Volume 3, Issue 5 (May, 2014) Online ISSN-2320-0073

Published by: Abhinav Publication

Abhinav International Monthly Refereed Journal of Research in
Management & Technology
STRATEGIC HUMAN RESOURCE MANAGEMENT
APPROACHES AND PRACTICES AND ORGANIZATIONAL
PERFORMANCE
Sachin Bakshi1
Research Scholar, Department of Management, AISECT
University, Raisen, Madhya Pradesh, India
Email : [email protected]

Dr. Neha Mathur2

Associate Professor (UTD), Department of Management, AISECT
University, Raisen, Madhya Pradesh, India

Dr. Gaurav Bhagat3

Assistant Professor (UTD), Department of Management, B.U.I.T.,
Barkatullah University, Bhopal, Madhya Pradesh, India

Deepanjali Kalyankar4
Research Scholar, Department of Management, AISECT
University, Raisen, Madhya Pradesh, India
Email: [email protected]

ABSTRACT
The management of the organization has always been interested to improve the human resource (HR)
practices and policies to improve the performance of the organization. One of the multiple ways to
meet this objective was using “best practice” and “best fit” approaches. The main idea is if there is
“one best way” of HR policies or there are “many best ways” in order to have a better organizational
performance. The two concepts have been applied in the context of developing the role of the HR
department into a strategic department so that the HR policies have become “strategic”. Analyzing the
two approaches, the article will emphasise the need to have both horizontal and vertical fit inside the
organization. HR practices, be it an import of “best practices” or a “fit” to the internal and external
context of the organization, need to take into consideration the culture of the organization since it can
have an significant influence on motivation, satisfaction and membership of employees, thus ensuring
a positive impact on performance.
Keywords: HR Practices; Organizational Performance; HRM Approaches; Strategic Alignment

INTRODUCTION
This article sets the idea of a link between HR policy and organizational performance. Specifically, the
first part introduces the concept of organizational performance, taking into consideration different
approaches in understanding HR, as “best practice” and “best fit”, while the second part particularly
analyzes those two views. The final section argues that although difficult to measure, different HR
practices as well as the culture of the organization have an important influence on motivation,
satisfaction and membership of employees, thus ensuring a positive impact on performance.

