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Strategic Management Journal, Vol.

8, 387-392 (1987)

RESEARCH NOTES AND COMMUNICATIONS HUMAN RESOURCE PLANNING AND ORGANIZATION PERFORMANCE: AN EXPLORATORY ANALYSIS
STELLA M, M, NKOMO blbLLA NMJMU

\ ^Carolina, r.arnlina

College of Business Administration, University of North Carolina, Charlotte, North U.S.A. 11 <i A

In a study of the impact of human resource planning an organization performance, statistical tests did not indicate significant differences between the performance of firms using formal human resource planning and firms that do not. There was an indication of a positive change in performance after the initiation of human resource planning, relative to non-users of such systems.

INTRODUCTION
Human resource planning (HRP) has received considerable attention as a method of linking strategic organization objectives to human resource programs and policies. A fairly large body of literature has evolved advocating the use of formal, comprehensive human resource planning approaches in organizations (Walker, 1980; Dyer, 1983). The underlying assumption is that human resource planning applications can have a major positive impact in the areas of personnel cost-effectiveness, employee productivity, and management resource development. While the hterature abounds with prescriptions of how firms should conduct human resource planning, less is known about the benefits of such planning. Researchers continue to extol the critical importance of human resource planning to firm performance with hmited empirical support for that contention. This is the case in spite of the call for an analysis of the difference made by human resource planning (Craft, 1980; Milkovich, Dyer and Mahoney, 1983). The purpose of this study is to explore the impact of human resource planning on organization performance. The overriding question guiding this study is: Is there a difference in the organization performance of firms engaging 0143-2095/87/040387-06$05.00 1987 by John Wiley & Sons, Ltd.

in formal human resource planning and that of firms not engaged in such planning? The intention of this exploratory study is not to prove or disprove that human resource planning leads to successful performance. Rather, the objective is to identify a group of firms utilizing human resource planning and to determine if these firms exhibit better performance than those who do not engage in human resource planning.

BACKGROUND
Research on benefits of formal planning systems

A number of studies found in the strategic management literature have attempted to establish the payoff of using formal planning systems (for example see Ansoff et al., 1970; Fulmer and Rue, 1973; Wood and LaForge, 1979; Kudla, 1980), At best, these studies are inconclusive with regard to the relationship between strategic planning and organization performance. At a highly general level, strong associations seem to exist for manufacturing firms. The methodologies employed in these studies have implications for the design of the present study. Lorange (1979) has noted that except for a study by Ansoff et al. (1970) all formal planning was treated as a broad phenomenon, and little effort was being made to distinguish what sort of formal planning
Received 6 January 1986 Revised 25 September 1986

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Hypothesis 2: There is no significant difference between pre-planning and post-planning performance for those firms engaging in formal strategic human resource planning.

one was dealing with (e,g, corporate-level planning, or business-unit planning, or functionallevel planning), Armstrong (1982), in a review of the published field research on the evaluation of formal planning, recommended the use of preand post-test measurement in future research efforts. The present study does not treat planning as a broad phenomenon, but focuses on strategic human resource planning efforts in organizations. Strategic human resource planning is viewed as an important component of functional-level strategic planning. Theoretically, human resource planning should result in a 'human resource strategy' congruent with the organization's corporate and business strategies (Miles and Snow, 1984), Human resource planning is futureoriented and addresses two questions: (1) What kinds of people will be needed to manage and operate the organization in the future? and (2) What kinds of human resource policies and programs are needed to achieve human resource and organization objectives? (Devanna, Fombrun and Tichy, 1981; Dyer, 1982), Walker (1980) has noted that human resources infiuence an organization's capacity to achieve its strategic objectives in three ways: (1) cost economics; (2) capacity to operate effectively; and (3) capacity to undertake new enterprises and change operations. Walker (1980) further argues that these factors affect organization performance. In addition to traditional measures of performance, measures geared towards assessing the impact of human resources on organization performance are also employed. The financial criteria used in this study cover the periods prior to the time when any distinction is made between those firms using formal human resource planning and firms who do not. If anything, one would expect benefits to come well after the introduction of formal human resource planning.

