European Journal of Economics, Finance and Administrative Sciences ISSN 1450-2275 Issue 24 (2010) EuroJournals, Inc. 2010 http://www.eurojournals.

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Effects of Human Resource Management Practices on Organizational Performance An Empirical Study of Oil and Gas Industry in Pakistan
Muhammad Asif Khan Assistant Professor, Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST) Islamabad, Pakistan E-mail: dr.asif@szabist-isb.edu.pk Tel: 92-51-4863363 / 209 Abstract The study evaluates the effects of human resource management practices on organizational performance in Oil and Gas Industry in Pakistan. A total of 150 managers of 20 randomly selected firms from Oil and Gas Industry responded to self-reported questionnaire that measured five HRM practices and subjective measures of organizational performance. Factor analysis was performed to identify human resource management practices. Regression analysis indicated a positive and statistically significant association of these practices with organizational performance. The study provides insight to management to use these practices as strategic tool for superior performance, and add to the limited empirical knowledge that exists in Pakistani context.

Keywords: Human resource management, organizational performance, Oil and gas industry, Pakistan.

1. Introduction
Changing business environment in knowledge economy has made adoption of human resource management (HRM) imperative for competitive advantage. The impact of HRM practices on business performance has been extensively studied in the recent past. These studies have found a positive association between HRM practices and firms performance (Becker & Huselid, 1998; Chang & Kuo, 2004; Jarventaus, 2007; Rizov & Croucher, 2008; Sang, 2005). Most of these studies have been undertaken in the United States, and Europe (Boseli et al., 2001; Hoque, 1999) and Asia (Bjorkman, I. and Xiucheng, 2002; Kundu & Malhan, 2007; Ngo et al., 1998). Within Pakistan, limited research has been done to examine the relationship of HRM practices and organizational performance. The strategic role of HRM has been well established. In Pakistan, there has been immense realization of the impact of strategic use of HRM practices and visionary companies are setting the pace to leverage this aspect for competitive advantage. HRM practitioners are striving to meet the emerging challenges of new values of knowledge workers who have necessitated a new paradigm of peoples management characterized by heavy investment in human capital and innovative use of HRM practices for attraction and retention of talents for organizational sustainability. The Oil and Gas Industry in Pakistan is vital for the economy and considered as an issue of national self reliance, national security, and a major source of governments revenues. With limited proven reserve of oil and gas in the country, Pakistan meets only 18% of the total domestic demands. The government incurs a colossal amount of scare foreign exchange on the import of oil bill. The

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economic environment in the country and dependence on imported oil has accentuated the problems for the government, people, and organizations. To meet the challenges of shortage of oil and gas, the government of Pakistan announced new Policy in 2009 for this Industry. The policy envisions self sufficiency in oil and gas production and a proactive approach on development of human resource to the international standards, and creating conducive environment for their retention in the country. Organizations operating in Oil and Gas Industry in Pakistan are aligning their strategy to meet the laid down objectives. Doek-Seob (2001) noted that HRM practices become a strategic instrument during economic downturn. No empirical research has so far been undertaken to investigate the effects of HRM practices on firms performance in this industry. Thus a gap exists in the research in this area of strategic importance. The present study is an attempt to address this gap. The present study will offer valuable insight to the management of these organizations about the strategic importance of HRM practices for superior and sustainable organizational performance. In addition, it will add information to the limited empirical knowledge about link of HRM practices and business performance in a developing economy, where the strategic role of HRM is gaining popularity as a vital tool for business performance. The aim of this study is to examine the effects of HRM practices on organizational performance in Oil and Gas Industry in Pakistan.

