Clint Jan Salvaña

2012-51494

A reaction paper on the article entitled “Strategic Human Resource

Management Effectiveness and Firm Performance”

Human Resource Management plays a vital role in ensuring organizations to

drive the performance of its people. According to Zehir et. al. (2016), many
organizations and researchers have investigated the value of human resource functions
such as selection, development, and retention of employees. This drives the formation
of Strategic Human Resource Management. Strategic Human Resource Management
emerged when firms tried to link their human resource strategies and practices with
business strategy (Wright and McMahan, 1992).

A research by Huselid (1995) and Becker and Gerhart (1996) showed that
effective usage of human resource practices improve performance by increasing
productivity of employees, decreasing turnover rates, and increasing sales and profits
of the company. This made the interest for strategic management in examining the
role of human resources as value-added has evolved. The evolution emphases more
on broadening the focus of human resource management from a micro approach to a
macro or strategic approach. This is where the article entitled Strategic Human
Resource Management Effectiveness and Firm Performance got its motivation for a
research. The article is a research made by Orlando C. Richard and Nancy Brown
Johnson in 2001. Their research expands upon traditional strategic human resource
management literature by examining Strategic Human Resource Management
effectiveness with respect to human resources policies and practices.

The research proposes two hypotheses: Hypothesis 1: Firms that achieve

higher levels of Strategic Human Resource Management effectiveness will have
higher levels of organizational effectiveness and Hypothesis 2: Strategic Human
Resource Management effectiveness and capital intensity will influence
organizational effectiveness through a positive interaction effect.

Hypothesis 1 was mirrored from the resource-based view theory where it

states that a strategic approach to human resource management seeks to provide
competitive advantage proactively through its human resources. These resources
endure competitive advantage to the extent that they remain scarce or hard to
duplicate, have no direct substitutes, and enable companies to pursue opportunities as
cited by Barney (1991). Also, the resource-based view suggests that human and
organizational resources, more than physical, technical or financial resources, can
provide a firm with sustained competitive advantage because they are particularly
difficult to emulate (Lado and Wilson, 1994). The article distinguishes two types of
effectiveness in human resource management which I think is relevant to this digital
age. One is the technical human resource management which involves using
traditional human resource practices such as recruiting and selection, efficiently. The
other one is the strategic human resource management effectiveness which stems
from the firm building human resource complexities through innovations, example of
which are team-based job designs, flexible workforces, and employee empowerment.
The latter is where the Hypothesis 1 was conceptualized because it yields economic
benefits not readily duplicated through competitive actions which is consistent with
the resource-based view from where the hypothesis was mirrored.

Hypothesis 2 was mirrored from contingency resource-based views theory and

the capital asset intensity. According to Miller and Shamsie (1996), contingency
resource-based views theory considers context within which various kinds of
resources will best influence performance. Contingency theories suggest that the
relationship between the relevant independent variable and the dependent variable
varies for different levels of a critical contingency variable. Consistent with Koch and
McGrath (1996), the moderating role of capital intensity is a key strategic variable
from the strategic human resource management. Capital asset intensity comes from
the idea that firms are likely to vary in the amount that they invest in physical assets.
Some firms desire direct control over their physical assets and perform most work
internally while others prefer to concentrate on their core business and contract out
ancillary operations. Recently, technology and innovations also influence capital
intensity and effective asset management becomes essential for those with large
capital investments to cover the investment cost and receive a return. Koch and
McGrath (1996) noted that, in situations with high capital intensity, obtaining higher
productivity per employee becomes salient. This gave rise to the idea generated from
Hypothesis 2 that Strategic Human Resource Management effectiveness becomes
essential for firms with high levels of capital intensity.
 The research was conducted in a single industry to have a more examined
scope within-industry differences. The industry that the authors chose was in the
banking sector. The have chosen this industry because it was characterized by
stability. The banking industry deregulation has stimulated a highly competitive
environment. The unit of analysis of the study was the organization. They employed
both a questionnaire and secondary data information sources. Information on strategic
human resource effectiveness, stage of organizational development and employee
turnover was obtained from the questionnaire. Objective measures of performance
and capital intensity and control variables, were drawn from the Sheshunoff Bank
Search database. Sheshunoff Bank Search database obtains data from government
reports that result from mandates to banks to formally report financial data. The
population of banks in California and Kentucky was surveyed to gain greater variation
across capital intensity and performance. After pre-testing and modifying the
questionnaire, each bank was contacted to obtain the name of the human resource
director. From their surveys, there were only seventy-three out of 323 was returned
accomplished this represented a 23 percent overall response rate of those agreeing to
be surveyed. The research also defined the different dependent measures, independent
variables, and controls for their study,

