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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

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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.

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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

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Introduction

Human resource management (HRM) is the effective management of people at work . Since a

firm¶s 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 multi-

aspect 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

Björkman, 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.

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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?

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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 employee¶s 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 employee¶s contributions are valued.

Having the influence over policy should beexamined 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

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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

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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 Björkman, 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,

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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 it¶s 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

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metrics, due to the cost involved and the analytical challenge presented by large amounts of data .

Templeton College¶s Ian Kessler and Helen Murlis of Hay Group discussed the controversial

topic of variable pay ± µcontroversial¶ 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 µwhat 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

it¶s 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 symposium¶s two keynote addresses, since

the impact of HR practices isn¶t 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 they¶re implemented. And what emerges very

clearly from the research is that it¶s 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 andskill ± is often a cause for concern.

Work climate ± µhow 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

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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 they¶re prepared to contribute

discretionary effort ± going the extra mile for example, coming to work rather than taking

µsickies¶ 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 µexcellent organisations¶. Because these

organisations are µexcellent¶, 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 work±life balance. Performance-related pay, on the other

hand, doesn¶t 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.

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Theoretical Model:

Variables:

Independent Variable: Supportive Human Resource Practices

Dependent Variable: Employee Performance

Mediators: 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.

Supportive

Human

Resource

Decision Making

Reward

Growth

Opportunities

Effect on

Employee

Performance

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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?

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� 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 firm¶s 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 ³high

performance work practices´ and different measures of company performance (Fey and

Björkman, 2001). Such ³high 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 Björkman, 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 long-

term 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

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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.

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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

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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.

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References / Bibliography

Arthur, Jeffrey B. (1994), ³Effects of Human Resource Systems on Manufacturing Performance

and Turnover,´ Academy of Management Journal, Vol. 37, No. 3. pp. 670-687.

Bellingham, Cohen, Edwards, and Allen (1990), The Corporate Culture Sourcebook, Human

Resource Development Press, Massachusetts. pp. 235-251.

Cappelli, Peter and Anne Crocker-Hefter (1996), ³Distinctive Human Resources Are Firms¶

Core Competencies,´ Organizational Dynamics, Vol. 24. pp. 7-22.

Denison, Daniel R . and Carl F. Fey (2003), ³Organizational Culture and Effectiveness: Can

American Theory Be Applied to Russia?,´ Organization Science, Vol. 14, No. 6, pp. 686-

706.

Fey, Carl F. and Ingmar Björkman (2001), ³The Effect of Human Resource Management

Practices on MNC Subsidiary Performance in Russia,´ Journal of International Business

Studies, Vol. 32, No. 1, pp. 59-75.

Huselid, Mark A., (1995), ³The Impact of Human Resource Management Practices on Turnover,

Productivity, and Corporate Financial Performance,´ Academy of Management Journal,

Vol.

38, No.

3.

pp.

635-672.

Huselid, Mark A., Susan E. Jackson, and Randall S. Schuler (1997), ³Technical and Strategic

Human Resource Management Effectiveness as Determinants of Firm Performance,´

Academy of Management Journal, Vol. 40, No. 1. pp. 171-188.

Ivancevich, John A. (2003), Human Resource Management, 9th ed., McGraw-Hill, New York .

Marzan, Bienvenido (1997), ³Value Orientations, Job Satisfaction and Attitudes Towards Unions

in Selected Banks,´ Unpublished Doctoral Dissertation, University of the Philippines.

O¶Reilly, Charles A.

, Jennifer Chatman, and David F.

Caldwell (1991), ³People andOrganizational Culture: A Profile Comparison Approach to Assessing Person-

Organization Fit,´ Academy of Management Journal, Vol. 34, No. 3. p. 516.

Racelis, Aliza (2006), ³Relationship between Strategic Orientation and Organizational

Performance: An Exploratory Study of Philippine Companies,´ Philippine Management

Review, pp. 70-80.

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Supangco, Vivien T. (2001), ³The Human Resource Management Function and Perceptions of

Organizational Performance,´ Philippine Management Review, pp. 65-78.

Terpstra, David E. and Elizabeth J. Rozell (1993), ³The Relationship of Staffing Practices to

Organizational Level Measures of Performance,´ Personnel Psychology, Vol. 46. pp. 27-

48.

Wright, Patrick M., Gary C. McMahan and Abagail McWilliams (1994), ³Human Resources and

Sustained Competitive Advantage: A Resource-Based Perspective,´ International

Journal of Human Resource Management, Vol. 5, No. 2. pp. 301-326.

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