HR Management and Performance Link: Theories and Empirical Evidence

This report delves into the crucial relationship between Human Resource Management (HRM) and organizational performance. It explores the influence of HRM on a firm's overall success, culture, and strategic management of human capital. The report examines key theoretical frameworks, including the Ability, Motivation, and Opportunity (AMO) theory, the Contingency theory, and the Resource-based View (RBV) theory, illustrating how these theories explain the HRM-performance link. The report highlights the importance of employee relations, motivation, and the impact of high-performance work systems (HPWS) on productivity, financial performance, and market value. Empirical evidence from various studies is provided to support the positive correlation between HRM practices and organizational outcomes. The report emphasizes the significance of implementing strategic HRM practices, such as training, incentives, and employee engagement, to enhance performance and achieve a competitive advantage.

Running head: HR MANAGEMENT AND PERFORMANCE LINK
HR Management and Performance Link
Name
Institution

HR MANAGEMENT AND PERFORMANCE LINK 2
Introduction
There is great relationship between organizational performance and the human resource
management of every organization. The way a firm manages its stock of competence directly
determines its overall performance, the culture of the firm, and the masterplan both internal and
external used to control the human resource links to the performance of the firm. Therefore, the
HRM plays an integral role in ensuring effective management of every organization. given the
fact that there is stiff competition in the job market, the resource that most firms focus on to
increasing theoretically and empirically is the stocks of competence or human capital.
Human resource management refers to the bustle in relation to management of stock of
competence (Roca-Puig & Escrig-Tena, 2016). For a firm to be considered successful, several
factors have to be fabricated together and used at the optimum for it to yield results. One of this
is the relationship between human resource and performance link. A number of theories have
been used to explain the human resource management performance link such as ability,
motivation and opportunity theory, the contingency theory, and resource-based view theory.
The contingency theory
Fleetwood and Hesketh (2018), contingency theory holds the belief that there isn’t any universal
human resource management (HRM) structure that can be utilized evenly in all organizations at
every situation that will give out similar performance. However, the consequences of a specific
human resource rely greatly on the master plan of the firm. It is concerned with the structure of
the organization and interrelating factors such as socialization in the firm, political issues and the
culture of the firm. Tessema and Soeters (2016) denote that the theory majorly involves

HR MANAGEMENT AND PERFORMANCE LINK 3
modifying the human resource management activities for it to function for both intrinsic and
extrinsic situations to get ultimate production in the firm. However, factors within the context
have to interplay for there to be performance in the firm. It means that HRM must act
accordingly to the firms environ such as working closely with the business master plan or
strategy (Tessema & Soeters, 2016).
Resource-based View theory
The second theoretical framework is Resource-based View theory. Guedri and Hatt
(2018) hold that this theory is constructed with the view that the firms presentation is as a result
of its production. It focuses on achieving competitive advantages and argues that for better
performance of the firm. Applying the theory requires an organization to look keenly within its
structure so that it may come up with the resource that gives it competitive advantages opposed
to focusing on the competitive environment. It goes further to explain that for a firm to outdo its
rivals in the arena, it should pay much attention to it internal resources which mostly focuses on
the stock of competence this refers to the human capital. Its major philosophical basis of this
theory is that HRM policies play a crucial function in developing stock of competence
This theory suggests that the unique or outstanding historical circumstances of an organization
makes it hard for competing firms to achieve the same level and quality of human capital that is
the knowledge, skills and abilities within the firm (Barbely, 1991). The RBV framework implies
that human resources may be of even greater significance for smaller firms, for they can generate
more using scarce resource to remain competitive n the market.