2. Literature Review
Lately, human resource management has emerged as an essential factor for sustained competitive advantage. Research highlights that organizations develop sustained competitive advantage through management of scare and valuable resources (Barney, 1991). The human resource enables organizations to achieve optimization of resource, effectiveness, and continuous improvement consistently (Wernerfelt, 1984). An organization take time to nurture and develop human capital in the form of knowledge, skills, abilities, motivation, attitude, and interpersonal relationship, and makes it difficult for competitors to imitate (Becker & Gerhart, 1996). Pfeffer (1994) stressed that human resource has been vital for firm sustained performance. In knowledge economy, the human resource has been recognized as a strategic tool, essential to organizational profitability and sustainability. This realization has led to the new role of human resource managers as strategic partners in formulation and implementing organizational strategy (Myloni et al., 2004). Organizations are pursing proactively human resource management (HRM) practices and systems to capitalize on strength of this vital asset for sustained competitive advantage in knowledge economy (Jackson & Schuler, 2000; Mac Duffie, 1995) Review of literature indicated essential HRM practices as workforce planning (Matthis & Jackson, 2004); job analysis (Cascio, 2006; Dessler, 2003); training and development (Kundo, 2003); recruitment and selection (Kulik, 2004); compensation and reward (Milkovich & Newmen, 1999); performance appraisal (Bernardin & Russel, 1993); career management (Schein, 1996); human resource information system (Wolfe, 1998); quality of work life, personnel diversity, employees attitude surveys (Armstrong, 2005; Bracken, 2000; Hayes, 1999). In meta-analysis of 104 articles, Boselie et al., (2005) concluded that the top four HRM practices are efficient recruitment and selection, training and development, contingency and reward system, and performance management that have been extensively used by different researchers. In recent years, the focus of research on HRM has shifted from study and relationship of individual HRM practices on business performance to entire HRM system and its influence on organizational performance. The researchers have different views about this new paradigm. Some researchers claim that the system view of HRM is appropriate, but others contend that to arbitrarily combine multiple [HRM sub-] dimensions into one measure creates unnecessary reliability problems (Becker & Huselid, 1988, p.63). In addition, comprehensive examination of individual HRM practices highlights the significant predictor of business performance (Bjorkman & Budhwar, 2007).

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Researchers have used financial and non financial metrics to measure organizational performance. The financial measures include profit, sales, and market share. Non-financial measures include productivity, quality, efficiency, and the attitudinal and behavioural measures such as commitment, intention to quit, and satisfaction. (Dyer & Reeves, 1995). Divergent views exist to measure the organizational performance based on financial as well as non-financial measures. Hoskisson et al., (2000) identified the problems related to measurement of financial dimensions in emerging economies. It has been argued that lack of market based financial reporting, inadequate regulatory mechanism and enforcement about financial reporting, lack of transparency in financial reporting, and provision of fictitious financial information are important issues facing emerging economies (Bae & Lawer, 2000; Hoskisson et al., 2000). A subjective measure facilitates managers to take into account organizational goals when evaluating its performance. Researchers argue that though perceptual measure may introduce limitations, the benefits are far greater than the risks. Several researchers have raised persuasive doubts about the causal distance between an HR input and such output based on financial performance. Put simply, so many other variables and events, both internal and external, affect organizations that this direct relationship rather strains credibility (cited in Boselie et al., 2005, p.75). The researchers argued that more proximal measures over which employees exert influence are theoretically more plausible and methodically easier to link. These include productivity (Chang & Chen, 2002; Huselid, 1995; Kato & Morishima, 2002; quality of product and service (MacDuffie, 1995; Jayaram et al., 1999), job satisfaction (Guest, 1999; Hoque, 1999), employees turnover intentions (Batt, 2002; Shaw et al., 1998), absenteeism (Lowe et al., 1997), trust in management (Whitener, 2001), and commitment (Tsui et al., 1997). Researchers also examined the negative impact of HRM practices on firm performance that include employees stress level (Ramsay et al., 2000); job-home spill over (White et al., 2003). In literature, primacy exists with regard to the use of subjective measures in earlier studies (Delaney & Huselid, 1996; Youndt et al., 1996). Strong evidence exist in prior studies that subjective measurement associate well with objective measures of organizations performance (Geringer & Hebert, 1991; Powell, 1992). Wall et al. (2004) found that self-reported data is related to limited biases. The researchers have investigated empirically the effects of HRM practices on organizational performance (Becker & Huselid, 1998; Boselie, 2002; Guest, 1997). Recent studies reflect an impressive influence of HRM practices on organizational performance. Researchers have divergent views about impact of HRM practices and firms performance. They argue that HRM practices and performance research have common attributes as well as contradictions (Boselie et al., 2005; Katou & Budhwar, 2006; Wall & Wood, 2005, Wright & Boswell, 2002). In a study in Greece, Katou and Bedhwar (2006) found that HRM practices of staffing, training and promotion, involvement of employees, incentives, and safety and health have positive relationship with firms performance. In a study of managers from Taiwan and Cambodia, Sang (2005) concluded that workforce planning; staffing; compensation, and incentives; teamwork; training, and employee security had a positive and significant influence on non-financial and financial dimensions of organizational performance. The study validated the positive effects on operational dimensions of performance, namely, production flexibility, product cost, product quality, and product delivery. In a comparative study of United States and Japan, Ichniowski and Shaw (1999) found that Japanese firms were more productive than United States firms on account of implementing HRM practices. In a study in Taiwanese high technology firms, Chang and Chen (2002) established that HRM practices of workforce planning, training and development, benefits, teamwork, and performance appraisal significantly affected productivity. The study also found the negative relationship between human resource planning and employees turnover. Ngo et al., (1998), in a study in Hong Kong companies, found that HRM practices of training and compensation increased firms performance. Tessema and Soeters (2006) investigated influence of

