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Effects of Human Resource Management Practices on Organizational Performance – An Empirical Study of Oil and Gas Industry in Pakistan
Muhammad Asif Khan Assistant Professor, Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST) Islamabad, Pakistan E-mail: email@example.com Tel: 92-51-4863363 / 209 Abstract The study evaluates the effects of human resource management practices on organizational performance in Oil and Gas Industry in Pakistan. A total of 150 managers of 20 randomly selected firms from Oil and Gas Industry responded to self-reported questionnaire that measured five HRM practices and subjective measures of organizational performance. Factor analysis was performed to identify human resource management practices. Regression analysis indicated a positive and statistically significant association of these practices with organizational performance. The study provides insight to management to use these practices as strategic tool for superior performance, and add to the limited empirical knowledge that exists in Pakistani context.
Keywords: Human resource management, organizational performance, Oil and gas industry, Pakistan.
Changing business environment in knowledge economy has made adoption of human resource management (HRM) imperative for competitive advantage. The impact of HRM practices on business performance has been extensively studied in the recent past. These studies have found a positive association between HRM practices and firms’ performance (Becker & Huselid, 1998; Chang & Kuo, 2004; Jarventaus, 2007; Rizov & Croucher, 2008; Sang, 2005). Most of these studies have been undertaken in the United States, and Europe (Boseli et al., 2001; Hoque, 1999) and Asia (Bjo¨rkman, I. and Xiucheng, 2002; Kundu & Malhan, 2007; Ngo et al., 1998). Within Pakistan, limited research has been done to examine the relationship of HRM practices and organizational performance. The strategic role of HRM has been well established. In Pakistan, there has been immense realization of the impact of strategic use of HRM practices and visionary companies are setting the pace to leverage this aspect for competitive advantage. HRM practitioners are striving to meet the emerging challenges of new values of knowledge workers who have necessitated a new paradigm of peoples’ management characterized by heavy investment in human capital and innovative use of HRM practices for attraction and retention of talents for organizational sustainability. The Oil and Gas Industry in Pakistan is vital for the economy and considered as an issue of national self reliance, national security, and a major source of government’s revenues. With limited proven reserve of oil and gas in the country, Pakistan meets only 18% of the total domestic demands. The government incurs a colossal amount of scare foreign exchange on the import of oil bill. The
2007). 2006. performance appraisal (Bernardin & Russel. An organization take time to nurture and develop human capital in the form of knowledge. To meet the challenges of shortage of oil and gas. job analysis (Cascio. and organizations. Thus a gap exists in the research in this area of strategic importance. Pfeffer (1994) stressed that human resource has been vital for firm sustained performance. The aim of this study is to examine the effects of HRM practices on organizational performance in Oil and Gas Industry in Pakistan. and continuous improvement consistently (Wernerfelt. 2004). and interpersonal relationship. No empirical research has so far been undertaken to investigate the effects of HRM practices on firms’ performance in this industry. training and development. comprehensive examination of individual HRM practices highlights the significant predictor of business performance (Bjo¨rkman & Budhwar. Research highlights that organizations develop sustained competitive advantage through management of scare and valuable resources (Barney. In recent years. and makes it difficult for competitors to imitate (Becker & Gerhart. In addition. compensation and reward (Milkovich & Newmen. In addition. quality of work life. The researchers have different views about this new paradigm. 2003). Finance and Administrative Sciences . 2005. contingency and reward system. 2. Organizations operating in Oil and Gas Industry in Pakistan are aligning their strategy to meet the laid down objectives. Doek-Seob (2001) noted that HRM practices become a strategic instrument during economic downturn. 2000. 1993). motivation. 2004).63). In meta-analysis of 104 articles.. people. the government of Pakistan announced new Policy in 2009 for this Industry. 2004). but others contend “that to arbitrarily combine multiple [HRM sub-] dimensions into one measure creates unnecessary reliability problems’ (Becker & Huselid. skills. This realization has led to the new role of human resource managers as strategic partners in formulation and implementing organizational strategy (Myloni et al. personnel diversity. 1999). human resource information system (Wolfe. 1996). Boselie et al. 1999). p. employees attitude surveys (Armstrong. Mac Duffie. Dessler. 1996). attitude. training and development (Kundo. the focus of research on HRM has shifted from study and relationship of individual HRM practices on business performance to entire HRM system and its influence on organizational performance. 1988. 1984). .158 European Journal of Economics. abilities. Organizations are pursing proactively human resource management (HRM) practices and systems to capitalize on strength of this vital asset for sustained competitive advantage in knowledge economy (Jackson & Schuler. Some researchers claim that the system view of HRM is appropriate. 1991). The human resource enables organizations to achieve optimization of resource. 1995) Review of literature indicated essential HRM practices as workforce planning (Matthis & Jackson. and performance management that have been extensively used by different researchers. The present study is an attempt to address this gap. effectiveness. career management (Schein. where the strategic role of HRM is gaining popularity as a vital tool for business performance. 1998)..Issue 24 (2010) economic environment in the country and dependence on imported oil has accentuated the problems for the government. Hayes. The policy envisions self sufficiency in oil and gas production and a proactive approach on development of human resource to the international standards. The present study will offer valuable insight to the management of these organizations about the strategic importance of HRM practices for superior and sustainable organizational performance. (2005) concluded that the top four HRM practices are efficient recruitment and selection. the human resource has been recognized as a strategic tool. 2000. human resource management has emerged as an essential factor for sustained competitive advantage. recruitment and selection (Kulik. it will add information to the limited empirical knowledge about link of HRM practices and business performance in a developing economy. Bracken. 2003). essential to organizational profitability and sustainability. and creating conducive environment for their retention in the country. In knowledge economy. Literature Review Lately.
