CONTRIBUTION OF HUMAN RESOURCE PRACTICES TOWARDS ORGANIZATIONAL PERFORMANCE: A PERSPECTIVE OF SERVICE INDUSTRY IN PAKISTAN

Ijaz Ahmad

MS Management Science
Email:
ejaz_ehmed@yahoo.com +923458148266

RIPHAH INTERNATIONAL UNIVERSITY ISLAMABAD

CONTRIBUTION OF HUMAN RESOURCE PRACTICES TOWARDS ORGANIZATIONAL PERFORMANCE: A PERSPECTIVE OF SERVICE INDUSTRY IN PAKISTAN

Ijaz Ahmad MS Management Science ejaz_ehmed@yahoo.com RIPHAH INTERNATIONAL UNIVERSITY ISLAMABAD

ABSTRACT The sole objective of this study is to check the relationship between organizational performance and human resource practices (selection & recruitment, training & development, performance appraisals and compensation) in the services sector of Pakistan. Self administrated questionnaires will be distributed in five cities of Pakistan (Islamabad/Rawalpindi, Lahore, Multan and Bahawalpur). Correlation and regression analysis are used to check the relationship and the nature of relationship between HR practices and organizational performance. Past studies show that relationship is significant and positive. Study focus on services sector of Pakistan. The organizations should follow HR practices to increase the satisfaction, commitment, motivation and performance of employee which increase the organizational performance. Keywords: Human Resource Practices, Organizational Performance, Services Sector of Pakistan.

INTRODUCTION Organizational performance refers to comparison of the firms intended goals and objectives with their attainment on ground. Objectives achievement involves strategy formulation and utilization of resources in accordance with the ever rapidly changing corporate environment. Research supports connectivity between Human Resource practices and different indicators of organizational effectiveness, hence, confirming the strategic potential of these functions in any organization (Talukder, 2011). The research work conducted exploring relationship between Human Resource practices and organizations performance has grown substantially in size over the last few years (Wright, Gardner and Moynihan, 2003). According to Ahmad and Schroeder (2003), several studies in Human Resource literature investigated the impact of Human Resource practices on organizational performance. The purpose of this study is to find out effects of four Human Resource practices i.e, selection and recruitment, training, compensation and performance appraisal on organizational performance. Continuously altering business environment has forced industries not only to seriously consider, rather adopt Human Resource Management (HRM) practices for gaining competitive advantage. The impact of these practices has been extensively studied in the recent past but within Pakistan, limited research has been carried out on this subject (Khan, 2010). In case of selection and recruitment, the first variable being considered for this study, it provides an overall framework for the process of planning, recruiting, selecting and hiring employees (Hogg, 2001). The main purpose of recruitment is to identify the smartest and versatile employees. Retention of best employees starts from effective recruitment process. In todays rapidly changing business environment, organizations can not afford to make a poor hiring decision. In fact, one bad hiring

decision can make the difference between success and failure (Talukder, 2011). Regarding training, the second variable of this study, its main objective is to ensure availability of skilled and trained workforce for an organization. Similarly, this function help facilitate employees in accomplishment of their job (Talukder, 2011). Compensation being the next variable considered for this study includes all types of monetary and allied services provided to employees. An excellent compensation mix, augmented by an effective disbursement system play an effective role in attracting the best candidates and shape employees behavior and performance outcome (Khan, 2010). The fourth variable of this study, performance appraisal, help develop individuals and enhances organizational performance. Performance appraisal conducted with regular interval enable management in monitoring standards, agreeing expectations and objectives and delegation of responsibilities (Talukder, 2011). The study is conducted with a focus on banking sector of Rawalpindi, Islamabad, Lahore, Multan and Bahwalpur. Since the creation of Pakistan, the banking industry being in very early rather infancy stage, the best practices could not be adopted. Similarly in late 40s and early 50s, the HR practices were not known the world over and especially in an underdeveloped country like ours. Therefore, it can be safely assumed that the banks did not make use of the HR practices in those early days. Today, all the major banks in Pakistan are incorporating HR practices into their functions. This change has given leverage with regards to performance to all those banks who adopted HR practices. The study is of significance as it focuses on the major Human Resource functions like selection and recruitment, training, compensation and performance appraisal. These Human Resource practices directly contribute towards efficiency of employees in their individual