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HR practices in Eritrea. The study found that efficient implementation of these practices enhanced the performance at individual and organization level. In a study in India, Paul and Anantharaman (2003) found indirect effects of HRM related activities on operational and financial performance of firms. The study did not find the causal association of single HRM practice with business performance. In another study Sing (2003) found that strategic use of HRM practices positively affect performance of organizations in India. BjorkmanIn and Xiucheng (2002) investigated the outcome of HRM practices on Western firms performance in China, and found a positive association between HRM practices and performance. Bartel (2000) evaluated the impact of HRM practices on performance in Canada and found significantly positive relationship between two constructs. In Israel, Harel and Tzafrir (1999) found that HR practices had positive relationship with firms performance in public and private sectors. In Korea, Bae and Lawler (2000) concluded that HRM practices significantly affect organizational performance. Lee and Chee (1996) in their study did not find as association between HRM practices and business performance. Bae et al., (2003) concluded that high-performance work practices produced excellent results in Pacific Rim countries. Morishima (1998) concluded that organizations with integrated HR practices performed well in Japan than organizations with poorly integrated personnel practice In a study in New Zeeland, Guthrie (2003) validated the impact of HRM practices on employee turnover and profitability. Lee and Lee (2007) established that workforce planning, teamwork, training and development, compensation and incentives, performance appraisal, and employees security are important HRM dimensions that affect productivity, product quality, and business performance. In a study in Taiwan, Chang and Chen (2002) determined significantly positive relationship of HRM practices with organizational performance. The study also found a negative relationship of workforce planning with employees turnover. It is argued that HRM practices enhance employees competency and motivation that affect organizational performance (Harel & Tzafrir, 1996) contended that HRM practices based on quality hiring, development, and retention boosts firms capability. Tsai (2006), in a study in Taiwan, found a positive relationship of employees empowerment and firms performance. In a study of HRM practices in Chinese small and medium enterprises, participatory decision-making, performance-based pay, free market selection and performance appraisal, employees commitment emerged as the most essential outcome for improving performance (Zheng et al., 2006). Rizov and Croucher (2008) empirically examined the relationship of HRM practices and organizational performance in European firms. They found that collaborative form of HRM practices (characterized by valuing employees as assets and core partners, creating and communicating a culture of partnership between employer and employees as well as among employees, communicating organizations mission, values, goals and strategy statement through explicit open communication policy and strong support for employees consultative bodies like unions and committees) reflected positive and statistically significant association with firms performance. Ahmed and Schroeder (2003) investigated effects of selective hiring, employment security, decentralization and use of teams, incentive and compensation, extensive training, status differences, and information sharing on organizational performance (quality, cost, flexibility, delivery and commitment). The study confirmed the positive and significant relationship of HRM practices with firms operational performance Researchers (Chiu et al., 2002; Tepstra & Rozell, 1993) have established that HRM practices of extensive recruitment and selection, training and development, and compensation systems have positive association with firms performance. Lam and White (1998) established that effective recruitment, competitive compensation, and efficient training and development have relationship with financial dimensions of performance (growth in sales, return on assets, and growth in stock values. Green et al., (2006) concluded that integrated

