is the paradigm used.

Data Collection
Data has been collected through questionnaire.

Population:
All the Finance banks are the population of this research.

Sample:
Pakistan Privates Banks are the Sample of this research.

Validity and Reliability:

Validity refers the device to measure the accuracy of research, while reliability is the stability or the consistency of measurement. In this research for the purpose of seeking validity and reliability I will use the self reflection and rich thick description because it is a process of clarifying all the biases that researcher has bought to the study it will resonate well with the readers. The researcher also provides rich thick description to convey findings in order to discuss an element of shared experience.

Specific Areas of Further Research

Practitioners expressed interest in further research on the following issues: How much variable pay is needed to change behaviour? What is the impact of line managers on reward, and what are the effects of improving

their capability on organisational performance? How could line managers competencies in appraisal, making consistent decisions and

interpersonal skills be improved? What level of pay gap is justifiable in the context of equal pay? Why do different practices in different organisations produce the same results?

How are performance management systems maintained and sustained? What are the most effective communication mechanisms for the delivery of the reward message?

Does the education system prepare HR practitioners for evaluating the effects of projects?

Do HR metrics have to be comprehensive, or can specific metrics be identified for

individual elements of reward, such as appraisal?

Human resource management (HRM) is the effective management of people at work. Since a firms human resources are an important potential source of sustained competitive advantage, managing them well helps create unique competencies that differentiate products and services and, in turn, drive competitiveness (Ivancevich, 2003; Cappelli and Crocker-Hefter, 1996). This link, in principle, facilitates successful corporate performance. An increasing body of work contains the argument that there exists a positive relationship between so-called high performance work practices and different measures of company performance (Fey and Bjrkman, 2001). Such high performance work practices include comprehensive employee recruitment and selection procedures, incentive compensation and performance management systems, and extensive employee involvement and training. A number of studies have found a positive relationship between HRM practices and policies, and different measures of company performance (Fey and Bjrkman, 2001). For example, a significant positive relationship was found between organizations use of human resource staffing practices and both annual profit and profit growth among a cross-section of industries (Terpstra and Rozell, 1993). Likewise, a link has been shown between systems of high performance work practices and short- and longterm measures of corporate financial performance (Huselid, 1995). This study focuses on studying the relationship between rewards and recognition practices and firm performance, as well as between recruitment and retention systems and firm performance, using a survey instrument for traditional HRM activities (recruitment, selection, performance management, training, compensation, and employee relations) and using independently collected organizational performance data focusing on financial performance (assets, capital, deposits, and return on equity). The sample has been restricted to the Philippine banking industry. The results for 33 banks provide modest evidence for the positive, significant relationship that exists between financial performance and such HRM practices as recruitment from top notch schools, administering employment tests, assistance in career planning, and offering

opportunities for professional growth. These recruitment issues have a significant positive relationship with bank Assets, bank Capital, and bank Deposits, but not with Return on Equity. A possible explanation is that profitability of banks may not exactly be a function of HRM practices and effectiveness, but of a host of other factors.

Theoretical Framework and Hypothesis

This paper sets out to find empirical evidence for whether there exists a positive relationship between traditional Human Resources Management (HRM) and firm performance, as shown below: The present study: (a) takes only traditional HRM activities, which include recruitment, selection, performance management, training, compensation, and employee relations; (b) collects data on organizational performance independently, that is, from companies financial statements, instead of self-reported survey data; and (c) the restriction of the study to just one industry. There is evidence that incentive compensation and performance management systems as well as training and development opportunities are highly valued and are linked to firm performance, most likely due to their motivational effects, and because they reflect a regard fo empowerment and accountability (Denison and Fey, 2003).

Hence, the following hypothesis:

Hypothesis 1: There is a positive relationship between the existence of employee rewards and
recognition systems and firm performance.

Hypothesis 2: There is a positive relationship between human resource management

practices relating to recruitment and retention, and firm performance.

Limitations and Areas for Further Study

There are several limitations to this study: (a) The sample size of 33 banks is quite small; as this is a work in progress, effort shall be made to collect more data. (b) Human Resource (HR) Management is just one among the myriad of possible influences on organizational performance; future studies in this area could possibly include other variables that potentially have an impact on performance on the basis of existing literature. (c) Statistical methods can be employed to

reduce the performance-related variables to a single (or fewer) performance measure. (d) No attempt has been made in this study to do a longitudinal analysis, that is, to explore the influence of HR on performance over a period of time. (e) The direction of the relationships may not exactly be causal, as is implied in this study: there is potential for simultaneity or even for reverse causality. (f) There are several methodological issues, for instance, the use of the survey method which relies heavily on self-reported data, instead of the in-depth clinical or ethnographic methods typically suggested in the field of sociology for this and similar topics.

References / Bibliography
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Supangco, Vivien T. (2001), The Human Resource Management Function and Perceptions of Organizational Performance, Philippine Management Review, pp. 65-78. Terpstra, David E. and Elizabeth J. Rozell (1993), The Relationship of Staffing Practices to Organizational Level Measures of Performance, Personnel Psychology, Vol. 46. pp. 2748. Wright, Patrick M., Gary C. McMahan and Abagail McWilliams (1994), Human Resources and Sustained Competitive Advantage: A Resource-Based Perspective, International Journal of Human Resource Management, Vol. 5, No. 2. pp. 301-326.