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Generating organisational
performance
The contributing effects of performance
measurement and human resource
management practices
Mike Bourne, Andrey Pavlov and Monica Franco-Santos
Centre for Business Performance, Cranfield School of Management,
Cranfield University, Cranfield, UK

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Received 30 July 2010
Revised 31 March 2011
13 January 2012
29 March 2012
Accepted 30 March 2012

Lorenzo Lucianetti
Department of Management and Business Administration,
University of Chieti and Pescara, Pescara, Italy, and

Matteo Mura
Department of Management, University of Bologna, Bologna, Italy
Abstract
Purpose This paper aims to advance the current debates on the effect of performance measurement
(PM) in the operations management domain. In order to accomplish that, it investigates the
contribution of business PM and human resource management (HRM) practices to business
performance.
Design/methodology/approach The paper is based on ten case studies conducted across both
manufacturing and service organisations capturing evidence from both the human resource function
and line management.
Findings In the PM and HRM literatures, there is a debate about the contribution these practices
make to the overall performance of the organisation. In particular, the results from the PM literature
are inconclusive. This paper argues that performance is a result of employee engagement and that the
PM system is a communication and guiding mechanism, which if implemented well and used
appropriately, can channel the efforts of employees striving to perform.
Originality/value This paper contradicts the performance drivers approach to PM by providing
new insights into the roles PM and HRM practices play in delivering business performance.
Additionally, the paper develops a set of propositions as a means of clearly stating the findings and for
encouraging future research in this area.
Keywords Performance management, Performance measurement systems, HRM practices,
Impact on performance
Paper type Research paper

Introduction
The problem of performance measurement in modern operations research
The current interest in performance measurement (PM) originated in operations
(Hayes and Abernathy, 1980), focusing on the unintentional and destructive
consequences of the over use of financial measures. This was taken up from a
management accounting perspective (Kaplan, 1984; Johnson and Kaplan, 1987), creating
a widespread dissatisfaction with accounting measures, and directly led to the

International Journal of Operations &


Production Management
Vol. 33 No. 11/12, 2013
pp. 1599-1622
q Emerald Group Publishing Limited
0144-3577
DOI 10.1108/IJOPM-07-2010-0200

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multi-dimensional PM frameworks developed from practice, such as the SMART


pyramid (Lynch and Cross, 1991), the results determinants matrix (Fitzgerald et al.,
1991) and the balanced scorecard (Stata, 1989; Kaplan and Norton, 1992). The operations
management literature contributed to this debate by creating tools and processes that
answered the question how should PM systems be designed, implemented and used?
(Bourne et al., 2000; Neely et al., 2000).
PM is at the centre of the operations management literature with Neely et al.s (1995)
paper being the most cited in IJOPM at the time of the 2005 special issue on the trends in
the field. Within this literature How? questions are at the core of operations
management. Neelys (2005, p. 1273) review of past trends identified future research
opportunities concluding with five How? questions for his PM research agenda. But, this
research has importance beyond academia as from a practitioner perspective there is
evidence of a continuing trend of PM use in the UK (Franco-Santos et al., 2007) and other
countries, including the USA, Japan, Australia and Germany (Neely et al., 2008).
More recently research has focused on another pressing challenge in the field; the
question of whether PM does indeed have a positive impact on organisational
performance (Franco and Bourne, 2004). As we will show in our summary of the
literature, this research has occurred predominantly outside the operations management
literature and producing inconclusive and some time contradictory results. We believe
that this is because we do not understand the fundamental mechanisms and processes
that explain how PM works. We need to focus on understanding how (Martinez and
Kennerley, 2005; Pavlov and Bourne, 2011) and under what circumstances PM makes a
difference (Braam and Nijssen, 2004; Bourne et al., 2005; Griffith and Neely, 2009).
Research has demonstrated that PM efforts are deeply embedded in organisational
processes (Pavlov and Bourne, 2011) which invariably affect the success of PM
initiatives (Kennerley and Neely, 2003). People and culture appeared to be among the
most significant factors contributing to the successful outcome of PM (Bourne et al.,
2003; Kennerley and Neely, 2003) and this has informed our research.
Given the inconclusive nature of the impact studies and the insights from research
into the organisational embeddedness of PM, it is useful to investigate further the
contextual and processual factors which may account for the link between PM and
organisational performance. Following this line of reasoning, we became interested in
the organizational factors that contribute to the effect of PM on performance,
particularly how human resource management (HRM) affected the link between PM and
organisational performance. More specifically, the question that drove our inquiry was:
How do HRM and PM practices interact to generate organisational performance?
In order to answer this question, we examined the documented effects of PM through the
lens provided by the HRM literature. Our research led us to a startling and powerful
conclusion: neither the HRM nor the PM literature alone succeed in capturing the entire
picture of how organisational performance is generated. However, combined, they offer
a more sophisticated understanding of this process organisations use a range of PM
practices to communicate direction combined with a variety of HRM practices to
encourage engagement with the organisations goals; and it is the skilful management of
these processes simultaneously that generates performance. Herein lies the contribution
of this paper. More specifically, we:
.
examine and document the effects of PM on organisational performance through
the lens of HRM;

identify empirically and describe a set of practices that generate organisational


performance;
using the HRM lens, separate the practices for directing and the practices for
engaging employees within generic performance-generating practices; and
explain how the balanced interaction between the directing and the engaging
practices leads to generating organisational performance.

