THE EFFECTS OF STRATEGIC HUMAN RESOURCE

MANAGEMENT ON ORGANIZATIONAL SUCCESS

SUBMITTED BY:

OYELEYE EMMANUEL FUNMI

MATRIC NO: 07/07/006884

SUBMITTED TO:

DEPARTMENT OF BUSINESS ADMINISTRATION

FACULTY OF SOCIAL AND MANAGEMENT SCIENCES

OLABISI ONABANJO UNIVERSITY

RESEARCH SUPERVISOR

DR. OBASAN.

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 CHAPTER 1

1.0 INTRODUCTION

The word organization implies that there is a holistic system, members of this system are

in some way committed or obligated to it, and that the system is arranged according to

some kind of designated design or structure (April Younglove 2006). The organizations

usually have resources at their disposal which they deploy to realizing their goals and

objectives. These resources are: Capital, Land, Labor (Human) and Technology. Humans

are an organization's greatest assets; humans and the potential they possess drive an

organization (Christine Jahn 2007). Today's organizations are continuously changing.

Organizational change impacts not only the business but also its employees. In order to

maximize organizational effectiveness, human potentialindividuals' capabilities, time,

and talentsmust be managed.

Human resource management therefore can be said to be

the strategic and coherent approach to the management of an organization's most valued

assets - the people working there who individually and collectively contribute to the

achievement of the objectives of the business. The terms "human resource management"

and "human resources" (HR) have largely replaced the term "personnel management" as

a description of the processes involved in managing people in organizations. In simple

words, HRM means employing people, developing their capacities, utilizing, maintaining

and compensating their services in tune with the job and organizational requirement.

Strategic human resource management however defined by John Bratton (2001) is the

process of linking the human resource function of an organization with the strategic

objectives of the organization in order to improve performance. Human Resource

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Alignment as Strategic Human Resource Management is also called (U.S. Office of

Personnel Management; Office of Merit Systems Oversight and Effectiveness 1999)

means integrating decisions about people with decisions about the results an organization

is trying to obtain. By integrating human resources management (HRM) into the

organization planning process, emphasizing human resources (HR) activities that support

broad organization mission, goals, and building a strong relationship between HR and

management, agencies are able to ensure that the management of human resources

contributes to mission accomplishment and that managers are held accountable for their

HRM decisions.

Since the success of an organization is hinged on achievement of set goals and objectives

with the instrumentality of manpower, it then means that organizations should pay more

attention to Strategic Human Resource Management (SHRM). This study is aimed at

determining whether Nigerian firms have embraced and if they have what is the effect or

impact of SHRM in achieving organizational success.

1.1 STATEMENT OF THE PROBLEM

Nigerian firms are not globally competitive in the face of current trend and dynamic

nature of global business environment. Many of these firms are still struggling to perform

locally. This has resulted in some of them not being able to remain in business. This

failure is largely due to the inability of both public and private firms to recognize the

potentials of their human resource. Hence they are missing out on the benefits derivable

from aligning those human resources at their disposal in a way that they can achieve

organizations set goals.

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As a result of their inability to achieve these increasingly challenging set goals, they fall

short on the competitiveness that they require both to retain their competent human

resources as well as their ability to remain in business. This situation if not addressed

could undermine the competitiveness of Nigerian firms and in deed the achievement of

desired national goals and objectives in form of Vision 20:20:20:20 and the Millennium

Development Goals.

This study is therefore out to determine whether Nigerian firms practice Strategic Human

Resource Management and if they do to what extent has that contributed to the success of

those organizations.

1.2 OBJECTIVES OF THE STUDY

General Objective

The study intends to determine how Strategic Human Resource Management contributes

to organizational success in Nigerian firms.

Specific Objectives

To determine if there is relationship between strategic HRM and performance in

Nigerian firms.

To determine whether SHRM contributes to organizational success and to what

extent.

To determine whether Nigerian firms are practicing SHRM or not.

1.3 RESEARCH QUESTIONS

Is there any relationship between Strategic Human Resource Management and

Organizational success in Nigerian firms?

Do Nigerian firms practice SHRM differently?

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 Does Strategic HRM have any significant effect on organizational performance?

Does SHRM give some organizations an edge over others that do not practice it?

1.4 JUSTIFICATION

This study has become very important in the face of the dynamic nature of todays

business environment. Every organization aspires to be a major player in their industry

not only at the local or national environment but also globally. Nigerian firms therefore

need to embrace Strategic Human Resource Management to be able to meet the

increasing challenge of maintaining viable organizations that can meet the expectation of

stakeholders and enable them to keep up with the pace and competition of the global

business environment.

1.5 HYPOTHESIS

1. Ho= There is no significant relationship between SHRM and organizational

performance.

2. Ho= Strategic Human Resources has no significant effect on organizational

performance.