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approach to HR practices exhibited satisfied and committed employees who demonstrated remarkable individual and team performance. Harel and Tzafrir(1996) argued that HRM practices improve employees knowledge, skills and abilities (selection and training), through enhanced motivation (compensation and reward). Studies established that HRM practices aimed at acquisition and development of employees is an essential investment that develop valuable and rare human assets (Becker & Huselid, 1998) Huselid(1995) established that high involvement HRM practices have positive relationship with corporate performance, productivity, work attachment, and financial performance. Delaney and Huselid (1996) confirmed that selective staffing; compensation and incentive, and training had positive influence on performance of organization. A significant number of empirical studies have explored the relationship between HRM practices and firms performance in American organizations (Arthur, 1994; Huselid et al., 1997; Youndt et al., 1996). Wright et al. (2005) explored the effect of HRM practices on firms performance in 45 business units in America and Canada and established a causal association between HRM practices and business performance. In Western countries, several studies have examined this relationship. In a study of 428 firms in Finland, HRM practices had positive influence on firms performance Lahteenmaki et al. (1998). Guthrie (2001) studied 128 companies in New Zeeland and found positive relationship between high-involvement work practices and firms performance. In Taiwan, Chang and Chen (2002) studied 62 firms to determine the effects of HRM practices on business performance and found a positive association. Stavrou and Brewster (2005), in a study of 3702 firms from European Members countries discovered a positive association between strategic HRM practices and business performance. The initial studies focused on establishing a link of single HRM practices to firms performance (Cutcher-Gershenfeld, 1991). Subsequently group of HRM practices were identified as High Performance Work Systems (HPWS), and researchers established link of HPWP with excellent performance of organizations (Appelbaum, 2000; Huselid, 1995). Cappelli and Neumark (2001) found negative outcome of these practices with regard to firms performance. Godard (2004) argued that poor employee relationship limits the effectiveness of these HPWP. Strong evidence exists in literature about different HRM practices and their effects on superior firms performance. Researchers found a positive relationship between effective recruitment and selection practices and top-class performance (Harel & Tzafrir, 1996; Delany & Huselid, 1996); training and development (Bartel, 1994; Fey et al., 2000); compensation and reward (Chie et al., 2002; Batt, 2002); performance appraisal (Boselie et al., 2001, Bjorkmand & Xiucheng, 2002); employee relations (Kuo, 2004). Prior studies have validated the link between HRM practices and superior business performance in United States and Europe (Boselie et al., 2001; Hoque, 1999); Asia (Bjorkmand & Xiucheng, 2002; Ngo et al., 1998) and Africa (Chebregiorgis & Karsten, 2007). Empirical studies indicate a strong and positive association between HRM practices and performance of organizations. (Cappeli, 1998; Katou & Budhwar, 2007; Kuo, 2004; Huselid et al., 1997; Youndt et al., 1996). The present study investigated five HRM practices namely; training and development, recruitment and selection, compensation and reward, performance appraisal, and employee relation and examined the effects of these practices on subjective measures of performance (product quality, productivity efficiency and overall perceived performance compared to industry average).

3. Research Hypotheses and Theoretical Framework

Based on the comprehensive study of literature, following hypotheses emerge: H 1: Recruitment and selection has significant relationship with organizational performance. H 2: Training and development has significant relationship with organizational performance. H 3: Performance appraisal has significant relationship with organizational performance

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European Journal of Economics, Finance and Administrative Sciences - Issue 24 (2010) H 4: Compensation and rewards has significant relationship with organizational performance. H 5: Employee relations has significant relationship with organizational performance.

4. Research Method
4.1. Sample and Data Collection Questionnaire survey was carried out between June-December 2009. Presently twenty eight companies (Public and Private Sectors) are operating in Pakistan. Primary data was collected from a sample of 20 randomly selected companies operating in public and private sectors in Oil and Gas Industry in Pakistan. The companies were chosen from the directory of Ministry of Petroleum and Natural Resource, Government of Pakistan. Two hundred questionnaires were despatched to these companies. A total of 150 filled questionnaires were received with a response rate of 75%. The respondents were managers in these companies at various tiers of management. 4.2. Measurement Development Most of the statements used in the survey were drawn from an in-depth study of literature on HRM practices and its impact on organizational performance. The items used in the study were adapted from different studies (Ghebregiorgis & Karsten, 2007; Kundu & Malhan, 2007; Lee & Lee, 2007; Tzafir, 2005). The instrument measured five HRM practices and its effect on organizational performance. The recruitment and selection practices contained (5 items); training and development (8 items); performance appraisal (6 items); compensation and rewards (6 items); employee participation (4 items); and organizational performance (5 items) respectively. The organizational performance measure included (5 items) related to perceived quality of products and services, production cost, market share, performance relative to competitors, and organizations performance relative to industry average. Five points rating scale was used to measure the response. The scale ranged from five (strongly agree) to one (strongly disagree). 4.3. Pilot Testing of Instrument The instrument was pilot tested using a sample of 40 managers from the population. The results of pilot study reflected appropriate adequacy (Nunnally, 1978).The Cronbachs alpha of variables ranged from 0.782 to 0.856 respectively. 4.4. Results and Analysis 4.4.1. Descriptive Statistics The results of descriptive statistics indicated general agreement of the respondents to the different HRM practices. The mean values ranged from highest 4.876 to lowest 4. 123). The results for training and development indicated highest concurrence (Mean = 4. 876, Standard Deviation = 0.715); recruitment and selection (Mean = 4.431, Standard Deviation = 0.829); performance appraisal (Mean = 4.217, Standard Deviation = 0.737); compensation and reward (Mean = 4.129, Standard Deviation = 0.924); employee participation (Mean = 4.123, Standard Deviation = 0.847); and organizational performance (Mean = 4.738, Standard Deviation = 0.571) respectively. The mean score and standard deviation reflected conformity of respondents perception about these HRM practices and the agreement to the model. 4.1.2. Reliability and Validity of Data The results indicated Cronbachs alpha for questionnaire (35 items) was 0.931. The Cronbachs alpha for individual variable of recruitment and selection (0.785); training and development (0.802);