Although earlier work in the operations management literature has hinted at the
importance of HRM and PM working in tandem (De Toni and Tonchia, 2001), to our
knowledge, this paper is the first study that makes these hunches explicit, providing
the first specific insights into how HRM and PM interact to produce organisational
performance.
The structure of this paper
We have structured the rest of this paper as follows. In the next section we will
examine the literature to:
.
demonstrate the continuing relevance of research into PM;
.
identify the evidence of the effects of PM and the support for the choice of HRM
literature as the analytical lens for examining these effects;
.
review the research on organisational performance provided by the HRM
literature; and
.
derive our overarching research question.
We then outline the methods for conducting the research, before presenting and
discussing our findings. In the discussion section we develop a set of propositions with
two aims: first as a means of clearly stating our findings and, second, to provide a focus
for future research. A brief summary concludes our paper.
Background literature
The development of current issues in PM
PM systems can be seen as setting the rules of the game in organisational life.
The measures used in organisations highlight what is important as they report
performance against the target to management. Operational managers have been very
sensitive to these systems as they influence behaviour towards delivery of the
measures and not necessarily the strategy of the organisation. How can an operation
create the slack resources to allow it to respond rapidly and flexibly to a customer need
if all senior management see is the utilisation levels of the plant and equipment?
In this respect, financial and accounting based PM systems have been criticised for
encouraging short-termism (Banks and Wheelwright, 1979; Hayes and Garvin, 1982),
lacking strategic focus (Skinner, 1974), encouraging local optimisation (Hall, 1983;
Fry and Cox, 1989), encouraging minimisation of variance rather than continuous
improvement (Johnson and Kaplan, 1987; Lynch and Cross, 1991), not being externally
focused (Kaplan and Norton, 1992) and even for destroying the competitiveness of US
manufacturing industry (Hayes and Abernathy, 1980). These criticisms were the
catalyst for the development of multi-dimension measurement frameworks cited
above, enabling goals and measures to be aligned strategy. However, the creation

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of such a set of measures is not a trivial task, so considerable academic and practitioner
effort went into the processes for designing and implementing PM systems. These took
different approaches; some were based on informational models (Bitton, 1990), audit
techniques (Dixon et al., 1990; Bititci et al., 1997; Medori and Steeple, 2000), consultancy
interventions (Kaplan and Norton, 1993) and facilitated processes (Eccles and Pyburn,
1992; Neely et al., 1996).
If in the 1990s we developed an understanding of how to create and implement
multidimensional PM systems, the first decade of the twenty-first century has focused
on the use of PM and the impact on business performance. Researchers have studied
the operational consequences of PM that is to say the impact that PM has on
management processes as well as the impact on the performance of the organisation
as a whole. We will briefly summarise this research next.
The effects of PM
One effect of PM that is consistently reported in the literature is the role it plays in
improving strategic alignment. For example, Lillis (2002) examined how the use of
multiple performance measures in manufacturing profit centres improved the
implementation of their strategy. Malina and Selto (2001) found positive results at the
business unit level as PM enhanced strategic alignment and Ukko et al. (2007) identified
improvements in the performance management processes across the organisation
following implementation of a PM system. When PM is combined with techniques such
as linked cause-and-effect models (Eccles and Pyburn, 1992), strategy maps (Kaplan and
Norton, 1996) or success maps (Neely et al., 2002), one would expect improved strategic
alignment and there is evidence to support this. Chenhall (2005) suggests this approach
improved the organizations strategic alignment and Ahn (2001) found the approach
facilitated communication and strategy implementation. Similarly, Papalexandris et al.
(2004) and Sandstrom and Toivanen (2002) show evidence of improvements in the
management of performance. However, both Ahn (2001) and Papalexandris et al. (2004)
highlighted that these approaches are costly and consume management time.
Besides, the impact on alignment, studies have focused on the impact PM has on
people management processes. For example, Butler et al. (1997) showed how PM
improved employees participation. Malina and Selto (2001) and Godener and
Soderquist (2004) investigated the effects on communication finding improved
communications at both the organisational and at the business unit level (although for
Malina and Selto (2001) the communication was only one way, increasing tension in the
organisation). Bititci et al. (2006) showed how the implementation and use of PM
systems across manufacturing companies was influenced by culture and management
style and how the management style and culture influenced the PM system
implementation and use.
Turning now to the impact of PM on performance itself, it has been found that PM
contributes to multiple facets of organisational performance. In terms of operational
performance, existing evidence documents the positive impact of PM systems on such
aspects as process re-design (Malina and Selto, 2001) flexibility, delivery, cost efficiency
(Chenhall, 2005), workforce productivity, number of errors, and inventory turns
(de Leeuw and van de Berg, 2011). Other types of performance affected by PM include
performance improvement (Godener and Soderquist, 2004; Johnston et al., 2002);
team performance (Scott and Tiessen, 1999); project performance in R&D contexts

