Examining the link between human resource management orientation and firm performance
| Pages | 499-520 |
| Published date | 01 October 2004 |
| DOI | https://doi.org/10.1108/00483480410550125 |
| Date | 01 October 2004 |
| Author | Leda Panayotopoulou,Nancy Papalexandris |
| Subject Matter | HR & organizational behaviour |
Examining the link between
human resource management
orientation and firm performance
Leda Panayotopoulou and Nancy Papalexandris
Athens University of Economics and Business, Athens, Greece
Keywords Human resource management, Greece, Company performance
Abstract This paper examines the relationship between HRM (in terms of the orientation of the
function) and firm performance in Greek firms, using the universalistic approach. In order to
acquire a better view of this much-researched issue, measures for various aspects of firm
performance have been used, controlling for external environment, competitive strategy, and
organizational size. The research findings show that HRM has a more significant influence on
growth/innovation indices, as opposed to financial performance. Also, high orientation in all HRM
models does not lead to improved firm performance, as was initially expected.
Introduction
There is a growing number of studies providing evidence of the fact that the human
resources of an organisation, when aligned to strategic business planning and
organizational culture, can be a source of competitive advantage (Khatri, 2000; Poole
and Jenkins, 1996). The modern corporate environment has initiated many changes in
all organizational functions that have inevitably affected the HR function. The latter is
now facing a major challenge that has to do with the content of HRM. According to
Ulrich (1997, 1998) there is a shift of emphasis from the traditional HRM practices to
HRM deliverables, making stakeholders interested in the way in which HRM
contributes to the organizational success.
The present study adopts a different view of the HRM function. It does not attempt
to measure the implementation of specific practices in the firms of the sample, but
rather focuses on HRM orientation and its outcomes, by measuring its contribution to
the overall organizational performance. More specifically, it uses and validates a new
model for measuring HRM that will serve at examining:
(1) the orientation of the HR function; and
(2) the influence of HRM orientation on firm performance.
According to the above, the objectives of the present study are the following.
(1) To apply the competing values framework in measuring HRM orientation.
(2) To examine the influence of HRM orientation on firm performance in a sample
of Greek firms.
(3) To verify current findings of the international literature on the relationship
between HRM and firm performance. Those findings are based primarily on
research carried out in North America, as both Guest (1997) and Hiltrop (1996)
note, and it would be useful to confirm them against data from Europe, where
there has been limited studies on this field.
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/0048-3486.htm
Human resource
management
orientation
499
Received February 2003
Accepted September 2003
Personnel Review
Vol. 33 No. 5, 2004
pp. 499-520
qEmerald Group Publishing Limited
0048-3486
DOI 10.1108/00483480410550125
HRM and firm performance
A big part of the literature covering the link between HRM and firm performance is
based on the universalistic or “best practices” perspective that “implies a direct
relationship between particular approaches to human resources and performance”
(Youndt et al., 1996, p. 837). In other words, universalistic theories, being more
simplistic, posit that the relationship between the relevant independent variable (e.g.
HRM practice) and the dependent variable (e.g. performance) will be the same for the
whole population (Delery and Doty, 1996; McMahan et al., 1999; Youndt et al., 1996).
Many researchers have empirically supported universalistic predictions. First ther e
are those who focus on a single or several HRM practices and examine their effect on
various performance measures (Abowd, 1990; Banker et al., 1996; Delaney and Huselid,
1996; Delery and Doty, 1996; Gerhart and Milkovich, 1990; Harel and Tzafrir, 1999;
Khatri, 2000; Koch and McGrath, 1996; Leonard, 1990; Terpstra and Rozell, 1993).
There are also some equivalent studies examining the effect of bundles, or systems, of
HRM practices on performance (Arthur, 1994; Becker et al., 1997; Hoque, 1999; Huselid,
1995; Ichniowski et al., 1997; MacDuffie, 1995; Michie and Sheehan-Quinn, 2001). This
stream of research implies that firms should create a high degree of internal
consistency among their HR activities (Youndt et al., 1996). A final group of studies is
concerned with the characteristics or orientation of the HRM function and their link to
performance (Boxall and Steeneveld, 1999; Cook and Ferris, 1986; Guest and Hoque,
1994; Huselid et al., 1997; Snell and Youndt, 1995; Stroh and Caligiuri, 1998).
Although support for a universal approach to HR exists, the literature is
inconsistent in two main points. The first concerns HRM, and more specifically, the
identification of the practices or combinations of practices that constitute “best
practices”. One can find three main categories of variables that describe HRM. Those
are HRM practices, HR skills and HR behaviour (Wright and Sherman, 1999; Wr ight
and Snell, 1998). The second concerns firm performance. Different measures of firm
performance have been used in order to examine the results of the link between
strategy and HRM. Most of the studies focus only on a couple of them, thus do not
adopt a more holistic view. The research framework of the present study isconside ring
the above issues, as will be explained in the next section.
Delery and Doty (1996) suggest two steps when developing universalistic
predictions. The first is to identify important HR practices. Second, arguments relating
to performance must be presented. This structure will be followed in the next section of
the paper. The research framework adopted will be presented, introducing
the independent variables of the research, and the relevant hypotheses will be
developed.
Research framework
Two were the main targets of the search for a research framework that would be
appropriate for studying the relationship between HRM and firm performance. The
first was to find a framework that would be appropriate for clarifying some of the
issues mentioned above. The second was to incorporate in the framework the new
challenges that HRM has to face in the modern environment. A most important
challenge has to do with the outcomes of the HR function. What is important, says
Ulrich (1998), is not so much what HR does, but its “deliverables”, or else its
contribution to the overall organizational outcomes. By examining why every HR
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