1.6 SCOPE OF STUDY

As defined above, this research focuses on the Effects of Strategic Human Resource

Management on Organizational Success of a chosen group of Nigerian

Telecommunication companies, Banks and Hospitals. Since the objectives set for this

research is to articulate and examine the role that strategic human resource management

play in creating organizational success, practical implications for Nigerian firms that

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consider human resources management as a strategic partner are to be studied. However,

the number of Nigerian firms at this time that were considered for selection was not large.

Hence, the focus of the research was concentrated on the Nigerian telecommunications

companies (firms Airtel, Globacom, MTN and Visafone), Banks (GTBank, Zenith, UBA,

FCMB and Intercontinental) and Hospitals (University College Hospital, Ibadan and

State Hospital, Ijebu Ode). The emperical data that are used in this research should not be

confused with the theoretical focus of the research. The purpose of the data is to make it

possible to test hypotheses of how strategic human resources management can result in

organizational success. The results of the tests are then to be generalized from this rather

specific sample of firms to the entire population of organizational and institutional

companies/firms that incorporate Human Resources Departments as a strategic partner in

their organizational map. The data for this study is intended to be collected between

August and October, 2011.

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 CHAPTER 2

LITERATURE REVIEW

2.0 Introduction

The forces of globalization have changed the way work is done. Some of the principal

changes have been the emphasis on competitiveness, a more mobile and diverse work-

force and growth in part-time and flexible work. Globalization is often seen as a new

stage in world development (Sparrow et al 2004),which is characterized by intensified

competition and continuing technological innovation, which have emphasized the

importance of product quality and customer care which in turn has increased the

emphasis on people management (Hucysnki et al2002). To meet some of the challenges

posed by intense competition, organizations structure have been altered inform of

downsizing, delayering, decentralizing and are less hierarchical in nature. These changes

have subsequently lead to many developments in HRM, as employers have to cope with

the challenges posed by a competitive global economic environment.(Redman et al

2001), organizations are increasingly turning to the unique contribution provided to them

by their human resources as a source of competitive advantage (Wright et al in Morley et

al 2004).

Organizations and institutions are increasingly realizing the importance of human

competitiveness as essential to organizational survival and economic progress. There is

also a growing belief that if organizations have to survive and thrive in a global economy,

they require world-class human resource (HR) competencies and the processes for

managing them (Khandekar et al 2005) and this is in line with the Resource Base View

(RBV) perspective of Strategic HRM, which states that employee knowledge, skills,

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talents and know-how are the central source of organizational performance, human

resources are more likely to produce competitive advantage because they often are truly

rare and can be more difficult for competitors to imitate (Jackson et al 2004) and that the

effective management of human resources is critical to obtaining organizational success.

The basic premise on which strategic human resource management is based is that human

resources are strategic valued assets and a source of competitive advantage (Khanderkar

et al 2005). Competitive advantage are those abilities, capacities, resources and decisions

that undermine an organizations capacity to survive and maintain its position.

Management of people is increasingly being considered as one of the key links to

generating a competitive advantage.

2.1 Competitive Advantage

When two or more firms compete within the same market, one firm possesses a

competitive advantage over its rivals when it earns (or has the potential to earn) a

persistently higher rate of profit (Grant, 2002). It is argued that this is a too narrow

definition, because competitive advantage is also about a growing market share, a better

image rating, a better credit rating etc. (Wheelen & Hunger, 1998). Nonetheless, all these

standards must lead to higher profits in the long run. To put it simply, competitive

advantage is the ability to outperform rivals. There are many ways to gain competitive

advantage, e.g. responsiveness to change processes, predicting consumers prospective

wants, economies of scale, economies of scope, possessing a patent and last, but not least:

a sound HRM. HRM can help a firm obtaining competitive advantage by lowering costs

and by increasing sources of product and service differentiation. Achieving competitive

advantage by human resources requires that these activities are managed from a strategic

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perspective (Lengnick-Hall & Lengnick-Hall, 1988), so that HRM and strategy are

closely related.

Competitive advantage leads to organizational effectiveness. (Lengnick in Khanderker et

al 2005).Among a firms intangible resources Human Resources with their tacit

knowledge, skills and talents are more likely to produce competitive advantage, as these

constitute the core competencies of the organization, which will enable an organization to

capitalize on opportunities in the market place and avoid threats to its desired position

(Jackson et al in Khanderkar et al 2005). Researchers like (Wright et al in Morley et al

2004) have argued that HRM capability is a source of competitive advantage, as it is

embedded in the collective knowledge of the firm members (inimitable) which is

developed over a period of time(rare) and valuable as the firms routines for managing

people can direct employees talent and behavior to meet objectives and create

value.(Handy et al 1990) Attracting and retaining individuals with skills related to the

core competencies of the organization are key H.R activities directly relevant to building

organizational capability. In the same vein, organizations are increasingly relying on

HRC Human Resource Capabilities to cope with the challenges posed by globalization

and rapid change.