METHODOLOGY Sample The sample for this study consisted of those firms listed in the 1981 Fortune 500 Directory, Questionnaires were mailed to the vice-president of personnel/human resource management in each of these 500 companies. The 287 replies represented a response rate of 57 percent. Of the replies, 264 were usable, resulting in a usable response rate of 53 percent. Over 35 percent of the respondents were top-level personnel officerssenior vice-presidents and vicepresidents of personnel/human resources. Various characteristics such as size (e.g. total assets, number of employees, etc.) and industry group were compared to detect any possible response bias. No significant biases were discovered. It is recognized that companies doing human resource planning, and especially those who felt it had been beneficial, were more likely to respond. Questionnaire To measure a firm's human resource planning process, respondents evaluated five phases of human resource planning: (1) Analyzing the external environment of human resource management. (2) Linking HRP to strategic business planning. (3) Analyzing human resource supply and demand, (4) Generating, analyzing, and developing functional area human resource strategies, (5) Reviewing and monitoring planning results. Respondents were asked to indicate the phases used in their process,* Companies were also given the option of providing copies or samples of their human resource planning manuals, forms, or other documents which illustrated their process.
*A copy of the questionnaire is available from the author.

HYPOTHESES To test the effect of human resource planning on organization performance, two hypotheses were tested. Hypothesis 1. There is no significant difference in the performance of firms engaging in formal strategic human resource planning and those who do not.

Research Notes and Communications


Three human resource planning categories were formed: Category 1: No formal human resource planning. Category 2: Partial or incomplete human resource planning. Category 3: Fully integrated human resource planning. This methodology is similar to procedures identified by Fulmer and Rue, 1973 and Kudla, 1980, For example, a firm that included all five phases in its planning process was classified into Category 3. If a firm did not meet all of the requirements for a category it was assigned to the next lower category. Performance measures Six performance measures are used in this study. All of these measures describe related, but distinct, characteristics important to profit-seeking organizations (Lenz, 1981). The first four variables represent traditional measures of financial performance commonly used by business managers: (1) Sales growth: average annual percentage growth over a 5-year period. (2) Earnings growth: average annual percentage growth over a 5-year period. (3) Earnings/sales ratio: average annual earnings as a percentage of sales over a 5-year period. (4) Earnings/total assets: average annual earnings as a percentage of total assets over a 5-year period. In addition to these traditional measures of economic performance, measures geared towards assessing the impact of human resources on organization performance are also used (Dahl, 1979). These measures are: (5) Earnings/employees: average annual earnings per employee over a 5-year period, (6) Assets/employees: average annual assets per employee over a 5-year period. Measures 3, 5, and 6, are strongly influenced by the degree of labor intensity or capital intensityvariables which are often dictated by

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technology or even company strategy. Comparisons within industries correct for some of these differences. Additionally, comparisons before and after the initiation of human resource planning also overcomes most of this noise. The six performance variables were measured over a 5-year period (1976-80) using data from the Standard and Poor's Compustat Files.

DATA ANALYSIS AND RESULTS Based on the classification procedure the 264 respondent firms were divided into 121 Category 1 planners, 104 Category 2 planners, and 39 Category 3 planners. Because of the disportionately small number of firms classified as Category 3 human resource planners, this group was combined with Category 2. Table 1 shows the two-group classifications stratified by industry. The analyses in this section tested for differences in performance between firms who practice human resource planning and those who do not. Results of hypothesis testing Hypothesis I. For each firm in the sample, the six performance measures were calculated over the 5-year period (1976-80). Results ofthe MANOVA analysis are presented in Table 2. The main effect for category of human resource planning was not significant (F=0.64; p=0.69); while the main effect for industry was significant (f=3,63; p<0.001). The finding of a significant main effect for industry is not surprising. Industry differences in performance are well-documented in the literature. Based on this analysis. Hypothesis 1 cannot be rejected. There are no significant differences in performance between firms who use HRP and those who do not. Hypothesis 2. In testing this hypothesis explicit consideration was given to the date at which firms initiated human resource planning. Each performance variable is measured for pre- and post-time periods based on the availability of data. Fiveyear performance prior to initiation is compared with 5-year post-human resource planning performance (Armstrong, 1982). In order to appro-

