You are on page 1of 61


This chapter throws light on the review of the previous literature on Human resource
management practices; innovative HR practices; impact of the HR practices on employee or
organisational performance and HRM in Indian context. The last part of this chapter
discusses the research gaps in these studies and the need for the present study.

2.1 Human Resource Management Practices

The concept of Human Resource (HR) was introduced by Prof. L. Nadler (1969) in
American Society for Training and Development Conference. In India, Larson and Tubro
Ltd., a private sector company introduced this concept in 1975 in their organization with an
objective of facilitating growth of employees, especially people at the lower levels. Among
the public sector government companies it was BHEL which introduced this concept in 1980.

Fombrun, Tichy, and Devanna (1984) expanded these premises and developed the model of
SHRM, which emphasizes a ‗tight fit‘ between the organizational strategy, organizational
structure and HR system. According to him, political, economic and cultural forces are
responsible for an organization‘s mission and strategy. This explains these causal relations,
which form the ‗tight fit‘ between strategy, organization structure and HR policies and
practices. On the basis of mission and strategy, the shape of organization is structured, i.e.,
people are organized to carry out different tasks to achieve the organization‘s mission.

In a survey of human resource development practices conducted by Rao, T.V. (1982)

covering fifty three different industries in India, following facts were observed. Seventeen
organisations (32 percent) had a formally stated policy emphasises on human resource
development. The thirty one organisations (59 percent) did not have any formally stated
policy on human resource development but claimed to emphasise it. In five organisations,
there appeared to be no such emphasis on human resource development. Secondly, Twenty-
six organisations (49 percent) stated that their personnel policies give high importance to the
continuous development of their employees. Another twenty one organisations (40 percent)
stated that there is some emphasis on human resource development in their personnel
policies. Four of the organisations surveyed didn‘t seem to lay any emphasis on human
resource development in their personnel policies. Two did not respond. Thirdly and the most

importantly, there was a separate human resource development department in the

organisations studied. This survey indicated a positive trend of using open appraisal system,
improving the training function, making up organisational development activities and using
employees counselling by an increasingly large number of companies.

Barney (1991) pointed out that firms could develop strategic capability and for attaining this,
the strategic goal will be to create firms, which are more intelligent and flexible than their
competitors. The human resource management function has emerged as one which act as
differentiator among various firms.

Hendry and Pettigrew (1990) proposed that a number of internal factors such as the
organizational culture, structure (positioning of HR), leadership, level of technology
employed and business output directly contribute to forming the contents of HRM.

Snell and Dean (1992) agreed that Human Resource Practices were the primary means by
which firms invested in their employees. Human Resource Management has moved its
concern from domestic focus to multi-national focus, more escalating concern for issues like
ecological, health care, and illiteracy. They also demonstrated that Human Resource Practices
to be employee centric and need to be business centric as well.

Kochan and Dyer (1993); Walker (1993); and Cusworth and Franks (1993) suggested that a
firm should aim at developing various HR practices as complementary to one another.

Mondy and Noe (1993) suggested that activities and practices of HRM can be classified into
six domains:
i. Planning and recruitment.
ii. Development and appraisal.
iii. Compensation and reward.
iv. Safety and health.
v. Labor relations.
vi. Human resource research.


Amba-Rao (1994) carried on a study to explore the HRM policies and practices in a small
group of firms and industries in the Indian context. Semi-structured interviews were
conducted with HRM executives and general managers in ten firms in the Hyderabad
metropolitan area in India, to examine their HRM practices. The specific HRM functions
considered under this study were: staffing, performance appraisal, compensation, training,
motivation and employee relations. In examining the strategies, several contingency factors
were also identified. These included the firm's internal and external contextual factors. The
internal factors were: (1) management style; (2) degree of centralization of HRM strategies
and their linkage with local subsidiary practices in the case of MNCs; and, (3) extent of
professionalization and formalization of the HRM department. The external contextual
factors were: (1) Government role; (2) labour market conditions; (3) organizational
information net work (4) market and technology; (5) unions (6) socio-political factors; (7)
industry, location or other firm specific factors. The study found that the HRM departments
had a visible role in policy and implementation. Further, all the managers had reported
involving line managers in implementing the HRM function.

Loveday (1994) in his doctoral thesis titled ―A Study of HRM with special reference to
recruitment, selection and training of managerial and non managerial staff in the Nigerian
Banks‖ stated that, ―The most important of all factors of production in business is the human
factor unlike the component part of a machine, the people who comprise a human organism,
are something more than just parts of that organisation. Flesh men and women with
sentiments, ambitions and needs of their own ranging are beyond the confines of the
organisation. The extent, to which these people serve the needs of the organisation willingly,
enthusiastically depends upon the extent to which the organisation serves their needs as
aspiring human beings.‖ He also added that, the HRM strategies include job analysis, human
resource planning and forecasting. Efficient HRM ensures that systematic steps are used to
recruit, select, train employees so as to show them the ladder by which they can attain their
desired goals.

Huselid (1995) mentioned in one of his studies that the personnel selection, performance
appraisal incentive attitude assessment compensation, job design, grievance procedures,
information sharing, labour management participation recruitment efforts, employee training,
and promotion criteria are the major HRM practices which prevail in an organisation.

Pfeffer (1998), in his study, mentioned about employment of the various HR practices such as
security, selective hiring of new personnel, self-managed teams, decentralization of decision
making as the basic principles of organizational design, extensive training, comparatively
high compensation contingent on organizational performance, reduced status distinctions and
barriers, including dress language, office arrangements, and wage differences across levels,
and extensive sharing of financial and performance information, compensation practices
throughout the organization, placement practices, training practices, employee grievance
procedure, performance evaluation practices, promotion practices. All such practices are
needed for growth of the organisations. He concluded that having good HRM is likely to
generate much loyalty, commitment or willingness to expend extra effort for the
organization‘s objectives.

Stone (1998) remarked that HRM is either part of the problem or part of the solution in
gaining the productive contribution of people. The above quotes suggest that organizations
need to effectively manage their human resources if they are to get the maximum contribution
from their employees.

Wright and Snell (1998) made an important observation that most of the Human Resource
Management Models consisted of ―fit‖ components, which included Human Resource
Management Practices, employee‘s skills and behaviour and flexibility. The ―fit‖ components
focused towards responding to a variety of competitive needs required for strategic and non-
strategic considerations. Kay (1999) also supported this by adding that the Human Resource
Strategy must be an integral to organization‘s strategic processes contributing towards
organization‘s overall performance. It was analyzed that the organizations relationship with
environment could be handled with the help of suitable strategies.

Anantharaman and Zabid (1999) conducted a study on ‗Human Resource Management

Practices: Perceived Organisational and Market Performance‘, in the Malaysian furniture
industry. The study found that managerial and non-managerial employees did not differ in
perceived organisational performance; the managers perceived higher market performance
unlike the non-managerial staff. The result of the t-test indicated that the two groups didn‘t


differ in perception of human resource management practices except in information sharing,

employee participation empowerment and symbolic egalitarianism.

Guest (1999) suggested the best Human Resource Practices that included: job design in such
a manner that employees have the responsibility and autonomy to use their knowledge and
skills; selection process framed to carefully identify best potential; training as an on-going
activity; two-way communication process to keep everyone informed; and employee
participation to increase employees‘ awareness about the implications of their actions, for the
financial performance of the firm. Guest proposed a simple model (Figure 2.1) of Human
Resource Management and performance which suggested that Human Resource Practices
influence directly to an employee‘s level of commitment towards his performance, which in
turn has an impact on the organization‘s financial performance as an outcome.

Figure 2.1
A Simple Model of HRM and Performance

Source: Guest

Wood (1999) distinguished four different fits in his study based on the views given by
various authors particularly in the area of Human Resource Strategy:
 Fit between Human Resource Strategies and the business known, as ‗strategic fit‘;
 Fit between a coherent set of Human Resource Practices and systems within the
organization, known as ‗organizational fit‘;
 Fit between Human Resource Strategies and the organization‘s environment ,
known as ‗environmental fit‘;


 Fit between Human Resource Practices as coherent and consistent bundles, known
as ‗internal fit‘.

Armstrong (2000) explained HR policies as continuing guidelines vis-à-vis the approach

which an organisation intended to adopt in managing its valued assets, i.e. the people. The
HR policies dictate philosophies and values as to how people should be treated.

Budhwar (2000) gave an overview of human resource management and the strong existing
pattern of human resource practices in India with the specific objective of identifying the
main contingent variables and national factors that influence Indian human resource
management policies and practices. The investigation was based on a questionnaire survey
carried out in one hundred thirty seven Indian firms in manufacturing sector. Drawing from
the literature, the influence of seven contingent variables on four sets of human resource
management policies and practices were examined. The contingent variables included human
resource strategy, size, age, and life-cycle stage, ownership of organisation, industrial sector
and union membership. Apart from this, the study empirically examined the impact of four
human resource strategies on human resource function: cost reduction, talent improvement,
talent acquisition and effective resource allocation. The impact of national factors on human
resource management policies and practices was examined by asking the respondents to
allocate a maximum of 100 points to different aspects of national culture, national institutions
and dynamic business sector. The result showed that organisations, in the mature life cycle
stage, were likely to adopt an annual career development interview scheme for the training
and development for their employees. The organisations in the declining life-cycle stage were
likely to pursue recruitment of their clerical and managerial staff as apprentices. Such
organisations were also likely to compensate their employees on the basis of their total work
experience. The organisations in the public sector adopted an annual career development
interview scheme but the amount of money spent and total numbers of employees trained
were less in comparison to MNCs and private sector organisations. Regarding the national
factors, the results suggested that the three institutions of labour laws, trade unions,
educational and vocational training significantly influence human resource management
policies and practices. Amongst the many aspects of a dynamic business environment, only
an increased level of competition and a strong emphasis on customer satisfaction was found
to have a strong impact. Except for the sector-specific requirements, no other aspect of the

business sector appeared to influence human resource management policies and practices in
the sample organisations.

Pillai (2000) made an attempt to analyse the influence of the human resource development
climate existing in banks on the learning orientation of the employees. The objectives of this
study were to find the extent of influence of human resource development climate on the
learning orientation of its employees, to study the perception of OCTAPACE and human
resource development sub-systems in the banks among different types of learners, to study
how do the bank employees with different learning orientation perceive the general climate
existing in their organisations. A total of three hundred respondents were selected by the
stratified random sampling method. A questionnaire was used for collecting data. Learning
orientation was measured by using a seven-point Likert-scale. The findings of the study
showed that about 57 percent of respondents perceive the learning and development climate
existing in banks as moderate. Nearly 30 percent respondents considered that the human
resource development climate was good. More than two third of the respondents, who
considered human resource development climate as poor, had been found to have resistance
for learning orientation. The chi-square test was also applied and was significant at 0.01
levels which showed that the perception of employees regarding the commitment of the top
management in the effective implementation of the human resource development initiatives
was positively related with the learning orientation of the employees.

Anakwe (2002) wrote a research paper which generated knowledge on different aspects of
human resource management practices in Nigeria analysed from the responses collected from
a sample of 185 human resource management professionals employed in over ninety-six
corporations located in three major cities in Nigeria. Furthermore, the
convergence/divergence/cross-vergence perspective was utilized to provide theoretical
insights on the human resource management practices. The findings supported a cross-
vergence perspective as evidenced by the blend of human resource management practices
reflecting both generalized or standardized practices and localized practices.

Purcell et al. (2003) emphasized that it was not about having a range of well conceived
Human Resource Policies and Practices but it was about how these policies and practices
were implemented. More purposely, Human Resource Strategies were concerned with the

development of continuous improvement and customer relation policies. The Study also,
detailed about the contribution of front line managers in Human Resource policies and
practices. This pointed out the key areas in Human Resource like job and work design,
flexible working, workforce resourcing, employee development, reward, and giving
employees a voice need to be developed for the successful implementation of high
performance work practices. Identifiable key factors affecting job satisfaction were found to
be career opportunities, teamwork, and good working conditions for employees. Finally, it
could be concluded that Purcell and his co-authors considered policies and practices
implementation as a vital component in linking people to business, for effective management
of change, for creating workplace a good place to work and this being the prime task of line

In meta-analysis of 104 articles, Boselie et al., (2005) concluded that the top four HRM
practices were efficient recruitment and selection, training and development, contingency and
reward system, and performance management that had been extensively used by different
researchers. They identified 26 different practices that were used in different 104 studies, of
which these were the top four. These four practices could be seen to reflect the main
objectives of the majority of strategic HRM programmes, namely, to identify and recruit
strong performers, provide them with the skills and confidence to work effectively, monitor
their progress towards the required performance targets, and reward staff well for meeting or
exceeding them.

