International Journal of Humanities and Social Science

Issue November 2012]

Vol. 2 No. 22 [Special

Role of Human Resource Management Practices on Performance of

Financial
Cooperatives Based in Nairobi County, Kenya
Mr. Shedrack Mbithi Mutua
Assistant Lecturer
School of Human Resource Development
Jomo Kenyatta University of Agriculture and Technology
P.O Box 62000-00200, Nairobi, Kenya.
Dr. Kabare Karanja, PhD
Senior Lecturer
School of Human Resource Development
Jomo Kenyatta University of Agriculture and Technology
P.O Box 62000-00200, Nairobi, Kenya.
Professor G.S. Namusonge, PhD
Full Professor
School of Human Resource Development
Jomo Kenyatta University of Agriculture and Technology
P.O Box 62000-00200, Nairobi, Kenya.

Abstract
This paper examines the relationship between Human Resource Management
practices the
and study
firmsof
performance.
Recently,
the relationship between HRM practices and firms performance
individual
and their influence on organizational performance to studying the
has shiftedpractices
from studying
entire HRM
and its performance. Different models and theories in HRM
influence
onsystem
organizational
literaturethis
exist
that tries to
explain
relationship.
Measures of performance as the dependent variable vary
authors.
Theybyfalldifferent
generally into two categories, that is financial and non financial
as identified
measures.
Divergent
opinionHRM practices as linked with performance in various
exists
as what
constitutes
studies. Contribution
synergetic
relationshipofamong HRM practices to organizational performance, need to be
generated.
Finally
the paper develops a conceptual framework that links Human
explored and
measures
Resource
and
firms Management
performance.practices

Key words: Human Resource Management, Performance.

1. Introduction
In
recent
years,
the
focus
of on
research
onlink
HRM
has
shifted
from
and
2010).
different
2005).
(SHRM)
HR
practices
(Lawler,
supported
practices
Most
Rather
have
on
1992),
HRM
should
by
business
researches
Armstrong
that
turned
than
functions
high
facilitate
be focusing
complimentary
their
performance
commitment
(2010)
investigating
then
employee
attention
who
study
individual
toargues
during
commitment
in
entire
(Arthur,
the
their
nature.
that
HRM
the
influence
HR
between
1992),
bundling
These
last
system
practice,
and
decade
involvement
on
and
bundles
HRM
can
and
performance
scholars
high
take
to
itsand
are
ainfluence
place
bundle
performance
(McDuffie,
performance
referred
ofstudy
in
strategic
(Teseema
aon
of
number
inmutually
1995).
tend
&of
relationship
of
individual
HRM
organizational
to
Soeters,
human
reinforcing
The
literature
(Huselid,
ways.
development
select
implication
The
resource
2006;
HR
1995).
ways
and
as
of
practices
performance
high
Wall
high
is
synergistic
includes
management
This
thatperformance,
&Wood,
involvement
HR
view
from(Khan,
is high commitment and high involvement systems.