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priately test Hypothesis 2 a standard of comparison was necessary. Accordingly, a hypothetical date was assigned to a control group of non-human resource planners. These dates were the same as the actual dates human resource planning was initiated by the planners, so that the same time periods were studied. These dates were randomly assigned to the control group of non-human resource planners using a table of random numbers. The selection of this comparison group was made so that the industry distribution of human resource planners and nonhuman resource planners was the same. This hypothesis was tested using a oneway repeated measures MANOVA to compare changes in performance. The results of this analysis for the 5-year time period are shown in Table 3. There was no significant difference in the change in performance across the two groups (Fe.73=1.13; p = 0.35). While the difference was not significant, the change scores for firms using formal human resource planning were slightly higher on five of the six performance measures.

Table 1. Respondents by industry group and human resource planning category (=264) Human resource planning category Industry and code" 20 22 23 24 25 26 27 28 29 30 32 33 34 35 36 37 38 Food and kindred Textile mill products Apparel and other finished goods Lumber and wood products Furniture and fixture Paper and allied products Printing/publishing and allied products Chemicals and allied products Petroleum refining and related industries Rubber and miscellaneous Stone, clay and glass products Primary metal Fabricated metal products, except machinery and transportation equipment Machinery not electrical Electrical and electronic Transportation equipment Measuring, analyzing and controlling instruments Others Total (1) 16 4 2 0 1 4 4 14 11 1 2 12 (2) 12 3 2 2 0 6 5 25 13 4 3 9

5
17 6 9 4 9 121

5
13 13 16 7 5 143

DISCUSSION Human resource planning proponents have contended that human resource planning has a positive impact on organization performance. This study attempted to empirically examine this proposition. Overall the results of the two analyses did not indicate any significant difference in performance between users of formal human

" First two digits of Standard Industrial Classification code as reported in the Standard and Poor Compustat Data Tapes.

Table 2. Multivariate analysis of variance (univariate ratios) reduced set of dependent variables (n=135) Main and interaction effects Dependent variables HRP Category Industry (Multivariate F=0.64) (Multivariate F=3.63***) Univariate F-ratio Univariate F-ratio 1. 2. 3. 4. 5. 6. Sales growth Earnings growth Earnings/sales ROA Earnings/employee Assets/employee 1.75 0.25 0.00 0.49 0.26 0.34 1.95*" 1.67* 5.28** 2.84*' 8.00** 13.59** HRP Category x Industry (Multivariate f=1.0) Univariate F-ratio 1.49 1.30 0.62 0.83 0.09 0.16

*p=0.10; **p=0.05; **p=0.001.

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Table 3. Results of F Tests:" Hypothesis 2 (5-year time period)" (=80) Sales growth Pre-HRP time period HRP firms Non-HRP firms Post-HRP time period HRP firms Non-HRP firms Change HRP firms Non-HRP firms Univariate F p-value
Multivarite r = 7.26; * n40 for each group.

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Earnings growth 11.39 16.06 14.57 17.76 3.18 1.70 0.07 0.79

Earnings/ sales 13.32 14.54 13.38 13.62 0.06 -0.92 2.21 0.14

ROA 16.33 15.96 17.22 16.75 0.89 0.79 0.01 0.91

Earnings/ employees $5,457 $7,022 $8,772 $8,940 3,315 1,918 1.37 0.24

Assets/ employees $29,840 $38,480 $50,850 $59,230 21,010 20,750 0.00 0.96

12.02 12.71 12.82 14.25 0.80 1.54 0.12 0.72 3; p=0.35.

resource planning and non-users. There are several possible explanations for these findings. Because "self-selection" has occurred, it is quite possible that another variable or variables (market position, foreign competition, etc.) may account for differences in organization performance. Firms were not randomly assigned to groups representing users and non-users of formal human resource planning. Nevertheless, several steps were taken to minimize confounding variables. Ratios were used to facilitate comparisons among firms, pre- and post-measurements were used, and industry effects were considered. The relative immaturity of human resource planning efforts may have prevented the effects of planning from being measured. The time needed to develop, to install, and to reap the benefits of a well-functioning comprehensive human resource planning system may be greater than the time period investigated in this study. No attempt was made to assess the quality of the human resource plans produced through the use of a formal process. It is possible that the content of human resource strategies and programs, and their alignment with business strategies, are more important than the mere absence or presence of a formal process. The data on human resource planning practices were collected from personnel managers. It is possible that the plans developed are not fully