According to Dwivedi (2006), it is very difficult to initiate competitive strategy based on

human resources. The key to competitive advantage in the modern world is the application of
sophisticated HR policies and practices. This is because of the fact that competitors are
unable to formulate an effective response in the short term. The human resources can help a
company to accomplish competitive advantage by lowering costs, enhancing sources of
product and service differentiation or by both. However, these activities must be managed
from a strategic perspective to accomplish competitive advantage

Murthi (2006) explained the role of HR manager in the changing scenario as follows: ―The
role of Human Resources is curial to face the challenges of globalization, liberalization, profit
maximization and cost effectiveness. The present day aim is survival of the fittest. To face

the challenges in the world today we need constant changes in skills, attitudes and
knowledge. This can be achieved only by the training department of an organisation. This can
pave the way for industrial prosperity in the business world. The development of Human
Resource is the key to the business survival and business success. All companies must look
towards developing a more highly skilled workforce to cultivate specialist skills in new areas
and to attain a higher level of basic education and training. Training is a route to quality

Purang (2006) compared the human resource development climate perceptions of middle-
level managers of five Indian organisations. These organisations operated in different sectors,
the two were public sector organisations, the two were private sector organisations and the
one was a multinational organisation. The study hypothesized that the human resource
development climate perceptions of the managers in the private and multinational
organisations would be more positive than in the public sector. The study used the survey
research method for data collection. Overall 247 middle level managers responded from all
the five organisations. The human resource development climate questionnaire developed by
Daftuar (1996) was used, which included 27 items. Study showed that the human resource
development climate scores of the two private organisations and the MNC were significantly
higher than the two PSUs.

Teseema & Soeters (2006) in their famous article "Challenges and prospects of HRM in
developing countries: testing the HRM-performance link in Eritrean civil service" took eight
HRM practices which were recruitment and selection practices, placement practices, training
practices, compensation practices, employee performance evaluation practices, promotion
practices, grievance procedure and pension or social security. They also found a significant
relationship between all these HRM practices and perceived employee performance.

Altinay et al. (2008) operationalised HRM practices in terms of (1) employee training, since
it facilitates employee learning and leads to better service quality and customer satisfaction
(Jameson, 2000; Ram et al., 2000), (2) empowerment, since delegation of responsibilities
leads to greater employee commitment and efficiency, and thus to increased growth (Lashley,
2000), (3) recruitment, since different forms of recruitment namely, formal or informal, may
lead to deployment of employees with different levels of knowledge, skills and behaviours,

resulting in discrepancies in the overall firm‘s performance (Tanova, 2003) and (4) employee
rewarding, since employee incentives, monetary or non-monetary, motivate employees to
work harder to achieve company goals, which in turn improve business performance (Huang,
2001; Mahy, Plasman, & Rycx, 2005).

Dwivedi (2007) concluded that, the survival and growth of today's organisation necessitate
close linkages between HR and business policy and planning. He also mentioned about the
old and new concepts of the HRM.

Kundu et al. (2007) conducted a study on, ‗Human Resource Management Practices in
Shipping Companies: A Study.‘ The main objective of the study was to assess the human
resource management practices being practiced in shipping companies. Five factors – job
analysis and HR planning, training and performance appraisal, hiring and compensation
system, work-force diversity and flexible work system and career development were found
highly correlated. Two factors namely training and performance appraisal and hiring and
compensation system emerged as very strong practices prevailing in different shipping
companies. These two factors were followed by factors namely career development. Job
analysis and HR planning was moderately practised in shipping companies. Hiring, training,
performance appraisal, compensation and career development were strong human resource
dimensions in shipping companies. Job analysis and human resource planning were found as
moderate human resource practices. Practices regarding work-force diversity and flexible
work system were also prevalent in shipping companies but comparatively not as strong as
other human resource dimensions.

Rajendhiran (2007) concluded in one of his papers that, the human resource is a very special
kind of resource. If it is properly managed the organisational effectiveness can be increased.
Managers can influence productivity by the sound application of HRM programme.
Recruitment and selection techniques can be used to attract and hire the best performers.
Motivation and compensation techniques can be used to retain employees and improve job
performance. Training and development can improve job performance or rectify deficiencies
in skills and competency in increasingly performance of the employees.


Vazirani (2007) is of the opinion that, the best HR Practices enable the company to affect
radical improvements, not just incremental ones.

Codrina (2008) studied the HRM practices in different Romanian Private Companies and
found that the HR practices being adopted by different types of firms differed due to their
size and activity length.

Haid (2008) in one of his studies in India explored four key drivers of retention. These are the
HR practices named: performance management, professional development practices, manager
support, social responsibility leading to the employee attitudes and beliefs which in turn drive
the retention. A model was developed for the same in this study. These HR practices were
suggested to be implemented in the Indian organizations to increase the employee
engagement and retention, resulting in boosting their competitiveness in the growing Indian
market, enabling them to address changing market conditions quickly and nurturing a pool of
talent that will give them the capabilities they need in the future.

Bharathi (2009) explained the value of HR functions in business and its impact on higher
productivity, enhanced quality, better customer service, good industrial relations and lower
cost which influence the profitability of an organisation. Effective HR practices could play
important role in achieving all the above said factors.

Chakraborty (2009) explained as to why the managers should be proactive. According to him,
―Every organisation, department, team has different people and these people have to be
understood, handled and dealt properly. In case you do not act proactively with such people,
it would end up destroying the work culture and vitiate the whole work environment.‖

Chaudhari (2009) was of the opinion that, the HRM policies of an organisation are influenced
by two major factors: situational factors and stakeholders interest. The situational factors are
labour markets, laws of the land, management goals, business strategies, technology,
employee demography, position of the company. The stakeholders interest cover expectations
of shareholders, management, employees, government and society/community. These factors
can act as constraints on the formulation of HRM policies and can also be influenced by
HRM policies.

Chendroyaperumal (2009) was of the view that the contributions to human resource
management practices from India are rich and very effective but long remained ignored by
the scholars. For instance, Lord Buddha and Mahatma Gandhiji have all proved the
effectiveness of Indian human resource practices to the utter disbelief of the rest of the world.
He studied therefore best HRM practices prescribed in Panchatantra (one of the ancient
Indian works on management using the case method, a method to be discovered by the West
only 5000 years later!) related to employee qualities and work, leadership, motivation,
employee turnover and retention, research and development personnel, conflicts, and
employee care. He suggested in his study that practicing these HRM principles would result
in better management and utilization of human resource and thus would enhance the
efficiency and performance of the whole organization. These HR principles from the
Panchatantra are not only consistent with the modern thought on HR management but are
also applicable and easily practicable even today to organizations of all sizes at all places and
times to all people.

Majeed (2009) reviewed the HR practices in knowledge-intensive firms and MNEs.

Perception of gold-collar workers with reference to the relationship with top managers was
discussed through the thirty articles published over the period 2000 to 2006. With the help of
Chenail‘s qualitative matrix (found in this study), the study thematically analyzed the HR
antecedents that emerged into four distinctive categories. The study found that one must keep
in view the variable personnel demands and extensive training and development needs of
knowledge workers, and highlights the need for attention to be paid to unique scientific
practices for managing gold-collar workers in knowledge-intensive firms.

Compton (2009) in his study mentioned that Human Resource Strategies must include
recruitment and selection, education and development, performance management, succession
planning, remuneration and finally retention of key players. He pointed out, that the previous
approaches to Human Resource Management were largely incoherent with no real linking to
strategic planning. Human Resource Management Models need to have clear link with the
external environment, external customers, and suppliers. The internal strategic planning
processes required to be developed so that it adds value to the organizations.


Kumar‘s (2009) study revealed that Human Resource policies and practices were followed in
Indian Cement Industry. Kumar also confirmed that human input was the single largest input
that goes in the cement industry. This study proved the pertinent existence of Human
Resource Practices in India. Kumar suggested that Human Resource professionals needed to
focus on the individual needs and aspirations to the extent that they develop the ethos of
organizational commitment. The Study also concluded that culture and leadership were the
significant predictors of employee performance.

Kundu and Malhan (2009) intended to assess the HR practices in insurance companies.
Primary data based on two hundred eighteen respondents from four insurance companies
(two multinational-7 branches and two Indian-7 branches) were analyzed to assess HR
practices being practiced by insurance companies in India. ‗Training and benefits‘ was found
highly in practice in the insurance companies. Further, ‗performance appraisal,‘ ‗selection
and socialization of employees,‘ and ‗HR planning and recruitment‘ were moderately
practised in insurance companies. ‗Workforce diversity and contemporary HR practices‘ and
‗competitive compensation‘ were also practised to some extent. ANOVA results showed that
Indian companies did not practise workforce diversity. Compensation practices were found
more competitive or performance based in Multinational insurance companies than in Indian
ones. The gender effect showed that only competitive compensation was perceived
significantly differently by male and female employees/executives. Interactive effects were
significant on workforce diversity and contemporary issues, training and benefits, and
selection and socialization of employees. This study also concluded that the competitive
advantage of a company can be generated from human resources and company performance
is influenced by a set of effective HRM practices. Finally, it was summed up in this study that
Multinational companies were comparatively weaker on performance appraisal, training and
benefits, HR planning and recruitment, and comparatively stronger on workforce diversity
and contemporary issues, selection and socialization of employees and competitive
compensation than Indian companies. Multinationals were weak on some factors due to non-
adaptation of local HR practices.

Birasnav and Rangnekar (2009) conducted a study on the structure of human capital
enhancing HRM practices in India. This study analyzed four hundred seventy two
employees‘ responses who worked in Indian manufacturing industries, to identify the patterns

of human capital enhancing HR practices. Reward strategy, career-oriented training,

performance appraisal, recruitment strategy, career management, and performance-oriented
training are the patterns or factors derived from the HR practices, and validity of this
structure is also proved by confirmatory factor analysis. Furthermore, there were certain
associations found between these patterns and characteristics of both employees and firms
from regression analyses.

Nalband (2010) enquired into the HRM practices in the refrigeration industry and air
conditioning industry and analyzed the outcomes of human resource management. The study
covered areas of human resource management/development including performance appraisal,
training, career planning and development. It was concluded in this study that to retain the
employees, good HRM/HRD practices needed to be implemented.

Savaneviciene and Stankeviciute (2010) explored the ―black-box‖ between HRM and
organisational performance. On the basis of an intense literature review, they provided an
insight into HRM drawing a conclusion that there is no single agreed or fixed list of human
resource (HR) practices which are used to define human resource management. However, in
the same study, four performance measures were identified which could define how well an
organisation is being performed in the line with all the HRM practices. These were: HR
related outcomes (affective, cognitive and behaviour); organizational outcomes (productivity,
quality, efficiencies); financial outcomes (profit, sales); market based outcomes (market
value). The same levels of outcomes were proposed by Dyer and Reeves (1995); Boselie, van
der Wiele, (2002); Paauwe, Boselie (2005). Figure 2.2 will explain this relationship in a
clearer way:


Figure 2.2
HRM impact on Performance logic

Source: Savaneviciene and Stankeviciute

Chand (2010) conducted a study on HRM practices in the Indian hospitality enterprises. The
study had a two-fold purpose: to investigate the importance of human resource management
(HRM) practices and to investigate whether this set of HRM practices in the Indian
hospitality enterprises depended on the demographic characteristics. A structured instrument
was developed to examine the HRM practices. Based on a survey of fifty seven hospitality
managers‘ perceptions on HRM, practices were assessed by a twenty seven HRM practices
and five demographic variables. Factor analysis was performed to identify HRM practices,
and one-way ANOVA was employed to test the association of the demographic variables
with HRM practices. Results indicated that the set of harmonized terms and conditions,
formal manpower planning, flexible job description, formal system of induction,
production/service staff responsible for their service, social appreciation and recognition may
constitute the most important HRM practices in the Indian hospitality enterprises. Further, the
results revealed that there was a positive relationship between HRM practice variables and
category and type of sample enterprises, but there was no relationship between HRM practice
variables and size and age (capital or employees).


2.2 Innovative HRM Practices

Kossek (1987) offered six propositions that identify factors associated with the adoption of
innovative HRM practices:
1. external environmental forces distinguish HRM innovations across industries;
2. structural organizational characteristics may be related to HRM innovations;
3. HRM innovations that are easily packaged and marketed by consultants may be the
most widely diffused;
4. organizations often adopt HRM innovations in order to appear more legitimate;
5. strong culture firms may adopt HRM innovations for different reasons than weak
culture firms
6. Finally, a company's history of success with past HRM innovations affects the
prospects for acceptance of new ones.
He concluded that companies adopted new work practices for a variety of, often
contradictory, reasons.