capacity and these collectively, in turn are the major source of success or failure for any organization. The main objective of the study is to find out relationship between Human Resource practices and organizational performance. To assess the impact of each of these four Human Resource practices on organizational performance. To investigate as to what extent the service industry in Pakistan make use of these Human Resource practices for enhancement of organizational performance. LITERATURE REVIEW Organizational Performance The organizational performance relates to the operational capabilities of a firm regarding its inward affairs and also in equilibrium with its outside environment. The organization has to ensure alignment of human resource practices alongwith the organizational performance (Ahmad and Schroeder, 2003). Human resource practices provide a yardstick to measure the success or failure of any organization (Khan 2010). An organizations resources can be well conserved by careful implementation of human resource practices (Wright, Gardener and Moynihan, 2003). The effective and fruitful utilization of the human resource practices leads the organization towards enhanced performance and competitive advantage (Chen and Huang, 2009). Organizational performance includes the performance in terms of productivity as well as in the competitive environment surrounding the organization (Tseng and Lee, 2009). Technological advancements are causing changes in the operational capabilities of the organizations at a fast pace. The rapidly changing corporate scenario stresses the need for the firms to adapt to the changing trends in technological based business systems (Khan 2010). The human resource practices have demonstrated their fundamental position even in the changed

working culture due to technological advancements. Effective human resource practices are to be considered an essential element for success of any organization whether its adhering to technological changes or operating on conventional systems (Yeung and Berman, 1997). The human resource practices can prove to be an asset to enhance organizational performance (Lopez, Peon and Ordas, 2005). According to Wright, Gardener, Moynihan and Allen (2004) the organizational

performance depends on a large extent on various factors relating to human resources like employee retention, innovative capabilities of the employees and their relationship with the management etc. (Ahmad and Schroeder, 2003). The lucrative performance of an organization is dependent to a large extent on the competencies of its workers (O Shaughnessy, 1998). The use of human resource practices is to be conducted in complementarity (Delaney and Huslid, 1996). Lee and Kim (2006) suggested that all the human resource practices should be applied in conjunction with each other. The implementation of the human resource practices in an individualistic manner does not yield lucrative results for the organization (Mohamad, Chiun Lo and King La, 2009). Forecasting is an important aspect of developing certain courses of action to achieve objectives (Pearce, Stevenson and Perry, 1985). The firms should focus on long term plans as they yield better results in the enhancement of the organizational performance (Rehman, 2011). The management should consider engaging the employees in different decision making projects of the organization (Tseng and Lee, 2009). The employee loyalty can be enhanced by their participation in major decisions. The loyalty of an individual towards his workplace proves to be a major factor towards the promotion of organizational performance enhancement.

HUMAN RESOURCE PRACTICES 1. Selection & Recruitment In Pakistani employment industry, a large number of employment opportunities and talent is available. The problem for organization is to select and recruit right people who could contribute positively towards productivity (Safdar, 2011). The primary objective of recruitment and selection is to attract more number of highly talented individuals and select the best out of these to achieve efficiency and competitiveness. This process needs focused and serious efforts by the top management to ensure implementation enduring success of organizational strategy (Khan, 2010). Delany and Huselid (1996) established that practicing an effective recruitment and selection process has positive relationship with organizational performance. Other researchers have also observed positive relationship between recruitment and selection practices and organizational performance (Harel and Tzafrir, 1996). H1: Selection & Recruitment is positively related to Organizational Performance 2. Training and Development For the employees of any organization, training and development enhances their capabilities and employability which ultimately improves the firm performance (Lee and Kim, 2006) Participation in training programs helps employees share their experience, obtain new knowledge and subsequently make use of new knowledge at workplace (Chen and Haung, 2009). In a longer run expenditure made on the training of employees should be considered as an investment rather than just cost of doing business (Ahmad and Schroeder, 2003). According to Delaney and Huselid (1996), training of employees has positive influence on the performance of organizations.