Available online on www.abhinavjournal.com 86

 Abhinav International Monthly Refereed Journal of Research In
Management & Technology
In discussing the link between SHRM and organizational performance, we have to ask whether
strategic human resource management is really strategic? Analyzing the relationship between human
resource management (HRM) and the strategy of the organization, it can be argued that both horizontal
and vertical fit are needed. The fit between firm strategy and HRM strategy can be determined by the
characteristics of the strategy type and consistent HRM practices. The key argument to answer this
question has to take also into deep consideration if there is “one best way” to implement HR strategy
or there are “many best ways”. During the last 15-20 years, human resource management has gained a
strategic importance in different organizations, which consider that their human capital will contribute
to the continuous competitive advantage of the firm.
OBJECTIVES
This research paper aims to achieve the following objectives:
1. To review the various Human Resource Management Approaches and their fit to the
organization.
2. To investigate the aspect of alignment between HR Strategy and overall Organizational
Strategy.
3. To examine the strategic role of HR and its influence on organizational performance.
4. To provide recommendations regarding the better implementation HR Practices and
Approaches for improved organizational benefit.
Organizational Performance
Human resource activities are claimed to be related to the performance of a firm. However, the specific
form of this relationship is still open to debate and there is little agreement on how to evaluate this
influence that human resource management has into organizational performance. Although this, HR
has had the opportunity to prove, that it can contribute to organizational success through the
development of a more strategic role, delivery of efficient services and the facilitation of
organizational change, which are hard to measure, thus being evidence of SHRM but can be deducted
from the overall development of the company. This means also that if other strategic departments of a
company fail to provide success for the organization, the positive actions and role of SHRM is likely
to be disregarded. The company’s development based on a growing demand (and concern for) the
continuous improving of organizational effectiveness and profitability asks SHRM to be able to
provide a large variety of solutions to some of the dominant questions being posed by corporate life.
However, the answer HR can provide, seem to be totally different in organizations that have the same
structure and working areas, only because, as we will see in this article, nor “best practice”, neither
“best fit” were likely to provide absolute truth if not combined together.
Key element in discussions within HRM is the distinction between the so called best-practice and the
best-fit approaches. Some say there are universal best practices in HRM (Pfeffer, 1994), others argue
that there are only best-fit (Wood, 1999), stating that the effect of HR practices depends on the specific
(internal and external) context. Different ways of understanding how Human Resource Management
can play a strategic role into the organization and to evaluate if it can have an impact into the
organization’s performance took into consideration two approaches. The first one, best practice, based
on the belief that there is a superior set of HR policies, that applied into a wide variety of
circumstances will improve the organizational performance. The second approach, best fit, took into
consideration the idea that there is no universal prescription, it depends on the internal and external
context of the organization and it is “contingent” upon organization.
“Best Practice” View
“Best practice” view suggests a “bundle” of policies, which combined together are likely to achieve
better performance than making changes to individual practices only. Some authors (e.g., Pfeffer,
1994) believe that successful human resource systems have universalistic characteristics, i.e. there is a
VOL. 3, ISSUE 5 (May 2014) 87 Online ISSN 2320-0073
 Abhinav International Monthly Refereed Journal of Research In
Management & Technology
“best practice” on how to handle the firm’s human capital. Others like Milgrom and Roberts (1995)
argue, that the internal consistency of human resource systems matters for their design, i.e. and it is
possible to detect successful combinations (or bundles) of human resource practices. According to
“best practice” approach there is a set of successful HR policies that can be applied successfully in all
firms no matter their activity area. Pfeffer (1994) developed a set of sixteen best practices reduced in
1998 to seven: employment security, selective hiring, self managed teams/team working, high
compensation contingent on organizational performance, extensive training, reduction of status
differentials and sharing information.
Although there is not unanimous agreement in identifying these practices, the literature agrees there
are mutually compatible ‘bundles’ of HR policies that promote high levels of employee motivation and
commitment that positively impact on organizational performance. On the other hand, other
researchers have underlined the importance to avoid “deadly” combinations, for instance: individual
performance pay and team working (Delery, 1998).
Both approaches, „best practice” and „best fit”, believe that HR practices should be complimentary.
However, according to Purcell (1999), ‘…what is most notable about the best practice model is there is
no discussion on company strategy at all.’ The main idea of this view is that organizations adopting a
set of best practices attract super human resources, talent and competencies. “These superior human
resources will, in turn, influence the strategy the organization adopts and is the source of its
competitive advantage”. (Milkovich & Newman, 2002).
Guest, (et al., 2003) in a survey of 366 UK firms discovered that grater use of HR practices was
associated with lower labour turnover and higher profit per employee, but not with higher productivity.
He also suggests that although the association between HR practices and organizational performance is
confirmed, there is no evidence to show that the presence of HR practices causes a change in
performance. ‘Best practice’ advocates claim that there is a bundle of HR policies including the reward
system that lead to highly motivated and committed employees who are the key to an organization’s
competitive advantage.
The best practice theory has also some problems. For instance Boxall and Purcell 2003 question the
recipient of best practice. Who is to benefit from it, the employee or the employer? Is there room for
an employee voice in this discussion or is the emphasis simply on the perspective of shareholders and
managers? According to Pfeffer (1998), “Although labour markets are far from perfectly efficient, it is
nonetheless the case that some relationship exists between what a firm pays and the quality of the
workforce it attracts.” Best practice supporters place great emphasis on the need to attract and retain
the type of employees that will help an organization to gain and sustain competitive advantage, which
could be achieved through externally competitive pay levels. Marchinton and Gruglings (2000)
consider that best practices like teamwork and performance-related pay, that seem attractive, may not
offer universal benefits as they could actually lead to work intensification.
As ‘best practice’ advocates positively value low turnover, MacDuffie (1995) working on the idea of
the bundles of HR practices, argue that this practices need to be combined and just taking one or two is
likely to be ineffective or as Arkinson 1984 emphasis, best practices will not be the same and
employees would be treated differently based on how central they were to the core of the firm. As a
scarce strategic resource core employees and managers must be carefully allocated and continuously
developed. Also, since traditional sources related to markets, financial capital, and/or scale economies
is weakened by globalization, effective management of human capital may possibly be the significant
determinant of firm performance (e.g., Edvinson & Malone, 1997), but if so, that means we will have
different best practices for different employees in the firm, which isn’t exactly the meaning of best
practice theory. On the same time if all companies adopt these practices, how can they all achieve
competitive advantage or can the same practices work in totally different companies’ with different
strategy and culture?