H.R. capabilities are the routines embedded in the tacit and implicit knowledge of the

members of an organization functioning to acquire, develop, nurture, and re-deploy

human resources through HRM practices in a dynamic competitive environment.(Ulrich

et al 1990) HRM practices includes, HR functions like staffing, performance appraisals,

training and development, rewards and career planning. HRC enhances the firms

competitive position by creating superior human capital skills, experience and knowledge

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that contributes to a firms economic value and this substantiates the (RBV) perspective

of Strategic HRM as the basis for organizations competitive advantage and a contributor

towards organizational success. The RBV argues that resources such as H.R capabilities

are important for firms purpose.(Khanderkar et al 2005). (Pfeffer 1994) asserted that

H.R capabilities are the pre-eminent organizational resource and the key to achieve

outstanding performance. (Huselid et al 1997) found that firms effectiveness was

associated with H.R capabilities and its attributes. All these changes are indicative of new

ways of managing people which have been mentioned in an influential book to appear in

France recently entitled the Type 3 Company which points to the need for organizations

to transform themselves into high performance companies that can harness the support,

the ideas and energy of the front-line troops and is evidence of the new people-first

approach to strategy and is testimony to the RBV perspective which sees employees as a

source of competitive advantage. (Handy et al 1990).

2.2 Human Resources Defined

Human Resources (HR) has been given many definitions over the years, but the two most

popular definitions given by the American Heritage Dictionary are the persons

employed in a business or organization (Houghton Mifflin Company [HMC], 2000) and

the field of personnel recruitment and management(HMC). Both definitions fail to

provide the key insight into the power of HR policies, strategies and quality personnel to

be able to create substantial competitive advantage for an organization. The HR field has

changed dramatically from the original HR departments of the early and mid twentieth

century to today. These original HR departments (called personnel departments at the

time) existed primarily to hire new employees and administer employee benefits. The

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latter half of the twentieth century found HR departments morphing into more of a

strategic group that could provide much more value and competitive advantage by

helping companies deal with ever-changing business environments.

In the past, the HR department was viewed as an operational entity that handled the day

to- day activities of paying employees, administering benefits, hiring new employees and

other operational activities. There are still many companies who consider the HR group

within an organization to be a necessary overhead that must be incurred to run a business.

Utilizing the HR department in this manner will probably allow an organization to run

effectively, but it will be very difficult to create the necessary synchronicity between

corporate strategy and HR that is needed to create any advantage in the marketplace with

the human capital within the organization. Organizations have realized that their success

is dependant on their ability to hire, develop and keep quality employees. Robert Reich

explains that to attract and keep talented people, companies today are not just

experimenting with how they approach the competitive marketplace of goods and

services; they are also experimenting with how they approach the competitive

marketplace of talent (Reich, 1998). Reich expands on how companies are

experimenting with new methods of defining the relationship between employer and

employee when he states:

Companies are experimenting with a new operating system for the employer-employee

relationship - one to replace the old set of practices that put employers and employees on

opposite sides of the table. The model for the organization of the future aims to create

tangible and intangible value that both sides can share and enjoy. It accepts as a core

reality - rather than as a pleasant fantasy - the old saw that a company's people are its

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 most important asset. And it builds on that reality to create a way of working that is

profoundly human and fundamentally humane (Reich, 1998).

To compete in the ever-changing environment of business today, organizations must

create ways to engage their employees in the success of the organization. In the past,

employees were loyal to their employer and could count on their employer providing a

paycheck to them as long as they did what was asked of them. This is no longer the case

after the emergence in the late twentieth century of reengineering, layoffs and

outsourcing initiatives that have taken over Strategic Use of Human Resources corporate

life. Employees can no longer count on their employer to provide for them; therefore,

they no longer have long term loyalty to that organization. It is for this reason that

organizations must find a way to engage their employees in the success of the

organization while at the same time providing value to the employee so that they feel a

connection and remain with the organization.

To engage employees, HR must create value for their employees beyond a paycheck. To

do this, the employee must take on a role that highlights their value to the organization

and the organizations marketplace. In order to do this, the organizations human

resources must be utilized in such a way to get the greatest benefit to the employee and

employer. To get the greatest benefit from their employees, an organization should take

the view that HR is more than an operational entity and that HR an human capital can be

utilized in a strategic manner to achieve as much of a competitive advantage as possible.

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2.3 Strategy and Human Resources Management

In their seminal thesis on the development of HR function, Jamrog & Overholt (2004:1)

declared that over the past 100 years the HRM professional has been continuously

evolving and changing, adding more and different responsibilities. The authors account

shows that the HRM function has evolved through many stages, from the medieval time

through the industrial revolution, the scientific management, the human relations

movement, etc., to the present strategic business partner model. For most of its history,

HR has mainly focused on the administrative aspects of HRM, except recently, with the

strident call for HRM to become a strategic business partner (Ulrich, 1997; Brockbank

1999; Lawler III & Mohrman, 2000; and Lawler III & Mohrman, 2003). Some scholars

therefore, are wont to differentiate between the traditional HRM and SHRM. Traditional

HRM is transactional in nature, concerned essentially with providing administrative

support in terms of staffing, recruitment, compensation and benefits (Rowden, 1999; and

Wei, 2006). Ulrich (1997) argues that the HR function has been an administrative

function headed by personnel whose roles are essentially focused on cost control and

administrative activities. Managing people is therefore the responsibility of HR manager.