HR MANAGEMENT AND PERFORMANCE LINK 4
According to this theory, being in possession of strategic resources gives an upper hand
for a firm to outdo its competitors (Hesketh, 2016). A strategic resource is that which can seldom
be found almost impossible to ape and cannot be substituted. The strategic resources of the firm
need not to be cash and machinery but rather the culture of the organization. Being in possession
of both tangible and intangible properties such as knowledge and skills of the workers the
reputation of the firm and culture is a major determinant of the performance link. Paying close
attention in this area enables the firm to compete favorably with its opponents.it is also important
to note that in the smaller firm context, whether stocks of competence practices are formal or
informal it must be carefully considered.
Ability, motivation and opportunity theory (AMO)
This theory provides a good link between human resource management and performance in the
firm. Faems and Forrier (2016) denote that AMO theory is based on three dimensions that work
together to shape the personalities of the stock of competence in the organization which in turn
fosters the growth of the firm. According to this theory, the distinct features that may facilitate
the performance of the firm are ability, motivation and opportunity. Ability refers to the
knowledge or the knowhow and the extend of expertise the stock of competence has in order to
tackle the assigned work. This dimension is abbreviated KSA (knowledge skills and ability) thus
fostering practice leads to improving the three parts (Salas-Vallina & Fernandez, 2017). The
seriousness given during the recruitment of workers in terms of their competence and passion to
work fabricated. It also involves offering further training and giving the right equipment that
enables the employees to work at their optimum significantly translates to the performance of the

HR MANAGEMENT AND PERFORMANCE LINK 5
firm. When the abilities of the workers have been enhanced either through training or
exhibitions, there is a general increase in the productivity.
Increased competition for talented workers has also given the organizations an added incentive
which they can use to review their workers relations strategies in order to attract motivate and
retain the type of workforce that will enhance the success of the firm. According to Dyer and
Reeves (1995), the policies of HR and practices may impact multiple measures of organizational
effectiveness. More so human resource outcome. For instance, according to the research done on
health care employees.
Furthermore, AMO theory relates human resource management to performance of the
firm through motivation. Whether intrinsic or extrinsic motivation, it plays a key role in the
general productivity of the firm. Motivation of an employee may be influenced by a number of
factors such as employment security, equilibrium between life and work, reports on performance
and the environment of work among many others. Giving priority to those elements that
influence the extend of energy put in place. By the stock of competence is of great help to the
firm that wishes to improve its performance. Bigger percentage of managers uses AMO theory to
practice HRM. Motivational effects on performance depends greatly on the ability of the stock of
competence as pointed out by Tessema and Soeters (2016).
How can good & positive employee relations impact ROA? The presence of good employee
relations may influence the environment which intern will enhance the performance of individual
In this context, motivation refers to the driving force that pushes an employee to work hard some
of these motives include rewards, incentives or opportunity to develop the carrier of the worker.

HR MANAGEMENT AND PERFORMANCE LINK 6
(muntanu, 2014) this frame work model has undergone evolution and according to some writers,
it is not only the three factors that influence the performance of the firm but rather other
sophisticated issues such as the understanding of the stock of competence on this HR practices
(Boxall & MacKy, 2009)
Performance P=f (A, M, O)
According to Hesketh (2016), AMO is taking into consideration the ability of the stock of
competence fabricated with the necessary motivation in the presence of opportunity to be
involved in the task rendered by the manager results to increased performance of the firm. This
leads to the formulation of high performance work system (Stanton & Nankervis, 2011). This
framework has it that for the stock of competence to be at their optimal performance, they ought
to be with the relevant skills, appropriate stimulation or incentives in the presence of
opportunistic environment. Researchers argue that flexible, motivated and skilled employees will
enhance the expansion of susceptible capabilities which will cause even the workers not to exit
the firm.
Empirical evidence of the performance link
extensive amount of research shows the existing evidence of HR practices and various types of
performance which is significantly positive. Huselid (1995) and Delaney and Huselid (1996) use
a wider range of businesses from several firms to show this. Taking keen interest on sector
specific studies ichniowski et al (1997) using the steel industry.
According to (Huselid 1995), shows how HPWS significantly lead to increased financial and
market performance, lowered the turnover and expanded productivity. Using actual values, the

