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Exploring the link between hr and firm performance: status report on research in the field.

Understanding the linkage between HR practice and firm performance is central in the development of the profession. This strategic question is the focus of a recent literature review published by David Guest in Human Resource Management Journal.

Professor Guest brings a unique perspective to his review of key studies of the HR-performance relationship over the past 20-plus years. He starts out by tracing development in the field through a series of broad overlapping stages, including:

* The Beginnings. Research emerging in the 1980s, ranging from anecdotal works such as Peters and Waterman's In Search of Excellence, to books and articles authors such as Fombrun et al., Miles and Snow, Walton, Beer et al., Schuler and Jackson, Guest, Story and others, representing early attempts to empirically link human resource management to business strategy.

* Empiricism. Mark Huselid played a leading role in this stage with his landmark 1995 article in the Academy of Management Journal, documenting the linkage between HR practices, employee turnover, productivity and corporate financial performance. Other studies followed, documenting the relationship between HR practices and firm performance in specific industries including steel mills, the automotive industry and banking.

* Backlash and Reflection. In the mid- to late '90s, a number of studies were published, calling for better measures of performance and a stronger theoretical foundation in advancing the field. Seminal works in this stage were studies by Dyer and Reeves, and Becker and Gerhart. While empirical evidence documented the association between HR practice and performance metrics, the authors criticized the absence of a sound theoretical foundation accounting for these findings.

* Conceptual Refinement. In response to aforementioned criticisms, studies in this phase focused on the theoretical base underlying proposed empirical linkages. Authors proposed theoretical underpinnings based on (1) Vroom's Expectancy Theory, (2) the resource-based view of the firm, and (3) the institutional perspective, the latter highlighting the key role of government regulation in defining HR practice in places such as the European Union.

* Bringing the Worker to Centerstage. This stage includes studies in the early 2000s focusing on the "key role of workers and the importance of worker's perceptions and behavior in understanding the relationship between HRM and performance." Key here was research by Wright and Boswell, as well as others, calling for greater focus on the manner in which workers respond to human resource management practices.

* Growing Sophistication. The final and current stage as defined by Guest involves growing complexity and sophistication in both theory and research methods. Reflected here is work by Bowen and Ostroff and others seeking to address HRM and performance from a multi-level perspective, examining the relationship between HR and firm performance at both the individual and organizational levels. While much of the earlier empirical study of the HR-performance relationship has centered on the presence of HR practices, there is increasing recognition that far greater attention needs to be paid to the manner and effectiveness with which HR practices are implemented, which generally lies in the control of line management rather than HR. Related to these concerns are questions about the critical role of leadership and the manner in which employees perceive and interpret HR policy as implemented in the organization. Ultimately, there is increasing recognition of the complexity associated with firm performance. Firm performance is impacted by many factors, including external factors such as market and environmental conditions, etc.

Guest concludes with a discussion of some distinctive challenges for future research. He notes that many in the field are calling for a major (comprehensive, expensive) study involving a large sample of firms and capturing extensive longitudinal data related to HR practice, implementation, leadership, firm strategy, environmental contingencies, etc., in an attempt to build and test more robust models related to the HR-performance relationship. Others argue that searching for the one universal model may be less beneficial than more focused theory development and studies designed to better understand contingency or configurational models of the HR-performance linkage. The great contribution of a review such as this is that its array of references provides a great launching point for those wishing to explore the field.

Human Resource Management and Performance: Still Searching for Some Answers. David Guest. Human Resource Management Journal, Volume 21, No. 1, 2011, pp. 3-13. Readability for an Executive Audience: ***.

By Steven H. Hanks, Ph.D. (1)

(1) Dr. Hanks is associate professor of Strategic and Organizational Leadership and director of Graduate Studies in Human Resources at the Jon M. Huntsman School of Business, Utah State University.
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Author:Hanks, Steven H.
Publication:People & Strategy
Geographic Code:1USA
Date:Jun 1, 2011
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