HRM is then a formal system for the management of people within the organization

(Bateman & Zeithaml, 1993:346). For Inyang (2001:8), HRM is simply organizations

activities, which are directed at attracting, developing and maintaining an effective

workforce.

The many transactional or administrative activities involved in managing the human

resources of an organization training and development, staff motivation, compensation,

staff commitment, quality performance, etc. are meant to be carried out effectively to

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influence the achievement of corporate objectives (Inynag, 2008a). The paradigm shift

from the administrative aspects of HRM led to the emergence of SHRM as a new

generation of value-added core responsibility or function of HRM. The emphasis of

SHRM is that of a strategic business partner. It now supports the companys competitive

advantage by providing high quality people and by helping business managers

strategically plans the functions of the human capital within the organizations (Rowden,

1999). SHRM strongly beliefs that critical organizational capabilities or performance

behaviors are sine qua non, for the attainment of a particular business strategy or goal.

Unlike the traditional HRM which covers a wide range of employment practices,

including recruitment, selection, performance appraisal, training and development and

administration of compensation and benefits, SHRM reflects a more flexible arrangement

and utilization of human resources to achieve organizational goals, and accordingly helps

organizations gain competitive advantage (Wei, 2006).

2.4 Strategic Human Resources Management

Strategic human resource management is a complex process which is constantly evolving

and being studied and discussed by academics and commentators. Its definition and

relationships with other aspects of business planning and strategy is not absolute and

opinion varies between writers. The definitions below are from the CIPD book Strategic

HRM: the key to improved business performance (Armstrong, M et al 2002) within

which there is comprehensive coverage of the various definitions and approaches to

HRM, strategy and strategic HRM. Strategic HRM can be regarded as a general approach

to the strategic management of human resources in accordance with the intentions of the

organization on the future direction it wants to take. It is concerned with longer-term

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people issues and macro-concerns about structure, quality, culture, values, commitment

and matching resources to future need. It has been defined as:

All those activities affecting the behaviour of individuals in their efforts to formulate

and implement the strategic needs of business (Schuler, R.S. 1992). The pattern of

planned human resource deployments and activities intended to enable the forms to

achieve its goals Wright, P.M. et al 1992).

Strategic HRM can encompass a number of HR strategies. There may be strategies to

deliver fair and equitable reward, to improve performance or to streamline structure.

However, in themselves these strategies are not strategic HRM. Strategic HRM is the

overall framework which determines the shape and delivery of the individual strategies.

Boxall and Purcell (2003) argue that strategic HRM is concerned with explaining how

HRM influences organizational performance. They also point out that strategy is not the

same as strategic plans. Strategic planning is the formal process that takes place, usually

in larger organizations, defining how things will be done. However strategy exists in all

organizations even though it may not be written down and articulated. It defines the

organizations behaviour and how it tries to cope with its environment. Strategic HRM is

based on HRM principles incorporating the concept of strategy. So if HRM is a coherent

approach to the management of people, strategic HRM now implies that that is done in a

planned way that integrates organizational goals with policies and action sequences.

2.5 Strategic HRM and Business Strategy

A good business strategy, one which is likely to succeed, is informed by people factors.

One of the driving factors behind the evaluation and reporting of human capital data is

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the need for better information to feed into the business strategy formulation process. In

the majority of organizations people are now the biggest asset. The knowledge, skills and

abilities have to be deployed and used to the maximum effect if the organization is to

create value. The intangible value of an organization which lies in the people it employs

is gaining recognition by accountants and investors, and it is generally now accepted that

this has implications for long term sustained performance. It is therefore too simplistic to

say that strategic human resource management stems from the business strategy. The two

must be mutually informative. The way in which people are managed, motivated and

deployed, and the availability of skills and knowledge will all shape the business strategy.

It is now more common to find business strategies which are inextricably linked with and

incorporated into strategic HRM, defining the management of all resources within the

organization. Individual HR strategies may then be shaped by the business strategy. So if

the business strategy is about improving customer service this may be translated into

training plans or performance improvement plans.

2.6 Strategic HRM and Human Capital Management

A number of writers have argued that strategic HRM and human capital management

(HCM) are one and the same thing, and indeed the concept of strategic HRM matches

that of the broader definition of HCM quite well as the following definition of the main

features of strategic HRM by Dyer and Holder (1998) shows:

Organizational level - because strategies involve decisions about key goals,

major policies and the allocation of resources they tend to be formulated at the

top.

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 Focus - strategies are business-driven and focus on organizational

effectiveness; thus in this perspective people are viewed primarily as resources

to be managed toward the achievement of strategic business goals.