HR MANAGEMENT AND PERFORMANCE LINK 7
evidence showed that HPWS increase of one standard deviation resulted in an $18,641increase in
market value per employee. The evidence further showed that increase in one standard deviation
resulted into increase in cash flow.
From MacDuffie (1995) research of nearly 62 automotive assembly plants located in America,
showed that for those firms which where flexible and the stocks of competence engaged in
teamwork and high commitment HR practices in addition to low inventor and repair buffers
persistently outwitted other firms in the market.
From the hypothesis tested by Delery and Doty (1996) concerning the employees skills and
ability and effects of motivation on workers together with the structure of work, they realized
that gradual HRM practices which encompassed selectivity in staffing, training and issuing of
incentives and compensation to workers positively related to perceptual measures on
organizational performance.
Furthermore, the research carried out by Ichniowski 1997 on 47 steel companies comparing the
HR practices in Japan and US including the details of machinery control. Their collected data
using onsite visit, interview and comparing monthly productively, showed a positive link
between the extensiveness of HRM environment and the productivity performance. Through the
division of the environment into four categories (environment with extensive use of HR practices
and those without HR practices. Research on the four categories clearly showed the hierarchical
differences between the performance of the firm. Surprisingly, those companies that in Japan that
used HRM practices such as problem-solving teams, extensive orientation, employee training tin
their career, job rotation and profit sharing outperformed the US companies that did not apply the
HR practices.

HR MANAGEMENT AND PERFORMANCE LINK 8
Lastly, Paauwe and Richardson 1997 also proved the link between performance and HR
practices from their summarized analysis which included more than 30. Their research justified
this by affirming that motivation, turnover, engagement and absenteeism affected the
productivity of the firm.
These studies indicate that implementation of specific HR practices can be fabricated with higher
organizational performance. This research gave a more empirical foundation for the ussumption
that HRM leads to better organizational performance. These practices can also be applied in
organizations that deal with services and nonmanufacturing plants.
Lee and colleagues (2010) also found out that significant and positive correlation between
HPWP and organizational results. Just like Doty they found out that activities such as use of
incentives, teamwork motivation and further training of employees facilitated the performance of
the company.
Implications of the analysis
The more sophisticated the performance of the HRM system, the greater the chances of
performance (Stanton & Nankervis, 2011). For better performance of an organization, it is
advisable that the stock of competence be motivated as suggested by the AMO theory. The use
of HR practices such as incentives, training, profit division, further training of workers in their
line of career significantly leads to high performance and productivity of the firm.
Conclusion

HR MANAGEMENT AND PERFORMANCE LINK 9
Application of theoretical framework to the management of HRM is more effective if the
right factors are considered such as the competitive strategies. It involves building on the
tangible and intangible aspects of the firm such as culture skills and knowledge. Firms should
also pay much attention to their non-substantive rare and competitive resource for it to work
well.

HR MANAGEMENT AND PERFORMANCE LINK 10
References
Faems, D., & Forrier, A. (2016). Unravelling the HRM-Performance Link: Value-Creating and
Cost-Increasing Effects of Small Business HRM. Journal Of Management Studies, 43(2),
319-342. doi:10.1111/j.1467-6486.2006.00592.x
Fleetwood, S., & Hesketh, A. (2018). Theorising under-theorisation in research on the HRM-
Performance Link. Personnel Review, 37(2), 126-144.
Guedri, Z., & Hatt, F. (2018). New insights into the link between HRM integration and
organizational performance: the moderating role of influence distribution between HRM
specialists and line managers. International Journal Of Human Resource
Management, 19(11), 2095-2112. doi:10.1080/09585190802404320
Hesketh, A. (2016). HRM-performance research: under-theorized and lacking explanatory
power. International Journal Of Human Resource Management, 17(12), 1977-1993.
doi:10.1080/09585190601041026
Roca-Puig, V., & Escrig-Tena, A. B. (2016). Single- and Multiple-Informant Research Designs
to Examine the Human Resource Management−Performance Relationship. British
Journal Of Management, 27(3), 646-668. doi:10.1111/1467-8551.12177
Salas-Vallina, A., & Fernandez, R. (2017). The HRM-performance relationship
revisited. Employee Relations, 39(5), 626-642. doi:10.1108/ER-12-2016-0245

HR MANAGEMENT AND PERFORMANCE LINK 11
Stanton, P., & Nankervis, A. (2011). Linking strategic HRM, performance management and
organizational effectiveness: perceptions of managers in Singapore. Asia Pacific Business
Review, 17(1), 67-84. doi:10.1080/13602381003790382
Tessema, M. T., & Soeters, J. L. (2016). Challenges and prospects of HRM in developing
countries: testing the HRM–performance link in the Eritrean civil service. International
Journal Of Human Resource Management, 17(1), 86-105.
doi:10.1080/09585190500366532