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performance appraisal (0.845); compensation and reward (0.794); and organizational performance (0.823) were found above acceptable level (Nunnally, 1978). Results are at Table 1. 4.1.3. Test of Normality of Data Collinearity test was undertaken to determine the normality of data. Results are at Table 3.The results reflected that Tolerance levels (< or equal to 0.01) and Variation Inflation Factor (VIF) values (below 10) were within acceptable range (Kleinbaum et al., 1988). Durbin Watson values for all factors were between 1.5 and 2.5). The results did not indicate multicollinearity between variables. Results are at Table 2.
Table 1: Reliability Analysis
Cronbachs Alpha .785 .802 .845 .794 .826 .823 .931

Variables Recruitment and Selection Training and Development Performance Appraisal Compensation and Rewards Employee Relations Organizational Performance Overall Alpha for the instrument

Table 2:

Test of Collinearity
Tolerance 651 .585 .507 .733 .704 Variance Inflation Factor (VIF) 1.537 1.709 1.974 1.364 1.364

Variables Recruitment and Selection. Training and Development Performance Appraisal Compensation and Rewards Employee Relations

4.1.4. Correlation Analysis The results of correlation analysis are at Table 3. The results indicated that all variables have positive relationship and statistically significant at (p < 0.001).
Table 3: Correlation Matrix
PA CR EP OP

Variables RS TD RS TD 0.560** PA 0.409** 0.511** CR 0.340** 0.321** EP 0.277** 0.358** OP 0.440** 0.450** ** Significance at p < 0.001 level (2 tailed) * Significance at p < 0.05 level (2 tailed) RS TD PA CR ER OP Recruitment and Selection Training and Development Performance Appraisal Compensation and Rewards Employee Participation Organizational Performance

0.485** 0.527** 0.395**

0.195* 0.361**

0.342**

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4.1.5. Factor Analysis Exploratory principal component factory analysis with Varimax rotation identified five HRM practices namely; recruitment and selection; training and development; performance appraisal; compensation and rewards; and employee participation. Results of factory analysis are at Table 4. The Kaiser-MeyerOlkin measure of sampling adequacy exhibited score of (0.865). The Bartletts test of sphericity is significant at (p < 0.001).Factors loading (< 0.50) were not shown whereas factors with Eigen values (>1.0) were retained. The five HRM practices accounted for 62.5% of total explained variance. The first factor was categorized as recruitment and selection. This factor had five scale items and related to formal induction, orientation and socialization process, availability of information about the job, use of comprehensive tests, merit-based hiring and selection on person-job fit philosophy. This factor accounted for (65%) of explained variance and considered as most vital. The second factor training and development had nine scale items and comprised of need based training and development criteria, formal training programmes with focus on development, clear career path for individuals, acquisition of multi-skills, and formal evaluation of effectiveness of training. This factor explained (54 %) of variance. The third factor performance appraisal accounted for (52 %) of variance. This factor consisted of six items pertaining to objective, fair and transparent performance appraisal system with strategic congruence, quantifiable results, participation of employees in performance goal setting, continuous formal and informal monitoring, and feedback about performance, and provisions to employees to challenge the rating by supervisors.
Table 4:
S.N. 1.

Results of Factor Analysis

% Variance Explained 65

2.

3.

4.

5.

Factor and Loading Recruitment and Selection - RS 1 .849 - RS 2 .785 - RS 3 .806 - RS 4 .798 - RS 5 .787 Training and Development - TD 6 .735 - TD 7 .760 - TD 8 .820 - TD 9 .610 - TD 10 .859 - TD 11 .781 - TD 12 .664 - TD 13 .640 Performance Appraisal - PA 14 .659 - PA 15 .752 - PA 16 .781 - PA 17 .761 - PA 18 .752 - PA 19 .640 Compensation and Rewards - CR 20 .723 - CR 21 .726 - CR 22 .753 - CR 23 .818 - CR 24 .752 - CR 25 .780 Employee Relations - ER 26 .802 - ER 27 .755

54

52

58

53

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- ER 28 .733 - ER 29 .610 Notes: Extraction Method: Principal Component Analysis, Rotation Method, Varimax with Kaiser normalization - Factor loading > 0.50 Eigen value > 1.