(Davila, 2000); customer performance (Hyvonen, 2007); and market performance


(Ittner et al., 2003). Studies also find that PM positively affects perceived financial and
non-financial performance (De Geuser et al., 2009; Chenhall and Langfield-Smith, 1998;
Evans, 2004; Hoque, 2004; Hoque and James, 2000; Van der Stede et al., 2006). However,
when one tries to link the effects of PM to externally reported financial performance, the
results are less clear. Ittner and Larcker (1998) showed that the use of multi-criteria
performance measures positively affect future accounting financial performance, but in
a later study Ittner et al. (2003) found that the use of multi-criteria performance measures
had no association with accounting financial performance. DeBusk and Crabtree (2006)
found companies using PM as part of a balanced scorecard outperformed the control
group in terms of stock market and accounting performance in the first three years of
adoption, but Braam and Nijssen (2004) found that unless the balanced scorecards in use
are well aligned with business strategy, there will be a deterioration in the financial
performance of the business. Similarly, Davis and Albright (2004) showed that business
units that adopted BSC outperformed other business units, whilst Griffith and Neely
(2009), using the same research design, failed to demonstrate this effect conclusively.
In summary, directors and managers can choose their PM framework and approach
to design and implementation. There is also guidance on how performance measures
should be used to manage, but despite the widespread adoption (Neely et al., 2008),
the evidence that links PM with business performance is far from conclusive. The
immediate impact on strategic alignment and PM is clear and there is good evidence
that PM has a positive impact on perceived non-financial and financial performance,
but the final linkage to financial results is ambiguous. This suggest that there may
be contextual factors which have been overlooked, or that the way PM systems are
implemented and used is much more important than it was previously thought.
The interaction of PM with organisational HRM practices
A key contextual factor, previously highlighted in the operations literature, is the HRM
approach, that is to say, the type of HRM practices organisations use. For instance,
Goodridge (1986) discovered that the way in which people are managed is critical to the
adoption of advance manufacturing systems. Kinnie and Staughton (1991) found that
HRM practices are a key factor in the development and realisation of a new
manufacturing strategy. More recently, Sila and Ebrahimpour (2005) found that HRM
related issues (employee satisfaction, work systems and training) were crucial for the
success of total quality management (TQM) implementations. These studies suggest
that the use of PM interacts with HRM practices, and so does not operate in isolation,
highlighting the importance of the softer organisational factors emphasised by
Kennerley and Neely (2003). In order to understand this interaction further we turn to
the HRM literature to inform our research.
The effects of HRM practices on organisational performance
In the last two decades HRM scholars have extensively explored the relationship
between HRM practices and organizational performance. Seminal sound evidence has
been provided by Arthur (1994), Huselid (1995) and Delery and Doty (1996), which
empirically explored the effect of HRM practices on manufacturing, productivity,
turnover and financial performance. Subsiquently the number of empirical studies on
this topic has grown (Boselie et al. (2005) detailed review of the literature) and there

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is consistent meta-analytic evidence that high-performance HRM systems, broadly


defined, might positively affect firm financial performance (Combs et al., 2006).
In this debate, a particular emphasis has been given to the type of HRM practices
that a firm implements. Specifically, two typologies of HRM practices have emerged.
Transaction-based HRM practices, which emphasise individual short-term exchange
relationships, and commitment-based HRM practices, which emphasise mutual
long-term exchange relationships (Arthur, 1992; Collins and Smith, 2006; Tsui et al.,
1995). A central issue for organisations is the choice of the type of HRM practices that
will facilitate better organisational performance. A growing body of empirical evidence
addresses this issue suggesting that organisations implementing commitment-based
HRM practices perform better than organisations implementing transaction-based
HRM practices (Arthur, 1992, 1994; Batt, 2002; Collins and Smith, 2006; Youndt et al.,
1996). Although the individual HRM practices that encourage long-term exchange
relationships differ across organisations studied, three HRM practices appear to be
critical for creating a commitment-based setting (Collins and Smith, 2006), these are:
.
recruitment and selection practices;
.
reward and motivation; and
.
training and appraisals.
Despite the relevance and consistency of these findings, scholars have argued that the
link between HRM and performance has not been proved yet (Hesketh and Fleetwood,
2006; Fleetwood and Hesketh, 2006; Guest et al., 2003) and that it is premature to coincide
that such a link is properly established (Wood, 1999; Wall and Wood, 2005). Fleetwood
and Hesketh (2008, p. 141) also highlight that much of the HRM-performance research
uses simplified and over arching HR structures that ignore the enabling mechanisms
and social processes that make the difference.
Yet the lack of proof does not mean that the link does not exist, leading to arguments
for more theorising and exploratory research. Calls to peel the onion have been made,
along with pleas to explore intermediate variables in the HRM-performance link in order
to explain how HRM practices cause better performance (Becker and Huselid, 1998, 2006;
Fleetwood and Hesketh, 2006). Some evidence has already been produced (Collins and
Smith, 2006) around the role played by organization social climate and knowledge
exchange capabilities. Nonetheless, HR scholars propose that strategic HRM theory
should be extended to effective strategy implementation (Becker and Huselid, 2006) and
strategic alignment (Huselid and Becker, 2011) as focal mediating constructs in the
HRM-performance relationship. They suggest that future research should focus on the
integration of high performance work systems and balanced scorecards and the effect on
implementation of strategy (Becker and Huselid, 1998).
Additionally, the importance of a contingency perspective has been underscored.
Since HR architectures may differ across firms and within firms, it is important to
identify contextual factors or features of the organizational environment (Becker and
Huselid, 2006, p. 916) that make the HRM-performance link more effective (Lepak and
Snell, 1999, 2002). Therefore, there is a need for empirical evidence from qualitative
research, such as case studies, that precisely captures the effect of context-specific
variables (Becker and Huselid, 2006, p. 910; Guest, 2011, p. 6).