Hays and Kearney (2001) organized the new directions in HRM into the traditional activities
of staffing and selection, compensation, performance appraisal, labor relations and collective
bargaining, and job design. Their study was related to the state HRM, yet the
recommendations were quite interesting and helpful. As per these researchers, evident
throughout these activities were four broad themes of change: increased flexibility, greater
application of information technology, decentralization of operations, and a more strategic
role for state offices of HRM. They posited that significant retooling to develop new skills
and abilities would be required for that-day managers and a different set of expectations
would greet new hires. The focus on strategic HRM implied that HR managers would assume
more responsibility for information technology and management, consultation and oversight
regarding agency personnel operations, implementing and managing new compensation
programs, learning new HRM software as it became available, developing best practices in
HRM, managing diversity, and resolving conflict. The effective HR managers of the future
would not be the traditional specialists, but rather those who could do multitasking. They
added that there was no doubt that, pressures from the external and internal environments of
human resource management would continue to provoke change and innovation.


Gurkov (2002) conducted a study on innovations in HRM practices in Russia. In 1998, he

administered a survey to seven hundred forty Russian chief executive officers (CEOs), which
enabled him to raise the question of the current human resource management (HRM)
practices in Russian industrial companies. In October–December 2000, he administered
another survey among seven hundred thirty five Russian CEOs. That time he observed a
major drive towards some modern instruments of HRM policies. Especially changes were
seriously brought down in the recruitment and staffing policies. However, an additional
survey, devoted to the source of innovations in HRM, revealed that most HRM innovations
were implemented on a trial and error basis, without reference to international practices.
Despite the need to implement new forms of HRM, personnel departments in Russian
industrial companies were mostly preoccupied with routine functions of personnel
administration—performance appraisal, retraining, quantitative and qualitative planning of
the workforce.

Marrewijk and Timmers (2002) outlined the most important trends in corporate social
policies, as far as they had implications for personnel policies. They concluded in their study
that in addition to the traditional personnel and human resource management (HRM), there is
a need for a new approach to personnel management, which is called as Human Capital
Management (HCM). HCM emphasised an alignment between the individual and the
organization and in their view, this offered the challenge and the key to successful
management in the future.

Taylor and Walley (2002) designed a matrix to categorise the organisations as sleepers,
doers, thinkers, strivers or leaders according to their strategic intent and new HR policy
implementation as shown in the figure 2.3. As per the study, ―sleepers‖ are the organisations
with no strategic intent and no new policy implementation. ―Doers‖ are those which are with
no strategic intent but some new policy implementation. ―Thinkers‖ name had been given to
the organisations with strategic intent and no new policy implementation. The study
categorised those organisations as ―Strivers‖ which have strategic intent and new policy
implementation. However, the ―Leaders‖ are the ones which have strategic intent as well as
new policy implementation with HRM outcomes. According to the study, a form of
―hijacking‖ of HRM is taking place- that is; new policies being brought in under the auspices
of HRM are being thwarted or circumvented in practice, either for conscious gain or because

of unconscious incompetence. The study also concluded that the young Croatian managers
welcomed the new and improved HR progressive practices and identified with most of the
philosophy of HRM, apart from suspicions associated with ―mindset control‖ aspects that
they saw underpinning HRM and associated with the previous regime.

Figure 2.3
Categorising HRM in Croatia

Source: Taylor and Walley

Agarwala (2003) attempted to explore the extent of introduction of Innovative Human

Resource Practices. Twenty-one HR experts from across industry were interviewed in-depth
during this phase. The purpose was to understand the use of the term innovative in the context
of human resource practices, to identify HR practices to focus upon, to obtain examples of
innovative practices. Based on the opinion of experts interviewed, it emerged that the term
'innovative human resource practices' refers to a modification in the existing or established
human resource practices of the organization, which is new to the organization as well as
improved, even if the modification is by way of adopting or adapting the human resource

practices of other organizations. The fourteen HR practice categories were explored for
listing the innovations. These were: employee acquisition strategies, employee retention
strategies, compensation and incentives, benefits and services, rewards and recognition,
technical training, management development, career planning and development practices,
performance appraisals, potential development, succession planning, employee relations with
a human face, employee exit and separation management, and adopting responsibility for
socially relevant issues.

Bhandarker (2003) studied, ‗Building Corporate Transformation New HR Agenda‘. The

study focused on understanding the changing role of human resource in achieving corporate
transformation in India. The study analysed the four aspects of HR relating to corporate
transformation – efforts to change mindsets for corporate transformation, change in HR
practices, change in HR role and triggers for change. Data analysis was done using
parametric and non-parametric tests. Findings of the study showed that training interventions,
CEO interaction and other practices which trigger greater involvement like quality circles,
total quality management appeared to have greater impact on mindset change in employees.
In Indian organisations, HR practices like recruitment and selection, training and
development, performance appraisal and manpower planning are taking place but they are not
happening up to the desired level of the employees. New HR techniques like assessment
centre and 360 degree feedback were introduced in the organisations for talent management
but they were not getting translated into the organisational system. For corporate
transformation, CEO support and high HR status were essential to change the mindsets in the
company, whereas higher HR status and increased line support together help to bring change
in HR practices. Thus, HR status was found to be a key factor to facilitate change in
mindsets, change in HR practices as well as in creating a pro-change orientation in the
company. The role of HR professional was changing to an above average extent. HR
practices like performance appraisal and training and development were being changed more
as compared to recruitment and selection and manpower planning. The focus was on training
and development so as to build appropriate skills and mindsets among employees.

Sheehan et al. (2006) reviewed, ‗Current Developments in HRM in Australian

Organisations‘, to report on current developments in the area of human resource development
in Australia. The objectives of the study were to examine whether the educational levels of

HR professionals increased continuously, to study the current key elements of HR role and to
study Australian organisational policies and practices to attract the talent. The study explored
the reactions of HR professional to possible changes in their role. The frequency data reveals
that only nine percent of respondents report no change in their role, 84 percent of respondents
agreed that they had to acquire a new set of skills in response to the transition from personnel
to HRM. A total of 80 percent of respondents also claimed that the changes had made their
job more rewarding. Results confirm that organisations are working to attract talent. Low
responses were also identified in the areas of career management and development. Study
revealed that organisations are giving importance to discussing and documenting employee
progress both at management and non management level. Study indicates that quite low
attention is paid towards job design, job analysis and team building. The finding suggests that
organisational structures are adapting and providing HR with an opportunity to participate at
senior level.

Radjamanogary (2006), in his article ―Globalization and its Impact on HRM in corporate
sector‖, studied the impact of globalization on HRM Practices and discussed the restructuring
of HRM practices in the context of globalization. He further added that, the HRM practices in
today‘s globalized era have to move beyond the boundaries of culture, geography, and
language. HRM practices such as training and development, performance appraisal,
communication, etc., need to be restructured in order to develop the organisations.

Som (2006), tried to understand how innovative HRM practices were being adopted by
Indian firms to brace competition in the post liberalization scenario with the help of eleven
in-depth case studies conducted over a period of 5 years (1998-2003) in eleven large Indian
organisations in nine industries. According to this study, the liberalization of the Indian
economy created a dynamic business environment that had resulted in hyper-competition. To
face this hyper-competitive environment, organizational adaptation and alternative
adaptations of innovative practices had been put in place by firms for survival and for
sustainable corporate performance. This study attempted to examine how these Indian firms
like SBI, Arvind Mills, Infosys, Wipro corporation, Mehta group etc. had braced competition
through creative and innovative human resource management (HRM) strategies and practices
in the aftermath of liberalization of the Indian economy in 1991 and the HRM adaptations
that had been relatively more effective in this dynamic context. Each organisation, a leader in

its respective industry, has undergone extensive restructuring process to equip itself for the
impending competition that arose due to the phased deregulation, liberalisation and
privatisation initiated by the Indian government in 1991. The focus of the research was to
understand some of the innovative HRM strategies and practices that stem from functionally
logical strategic initiatives in response to a hypercompetitive, complex but opportunity-rich
environment that had opened up due to the economic liberalisation in India. A theoretical
framework of aligning effective innovative HRM strategies and practices for effective
corporate coping in a competitive market had also been done in this study.

Konstantopoulos and Alexopoulos (2007) studied the HRM practices and its changes in the
Greek dry-bulk shipping. They attempted to investigate the innovations in HRM being
adopted by them. This question began with the assumption that the changes, effectuated over
the last years in the human resources market of the Greek dry-bulk shipping, had given rise to
those conditions that were known during the redesigning of processes, or business structures,
or while other kinds of business changes were taking place- with the general title of human
resource resistance to change. In other words, they assumed that whatever change happened,
it could not be followed by the automatic changes of the cognitive mechanisms and the
correlative automatization of behaviours in order for human resources to be directly adapted
to the new conditions. They found that the captains of dry-bulk ships dealt with the demands
of globalized market, either by using old-fashioned practices, or modern innovative
processes. Therefore, to generalise this result, they preferred the use of old as well as the new
innovative HR related processes wherever applicable.

Zheng et al. (2009) studied innovative HR practices in China. This study showed how the
understanding of human resource management practices, which have been adopted in the
emerging markets such as that in China, was particularly interesting to academia and
management practitioners. The main purpose of this study was to shed some light on the
implementation of innovative HR practices among seventy four Chinese small and medium-
sized enterprises (SMEs) and to explain how the HR practices influence their firm
performance. According to this study, about 30 years‘ economic reform in China had led
many changes in management practices at the enterprise level, including HR practices. A
considerable deregulation of the employment system had increasingly shifted staffing
allocation by state agencies to enterprise-based recruitment and selection from the labour

market. The remuneration system had also been changed with more focus on motivation and
compensation mechanisms aimed at improving organizational efficiency and performance
than previous emphasis on social and economic egalitarianism (Zhu and Dowling, 2000;
Warner, 2004; Ding et al., 2006). All such innovations needed to be analysed from different
points of views. The relationship studied in this paper was concluded in a figure 2.4 shown

Figure 2.4
Relationship between Innovative HR practices and Performance

Source: Zeng et al (2009)

Cluster analysis was used to group Chinese SMEs according to their adoption of
innovative human resource (HR) practices and examine how the practices are associated with
HR outcomes and firm performance. The results from the hierarchical cluster analysis
indicated the existence of a three-cluster solution. The first cluster had a high representation
of small firms that emphasize free market selection, performance-based pay and employee
participation. This group of firms had not yet implemented all of the innovative HR practices
(e.g. training and development and performance evaluation). The second cluster consisted of
firms that employed almost the full range of innovative HR practices. The third cluster
consisted of enterprises that emphasized more traditional personal management practices. It
was found that the membership of clusters is influenced by several factors, including
ownership, age and size of firms. These characteristics had influenced the motivation,
capacity and ability of firms in the sample to adopt high performance human resource

practices. The extent to which firms had adopted innovative human resource practices was
shown to be closely associated with human resource outcomes and firm performance. From
the cluster analysis under this study, it was apparent that innovative HR practices among
growth-oriented SMEs in China include performance-based pay, training and development,
performance evaluation, encouragement of employee participation in decision making and
strategic recruitment and selection. These were the practices adopted by the cluster of firms
that were achieving the best HR outcomes and improved firm performance. Another key
implication of this research was that domestic and collective owned enterprises (private
sector firms) that wish to improve their firm performance should focus on using the HR
practices that are more commonly adopted by the innovative firms (i.e. performance
evaluation, training and development, provision of social benefits), though they were
potentially more costly to adopt. State-owned enterprises (public sector firms) should also
focus on implementing a wider array of innovative HR practices to improve growth potential.

Racelis (2009) mentioned in his conference paper that high performance work practices
include comprehensive employee recruitment and selection procedures, incentive
compensation and performance management systems, and extensive employee involvement
and training. It has been argued that these practices can improve the knowledge, skills, and
abilities of a firm‘s current and potential employees, increase their motivation, reduce
shirking, and enhance retention of quality employees while encouraging nonperformers to
leave the firm (Huselid, 1995).

Barman and Singh (2010) studied HR innovations out of recession by applying an

appreciative text analysis of existing literature. In this study an attempt was also made to find
out the fulcrum of innovation in the referred literatures with the support of email survey.
According to these researchers, ―Recession is about the creative Human Resources
Management. The HRM Function is asked to bring new ideas, to change the HRM processes
and to develop or change the procedures. And this effort has to be cheap or it has to cut the
costs of the organization. The HRM Innovation is easy in times of the business growth, but
the recession is not good for big innovative HRM Initiatives.‖ Through analytical text
mining, the researchers found out the basic contents for HR innovations those are extremely
relevant to corporate context and then the contents were contextualized to bring to limelight
of post crisis HRM scenario. The selected contents were finalized to verify in the post crisis

context; than framed as questionnaire which was used for the survey. The study confirmed
that the essential points, especially in post-recession period, are the ability to take a broader
view of the business and to articulate the impact of HR initiatives on the bottom line.

According to Mishra and Pallavi (2010), the companies are taking up people related
initiatives as there is a need to manage human resources advantageously, so as not to lose the
competitive edge in talent that they have built. Innovative HR practices thus help in building
competencies and capabilities of the workforce. In managing their human resources,
companies had time and time again focused on values, invested in personnel, emphasized on
meritocracy and consequently attaining excellence in HR processes. Innovative HR Practices
by organisations can be witnessed, in recruitment and selection, reward and recognition,
motivation, cost-cutting, training, performance appraisal, etc. Such HR practices have been
said to be quite important so as to retain the best talent in an organization so as to cut the cost
in such a competitive environment.

