1.7.

Links between HRM and organizational performance

DOI: 10.18515/dBEM.M2017.n01.ch07
Abdussalam Ashour KHALIF
Mohamed Itimad S. IBRAHIM
Zoltán László SZABÓ

1.7. LINKS BETWEEN HUMAN RESOURCE MANAGEMENT AND

ORGANIZATIONAL PERFORMANCE

Summary
The research carried out to establish the link between HR and Organizational
performance. The financial results are measured; a failure to measure HR policy and
practice implementation dooms this to second-class status, oversight, neglect, and
potential failure. HRM affects firm performance positively. Moreover, it is inferred
that when HR managers implement HR practices aligned with firm’s strategy (SHRM
practices) contribute to better performance of organizations. SHRM increases
efficiency and effectiveness of organizations, which leads to productivity of
organizations. Further, SHRM practices increase employee’s productivity and the
ability of organizations to achieve their goals. Integrating the use of personnel
practices into the strategic planning process enables organizations to better achieve
their missions and objectives. Human capital theory suggests that HR practices can
directly influence firm performance. Financial performance of an organization depends
largely on effective operational performance. The operational performance of an
organization is a function of people, process and technology. For effective interaction
of people with technology and process, the people in the organization have to be
competent enough, with the required knowledge, skill and abilities. The causal linkage
between HR and organizational performance will enable the HR managers to design
programmes that will bring forth better operational results to attain higher
organizational performance.

Keywords: Profitability targets, sustainability, competitive advantage, skill, investment

Introduction

The relationship between HRM and firm performance has been a hotly debated topic
over the last two decades, with the great bulk of the primary scientific research coming
from the USA and, to a lesser extent, the UK (Boselie et al., 2000). Both organizations
and academics are striving to prove that HRM has a positive impact on bottom line
productivity. The published research generally reports positive statistical relationships
between the greater adoption of HR practices and business performance. A
considerable amount of research has been carried out to establish the link between HR
and Organizational performance. The outcomes of some main projects are summarized
in Table 1. In a world in which financial results are measured, a failure to measure HR
policy and practice implementation dooms this to second-class status, oversight,

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neglect, and potential failure. The feedback from the measurements is essential to
refine and further develop implementation ideas as well as to learn how well the
practices are actually achieving their intended results (Boselie et al., 2000).
In today’s competitive and environmental challenges affect all organizations today are
varied and dynamic. Who must choose strategies that they use to survive. Strategic
management is the art and science of formulating, implementing and evaluating
strategies that will enable the organization to achieve its long-term goals, yet we know
that the most important factor in organizational processes is staff. So for one of the
impact elements for strategic management implementation is activities in the field of
HR (Salehi, 2013).
The people who make up an organization -human resources- are considered to be one
of the most important resources of today’s firms. People and how they are managed
are becoming more important because many other sources of competitive success are
less powerful than they used to. Recognizing that the basis for competitive advantage
has changed is essential to develop a different frame of reference for considering issues
of HRM and strategy (Pfeffer, 1994). Traditional sources of success such as product
and process technology, protected markets, economies of scale, etc. can still provide
competitive lever age but an organization’s human resources are more vital for its
sustainability. Parallel to the understanding that human resources are vital for an
organization, HRM function is also going up in organizational hierarchy. HRM aims to
ensure that the organization obtains and retains the skilled, committed and well-
motivated workforce it needs. This means taking steps to assess and satisfy future
people needs and to enhance and develop the inherent capacities of people - their
contributions, potential and employability - by providing learning and continuous
development opportunities. It involves the operation of recruitment and selection
procedures, management development and training activities linked to the needs of the
business (Armstrong, 2008).
SHRM represents a relatively new transformation in the field of HRM. SHRM is
concerned with the role HRM systems play in firm performance, particularly focusing
on the alignment of human resources as a means of gaining competitive advantage.
Strategic approach to HRM is very much focused in the moment, manageability
human effort to obtain competitive advantage (Anca-Ioana, 2013).