Framework - strategies by their very nature provide unifying frameworks which

are at once broad, contingency-based and integrative. They incorporate a full

complement of HR goals and activities designed specifically to fit extant

environments and to be mutually reinforcing or synergistic.

This argument has been based on the fact that both HRM in its proper sense and HCM

rest on the assumption that people are treated as assets rather than costs and both focus on

the importance of adopting an integrated and strategic approach to managing people

which is the concern of all the stakeholders in an organization not just the people

management function. However, the concept of human capital management complements

and strengthens the concept of strategic HRM rather than replaces it (Armstrong, M et al

2002). It does this by:

drawing attention to the significance of management through measurement,

the aim being to establish a clear line of sight between HR interventions and

organizational success

providing guidance on what to measure, how to measure and how to report on

the outcomes of measurement

underlining the importance of using the measurements to prove that superior

people management is delivering superior results and to indicate the direction

in which HR strategy needs to go

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 reinforcing attention on the need to base HRM strategies and processes on the

requirement to create value through people and thus further the achievement of

organizational goals

defining the link between HRM and business strategy

strengthening the HRM belief that people are assets rather than costs

emphasizing role of HR specialists as business partners.

Hence both HCM and HRM can be regarded as vital components in the process of people

management and both form the basis for achieving human capital advantage through a

resource-based strategy.

An alternative way of looking at the relationship between strategic HRM and human

capital is in terms of the conversion of human capital into organizational value. Human

capital evaluation is useful in that it provides information about the current and potential

capabilities of human capital to inform the development of strategy. Business success

will be achieved if the organization is successful at managing this human capital to

achieve this potential and embed it in products and services which have a market value.

Strategic HRM could therefore be viewed as the defining framework within which these

evaluation, reporting and management process take place and ensure that they are

iterative and mutually reinforcing. Human capital therefore informs and in turn is shaped

by strategic HRM but it does not replace it.

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2.7 SHRM and the Resource Based View (RBV) of the Firm

The RBV of the firm is based on the ideas of Penrose (1959), who sees the firm as an

administrative organization and a collection of productive resources. A firm that obtains

and develops the human resource can achieve competitive advantage (Hamel & Prahalad

(1989). Other researchers have similarly advocated the need to align HR systems with the

firms strategy to create competitive advantage (Barney, 1986, 1991; and Wright &

McMahan, 1992). The underlying assumption of the RBV of the firm is resource

heterogeneity. This means that the resources that different firms own are unlikely to be

identical. Accordingly, these resources owned by the firm that help it achieve sustained

competitive advantage must meet four requirements. The resources must be (i) valuable,

(2) rare, (3) inimitable, and (4) non-substitutable. This follows therefore that if the

resources a firm employs cannot be easily imitated by another firm or substituted by

similar resources another firm employs the firm can easily take advantage of this to gain

competitiveness not simultaneously pursued by other firms. Snell, Youndt & Wright

(1996) argue that human resources meet these four requirements. Others have equally

shown that the linkage of organizational resources and firm strategy cannot be easily

identified and imitated by other firms due to the social complexity and causal ambiguity

(Barney, 1991, Boxall, 1998). Thus, the integration of human resource practices and

policies with the appropriate strategy can generate a sustained competitive advantage for

the firm (Wei, 2006).

The firms HR policies, practices and strategies are a unique blend of process,

procedures, personalities, styles, capabilities and organizational culture, which are

difficult to imitate. As Purcell, Kinnie, Hutchinson, Rayton & Swart (2003) point out, the

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values and HR policies of an organization constitute important non-imitable resources, as

long as they are enacted and implemented effectively. One of the most important factors

of competitive advantage is the ability to differentiate what a business supplies to its

customers from what is supplied by its competitors. Purcell et al (2003) maintain that

such differentiation can be achieved by having HR strategies, policies and practices

which ensure that:

1. The firm has higher quality people than its competitors.

2. The unique intellectual capital possessed by the business is developed and nurtured.

3. Organizational learning is encouraged, and

4. Organizational specific values and a culture exist that bind the organization together

[and] give it focus.

The RBV of the firm is concerned with developing strategic capacity, making adequate

investment in the organizations human capital to add more value to the firm. According

to Armstrong (2004:108), the aim of RBV is to improve resource capability - achieving

strategic fit between resources and opportunities, and obtaining added value from the

effective deployment of resources. It is generally acknowledged that the human resource

is an organizational asset, and when it is adequately trained and effectively deployed can

contribute immensely to the bottom line. Aligning the HR systems with business strategy

is therefore a sine qua non for organizational competitiveness. Business strategies

designed to achieve organizational objectives are not likely to succeed when HRM is not

involved in both strategy formulation and implementation. Organizations must create the

conducive environment for integrating HRM with business strategy since the HR supplies

the energies for driving organization strategies. Wei (2006) notes that the HR system and

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practices are crucial in facilitating the achievement of business strategy through the

management of people. Several studies have shown that a firms HR creates value in the

organization in different ways.

