European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)

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Impact of SHRM Practices on Organizational Performance: An application of Universalistic approach

Junaid Khalid (Corresponding author) Department of Management Sciences The Islamia University of Bahawalpur Pakistan Junaidkhalid219@gmail.com Abdul Latif Department of Management Sciences The Islamia University of Bahawalpur Pakistan drabdullatif@hotmail.com Syed Usman Ali Gillani Department of Management Sciences The Islamia University of Bahawalpur Pakistan syedusmanaligillani@gmail.com Abstract: The purpose of this study is to examine the relationship of Strategic Human Resource Management (SHRM) practices with organizational performance. The data for this study is collected through verified structured questionnaire from sample of 120 banks of Bahawalpur district (Pakistan). Target respondents are branch managers because of their expert opinion. Data is analyzed by using software SPSS 19 version by implementing the statistical techniques, correlation and regression. In general, results of this study shows that four out of seven SHRM practices are positively related to organizational performance. Organizations tend to exhibit higher organizational performance when trained its employees extensively provide them employment security and give them open mechanism for participation, and finally the evaluation criteria should be based on outcomes. HR managers, practitioners and firms can focus immensely on these variables to enhance their organizations performance. Key words- Strategic Human Resource Management (SHRM), Human Resource Management (HRM), Universalistic Approach, Organizational Performance 1. Introduction In this age of vulnerable environment of globalization, intense competition towards innovative products, and supplier bargaining power transformed to buyers bargaining power, all these are the major challenges for the organizations. In order to cope up with all these challenges firms must have to give profound consideration to their performance and on sustainable competitive advantage. Recent studies show that SHRM has a positive impact on performance and it can be used as a sustainable competitive advantage because it creates such strategic asset that is invisible and difficult to imitate (Wan-Jing and Tung, 2005). In recent years, the major key area in HR literature is the implication of universalistic approach. According to universalistic approach, there is a certain set of SHRM practices that are equally beneficial for every organization (Bamberger and Meshoulam 2000; Delery and Doty, 1996). This study is very important with respect to its

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contribution to SHRM (universalistic) literature. First, this study contributes in the shape of identification of universal best SHRM practices, which is the bone of contention in the universalistic literature. Second, this study explored that whether there is any difference in the relationship of SHRM with performance in developed countries with developing countries. The SHRM practices that are presented by delery and doty (1996) and used by Syed et al., (2008) are included in this study. The purpose of this study is to examine the relationship between SHRM practices and organizational performance. 2. Literature review Classical sources of competitive advantage have become obsolete, because they are really easy to duplicate (WanJing and Tung, 2005). According to resource-based view, firms must have to work to develop such a competitive advantage that is difficult to imitate (Barney, 1986). Recent literature on HRM shows that firms can achieve competitive advantage through their Human Resource and when HR is used as a strategic asset and implanted in operational system in a value added manner that adds beauty to the whole operational system and creates an invisible competitive advantage (Wan-Jing and Tung, 2005). Schuler, Dolan, and Jackson, (2001) describes evolution of SHRM from personnel management to traditional HRM and then from traditional HRM to SHRM. Furthermore, SHRM practices are more inclined in the way to create a more powerful competitive advantage. That is why these strategies are more focused towards strategic business orientation. Literature of SHRM shows that primarily there are three school of thoughts related to implementation of SHRM practices: Universalistic approach This is the simplest approach, it starts operating with a basic assumption that there is a linear relationship between variables and that can be extendable to entire population (Delery and Doty, 1996). Contingency approach Most of the authors have agreed upon the fact that contingency approach is more complex then universalistic approach because contingency approach is more inclined towards interactions rather than simple linear relationship (Schoonhoven, 1981, van, A, and Drazin, 1985; Venkatraman, 1989). Configurational approach This is the most complex one because this approach is concerned about the synergetic effect of a certain SHRM practice (Doty, Glick, and Huber, 1994). Although there is more theoretical significance of contingency and configurational approach, but both of these approaches have a lack of statistical significance while on the other hand universalistic approach having more empirical significance (Syed et al., 2008). This study is concerned towards the implication of universalistic approach. We are using seven best practices of HRM that are described by Delery and Doty (1996) and further implemented by Syed et al., (2008) these practices are as following: 2.1 Internal career opportunities Internal career opportunities refer to the tendency to hire employees mostly from within the organization or from the outside. According to Delery and Doty (1996), organizations give importance to internal hiring as compared to external. Pfeffe (1994) describes it as a give and take process in which manager promotes their employees primarily from within the organization and show trust on them and in return expect greater performance. The relationship between internal career opportunities and organizational performance is empirically supported by Blackwell, Brickley, and Weisbach (1994) and Shay (2006) who found a positive correlation between these variables. While on the other hand Gaertner and Nollen (1989) relates the promotion rate with psychological