The research question


We conclude there is evidence that PM improves strategic alignment and interacts with
communications and employee commitment practices. However, these improvements
may not lead directly to improved organisational performance. This may be the result of
various contextual factors, of which HRM practices appear to be key. The HRM
literature suggests that identifying multiple contextual variables and demonstrating a
clear chain of cause-and-effect relationships between HRM practices and organisational
performance has been difficult. However, our review shows that performance is affected
by a set of commitment-based practices and that this set only partially overlaps with the
corresponding set documented in PM research. This has led us to believe that the HRM
and the PM practices interact to generate organisational performance and that we
needed to adopt an exploratory research design to identify the practices and their effect.
So in designing the empirical part of our study, we asked:
RQ. How do HRM and PM practices interact to generate organisational
performance?
It is important to note that this research question does not imply or seek to discover
causality in the sense of demonstrating the link between individual practices and
organisational performance. Rather, its focus is the nature, dynamics, and complexity
of interaction between an organisations HRM and PM practices that are perceived to
be performance-generating.
Methodology
Research strategy
Given the inconclusive evidence produced by prior research into the impact of PM on
performance and the exploratory nature of our investigation, we adopted a case study
strategy. We conducted the research in 13 UK companies including both private and
not-for-profit organisations. The research comprised two phases. First, during a small
pilot study we examined three cases with single respondents. This allowed us to refine
the case study protocol, sharpen the interview questions, and make the final decision as
to the rationale for the selection of cases in the main study. Second, the main study
included ten cases with multiple respondents. In this paper, we report the results of the
main study only.
Case selection and data collection methods
A case study protocol was developed to guide this process. The case selection was driven
by theoretical sampling (Yin, 1994), reflecting our research question and the results of
the pilot cases. More specifically, the aim of the study was not to determine whether
particular practices generate organizational performance as the discussion above
demonstrates, this has been done by prior research. Rather, our goal was to understand
how this process takes place. Therefore, in the process of case selection, we looked for
high-performing organizations where we could study this question. Thus, all
organisations in the final set of cases were successful organisations judged by
meeting at least two out of the three success criteria profitable, growing, business
award winners. Furthermore, we aimed to obtain a mixture of both manufacturing and
service companies. Finally, as Table I demonstrates, the selected cases were categorised

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by size (small, medium and large measured by number of employees). The company
names have been changed to preserve confidentiality.
We personally visited all of the organisations studied and collected the data through
face-to-face interviews, observations, and documents. We deliberately targeted senior
HRM personnel as well as multiple levels of line management. This was a key element of
our research design as our intention was to understand how HRM policies and practices
contributed to the link between PM and organisational performance. Through
semi-structured interviews and examination of documents we collected information
about the policies and practices that were believed to be the most important for
managing people and elicited the individuals beliefs about the organisations people
management philosophies and the key practices (both PM and HRM) that affected
business performance. We used multiple respondents across several organisational
levels so that we could build a rich picture of practices and beliefs in the organisations
studied and triangulate our findings, cross-checking the views of the respondents
against documentation and against each other.
In total we interviewed 62 people with each interview lasting for approximately
1 hour. The majority of interviews were conducted by two researchers simultaneously
and were recorded. Where recording was not possible or allowed by the interviewees,
we took notes and wrote them up immediately following the interview. The interview
questions were aimed at eliciting specific PM and HRM practices as well as the
perceived mechanism of their interaction and respective contribution to organisational
performance. Specifically, we explored which policies had the biggest impact on
organisational climate and on company performance, whether they have been
successfully implemented, and how they supported or conflicted with each other
(see the Appendix for details).
Data analysis
The interview transcripts provided the main dataset for the analysis, whilst
observations and documents were treated as secondary data sources (Robson, 2002).
Therefore, we used the interview data to develop emergent categories and relied on
observation notes and company documents only to clarify issues or confirm our
conclusions. The analysis took the form of thematic analysis using the constant
comparative method (Glaser and Strauss, 1967) to identify and refine emergent
categories. The validity of the data was assured by comparing statements across the
interviewees in the same organisation and with multiple data sources. The reliability of
the conclusions was aided by having the researchers involved in the data collection
analyse the data independently before comparing their interpretations. We brought
together a member of each company to two half day review meetings to review and
discuss the findings in detail as a final validation.

Table I.
Summary of case study
organisations by size

Small

Medium

Large

SC (business services)
SA (manufacturing)
US (software)

MC (manufacturing)
MA (building industry)
NM (consulting services)

LC (financial services)
ML (engineering)
NL (housing)
UL (repair organisation)