The impact of SHRM on organizational performance is quite obvious. SHRM has

positive effect on business performance (Martell & Carrol, 1995); SHRM can help an

organization to allocate its human 29 resources more effectively, promote operating

efficiency, and encourage creativity and innovation (Dyer, 1983; Walker, 1980); it

enables the firm cope more effectively with the challenges of environmental change

(Cook & Ferris, 1986; Tichy & Barnett, 1985); encourages a more proactive management

style, transmits organizational goals clearly and motivates greater involvement by line

managers in HRM concerns (Gomez-Mejia, Balking & Cardy, 1995); enhances

organizational morale, financial performance, and overall organizational performance

(Huang, 1998; Anderson, Cooper & Zhu, 2007); brings about commitment, customer

satisfaction and innovation (Pfeffer, 1994; Chew & Chong, 1999; Bowen, Galang &

Pillai, 2000; Wright & Kehoe, 2008); enhances market value per employee (Becker &

Huselid, 1998); creates value for customers and stakeholders (Ramlall, 2006);

and brings about return on equity (Delery & Doty, 1996). Garavan (2007:11) sees

strategic human resource development as contributing to the creation of firm-specific

knowledge and skill when it is aligned with the strategic goals of the organization.

Increased productivity has also been noted in small enterprises that align or integrate their

formal and informal HR practices and strategies with the business strategies of the

organization (Singh & Vohra, 2005).

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2.8 Human Behavior Factors

Most managers today understand the strategic implications of the information-based,

knowledge-driven, service-intensive economy. They know what the new game requires:

speed, flexibility and continuous self-renewal. They even are recognizing that skilled and

motivated people are central to the operations of any company that wishes to flourish in

the new age. And yet, a decade of organizational de-layering, de-staffing, re-structuring

and reengineering has produced employees who are more exhausted than empowered,

more cynical than self-renewing. Worse still, in many companies only marginal

managerial attention - if that - is focused on the problems of employee capability and

motivation. Somewhere between theory and practice, precious human capital is being

misused, wasted or lost.

Without belief in people no organization can outsmart competition, and develop a

sustainable competitive advantage that ensures its market competitiveness.

Demonstrating genuine belief in people takes more than speech-making to do.

Organizations of today should develop integrated systems that combine selection of the

best fit, job-matching, continuous skills and competencies development, fair

compensation, democratic leadership style, and creating attractive motivating work

environments. In his opinion, Dr. Fathi Al-Nadi (2007) sees that this HR orientation

approach relies on the organization's transparency; its readiness to trust its employees, its

willingness to empower them, and its sincerity to maintain a participative team spirit

where employees assume ownership and a deep sense of belonging. People were and can

always be a competitive advantage in a global market that became more demanding and

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very sensitive to the quality of services that goes with the product. Nowadays, a shift had

happened in customers perception of where the added value rests.

There is an escalating trend that it relies more on the quality of services and the fast

response to the customer needs rather than the product itself; so much so in service

industries. That's why the caliber of people makes the difference in achieving customer

satisfaction on one side and gaining bigger market shares on the other. Dr. Al-Nadi also

sees that HR professionals, especially in developing countries, have a role to play in

making themselves real strategic partners in their organizations. They need to have a

cause to promote and defend. They also need to gain more credibility in proving their

value in enhancing organizational performance and keeping it up-to-date on people's

issues and market demands to become customer driven and accomplish sustainable

competitiveness.

2.9 SHRM and Organizational Performance

Although most studies speak of SHRM practices leading to performance, such a one-way line of

causation is unsatisfactory (Edwards and Wright, 2001). The usual key criticism of SHRM

practices and organizational performance is that sound theoretical development that explains how

such SHRM practices operate is absent (Becker and Gerhart, 1996). In an effort to address such

theoretical developments in the area, scholars have proposed to consider intermediate linkages

between SHRM practices and organizational performance (Ferris et al, 1998). Thus the general

consensus developed is that SHRM practices do not lead directly to organizational performance.

Rather they influence firm resources, such as the human capital, or employee behaviors, and it is

these resources and behaviors that ultimately lead to performance; even though only a few

researchers (Katou and Budhwar, 2006) have measured these mediators and addressed their

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importance. Since the SHRM practices are not standardized and they only differ according to the

aims and objectives of each individual research, Katou and Budhwar (2006) suggest use of

mediating model which adopts two systems of SHRM practices that are usually present in

almost all works, namely, resourcing/development, aiming at attracting and developing human

resources; and rewards/relations, aiming at retaining and motivating human resources. Similarly,

Gerhart (2005) suggests application of motivation as a mechanism by which SHRM practices

impact organization performance.