compensation.” The researchers argued that more proximal measures over which employees exert influence are theoretically more plausible and methodically easier to link. namely.. 1995. 2002. found that HRM practices of training and compensation increased firms’ performance. product cost. training and promotion. Hoskisson et al. training and development. and the attitudinal and behavioural measures such as commitment. 1999). incentives.. Boselie. absenteeism (Lowe et al. intention to quit. Several researchers have “raised persuasive doubts about the causal distance between an HR input and such output based on financial performance. so many other variables and events. and market share. involvement of employees. the benefits are far greater than the risks. (2004) found that self-reported data is related to limited biases. 1999). 1995.. These include productivity (Chang & Chen. Wright & Boswell. quality. 2006. lack of transparency in financial reporting. Sang (2005) concluded that workforce planning. The researchers have investigated empirically the effects of HRM practices on organizational performance (Becker & Huselid. 1995). Ngo et al. 1991. 1996). training. 1998. trust in management (Whitener. and product delivery.. affect organizations that this direct relationship rather strains credibility (cited in Boselie et al. employees turnover intentions (Batt. In a study in Taiwanese high technology firms. 1998). They argue that HRM practices and performance research have common attributes as well as contradictions (Boselie et al. Hoque. 1997). and safety and health have positive relationship with firms’ performance. 1997). 1997). 2001). Non-financial measures include productivity. efficiency.. Researchers also examined the negative impact of HRM practices on firm performance that include employees’ stress level (Ramsay et al. staffing. 2002. and commitment (Tsui et al. Strong evidence exist in prior studies that subjective measurement associate well with objective measures of organization’s performance (Geringer & Hebert. It has been argued that lack of market based financial reporting.. and incentives. (1998). job satisfaction (Guest. sales. In a study in Greece. 2000. Hoskisson et al. 2000). 1992). The study validated the positive effects on operational dimensions of performance. Recent studies reflect an impressive influence of HRM practices on organizational performance.. (2000) identified the problems related to measurement of financial dimensions in emerging economies. A subjective measure facilitates managers to take into account organizational goals when evaluating its performance. and satisfaction. 2002). Finance and Administrative Sciences . In a comparative study of United States and Japan. inadequate regulatory mechanism and enforcement about financial reporting. quality of product and service (MacDuffie. job-home spill over (White et al. product quality.Issue 24 (2010) Researchers have used financial and non financial metrics to measure organizational performance. production flexibility. Kato & Morishima. 2005. Huselid. Researchers argue that though perceptual measure may introduce limitations. 2003).. In a study of managers from Taiwan and Cambodia. both internal and external. Shaw et al. 1996. 2005. and provision of fictitious financial information are important issues facing emerging economies (Bae & Lawer. and performance appraisal significantly affected productivity. The study also found the negative relationship between human resource planning and employees’ turnover. Chang and Chen (2002) established that HRM practices of workforce planning.. in a study in Hong Kong companies. The financial measures include profit. (Dyer & Reeves. 2002. Wall et al. 2000). In literature. Researchers have divergent views about impact of HRM practices and firms’ performance. p.75). Katou and Bedhwar (2006) found that HRM practices of staffing. teamwork. 2005. Youndt et al. Powell... primacy exists with regard to the use of subjective measures in earlier studies (Delaney & Huselid. Wall & Wood. 1999. and employee security had a positive and significant influence on non-financial and financial dimensions of organizational performance. 2002. Put simply.. teamwork. Guest. Divergent views exist to measure the organizational performance based on financial as well as non-financial measures.159 European Journal of Economics. Tessema and Soeters (2006) investigated influence of . Katou & Budhwar. benefits. Ichniowski and Shaw (1999) found that Japanese firms were more productive than United States’ firms on account of implementing HRM practices. Jayaram et al.