Material and method

Armstrong (2010) mentioned that SHRM has grown considerably in the last fifteen
years as a new paradigm in managing HR in the modern organization. Guest et al.
(2000) described the evolution of SHRM from personnel management in terms of a
two-phased transformation, first from personnel management to traditional HRM, and
then from traditional HRM to SHRM.
As shown in Table 1, HRM affects firm performance positively. Moreover, it is
inferred that when HR managers implement HR practices aligned with firm’s strategy
(SHRM practices) contribute to better performance of organizations. SHRM increases
efficiency and effectiveness of organizations, which leads to productivity of
organizations. Further, SHRM practices increase employee’s productivity and the

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 1.7. Links between HRM and organizational performance

ability of organizations to achieve their goals. Integrating the use of personnel

practices into the strategic planning process enables organizations to better achieve
their missions and objectives. To sum up, integrating HR practices, all with a focus on
the achievement of organizational goals and objectives, effect on the ultimate success
of the organization and provide sustained competitive advantages for organizations.
Although there has been some criticism, past and emerging research in SHRM
indicates that HRM does indeed have an effect on firm as well as other levels of
outcomes (Allen, 2006). An increasing number of studies have found significant
linkage between various measures of HRM and performance. Measures of HRM that
have been used in these studies include:
˗ High performance and high involvement work systems (e.g., Huselid, 1995);
˗ HR orientation (e.g., Snell - Youndt, 1995);
˗ Work life balance (e.g., Konrad - Mangel, 2000);
˗ Single HR practices (e.g., Gerhart - Milkovich, 1990).
To meet competitive challenges facing organizations today and achieve profitability
targets and sustaining the current dynamic component of success for organizations
focused on enhancing the strategic role of Human Resource Management (HRM). The
objective of Strategic Human Resource Management (SHRM), to create a vision that is
so fundamental issues related to the employee regarding. In a rapidly changing
competitive environment, HRM are one important source of competitive advantage.
Human Resource (HR) systems can contribute to sustained competitive advantage
through facilitating the development of competencies that are firm specific.
The HR is the most potent and central, contributing significantly to competitiveness of
organizations. Thus, organizations gain sustained competitive advantage through their
workforce. Competitive advantage is defined as “anything that gives an organization
an edge over the competitors in its market” (Inyang, 2010). Taking into account the
importance of workforce, organizations are increasingly looking at their human
resources as a unique asset that can provide sustained competitive advantage (Najia,
2008). HRM needs to achieve the following strategic goals in order for the company to
gain and sustain competitive advantage (Armstrong and Baron, 2003):
˗ To invest in people through the introduction and encouragement of learning
processes designed to increase capability and align skills to organizational needs;
˗ To ensure that the organization identifies the knowledge required to meet its goals
and satisfy its customers and takes steps to acquire and develop its intellectual
capital;
˗ To define the behaviours required for organizational success and ensure that these
behaviours are encouraged, valued and rewarded;
˗ To encourage people to engage wholeheartedly in the work they do for the
organization;
˗ To gain the commitment of people to the organization’s mission and values.
Additionally, the fundamental objective of SHRM is to generate strategic capability to
ensure that the organization has highly qualified, highly motivated employees to
achieve competitive advantage. SHRM involves a collection of practices, programs
and policies that facilitate the strategic objectives of the organization (Mello, 2006).

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Khalif, A. A. – Ibrahim, M. I. S. – Szabó, Z. L.