Motivation is affected by a variety of SHRM practices, including recruitment, training and

development, work arrangements, compensation systems, and appraisal systems. However,

considering that the literature highlights that most studies examining the relationship between

SHRM practices and organizations performance have been conducted mostly in a few developed

countries (US and UK), and that only a few researchers have measured the mediators and

addressed their importance, the question still left unanswered is the influence of SHRM practices

on human capital or specifically, motivation and, consequently organizational performance in

other contexts (Katou and Budhwar, 2006). To fill this gap and to further examine the existence

of such a relationship, it is important to conduct research in non-US/UK contexts.

This study therefore seeks to investigate the association between SHRM practices and
organization performance and also the mediating role of employee motivation in the Nigerian
context.
Literature on SHRM shows that primarily there are three school of thoughts related to
implementation of SHRM practices:
Universalistic approach
This is the simplest approach, which operates with a basic assumption that there is a
linear relationship between variables and that can be extendable to entire population
(Delery and Doty, 1996)

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 Contingency approach
Many researchers contend that contingency approach is more complex than universalistic
approach because contingency approach is more inclined towards interactions rather than
simple linear relationship (Schoonhoven, 1981; Van, A, and Drazin, 1985; Venkatraman,
1989).
Configurational approach
This is the most complex one because this approach is concerned about the synergetic
effect of a certain SHRM practice (Doty, Glick, and Huber, 1994).
Although there is more theoretical significance of contingency and configurational
approach, but both of these approaches lack statistical significance, while on the other
hand, universalistic approach has more empirical significance (Syed et al., 2008). This
study examines the implications of universalistic approach. We are using seven best
practices of HRM that are described by Delery and Doty (1996) and further implemented
by Syed et al., (2008), which are discussed below.
2.1 Internal career opportunities
Internal career opportunities refer to the tendency whether to hire employees mostly from
within the organization or from the outside. According to Delery and Doty (1996),
organizations give importance to internal hiring as compared to external. Pfeffe (1994)
describes it as a give and take process in which managers promote their employees
primarily from within the organization and show trust on them and in return expect
greater performance.
The relationship between internal career opportunities and organizational performance is
empirically supported by Blackwell, Brickley, and Weisbach (1994) and Shay (2006),
who found a positive correlation between these variables. While, on the other hand,
Gaertner and Nollen (1989) relate the promotion rate with psychological commitment.
Furthermore, Ngo and Tsang, (1998) provide support to Gaertner and Nollens argument
in their study of 778 business executives in Hong Kong ,who found a positive impact on
commitment.
2.2 Training
Training refers to the quantity of official training given to employees. Organizations may
choose either to provide extensive official training or to rely on attaining expertise

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through selection. Literature on universalistic approach shows that training has the most
significant effect on organizations performance (Pfeffer, 1998, Pfeffer and Veiga 1999,
Harel and Tzafrirs, 1999, Syed et al., 2008, Shay, 2006). Several researchers are of the
view that training is a universal best practice (Arthur, 1992, Delaney and Huselid, 1996,
Huselid and Becker, 1996, Youndt, Snell, Dean, and Lepak, 1996).
In a study of Chinese firms, Syed et al. (2008) found training as the most influencing
SHRM practice that accounted for 12.17% variance in organizational performance. Hatch
and Dyer, (2004) found that extensive training caused fewer defects in products in their
study of 25 semiconductor manufacturing firms. Huang (2001a, b) studied 568 Taiwans
companies and found a significant direct relationship among training and product and
service quality. The findings of the study of managerial attitude toward HRM by
Jennings, Cyr, and Moore, (1995) also found training and development to be the most
significant SHRM practice, thereby supported the earlier studies.
2.3 Employee participation
Several researchers believe that employees participation is directly associated with
organizations performance (Arthur, 1992, Batt; Pfeffe, 1994; Colvin, and Keefe, 2002;
Hodson, 2002; Kato and Morishima, 2002; Shay, 2006). Batt, Colvin, and Keefe, (2002)
found an indirect relationship between employee participation in decision making and
employee turnover rate. While Hodson, (2002) found another dimension and showed that
workplace conflicts could be reduced through employee participation.
2.4 Result-oriented appraisals
According to Delery and Doty (1996), primarily appraisals are based on two types:
results based and behavior based. Behavior-based appraisals focus on the specific
behaviors that best match the job while result-oriented appraisals focus purely on the
results of those behaviors. In a result-oriented appraisal system, certain incentives are
given to employees on completion of their performance objectives (Pfeffer, 1998). Delery
and Doty, (1996) found a significant positive relationship between result-oriented
appraisal and organizational performance. Furthermore, the study by Syed et al., (2008)
also showed similar results.
2.5 Profit sharing

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Profit sharing refers to the integration of pay with organizational performance. Delery
and Doty, (1996) found a positive significant relationship of profit sharing with
performance. In a study of Chinese firms Syed et al., (2008) investigated the impact of
profit sharing on twofold performance measures and found a unique relation in which
profit sharing had a positive significant relation with only financial measures of
organizational performance and not significant relation with other dimensions of
performance ( product/service quality).