289

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With regard to high performance Delery and Doty (1996) identified three
perspectives
existing theories.
This
includesamong
the universalistic
perspective that argues that some HR
practices
are should
better adopt
than others
and all The other identified perspective is
organizations
such practices.
policies
must bethat
consistent
with
the contingency
argues that
HRother aspects of the organization,
organization
strategy
the primaryis configuration which emphasizes
contingency factor.
Thebeing
last perspective
the importance
pattern with
of HR
practices
and alsoofisthe
concerned
how these practices affect organizational
performance.
1.1 Background of the study
Many countries that have achieved economic development have a vibrant and
a dynamic cooperative
contributes
substantiallysector
to thewhich
growth of those economies. For example, in
the
Gross
Domestic Product
(GDP)
Kenya
cooperatives
contribute
45% and
of 31% of the total national savings and
deposits.
Cooperatives
control
70%
of
the coffee
market, 76%
of the
dairy market and 95% of the cotton market
(ICA Report, 2006).
According to Wanyama (2009) the greatest contribution of cooperatives
to Kenyas social
andfinancial
economicsector where financial cooperatives such
development
is in the
substantial
portfolios.
This underlines
the importance of financial
as savings savings
and credit
cooperatives
hold
cooperatives to the economy of Kenya.
The importance of financial cooperatives in the economy of Kenya
the
researcher
presently
and to
in choose
the daysfinancial
to comecooperatives
motivated as a platform for this research.
This importance
is demonstrated
GOK
(2007) vision
2030 whichbyrecognizes financial cooperatives as
vehiclesfinancial
of achieving
2030.
This ispillar. If financial cooperatives
under
servicesvision
in the
economic
are to contribute
significantly
towards
realization
of this vision,
then they
must continuously perform.
1.2 Human Resource Management and Firm Performance
Investigations on the link between HRM and organizational performance as
the
UK . Several
outand
that research needs to be conducted in
extensively
been authors
done inpoint
the US
others contexts
(Ericksen & Dyer, 2005;
Wright
et al., 2005).
Research on HR practices and their link to firms performance in most cases
integration
andthe
vertical
alignment.
do not address
issue of
horizontalThis is centrally to HRM principle
of
synergetic
relationship
among
various
practices.
Indeed
there is a need
to have
measures of the contribution of
synergetic
relationship
of these practices
to
performance
of the organization.
Additionally their link to overall business
performance
should be addressed.
strategy and consequently
effect on
The relationship between HR practices and performance can be
investigated
various
First independent
HR
practicesinand
their ways.
contribution
to organizational performance can
relationship
among
the HR variables
and contribution to organizational
be investigated.
Importantly,
synergetic
performance should be explored.
Koca & Uysal (2009) researched on HRM practices and firms
performance
found outwith
that organizational
HRM practicesperformance but weak
have a strongand
relationship
Additionally,
Khanmarket
(2010)performance.
investigated the effects of HRM practices and
relationship with
found
a positive
relationship
between
practicessignificant
and organizational
performance.
Uysal and Koca (2009) found out that recruitment, training and
performance
pay
all
have
a hand
positive
relationship
with
organizational
performance.
Additionally
khan
significant
appraisals
The
fronted
explained
relationship
by
and
and
positive
a based
number
applied
compensation
between
relationship
inofthe
researchers.
HRM
context
on
one
between
practices
ofsignificant
HRM
Consequently
and
recruitment
and
practices
organizational
performance
aand
and
number
firms
selection,
performance
hasofbeen
theories
on
(2010)
investigated
and
found
a
2. Theoretical
Review
training
the
studied
relevant
290
performance.
other.by
and
in focusing
this
development,
relationship
on several
performance
needmodels
to be

International Journal of Humanities and Social Science

22 [Special Issue November 2012]
2.1 Models on HRM Practices and Performance

Vol. 2 No.

Various models linking Human Resource Management to organizational

performance
have
been et
formulated
several
authors
(Becker
al. 1997:by
Guest 1997:
. 2000).
Appelbaum
Notably
et al
these models have distinct
approaches to the study of the link between HRM and performance.
2.1.1 Appelbaum Model
Appelbaum et al. (2000) model has three boxes. The first box covers high performance
includes ability, motivation
and opportunity
to participate. The next box
work systems
and
contains
effectively
discretionally
while The model is shown in figure 1.
the
last box
reflects the
plant performance.
2.1.2 Becker Model
Becker et al. (1997) model addresses the design of HRM system. The model has
boxes
starting
business and seven
strategic
initiatives
andwith
ending with market value. The model is
depicted in figure 2.
2.1.3 Guest Model
Guest et al. (1997) identifies a model that links Human Resource Management and
financial performance
themodel
indicator
performance.asThe
has of performance. This research
will approach
on two fronts.
Such
includes performance
financial performance
and human resource effectiveness.
This is due
to theManagement
fact that the isfield
of using human resources as
Human
Resource
against
without
considering
thatperformance
make human resources committed,
vehicle of
achieving issues
financial
satisfied
figure
3. and happy. The model is shown in
2.1 Theories on HRM Practices and Performance.
Several theories were important in this research. One of this is the capital
human capital
theory. capital
Torrington
(2008)
explains
that human
signifies
the combined intelligence and
advantage
cannot
imitated
by rivals. This theory has implications
experiencethat
of staff
as abe
source
of competitive
thus for
attracting,
engaging,
rewarding The theory has cross cutting
and
developing
people
in organizations.
significance
HRMstudy
practices.
the theory will be the umbrella theory
context
of theincurrent
HumanIncapital
the
context this
of financial
because HRM practices to be
to underpin
study. It iscooperatives
useful in
studied in thisattract
research
these Investments in Human
organizations
and must
retain ensure
employees.
resources
in use
financial
cooperatives
done
by the
of training
practices.need to be
Additionally, this study was underpinned by the expectancy theory.
Armstrong
this is
theory.
thebe when there is a perceived
expectancy (2010)
theory,discusses
motivation
likelyInto
and usable relationship
between
performance
and outcome,
with the outcome being seen as a means of
must
be a link
between
a certain
reward
and what has to be done to achieve
satisfying
needs.
In other
words
a there
it. This theory
very important
in the is instrumental especially when
context
of thisis research.
The theory
financial cooperatives
designing
performance
based pay. are
Reason
for this is that management of financial
based
pay soneeds
as toto ensure
these organizations continue to improve their
cooperatives
design performance
performance.
In the Kenyan
context,
financial
cooperatives
are aiming
to offer services that have been a preserve
banks,
financial
cooperatives
need
of banks.
To compete
favorably
withnot only to offer competitive rewards but
also to go an
extra mile
to link some
categories
of rewards
to performance.
To understand
Mullins
performance
set
means
people
The
management
Attraction
atimplications
afor
of(2010)
challenging
instance
checking
selection
goals
system
performance
the
discussed
should
managers,
which
goal
goals
attrition
but be
realistic
theory
is
attainment
identified
above
management
appropriate
participation
theory
has
level.
can
was
implications
and
and
be
and
Additionally,
adopted
of
practices,
aset
used
also
those
basis
toto
bydirect
tasked
in
for
for
ensure
financial
the
this
managers.
to
any
behavior.
goal
with
guarantee
research
high
revision
achievement
theory
cooperatives
To
Toas
high
of
direct
was
it
adopted
behavior
ensure
performance,
goals.
of
so
performance.
explains
organizations.
goals
as to
Lastly,
high
isin
why
design
and
ofthis
performance,
paramount
feedback
maintain
when
people
study.
a performance
goals
are
must
According
motivation,
importance.
attracted
goals
arebeset
given
should
to
by
to as
other
be