and information sharing on organizational performance (quality. flexibility. 2002. Harel and Tzafrir (1999) found that HR practices had positive relationship with firms’ performance in public and private sectors. and retention boosts firms’ capability. cost. competitive compensation.Issue 24 (2010) HR practices in Eritrea. return on assets. Bae et al. incentive and compensation. Morishima (1998) concluded that organizations with integrated HR practices performed well in Japan than organizations with poorly integrated personnel practice In a study in New Zeeland. In another study Sing (2003) found that strategic use of HRM practices positively affect performance of organizations in India. In a study of HRM practices in Chinese small and medium enterprises. performance appraisal. free market selection and performance appraisal. 1996) contended that HRM practices based on quality hiring. product quality. employment security. and employees’ security are important HRM dimensions that affect productivity. and found a positive association between HRM practices and performance. goals and strategy statement through explicit open communication policy and strong support for employees consultative bodies like unions and committees) reflected positive and statistically significant association with firms’ performance. development. compensation and incentives. training and development. In Korea. Paul and Anantharaman (2003) found indirect effects of HRM related activities on operational and financial performance of firms.. BjorkmanIn and Xiucheng (2002) investigated the outcome of HRM practices on Western firms’ performance in China. decentralization and use of teams. employees’ commitment emerged as the most essential outcome for improving performance (Zheng et al. values. extensive training. performance-based pay. communicating organization’s mission. In a study in Taiwan. Lam and White (1998) established that effective recruitment. Ahmed and Schroeder (2003) investigated effects of selective hiring. Rizov and Croucher (2008) empirically examined the relationship of HRM practices and organizational performance in European firms. delivery and commitment). 1993) have established that HRM practices of extensive recruitment and selection. 2006).. Finance and Administrative Sciences . Guthrie (2003) validated the impact of HRM practices on employee turnover and profitability. training and development. The study found that efficient implementation of these practices enhanced the performance at individual and organization level. It is argued that HRM practices enhance employees’ competency and motivation that affect organizational performance (Harel & Tzafrir. The study did not find the causal association of single HRM practice with business performance. creating and communicating a culture of partnership between employer and employees as well as among employees. Lee and Chee (1996) in their study did not find as association between HRM practices and business performance. participatory decision-making. Chang and Chen (2002) determined significantly positive relationship of HRM practices with organizational performance. Tepstra & Rozell. and growth in stock values. found a positive relationship of employees’ empowerment and firms’ performance. and business performance. in a study in Taiwan. teamwork. Bartel (2000) evaluated the impact of HRM practices on performance in Canada and found significantly positive relationship between two constructs. In a study in India.. They found that collaborative form of HRM practices (characterized by valuing employees as assets and core partners. The study confirmed the positive and significant relationship of HRM practices with firms’ operational performance Researchers (Chiu et al. status differences. Green et al. (2006) concluded that integrated . Tsai (2006). and efficient training and development have relationship with financial dimensions of performance (growth in sales. Bae and Lawler (2000) concluded that HRM practices significantly affect organizational performance. The study also found a negative relationship of workforce planning with employees’ turnover. In Israel. Lee and Lee (2007) established that workforce planning. (2003) concluded that high-performance work practices produced excellent results in Pacific Rim countries. and compensation systems have positive association with firms’ performance.160 European Journal of Economics..
several studies have examined this relationship..161 European Journal of Economics. 3. Huselid et al. 2002). 1999). productivity efficiency and overall perceived performance compared to industry average). performance appraisal (Boselie et al. Katou & Budhwar. 1991). 2007). Kuo. skills and abilities (selection and training). H 3: Performance appraisal has significant relationship with organizational performance . 2004). Empirical studies indicate a strong and positive association between HRM practices and performance of organizations. compensation and reward (Chie et al. Prior studies have validated the link between HRM practices and superior business performance in United States and Europe (Boselie et al. Youndt et al. 1996). Studies established that HRM practices aimed at acquisition and development of employees is an essential investment that develop valuable and rare human assets (Becker & Huselid.Issue 24 (2010) approach to HR practices exhibited satisfied and committed employees who demonstrated remarkable individual and team performance. 1996). (2005) explored the effect of HRM practices on firms’ performance in 45 business units in America and Canada and established a causal association between HRM practices and business performance. training and development. HRM practices had positive influence on firms’ performance Lahteenmaki et al. (Cappeli. productivity. Batt. 1997. Cappelli and Neumark (2001) found negative outcome of these practices with regard to firm’s performance. Research Hypotheses and Theoretical Framework Based on the comprehensive study of literature. through enhanced motivation (compensation and reward). Harel and Tzafrir(1996) argued that HRM practices improve employees knowledge. and financial performance. Asia (Bjorkmand & Xiucheng. 2000. recruitment and selection. compensation and reward. 1994. Ngo et al. 1998. The present study investigated five HRM practices namely. Wright et al. Huselid.. Subsequently group of HRM practices were identified as High Performance Work Systems (HPWS).. The initial studies focused on establishing a link of single HRM practices to firm’s performance (Cutcher-Gershenfeld. Delaney and Huselid (1996) confirmed that selective staffing. Huselid et al. 2002).. in a study of 3702 firms from European Members countries discovered a positive association between strategic HRM practices and business performance.. Finance and Administrative Sciences . performance appraisal. 1998) and Africa (Chebregiorgis & Karsten. and researchers established link of HPWP with excellent performance of organizations (Appelbaum. (1998). training and development (Bartel. following hypotheses emerge: H 1: Recruitment and selection has significant relationship with organizational performance.. Researchers found a positive relationship between effective recruitment and selection practices and top-class performance (Harel & Tzafrir. 1995). 1994. 2001. 1996). Chang and Chen (2002) studied 62 firms to determine the effects of HRM practices on business performance and found a positive association. work attachment. Bjorkmand & Xiucheng. 1998) Huselid(1995) established that high involvement HRM practices have positive relationship with corporate performance. 1997. In Western countries. 2002. employee relations (Kuo. Fey et al. compensation and incentive. Stavrou and Brewster (2005). 2002. Guthrie (2001) studied 128 companies in New Zeeland and found positive relationship between high-involvement work practices and firms’ performance. 2000). 2004. Hoque. Youndt et al. A significant number of empirical studies have explored the relationship between HRM practices and firms’ performance in American organizations (Arthur. Strong evidence exists in literature about different HRM practices and their effects on superior firms’ performance. 1996.. 2001. Godard (2004) argued that poor employee relationship limits the effectiveness of these HPWP. H 2: Training and development has significant relationship with organizational performance. Delany & Huselid. and employee relation and examined the effects of these practices on subjective measures of performance (product quality. and training had positive influence on performance of organization.. 2007. In a study of 428 firms in Finland.. In Taiwan.