H2: Training & Development have a positive relationship with Organizational Performance 3. Performance Appraisal Appraisals play a leading role not only in assessing the working capabilities of the individuals working in a particular firm, but have dominant importance in improving their performance as well. Developing the capabilities of the employees has a direct relationship with their appraisal procedures. Performance appraisals can help employees to overcome their shortcomings and can suggest ways to improve their skills (Khan 2010). Assessments of employees can lead to effective strategy formulation. The appraisals can prove to be useful for enhancement of the overall performance of the organization (Talukder, 2011). Performance appraisals can prove to be helpful in fair distribution of compensation among the individuals working in the organization. Management uses appraisals to have a deep foresight on the expected performance of their subordinates and their performance on actual grounds (Malik, Danish and Munir, 2011). Assignment of responsibilities can be facilitated by the analysis of the performance appraisal reports. Allocation of different tasks can be carried out on the basis of appraisals (Zingheim, Schuster and Dertien, 2009). Current appraisal reports can be compared with the previous reports to carry out future tasks assignments. Assessing the employees performance leads the way towards the achievement of the organizational goals and objectives. Certain comfort levels can be provided to the employees according to their performance (Ellis, Chinedu and Evans, 2011). Compensating an employee can cause deep positive impacts on his individual performance as well as the performance of the particular firm (Zingheim, Schuster and Dertien, 2009). Refining the talent of the employees can

be carried out by providing them additional benefits (Talukder, 2011). Performance appraisals can be utilized as an effective tool to enhance employee performance by relating it to rewards. The performance appraisal procedures should be of benefit to both the organization as well as the employees (Katou and Budhwar, 2009). Performance appraisals act towards guiding the organizations towards employees salary increase, their bonuses and other benefits. H3: Performance appraisals is positively related to the Organizational Performance 4. Compensation & Rewards Employee compensation can be termed as anything in the form of cash or some tangible or intangible asset that an organization grants to its employees in recognition of their services. Compensation can include the basic salaries, bonuses, commissions etc. Paying an individual apart from his regular fixed salary also comes under the sphere of compensation (Khan 2010). Compensation can prove to be an effective tool for employee motivation (Calsikan, 2010). Employee motivation leads the way towards enhanced individual performance which in return results in the enhanced organizational performance. Zingheim, Schuster and Dertien (2009) stated that compensation has always been a foundation stone for effective human resource practices. In order to have maximum effectiveness, the compensations paid to the employees must be based on fairness. The organizations should take measures to reward their workers according to their skill based operational capabilities (Ahmad and Shroeder, 2003: Lee, 2006). Compensations are a driving force behind the increased sales volume of the firm. Behavioral aspects of the human factor working in the organization are a necessary element in assessing the performance of any organization. Reward based tasks can be the best source for increased positivity in employee behaviors (Zingheim Schuster and Dertien, 2009).

The turnover rate of the employees can be reduced to a large extent with the implementation of fair compensation policies and practices. According to the studies conducted by various researchers, reward based systems and compensations have a significant positive relationship with the organizational performance (Rehman, 2011). Organizations develop and prosper as a result of increased commitment on the behalf of the individuals employed (Lopez, Peon and Ordas, 2005). Compensation has proved to be one of the most effective measures that lead the way towards employee commitment. Yeung and Berman (1997) recommended in their study that an employee feels valued when he is subjected to the recognition of his services. The valued individuals work with more enthusiasm and demonstrate hard work in performing their assigned tasks. Compensations can be the best practice to be carried out to make the employees feel valuable (Calsikan, 2010). Productive employees are a big asset for any organization. Employee productivity can be brought about in the most suitable manner by proper and fair implementation of compensation policies (Malik, Danish and Munir, 2011). Compensations can be granted in their most effective form in the form of profit sharing of the employees (Chen and Huang, 2009). Employees who are involved in profit sharing align their interests with that of their organization, resulting in enhanced employee performance that leads to effective organizational performance. Organizations should induct compensation as a permanent component of their strategy formulation. H4: Compensation has a positive relationship with Organizational Performance