implemented or coordinated throughout the organization. Interestingly, the firms which instituted fully integrated human resource planning processes generally experienced lower levels of performance during the pre-human resource planning period. It is possible that poor-performing firms may have instituted human resource planning as a rrieans to improve performance. On the other hand, the non-human resource planners generally had higher levels of performance during the pre-planning period. It is possible that the management of these firms felt their orgnanizations were successful without such elaborate programs and saw no reason to change practices. In summary, there is little evidence in this study to suggest that human resource planning has yet begun to produce the payoffs posited by its advocates. Future research is needed to identify organization results most affected by strategic human resource planning activities, and to determine in what situations formal human resource planning is most useful. In recent years there has been an increasing desire by both personnel scholars and practioners for empirical examinations designed to estimate and demonstrate the financial impact of human resources and human resource management programs/ policies on overall organization results. The common assumption that personnel/human

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Dyer, Lee. 'Human resource planning', in Rowland, K. and G. Ferris (eds). The Management of Personnel/Human Resources: New Perspectives, Allyn and Bacon, Boston, MA, 1962. Dyer, Lee. 'Bringing human resources into the strategy formulation process', Htiman Resource Management, Fall 1983, pp. 257-271. Fulmer, Robert M. and Leslie W. Rue. The Practice and Profitability of Long-Range Planning. Research Series. The Planning Executives Institute, Oxford OH, 1973. Hofer, Charles W. and Dan E. Schendel. Strategy Formulation: Analytical Concepts. West Publishing Company, St Paul, MN; 1978. Kudla, Ronald J. 'The effects of strategic planning on common stock returns'. Academy of Management Journal, 23(1), 1980, pp. 5-20. Lenz, R. T. 'Determinants of organization performance; an interdisciplinary review'. Strategic Management Journal, 2, April-June 1981, pp. 131-154. Lorange, Peter. 'Formal planning systems; their role in strategy formulation and implementation', in Schendel, D. and Charles Hofer, (eds) Strategic Management: A New View of Business Policy and Planning, Little, Brown & Company, Boston MA 1979. Miles, R. E. and C. C. Snow. Designing strategic human resources systems'. Organizational Dynamics, 13, 1984, pp. 36-52. Milkovich, George, Lee Dyer and Thomas Mahoney. 'HRM Planning', in Carrol, S. J. and S. Schuler, (eds). Human Resource Management in the 1980s. Bureau of National Affairs, Washington, DC, 1983. Tusi, Anne. 'Personnel department effectiveness; a triparite approach'. Industrial Relations, 23(2) . Spring 1984, pp. 184-197. Walker, James W. Human Resource Planning. McGraw-Hill, New York, 1980. Wood, Robley D. and Lawrence LaForge. 'The impact of comprehensive planning on financial performance'. Academy of Management Journal 22(3), 1979, pp. 515-526.

resource management plays a critical role in the overall performance of an organization is seldom empirically exmained (Tusi, 1984). Although it is, at best, difficult to directly connect human resource management processes and organization performance, the attempt should be made. The results of this study should lead to further research which may prove helpful in supplementing the normative-descriptive analysis which has characterized the study of human resource management.

ACKNOWLEDGEMENTS I would like to express appreciation to Robert Hornaday and the anonymous reviewers for their comments on this paper.

REEERENCES Ansoff, Igor H., J. Avner, Richard G. Brandenburg, E. Fred Portner and Raymond Radosevich. 'Does planning pay? The effect of planning on success and acquisition in American firms', Long Range Planning. December 1970, pp. 2-7. Armstrong, J. S. 'The value of formal planning for strategic decisions: review of empirical research'. Strategic Management Journal. 3(3), 1982 pp 197-211. Craft, James. 'A critical perspective on human resource planning'. Human Resource Planning. 3(2) 1980 pp. 39-52. Dahi, Henry J. 'Measuring the human ROI', Management Review, 68(1), January 1979, pp. 44-50. Devanna. Mary Anne, Charles Fombrun and Noel Tichy. 'Human resources managment: a strategic perspective'. Organizational Dynamics. Winter 1981, pp. 51-67.