The Impact of Human Resource Practices on Firm Performance

Abstract

This study takes a viewpoint that the impact of Human Resource Management (HR) practices on firm performance is complex in nature. The complexity of the relationship is contingent on the context in which an organization is situated. The context may be an outcome of external conditions operant on an organization. It may also result from factors that are internal and idiosyncratic to an organization such as the evolution of the organization over the time horizon, founder’s philosophy, demographic profile of the organizational members and so on. At another level, the impact of HR practices is through favourable employee attitudes and positive employee behaviours, and the contribution that HR practices make towards shaping the desirable employee attitudes and behaviours. At the same time, how employees perceive these HR practices in the context is also an important determinant of their subsequent attitudes and behaviours. The result is a complex relationship that exists between HRM and firm performance that at present is the predominant debate in the field of human resource management. In order to test the above said assertion, the present research was carried out in a high-performing pharmaceutical organization based in Western India. The research strategy used was directed at two levels. Firstly, the context, internal as well as external, for the organization was explored by collecting primary data through interviews and from company documents like HR manual, news letters, annual reports and information uploaded on the organization’s website, and secondary data from published sources and databases such as PROWESS. At another level, xi perceptions of employees, of various HR practices being implemented in the organization, their attitudes, behavioral intentions, and behaviours were collected through survey questionnaire. The sample size was 277 drawn from the executive population of different strategic business units in the organization. The data analysis included testing the difference in mean scores on all variables among the different units, correlation analysis and regression analysis. The findings of the present study suggest that at the macro level, context plays an important role in determining the overall effectiveness of HR practices. HR practices also play an important role in shaping employee attitudes and behaviour by how they are perceived by the employees, at the micro level. But at the same time, the context has an important influence in determining how the employees perceive the HR practices. The findings also suggest that a holistic view of HR practices should be taken, and there should be internal consistency amongst the HR practices. Secondly, it was found that there was difference in “intended” HR practices and “realized” HR practices. The “realized” HR practices were to some extent aligned with the business strategy.