The fourth factor compensation and rewards explained (58%) variance. The factor was defined by six scale items and was primarily related to competitive pay package that is disseminated to employees, performance-based pay, comprehensive incentive plans based on employees contribution to firms objectives, and combination of monetary and non-monetary rewards, and social recognition, and appreciation. The fifth factor employee participation accounted for (53 %) of variance and comprised of four scale items regarding employees participation in decision making, provision of open door communication, autonomy in their functional areas, and opportunities to suggest improvements in the way things are performed. 4.1.6. Regression Analysis The results of regression analysis based on independent variables (recruitment and selection, training and development, performance appraisal, compensation and rewards, and employee participation are reflected in Table 5.. The overall model fit for regression equation was determined by F statistics. The model indicate positive and statistically significant relationship (F = 10.639, p < 0.001). The independent variables accounted for 42.4% (R2 = 0.424) of variance in dependent variable of organizational performance. Training and development with highest beta coefficient (0.450) is the most significant HRM practice followed by recruitment and selection with beta coefficient (0.440), performance appraisal (Beta = 0.361), compensation and rewards (Beta = 0.361), and employee participation (Beta = 0.342) respectively.
Table 5: Regression Analysis
Observed t-value 5.362 5.158 4.715 3.987 3.987 Significance level *000 *000 *000 *000 *000

Items Proposed Effects Path Coefficient Recruitment and Selection + .440 Training and Development + .450 Performance Appraisal + .395 Compensation and Rewards + .361 Employee Relations + .342 Significance level: *p < 0.001; N =150 Overall model: F = 10.639; p < 0.001; R2 = 0. 424; Adjusted R2 = 0.398

5. Discussion
The paper contributes to understanding of influence of HRM practices on organizational performance in Pakistan. The results of the study offered empirical support for the existence of a positive and statistically significant influence of HRM practices on organizational performance in Pakistan. Our study of Oil and Gas Sector in Pakistan offered support for the hypothesized positive effects of HRM practices on organizational performance. The results indicate statistically significant relationship of recruitment and selection, training and development, performance appraisal, compensation and rewards, and employee participation with organizational performance. Together with earlier studies on HRM practices and firms performance, the result of present study indicate that extensive use of an integrated approach to efficient HRM practices yield positive results in term of their effects on organizational performance. In context of Pakistan, it would be pertinent to substantiate these results through empirical studies of other industries of the economy. Review of literature identified five essential HRM practices namely; recruitment and selection, training and development, performance appraisal, compensation and reward, and employee

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participation. These practices have been used in the present study to evaluate the effects of these practices on organizational performance. Recruitment and selection primarily aims at attracting maximum number of highly talented applicants and selecting the best to achieve competitiveness. The process entails concerted efforts by management to ensure implementation enduring success of organizational strategy. Cisco (2006) argued that without excellent induction, the execution of organizational strategy may vacillate. Effective selection system based on modern and need-based tests is essential to affect desirable selection. Considerable resource are needed to ensure the effectiveness of these selection tests. Pfeffer (1995) contended that maximum resource should be dedicated to develop top- quality selection system. Compatible of individual and organizational value is an essential dimension that should receive priority for sustained retention. Jyothi and Venkatesh (2006) concluded that person-job fit yields sustainable results. Merit-based and transparent induction system enhances organizational credibility and makes the workforce loyal to the organization. In addition it communicates prospects of excellent performance and conveys the employees oriented value of the firm. Gomez-Mejia et al. (2003) strongly favoured an induction system free of discrimination. Effective orientation and socialization programmes are essential to affect sustained improvement in productivity and reduce intention to quit (Garvey, 2001) Delany and Huselid (1996) established that practicing an effective recruitment and selection process has positive relationship with organizational performance. Researchers have found a positive and statistically significant association between use of recruitment and selection procedure and profits (Terpstra & Rozell, 1993), and employee productivity (Huselid, 1995; Koch & McGrath, 1996) In knowledge economy, competencies development forms an essential dimension for firms competitiveness. Knowledgeable and highly skilled employees improve productivity, enhance quality of products and services, affect positive changes in processes and deliver quality service to customers. Training and development generate tangible outcome (improved productivity, quality of products and services, and resource optimization), and intangible results in terms of enhanced self esteem, high morale, and satisfaction of employees due to acquisition of additional knowledge, skills, and abilities. Kundu (2000) stressed that companies should invest heavily in training the workforce for implementation of customer focused strategy. Blair and Sisakhti (2007) found that expenditures on training and development yield enormous benefits. Researchers have concluded that investment in training yields strategic advantage to the organizations (Bitner & Zeithmal, 2001). Dynamic environment and changing customers need unique approaches and techniques, and up-to-date skills to provide differentiated and superior services. Changing business environment necessitates that learning organizations should spend on training of employees to enhance organizational ability to positively respond to the dynamic environment (Jarventaus, 2007). Strategic focus on training, acquisition of new skills based on firms future needs, training in hard and soft skills, and evaluating effectiveness of training are vital to achieve enduring results. Career development has psychological meaning to the employees. Researchers argue that organizations should pursue participative mechanism to develop career related objectives of employees, make effective plans, implement and monitor the effectiveness of these plans to achieve employees career objectives (Carnzza, 1982; GreenHaus, 1987; Hall, 1986). Rigorous research has been done to examine the effects of training and development on business performance. The researchers found positive and significant link between investment in training and development activities and firms performance (Kallerberg & Moody, 1994; Russel et al., 1995). Strong evidence exits in literature that organization with effective training pursuits experience lower employee turnover (Arthur, 1994; Fey et al., 2000). Researchers have also established that comprehensive training and development activities are positively related to productivity, reduce staff intention to leave, and organizational effectiveness (Aragon-Sanchez et al., 2003; Lee & Bruvold, 2003. The research concluded that training and development positively affect business performance (Delaney & Huselid, 1996; Jarventaus, 2007; Kelleberg & Moody, 1994; Koch & McGrath, 1996).

