Introduction

Many studies and researches have been made in trying to identify the HRM –
performance relationship and it is safe to say that there has been a bit of improvement as far
as what this relationship entails, but still, criticism still existing on both sides. Yet, some facts
are still missing in the sense that, it is not very well known how the variables work and what
exactly keeps this relationship going (Purcell et al., 2003). Getting into more depth in
analysing the impact that HRM has on the performance of the organization, all the models go
together, each other adding value and enhancing the relationship as a whole. Gerhart (2005)
argues that there is no clear pattern on how this relationship works, what is triggered by what.
Similarly, there are others that find no correlation between HR planning and the performance
of the organization. However, there have been some positive sides brought to light in the
relationship between HRM and the business performance. Some of the positive effects of a
good HRM – Performance relationship as described by Macmillan (1984) imply that
‘effective management of human resources gives benefits which include greater profitability’.
Despite all the slightly different researches and their results, the general idea is that even if
there is no clear view of how this HRM relationship with organizational performance should
look or if it is surely increasing the performance or just sustaining it; however studies are still
being done so as to narrow down the result as much as possible and to add evidence to what
has been debated in the past few years and that is hoe HRM is positively related to
performance (Gerhart, 2007).
Literature Review

The term of human resource management stands for the part of the organization’s
activities that are concerned with recruitment, development and management of the
employees (Wood & Wall, 2002). The approaches that HRM characterizes are often in
contrast with the traditional or so called control approaches, known for their emphasis on low
skill, limited employee discretion and a division of labor (Arthur, 1994). One example is
given by Huselid, Jackson, and Schuler (1997) that define HRM effectiveness as "the delivery
of high-quality technical and strategic HRM activities" showing that HRM techniques have
evolved throughout the years. The rationale behind the thinking that committing to high HRM
standards is also related to the enhancement it will bring to the performance of the
organization. HRM can also be, from an operational point of view, seen as HRM satisfaction
with a mixture of HRM activities. Technologies might be easy to copy, from one organization
by another, but the skills and knowledge that are assimilated in an organization, which create
the human resource capital, are almost impossible to imitate (Barney, 1995). And it is a sure
thing to say that human capital brings more competitive advantage to the organization and
enhance performance, than any new technology on the market.

Katou and Budhwar (2006) argue that even if HRM is related to business performance,
the HRM policies are autonomous from the business strategies. Boselie et al. (2005) propose
another model, opposing the previous one, by which an overall theory of HRM is being
developed that blends resourced-based views with theories of contingency and revealing that
the business strategy is after all influenced by HRM policies. Therefore, this link that has been
created between HRM and performance is pictured in many views, starting from the simplest
such as, HRM practices are adding value to the performance no matter what the
environmental conditions are (Wood, 1999); and going as far as saying that if used separately,
practices no longer generate the same performance and competitive advantage.

Guest (1997) proposes another model, linking HRM practices to performance and thus to
financial results (Table 1). Nevertheless, the model assumes that performance will be
achieved only when all of the three effects are reached.
 The real question however, is whether or not conceptual evidence brought by scholars
competes with the empirical evidence brought and experienced by organizations. Studies
show that an answer is already in the making and it is looking quite positive, as stated also by
and Gerhart (1996) ‘conceptual and empirical work … has progressed enough to suggest that
the role of human resources can be crucial’. Others argue that ‘theoretical and empirical HRM
research has led to a general consensus that the method used by a firm to manage its
workforce can have a positive impact on firm performance’ (Way, 2002).

In their works, researchers refer to HRM practices and the relationship between HRM and
performance in a more subtle way. Lawler et al. (1998) uses the expression “high
performance organizations”. “Performance-enhancing” is how Delaney and Huselid (1996)
refer to HRM practice. And more lately Berg and Kalleberg (2000) define them as “high
performance work systems”. Nevertheless, the meaning is the same one, and will be the same
no matter what authors will be labeling it throughout their works. Hopefully, the future
studies will concentrate more on the core of the actual relationship rather than on what
terminology will be used to describe it.
 Furthermore, the effect of HRM on the organizational performance is found to be
established consequently to other issues as well. According to Delery (1998), the HRM
practices are related to problems such as the effectiveness of the firm or enlarging this concept
even more, Osterman (2000) suggests that issues that are of higher interest to employees are
also to be touched, how they benefit from the relationship thus bringing higher value and
enhancing profitability and performance. What is more, some discussions may imply that the
HRM systems might influence, indirectly the performance of the organization. Katou and
Budhwar (2007) respond to this model by bringing argument and entailing that there is also a
direct effect of the influence that HRM has on performance. Delery & Doty (1996) support
the idea of a casual relationship between HRM and performance, highlighting that the linkage
is a linear one, meaning that the effect HRM has on performance is, as stated earlier, a value
adding one, thus emphasizing the positive effect of the relationship.

The findings, note that in today’s complex business environment, which plenty of
organizations put up with, management strategies have to be flexible and adjust in order to
survive (Lawler, 1986). Reaction to change is what the environment requires from the firms.
Efficiency and effectiveness are next in line. Hence, a mixture of these key characteristics
position businesses in the run for market performance. Hypothetically speaking, the relevancy
between independent and dependent variables differ by the varying levels of a vital
contingency variable. The strategy of the organization remains the main aspect, even in the
human resource management literature. From a manufacturer’s point of view, the strategy it
establishes moderates somehow, the relationship between HRM and performance. (Youndt et
al., 1996) More precisely, an example of the HRM strategies in its relationship with
performance, would be how they shape the optional behavior of the employees; the way they
chose how they do their work is not to be of any expectancy or requirement, thus the way they
are rewarded or punished by the firm influences the organizational performance (Purcel et al.,
2003).
Conclusion

To come to the point, even though past researches have shown that a relationship
exists between HRM strategies and the firm performance, it is still premature to confirm that
this relationship is entirely or mostly positive neither it can be applied in any situation.
However, firms that can establish both HRM effectiveness as well as high-performance work
plans are more likely to succeed in today’s environment in improving market and
organizational performance. Secondly, the relationship between HRM and organizational
performance cannot be meaningful if other issues are not concerned also, such as the strategy
of the business or the commitment the firm takes towards HRM policies.

Another point that is tackled is the influence HRM has the organization, whether it is direct,
through collective skills, behaviors and approaches or indirect, from the outcomes of the
HRM strategy.

It is left for the researchers to decide whether or not the link that exists between HRM
and performance can come to a significant conclusion and common point, making it easier for
firms worldwide to apply it and increase their performance.
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