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Requirement
Evaluating Research Tools and Methods-Literature Review
Solution
Literature Review
The purpose of this literature review is to understand the past research work done on the subject, “The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance”, and studies that are related to this field of study. This will serve as a guide for my further research work. This review will try to find out gaps that are yet to be addressed in the field of human resource practices and their influence on various elements within an organization like turnover, productivity and financial performance.
According to Boudreu (1991), Jones & Wright (1992) and Keliner (1990), human resource management policies and its practices holds greater impact in the fields of people management and industrial and organizational psychology.
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While investigating the previous studies relating to the first question that I am trying to address, – How the internal promotion and vacancy filling is helpful as compared to putting someone from outside? – I found out numerous studies from the past that support the notion that internal promotions has greater significance as per success level of an organization is concerned.
According to Kelly-Radford (2001), there is 34 percent chance of failure when a senior executive is hired from outside. However, chance of failure reduces to significant 24 percent when hired from inside.
Another study similar to above done by Rioux and Bernthal (1999) suggests that external promotions or hires have a failure rate of 22 percent while failure rate reduces to 14 percent if done from inside.
According to Corporate Leadership Council (1997), after studying the five organizations, result came out that 4 to 5 of every ten executives that are hired from external sources failed miserably in their positions.
According to a study of 11 companies – whose performance rose to great heights during a certain period – done by Collins (2001) found out that only five percent CEOs were considered outsiders in the list of successful companies. However, in the list of non-successful companies, almost 29 percent were considered outsiders. This examination was of the CEOs who led the successful companies compared to CEOs of the organizations that did not make the transition to success.
Even after these consistent findings, organizations all around the world are always on the look to replace critical leadership positions from outside rather than inside. It can be considered that companies’ purpose to hire external candidates is to fulfill their need for fresh perspectives and bringing new skill sets within the organization. According to Rioux and Bernthal (1999), in spite of internal candidates’ trait to stay longer in the organization and ability to succeed, most organizations hire external candidates 13 percent above average often.
Mentioning Collins (2001) again, Organizations (or say boards of directors) has the tendency to choose dazzling, celebrity leaders and disregards the presence of potential Level 5 executive leaders within the organization. Potential Level 5 leaders exist all around, still failures in noticing them are evident.
During filling of the leadership positions, organizations are independent enough to select internal candidates or rely on external hires. It is obvious that both types of hires offers different benefits for the organization. But, if above studies is taken into consideration, internal candidates are better choice. Usually, they are accustomed to organizational culture and have already well-developed networks. Only a good motivational fit and requirement of extensive orientation can be the two enough criteria to see their fitness to the next position. Also, internal promotions can make accurate decisions because of availability of more information to them compared to external hires. Along with that, internal candidates past work might provide ample information to understand his future performance. Organizations don’t have to guesstimate the candidates’ past experiences. As the development is concerned, internal candidates can also be brought into multiple customized development experiences that will guide them into future positions.
According to Manzoor, Quratul-Ain (2011), if employees are more empowered and motivated, they have affirmative effect on their motivation level. Eventually it will lead to urge to perform better. There exists a positive correlation between motivated employee and effective performing organization.
Organizations find it easy to go outside search for candidates. However, derailments costs can be high for that which as indirect costs from lost productivity may affect other parts of the organization. After analyzing the derailment cost using a hypothetical example, Corporate Leadership Council concluded that it can go up as high as $275,000 per hire which includes interview, signing bonuses, training, relocation, severance package and salary.
Therefore, if above summary is to believe, organizations should focus on developing people from inside for the future positions as per requirement, rather than hunting outside.
The literature above has brought a good amount of guidance to the question I want to explore and understand. My further research using primary methods will help me in strengthening the studies or might be possible some new findings will come out down the line.
Taking over my second research question – How non-structured approach within the company will be helpful in motivating employees and increase corporate financial as a result? – I came to papers that advocate that employee motivation is imperative for the success of organization and a non-structured approach, that is, giving autonomy to employees’ work culture may improve the success rate.