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commitment furthermore Ngo and Tsang, (1998) provides support to Gaertner and Nollens argument in their study of 778 business executives in Hong Kong also found a positive impact on commitment. 2.2 Training Training refers to the quantity of official training given to employees. Organizations may choose in between either to provide extensive official training or to rely on attaining expertise through selection. Literature of universalistic approach shows that training has the most significant effect on organizations performance (Pfeffer, 1998, Pfeffer and Veiga 1999, Harel and Tzafrirs, 1999, Syed et al., 2008, Shay, 2006). Most of the authors are agreed upon that training was a universal best practice (Arthur, 1992, Delaney and Huselid, 1996, Huselid and Becker, 1996, Youndt, Snell, Dean, and Lepak, 1996). In a study of Chinese firms Syed et al., (2008) found training as the most influencing SHRM practice that accounts for 12.17% variance in organizational performance. Hatch and Dyer, (2004) found that extensive training cause fewer defects in products in his study of 25 semiconductor manufacturing firms. Huang (2001a, b) studies of 568 Taiwans companies found a significant direct relationship among training and product and service quality. This argument is supported by the findings of the study of managerial attitude toward HRM in which Jennings, Cyr, and Moore, (1995) found training and development is the most significant SHRM practice. 2.3 Employee participation Several researchers believe that employees participation is directly associated with organizations performance (Arthur, 1992, Batt; Pfeffe, 1994; Colvin, and Keefe, 2002; Hodson, 2002; Kato and Morishima, 2002; Shay, 2006). Batt, Colvin, and Keefe, (2002) found an indirect relationship between employee participation in decision making and employee turnover rate. While Hodson, (2002) found another dimension and shows workplace conflicts can be reduced through employees participation. 2.4 Result-oriented appraisals According to Delery and Doty (1996), primarily appraisals are based on two types: results based and behavior based. Behavior-based appraisals focus on the specific behaviors that best matches the job while result-oriented appraisals focus purely on the results of those behaviors. In a result-oriented appraisal system, certain incentives are given to employees on completion of their performance objectives (Pfeffer, 1998). Delery and Doty, (1996) found a significant positive relationship between result-oriented appraisal and organizational performance; furthermore this relationship also has the same results in the study of Syed et al., (2008). 2.5 Profit sharing Profit sharing refers to the integration of pay with organizational performance. Delery and Doty, (1996) found a positive significant relationship of profit sharing with performance. In a study of Chinese firms Syed et al., (2008) investigated the impact of profit sharing on twofold performance measures and found a unique relation in which profit sharing had a positive significant relation with only financial measures of organizational performance and not significant relation with other dimensions of performance ( product/service quality). 2.6 Employment security The importance of employment security is emphasized by Pfeffer, (1998) by saying; this is unrealistic that an organization expects hard work, devotion and commitment from their employees in absence of employment security. Syed et al., (2008) found a positive significant relationship between employment security and organizational performance. Furthermore, Pfeffer, (1998) describes that the importance of employment security according to firms point of view is twofold cost and competition. If organization does not provide its employees with job security then they obviously switch towards better opportunities and thus increasing cost (training, selection etc) and competition.

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2.7 Job description The degree to which job duties are well defined is very important. Delery and Doty, (1996) found a moderate correlation between job description and firm performance. Furthermore, the study of Syed et al., (2008) shows that 8.30% variance is accounted for in organizational performance only due to job description

3. Conceptual Model and Hypotheses

Universalistic approach
1. Internal career
opportunities 2. 3. 5. Training Employee participation Profit sharing

Organization Performance

4. Result-oriented appraisals
Seven variables are used to measure organizational performance as depicted in the conceptual model. Research model was adopted from the study of (Delery and Doty, 1996; Syed et al., 2008). Hypotheses: H1: Training and organizational performance are positively related to each other. H2: Participation and organizational performance are positively related to each other. H3: Employment security and organizational performance are positively related to each other. H4: Job description and organizational performance are positively related to each other. H5: Profit sharing and organizational performance are positively related to each other. H6: Result-oriented appraisals and organizational performance are positively related to each other. H7: Internal career opportunities and organizational performance are positively related to each other. 4. Methodology 4.1 Sample size and sampling technique This study concentrates on banking industry in order to control the issues of heterogeneity. The sampling frame of this study was obtained from the database of state bank of Pakistan, which shows that there are 400 branches in Bahawalpur district (Pakistan). Sample size is selected on the basis of the criteria presented by James, Joe, and Chadwick (2001) for a known population. In this study, the population is known as described above that there are 400 branches in Bahawalpur district and according to the criteria of James, Joe, and Chadwick (2001) minimum sample size for this population is 92. However, owing to the consideration of usable response in this study sample of 120 banks are taken out of which 100 usable questionnaires were returned that are further used for data analysis.