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Performance appraisal is based on demonstrated achievement of performance objectives established pertaining to a specified job within a given time period. This process plays a vital role in influencing the perception of employees about self and about their contribution toward organizational goals. Bdernardin and Russel (1993) argued that wider communication of performance appraisal policies within organizational is essential to make employees clear about their specific role expected as contribution in organizational performance (Landy & Far, 1980). Haunstein (1998) argued that the process should be based on objective and quantifiable results. The system should be based on fairness, objectivity, inclusiveness, ethicality, standardization, and widely communicated (Bernardin et al., 1998; Landy & Far, 1980; Webb, 2004). Regular monitoring of the performance and constant feedback about performance is essential to get the desired results. Researchers established that employees participation in setting performance goals, clarity about performance standards, flexibility of the system to respond to the changing needs, and employee right to appeal against performance evaluation are vital attributes of an effective performance appraisal that contributes toward superior performance by workforce (Islam & Rasad, 2006; Sidin et al., 2003; Webb, 2004; Wu, 2005). Strong evidence in literature highlight that performance appraisal has positive link with business performance. Lee and Lee (2007) found that effective performance appraisal system improves productivity, and quality. Sang (2005) established that a comprehensive, fair and customers focused performance appraisal system improves business performance. Rahman (2006) found that comprehensive performance appraisal enhance employees commitment. Brown and Hewood (2005) argued that performance appraisal system has positive link with improved productivity of organizations. The effective process of monitoring and feedback between employees and supervisors strengthens the relationships (Cook & Crossman, 2004). Performance appraisal is a vital means to offer promotion, recognition, and career development (Larsson et al. 2007). Hanley (2005) argued that developmental purpose of performance appraisal is more productive in influencing organizational performance. Researchers found positive and significant relationship between performance appraisal and organizational performance (Ahmed & Schroeders, 2003; Chang & Chen, 2002; Kuo, 2004; Sang, 2005). Compensation includes all forms of monetary returns and allied services provided to employees (Milkovich & Newman, 1999). A comprehensive compensation mix augmented by an effective system of disbursement plays an effective role in attracting the best candidates, shaping employees, behaviour and performance outcome, and facilitates retention of talents. Application of competencies enhances performance and improves effectiveness. Berndardin and Russel (1993) concluded that compensation and reward planning is a vital dimension of effective HRM policies. Mathis and Jackson (2004) argued that a balanced, fair and competitive compensation and reward system affect the retention of employees. A valence- based reward philosophy act as the driver or individual and team performance (Dreher & Dougherty, 2005). Strong evidence exists in literature about the positive and significant relationship of compensation and rewards on employees behaviour and organizational performance. Chiu et al., (2002) stated that compensation and rewards significantly affects organizational outcome. Jyothi and Venkatesh (2006) found that competency-based pay and rewards improves quality of products and services, improves employees behaviour, and reduces accidents rates in the organization, thereby making strong contribution toward organizational performance. Researchers have evaluated the relationship of compensation and reward, and organizational performance. These studies concluded that an effective compensation and reward system increases sales, reduce staff turnover, and improve firms performance (Chiu et al., 2002; Batt, 2002; Delaney & Huselid, 1996; Dreher & Dougherty, 2005; Gehart & Milkovich, 1992; Gomez-Mejia et al., 1988) Employee participation is characterized by wide ranging HRM related activities primarily focused on employee management. These practices include employees sharing schemes, cooperatives, industrial democracy, unions, employees involvement, HRM and high commitment work practices, team working, collective bargaining, employee empowerment, employee partnership in providing input