Sharma et al. (2010) concluded in their article that, the modern HRM is striving to adopt
strategic HRM Practices such as open door policy, balanced scorecard, etc. HRM must follow
the latest trends in order to improve the organisational culture.

Ayanda (2012) conducted a study on the innovative HRM practices in Nigerian banking
sector. The effect of innovative HRM practices on the financial performance of banks in
Nigeria was examined in this study. Results indicated that strategic integration and
devolvement of HRM were practiced to a moderate extent in the Nigerian banking sector.
Findings also showed that innovative HRM practices as represented by innovative HRM
alignment, documented HRM strategy, committee membership, line management
devolvement and line management training had significant positive effect on firm‘s financial
performance. The study also recommended that organizations should pay more attention to
the implementation of innovative HRM practices with a view to improving the degree of their
impact on firm‘s financial performance.

Jain et al. (2012) highlighted the extent to which innovative HRM practices were being
adopted by both Indian and foreign firms operating in India. Their research also examined
perceptions of Indian HR managers about ‗ideal‘ staffing practices. A mixed methodology

comprising of qualitative case studies and an on-line survey helped to address both the
research questions. Three case studies were conducted to explore the different types of
innovative HR practices prevalent among technologically intensive MNCs operating in India.
A similar number of case studies were also conducted of Indian MNCs. The results showed a
difference in the way the foreign firms see its human resource management innovations
(HRMI) in contrast to the way Indian firms do. There was a greater emphasis on parent
subsidiary alignments in foreign MNCs something that Indian MNC had less as a concern. As
per the study, the Indian MNCs were clearly focused on managing performance from within,
and had put in place innovative culture building practices. In contrast, foreign MNCs
emphasised on keeping the balance between parent and subsidiary and looked for HRMI
practices from across their subsidiaries in various global areas. Foreign MNCs also tended to
be conscious of the cost and performance aspects more than Indian MNCs.


2.3 Impact of HRM practices on performance

Dyer and Reeves (1995) reviewed much of the existing research on the relationship between
HR practices and performance and proposed that measures of performance could be broken
down into four categories. First, employee outcomes dealt with the consequences of the
practices on employees such as their attitudes and behaviour, particularly behaviour such as
absenteeism and turnover. Organisational outcomes focused more on operational measures of
performance such as productivity, quality and shrinkage, many or all of which would be
precursors to profitability. Financial/accounting outcomes referred to the actual financial
performance measures and include expenses, revenues and profitability. Finally, market-
based outcomes reflected how the financial markets value a firm, particularly stock price or
its variations.

Huselid (1995) examined the relationship between HR practices and corporate turnover,
profitability, and market value. He surveyed senior HR executives in a sample of 968 public
corporations in the United States, regarding the percentage of employees who were covered
by a set of HR practices he considered representative of a High Performance Work System
(HPWS). After controlling for a number of variables, he found that his HR index was
significantly related to the gross rate of return on assets (a measure of profitability) and
Tobin‘s Q (the ratio of the market value of a firm to its book value).

Macduffie (1995) tested two hypotheses using a unique international data set from a 1989-90
survey of sixty two automotive assembly plants that innovative HR practices affected
performance not individually but as interrelated elements in an internally consistent HR
"bundle" or system; and that these HR bundles contributed most to assembly plant
productivity and quality when they are integrated with manufacturing policies under the
"organizational logic" of a flexible production system. The survey data tested three indices
representing distinct bundles of human resource and manufacturing practices. The analysis of
the survey data supported both the hypotheses. Flexible production plants with team-based
work systems, "high-commitment" HR practices (such as contingent compensation and
extensive training), and low inventory and repair buffers consistently outperformed mass
production plants. Variables capturing two- way and three-way interactions among the


bundles of practices were even better predictors of performance, supporting the integration

Delery and Doty (1996) examined the relationship between HR practices and profitability in
a sample of banks in the U.S. They identified three different ways of analysing the link
between HR practices and organizational performance, which they labelled as the
universalistic, the contingency and the configurational approach. The universalistic approach
focused on the effectiveness of individual HR practices, irrespective of each other or the
wider context, whereas the basic premise of the contingency approach was that HR policies
needed to be in line with the context in which they operated to have beneficial effects. The
configurational approach focused on how ‗patterns‘ of HRM practices (rather than single
practices) were related to dependent variables.

Delaney and Huselid (1996) studied the impact of HRM practices on the perceptions of the
organisational performance. The perceptions of the organisational performance were
measured through two ways i.e. perceived organisational performance and perceived market
performance. The perceived organizational performance measure comprised of product
quality, customer satisfaction, and new product development. The perceived market
performance variable focused more minutely on economic outcomes such as profitability and
market share. In this study seven items provided a reasonably broad reflection of the
progressive HRM practices that were identified through the literature. This study was carried
out in five hundred ninety profit motive and non-profit motive firms from the National
Organizations Survey. The researchers found positive associations between human resource
management (HRM) practices, such as training and staffing selectivity, and perceptual firm
performance measures. Results also suggested methodological issues for consideration in
examination of the relationship between HRM systems and firm performance.

Becker et al. (1997) suggested that business strategies drove the design of the HR system.
HRM practices directly impact employee skills, employee motivation and work designs
which consequently influence employee‘s creativity, productivity and discretionary
behaviour. These variables, in turn, resulted in operational performance, related to
profitability and growth, ultimately determining firm market value.


According to Guest (1997), the expectancy theory of motivation provided one possible basis
for developing a more coherent rationale about HRM-Performance link. The theory proposed
that performance at individual level depended upon high motivation, possession of the
necessary skills and abilities and an appropriate role and understanding of that role. This
conclusion was a motive to choose such HRM practices that encouraged skills, motivation
and an appropriate role structure as only those HRM practices impact HRM outcomes. These
factors influenced behaviour outcomes, which translated into performance outcomes, which
then resulted in financial outcomes.

Ichniowski et al. (1997) investigated the productivity effects of innovative employment

practices using data from a sample of thirty six homogeneous steel production lines owned by
seventeen companies. They gathered human resource management data by conducting
standardized interviews with HR managers, labour relations managers, operations managers
of the finishing lines, superintendents, line workers, and union representatives in organized
lines. Supporting information was collected from personnel files, personnel manuals,
collective bargaining agreements, and other primary source documents. They then, used this
information from the interviews and supporting documents to answer survey-type questions
about the HRM practices and then to construct a detailed set of HRM dummy variables. The
evidence, derived from unique monthly panel data on productivity and HRM practices in a
homogeneous sample of production lines, showed that innovative HRM practices raised
worker productivity. The productivity regressions demonstrated that lines using a set of
innovative work practices, which include incentive pay, teams, flexible job assignments,
employment security, and training, achieved substantially higher levels of productivity than
do lines with the more traditional approach, which included narrow job definitions, strict
work rules, and hourly pay with close supervision. Thus, the preponderance of the evidence
suggested that, in these steel finishing lines, innovative employment practices tended to be
complemented, as was proposed in the recent theoretical work on optimal incentive

Rogers and Wright (1998) reviewed the empirical research on the HR performance
relationship, surveying twenty nine studies reporting eighty ‗effect sizes‘ (i.e. reported
statistical relationships between HR practice and performance measures), and noted two
particularly relevant trends. First, although strategic HRM focused largely on the link

between HR and business strategy, the largest bulk of research had been conducted at the
corporate level of analysis. A lesser amount of research had used the establishment level.
Almost entirely ignored was research on the link between HR and performance at the
business unit level of analysis. Secondly, with regard to the types of performance outcomes,
they found that very few studies had examined HR outcomes (three effect sizes examined
turnover), many had used accounting and financial market measures, and the largest number
of effect sizes was observed for organisational outcomes (productivity, quality, service etc.)

Anantharaman and Abdul (1999) also studied a relationship of HRM and organisational
performance. An attempt was made to find the inter-correlation between human resource
management practices and perceived organisational performance for executives and non-
executives. Study showed that perceived organisational performance is positively related to
employment security, selection in recruiting, information sharing, employee participation and
empowerment, self managed teams, training and development, cross utilization and cross
training, symbolic, egalitarianism and wage compensation in the case of executives as well as
non- executives. Perceived organisational performance is not related to human resource
management practices such as, high wages, incentive pay, employee ownership and
promotion within for managers. The results of investigation showed that executives and non-
executives did not perceive the human resource management practices differently. Overall,
the study supports positive relationship between HRM practices and perceived organisational
performance (POP), thereby adding to the growing empirical evidence suggesting that people
are preeminent resource and the key to outstanding performance.

Harel and Shay (1999) conducted a study on ‗The Effect of Human Resource Management
Practices on the Perceptions of Organisational and Market Performance of the Firm‘. The
purpose of the study was to examine the firm-level impact of human resource management
practices. Human resource management practices like recruitment, selection, compensation,
participation, and training were considered as independent variables. These were also
measured by using ranking scale. The results depicted that the correlation between two
dependent variables – organisational and market performance was 0.67. The organisations
which invest in training, base compensation on performance, encourage employee
participation, use the internal labour market for the purpose of recruitment and employee
mobility had significantly higher organisational performance. The second dependent variable

- market performance was found to be related significantly to selection activities, training and
compensation. The single independent variable found to be statistically significant was
training. In case of perceived market performance it was found that in addition to training
practices, employee selection practices also significantly affected the perceived market

Wood (1999) reviewed the various studies on HR systems and performance and analysed the
conceptual dimensions of the debate concerning HRM and performance. This showed that the
issues go beyond a simple competition between universalism and contingency theory. There
were more complicated hypotheses linking human resource practices beneath the surface of
the recent literature. One part of the study also overviewed the studies in the light of these
hypotheses, revealing that they presented an uneven picture. Firstly, there were conceptual
differences underlying the studies and, secondly, the results varied between them, and the
effects of HRM vary between performance measures even in particular studies. Though a fair
number of the studies claimed to support universalism, their claims were not always
unequivocally supported by their research evidence, and it was premature to conclude in its
favour, according to the researcher.

Amba-Rao et al., (2000) in an empirical study compared performance appraisal practices and
management values among foreign and domestic firms, which included three global Indian
companies with two hundred thirty five managers. They suggested that managers of
organization needed to adapt selectively depending on the basis of ownership structure of an
organization. Their study also gave evidences of positive linking of Human Resource
Management Practices with organizational performance.

Bartel (2000) extended the analysis of the relationship between the human resource
management environment and establishment performance to the service sector by examining
the branch operations of a large Canadian bank. A unique dataset collected through site visits
was created for this research project. The econometric analysis showed that, controlling for
the characteristics of the market in which the branch was located and the characteristics of the
branch employees, as well as unobserved branch-specific and manager-specific
characteristics, the human resource management environment at the branch, as measured by
the quality of the performance feedback system and the quality of communications between

the manager and the staff, had significant effects on the branch‘s performance, especially its
sales of loans. An important finding from this study was that, even though all managers in
this bank were given a formal set of human resource policies, they appeared to have
considerable discretion in their application. The evidence in this paper also supported the
notion that branch-level performance in the banking industry can be improved if managers
undertake specific human resource management-related actions.

Boselie et al., (2001) aimed to test empirically the impact of eight HR practices on employee
performance in a developing country: Indian commercial banks. This was crucial for
developing appropriate management practices. The increased probability of having to manage
in an international situation demanded the conduct of more comparative HRM research.
Boxall, 1995; Budhwar and Debrah, 2001; Budhwar and Sparrow, 2002; Den Hartog and
Verburg, 2004 also supported the same facts in their studies.

Fey and Björkman (2001) investigated the relationship between human resource management
(HRM) and the performance of one hundred one foreign-owned subsidiaries in Russia. The
study‘s results provided support for the assertion that investments in HRM practices can
substantially help a firm perform better. Further, different HRM practices for managerial and
non-managerial employees were found to be significantly related with firm performance.
However, only limited support is obtained for the hypothesized relationship between efforts
at aligning HRM practices with firm strategy and subsidiary performance.

Guthrie (2001) examined the impact of HR practices on turnover and firm productivity
among a sample of firms in New Zealand. He used performance data from 1996-97 but asked
respondents during that time to report the practices that existed during 1995-96. He noted that
HR practices had an impact on turnover, and that the relationship between retention and
productivity was positive when firms implemented high-involvement HR practices, but
negative when they did not.

Supangco (2001) studied the relationship between sophistication of HRM plan and perceived
organizational performance; the relationship between sophistication of HRM plan and the
degree to which companies undertake practices with high strategic value; and the relationship
between strategic value of human resource activities and perceived organizational

performance. Her work focused on HRM systems that have great strategic value. Her
findings supported all the hypotheses that all three relationships were positive and significant.