Findings
As we stated above, we collected information about the policies and practices that were
believed to be the most important for managing people and delivering business
performance. We will present our findings about the key policies and practices for
managing people first and then present our findings concerning the policies and
practices that the individuals believed delivered performance.
From the within-case and cross-case analyses we identified eight categories that
were recurring themes across more than one organisation. However, only six distinct
categories were identified in at least half the case study companies. These six
categories were seen by the companies as performance-generating practices and thus
represented the broad approaches to managing organisational performance:
(1) Goal deployment rolling out corporate objectives to individuals.
(2) Communications both ways between the organisation and its employees.
(3) Leadership role models the management style projected in the organization.
(4) Incentive systems rewarding team and individual performance.
(5) Recognition systems recognising performance and values.
(6) Training opportunities for training and development.
Each of these categories, however, contained specific PM and HRM practices that
interacted with each other, shaping and giving strength to each individual category.
As such, these categories provided the window into the nature, dynamics, and
complexity of HRM and PM practices, allowing us to answer the question of how such
practices interact. The next seven sections describe the findings with respect to our
research question within each category and end with a summary of our observations.
Goal deployment
Goal deployment took two distinct forms. In the larger organisations, this was based
on rolling out the strategy to all the departments and eventually to individual staff.
Predominantly this was achieved through presentations, the development and
deployment of key performance indicators (KPIs) and a structure of reinforcement
through team briefings.
In the medium sized and smaller organisations, the predominant approach was to
involve all the staff in the strategy process. These companies ran off site away days for
all their staff, in which, as a minimum, the strategy for the coming year was presented
and discussed in open. However, three companies also had mechanisms for involving
everyone in strategy development. In one organisation (case MC, a manufacturing
company employing 150 people) they used a strengths, weaknesses, opportunities and
threats (SWOT) analysis on an annual basis to assess the health of the organisation.
This was initially conducted at team level, before being rolled up to departmental
and organisational levels. This process raised issues from the bottom of the organisation
and there was evidence that the issues raised during the process significantly informed
strategy. A second example (case SC, a service company with twelve employees)
involved its staff in the development of their own one page plan. This document
summarised for each staff member on one sheet of A4, the mission and vision of
the company, the companys top level goals, together with indicators of how this is to be
measured. The plan continued to record the individuals goals that supported the

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organisations performance and the individuals own measures of achievement.


This document clearly linked in a simple format individual performance with that of the
company as a whole, emphasising the strategy and how it was to be delivered.
In terms of answering our question, the data showed that goal deployment was
often a recursive and collaborative process and was thus intertwined with engagement
practices. However, we observed that larger organisations adopted approaches in line
with those prescribed in much of the PM literature, whilst the medium sized and
smaller organisations adopted more innovative and engaging approaches.
Communication
Communication with staff started with the annual communication of the business
objectives. This was done in all ten companies. In the larger organisations, these are
broken down by function and regular feedback occurs through briefing sessions and
quarterly progress days (LC, NL, UL). Individual communication occurs through regular
one-to-one (SC, MC, LC, MA, NM, NL, UL) and the achievement of goals is communicated
through the reward systems (MC) or through formal recognition systems (SC, LC, ML,
NM, UL) with monthly recognition days. Weekly team meetings and cross-functional
team meetings support the process, with intranet, staff notice boards, in-house magazines
and posters providing alternative media. Besides, communicating performance, many of
the organisations we visited espoused and communicated company wide values (SC, LC,
SA, NM, NL, UL) using most of the same communication channels.
But communication is not simply from management to the employees, employee
feedback is also important. The organisations studied used staff surveys (SC, MC, LC,
SA, ML, NM, NL, US, UL, consultative committees (SC, MC, NM, NL), roundtables and
managing directors staff forum (NL, NM, UL), open door policies and open plan offices
(MA, UL), job swapping (NM) and managing by walking about (SC, LC, SA, MA,
NL, UL) to facilitate both formal and informal feedback from staff. What was so
striking in these examples was the frequency and extent of the communication.
In terms of answering our question, we observed that in these organisations,
although communication was associated with ensuring the consistency of action across
organisational levels, it was a bi-directional process that was also aimed at engaging the
employees in the wider task of generating organisational performance.
Leadership role models
Managing staff is an important attribute of management. The quote that people leave
their boss and not the organisation was used more than once in our interviews and for
many firms the role of senior management in creating the right working environment
was highlighted. A number of organisations were focused on ensuring that line
management had at least a minimum management ability in managing people (LC, NL,
UL) but some of the best line managers appeared to be naturally undertaking the role
(specifically in SC, NM, MA). Line managements commitment to listen and act when
appropriate was regularly highlighted as a strength. In three of the organisations we
studied (MC, LC UL), the recognition and reward processes underpinned the
achievement of goals requiring low levels of input from line management, but some
of the best line management was observed when these processes were much less formal
and left largely to the discretion of the line managers (cases SC and MA).
In relation to our research question, the discussion of leadership highlighted the
ability of the leaders to engage those at the lower levels as the task was almost