2.6 Employment security

The importance of employment security is emphasized by Pfeffer, (1998) who holds that
it is unrealistic on the part of the organizations to expect hard work, devotion and
commitment from their employees in the absence of employment security. Syed et al.,
(2008) found a positive significant relationship between employment security and
organizational performance. Furthermore, Pfeffer, (1998) describes that the importance of
employment security according to firms point of view is twofold: cost; and competition.
If organization does not provide its employees with job security then they obviously
switch towards better opportunities and thus increasing cost (training, selection etc) and
competition.
2.7 Job description
The degree to which job duties are well defined is very important. Delery and Doty,
(1996) find a moderate correlation between job description and a firms performance.
Furthermore, the study by Syed et al., (2008) shows that 8.30% variance in organizational
performance is observed due to job description.

What is Performance Measurement?

Performance measurement is simply a method for assessing progress towards stated

goals. It is not intended to act as a reward/punishment mechanism, but rather as a

communication and management tool. In Performance Measurement and Evaluation:

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Definitions and Relationships (GAO/GGD-98-26), the U.S. General Accounting Office

(GAO) defines performance measurement as the ongoing monitoring and reporting of

program accomplishments, particularly progress towards pre-established goals. It is

typically conducted by program or agency management. Performance measures may

address the type or level of program activities conducted (process), the direct products

and services delivered by a program (outputs), and/or the results of those products and

services (outcomes). A program may be any activity, project, function, or policy that has

an identifiable purpose or set of objectives.

Performance measures quantitatively tell us something important about our products,

services, and the processes that produce them. They are a tool to help us understand,

manage, and improve what our organizations do. Effective performance measures can let

us know:

How well we are doing,

If we are meeting our goals,

If our customers are satisfied,

If our processes are in statistical control, and

If and where improvements are necessary.

They provide us with the information necessary to make intelligent decisions about what

we do. A performance measure is composed of a number and a unit of measure. The

number gives us a magnitude (how much) and the unit gives the number a meaning

(what). Performance measures are always tied to a goal or an objective (the target).

Performance measures can be represented by single-dimensional units like hours, meters,

28
nanoseconds, dollars, number of reports, number of errors, number of CPR-certified

employees, length of time to design hardware, etc. They can show the variation in a

process or deviation from design specifications. Single-dimensional units of measure

usually represent very basic and fundamental measures of some process or product. More

often, multidimensional units of measure are used.

Relationship between SHRM and performance

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 CHAPTER THREE

RESEARCH METHODOLOGY

The following paragraphs discuss the methodology used in the research. First, the steps in

selecting the sample are explained. Then, the process of collecting data from the sample

firms themselves is discussed.

Sampling

Data was collected from 11 firms belonging to three segments of service sector viz.

Telecommunication (4 firms), Banking (5 firms) and Health (2 firms). These firms were

also both from public and private firms.

The universe of the research was chosen based on public perception that some of these

organizations are successful in their respective industries while others are benchmarking

on those who are perceived to be successful and that they consider their human resources

management to be of strategic importance to the organization. Accordingly, the research

sample was derived from one HR manager, two line managers/head of departments and

three employees from each organization. In all 66 responses were obtained in the four

major mobile telecommunications companies: (MTN, Globacom, Zain and Visafone),

banks: (GTBank, Zenith, UBA, FCMB and Intercontinental Bank) and hospitals

(University College Hospital Ibadan and State Hospital, ijebu Ode).

Data Collection

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The literature data were collected from various available secondary resources that include

published articles, books, past studies and website materials. The research concentrates

on the Descriptive and Inferential Analytical Approaches in testing its hypotheses in

order to determine the nature of the relationship between the independent and the

dependent variables. Empirical measures are utilized to establish this relationship through

the aid of statistical analysis software. Descriptive research involves attempting to define

or measure a particular observable fact, usually by attempting to estimate the strength or

intensity of behavior or the relationship between two behaviors. In other words, these

research approaches set out to describe the field in a comprehensive way.

This study used the questionnaire developed by Huselid (1995) to collect data. Huselids

instrument contains measures for SHRM practices, motivation and performance.

Huselids instrument had also been used in the US in nearly 1000 firms. Hence validity

and reliability of the instrument have been established. The questionnaire was divided

into five sections: Parts A and B asked questions related to demographic characteristics.

Part C, using a scale of 1-6 asked the respondents to give their opinion of the extent to

which they agreed or disagreed with the statements regarding SHRM practices. Bae et al

(1998) found reliability coefficients of 0.70 using similar scales, while Delaney and

Huselid (1996) reported coefficients of between 0.70 and 0.91. Part D asked questions

relating motivation to job and the organization. Delaney and Huselid (1996) found

positive relationships between the variables of interest. In part E the respondent was

asked to give information about organizational performance in the areas of product

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quality, image, and interpersonal relations. Previous scales used by Huselid (1996) had

shown reliability coefficients of between 0.75 and 0.88.

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