Agarwala (2003) attempted to explore the importance of innovative human resource practices
for organizational goal achievement and satisfaction with their implementation along with
their association with organizational commitment. Results of the regression analyses showed
that the perceived extent of introduction of innovative human resource practices by the
organizations was the most significant predictor of organizational commitment. This
suggested that higher the extent to which employees believed that innovations in HR
practices were important for achieving the goals of their organizations and the higher the
extent to which IHRPs had been introduced by their organizations in their opinion, the higher
was their identification with the organization.

Ahmad and Schroeder (2003) investigated the effects of selective hiring, employment
security, decentralization and use of teams, incentive and compensation, extensive training,
status differences, and information sharing on organizational performance (quality, cost,
flexibility, delivery and commitment). The study confirmed the positive and significant
relationship of HRM practices with firms‘ operational performance.

Collins and Clark (2003) explored the black box between human resources (HR) practices
and firm performance. Specifically, they examined the relationships between a set of
network-building HR practices, aspects of the external and internal social networks of top
management teams, and firm performance. Results from a field study with seventy three
high-technology firms showed that the relationships between the HR practices and firm
performance (sales growth and stock growth) were mediated through their top managers‘
social networks. Their results also suggested that future strategic human resource
management research should continue to examine employee-based and other firm capabilities
that may act as mediating links between HR practices and performance.

Cunha et al. (2003) studied the impact of HRM practices on organisational performance in
European companies. This study used structural equation modelling to test a model of the
impact of human resources management practices on perceived organizational performance,
on a large sample of European companies. The survey was organized around six sections

covering the personnel/human resource function, staffing, employee development,

compensation and benefits, employee relations and communications, and organizational
details. The influences of competitive intensity, industry attractiveness and strategic
management were considered in the model, and their direct and indirect influence on
organizational performance was assessed. The model produced an adequate fit and results
showed that strategic management did influence human resource practices. Human resource
flexibility practices and performance management had a positive impact on organizational
performance, while training was not found to have a significant impact. A direct positive
impact of competitive intensity and industry attractiveness on strategic management was
supported by the data, as well as a direct positive effect of industry attractiveness on
perceived organizational performance.

Kaynak (2003) developed a structural equation model of potential effects of HRM and TQM
on perceived financial, market and operating performances relative to the competition, which
was tested on a sample of US manufacturing and service firms. In contrast to most studies,
the model showed some integration between QM and HRM, for instance, management
leadership was a latent variable that loaded on HRM and quality management practices.
Results supported all paths in the model, and the author concluded that a range of TQM
practices had positive effect on firm performance and thus practitioners as well as researchers
cannot simply pick and choose a few techniques to implement.

Guest et al. (2003) explored the relationship between HRM and performance in three hundred
sixty six UK companies using objective and subjective performance measures and cross-
sectional and longitudinal data. Human resource management was measured through 48 items
in the interview schedule for HR managers. They covered nine main areas of HRM:
recruitment and selection; training and development; appraisal; financial flexibility; job
design; two-way communication; employment security and the internal labour market; single
status and harmonization; and quality. Using objective measures of performance, greater use
of HRM was associated with lower labour turnover and higher profit per employee but not
higher productivity. After controlling for previous years‘ performance, the association ceased
to be significant. Using subjective performance estimates, there was a strong association
between HRM and both productivity and financial performance. The study therefore


confirmed the association between HRM and performance but failed to show that HRM
causes higher performance.

Wright et al. (2003) examined the impact of HR practices and organisational commitment on
the operating performance and profitability of business units. They have examined the
relationships of both HR practices and organisational commitment with various operational
measures of performance using a predictive research design. Employee attitude surveys were
conducted and related to subsequent performance measures collected in the three to nine-
months timeframe after the survey data was collected. The sample consisted of 5,635
respondents of fifty business units of a large food service corporation with operations in the
United States and Canada. Employee respondents in each work unit were asked whether or
not nine specific HR practices existed for their job category (1 = ‗Yes‘, 2 = ‗No‘, 3 = ‗I don‘t
know‘). Five items were used from two different organisational commitment scales (Meyer
and Allen, 1997; Porter et al, 1974). Six measures of performance were provided from
archival company records. The results revealed that HR practices were strongly related to
organisational commitment. And finally both organisational commitment and HR practices
were significantly related to operational measures of performance, as well as operating
expenses and pre-tax profits.

Budhwar and Boyne (2004) studied the gaps between Indian Private and Public Sector
Human Resource Practices. They found that the gaps were not significant with respect to
structure of Human Resource Departments. Both Public and Private Sector organizations had
key Human Resource Strategies like- recruitment and selection, pay and benefits, training and
development, and employee relations but both the sectors adopted different approaches with
respect to few functional areas like compensation, training, and development. Researchers
finally stated that Private Sector organizations had more rational approach than their Public
Sector counterparts.

Audea et al. (2005) examined the extent of adoption of human capital-enhancing human
resource (HR) and industrial relations (IR) practices. Differences between locally owned and
other organizations in these practices and their relationship to firm performance were also
investigated. Questionnaire responses were obtained from managers and union
representatives from one hundred twenty eight organizations located in the Philippines. The

results indicated that there was, on average, a fairly high level of adoption of practices
consistent with a strategic approach to human resource management (HRM), with foreign-
owned firms tending to show a slightly higher level of adoption of such practices. A scale
representing the adoption of a more conciliatory and union-friendly IR approach was found to
be a significant predictor of perceived firm performance. Surprisingly, the level of strategic
integration between HRM and business planning and most human capital-enhancing HR
practices was not significant predictor of perceived firm performance.

Datta et al. (2005) included two primary perspectives to study the impact of HRM practices
on firm effectiveness. A universal approach and a contingency approach were used to model
the link between the HRM and firm effectiveness. Those using the universal approach had
posed a positive relationship between ‗Best practice‘ HRM and firm performance. In contrast,
the contingency model had proposed that the extent (or even direction) of the effect of the
HRM on the firm performance would depend on the firm‘s environmental conditions. This
study also observed significant contingency effects, with industry characteristics influencing
the degree of the high performance of the HRM practices impact on labour productivity.

De Grip and Sieben (2005) analysed whether employees and firms are differently benefitted
from particular human resource (HR) practices. The focus of this study was mainly on small
firms that might be badly informed on the impact of HR practices on firm performance. In
this study on Dutch pharmacies, it was found that firms did not reward employees‘ skills
according to their contribution to firms‘ productivity, as (1) employees were over-rewarded
for their sector-specific skills and under-rewarded for the productivity enhancing effect of
their computer skills and (2) employees‘ work experience positively affected their wages but
did not have real productivity effects. Moreover, it was found that training employees in case
of vacancy problems seemed to be an adequate HR practice, since it increased productivity
without affecting the average wage level. The opposite held for offering higher wages to
newly recruited employees. Furthermore, it was also found that only the employees were
benefitted from performance evaluation interviews, whereas employing many employees by
temporary contracts appeared to have a negative effect on productivity, without affecting the
wage level.


In a study of managers from Taiwan and Cambodia, Sang (2005) concluded that workforce
planning; staffing; compensation, and incentives; teamwork; training, and employee security
had a positive and significant influence on non-financial and financial dimensions of
organizational performance. The study validated the positive effects on operational
dimensions of performance, namely, production flexibility, product cost, product quality, and
product delivery.

Wall and Wood‘s (2005) analysis of twenty five leading studies focusing on human resource
management and performance showed that twenty one were purely cross sectional and many
used subjective performance measures. Two studies (Guest et al., 2003; Huselid et al., 1997)
were described as ―quasi-longitudinal,‖ relating use of the practices at a given point of time to
change in company performance from a prior occasion to a subsequent one (as was the case
for Patterson et al., 2004). They also identified a number of methodological priorities for
human resource management research that apply equally to the current concerns. In addition
to stressing the need for studies that span other areas of management, they argued that first,
independent measures of organizational performance (i.e., from financial accounts) should be
used. Second, studies should have large samples, to improve generalizability and ensure
sufficient power, especially in the testing of interaction effects. Third, use should be made of
longitudinal designs involving the repeated measurement of performance before and after the
introduction of practices.

Biswas et al. (2006) analysed the several factors which have vital impact on individual
performance and organisational effectiveness, during post-liberalization period. The
participants of the study were managerial executives from nine different firms in India. Data
were collected from three hundred fifty seven participants from which one hundred eighty
belonged to the manufacturing sector, whereas one hundred seventy seven were from service
sector organisations. From results, it was found that organisational culture, as well as
organisational structure was significantly correlated with HR practices. At the same time HR
practices were significantly correlated with employee performance, as well as organisational
effectiveness respectively. The causal relationships between the variables in the model were
tested by using regression analysis. The regression estimates for the key variables showed
that the organisational culture had a significant impact on HR practices. Organisational


structure also had a significant effect on general employee performance and organisational

Collins and Smith (2006) developed and tested a theory of how human resource practices
affect the organizational social climate conditions that facilitate knowledge exchange and
combination and resultant firm performance. A field study of one hundred thirty six
technology companies showed that commitment-based human resource selection, training
and development, and incentive practices were positively related to the organizational social
climates of trust, cooperation, and shared codes and language. In turn, these measures of a
firm‘s social climate were related to the firm‘s capability to exchange and combine
knowledge, a relationship that predicted firm revenue from new products and services and
firm‘s sales growth.

Lambooij et al. (2006) conducted a study and addressed the question as to whether the
linkage between HRM and organisational performance could be explained by the effect of the
internal and strategic fit of HRM on the cooperative behaviour of employees. They were of
the viewpoint that the more HRM practices were aligned within themselves (internal fit) and
the more HRM was aligned with an organisation‘s strategy (strategic fit), the better
employees knew what was expected of them, and the more they behaved cooperatively
towards their co-workers and towards their supervisor. For this, they hypothesised that the
cooperative behaviour of employees was positively related to the financial and non-financial
performance of the organisation. These hypotheses were tested using multilevel regression. It
was found in this study that cooperation with co-workers was negatively related to turn over
and positively related to sick leave. No support was found, however, for the hypothesis that a
better internal and strategic fit led to more cooperative behaviour on the part of employees.

Legge (2006) discussed how to measure the outcomes of Human Resource Management. He
used following measures for the same:
 Financial outcomes measured as profits, sales and market share;
 Organizational outcomes measured such as productivity, quality and efficiency;


 Human Resource related outcomes measured with the help of attitudinal and
behavioural impacts on employees such as- satisfaction, commitment and job
Different studies supported the use of these measures at different points of time.

Shahnawaz and Juyal (2006) explored and compared various HRM practices in two different
organizations—consultancy/research based organization and fashion industry. This study also
aimed at assessing how much of commitment in the two industries could be attributed to
HRM practices. HRM practices were measured in terms of attitude towards HR department,
hiring practices, training and development practices, performance appraisal practices, pay
practices, and overall assessment through a scale of 75 items. The organizational commitment
was measured by 18 items scale 6 each on affective, continuance and normative commitment.
Data were analyzed by t-test and multiple regressions. HRM practices were found
significantly different in two organizations and mean scores on various HRM practices were
found more in the fashion organization. Regression results showed that various HRM
practices were significantly predicting organizational commitment in two organizations and
also when they were combined. Performance appraisal and attitudes towards HRM
department were the significant predictors of organizational commitment in the both the

Sels et al. (2006) conducted a study with the purpose to develop and test a conceptual frame-
work linking HRM to financial performance that fits small businesses. The central question
of the study was whether the development of an intensive HRM is profitable for smaller
organizations. Using structural equation modelling, they studied the mediating effect of
voluntary turnover and productivity on the relationship between HRM intensity and one year
lagged financial performance. The results showed both productivity and profitability
enhancing effects as well as a cost increasing impact of HRM intensity. It was concluded that
HRM intensity had a strong positive effect on productivity and, through this productivity, a
squeezing effect on personnel costs/value added. However, this effect was not strong enough
to compensate for the cost increases which HRM intensity involved. On the other hand, the
total effect of HRM intensity on profitability was positive and very strong. This effect could
be explained by the positive impact of HRM intensity on some non- measured operational
performance outcomes such as a lower level of disputes, better quality and/or more

innovation. Another observation was that the positive impact of HRM intensity on
profitability was not at the expense of a deteriorated solvency and liquidity score.

Tessema and Soeters (2006) examined how, when and to what extent HR practices affect
performance at the employee level. As performance is a multi-faceted and complicated
concept, HRM outcomes were used as mediating factors between HR practices and employee
performance. The data was collected from civil servants in Eritrea, Africa‘s youngest and
poorest country. The questionnaire administered for this study contained eight HR practices,
which included: recruitment and selection practices, placement practices, training practices,
compensation practices, employee‘s performance evaluation practices, promotion practices,
grievance procedures, pension programme (social security). Their results demonstrated a
strong HRM–performance link in the Eritrean civil service. In the authors‘ opinion, it can be
concluded that if the civil service organizations in developing countries like Eritrea were able
to successfully implement HR practices, they could achieve the maximum contribution of
their employees, although, at that time, the economic and political environment within which
HR practices operate was not that conducive. These findings highlighted the situation of most
of the developing countries.