as important as that of outlining the vision and providing the overall strategic
direction. The discussion of leadership was one of the clearest examples of the
inextricable connections between directing and engaging the employees.
Reward systems
Five of the organisations studied had a business related reward system usually related
to achievement of an overarching profit objective (MC, LC, SA, MA NL). Staff saw these
as giving a thank you rather than driving performance per se, but three companies
(LC, ML, UL) were using individually based performance rewards to drive individual
performance and a fourth organisation was looking to introduce such a scheme (US).
In the three organisations using reward systems to drive performance, the primary
mechanism was through individuals achieving their appraisal objectives. However, in
job roles where an individual could be easily measured and targets set, such as sales
staff and operator productivity, these appraisal objectives became much more
quantifiable and rewards were based on delivering specific performance targets
(such as sales achieved or output produced).
Many organisations rely on team performance, but there was only one real example
(MC) of a company endeavouring to drive team behaviour and performance through
the reward system by using a closely designed and interlocking set of measures and
rewards. These paid weekly and monthly bonuses on a team basis for achieving
attendance, delivery, quality, productivity and house keeping standards.
In terms of the focus of our study, the discussion of reward systems highlighted the
expected emphasis on the link between individual performance on the one hand and
organisational goals on the other hand. Encompassing both the motivational and the
organisational functions, reward systems were seen as playing the dual role of engaging
the employees and ensuring the strategic direction.
Recognition systems
We differentiate recognition systems from reward systems. Reward systems pay
financial rewards through the payroll, whilst recognition systems are prize-based,
providing staff with gift vouchers, holidays and other rewards, typically of lower value
than the financial payment made through the reward systems. They also involve
personal public recognition of recognised individuals and their achievements. Six of
the companies studied identified recognition as an important people management
practice (SC, LC, SA, MA, NM, UL). Four of these companies (SC, LC, NM, UL) had formal
systems that were run systematically by designated staff. These involved formal
systems for nominating staff for awards based on management recognition, team
recommendation or customer comment. Recognition was provided both for performance
and living the organisations values. All the companies had formal groups for
managing the recognition, but one specially (NM) constituted a committee of employees
and previous award winners to judge the next months awards. The culmination of this
activity was the monthly reward ceremony where individuals were presented with their
prizes in front of management and their peers. In two companies, these were rolled up to
create an annual award final to create additional incentive and motivation.
Employee recognition was seen as an important part of good management and the
formal systems were one approach to ensuring that this happened. However, one case
company (MA) had a very effective informal recognition system leaving the practice

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to managers discretion. For example, in this company, managers would quietly take
individuals to one side and thank them for their additional contribution. They might
then suggest that they took their partner out for dinner with the company paying
the bill. Another would buy small thank you gifts or arrange team evenings, involving
the manager personally in the recognition process.
In terms of answering our question, the discussion of recognition systems highlighted
the same issues as that of the reward systems. However, we observed that in most
instances, the formal recognition system promoted communication of organisational
values and goals, but the informal management recognition generated performance
directly, by having a strong motivational effect a point to which we return later.
Training
Five of the organisations were very reliant on staff having the necessary technical
skills to do their job (MC, LC, MA, ML, UL) and there was significant support to ensure
that this happened. Two organisations had developed their own internal training
centres (ML, UL) and one had web-based training available (LC). The other two
invested both in on the job training and specific off-site courses where necessary.
All the medium and large sized organisations were investing in management training
in some form or another. Most of this training was focused on developing line
management skills and capability, but higher-level leadership training was rarely
mentioned during the interviews.
We have interpreted this as meaning that training was most probably an enabler of
performance rather than a direct driver, as it was not cited as making a direct impact
on business performance. However, line management and staff discussed the
availability of training in terms of perceiving the company was investing in them. This
was believed to have a positive impact on staff morale and commitment to the
business.
Again, in terms of the focus our research, the discussion of training demonstrated
its dual role as ensuring the ability of the organisation to perform required tasks
(and thus being developed and offered in accordance with the organisational priorities)
and as stimulating employees commitment.
Summarising practices
Summarising these findings, there were two observations that we found striking. First,
within all six categories, the interaction of the HRM and PM practices seemed to fall into
two broader types of practices engaging the employees in the companys operations
and providing direction for channelling their efforts. Second, we were surprised that in
our cases we found that recruitment was mentioned infrequently. It is possible that
recruitment, like training, was seen as an enabler rather than a driver of performance.
However, the relative lack of emphasis was a surprise. Also, basic HRM practices and
procedures were mentioned, but were only once cited as making a positive impact on
performance. In one situation (MA), the business saw the basic practices and policies
providing a consistent base for managing people allowing them to concentrate on the
more important aspect of managing the business. If one takes a systems view of
management, this is exactly what one would expect to find.
As the focus of this study is the interaction of the HRM and PM practices, the
following section examines these findings in more detail.

How HRM and PM practices interact


What we saw in our findings was that the HRM and PM practices within organizations
were inextricably linked. Therefore, their interaction could no longer be described by
focusing either exclusively on the HRM practices or on their PM counterparts. Rather,
this interaction was better described by two new types of practices. Table II makes a
distinction between these types of practices that were seen as generating performance.
Following the coding procedure described above, we labelled these practices as
engaging and directing. These types of practices were related, but distinct. The first
is around the issue of generating additional discretionary effort from staff. The second
is related to focusing staff effort to deliver business performance. We labelled these
engaging and directing and will elaborate on them in turn.
The directing practices are clear from all the activity focused towards aligning
objectives with strategy, cascading of goals and key performance indicators to an
individual level in the organisation. The communication of objectives, performance
feedback, performance agreements, one page plans, appraisal systems and one-to-ones,
are all practices designed to meet these ends.
Having aligned the staff with these objectives, the focus is on engaging the staff to
deliver additional discretionary effort. The recognition and reward systems were
examples of how this was achieved, but the importance of good line management
supporting this process should not be overlooked. All the organisations visited had a
strong belief in people delivering the business performance and structured performance
management is a key factor. There was also recognition that staff morale is an important

Small

Medium

Large

Directing
Performance focus one page plan and
feedback
Well structure goals and targets so
individuals know what is expected of
them

Communicating
objectives
Communicating
performance
Progress management

Performance agreements
KPIs
Appraisals
Individual goals
The performance management
system