VOL. 3, ISSUE 5 (May 2014) 88 Online ISSN 2320-0073

 Abhinav International Monthly Refereed Journal of Research In
Management & Technology
“Best Fit” View
As other questions seem to put a border to the idea of universal best practices, another approach seem
to take its place. This approach, the „best-fit”, suggest that the firm’s human resource system should be
contingent on contextual factors and the effectiveness of HR practices depends on their fit with both
external and internal context of the organization as there is no universal prescription that can be
applied no matter this context. Based on a psychological and socio-cultural framework, HRM actors
and activities are viewed as elements in complex ecosystems and economies. If human resource
practices would be more consistent, i.e. there would be a higher degree of “horizontal fit” (Delery &
Doty, 1996) for the firm to be efficient. Also, the firm’s effectiveness depends on whether it has
aligned its human resource management practices (Baron & Kreps, 1999) with its choice of strategy
and with the environment within which the firm operates, i.e. there is a “vertical fit” (Fombrun et al.,
1984; Delery & Doty, 1996).
Wood (1999) makes a distinction between four different ‘fits’: internal fit, organizational fit, strategic
fit and environmental fit. But what it seems to be missing is the fit between how the employee
perceives HR, practices and whether that perception aligns with the values and goals of the
organization. This problem was also raised in regards to best practice, is it best practice for the
organization or for employee? In both cases the approach seems to suffer from the employee
perspective.
The different views about best fit were centered on the inner or the outer context that influence HR.
Kochan and Barocci argued that HR practices needed during the start up phase are quite different from
those needed during growth, maturity and decline, while Porter (1980) suggested that HR policies
work best when they are adopted to the competitive strategy and are more likely to be source of
competitive advantage. Focusing on the same idea Miles and Snow (1978, 1984) and Jackson (1987),
exemplified that a strategy based on cost leadership will result in minimal levels of investment in
human capital with law standards for recruitment and poor levels of pay and training whereas a
strategy based on differentiation, calls for HR policies that encourage risk taking and cooperative
behaviour.
On the other hand the size of the organization is important as for larger organizations with multiple
hierarchy levels will be more difficult to replicate their HR policy at all levels but they will have more
resources needed to invest in formalized HR practices in recruitment or reward. But if all is contingent
to context and culture, does that mean that poor HR practices should be used in order to achieve
performance? The best fit approach suffered also multiple criticisms in the literature. For instance, if
the external environment changes, should firms keep changing their policies to fit with it? Purcell
(1999) argued that firms seeking for best-fit are effectively chasing a “chimera”, that is why a
company should be able to have both fit and flexibility to move to other best-fit and adapt easier to
different internal and external context.
In order to achieve internal consistency, the different elements of the HR architecture should be
characterized by being “organic” or “mechanistic” as presented in the next Table that shows a
hypotheses concerning the fit between overall HRM system characteristics and strategy type
(Andersen T, Eriksen B, Lemmergaard J, Povlsen L, 2006). They also argued that the overall focus of
organic HR systems is to meet demands for change, skill enhancement, and growth while the overall
focus of mechanistic HR systems is to meet the demands for operational results, stability and skill
utilization as a small deviation from an ideal HR architecture will lead to a small misfit, i.e. a small
negative performance deviation, while a large deviation will lead to a large negative performance
deviation, thus the cost of deviation increases with the size of the deviation.