Wright and Nishii (2006) examined some of the mediating processes that might occur in
HRM-Performance relationship by examining the relationship at multiple levels of analysis.
They presented the model that included intended HR practices, actual HR practices,
perceived HR practices, employee reactions and performance. According to the model, the
actual HR practices exist objectively and must be perceived and interpreted subjectively by
each employee. Thereby, the perceived HRM practices and employee reactions were two
individual level variables that were central to causal pathways and core to the ―black box‖
opening. Based on the perceived HR practices, employees would react in some way, which
impact organizational performance.

Andersen et al. (2007) studied the effect of SHRM practices on perceived firm financial
performance. ‗Strategic HRM alignment‘ with business objectives and strategies was
measured by 10 items, each rated on a 5-point scale. Four items were developed to measure
‗Perceived firm financial performance‘: 1) return on equity (ROE), 2) return on assets
(ROA), 3) market growth, and 4) profitability. The survey research findings indicated that

strategic integration and devolvement of HRM were practised to a moderate extent in the
firms sampled. The study also found evidence for a positive relationship between the degree
of strategic alignment of HRM with business strategies and a perceptual measure of firm
financial performance.

Chand and Katou (2007) conducted a study on hotel industry of India with a two-fold
purpose: to investigate whether some specific characteristics of hotels affected organisational
performance in the hotel industry in India; and to investigate whether some HRM systems
affected organisational performance in the hotel industry in India. A total of four hundred
thirty nine hotels, ranging from three-star to five-star deluxe, responded to a self-administered
questionnaire that measured 27 HRM practices, five organisational performance variables,
and ten demographic variables. Organisational performance was measured with sales growth,
productivity, profitability, goal achievement, and good service quality, in the form of
perceived opinions of the survey respondents. Factor analysis was performed to identify
HRM systems and the HRM practice items were factored into six factors. One-way ANOVA
was employed to test the association of the demographic variables with organisational
performance, and correlation analysis was used to test the relation between HRM systems and
organisational performance. The results indicated that hotel performance was positively
associated with hotel category and type of hotel (chain or individual). Furthermore, hotel
performance was positively related to the HRM systems of recruitment and selection,
manpower planning, job design, training and development, quality circle, and pay systems.

Fey et al. (2007) investigated the extent to which different human resource management
practices (HRMP) worked better in different companies of Russia, USA, and Finland. They
also tried to open up the black box between HRM practices and firm performance by
considering how HRMPs affected firm performance. Training, appraisal, promotion,
compensation and communication were the five HRM practices included in this study. The
study utilized a unique data set consisting of subsidiaries of two hundred forty one companies
operating in Russia, USA, and Finland. In the partial least square analysis used to examine
the hypotheses, they demonstrated that different systems of HRMPs were preferable in
different countries. It was also found that the motivation and ability were important mediating
variables in the HRMP-performance relationship.


Simon (2007) presented a quantitative case study of a large financial services organization
and explored the possible links among HR and individual and business unit levels of
performance. Though being highly exploratory, the study raised a set of issues that might
challenge some of the SHRM well-established statements such as the assumption of a direct,
linear relationship between HR practices and business results, or the use of financial ratios as
suitable indicators of the efficiency of people management practices. A set of correlation and
multivariate discriminant analyses were carried out using a number of general human capital
variables and a set ‗lagging indicators‘ of HR policies and performance levels using
individual productivity, adequacy, potential, branch financial performance and customer
relationship quality as grouping variables. As regards this study, the existence of moderate
correlations between several measures of individual and business unit performance indicated
that these variables were not completely independent. However, the weakness of their linear
relationship would limit HR capability to directly influence this level of firm results, and
therefore the HR function should search for alternate measures, closer to its very own nature
and functioning. The results of the discriminant analyses supported a SHRM model in which
HR practices were not directly influencing firm performance, but rather having an impact
through their combination with a pool of human capital characteristics not clear yet at this
point of the research. At the same time, some individual performance measures did not show
a direct impact over unit analysis.

Stavrou et al. (2007) explored the HR-performance relationship within the European Union
through Kohonen‘s Self Organizing Map (SOM). It provides a visual representation of the
relationships that exist in the original data, while avoiding creating artificial clusters. It
focused on the connection between human resource management as a source of competitive
advantage and perceived organizational performance in the European Union‘s private and
public sectors. While practices in these two sectors did not differ significantly, three diverse
but overlapping HRM models did emerge, each of which involved a different set of EU
member states. Training & Development practices were strongly related to performance in all
three models and Communication practices in two. These results showed the usefulness of an
innovative technique, when applied to research, so far conducted through traditional
methodologies, and brought to the surface questions about the universal applicability of the
widely accepted relationship between superior HRM and superior business performance.


Altinay et al. (2008) seek to evaluate the relationship between the growth and the human
resource management (HRM) practices of small service firms in catering to professional
services and the retailing sectors in the UK. The study reported and analysed the findings of
196 face-to-face structured interviews with small service business owners. Findings
suggested that employee empowerment contributed to the sales growth of small firms in the
different sectors of the service industry. The study also showed that employee training and
recruitment, through formal channels, contribute to the sales growth of firms operating in the
catering sector. This study also argued that contextual variables – the extent of the
competition and the availability of the workforce – had a bearing on the HRM practices
employed by small service businesses.

Birdi et al. (2008) studied the impact of HRM and operational management practices on
company productivity in UK. According to them, within the strategic human resource
management (SHRM) perspective, empowerment, extensive training, and teamwork, were
seen as vital to sustained competitive advantage. They investigated the relative merits of the
quality management, just-in-time, advanced manufacturing technology, and supply-chain
partnering practices through a study of the productivity of three hundred eight companies
over 22 years, during which time they implemented some or all of these 7 practices. The data
were analyzed by hierarchical linear modelling (also known as multilevel modelling) because
of its natural two-level structure. They hypothesized that the introduction of each of the three
SHRM practices and each of the four operational manufacturing management practices
would independently promote company productivity. That was supported for the SHRM
practices of empowerment and extensive training, but not for teamwork. Consistent with
SHRM theory they also found performance benefits from empowerment and extensive
training, with the adoption of teamwork serving to enhance both. However, none of the four
operational practices of total quality management, just-in-time, advanced manufacturing
technology, or supply-chain partnering showed a significant effect. None of the operational
practices were directly related to productivity nor did they interact with other practices in
ways fully consistent with the notions of integrated manufacturing or lean production.

Gooderham et al. (2008) studied the relationship between HRM practices and perceived firm
performance of European firms. The impact was analyzed in 3,281 firms located in European
Union countries using data derived from the Cranet data set. 80 different HRM practices were

taken in this study. A factor analysis of these HRM practices resulted in 15 bundles of HRM
practices which were then further categorized as being either ―calculative‖, ―collaborative‖ or
―intermediary‖. While controlling for contingency factors, firm strategy, firm size, market
conditions and degree of unionization, as well as controlling for industry and country, the
resulting analysis indicated that while five of the six calculative practices and two of the three
intermediary practices had a significant impact on performance none of the six collaborative
practices had. Significantly it was further noted that the overall effect of HRM on
performance was relatively modest.

Jones et al. (2008) presented a few empirical evidences on the nature and effects of human
resource practices (HRM) in the Finnish manufacturing sector. In the analysis, they used the
novel survey on HRM practices, based on a representative random sample from the
population of the Finnish manufacturing firms which had fifty or more employees in 2005.
To study how HRM practices affect the level of firm productivity, they first combined the
HRM survey data with financial statement data and then estimated cross-sectional and panel
data estimators for the Cobb-Douglas production functions. It was found that both the
incidence of employee participation practices and the incidence of HRM tools had increased
in the manufacturing sector from 2002 to 2005. The empirical findings also supported the
view of a positive association with the HRM practices and the level of firm productivity.
Perhaps more importantly, however, major finding was that not all forms of employee
financial and decision-making participation practices had favourable productivity effects;
consultative committee and profit sharing scheme had a positive effect, but other practices
did not have statistically significant effects.

Katou (2008) measured the impact of HRM on organisational performance in the context of
Greece. Data were collected from one hundred seventy eight organisations using a
questionnaire survey in the Greek manufacturing sector, and analysed using the ‗structural
equation modelling‘ methodology. The results indicated that the relationship between HRM
policies (resourcing and development, compensation and incentives, involvement and job
design) and perceived organisational performance was partially mediated through HRM
outcomes (skills, attitudes, behaviour), and it was influenced by business strategies (cost,
quality, innovation). The study emphasized that HRM policies associated with business
strategies would affect organisational performance through HRM outcomes.

Rizov and Croucher (2008) empirically examined the relationship of HRM practices and
organizational performance in European firms. They found that collaborative form of HRM
practices characterized by valuing employees as assets and core partners, creating and
communicating a culture of partnership between employer and employees as well as among
employees, communicating organization‘s mission, values, 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.

Shahzad et al. (2008) examined the relationship between three HR practices i.e.
compensation, promotion and performance evaluation and perceived employee performance
among university teachers in Pakistan. As per the study, these three practices which have a
relatively direct impact on financial earnings and social status of an individual might be
considered the major determinants of employee‘s performance. The results of the study
indicated a positive relationship between compensation and, promotion practices and
employee perceived performance while performance evaluations practices were not
significantly correlated with perceived employee performance. The study concluded that the
Pakistani universities needed to revise compensation practices and define clear career paths to
enhance the performance of teachers.

Simon and Martin (2008) intended to open new avenues for research under implementation-
based approach. In an exploratory analysis, they proposed and tested a type of measure, the
intensity of HR practices implementation at the individual level, that had been barely used in
the HRM-performance literature (Boselie et al, 2005; Paauwe and Boselie, 2005; Dorenbosch
and Van Veldhoven, 2006). For this purpose, they worked over the complete ERP-based
datasets of two companies from different industries (banking and IT) which comprised the
quantification of the impact of a set of HR practices on an individual employee level. Their
findings showed that relevant variability differences existed at the implementation level
across companies.

Vlachos (2008) also addressed the research question how human resource management
practices contributed to organizational performance. He examined 6 HR practices: (1) job

security; (2) selective hiring; (3) self-managed teams and decentralization of decision
making; (4) compensation policy; (5) extensive training; and (6) information sharing. The
food managers in Greece were surveyed and their perceptions on HR practices and their
relation to firm performance were recorded. Results provided overall support for all HR
practices except job security. Selective hiring was found to be a key practice that improved
organizational performance. Compensation policy, information sharing, decentralization of
decision making and extensive training were significant predictors for all performance

Yeganeh and Su (2008) carried out a study to analyze HRM practices in public sector of Iran
in view of underlying cultural, political and economic factors. The study involved in-depth
interviews with four Iranian managers and data collected from eighty two respondents
through Likert-type questionnaires. The findings of the study shed light on the main HRM
functions in the Iranian public sector. They focused only on four main HRM functions:
staffing, training, compensation and appraisal. These four functions included the core of
HRM and conceptually they were relevant in the case of this investigation. Staffing was
marked by pervasiveness of networking, entitlement, compliance with Islamic/revolutionary
criteria and high job security. Compensation was described by features such as fixed pay,
ascription/seniority-based reward, and hierarchical pay structure. Training and development
programs were found to be unplanned and spontaneous. Finally, the paper showed that the
appraisal function received little attention and tended to be based on subjective and
behavioural criteria.

Dimba and K‘Obonyo (2009) studied linked strategic human resource (SHRM) practices,
cultural orientations, employee motivation and firm performance in foreign manufacturing
multinational companies (MNCs) in Kenya. One of the objectives of this study was to
establish the relationship between SHRM practices and firm performance. The respondents
were HR managers, financial managers and production managers, and non-management
employees working in fifty foreign MNCs. Data were collected using questionnaires
developed by Hofstede and Huselid and modified by the researcher. The findings of the study
indicated that all the variables of SHRM practices, except recruitment and hiring, were
positively and significantly correlated with performance of the firm.


Gellatly et al. (2009) examined how employee perceptions of development-oriented, stability-

oriented, and reward-oriented human resource management (HRM) practices affected the
likelihood of affective and continuance commitment profile membership. They described the
nature of the psychological states believed to underlie the specific profiles under investigation
and then tested a series of theoretical predictions concerning the link between HRM practices
and the likelihood of profile membership. Predictor and criterion data for this study were
collected from three hundred seventeen respondents working in a variety of Canadian-based
organizations. Their findings suggested different ways that organizations could use HRM
practices strategically to help shape the nature of overall employee commitment.

