The Impact of Human Resource Management Practices on Turnover

Requirement

Prepare a literature review on, “The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance”.

Solution

The purpose of this literature review is to understand the previous research work conducted 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 its influence of various elements within an organization like turnover, productivity and financial performance.
Recent theories have stated Human Resource Management as the primary strategy to consider while preparing the organization for competitive strategy (Barney, 1986). Moreover, the productivity of the organization is supposed to increase if the human resource of the organization is motivated and their goals and objectives align with that of the organization. Human resource management policies and its practices hold greater impact in the fields of people management and industrial and organizational psychology (Boudreu, 1991; Jones and Wright, 1992; Keliner, 1990).

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There are numerous studies that suggest that focusing on the internal talent for filling the vacancies improves the chances of growth of the organization. The major factor behind such change is the increase in the motivation level of the employees sighting the chances of growth in the company. This also reduces the rate of turnover. Moreover, a study conducted by Kelly-Radford (2001) found that companies face 34 percent chances of failure if a senior executive is hired from outside, on the other hand, if the same executive post is filled from the inside of the organization, then it reduces the chances of failure to 24 percent. 
The practices of Human Resource Management affirmatively impact the productivity and eventually the financial performance of the organization if handled effectively and efficiently. According to Russell, Terborg, and Powers (1985), there exists a link between organization’s financial performance and training programs. 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. According to Berman (1991), and Gerhart and Milkovich (1992), using and linking performance appraisals and compensations also have significant connection with increased firm profitability.
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. Most of the organizations consider hiring external candidates for the new perspectives and ideas, however, it negatively impacts the organization if the senior management fails to grasp the culture and the human resource orientation of 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.
Most of the organizations have witnessed that the existence of a union, job security perceptions, level of compensation and tenure of the organization were good predictors of employees’ leaving the job (Baysinger and Mobley, 1983). 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 (Arnold and Feldman, 1982). As per the productivity of the employees are concerned, 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 (Cutcher-Gershenfeld, 1991).
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. It has been found that most of the organizations have the tendency to choose dazzling, celebrity leaders and disregards the presence of potential Level 5 executive leaders within the organization (Collins, 2001). These dazzling celebrities fail to understand the existing procedures of the organization and find themselves on toes while understanding and bringing the culture, which is consider as the major driver to the reduce turnover, increase productivity and financial performance of the organization.

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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.
Moreover, 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.
Motivation is a powerful tool that reinforces behavior and influence employees to continue. It is an internal drive that induces the pulse to satisfy an unsatisfied need and move toward achieving a specific goal (Bartol and Martin, 1988). Motivated employees align 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 (Kallimullah, 2001). The 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 (Bailey, 1993). 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.
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. HRM practices that encourage employee participation and give them the freedom to perform their job, also leads to positive firm performance and eventually to better corporate financial.
Few of the researches have concluded 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. Therefore, bringing more autonomy to the work environment can help in improvement in the way the organization functions, and eventually will impact the factors. 
However, the impact of the human resource management practices on the turnover, productivity, and corporate financial performance have not been looked upon specifically and in combined way. This paper will try to fill these gaps through conjugated study of all these elements.

References: 

  • 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.

  • 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.

  • 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.

  • Kelly-Radford, L. (2001, August/September). The revolving door of talent. CEO Magazine, 86-89.

  • Rioux, S., & Bernthal, P. (1999). Succession management practices report. Pittsburgh, PA: Development Dimensions International.

  • 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.

  • Collins, J. (2001). Good to great. New York: Harper Collins.

  • Dobre, O. (2013). Employee motivation and organizational performance. Review Of Applied Socio- Economic Research, 5(1/2013).

  • Bartol, K.M., Martin, D.C. (1998) Management, McGraw Hill

  • 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.

  • Bailey, T. 1993. Discretionary effort and the organization of work: Employee participation and work reform since Hawthorne. Working paper, Columbia University, New York.

  • 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.

  • Brown, C., Medoff, J. 1978. Trade unions in the production process. Journal of Political Economy, 86: 355-378.

  • Cutcher-Gershenfeld, J. 1991. The impact on economic performance of a transformation in industrial relations. Industrial and Labor Relations Review, 44: 241-260.

  • Bartel, A. P. 1994. Productivity gains from the implementation of employee training programs. Industrial Relations, 33 411-425.

  • 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.

  • 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.

  • Terpstra,  D. E., & Rozell, E. J. 1993. The relationship of staffing practices to organizational level measures of performance. Personnel Psychology, 46: 27-48.

  • 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.

  • 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.

  • 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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