The researcher employed the hierarchical regression analysis to test the

hypotheses. They have followed the procedure of the regression analysis and utilized
the different dependent measures, independent variables, and controls for the study.
The analysis obtained a regression equation for all dependent measures which resulted
to three total models. The coefficient of determination generated on steps 3 and 4
shows support for their hypotheses.

I was able to synthesize the research of Richard and Johnson (2001).

According to their research there is no support found for productivity or return on
equity. Also, the results suggest that effectiveness is unrelated to productivity and
firm performance but is correlated with lower turnover. This rejected their Hypothesis
1 which states that there will be a positive relationship between Strategic Human
Resource Management effectiveness and organizational effectiveness. In the context
of the study, organizational effectiveness can be associated with productivity and firm
performance. Furthermore, their result shows that the interaction effect did not
significantly improve the variation explained in turnover. It only means that there is
no support found for turnover. Overall, the results suggest that alignment between
Strategic Human Resource Management effectiveness and capital intensity increase
both firm productivity and return on equity. However, it appears that turnover was
driven by direct human resource effectiveness effects.

Overall, the purpose of their research is to really examine the role of Strategic
Human Resource effectiveness if it plays in contributing to organizational
effectiveness. Their results for me was valid and somehow a realization of the current
trend in human resource. The argument that firms with higher levels of Strategic
Human Resource effectiveness experience performance gains is dependent on the
performance measure. My take on their study is that the varying conditions of the
dependent, independent, and control variables applied to the study affected their
results. The regression model used, utilizes a series of steps using the set parameters.
If one parameters were changed, there is also a possibility of change in its outcome.
This is what happened in the study which was also validated in the statement of the
author where they stated that “the outcome of the variable may vary with respect to
the outcome examined and its level of analysis”. The analysis of a researcher may
vary depending on what parameters were being measured.

This research has generated questions for readers and stakeholders to tackle.
Questions including: what the other parameters would need to be examined to
constitute a formidable change in their analysis, how does strategic human resource
management effectiveness really impact its stakeholders to measure their
organizational effectives, etc. I believe that these questions are a good foundation in
understanding strategic human resource management. By answering these questions,
practitioners with be geared towards having the right information to facilitate their
success in the new millennium by opening new orders and new questions to tackle.
References:

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of

management, 17(1), 99-120.

Becker, B. and Gerhart, B. (1996). The impact of human resource management on

organizational performance: Progress and prospects. Academy of Management
Journal, 39, 779–801.

Huselid, M. A. (1995). The impact of human resource management practices on

turnover, productivity, and corporate financial performance. Academy of management
journal, 38(3), 635 – 672.

Koch, M.J. and McGrath, R.G. (1996) ‘Improving labor productivity: human resource
management policies do matter’, Strategic Management Journal, 17: 335 – 54.

Lado, A.A. and Wilson, M.C. (1994) ‘Human resource systems and sustained
competitive advantage: a competency-based perspective’, Academy of Management
Review, 19: 699–727.

Miller, D. and Shamsie, J. (1996) ‘The resource-based view of the firm in two
environments: the Hollywood film studios from 1936–1965’, Academy of
Management Journal, 39:519 – 43.

Richard, O. and Johnson, N.B. (1999) ‘Making the connection between formal human
resource diversity practices and organizational effectiveness: beyond management
fashion’, Performance Improvement Quarterly, 12: 77 – 96.

Wright, P. M. and McMahan, G. C. (1992). Theoretical perspectives for strategic

human resource management. Journal of management, 18(2), 295 – 320.

Zehira, C., Gurolb, Y., Karabogac, T., Koled, M (2016). Strategic human resource
management and firm performance: the mediating role of entrepreneurial orientation.
Social and Behavioral Sciences. 235(2016), 372 – 381.