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in strategic decision making, and employees right of information sharing at all levels (Summers & Hyman, 2005). The changing business environment and competitive pressures have resulted in flexible organizational response to employees management. The knowledge workers seek elusive goals of stability, job satisfaction and life-enhancing service and career. The new paradigm of employees partnership focuses on new partnership between employers and employees, individualization of employment relationship, and employee commitment rather than control has become the essential goal of peoples management (Walton, 1985). Studies provide strong evidence that employee participation positive and significantly affect business performance. Employee participation fosters commitment and greater quality and output, productivity, and firms performance (Cooke, 1994; Ferney & Metcalf, 1995; Jones, 1987). Participative approach toward employee increases levels of quality, productivity, and mutual investment, and efficiency (Whitley, 1999; Hartcourt & Wood, 2007) Wislon and Peel (1990) found a positive relationship between worker participation and reduced absenteeism and turnover. Reduced turnover decrease hiring and training cost of firms (Kessler & Purcell, 1992). The results of present study concur with results of earlier studies that HRM practice of employee participation is positively and significantly associated with firms performance (Amable, 2003; Hall and Soskice, 2001; Hartcourt & Wood, 2007; Guthrie, 2001; Rizov & Croucher, 2008) The results of present study are in harmony with the results of prior studies that HRM practices of recruitment and selection, training and development, performance appraisal, compensation and reward, and employee participation have positive and significant relationship with organizational performance (Chen, 2002; Chiu et al.,2002; Chang & Kuo, 2004; Cisco, 2006; Dreher & Dougherty, 2005; Hartcourt & Wood, 2007; Jarventaus, 2007; Jyothi & Venkatesh, 2006 ; Rizov & Croucher, 2008; Sang, 2005).

6. Managerial Implications
The study evaluated the association between HRM practices and organizational performance. The study identified that all HRM practices has positive and significant influence on the firm performance. The empirical results indicate the Pakistani organizations, both in public and private sectors, are integrating HRM practices in organizational strategy to improve business performance and remain competitive. Management should understand the importance of HRM function as a strategic partner and should incorporate HRM input in strategic decision making. This partnership provides more active role to HRM experts in the organization to support the change in organizations through partnership of front-line managers. The management should be aware of the use of these practices in an integrated manner to realize the organizational objectives. The managers should be well aware that a changed paradigm of people management is essential in changing business environment. The focus of this new approach should be to attract and retain the talents and leverage the talent to achieve competitive advantage through a proactive HRM related activities. It is imperative for managers to fully understand the strategic pay off of the investment made in training and development. This investment should aim at constantly improve competencies levels of the workforce. The vital contribution of values and meritbased recruitment and selection, innovative and need-based training and development, comprehensive, and fair performance evaluation, competency-based pay and reward, and employee relations to enhance self esteem, foster satisfaction, and quality of work life are essential dimensions that have positive effects on superior performance for sustained competitive advantage that need to be capitalized by management at all level.

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6.1. Limitations and Further Study The study has some limitations. The present study is restricted to a small sample of firms in one industry and may therefore limit the generalizability of the findings. The respondents provided information on implementation of HRM practices and perceived measure of organizational performance. The possibility of respondents bias in reporting may have happened (Paul & Annantharaman, 2003). 6.2. Future Research Despite the above limitations, the study makes significant contribution about understanding and implementation of HRM practice in one of the most important sector affecting Pakistans economy. Future research may include large scale sample in other industries in Pakistan to statistically validate the results of present study. It would be valuable to examine the effect of contextual factors of regulations, labour market environment, organizational climate, and cultural values, and style of leadership that moderate or mediate the relationship between HRM practices and organizational exist (Bowen & Ostroff, 2004; Collin & Smith, 2006; Richard & Johnson, 2001). To further explore the relationship between these two constructs, future research may also focus on longitudinal study

7. Conclusion
This study evaluated the effects of HRM practices on organizational performance in Oil and Gas Sector of a developing economy. Review of literature provides strong evidence of effective HRM practices and their relationship with firms performance in physical and attitudinal dimensions. Our research empirically substantiated the results of earlier studies with regard to this linkage. The study highlights the importance of HRM practices to achieve and sustain superior performance in changing business environment and need for an integrated approach toward formulation and implementation of HRM practices. The organizations need to proactively pursue a strategic approach to HRM practices and invest in such practices to achieve sustainable competitive advantage in tangible and intangible dimensions.

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