VOL. 3, ISSUE 5 (May 2014) 89 Online ISSN 2320-0073

 Abhinav International Monthly Refereed Journal of Research In
Management & Technology
Table 1. Fit between HR Architectures and Strategy types
Defender Analyzer Prospector
HR Architecture
Mechanistic Fit Minor misfit Misfit
Mix of organic and mechanistic elements Minor misfit Fit Minor misfit
Organic Misfit Minor misfit Fit
Andersen, Eriksen, Lemmergaard and Povlsen also suggest that if the firm chooses an HR architecture
that does not fit with its strategy, misfits will appear as depicted in this Table. The potential misfits are
greater for defenders and prospectors, since prospectors can choose very mechanistic designs and
defenders can choose very organic designs.
Boxall and Purcell (2003) argue that both streams – best practice and best fit – might be right each in
their own way. Some basic principles like employee development, employee involvement and high
rewards are universally successful, but the actual design of the HR practice depends to some degree on
unique organizational contexts. The internal context - for example, the nature of the production system
(e.g., assembly line) - might create restrictions with respect to the successful design of some HR
practices (e.g., teamwork, performance related pay), but also the external context - for example, the
legislation and trade union influence - might have a direct impact on the optimal HRM design. So the
whole debate about universalistic best practices versus best-fit practices actually represents two sides
of the same coin and both are relevant in exploring the linkage between HRM and Performance.
(Paauwe J, Boselie J.P, 2005).
We suggest that there needs to be a fit between a bundle of HRM practices and the firm’s strategy,
thus meaning that there are ideal types of HRM systems that fit with ideal types of strategies. HRM
system as a system that is internally consistent and coherent is focused on solving operational
problems and implementing the firm’s competitive strategy. When it comes about methods for
measuring and valuating HRM, the absence of a widely accepted measure of the “high performance”
HRM practices construct makes it difficult to compare findings across studies but there is a broad
consensus that HRM systems includes rigorous recruitment and selection procedures, performance-
contingent incentive compensation systems, management development and training activities linked to
the needs of business, and significant commitment to employee involvement (e.g. Arthur, 1994;
Huselid, 1995; MacDuffy, 1995; Pfeffer, 1994).
But linking HR policies with the organizational performance has been one of the most difficult
challenges for practitioners. Although it could be argued that there is no need to question this link as it
is obvious that it is very difficult to measure it, HR had to prove that the measures taken are effective
and are of strategic importance for the organization. Most of the authors linked one part of HR, the
pay, with organizational performance, as this equation is easier to measure in terms of financial
investments in rewards, the costs and the change in performance and is the only one that really matters
for the manager’s and shareholders. Wagner (1990) claims that a primary concern in the design of
reward systems is how well the plan will work in motivating employees? Lawler (1995), states that
“perhaps the most obvious connection between reward systems and culture, concerns the practice of
performance-based pay”. A strategy of linking pay and performance implies a performance-orientated
culture. Pfeffer (1998) adds to this debate and states that long-term commitment can be achieved
through more rigorous recruitment and selection and greater investment by firms in training and
developing their work force. These are combined with an externally competitive reward system that
emphasizes group and collective contingent compensation linked to organizational performance over
individual incentives. The combined practices help organizations to attain and maintain the culture of
mutual commitment. This drive us to the conclusion that although managers usually link only reward
with performance, in order to appraise HR effectiveness, it is absolutely necessarily that other HR
practices, like those mentioned before, to be added to the reward scheme so that this could reach
organizational strategy targets and top managers requirements as, not only pay but also, training and