802). . employee participation (Mean = 4. The mean score and standard deviation reflected conformity of respondents’ perception about these HRM practices and the agreement to the model. The scale ranged from five (strongly agree) to one (strongly disagree). 4. 876. Tzafir. Five points rating scale was used to measure the response. production cost.3. performance appraisal (6 items). training and development (0.431. Standard Deviation = 0.2.829). and organizational performance (5 items) respectively.129.1. performance relative to competitors. 4. 2007. Standard Deviation = 0. Standard Deviation = 0. The results for training and development indicated highest concurrence (Mean = 4.The Cronbach’s alpha of variables ranged from 0. 4. Results and Analysis 4. 123). Reliability and Validity of Data The results indicated Cronbach’s alpha for questionnaire (35 items) was 0. employee participation (4 items). 4. Sample and Data Collection Questionnaire survey was carried out between June-December 2009. The mean values ranged from highest 4. Standard Deviation = 0. The Cronbach’s alpha for individual variable of recruitment and selection (0.1. 4. The items used in the study were adapted from different studies (Ghebregiorgis & Karsten. compensation and rewards (6 items). H 5: Employee relations has significant relationship with organizational performance. A total of 150 filled questionnaires were received with a response rate of 75%. Standard Deviation = 0.782 to 0. market share. Presently twenty eight companies (Public and Private Sectors) are operating in Pakistan. The recruitment and selection practices contained (5 items).1. Lee & Lee. The results of pilot study reflected appropriate adequacy (Nunnally. 2007.715). 2007. Measurement Development Most of the statements used in the survey were drawn from an in-depth study of literature on HRM practices and its impact on organizational performance.856 respectively. The companies were chosen from the directory of Ministry of Petroleum and Natural Resource. The respondents were managers in these companies at various tiers of management.123.847). Primary data was collected from a sample of 20 randomly selected companies operating in public and private sectors in Oil and Gas Industry in Pakistan.4. Finance and Administrative Sciences . performance appraisal (Mean = 4. Two hundred questionnaires were despatched to these companies. Standard Deviation = 0. and organization’s performance relative to industry average. 2005). training and development (8 items).2.876 to lowest 4. Kundu & Malhan.924).931.571) respectively.738. compensation and reward (Mean = 4. Government of Pakistan. Research Method 4.Issue 24 (2010) H 4: Compensation and rewards has significant relationship with organizational performance. The instrument measured five HRM practices and its effect on organizational performance. The organizational performance measure included (5 items) related to perceived quality of products and services.737).785). 1978).162 European Journal of Economics.4. and organizational performance (Mean = 4. Descriptive Statistics The results of descriptive statistics indicated general agreement of the respondents to the different HRM practices.217. recruitment and selection (Mean = 4. Pilot Testing of Instrument The instrument was pilot tested using a sample of 40 managers from the population.