RESEARCH MODEL According to hypotheses the research model of the study is mentioned below. Independent Variables Dependent Variable

(HR Practices)
Selection & Recruitment Training & Development

Organizational Performance

Performance Appraisal Compensation & Rewards

METHODOLOGY This paper is designed to study the relationship between four Human Resource Practices and Organizational Performance. Data is analyzed by using correlation and regression analysis to test the relationship between dependent and independent variable whether it is positive or negative. We are measuring organizational performance by seven components like productivity, turnover, financial performance, market growth, employee performance, innovation, and employees relationship by using seven-item scale which is used by Tseng & Lee (2009). Selection & recruitment scale was three-items and performance appraisal which is applied by Mansour (2010) which is developed by Khatri (2000). Training & development was measured by five-item scales and compensation & rewards is measured by four-item scale which is used by Tseng & Lee (2009).

All items were measured on five point Likert scale 1= strongly disagree to 5= strongly agree. 200 self administrated questionnaires were distributed in the five cities of Pakistan: Islamabad, Rawalpindi, Lahore, Multan and Bahawalpur through E.mail. SPSS Inc 16.0 is used to analyze the data, correlation and regression calculated through this software whether the relationship between dependent and independent variable is positive or negative and how much HR practices effect the organizational performance. DISCUSSION The result previous study shows that HR practices like selection, training, performance appraisal and compensation has significant and positive relationship with the organizational overall performance. According to (Safdar, 2011; Khan, 2010; Harel and Tzafrir, 1996) fair selection, recruitment and staffing and hiring competitive employees contribute towards performance of the organization. Training and development directly escalate the capabilities of employee individually which positively affect the organizational performance as a whole (Lee and Kim, 2006). According to previous studies results performance appraisal has significant and positive relation with the organizational performance. The aim of performance appraisal is to calculate the current performance and the level of developing the capabilities of employee (Danish and Munir, 2011). Compensation has significant and positive relation with organizational performance. Compensations motivate the employee and increase their commitment and enhance their performance which contributes towards overall performance of organization (Calsikan, 2010; Ahmad and Shroeder, 2003; Lee, 2006).

CONCLUSION In Pakistan few of organizations have HR departments. Services sector like banking and telecom sector in Pakistan are increasingly follow HR policies. HR policies are beneficial for employees. HR practices (selection, training, performance appraisal and compensation) are used to increase the employee involvement, commitment and their performance and retention which increase the overall performance of an organization. Employee feels secure in the presence of HR practices. Selection & recruitment, training & development, performance appraisal and compensation have significant and positive relationship with organizational performance. Fair selection and recruitment gives skilled and talented employee which achieve efficiency and competitiveness. Training & development also increase the performance of employee which increases the firm performance. Performance appraisal improves the skills of an employee which gives competitiveness. Compensation & rewards gives satisfaction and motivate employee to do better job. So, all these four HR practices increase the organizational overall performance. This study has following implications; first employee satisfaction level can be increase by using compensation and reward by using performance appraisals which enhance performance of employee and tells the fair usage of rewards. Continuous trainings of employees increase their performance. Organizations can have competitive advantage by using HR practices. Study consisted on self administrated questionnaires and sample size is little due to time constraint. And only four practices are taken for exploring other practices like motivation, promotion, participation, involvement and communication can be used for future research.

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