VOL. 3, ISSUE 5 (May 2014) 90 Online ISSN 2320-0073

 Abhinav International Monthly Refereed Journal of Research In
Management & Technology
continuous development, working environment or culture have an important influence on motivation,
satisfaction and membership of employees.
CONCLUSION
Since firms can chose many strategies for enhancing or creating added value based on the specifics of
their situation, it could be suggested that a contingent view on the fit between SHRM and the strategy
of the company is appropriate. But taking into account the key points of both „best fit” and „best
practice” and also their weakness in being universally successful, it has been argued in this article that
the type of climate and the system of HR practices must be aligned with each other and must be
aligned also with key organizational contextual variables, such as business strategy, internal attitudes
of the workforce or external environment along with using different models of best practice. The
article addressed also the idea that different HR practices combined with a competitive reward scheme
can have a positive impact into organizational performance and added value, thus ensuring HR a
strategic role in a firm’s decision making. There cannot be a single universal set of best practice that
can give positive results in any circumstances, but on the same time, having as a base for the
organizational strategy only the adaption to the situational context is a wrong decision. A balance
between the two options with importing the best practice available for a specific case and adapting
those practice to the context is a strategy that in more likely to bring success to the organization.
REFERENCES
1. Ashton, C., and Morton, L. (2005). Managing talent for competitive advantage. Human Resources
Strategic Review, 4(5), 28-31.
2. Aswathappa, K. (2008).Human Resource Management: Text and Cases. New Delhi: Tata
McGraw-Hill Publishing Company Limited.
3. Becker, B., and Gerhart, B. (1996). The Impact of Human Resource Management on
Organizational Performance: Progress and Prospect. Academy of Management Journal, 39(4), 779-
801.
4. Becker, B.E., and Huselid, M.A. (2000). High Performance Work Systems and Firm Performance:
A Synthesis of Research and Managerial Implications. Research in Personnel and Human
Resources Management, 27, 53-101.
5. Boselie, Paul, Paauwe, Jaap, Jansen, Paul, (2000). Human Resource Management and
Performance: Lessons from the Netherlands, Erasmus Research Institute of Management,
Rotterdam.
6. Chang, W.A. and Huang, T.C. (2005). Relationship between strategic human resource management
and firm performance. International Journal of Manpower, 26(5), 434-449.
7. Ericksen, J., and Dyer, L. (2005). Toward a Strategic Human Resource Management Model of
High Reliability Organizational Performance. International Journal of Human Resource
Management, 16, 907-928.
8. Gratton, Lynda et al., (1999). Strategic Human Resource Management, Oxford University Press,
New York.
9. Guest, D.E. (1997) Human resource management and performance: a review and research agenda.
The International Journal of Human Resource Management, 8(3), 263-276.
10. Katou, A., and Budhwar, P. (2007). The Effect of Human Resource Management Policies on
Organizational Performance in Greek Manufacturing Firms. Thunderbird International Business
Review, 49, 1, 1-35.
11. Khatri, N. (2000). Managing human resources for competitive advantage: A study of companies in
Singapore. International Journal of Human Resource Management, 11(2), 336-365.

VOL. 3, ISSUE 5 (May 2014) 91 Online ISSN 2320-0073

 Abhinav International Monthly Refereed Journal of Research In
Management & Technology
12. Marchington, M. and Grugulis, I. (2000) .Best practice. human resource management: perfect
opportunity or dangerous illusion? International Journal of Human Resource Management, 11(6),
1104-1124.
13. Pfeffer, J. (1995). Producing sustainable competitive advantage through people. Boston, MA:
Harvard Business School Press.
14. Rose, R.C., and Kumar, N. (2006). The influence of Organizational and Human Resource
Management Strategies on Performance. Performance Improvements, 45(4), 18-26.
15. Schuler, R.S. and Jackson, S.E. (1999).Strategic Human Resource Management: A Reader.
London: Blackwell.
16. Tzafrir, S.S. (2005). A universalistic perspective for explaining the relationship between HRM
practices and firm performance at different points in time. Journal of Managerial Psychology,
21(2), 109-130.
17. Ulrich, D. (1997). Measuring Human Resources: An overview of practice and a prescription for
results. Human Resources Management, 36(3), 303-320.
18. Wood, S. (1999). Human Resource Management and Performance. International Journal of
Management Reviews, 1, 367-413.

VOL. 3, ISSUE 5 (May 2014) 92 Online ISSN 2320-0073