364 Variables Recruitment and Selection.794 . compensation and reward (0.974 1.704 Variance Inflation Factor (VIF) 1. Correlation Analysis The results of correlation analysis are at Table 3.585 .358** OP 0.01) and Variation Inflation Factor (VIF) values (below 10) were within acceptable range (Kleinbaum et al.845 . 4.527** 0.. Training and Development Performance Appraisal Compensation and Rewards Employee Relations 4.195* 0.364 1.361** 0.342** - .823) were found above acceptable level (Nunnally.001 level (2 tailed) * Significance at p < 0.409** 0.340** 0.823 .395** 0. Finance and Administrative Sciences .277** 0.05 level (2 tailed) RS TD PA CR ER OP Recruitment and Selection Training and Development Performance Appraisal Compensation and Rewards Employee Participation Organizational Performance 0. Test of Normality of Data Collinearity test was undertaken to determine the normality of data.507 .485** 0.802 . Durbin Watson values for all factors were between 1.450** ** Significance at p < 0.709 1.931 Variables Recruitment and Selection Training and Development Performance Appraisal Compensation and Rewards Employee Relations Organizational Performance Overall Alpha for the instrument Table 2: Test of Collinearity Tolerance 651 .845). Results are at Table 3.321** EP 0.5 and 2.794).4.1.001).1. and organizational performance (0.5).537 1.The results reflected that Tolerance levels (< or equal to 0.826 . 1978). Results are at Table 2. 1988). Table 1: Reliability Analysis Cronbach’s Alpha .163 European Journal of Economics. Results are at Table 1.Issue 24 (2010) performance appraisal (0.440** 0.511** CR 0.733 .3. The results indicated that all variables have positive relationship and statistically significant at (p < 0.785 .560** PA 0. Table 3: Correlation Matrix PA CR EP OP Variables RS TD RS TD 0. The results did not indicate multicollinearity between variables.
755 54 52 58 53 . participation of employees in performance goal setting. The five HRM practices accounted for 62. The second factor ‘training and development’ had nine scale items and comprised of need based training and development criteria.798 .164 European Journal of Economics. clear career path for individuals. The Kaiser-MeyerOlkin measure of sampling adequacy exhibited score of (0. training and development.N.TD 11 .760 . 1.TD 9 .ER 27 .752 . Results of factory analysis are at Table 4.TD 7 . The first factor was categorized as recruitment and selection. continuous formal and informal monitoring.PA 18 .PA 15 .802 .CR 25 . This factor explained (54 %) of variance.761 .PA 17 .787 Training and Development .726 .659 .ER 26 .781 .TD 10 . 3.859 .610 .865).CR 23 .CR 22 .780 Employee Relations . and employee participation. quantifiable results. Finance and Administrative Sciences . Table 4: S. orientation and socialization process.TD 13 . This factor had five scale items and related to formal induction. availability of information about the job. performance appraisal.001).RS 5 . 5. use of comprehensive tests.818 .0) were retained.RS 1 .5% of total explained variance.664 .753 .806 .TD 8 .640 Compensation and Rewards .50) were not shown whereas factors with Eigen values (>1. merit-based hiring and selection on person-job fit philosophy. The Bartlett’s test of sphericity is significant at (p < 0.CR 20 .Issue 24 (2010) 4.TD 12 .5.640 Performance Appraisal . This factor accounted for (65%) of explained variance and considered as most vital.1.785 .781 . 4.849 . compensation and rewards.RS 4 . fair and transparent performance appraisal system with strategic congruence.Factors loading (< 0. Results of Factor Analysis % Variance Explained 65 2. and feedback about performance. This factor consisted of six items pertaining to objective.RS 2 . Factor Analysis Exploratory principal component factory analysis with Varimax rotation identified five HRM practices namely.735 . and provisions to employees to challenge the rating by supervisors. Factor and Loading Recruitment and Selection .820 .PA 14 .TD 6 . formal training programmes with focus on development.RS 3 .752 . The third factor ‘performance appraisal’ accounted for (52 %) of variance.752 .PA 16 . and formal evaluation of effectiveness of training. acquisition of multi-skills.CR 24 .CR 21 .PA 19 .723 . recruitment and selection.
p < 0.Issue 24 (2010) . R2 = 0. training and development. Regression Analysis The results of regression analysis based on independent variables (recruitment and selection.424) of variance in dependent variable of organizational performance.361).Factor loading > 0.733 . it would be pertinent to substantiate these results through empirical studies of other industries of the economy. The fifth factor ‘employee participation accounted for (53 %) of variance and comprised of four scale items regarding employees participation in decision making. Review of literature identified five essential HRM practices namely. 424. N =150 Overall model: F = 10.361 Employee Relations + . the result of present study indicate that extensive use of an integrated approach to efficient HRM practices yield positive results in term of their effects on organizational performance. and appreciation. p < 0. The model indicate positive and statistically significant relationship (F = 10.715 3. and employee participation with organizational performance.001. 4.395 Compensation and Rewards + . The overall model fit for regression equation was determined by F statistics. performance appraisal. Finance and Administrative Sciences . and combination of monetary and non-monetary rewards.165 European Journal of Economics.450) is the most significant HRM practice followed by recruitment and selection with beta coefficient (0.361). The results indicate statistically significant relationship of recruitment and selection. Our study of Oil and Gas Sector in Pakistan offered support for the hypothesized positive effects of HRM practices on organizational performance. The fourth factor ‘compensation and rewards’ explained (58%) variance.6. and social recognition.. and employee participation (Beta = 0. training and development. Varimax with Kaiser normalization .158 4. The independent variables accounted for 42. Together with earlier studies on HRM practices and firms’ performance.440).639.639. Adjusted R2 = 0. Discussion The paper contributes to understanding of influence of HRM practices on organizational performance in Pakistan.450 Performance Appraisal + .4% (R2 = 0.342) respectively. Table 5: Regression Analysis Observed t-value 5. Training and development with highest beta coefficient (0.610 Notes: Extraction Method: Principal Component Analysis. The results of the study offered empirical support for the existence of a positive and statistically significant influence of HRM practices on organizational performance in Pakistan.398 5. training and development. recruitment and selection. and employee participation are reflected in Table 5. compensation and rewards.50 – Eigen value > 1.342 Significance level: *p < 0. performance appraisal (Beta = 0. performance appraisal. and opportunities to suggest improvements in the way things are performed.987 Significance level *000 *000 *000 *000 *000 Items Proposed Effects Path Coefficient Recruitment and Selection + . The factor was defined by six scale items and was primarily related to competitive pay package that is disseminated to employees.987 3. provision of open door communication. compensation and rewards (Beta = 0. compensation and reward.001.001). autonomy in their functional areas. In context of Pakistan. compensation and rewards.ER 28 . performance-based pay. Rotation Method. performance appraisal.ER 29 . and employee .440 Training and Development + .1. comprehensive incentive plans based on employees’ contribution to firm’s objectives.362 5.
