The ‘bottom line’ refers to the organisations overall
performance based on profitability and increasing the shareholder value through
its people. Human Resource Management (HRM) practices contribute to achieving
strategic goals and this assignment will discuss how organisational
capabilities, Strategic Human Resource Management (SHRM), High Performance Work
Systems (HPWS) and the Configuration Approach impact on the bottom line. Finally,
it will discuss the methodological issues in measuring HRM practices.
Capabilities are the core competences of the individual which can be developed
in the workplace (Eikelenboom, 2007). SHRM focuses on how the organisation will
implement strategies to achieve its goals through their employees (Armstrong,
2006). HPWS refers to ‘A human resource system that provides increased training,
employment security and pay incentives for non-managerial employee’s.’ (Appelbaum et al, 2000, p.8). The
Configuration Approach involves using several HRM practices at the same time to
increase organisational performance (Delery and Doty, 1996).
HRM highlights how organisational
capabilities influence profitability and competitive advantage. HRM does this
by: ‘enabling the work efforts to be co-ordinated, channelled towards achieving
the goals of the organisation and responsive to a changing environment.’ (Eikelenboom, 2007, p.61). This
approach can be referred to as SHRM as it is crucial for HRM practices to be
employee-focussed and align with the organisational strategy. Training
employees develops skills and knowledge and allows them to apply this to
contribute to the efficiency of their work processes. Ulrich (2015) and Macduffie
(1995) agree that training schemes develop a unique set of skills that are
strategic capabilities requires firms to leverage their human capital for not
only achieving maximum productivity but also contributing to core competence so
that they will become distinctive. (Wang et al, 2012, p.1129).
Human Capital is a non-substitutable and valuable resource;
therefore, it is important to enhance the value of human capital through
training and development which encourages staff commitment and retention.
HRM practices need to be consistent to ensure
sustained competitive advantage. Purcell et al (2003) implemented a
longitudinal study involving 12 companies and discovered that the successful
companies had a ‘Big Idea’. Their mission and culture were supported their
strategy and therefore increased their competitive advantage even when there
were external pressures.
SHRM influences the bottom line by
considering how the organisational culture can inform strategic decisions.
Human Resource (HR) executives should discuss how the organisation should be
structured to achieve this through aligning new initiatives to their strategic
goals and highlight this in their Action Plan.
Behavioural agendas show the extent to
which all employees behave consistently with the desired culture; and process
agendas institutionalise the culture through management practices. (Ulrich,
The Action Plan will address and adapt
people’s behaviours to align with the shared goals through incentive schemes
and performance management appraisals. This can be done using rating scales Behaviour
Observation Scales (BOS). It is crucial these HRM practices have managerial
approval as value-added activities because they will only contribute to
organisational performance if there is a shared consensus across the workforce.
HRM has a great impact on the bottom line
in reference to developing HPWS through recruitment and selection procedures,
incentives and performance management meetings and providing relevant training
to employees. Boxall and Purcell (2003) suggest that individual performance is
based on Ability, Motivation and Opportunity and the HR Department is
responsible in supporting these elements. To develop unique abilities, the HR
Department must initiate a rigorous recruitment process so that the
organisation can select and hire the most highly qualified candidate. Once they
have been selected, the HR Department can then expand these skills through
training opportunities. Arthur (1994) studied 30 U.S steel mini mills and found
that the organisations with higher productivity had given employees more
training opportunities and encouraged problem-solving. Therefore, through
providing training, employees will gain a sense of belonging within the
organisation and will continue to work hard which leads to increased
Vroom (1964) emphasises the impact that
incentive schemes have on the bottom line. Extrinsic motivation, for example
through a bonus scheme, highlights the link between effort and reward. An
employee who can independently direct his or her behaviour to achieve a certain
reward is engaging in intrinsic motivation. Motivation encourages employees to
meet productivity targets and therefore supports the organisations performance.
HPWS depends on the successful integration
of HRM practices and the best-fit approach. The policies and practices adopted
depends on organisational structure, culture and strategy. However, this
approach has been critiqued for ignoring the relationship between best fit and
flexibility: ‘organisations should be less concerned with best fit and best
practice, and much more sensitive to processes of organisational change.’ (Armstrong,
2006, p.112). Armstrong suggests that organisations need to focus on adapting
to the changing markets.