European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
4.2Research Instrument

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The questionnaire adopted for the study was developed by Delery and Doty (1996) and used by Syed et al., (2008). However, a little modification has been done in questionnaire with regard to the measurement of organizational performance in the context of this study.

4.3 Measurement of independent variables Respondents were asked to rate their answers on multi-item scale. Training, participation, employment security, job description and profit sharing were measured on four point likert scale while internal career opportunities was measured on seven point likert scale and result oriented appraisal are measured on two point likert scale. Higher values on likert scale indicate strong deeds towards each independent variable. 4.4 Dependent variable Five point likert scale was used to rate the response of respondents where higher values indicate high performance and vice versa. In order to cope up with the difficulty of obtaining financial data due to conservative behavior and intense competition, we have adopted self-evaluation approach. According to Dess and Robinson (1984), selfreporting measures can be an acceptable proxy and are evenly reliable in the deficiency of objective data. Powel (1992) found a positive correlation (0.40) between self-reported firm performance measures and objective firm performance measures. 5. Data analysis: Data analysis is done by using software SPSS version 19. Statistical techniques applied to analyze the data are as follows: Cronbachs alpha Descriptive statistics (Mean and Standard deviation) Correlation Linear regression

5.1 Cronbachs alpha Internal reliability of the instrument is checked by using Cronbachs alpha. The result of cronbach alpha is 0.731 which is well above the stander presented by (Nummally, 1978) that is 0.70. Therefore, this is clear that the instrument used in this study having strong internal reliability and it can be used with confidence for the application of further statistical analysis and interpretation 5.2 Descriptive statistics and correlation analysis Table 1 represents descriptive statistics and correlation between each variable. If the mean scores are observed then it is clear that internal career opportunities having higher value 3.89 the reason behind this is that it is measured on 7-point likert scale. While the first five variables are measured on 4-point likert scale and rest of the two are measured on two and five point likert scale respectively. So if the ratio of their mean score is calculated then it is clear that training has the highest value of mean and then the number of internal career opportunities and the rest of the order is as follows employment security, result-oriented appraisals, job description, participation and profit sharing. Range of correlation between SHRM practices is between -0.264 to 0.630. Except result-oriented appraisals, all the variables are positively related to each other.

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5.3 Regression Analysis

In order to check the impact of each independent variable unconnectedly on dependent variable and to test the hypothesis developed linear regression analysis is applied. Results of linear regression analysis are presented in table II. 5.3.1 Hypothesis 1 Hypothesis postulates that organizations that provide extensive training to their employees will outperform those who do not provide extensive training. H1: Training and organizational performance are positively related to each other. 47.1% variance in firms performance is explained by training which is evident by the value of R=0.471. F=27.877 at p=0.000 describe the models goodness of fit. Significant positive relationship between predictor and predicted variable is evident by the value of t=5.280. Hence, on the basis of these results it can be inferred with confidence that H1 is accepted. 5.3.2 Hypothesis 2 Hypothesis postulates that organizations that provide open forum of communication to their employees will increase their performance. H2: Participation and organizational performance are positively related to each other. 33.1% variance in firms performance is explained by participation which is evident by the value of R=0.331. F=10.515 at p=0.002 describe the models goodness of fit. Significant positive relationship between predictor and predicted variable is evident by the value of t=3.243. Hence, on the basis of these results it can be inferred with confidence that H2 is accepted. 5.3.3 Hypothesis 3 Hypothesis postulates that those organizations that provide their employees with job security get in return better performance. H3: Employment security and organizational performance are positively related to each other. 33.5% variance in firms performance is explained by employment security which is evident by the value of R=0.335. F=10.819 at p=0.001 describe the models goodness of fit. Significant positive relationship between predictor and predicted variable is evident by the value of t=3.298. Hence, based on the results it can be inferred with confidence that H3 is accepted. 5.3.4 Hypothesis 4 Hypothesis postulate that clearly defined jobs leads organizations towards better performance. H4: Job description and organizational performance are positively related to each other.