Strategic Human Resource Management as a source of competitive advantage

The concept of competitive advantage was formulated by Michael Porter. Competitive
advantage, Porter asserts, arises out of a firm creating value for its customers. Porter
(1985) emphasized the importance of differentiation, which consists of offering a
product or service ‘that is perceived industry-wise as being unique’, and focus - seeing
a particular buyer group or product market ‘more effectively or efficiently than
competitors who compete more broadly’. He then developed his well-known
framework of three generic strategies, -cost leadership, differentiation, focus- that
organizations can use to gain competitive advantage. Porter’s widely accepted view
suggests that the industry - environmental determinants- affects a firm’s performance.
Resource-based view, on the other hand, asserts that the basis for a competitive
advantage of a firm lies primarily in the application of the bundle of valuable resources
at the firm’s disposal (Porter, 1985). Competitive advantage, according to this view
differs from the environmentally focused strategic management paradigm in that its
emphasis is on the links between the internal resources of the firm, its strategy and its
performance.
Table 1: Research results on the link between HR and organizational performance

Researcher(s) Methodology Outcomes

The 1998 An analysis of the survey, A strong association exists between
Workplace which sampled some 2.000 HRM and both employee attitudes and
Employee workplaces and obtained the workplace performance.
Relations Survey views of about 28.000
(as analysed by employees.
Guest et al.,
2000a)
The Future of 835 private sector A greater use of HR practices is
Work Survey, organizations were surveyed associated with higher levels of
Guest et al. and interviews were carried employee commitment and contribution
(2000b) out with 610 HR and is in turn linked to higher levels of
professionals and 462 chief productivity and quality of services.
executives.
Purcell et al. A University of Bath The most successful companies had what
(2003) longitudinal study of 12 the researchers called ‘the big idea’. The
companies to establish how companies had a clear vision and a set of
people management affects integrated values, which were embedded,
organizational performance. enduring, and collective, measured and
managed. They were concerned with
sustaining performance and flexibility.
Clear evidence existed between positive
attitudes towards HR policies and
practices, levels of satisfaction,
motivation and commitment, and
operational performance.
Source: Takeuchi (2003), Armstrong (2010)

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Competitive advantage model argues that employers have three basic strategic options
in order to gain competitive advantages: cost reduction, quality enhancement, and
innovation (Schuler and Jackson, 1987). Among the key business issues that may
affect HR strategies, include proposals on increasing competitive advantage through
innovation leading to product/service differentiation, productivity gains, improved
quality and cost reduction (Armstrong, 2008). Business strategies may be influenced
by HR strategies, which are concerned with making business strategies work. Schuler
and Jackson (2007) suggested that seeking fit requires knowledge of the HRM
practices necessary to elicit those skills and behaviour, and the ability to quickly
implement the desired system of HRM practices. The competitive strategies tend to
apply Porter’s (1985) ideas on strategic choice. As mentioned above Porter identified
three key basis of competitive advantage: cost leadership, differentiation through
quality and service, and focus on ‘niche’ markets. Schuler - Jackson (1987) used this
as their model of SHRM where they defined the appropriate HR practices and policies
to fit the generic strategies of cost reduction, quality enhancement and innovation.
They argued that business performance would improve when HR practices mutually
reinforce the organization’s choice of competitive strategy. Thus, in Schuler and
Jackson’s model, the organization’s mission and values are expressed through their
desired competitive strategy (also see in Zsarnóczai, 2003, pp. 71-72).
Culture, how people are managed, and the effects of this on their behaviour and skills
are sometimes seen as the ‘soft’ side of business, occasionally dismissed (Pfeffer,
1994). Therefore, there was an awareness that, at present, an organization cannot
survive or develop without obtaining a competitive advantage over other competitors
(Anca and Ioana, 2013). The HRM function has consistently faced a battle in justifying
its position in organizations. At good times when there are enough budgets, firms
easily justify expenditures on training, staffing, rewards and employee involvement
systems, but when faced with financial difficulties, such HR systems get the earliest
cutbacks. The advent of the subfield of SHRM, devoted to exploring human resources
role in supporting business strategy, provided one opportunity for demonstrating its
value to the firm. The birth of the field of SHRM can be dated back to 1984, when
experts extensively explored the link between business strategy and human resources
(Salehi, 2013).
To put it another way, SHRM is “the creation of linkage or integration between the
overall strategic aims of business and the HR strategy and implementation. In
principle, the processes and people within the company are managed in such a way as
to foster the aims of the business strategy and create an integrated approach to
managing the various HR functions, such as selection, training and reward so that they
complement each other” (Mello, 2006; Najia, 2008).
Armstrong and Baron (2003) noted that SHRM might bring a number of benefits to the
organization:
˗ Contributing to the goal accomplishment and the survival of the company;
˗ Supporting and successfully implementing business strategies of the company;
˗ Creating and maintaining a competitive advantage for the company;
˗ Improving the responsiveness and innovation potential of the company;
˗ Increasing the number of feasible strategic options available to the company;