Racelis (2009), in his study, focused on studying the relationship between rewards and
recognition practices and firm performance, as well as between recruitment and retention
systems and firm performance, using a survey instrument for traditional HRM activities
(recruitment, selection, performance management, training, compensation, and employee
relations) and using independently collected organizational performance data focusing on
financial performance (assets, capital, deposits, and return on equity). The sample had been
restricted to the Philippine banking industry. The results for thirty three banks provided
modest evidence for the positive, significant relationship that existed between financial
performance and such HRM practices as recruitment from topnotch schools, administering
employment tests, assistance in career planning, and offering opportunities for professional
growth. Among the control variables having a link with HRM and organizational
performance, bank size turned out to have a significant positive relationship with bank assets,
bank capital, and deposits. This result seemed intuitive, as the size of the operation was
practically endogenous to the equation that has assets and capital as dependent variables.
Along with bank size, assistance in career planning and offering opportunities for
professional growth turned out to be highly correlated to financial performance. This might
be explained by the possibility that bank size exerted a mediating influence in the impact of
rewards and recognition, training programs and performance-based evaluations on bank
performance. Likewise, private banks seemed to exert a mild influence on the Human
Resource-Firm Performance relationship.

Vermeeren et al. (2009) conducted a study with an aim to gain insight into the relationship
between HRM and the quality of public service in order to help public organizations improve

their performance by means of better HRM policies. For the analysis two different data bases
were used. The data bases provided them with data about employee well being and data about
the performance of municipalities. The data of both surveys were aggregated on the
organizational level, with the result that data could be compared among thirty five different
municipalities in the Netherlands. Structure equation modelling was used for establishing this
relationship. Based on the secondary data analysis both hypotheses were confirmed, showing
that a) in organizations with a more performance oriented HRM system, employees had a
more positive attitude and behavior towards their job and b) organizations in which
employees showed a more positive attitude and behavior towards their job would reach better
organizational public service performance. However, the effect of job satisfaction seemed to
be somewhat ambiguous. More satisfied employees seemed to have a negative influence on
organizational performance in efficiency terms (waiting time increase), but a positive
influence on customer satisfaction with respect to service delivery (customers‘ satisfaction
with respect to employee‘s empathy increase). In the context of New Public Management
both performance indicators were persuaded.

Baloch et al. (2010) studied the HRM practices in banking sector of Pakistan with the aim to
measure the impact of three HR practices i.e., compensation practices, promotion practices
and performance evaluation practices on perceived employee performance. Data was
collected through time tested questionnaire from public and private sector bankers of NWFP,
Pakistan. Pearson Correlation and Multiple Regression were used for measuring the impact of
HR practices on perceived employee performance. The results of correlation indicated a
significant relationship between compensation practices and perceived employee
performance, promotion practice and perceived employee performance and performance
evaluation practices and perceived employee performance. Multiple regression analysis
showed that 57% percent of the variance in perceived employees' performance can be
accounted for by compensation practices, employee evaluation practices and promotion
practices, concluding that the relationship between these variables exist to a good level. This
study recommended that the private and public sector banks should pay special attention to
these three HR practices in order to ensure bankers' performance.

Giauque et al. (2010) explored the effects of human resource management (HRM) practices
in Swiss small-to-medium enterprises (SMEs). More specifically, the main objective of this

study was to assess the impacts of HRM practices developed in Swiss SMEs upon the
commitment of knowledge workers. Using data from a survey of over 198 knowledge
workers, this study showed the importance of looking closer at HRM practices and,
furthermore, to really investigate the impacts of the different HRM practices on employees‘
commitment. Results showed that organizational support, procedural justice and the
reputation of the organization might clearly influence knowledge workers‘ commitment,
whereas other HRM practices such as involvement in decision making, skills management or
even the degree of satisfaction with pay did not have any impact on knowledge workers‘

Katou and Budhwar (2010) studied with the purpose of investigating the HRM-performance
causal relationship in the Greek context. This was an empirical research based on a sample of
organisations operating in the Greek manufacturing sector. Using structural equation
modelling, the results of the study revealed that the ability to perform (resourcing and
development), motivation to perform (compensation and incentives), and opportunity to
perform (involvement and job design) HRM policy domains were moderated by business
strategies (cost, quality, innovation). Additionally, the motivation to perform was further
moderated by managerial style and organisational culture. Further, the results indicated that
the impact of HRM policies on organisational performance was fully mediated by employee
skills, attitudes, and behaviour. The study also concluded that although the motivation to
perform HRM policy domain caused organisational performance, through employee attitudes,
it might be supported that organisational performance positively moderated the effectiveness
of this HRM policy domain, raising thus the question of reverse causality.

Khan (2010) evaluated the effects of human resource management practices on

organizational performance in Oil and Gas Industry in Pakistan. A total of one hundred fifty
managers of twenty randomly selected firms from Oil and Gas Industry responded to self-
reported questionnaire that measured five HRM practices namely; training and development,
recruitment and selection, compensation and reward, performance appraisal, and employee
relation. The effects of these practices on subjective measures of performance (product
quality, productivity efficiency and overall perceived performance compared to industry
average) were examined thereon. The researchers used financial and non financial metrics to
measure organizational performance. The financial measures include profit, sales, and market

share. Non-financial measures include productivity, quality, efficiency, and the attitudinal
and behavioural measures such as commitment, intention to quit, and satisfaction (Dyer &
Reeves, 1995). Factor analysis was performed to identify human resource management
practices. Mean scores and standard deviations were used so as to know the extent to which
these practices were concurred in these firms. Regression analysis indicated a positive and
statistically significant association of these practices with organizational performance. The
results of this study concluded to the remark that 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.

Lee et al. (2010) investigated the relationship between human resource management (HRM)
practices, business strategy and firm performance in Taiwan. They examined the following
HRM practices: training and development; teamwork; compensation/incentives; HR
planning; performance appraisal; and employment security. Two hundred thirty six managers
working at steel firms in Taiwan were surveyed to explore their perceptions on the impact of
HRM practices and business strategy on firm performance. The results of this study showed
that the HRM practices were positively related to firm performance and found that there
existed a close linkage between HRM practices and business strategy. The study also
concluded that business strategies were positively related to firm performance. Another
conclusion of this study was that integrating HRM practices with business strategies were
also positively related to firm performance.

Menezes et al. (2010) reviewed the literature on the association between lean production and
performance. From this, propositions on the integration and evolution of operation and
human resource management practices associated with the lean production concept were
developed. Using 24 years of data on the use of seven core OM and HRM practices in British
manufacturing firms, the potential link between integration in the use of practices and
productivity was tested. In each year, three latent clusters were identified via ordered
restricted latent class models. The cluster, that consistently made a more integrated use of
practices, outperformed the others. Furthermore, the longitudinal nature of the data permitted
the researchers to model the growth curves of each practice in the sample, recognizing any
similarity in growth and investigating whether or not an early integration in adoption of
practices was associated with higher final productivity. The results showed that pioneers were

more productive, thus suggesting that the head start in integrating core OM and HRM
practices associated with the lean production concept had paid off.

Tsai et al. (2010) were of the view that most research on the associations between
organisational performance, employee attitudes and Human Resource Management (HRM)
practices had adopted a theoretical framework that proposed that HRM practices led to HR
outcomes (e.g. job satisfaction, skills, etc.) which in turn affected organisational performance.
Therefore they conducted a study that developed and tested an alternative view of the
association i.e. performance-attitude-HRM relationship. This model depicted the influence of
organisational performance on employee attitudes and the role of HRM practice as a mediator
between the two. It was tested using data collected from employee surveys and management
interviews in thirty two small firms. The results suggested that employees in firms with better
business performance have more positive attitudes towards three attitude measures (overall
perceptions of work, job autonomy and the perceived link between reward and performance)
and that the association between business performance and employee attitudes is partially
mediated by HRM practices. The results also indicated that the association between
performance and the attitude was contingent on HRM practices; that is, the way firm
performance influenced employees' overall perceptions of work was by the use of HRM

Qureshi et al. (2010) conducted a study to find out the relationship between ‗HRM Practices‘
and the ‗Financial Performance of Banks‘. As a sample, forty six scheduled banks of Pakistan
were contacted, of which 38 responded. Human resource managers from different banks were
contacted for information collection regarding perceived financial performance of the banks
and human resource management practices. The HRM practices selected for the research
study were selection, training, performance appraisal system, and compensation system and
employee participation. Empirical evidence was calculated through stepwise regression
analysis, Pearson correlation and descriptive statistics to support theoretical models that link
HRM practices with financial performance of banks. The study concluded that all tested
variables have a positive relation and impact on financial performance of banks but the major
contributory practices are selection, training, compensation and employee participation. This
research study explored the same results produced by Qureshi et al. (2007).


Savaneviciene and Stankeviciute (2010) defined the ―Black box‖ problem of HRM and
organisational performance. The study provided an overview of a number of conceptual
models (Becker, Huselid, Pickus, Sprat, 1997; Guest, 1997; Purcel, et. al., 2003; Wright,
Nishii, 2006) that attempted to depict the processes through which HR practices ultimately
impact organization financial performance. Assuming that the similarity among all of these
models was that they all had their basis in a linear causal process, the study looked into two
additional aspects: first, the number of boxes in the ―black box―; second, the content of each
box. This ―Black box‖ is the little knowledge of the mechanisms by which HR practices
translate into competitive success. The quantity of boxes is the number of mediating variables
between the primary independent and dependent variables and the content of each box is
choosing a level of specificity within each box. The study summed up regarding the quantity
and content of each box that putting too many boxes in the model will not open the ―black
box" and putting too much items in the boxes will not make the model more insightful.

Teamwork, development, reward and participation were referred as the HRM practices in the
study by Adnan et al. (2011). The research question of this study was whether each HRM
practice in Malaysian R&D companies positively related to financial performance or not.
This study found that two HRM practices, namely participation and reward to be significantly
and positively related to financial performance. These findings suggested that firms which
placed high importance on or carried out participation and reward practices in managing their
R&D professionals are more likely to experience better financial performance. However,
training and development practices had significant but negative relationship with financial
performance. This finding suggested that the more the R&D firms emphasized on training
and development practices particularly through providing extensive training programs to
develop competency and requiring them to attend trainings within or beyond their specialties,
the lower the firms‘ tendency to improve financial performance. Another contradictory
finding was observed in the relationship between teamwork and financial performance. The
result showed that encouraging or requiring R&D professionals to work in teams did not have
significant impact on financial performance.

Guest (2011) reviewed the progress in theory and research about human resource
management and performance by identifying a series of phases in the development of
relevant theory and research. He set out a number of challenges for the future on issues of

theory, management processes and research methodology. The main conclusion from the
review was that after over two decades of extensive research, the core questions about the
relationship between human resource management and performance were still unanswerable.
This was largely attributed to the limited amount of research that was longitudinal and had
been able to address the linkages between HRM and performance and to study the
management of HR implementation.

Mahmud and Idrish (2011) empirically evaluated six Human Resource (HR) practices
(realistic job information, job analysis, work family balance, career development,
compensation and supervisor support) and their likely impact on the employee intention to
leave (EIL) in the Bangladeshi banks. The sample consisted of two hundred thirty three
employees working for different banks in Bangladesh. The data were gathered by
administering questionnaires. The results indicated that the job analysis, career development,
compensation, realistic job information variables were negatively and significantly correlated
with EIL. Interestingly work family balance was not negatively correlated with EIL. These
six variables could jointly explain 67% of the variance in EIL. Results of regressing the HR
practices on EIL showed that compensation and job analysis were strong predictors of EIL.

Moideenkutty et al. (2011) tested the relationship between high-involvement human resource
management practices and organizational performance in the Sultanate of Oman, an Arabian
Gulf country. Companies listed in the Muscat Securities Market in the Sultanate of Oman
were surveyed. The final sample for that study consisted of eighty seven companies. Survey
responses were subjected to statistical analysis. The responses to the 24-item high-
involvement HRM practices ranged from strongly disagree (1) to strongly agree (5).
Financial measures of organizational performance were also used in the analysis for a subset
of the sample for which these data were available. Reliabilities, summary statistics and
correlations of the measures were calculated. The effect of human resource management
practices on organizational performance was tested using regression analysis. An important
strength of the study was the use of both subjective and objective measures of organizational
performance. Results of the statistical analysis indicated that, after controlling for size, type
of firm (publicly traded or closely held) and average industry price-earnings ratio, high
involvement human resource management practices were positively related to subjective
organizational performance and an objective measure of performance, ratio of market value

to book value. The results of the study suggested that organizations in the Arabian Gulf can
enhance their performance by implementing high-involvement HRM practices in spite of the
unique national culture and special features of the labour market in the region.

Sardar et al. (2011) conducted a study to examine the impact of HR practices on employee
engagement in banking sector of Pakistan. It was based on the proposition of Social exchange
Theory. A quantitative approach based survey in form of close ended structured Five Point
Likert-scale questionnaires was designed and used to implore the response. The data
collected from 250 employees of four major private commercial banks of Pakistan was
analyzed through structural Equation Modelling and independent sample t-tests using SPSS
software. Outcome epitomized that four HR Practices named employee performance
appraisals, performance reward systems, employee involvement and training &career
development influenced the employee engagement, decision making/coordination. The
results showed that there was a significant relationship among employee engagement and
decision making / co-ordination, performance reward systems and employee involvement
where as training and career development and employee performance appraisals were
insignificantly related.