The researchers found positive and significant link between investment in training and development activities and firms’ performance (Kallerberg & Moody. 1996. Koch & McGrath. implement and monitor the effectiveness of these plans to achieve employees’ career objectives (Carnzza. . Strong evidence exits in literature that organization with effective training pursuits experience lower employee turnover (Arthur. Kundu (2000) stressed that companies should invest heavily in training the workforce for implementation of customer focused strategy. acquisition of new skills based on firms’ future needs. and intangible results in terms of enhanced self esteem. Compatible of individual and organizational value is an essential dimension that should receive priority for sustained retention. Recruitment and selection primarily aims at attracting maximum number of highly talented applicants and selecting the best to achieve competitiveness. Rigorous research has been done to examine the effects of training and development on business performance. These practices have been used in the present study to evaluate the effects of these practices on organizational performance. high morale. 2003. affect positive changes in processes and deliver quality service to customers. Effective orientation and socialization programmes are essential to affect sustained improvement in productivity and reduce intention to quit (Garvey. Lee & Bruvold. Jyothi and Venkatesh (2006) concluded that person-job fit yields sustainable results. The process entails concerted efforts by management to ensure implementation enduring success of organizational strategy. Researchers argue that organizations should pursue participative mechanism to develop career related objectives of employees. and up-to-date skills to provide differentiated and superior services. Dynamic environment and changing customers need unique approaches and techniques. 1982. 2000). 1993). Kelleberg & Moody. competencies development forms an essential dimension for firms’ competitiveness. Blair and Sisakhti (2007) found that expenditures on training and development yield enormous benefits. Career development has psychological meaning to the employees. enhance quality of products and services. 2001) Delany and Huselid (1996) established that practicing an effective recruitment and selection process has positive relationship with organizational performance. Researchers have concluded that investment in training yields strategic advantage to the organizations (Bitner & Zeithmal. the execution of organizational strategy may vacillate.. Gomez-Mejia et al. Russel et al. Researchers have also established that comprehensive training and development activities are positively related to productivity. The research concluded that training and development positively affect business performance (Delaney & Huselid.Issue 24 (2010) participation. Researchers have found a positive and statistically significant association between use of recruitment and selection procedure and profits (Terpstra & Rozell. 1987. In addition it communicates prospects of excellent performance and conveys the employees’ oriented value of the firm. GreenHaus. 2007. 1996). Hall. Finance and Administrative Sciences . and organizational effectiveness (Arago’n-Sa’nchez et al. 1995. 2001). Fey et al. 1986). and abilities. and evaluating effectiveness of training are vital to achieve enduring results. 1996) In knowledge economy. Considerable resource are needed to ensure the effectiveness of these selection tests.. 2007). and satisfaction of employees due to acquisition of additional knowledge. Jarventaus. make effective plans. Pfeffer (1995) contended that maximum resource should be dedicated to develop top. Strategic focus on training. 1994. Effective selection system based on modern and need-based tests is essential to affect desirable selection. 2003. Knowledgeable and highly skilled employees improve productivity. quality of products and services. 1994. and resource optimization). Merit-based and transparent induction system enhances organizational credibility and makes the workforce loyal to the organization. 1995). skills.166 European Journal of Economics. Koch & McGrath. reduce staff intention to leave. (2003) strongly favoured an induction system free of discrimination. 1994. Changing business environment necessitates that learning organizations should spend on training of employees to enhance organizational ability to positively respond to the dynamic environment (Jarventaus. Cisco (2006) argued that without excellent induction. Training and development generate tangible outcome (improved productivity.. training in hard and soft skills.quality selection system. and employee’ productivity (Huselid.