291

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In most cases recruitment and selection practices are carried out after
initial attraction
of employees
to thethat attraction is bidirectional. This
organization.
It must
also be stated
is to say and
that selecting
the organization
before
recruiting
candidates
for positions also gets attracted to a
might
existing
organization.
The Attraction selection
pool ofbetalent
with outside
specific the
attributes
that
theory is attraction,
relevant toselection
this research
as it
explains
and retentions
of employees by
organizations.attract,
According
Schneider
(1987)
organizations
select,toand
retain those
people who share their values.

3. Conceptual model
From the reviewed literature, recruitment and selection, reward
management,practices
training have
and been
performance
management
adopted as independent variables of the
the
dependent
variableofwere
focused as
on and include financial performance to
study.
Two measures
Performance
be realizedoutcome
by use ofidentified
net profit
employee
asand
retention to be realized through rate of labor
turnover. HRM
practices
classified
into four
mainhave
areasbeen
which include employee resourcing,
practices
and performance
management
reward management
practices,
training practices. This classification is
similar(2007).
to the This
one isadopted
byfigure
Chad4.and
Katou
shown in
3.1 Human Resource Management Practices
Human Resource Practices are informal approaches used in managing people
(Armstrong,
2010).
and Wood
(2005)
outline
HRMWall
practices
as sophisticated selection methods, appraisal,
empowerment,
performance
related pay and employment security. Huselid
training, teamwork,
communications,
(1995)
usedand
eleven
practices
in selection, performance appraisal,
his
study
theseHRM
include
personnel
incentive compensation,
job design,sharing, attitude assessment, labor
grievance
procedures, information
efforts,
employee
training and
promotion criteria.
management
participation,
recruitment
Research based on HR practices has identified several HR practices
and failed
group
them
under
theapproach
broad makes it impossible to
areas
HR into
which
they
belong.
This
broad
area to
HR practices by specifying broad
explainHR
clearly
theperformance.
contribution Studying
of a certain
area in HRM recruitment
such as training,
reward
management,
among
others is likely to end up with findings that
do not map
a very specific
Rather
HRMtopractices
shouldissue.
be several in any broad HRM area in
(2008)
deals
with with
this HR
by generating
several measurement scales for
researches
dealing
practices. Dimba
each HR area
practice
research
such identified.
as trainingThus
cannota broad
be used as HR practice. Rather
severalarea.
practices
be derived
from
this
broad
Chad can
and Katou
(2007)
deals
with this challenge by grouping
namely
recruitment
selection,
manpower planning, job design
27 HR practices
into and
six broad
groups
training
and development quality circles and
pay
systems.
3.2 Performance
Divergent views exist on the performance indicators to be used in
research investigating
the role
of HRM Some use financial based
practices
on organizational
performance.
indicators.
In HRM
so as
be seen as using Human Resources
indicators whole
others
usenot
nonto financial
as means
an end,
research
area indicators. It is however
should
usetoboth
financial
and in
nonthis
financial
measures
ultimately
gain. For examples consider labor
worthwhile
to note lead
that to
thefinancial
non financial
turnover. This
one of the labor
non financial
measures
used.isUltimately
turnover when is low means that the
organization
not incur
cost to to
filllabor
vacant
places
on topwill
of other
cost related
turnover. In a nutshell although it
non
One
performance
managerialist
in
Research
indicators.
achieving
key
financial
area
that
Dyer
of
are
organizational
perspective
results,
aims
concern
&
largely
Reeves
to
we
investigate
is
determined
(Guest,
(1995)
the
should
performance
definitions
proposed
1997).
not
the
by
lose
link
However,
and
financial
and
four
sight
between
limitations
fails
categories
of
this
performance
to
the
HRM
approach
consider
offact
of
performance
measures
and
that
neglects
and
how
thisofnon
is important to use both financial and
financial
ultimately
used
productivity,
the
employees
1999).
performance
292
performance.
role
in evaluation.
and
measures
lead
perceive
contribution
can
usually
to financial
use
Current
orHR
within
one
indicators
of
practices
performance
measures
oremployees
a several
highly
will
(Guest,
ofperformance
for the organization.