Zaitouni et al. (2011) investigated the impact of Human Resource Management (HRM)
practices on the affective, continuance, and normative organizational commitment among
employees in the banking sector in Kuwait. The study was conducted across permanent, full-
time, and part-time employees (managers and non-managers) of five large private banks in
Kuwait. Both Exploratory Factor Analysis (EFA) and hierarchical regression analyses were
used to draw the relationship between these variables. The results showed that fifty percent of
the variables confirmed previous studies and the remaining fifty percent did not support these
studies due to factors such as culture and values.

Atteya (2012) conducted his study to extend previous research by proposing and testing an
integrative model that examined the mediating variables underlying the relationship between
the human resource management practices and job performance. Data were collected from
549 supervisors in the petroleum industry in Egypt. The correlation and multiple regression
techniques were used to test hypotheses. It showed significant positive correlation between
human resource management practices and job satisfaction, organizational commitment and

job performance. In addition, it revealed negative correlation between human resource

management practices, job satisfaction, organizational commitment, Organizational
citizenship behavior, job performance, and quitting intention and negative word of mouth.

Sani (2012) investigated the impact of strategic HRM practices on organizational

performance of insurance companies in Nigeria. He also examined whether the effectiveness
of strategic HRM practices on organizational performance was contingent on organizations‘
work place climate. A multi-respondent survey of eighteen insurance companies was
undertaken and data collected was subjected to regression and correlation analysis as well as
descriptive statistics in pursuance of the study‘s stated objectives. Organizational climate was
measured through a set of questionnaire that was developed based on the eight organizational
climate dimensions. Study results suggested that strategic HRM alignment, line management
training, career planning system and job definition were the key strategic HR practices that
influenced organizational performance in the Nigerian insurance industry. Results also
suggested that the relationship between strategic HRM practices and organizational
performance in the Nigerian insurance industry was moderately influenced by organizational


2.4 HRM in Public and Private Sectors

Boyne et al. (1999) studied the HRM in public and private organisations of UK empirically.
The evidence presented in their study suggested that, in the area of HRM at least,
organizational policies and practices in the public and private sectors remained different in
many important respects. In particular the traditional style of paternal, standardized and
collectivized HRM was more prevalent in public than private organizations. Furthermore,
activities associated with the conventional state role as a model employer, such as staff
training and the promotion of equal opportunities, were still more likely to be found in public
organizations. Although their results showed that HRM varied significantly between the
public and private sectors, it might be possible that the distinctions had become less
pronounced over time. The differences that they identified could simply reflect a lag in the
adoption of new management practices by public agencies, perhaps because private
companies are more quickly influenced by 'management fads' (for example downsizing and
delayering). In this case, public and private management might always appear to be
significantly different, even if they are both moving in the same direction.

Budhwar (2000) compared and highlighted the HRM in public and private sector
organisations in India. The study was conducted after the liberalisation to show the effects of
reforms on HRM. Indian firms having two hundred or more employees in six industries in the
manufacturing sector were the main survey sample for the study. The questionnaire survey
was used to collect the data and 15 sections of HRM were included in this questionnaire.
Descriptive statistics and t-test revealed that mixed picture was there if a comparison of both
the sectors was made for HRM practices. However, moderate to strong differences existed
among both public as well as private sector organisations.

Harel and Tzafrir (2001) conducted a study to empirically examine if there were differences
in the way that HRM practices were performed in the private and public sectors of the
economy. The theoretical base of this investigation was anchored on the proposition that
some HR practices are always better than others and that all organizations should adopt these
"high performance work practices." According to the study, the organizations in the public
and private sectors had witnessed many changes in their environment in last few years. These
pressures had pushed organizations from both sectors to continuously improve their

performance. The researchers focused on the macro-level of the organization and its
productivity. A total of one hundred two questionnaires were completed and returned by
human resource VPs, representing 44 percent of the firms contacted. The hypotheses were
tested using data describing human resource management operation. The authors found that
public sector management emphasized those HRM domains that dealt with employee
selection and grievance procedures because of the sector's high level of unionization. On the
other hand, private sector management emphasized employee growth and pay for
performance. Nevertheless, the authors also found evidence that the public sector was
"moving" closer and closer to the private sector model by adopting "high performance work
practices" in order to overcome the turbulent environment and public demand.

Budhwar and Boyne (2004) compared human resource management (HRM) practices in
Indian public and private sector organizations. The investigation was based on a
questionnaire survey of one hundred thirty seven large manufacturing firms (public
sector=81, private sector =56). The key areas of analysis included the structure of human
resource (HR) department, the role of HR function in corporate change, recruitment and
selection, pay and benefits, training and development, employee relations and emphasis on
key HRM strategies. Internal labour markets (ILMs) were used to make the comparative
analysis. The statistical results showed a number of similarities and differences in the HRM
systems of Indian public and private sector organizations. Against the established notion, the
results of this study revealed that the gap between Indian private and public sector HRM
practices was not very significant. Moreover, in a few HR functional areas (for example.
compensation and training and development), Indian private sector firms had adopted a more
rational approach than their public-sector counterparts.

Ayanda and Sani (2010) attempted to examine the effect of strategic HRM practices on the
effectiveness of public sector organizations. Two hundred and fifty five civil servants cutting
across thirty ministries and agencies in Niger state were sampled. Using correlation and
multiple regression analysis, the results indicated that strategic HRM was moderately
practised by ministries and government agencies in Niger State. Results also found that
strategic human resource management alignment with overall government objectives; line
management devolvement, training and development, compensation, career planning system
and employee participation were the most important strategic HRM practices that impacted

more on organizational effectiveness in the public sector. The study recommended that
government should consider the benefits of integrating their HR function with the overall
government strategy and operations and that special attention should be given to the training
of non-personnel officers in HRM in order to achieve the objectives of devolvement.

Singh (2010) examined the impact of the HRM practices represented by planning,
recruitment, selection, performance evaluation, training and development, career
management and rewards on managerial effectiveness in public sector organisations. Four
organisations were studied for this research. This study clearly indicated that the HRM
practices along with organisation culture play a significant role and affect the managerial
effectiveness of the organisation. Training and development was found to be a significant
predictor of managerial effectiveness in public sector organisations.


2.5 HRM in Indian banking

Mankidy (1996-97) discussed about the intake of employees at the officer level which
followed a closed system for promotion in Public Sector Banks. There were mainly two parts
of entry into the profession: at the clerical level, the Banking Service Recruitment Board
filled 75-100 per cent of the vacancies via screening; and at the Junior Management level, 20-
25 per cent of vacancies was filled via outside recruitment. 1980‘s witnessed a phase of
consolidation, where Government initiated several measures to improve Human Resource
Management in the Banking Industry. Some of the measures included: introduction of job
rotation scheme for the Bank staff; stoppage of overtime; compulsory rural and semi-urban
postings; and blockage on recruitment. A few areas in the field of Human Resource
Management were also discussed by Narasimham committee in 1991, which included: over-
staffing especially in metropolitan and urban areas because of trade union‘s pressure and
management‘s weakness, thus, leading to increased staff cost; trade unions in Banks
encouraged resistance to mechanization and computerization; and various obstacles to
rational policies related to promotion, staff transfer; and poor quality of discipline.

Kaur (2007) mentioned that the Voluntary Retirement Scheme (VRS) was visualized to assist
Indian Banks in their efforts to optimize the use of human resource and to achieve a balanced
age and skill profile in tune with their Business Strategies. Eighteen Public Sector Banks
offered voluntary retirement scheme employing 7,35,977 employees out of which around 14
percent opted for voluntary retirement scheme, although after severe opposition from
employees. At the same time, Banks started recruiting specialists in various fields such as
treasury management, credit, risk management, information technology, and Human
Resource Management in order to meet the global standards. Banks also developed
centralized personnel database containing skill profile, age profile, training profile, which
were essential for effective and optimum Human Resource Management.

Jyothi and Jyothi (2008) studied the major challenges related to HRM in Indian Banking
sector and suggested that change was the only constant factor in this dynamic world and
banking was not an exception to it. The major challenge faced by banks was to protect the
falling margins due to the impact of competition. Another significant impact of banks was the
use of technology. There was an imperative need for not mere technology up gradation but

also its integration with the general way of functioning of banks. All this was possible with
the help of efficient human resource management. However, the challenges faced in the HR
front were numerous and needed to be handled diligently. This study attempted to identify
HR challenges in the Indian Banking context and suggested that the banks in near future
would have to address compensation issues, flexible work schedules, outsourcing and
retaining talent. To face the challenge, banks required enhanced skills, new knowledge and
behavioural adjustments of human resources.

Khera (2010) made an attempt to investigate the extent to which Commercial Banks of India
differ on aspects of human resource management practices and the key Human Resource
Practices contributing to employee productivity. One hundred eighty four respondents from
three commercial banks of India, one private sector, one foreign sector, and one public bank,
formed the sample of the study. Data were collected from the employees at branch. The
questionnaire containing 80 items, out of which 71 items were framed on 17 HR practices
and 9 items on employee productivity, was used. The 17 HR practices were given
nomenclature as factors which included, manpower planning, recruitment & selection,
motivation, performance management, reward system, training & development, career
planning, creativity & innovation, team building, grievance redressal, Quality of Work Life
(QWL), employee participation, employee accountability, compensation management,
benefits and services, discipline and incentives. The employee productivity was taken as
dependent variable. In order to compare various human resource practices among the
respondents of three banks, Duncan‘s mean test was carried out in this study. The results of
the t-test revealed that there was a significant difference between the three banks in practising
four human resource practices namely, grievance redressal, and quality of work life,
compensation management and incentive system. The results of this study strongly supported
the research question as there was a significant relation of employee productivity with human
resource practices including selection, employee benefits, compensation, training and staffing
practices. The study also found that the banks with high disciplinary action were not able to
reap a sustained performance advantage, as indicated by the significantly negative association
with employee productivity. This paper concluded that if the commercial banks in developing
countries like India were able to successfully implement HR practices, they could achieve the
maximum contribution of their employees, although, the economic and political environment
within which HR practices operate was not that conducive.

Sekhar (2010) proposed a HRD model for better understanding of HRD framework.
Encouraged by the thought that an attempt to conceptualize a model of HRD in Banks would
pay in the long run making modem financial institutions growth oriented and dynamic, this
study proposed a conceptual model of HRD and application of such model in financial
institutions. This model has been shown in figure 2.5. He also attempted to propose some
new strategies to make HRD activities more meaningful and result oriented in financial
institutions. Besides, this study also introduced the function of HRM from a strategic
perspective in modern banks with a view to improve upon the operational efficiency and the
quality of services in the context of emerging economies.

Figure 2.5
Model of HRD in Banks

Source: Sekhar (2010)


2.6 Need for the Present Study

The review of literature in this study provides the deep insight of the work done by
the experts and researchers on various aspects of HR practices in banks especially public &
private sector banks. Most of the researchers have done their work by taking the role of HRM
as a whole, in the effectiveness of the organisations. Some have tried to find out the major
HR challenges. Only a few studies have been taken up to know the innovative HR practices
& their impact on the employee productivity as perceived by the employees of different
organisations. None of the studies has tried to find out the perceptions of the employees
regarding the emerging challenges of HRM in the Indian banks because of these HR
practices. And if some of them have done research work in the related areas, then the same
has not been carried on in the India. Therefore, a need was there to know the extent and
impact of innovative HR practices adopted in the Indian Banks as per the perceptions of their
own employees.
Literature on HRM suggested that the practices or their close versions seemed to have
applicability both in developed countries as well as in an emerging economy like India, and
therefore might be relevant to most sectors and industries anywhere in the world wherever
there was a competitive market economy. The adoption of different innovative HRM
practices in some of the Indian companies had improved business performance. This found
support from recent studies linking HRM activities and firm performance. Therefore, the
banking sector also needs to incorporate such innovations being the most important service
sector of the economy. HR practices have been gaining greater importance in the present
scenario of the banks. To meet out the present challenges and to be ready for the emerging
challenges before these banks, the HRM base must be strong. Thus, this research problem has
been chosen keeping in mind the well versed significance of the HR challenges before the
banks so that the forthcoming researches may at least test their taste for the prevalent
challenges and help the banking industry in coping with the growing competition. Moreover,
some innovative HR practices need to be identified among various banks in different sectors
of Indian banking.
The present study will provide a big insight to researchers, bankers, top management
of the Indian banks and other organizations of the concerned field. In other way, the present
study, as the researcher visualizes, will not only be intellectually arousing for academics but
will also prove considerable to the different stakeholders in the public sector banks of India.