shaping employees. 1998. employee partnership in providing input . Chiu et al. A comprehensive compensation mix augmented by an effective system of disbursement plays an effective role in attracting the best candidates. The system should be based on fairness. behaviour and performance outcome. Gomez-Mejia et al. 1996. Sang. Strong evidence exists in literature about the positive and significant relationship of compensation and rewards on employees behaviour and organizational performance. Webb. 2004. (2002) stated that compensation and rewards significantly affects organizational outcome. and organizational performance. Berndardin and Russel (1993) concluded that compensation and reward planning is a vital dimension of effective HRM policies. reduce staff turnover. Wu. Jyothi and Venkatesh (2006) found that competency-based pay and rewards improves quality of products and services. Sang (2005) established that a comprehensive. 1980. Bdernardin and Russel (1993) argued that wider communication of performance appraisal policies within organizational is essential to make employees clear about their specific role expected as contribution in organizational performance (Landy & Far.based reward philosophy act as the driver or individual and team performance (Dreher & Dougherty. 2002. team working. unions. Performance appraisal is a vital means to offer promotion. Landy & Far. Gehart & Milkovich. ethicality. improves employees’ behaviour. This process plays a vital role in influencing the perception of employees about self and about their contribution toward organizational goals. and quality. Chang & Chen. Webb.Issue 24 (2010) Performance appraisal is based on demonstrated achievement of performance objectives established pertaining to a specified job within a given time period. thereby making strong contribution toward organizational performance. Researchers have evaluated the relationship of compensation and reward. The effective process of monitoring and feedback between employees and supervisors strengthens the relationships (Cook & Crossman. and facilitates retention of talents. Application of competencies enhances performance and improves effectiveness. 2004). 2002. These studies concluded that an effective compensation and reward system increases sales. Hanley (2005) argued that developmental purpose of performance appraisal is more productive in influencing organizational performance. and career development (Larsson et al. 2003. Researchers established that employees’ participation in setting performance goals. and improve firms’ performance (Chiu et al. 2004). Finance and Administrative Sciences .. employees’ involvement. Batt. 2005. fair and competitive compensation and reward system affect the retention of employees. 2006. and employee right to appeal against performance evaluation are vital attributes of an effective performance appraisal that contributes toward superior performance by workforce (Islam & Rasad. collective bargaining. Haunstein (1998) argued that the process should be based on objective and quantifiable results. 2004. employee empowerment. objectivity. industrial democracy.167 European Journal of Economics. Brown and Hewood (2005) argued that performance appraisal system has positive link with improved productivity of organizations. flexibility of the system to respond to the changing needs. Delaney & Huselid.. recognition. Compensation includes all forms of monetary returns and allied services provided to employees (Milkovich & Newman. 1992. Dreher & Dougherty. Sidin et al. Regular monitoring of the performance and constant feedback about performance is essential to get the desired results. These practices include employees sharing schemes. 1988) Employee participation is characterized by wide ranging HRM related activities primarily focused on employee management.. standardization. 2005). Strong evidence in literature highlight that performance appraisal has positive link with business performance. clarity about performance standards. A valence.. 1999). 2003. inclusiveness. Researchers found positive and significant relationship between performance appraisal and organizational performance (Ahmed & Schroeders. HRM and high commitment work practices. cooperatives. fair and customers’ focused performance appraisal system improves business performance.. Rahman (2006) found that comprehensive performance appraisal enhance employees’ commitment. 2002. Mathis and Jackson (2004) argued that a balanced. 2007). Lee and Lee (2007) found that effective performance appraisal system improves productivity. Kuo. and reduces accidents rates in the organization. 1980). 2005). 2005). and widely communicated (Bernardin et al.