Motivating the team and


people to work as a team
People engagement,
discretionary effort
Good people, mix of youth
and experience
Recognition
Strong cross-functional
working
Good line management
Good and predictable
HR policies and practices
People encouraged,
listened to and motivated
Fun-based culture

People engagement,
discretionary effort
If we look after our people,
they will look after the
business
People and systems
Staff bonus
The pay and recognition
system promotes performance
Executive team, openness and
leadership
Good morale
The management conferences
The change management
process

Engaging
Coaching sessions personal
improvement
Team happiness
Management visibility

Recognition
Good line management
Motivated people

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Table II.
Summary of
performance-generating
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intermediate goal in delivering business performance. The examples of communication,


listening to staff feedback, leadership role models, values and treating staff well are all
examples of commitment-based HRM practices that, as we showed earlier, contribute to
the commitment-based organisational setting, making up organisational social climate
and leading ultimately to improved organisational performance.
Discussion
The contributing effects of PM and HRM practices on organizational performance
In the PM literature reviewed above, we identified that the PM and business
performance link had not been convincingly demonstrated, whilst the empirical
evidence linking commitment-based HRM practices to performance was more
compelling (Arthur, 1992, 1994; Batt, 2002; Collins and Smith, 2006; Youndt et al., 1996).
The identification of three HRM practices critical for generating a commitment-based
setting (Collins and Smith, 2006) develops this position, but our case studies emphasise
some important differences.
If we now turn to the three practices, namely, recruitment and selection practices, reward
and motivation, and training and appraisals, two are found in our study and one is not.
In our study, rewards and recognition were practices designed to deliver motivation and
additional discretionary effort from employees. Here, our findings are partly in agreement
with the HRM literature, but the HRM emphasis was on developing commitment-based
HRM practices, whilst our case studies linked these activities directly with generating
business performance. Training and appraisals were identified in our study, but training
was seen as an enabler of performance rather than a direct driver creating the
organisational social climate (Collins and Smith, 2006; Rousseau, 1995; Tsui et al., 1995),
which is in line with the HRM literatures comments on commitment-based settings.
Recruitment and selection practices were conspicuous by their absence in our study. Again
these are probably more instrumental in developing commitment-based settings, but we
are still surprised not to find them mentioned during our research.
In summary, our findings do not disagree with the body of research found in the
HRM literature. Building a social organisational culture that is conducive to
commitment and performance was found to be important. However, setting direction,
through communicating strategy, cascading objectives and performance indicators to
staff were also important elements perceived to impact on the business performance,
and this was the aspect most readily emphasised during the case studies. It could be
argued that being PM researchers we were looking for this aspect during our cases,
however, we were aware of our natural bias in this direction and took steps to counter
this. Despite these endeavours the direction setting emphasis was still prominent in our
findings.
If we now turn to the PM literature, there has been considerable focus on how PM can
be used to clarify strategy and align employees efforts with the goals of the
organisation. In this respect, the creation of visual cause-and-effect relationships has
been proposed (Eccles and Pyburn, 1992; Kaplan and Norton, 2000; Neely et al., 2002) and
shown to be beneficial (Ahn, 2001; Chenhall, 2005) as well as the importance of the
appropriate definition of the performance measures themselves is understood
(Neely et al., 1997). But we would argue that these approaches are being taken a little
too mechanistically. The importance of PM for influencing behaviour and
communicating direction cannot be denied but these need to be supported by the

engagement practices, which provide the fuel for striving for better performance.
Balanced scorecards are often seen as performance drivers (Olve et al., 1999; Aziza and
Fitts, 2008), but in our interpretation of this research we suggest that this approach could
be incorrect. Our research is leading us to believe that in the main, PM is a
communication and guiding mechanism, which, if implemented well and used
appropriately, can channel the efforts of employees striving to perform.
The interaction of the PM and HRM practices
As we have shown in the preceding section, the practices falling under the engaging
category parallel closely the three commitment-based HRM practices that make up the
commitment-based organisational setting (Collins and Smith, 2006). As also shown
earlier, this setting can be described as the organisational social climate. The practices
comprising the organisational social climate, from our study and the literature, lead to
better performance, whilst PM cannot be reliably shown to have the same effect.
Our research leads us to believe that this may depend on the organisational social
climate in which the PM system operates.
PM can be extremely effective in identifying what success looks like and
communicating this throughout the organisation. However, as we stated earlier, in many
circumstances this creates the rules of the game. This may suggest that in some
circumstances, such as situations with well-motivated and engaged employees, PM will
be viewed positively and embraced as a means of delivering organisational success.
In these circumstances, PM systems can channel the engagement and motivation of
employees into the direction desired by the organization, thereby leading to
organizational performance. On the other hand, in circumstances where the
employees are disengaged and de-motivated, employees will not embrace
the measurement system. In these circumstances, they will deliver improvements in
the performance measures through work arounds creating the perception of improved
performance that does not translate into true performance. These work arounds might
be so severe in some circumstances that the PM system reduces real performance.
To put our position more concretely, we have developed the following proposition:
P1.

The relationship between PM and organisational performance is positively


moderated by the organisational social climate.