According to Ovidiu-Illiuta Dobre (2013), when employees are empowerment and recognized within the organization, their motivation level for work increases, which eventually lead to increased accomplishments and the organizational performance. Employee dissatisfaction, which is caused by monotonous jobs and pressure from clients often leads to weak organizational performance. This will lead to high absenteeism rates and employees might consider leaving the organization for the nearest competitor.
According to Bartol and Martin (1998), motivation is a powerful tool that reinforces behavior and influence employees to continue. It is an internal drive that induce the pulse to satisfy an unsatisfied need and move toward achieving a specific goal.
According to Kalimullah (2010), motivated employees aligns their goal with those of the organization and put efforts in the direction of its achievement. Along with that, those organizations whose employees continuously look for ways to improve their work, are more successful than other organizations.
Bailey (1993), established the fact that human resources are frequently underutilized. The reason behind is, employees often perform below their maximum potential and if discretionary effort are made by employees then it is likely to provide returns in excess of any relevant costs. According to Bailey, discretionary effort of the employees can be affected by HRM practices which influence employees’ skills and motivation, along with an organizational structure that allow employees the ability to control how their roles are performed.
Bailey sight that even highly skilled employees will be limited if there performance is not motivated. A better HRM practice can influence employee motivation by encouraging them to work harder and smarter. HR practices like using performance appraisals and then linking it with incentive compensation systems will be building block for motivation. Also, using internal promotion systems that value employees’ merit and smart work and monetary incentives that align the interests of employees with those of shareholders like ESOPS and profit- and gain- sharing plans will have significant effect on employees’ motivation.
Bailey (1993) has also noted that if a job is structured and within a set premise, then it limits the highly skilled and motivated workforce to utilize their full potential, who presumably is better achiever for a concerned job than others. They do not get the opportunity to utilize their skills and abilities in designing new and better ways of performing their roles.
This leads to the conclusion that HRM practices that encourage employee participation and give them the freedom to perform their job, also leads to positive firm performance and eventually better corporate financial. My second question will be in the light of the studies above and the primary research which will be done latter.
My quest to address the third research question – How the right employee selection is helpful in increased productivity and influence aggregate turnover? Moreover, how the reduction in employee turnover beneficial for the company – brought me to few more previous studies that take into consideration various factors that influence productivity and turnover.
Turnover.
According to Baysinger and Mobley (1983), Arnold and Feldman (1982), and Cotton and Tuttle (1986), the existence of a union, job security perceptions, level of compensation and tenure of the organization were good predictors of employees’ leaving the job. Also, variables like age, sex, education, commitment of organization, individual’s expectation from the job and the likely intention of for another job were counted for the aggregate turnover.
One study done by Brown and Medoff (1978), suggests that employee turnover has an important influence on organizational productivity. Theoretical consensus on direct correlation between turnover and company performance is present in ample amount, but a straight forward is rare. This gives me the opportunity to go further with my research and bring out the relevant expalanation.
Productivity.
The research was done in the field of HRM practices within an organization and its influence on productivity has been done extensively. According to Cutcher-Gershenfeld (1991), those firms which adopt transformational labor relations and emphasize on cooperation and dispute resolution had better outputs – higher productivity, low input costs and reduced scrap – compared to firms that are into traditional labor relations practices.
According to Bartel (1994), there is a link between productivity growth and adoption of good training programs. As per Holzer (1987), extensive recruitment effort – selecting candidates which are the right fit for organization – has resulted into increased productivity. A meta-analysis done by Guzzo, Jette and Katzell (1985) demonstrated that sociotechnical systems design, training and goal setting – motivating employees – had positive effects on productivity.
Corporate financial performance.
According to Terpstra and Rozell (1993), there is a significant positive relation between the firm profits and selection test validation, use of formal selection procedures and extensiveness of training. A link between organization’s financial performance and training programs was demonstrated by Russell, Terborg, and Powers (1985). According to Berman (1991), and Gerhart and Milkovich (1992), using and linking performance appraisals and compensations also have significant connection with increased firm profitability. These studies conducted in the area of turnover, productivity and financial performance will help me to understand how less turnover will be beneficial for the company.
The previous studies have found that use of effective human resource management practices improves firm performance. The major variables were performance appraisals, attitude assessment, training procedures, selection and extensive recruitment. However, the studies conducted have few shortcoming which I will be addressing throughout my research paper. Significant studies haven’t been done as per direct correlation between turnover and productivity is concerned. Also, fewer studies are there to rely as per HR practice of non-structured approach is concerned. My study will try to fill these gaps.