Delery and Doty (1996) suggest that the
Configurational Approach enhances HRM practices through bundling:
Internal alignment among practices should
result in performance advantages for firms, because the different sets of HRM
practices will elicit, reward and control the appropriate employee behaviours. (Bowen
and Ostroff, 2004, p.211).
Bundling involves developing
inter-connected and inter-dependent HR practices focused on employee motivation
and ability. Ichniowski et al (1997) identified a relationship between bundling
eighteen HR practices and organisational performance when they studied steel
finishing lines in 21 U.S steel companies. They found that bundling influenced
the organisation’s strategy which impacted upon their performance.
HRM activities influence the bottom line
when employees have the required capabilities and through discretionary effort
are encouraged to utilise them. Organisational Capabilities can be acquired
through bundling for example job rotation and problem-solving group
It is crucial for employees and managers
interests to synergise towards the organisation’s shared goal to develop a ‘psychological contract of reciprocal
commitment’ (Macduffie, 1995, p.201). This involves removing the status
barrier between the two groups. Blau (1964) highlights this relationship in the
Social Exchange Theory. Employees should be treated as important assets because
they will develop job satisfaction and extra-mile behaviours. They should be
given autonomy in work-related decision making and there should be regular
communications between departments and hierarchies. Therefore, employees need
to feel valued and appreciated in the organisation and their individual goals
should align with the organisations because this shared consensus will impact
However, the validity of the Configuration
Approach and its impact on the bottom line has been questioned. Torrington et
al (2005) believe the most valuable HRM practices are used by the most
profitable firms because they can afford to pay for them so they are already
profitable. Additionally, the inter-dependence between the practices may place
the organisation at a disadvantage as Becker and Gerhart (1996) suggest that
because the bundles are so complex, the organisation might find it difficult to
adapt to changes in the environment. However, research studies by Ichniowski et
al (1997) have claimed that this is not the case.
Furthermore, Macduffie’s (1995) two-way
relationship between manager and employee has been critiqued by Legge (1998)
who believes that employees are exploited by managers for their own personal
gain, therefore HRM practices do not encourage shared values. This suggests
that HRM has been defined by managers based on their pre-requisite ideas to
suit their ideological goals.
It is important to consider how HR’s
impact can be measured and what issues need to be overcome. Colakoglu et al
(2006) suggest that since all organisations are managed differently, the
measurement techniques will differ also. They suggest therefore, that the
choice of measurement tools to assess the impact of HR on performance is
dependent on the choice of HR policy and how it is valued and implemented.
Wintermantel and Mattimore (1997) highlight
the importance of isolating the impact of HR from other areas of the
organisation. They suggest that HR policies and practices can be separated by
creating independent policies and practices which are aligned with the
organisation objectives and are agreed and understood across the whole
organisation. The impact of these policies can then be measured based on the
achievement of the objectives. It is important therefore for the HR department to
carefully select the criteria and make the data meaningful and appropriate. For
example, using rating scales will provide quantitative individual performance
data which can then be used to develop desired work behaviours and commitment.
Baruch (1997) suggests that there are a
range of tools for evaluating HRM including employee engagement surveys. HRM
practices should be incorporated into the survey which can then be benchmarked
against the levels of employee engagement. Once they have been completed, the
surveys as well as BOS can be analysed by the HR department based on the degree
to which employees are engaged in their work. They can then implement
strategies to improve the processes and procedures.
This assignment has applied successful
case studies to the literature and it can be concluded that, SHRM can bring
about organisational returns through the provision of valuable training courses
to develop unique skills. As a result, employees will develop a shared vision
with the organisation, thus impacting on the bottom line. Furthermore, through
monitoring individual performance regularly, the organisation can develop
attitudes and behaviours which are crucial to sustain the organisation and
maintaining competitive advantage.
However, it is important to highlight that
different HR practices will be more beneficial to different organisations and
it relies on the HRM department to find the ‘best fit’ of policies and
practices. This involves measuring the impact the policies have on the bottom
line and how the data can be interpreted to produce new strategies, whilst
considering methodological issues.
Therefore, this assignment has proven that
HR contributes to the value adding process of the company and therefore, the
software firm should not cut the HRM budget. Through constructing policies and
practices applicable to the organisation, HRM can develop the skills and
attributes needed to compete in the expanding market.