P1.1. In organisations with a good organisational social climate, PM will make a


positive contribution to performance.
P1.2. In organisations with a neutral organisational social climate, PM will have no
effect on performance.
P1.3. In organisations with a bad organisational social climate, PM will have a
negative effect on performance.
To take this line of argument further, future research will need to identify and isolate
the moderation effect of social climate on the relationship between PM and
performance. This would need to be accomplished through a large-scale cross-sectional
survey. Doing so would improve the understanding of a critical component of the
interaction between HRM and PM practices and test the emergent link between such
interaction and organisational performance. However, as our study demonstrated, the
HRM and PM practices within organizations are in fact intertwined and inseparable,

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isolating the effect of individual PM practices is practically meaningless. It is much


more important to distinguish and quantify the contribution of the directing practices
to the effect of the interaction between HRM and PM practices on performance.
Therefore, our second proposition has to do with distinguishing the contributing
effect of directing practices in this process. The HRM literature demonstrates that in
situations where there is a good organisational social climate , i.e. an organizational
social climate that stimulates engagement performance is better. However, given
that there is strong evidence that PM is an effective mechanism for communicating
strategy and supporting strategy implementation, we would suggest that PM would be
an effective way of directing employees efforts to good effect. For instance, MacLeod
and Clarke (2009) highlight the importance of providing the employees with the
strategic line of sight for engagement to realise its full value. Effectiveness of PM
here means the ability of PM systems to ensure the alignment of objectives throughout
the organisation and a system of indicators to support this. Hence:
P2.

Organisations with good organisational social climate and effective PM


systems perform better than organisations with good organisational social
climate and ineffective PM system.

As in the case of P1, the empirical work required by P2 would involve a large-scale
survey that would allow the researchers to establish and isolate the desired effects.
Summing up the discussion, we suggest that neither the HRM nor the PM literature
provides a complete description of how performance is generated. Rather, both HRM
and PM practices contribute to the process of generating organisational performance,
where the efforts and engagement of the employees are stimulated by a set of HRM
practices and channelled into the strategic direction by the PM practices. Moreover,
the HRM and the PM practices can be separated only analytically; in real organisations
they are intertwined, and it is their interaction that shapes the process of generating
organisational performance.
Conclusions
The PM literature has focused on the impact of objectives, targets and feedback on
business performance in the setting of multidimensional PM systems. Lingle and
Schiemanns (1996) study and findings typify this approach. However, although the
issue of incentives and rewards has been raised, much of the PM and management
literature ignores the other HRM factors that are found in a commitment-based setting.
On the other hand, the HRM literatures focus on the impact of practices on creating a
commitment-based setting is understandable, but one has to question the value of
commitment without direction, as one would also have to question the value of
direction without commitment.
The research presented here has yielded two key findings. First, it has shown that it is
not HRM or PM practices alone that are responsible for generating performance, but
rather it is their interaction that determines the process of generating organisational
performance. Second, the research was able to identify the specific contributing effects
that HRM and PM practices make to this process it demonstrates that the
organizational social climate stimulates the employees efforts which are subsequently
channelled towards strategic priorities by the goal-setting, communications, and control
practices of PM.

This paper makes a step towards a more sophisticated understanding of the process
through which organisational performance is generated, and in so doing, it advances
our understanding of the effect of PM on performance.
In light of this study, we propose two avenues for future research. A limitation of this
paper is that the findings are drawn from studying ten organisations. So our first
proposal is to encourage further empirical research to validate the findings in a wider
setting including the testing of our propositions through quantitative data analysis from
survey results. We would recommend that such a survey should also be linked to reported
financial data, so that the impact of and interaction between PM and HRM practices can
be related to published financial performance. Our second proposal is much wider in
nature. For the operations management literature to continue to make a contribution to
the study of organisations to inform the development of practice, there needs to be a new
trend in research. We need to understand how the practices, mechanisms, processes and
routines in an organisation deliver performance. Of necessity, this research will be close
to practice and dealing with the fundamental building blocks of operations management.
However, this will be aided by the long awaited realisation in the wider management
literature of the importance of practice in developing academic theory and insight (Corley
and Gioia, 2011; Sandberg and Tsoukas, 2011).

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Appendix
The interview questions
In each of the organisations we studied, we interviewed multiple respondents across several
organisational levels. Therefore, the precise questions in the interview protocol were tailored to
the position and function of the interviewee, yielding four versions of the protocol for the chief
executive, HR managers, functional managers, and front-line staff. For practical interests,
instead of listing four separate protocols here, we show the representative questions
that remained constant across all versions of the questionnaire and made up the core of the
protocol.
The core of the protocol consisted of four key questions that focused on organizational:
.
policies;
.
programmes; and
.
practices.
The reason for this was that we wanted to capture practices of all levels of complexity from
formalised organisational policies to localised practices:
(1) Which policies (programmes, practices) have the biggest impact?
.
What is that impact?
.
On climate:
NB: prompt for evidence.
.
On organisational performance:
NB: prompt for evidence.
.
On departmental performance:
NB: prompt for evidence.

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(2) Have they been successfully implemented?


.
If successful, describe it in more detail. What makes it successful?
.
What are some of the problems?
(3) Are these policies (programmes, practices) aligned with each other?
.
If so, in what way?
.
If not, what are the consequences?
(4) Do these policies (programmes, practices) support the delivery of organisational goals?
.
If so, in what way?
.
If not, what are the consequences?

Corresponding author
Mike Bourne can be contacted at: m.bourne@cranfield.ac.uk

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