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Boudreau, J. W. 1991. Job behavior, performance, and effectiveness. In M. D. Dunnette & L. M. Haough (Eds.), Handbook of industrial and organizational psychology (2d ed.), vol. 2: 271-326. Palo Alto, CA: Consulting Psychologists Press.
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Jones, G.R., & Wright, P.M. 1992. An economic approach to conceptualizing the utility of human resource management practices. In K. Rowland & G. Ferris (Eds.), Research in personnel and human resources management, vol. 10: 271-299. Greenwich, CT JAI Press.
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Kleiner, M. M. 1990. The role of industrial relations in firm performance. In J. A. Fossum & J. Mattson (Eds.), Employee and labor relations: 4.23-4.43. Washington, DC: BNA Press.
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Kelly-Radford, L. (2001, August/September). The revolving door of talent. CEO Magazine, 86-89.
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Rioux, S., & Bernthal, P. (1999). Succession management practices report. Pittsburgh, PA: Development Dimensions International.
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Corporate Leadership Council (2000, April). Challenges in managing high potential employees: Results of the council’s membership survey. Managing High-Potential Employee Series, Vol. 1 (Rep. No. E00-006). Washington, DC: Author.
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Collins, J. (2001). Good to great. New York: Harper Collins.
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Dobre, O. (2013). Employee motivation and organizational performance. Review Of Applied Socio- Economic Research, 5(1/2013).
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Bartol, K.M., Martin, D.C. (1998) Management, McGraw Hill
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Kamalian, A. R., Yaghoubi, N. M., & Moloudi, J., (2010) Survey of Relationship between Organizational Justice and Empowerment (A Case Study). European Journal of Economics, Finance and Administrative Sciences, 24, 165-171.
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Bailey, T. 1993. Discretionary effort and the organization of work: Employee participation and work reform since Hawthorne. Working paper, Columbia University, New York.
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Baysinger, B. D., & Mobley, W. H. 1983, Employee turnover: Individual and organizational analysis. In K. M. Rowland & G. R. Ferris (Eds.), Research in personnel and human resource management, vol 1: 269-319. Greenwich, CT JAI Press.
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Brown, C., Medoff, J. 1978. Trade unions in the production process. Journal of Political Economy, 86: 355-378.
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Manzoor, Quratul-Ain. 'Impact Of Employees Motivation On Organizational Effectiveness'. BMS 3.1 (2011): n. pag.
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Cutcher-Gershenfeld, J. 1991. The impact on economic performance of a transformation in industrial relations. Industrial and Labor Relations Review, 44: 241-260.
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Bartel, A. P. 1994. Productivity gains from the implementation of employee training programs. Industrial Relations, 33 411-425.
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Holzer, H. J. 1987. Hiring procedures in the firm: Their economic determinants and outcomes. In M. M. Kleiner, R. N. Block, M. Roomkin, & S. W. Salsburg (Eds.), Human resources and the performance of the firm: Washington, DC: BNA Press.
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Guzzo, R. A., Jette, R. D., & Katzell, R. A. 1985. The effect of psychologically based intervention programs in worker productivity: A meta analysis. Personnel Psychology, 38: 275-291.
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Terpstra, D. E., & Rozell, E. J. 1993. The relationship of staffing practices to organizational level measures of performance. Personnel Psychology, 46: 27-48.
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Berman, W. C. 1991. Job behavior, performance, and effectiveness. In M. D. Dunnette & L. M. Hough (Eds.), Handbook of industrial and organizational psychology (2d ed.), vol.2: 271-326. Palo Alto, CA: Consulting Psychologists Press.
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Gerhart, B., & Milkovich, G. T. 1992. Employee compensation: Research and practice. In M. D. Dunnette & L. M. Hough (Eds.), Handbook of industrial and organizational psychology, vol. 3: 481-569. Palo Alto, CA: Consulting Psychologists Press.
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Russell, J. S., Terborg, J. R., & Powers, M. L. 1985. Organizational performances and organizational level training and support. Personnel Psychology, 38: 849-863
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