Last Updated 12 May 2020

Organizational Outcomes

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Because there may be a basic skills deficit within our workforce and a general lack of agreement among researchers as to what skills are necessary for employees to add to the value of an organization, organizations may need to adopt various human resource management practices to enhance employee skills. Human resource management practices can influence employee skills through the acquisition and development of a firm's human capital (Huselid, 1995).

These efforts may focus on improving the quality of the individuals hired through staffing selection practices, or by raising the skills and abilities of current employees through training and development, or both (Huselid, 1995). After all, if an organization is unable to recruit fully qualified employees, there must be processes in place to educate, train, or develop the employees to better meet organizational needs. A well-educated, well trained, inimitable organizational workforce is the goal of any organization wishing to achieve an advantage over its competitors.

However, as Huselid (1995) points out, the effectiveness of skilled employees may be limited if they are not motivated to perform their jobs. An organization's structure and human resource management system may affect employee motivation levels in several ways. In a 2002 study of the financial industry, Kubo and Saka (2002) noted that monetary incentives, human resource development practices such as promotion and job rotation, and job autonomy were the three top reasons that employees choose to seek positions in other firms.

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Each of these findings are consistent with Huselid's (1995) research that indicates human resource management practices can affect employee motivation by encouraging employees to work harder and smarter. These practices may include merit pay, incentive compensation, formal grievance procedures, employee participation systems, internal labor markets, and job autonomy (Huselid, 1995). Human Resource Management Practices Human resource practices can be an integral part of a successful strategy to obtain, maintain, and sustain competitive advantage.

Human resource management systems influence employee skills through the acquisition and development of a firm's human capital. Hatch and Dyer (2004) reported that the selection of human capital is significantly important and critical to the performance of an organization. Recruiting procedures that provide a large pool of qualified applicants along with a reliable and valid selection process will have a substantial influence over the quality and type of skills new employees posses.

Providing formal and informal training experiences (basic skills training, on-the-job training, coaching, mentoring, and management development) can further influence employee development and organizational performance (Huselid, 1995). In fact, firms that have the highest skilled workforce, other factors held constant, will be the most productive and produce the best products or services at the lowest costs, earn the highest profits, and dominate the market (Den Hartog and Verburg, 2004).

Unlike more conventional assets, when human resources are used as organizational capital they may not be accurately represented on a firm's financial balance sheet. They are found in a skilled, motivated, and adaptable workforce and in the human resource management system that develops and sustains it (Karami, Analoui, ; Cusworth, 2004). Therefore, human resources, and the management practices used to develop them, may be a priority for government, business, and researchers. Traditionally, human resource management practices have been viewed from practical, theoretical, and empirical standpoints, at the individual practice level.

In the evolution of human resource management practices, theoretical and empirical research has examined the impact of single human resource practices (work force planning or staffing selection) in isolation without consideration of other human resource management practices such as incentive compensation, individual development, or employee relations (Choo and Bontis, 2002). Many studies have been conducted concerning single human resource management practices and productivity and most have revealed positive relationships.

Some representative studies dealing with productivity and single human resource management practices have included labor relations practices and their relationship to grievances, discipline, labor efficiency, and product quality; training, goal setting, and socio-technical systems and their relationship to quantity, quality, and production cost; gain sharing and its relationship to labor cost; and participative work decisions on their relationship to productivity; and strategic selection and staffing on performance(Huselid, 1995).

Job performance has long been of interest to organizations, business leaders, and managers. A number of studies have identified factors that affect job performance. These factors may include satisfaction, attitude, job structure, incentive pay, and job-related skill. Carmeli and Tischler (2004) reported a positive relationship between job autonomy, cognitive ability, job-related skill, role breadth and individual job performance. Investing in human resources may also play a key role in job performance.

Consistent with human resource management practices, organizational support characterized by HR processes that demonstrate pride in employees, provide fair compensation, and look after the overall welfare and needs of the employees has a positive impact on job performance (Carmeli and Tischler, 2004). To communicate the importance of investing in human resources and HR management practices to business leaders, it may help to demonstrate the relationship of human resources and organizational financial performance.

However, there are conceptual and empirical measurement challenges inherent in examining individual human resource management practices on firm level-outcomes (Barney and Wright, 1998). First, firms do not use one single practice to manage their human resources. Most, if not all organizations, use a collection of practices that represent the organization's overall strategy. This collection, or system, of human resource management practices should be selected so they work synergistically to help implement the firm's strategy (Choo and Bontis, 2002)

Many researchers have examined the link between specific individual human resource contributions, employee relations, and human resource management practices such as staff planning, job analysis, job design, recruitment selection, use of an internal labor market, training and development, performance appraisals, compensation, communication, employee involvement, and grievance procedures (Delaney ; Huselid, 1996) on firm performance.

Choo and Bontis (2002) suggest that in addition to the way an organization competes and where the organization competes, that the assets and skills of the business are the basis of competition and provide the foundation for sustainable competitive advantage. They theorized that organizations increased levels of human resource management practices will (a) increase motivation; (b) improve knowledge, skills, and abilities; (c) reduce shirking; (d) enhance retention; and (e) encourage non-performers to leave.