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8.9% variance in firms performance is explained by employment security which is evident by the value of R=0.089. F=0.771 at p=0.381 describe the models goodness of fit which is not satisfactory. Insignificant relationship between predictor and predicted variable is evident by the value of t=0.880. Hence, based on the results it can be inferred with confidence that H4 is not accepted. 5.3.5 Hypothesis 5 Hypothesis postulates that profit sharing with employees other then their salaries has a positive relationship with organizational performance. H5: Profit sharing and organizational performance are positively related to each other. 6.4% variance in firms performance is explained by employment security which is evident by the value of R=0.064. F=0.402 at p=0.528 describe the models goodness of fit which is not satisfactory. Insignificant relationship between predictor and predicted variable is evident by the value of t=0.634. Hence, on the basis of these results it can be inferred with confidence that H5 is not accepted. 5.3.6 Hypothesis 6 Hypothesis postulates that organizations with result-oriented appraisal system will be able to exceed their performance. H6: Result-oriented appraisals and organizational performance are positively related to each other. 36.0% variance in firms performance is explained by employment security which is evident by the value of R=0.360. f=14.614 at p=0.000 describe the models goodness of fit. Significant positive relationship between predictor and predicted variable is evident by the value of t=3.823. Hence, on the basis of these results we accept H6. 5.3.7 Hypothesis 7 Hypothesis postulates that internal career opportunities for employees in a particular organization increase its performance. H7: Internal career opportunities and organizational performance are positively related to each other. 10% variance in firms performance is explained by employment security which is evident by the value of R=0.01. F=0.009 at p=0.935 describe the models goodness of fit which is not satisfactory. Insignificant relationship between predictor and predicted variable is evident by the value of t=-0.095. Hence, based on the results it can be inferred with confidence that H7 is not accepted. 6. Discussion and conclusion This study examines the impact of SHRM practices on organizational performance. Especially universal implication of a set of SHRM practices, that is presented by (Delery and Doty, 1996). The results of this study are very important due to their dual nature. Four individual SHRM practices (training, participation, employment security and result-oriented appraisal) have significant positive relationship with organizational performance and these results are consistent with the literature of SHRM. While on the other hand the remaining three SHRM practices (job

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description, profit sharing and internal career opportunities) have no significant relationship with organizational performance and these results are contradictory with the literature of SHRM. Results of training are consistent with the results of (Pfeffer, 1998, Pfeffer and Veiga 1999, Harel and Tzafrirs, 1999, Syed et al., 2008, Shay, 2006). Most of the authors are agreed on the results of trainig in the litrature of universalistic prespective that training has the most significant effect on performance and hence it is also proved in the current that training has the most significant relationship with performance. Result-oriented appraisals is the second most significant SHRM practice that this study reveals. Furthermore the findings of this study related resultoriented appraisals are matched with the findings of (Delery and Doty, 1996; Syed et al., 2008). The third most influencing variable is employment security having a significant positive relationship with organizational performance and these results are consistent with the results of (Pfeffer,1998; Syed et al., 2008). The last variable that has a positive relationship with organizational performance is employee participation and the findings related to this variable also having a sound support in litrature (Arthur, 1992 Batt, Colvin, and Keefe, 2002, Hodson, 2002, Kato and Morishima, 2002, Pfeffe, 1994; Shay, 2006). Now the second stream of variables start that are not significantly related to organizational performance these variables are job description, profit sharing and internal career oppurtunities. All these three variables are showing contradictory results as compare to the previous researchers (Delery and Doty, 1996; Syed et al., 2008; Pfeffe, 1994; Blackwell, Brickley, and Weisbach, 1994; Shay, 2006). Hence it can be concluded that training, employee participation, employment security and result-oriented appraisals are univeralistic SHRM practices in context of this study. Training, participation, result-oriented appraisal and employment security has got the positive relationship with organizational performance. The HR managers, practitioners and firms can focus immensely on these variables to enhance the organizational performance. 7. Limitations and Future directions Despite the importance of the contribution of this study to universalistic litrature and its valuable practical implication, it is not perfect as every research has some limitations it has also. First limitation of this study is the use of self evaluation criteria of measuring performance because it can be baised. Although previsoius studies are also based on the judgemental measures (Delaney and Huselid, 1996). Powel 1992 and Dess and Robinson, 1984 argure that in order to cope up with difficulty of obtaining objective data subjective measures can be used. But it would be worthewhile for future studies to examine the relationship between the same SHRM variables and performance by taking objective measure of performance i.e. return on asset, return on equity, profit ratios sales ratios. Second limitation of this study is the use of cross sectional data in future same study can b done with longitudenal data in order to overcome the limitations of cross sectional data. The results of this study were carried on by using the regression analysis, by using latest techniques such as Data Envelopment Analysis the relationship of same variables could be modified. Furthermore the study was conducted keeping in view the banking industry, for its effectiveness the study could be a helpful source of inter industry comparison.

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.

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Variable 1 Training

R 0.471

t-value 5.280

coefficient 0.471 (-0.449)*

F- value 27.877

P-value 0.000

2 3 4 5 6

participation employment security job description profit sharing Result oriented appraisals

0.311 0.315 0.089 0.064 0.360

3.243 3.298 0.880 0.634 3.823

0.311 (-0.286)* 0.315 (-0.261)* 0.089 (-0.107)* 0.064 (-0.042)* 0.36 (-0.6)*

10.515 10.819 0.774 0.402 14.614

0.002 0.001 0.381 0.528 0.000

internal career opportunities

0.010

-0.095

-0.01 (-0.005)*

0.009

0.925

*Unstandardized Beta Coefficients in parenthesis

References

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