Chiu et al. The knowledge workers seek elusive goals of stability. and employee commitment rather than control has become the essential goal of peoples’ management (Walton. Rizov & Croucher. 1995. Hartcourt & Wood. Cisco. competency-based pay and reward. performance appraisal. 2008) The results of present study are in harmony with the results of prior studies that HRM practices of recruitment and selection. 2007. 2005). 2001. Hall and Soskice. 2006 . and mutual investment. individualization of employment relationship.168 European Journal of Economics. This partnership provides more active role to HRM experts in the organization to support the change in organizations through partnership of front-line managers. Jarventaus. The changing business environment and competitive pressures have resulted in flexible organizational response to employees’ management. and employee participation have positive and significant relationship with organizational performance (Chen. Rizov & Croucher. are integrating HRM practices in organizational strategy to improve business performance and remain competitive. The empirical results indicate the Pakistani organizations. compensation and reward. The vital contribution of values and meritbased recruitment and selection. . and fair performance evaluation. 2007.Issue 24 (2010) in strategic decision making. 2001. job satisfaction and life-enhancing service and career. 2007. 2003. innovative and need-based training and development. This investment should aim at constantly improve competencies levels of the workforce.2002. and firms’ performance (Cooke. Management should understand the importance of HRM function as a strategic partner and should incorporate HRM input in strategic decision making.. The focus of this new approach should be to attract and retain the talents and leverage the talent to achieve competitive advantage through a proactive HRM related activities. 2005). 2006. 1994. and employee relations to enhance self esteem. 1999. foster satisfaction. training and development. both in public and private sectors. productivity. and quality of work life are essential dimensions that have positive effects on superior performance for sustained competitive advantage that need to be capitalized by management at all level. Sang. 1992). Employee participation fosters commitment and greater quality and output. The study identified that all HRM practices has positive and significant influence on the firm performance. 1985). 2004. 6. 2008. comprehensive. The management should be aware of the use of these practices in an integrated manner to realize the organizational objectives. 2002. The managers should be well aware that a changed paradigm of people management is essential in changing business environment. Participative approach toward employee increases levels of quality. Ferney & Metcalf. Reduced turnover decrease hiring and training cost of firms (Kessler & Purcell. Managerial Implications The study evaluated the association between HRM practices and organizational performance. Hartcourt & Wood. Hartcourt & Wood. Finance and Administrative Sciences . and employees’ right of information sharing at all levels (Summers & Hyman. 2005. Jones. The new paradigm of employees’ partnership focuses on new partnership between employers and employees. and efficiency (Whitley. productivity. Jyothi & Venkatesh. Chang & Kuo. Dreher & Dougherty. 2007) Wislon and Peel (1990) found a positive relationship between worker participation and reduced absenteeism and turnover. It is imperative for managers to fully understand the strategic pay off of the investment made in training and development. Studies provide strong evidence that employee participation positive and significantly affect business performance. The results of present study concur with results of earlier studies that HRM practice of employee participation is positively and significantly associated with firms’ performance (Amable. Guthrie. 1987).
and Kallenberg. “The Impact of Human Resource Management Practices on Operational Performance: Recognising Country and Industry Differences”. “Organizational Performance and HRM strategies in Korea: Impact on Firm Performance in an Emerging Economy”. The study highlights the importance of HRM practices to achieve and sustain superior performance in changing business environment and need for an integrated approach toward formulation and implementation of HRM practices...A. Appelbaum. and cultural values. 2000. I. J. It would be valuable to examine the effect of contextual factors of regulations. Ithaca. Future Research Despite the above limitations. Our research empirically substantiated the results of earlier studies with regard to this linkage. Conclusion This study evaluated the effects of HRM practices on organizational performance in Oil and Gas Sector of a developing economy. Academy of Management Journal. Collin & Smith. Wan. Manufacturing Advantage: Why High Performance Work Systems Pay Off”.. the study makes significant contribution about understanding and implementation of HRM practice in one of the most important sector affecting Pakistan’s economy. To further explore the relationship between these two constructs. 2000. pp. S. “Handbook of Human Resource Management”. Future research may include large scale sample in other industries in Pakistan to statistically validate the results of present study. 19–43. R. Richard & Johnson. pp. pp. Bailey. Amable. “Effects of Training on Business Results”.D. E. 8. 2001).169 European Journal of Economics. 2003. Oxford University Press. 670–87.. 2003. Journal of Operations Management. Bae. M.1994. J. P.. 14. Berg. Review of literature provides strong evidence of effective HRM practices and their relationship with firms’ performance in physical and attitudinal dimensions. 2003).. 2006. “The Diversity of Modern Capitalism”.J. “Effects of Human Resource Systems on Manufacturing Performance and Turnover”. 956–80. 21. O. 37(3). Limitations and Further Study The study has some limitations. J. 43. Practice. Arago´n-Sa´nchez. The possibility of respondents’ bias in reporting may have happened (Paul & Annantharaman.2. J. The present study is restricted to a small sample of firms in one industry and may therefore limit the generalizability of the findings. pp. Armstrong. Cornell University Press.J. labour market environment. and style of leadership that moderate or mediate the relationship between HRM practices and organizational exist (Bowen & Ostroff. 6.G. and Sanz-Valle. The organizations need to proactively pursue a strategic approach to HRM practices and invest in such practices to achieve sustainable competitive advantage in tangible and intangible dimensions. 2004. 2003. future research may also focus on longitudinal study 7.W. L. Arthur. 2003. Chen. Barba-Arago´n. organizational climate. Bae. Oxford.Issue 24 (2010) 6. and Lawler. International Journal of Human Resource Management. New Delhi: Kogan Page India. pp. “Human Resource Strategy and Firm Performance in Pacific Rim Countries”..B. Lawler. T. The respondents’ provided information on implementation of HRM practices and perceived measure of organizational performance. 14. 2005. F. 2] 3] 4] 5] 6] 7] 8] . International Journal of Human Resource Management.O. References 1] Ahmad. Finance and Administrative Sciences . and Schroeder.. A.1. B. 502–517. 1308–1332. A. T. R. J. and Walumba. Academy of Management Journal. 3.
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