International Journal of Humanities and Social Science

Vol. 2 No.
22 [Special Issue November 2012]
First, employee outcomes deal with the consequences of the practices
on employees
such asbehavior
their attitudes
behavior,
particularly
such asand
employee absenteeism and
turnover. Organizational
outcomes focus
onproductivity, quality and
operational
measures of performance
such as
precursors
to profitability.
Financial/
accounting
outcomes refer to the
shrinkage, many
or all of which
would
be
actual financial
performance
and
include
expenses,
revenues measures
and profitability.
Finally, market-based
outcomes
reflect
how the stock
financial
value
a firm,
particularly
pricemarkets
or variations of it. In realization
performance,
research used
will dwell
of the severalthis
indicators
on on financial performance and HR
effectiveness.
Thus there needs to be a balance when studying the link between
HRM andperformance
performanceand
in the role
senseand
thatcontribution of employees
financial
indicators.
whyofthis
study uses financial and non financial
should formThat
the isbasis
performance
performance
indicators.
This this
upholds
the being seen as the one that
morality
of HRM
and prevent
field from
asupports
means to
an end.
ideas
that perceives employees as

4. Summary and Concluding remarks

The researchers have pointed out various aspects pertaining to HRM
topic
in HRMrelationship,
literature. Notably
paper has tried to break down the
performance
a hotlythedebated
Performance
to several
measures
that
fall into variable
two broad
categories,
that is financial and non financial
measures.
Although
most researches
dwellfor a balanced approach that
on
financial
performance,
there is a need
on
HRM effectiveness.
several theories and models have been
considers
non financial Additionally,
measures dwelling
considered.
They need
to relationship
be included as part of the theoretical
when
investigating
this
framework.
Evenrelationship
with the shift
studying
HRM as opposed to
systems
and their
withto
firms
performance
group
theseHRM
practices
in broad
areas
HR intowhich they belong. This
individual
practices,
there
is a need
approach
makes itofpossible
to explain
clearly
the
contribution
a certain
broad HR
area to performance without
losing
the larger
Moretoresearch
investigating
this picture.
issue needs
be done in other contexts especially in
firms
as
well
as
charitable
organizations.
Africa, and also in non manufacturing

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Appendices
Figures
HPWS
Opportunity to
participate
Skills
Incentives

Figure 1: Alppelbaum et al. 2000

294

Effective
discretionally
effort

Firms
Performance

International Journal of Humanities and Social Science

22 [Special Issue November 2012]

Vol. 2 No.

Employee
skills
Employee
motivation
Design o f
work
procedures

Improved
operating
performance

Productivity
Creativity
Discretionary
effort

Profit and
growth

Market
Value

Figure 2: Becker et al. (1997) Model

295

The Special Issue on Social Science Research

HRM
Strategy
Differentiatio
n
(innovation)
Focus
(q uality)
Cost
(costredu

HRM
practices
-selection
-training
-appraisal
-rewards
-jobdesign
-involvement
-status &
security

Centre for Promoting Ideas,

www.ijhssnet.com
USA

HRM
outcomes
Co mmitment
Quality
Flexibility

ction)

Performance
outcomes
High:
Prod uctivity
Quality
Innovation
Low:
Absence
Labour
turnover

Financial
outcomes
profit
ROI

Figure 3: Guest (1997) model

296

Behavior
outcomes
Effort/
motivation
Cooperation
Involvement
Organization
al
citizenship

International Journal of Humanities and Social Science

22 [Special Issue November 2012]

Vol. 2 No.

Independent Variables
Dependent Variable
Resourcing Practices
Use of Recruitment
Methods
Selection Criteria
Merit in selection

Reward Management
Practices
Recognition
Performance Based
pay
Work life Balance

Performance of
Financial

Training Practices

Cooperatives
-Net profit

Conducting Training

-Labor Turnover

needs analysis
Linking Training to
performance
Measuring
effectiveness of
training

Perfo rmance Management

Practices
Emphasis on learning
Link to
organizational
objectives
Emplo yee
Ownership

Figure 4: Conceptual Framework

297