Other researchers suggest that human resource management practices can add to the sustained competitive advantage of the organization when they add value to production and produce rare skills that are not easily imitated by the competition or easily replaced by technology (Wright ; MacMahan, 1992). Gowen and Tallon (2002) found that management and employee support were found to be critical for the implementation of all four levels of employee training: (a) problem solving skills, (b) leadership skills, (c) team-building skills, and (d) job skills.

Additionally, Gowen and Tallon (2002) suggested that training plays an important role in firm success. Hatch and Dyer (2004) studied the effect of positive employee relations on firm level competitive advantage and found a significantly positive link between organizations that have good employee relations and firm level performance. On the other hand, Huselid (1995) and Karami, Anoloui, and Cusworth (2004) studied impact of human resource management processes on firm performance.

Huselid (1995) found human resource management systems to have a significant impact on intermediate employee outcomes (turnover and productivity) and short and long term measures of corporate financial performance (profits, cash flow to sales, and firm market value). In a following study, Huselid, Jackson, and Schuler (1997) found positive associations between human resource management practices, such as training and staffing selectivity, and the perception of firm performance in for profit and not for profit organizations.

Huselid, Jackson, and Schuler (1997) evaluated the impact of human resource managers' capabilities on HR management effectiveness and the impact of that effectiveness on corporate financial performance. In this study, effectiveness of human resource management was significantly related to the capabilities and attributes of the HR staff. Additionally, Huselid, Jackson, and Schuler (1997) reported a significantly positive relationship between HR management effectiveness and productivity, cash flow, and market value.

Karami, et al. (2004) examined the relationship between strategic human resource management and the sustained competitive advantage of electronic manufacturing firms and reported a positive relationship between core competencies and firm performance, company performance and product and service quality, HR effectiveness and the linkage between HR and business strategy, and HR involvement in the design and implementation of business strategies and organizational effectiveness.

Karami, Anoloui, and Cusworth (2004) therefore suggest that the HR capabilities of a firm, are a considerable resource that may determine the competitive advantage of a firm, and increasing HR competencies and capabilities will lead to a firm's success in achieving its goals and objectives in a competitive landscape. One of the few studies that examined the entire human resource system was conducted at Wells Fargo Bank using largely proprietary tools termed PACA (People as a Competitive Advantage).

In this study, Lawson and Hepp (2001) reported that PACA tools (competency models used for team member selection, management, and development, a proprietary 360 degree feedback and development process, learning tools developed to guide and improve management, newly designed HR policies and procedures, and a new performance appraisal process aligned with the Wells Fargo business system) and PACA management practices (workforce and business planning; competency based interviewing; leader-team member supervisory principles; identifying, developing, and implementing development plans; and improving the frequency and quality of team member communication relative to organizational goals, objectives, and work related decisions) had a positive and significant impact on employee commitment, return pn expenses (ROE), return on assets (ROA), and on the bank's efficiency ratio (ER).

These findings are consistent with other HR practice effects, but also offer a direct and independent relationship between human resource practices and organizational outcomes suggesting that effective human resource decisions that drive leadership and management practices can help ensure a unique and sustainable competitive advantage. Conclusion Intense competitive forces, an increasingly global economy, and a relative decrease in the availability of knowledgeable and skilled employees place compounding pressures on organizations to gain, maintain, and sustain a competitive advantage over competitors.

Previous research regarding human resource management and competitive advantage suggests intense competitive forces, an increasingly global economy, and a relative decrease in the availability of knowledgeable and skilled employees places compounding pressures on organizations to gain, maintain, and sustain a competitive advantage over competitors.

However, other researchers have suggested human resource selection and management practices can be an integral part of a firm's successful competitive strategy. The findings from this study suggest that there is a link between human resources, job, and firm performance, thus HRM is important to organization’s success. The entire human resource management system consisting of inputs (knowledge, skills, and motivation), human resource management practices, job performance, and firm performance. Employee skills and motivation along with organizational and financial human resource management processes have significant relationships with both job performance and firm performance.

Suggesting that organizations that use human resource management practices to develop and maintain a highly skilled and motivated workforce will experience higher levels of job performance and firm performance. Human resource selection and management practices can be an integral part of a firm's successful competitive strategy. However, managers must be able to communicate a significant link between human resources and job and firm performance in order to gain the attention and investment dollars of business leaders. The primary purpose of manager is to identify what human resource factors, both individual and organizational, are key to gaining a sustaining competitive advantage. Effective implementation of HRM practices, should help future managers to develop the much needed reliable and valid measures of HRM.


Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120. Barney, J. B. & Wright, P. M. (1998). On becoming strategic: The role of human resources in gaining competitive advantage. Human Resource Management, 37, 31-46. Bharadwaj, Sundar G. , P. R. Varadarajan and J. Fahy (1993). Sustainable competitive advantage in service industries: a conceptual model and research propositions. Journal of Marketing, 57 (Oct. ), 83-99. Carmeli, A. , & Tischler, A. (2004). The relationships between intangible organizational elements and organizational performance. Strategic Management Journal, 25, 1257-1278.

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