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˗ Participating in strategic planning and influencing the strategic direction of the

company as an equally entitled member of top management;
˗ Improving cooperation between the HRM department and line managers.
SHRM’s spreading popularity owes much to the promise of greater organizational
effectiveness achievable, through the development of internally consistent bundles of
HR strategies, which are properly linked to business strategies (Inyang, 2010).
Researchers in the field of SHRM have increasingly relied on the resource-based view
of the firm to explain the role of HR practices in firm performance (Paul and
Anantharaman, 2003). Resource-based view of strategy is that the strategic capability
of a firm depends on its resource capability, especially its distinctive resources. Indeed,
theoretical research on SHRM has suggested that systems of HR practices may lead to
higher firm performance and be sources of sustained competitive advantage because
these systems of practices are often unique, causally ambiguous, and difficult to
imitate (Pfeffer, 2001).
HR practices can enhance firm performance when they are internally aligned with one
another to manage employees in a manner that leads to competitive advantage. HR
practices can create value for a firm when the individual practices are aligned to
develop critical resources or competencies. However, with the advent of the resource-
based view of the firm (Najia, 2008; Schuler and Jakson, 2007), strategic management
research moved to a more internal focus. Rather than simply developing competitive
strategies to address the environment, the resource-based view suggested that firms
should look inward to their resources, both physical and intellectual, for sources of
competitive advantage. To improve firm performance and create competitive
advantage, a firm’s HR must focus on a new set of priorities. These new priorities are
more business, strategic oriented, and less oriented to traditional HR functions such as
staffing, training, appraisal and compensation. Strategic priorities include team-based
job designs, flexible workforces, quality improvement practices, employee
empowerment and incentive compensation (Salehi, 2013). SHRM was designed to
diagnose firm strategic needs and planned talent development, which is required to
implement a competitive strategy and achieve operational goals.
According to Armstrong and Baron (2003) people and their collective skills, abilities
and experience, coupled with their ability to deploy these in the interests of the
employing organization, are now recognized as making a significant contribution to
organizational success and as constituting a major source of competitive advantage.
The practices of SHRM such as resourcing, training and development, employee
relations and reward management are concerned with how people are employed and
managed in organizations so as to achieve competitive advantage through the strategic
deployment of a highly committed and capable workforce. SHRM has developed
rapidly in recent years, especially because of the impact that human resources have had
on the competitiveness of organizations (Mello, 2006). Many organizations face a
volatile market situation. In order to create and sustain competitive advantage in this
type of environment, organizations must continually improve their business
performance. Increasingly, organizations are recognising the potential of their HRM as
a source of sustained competitive advantage. Linked to this, more and more
organizations are relying on measurement approaches, such as workforce scorecards,

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in order to gain insight into how the human resources in their organization add value.
The increasing interest in measurement is further stimulated by a growing number of
studies that show a positive relationship between HRM and organizational
performance (Salehi, 2013). In addition, According to Armstrong (2008, pp. 5-6) HR
practices are concerned with all aspects of how people are employed and managed in
organizations. It covers activities such as: Strategic HRM; Human Capital
Management; Knowledge Management; Organization Development; Resourcing (HR
Planning, Recruitment and Selection, and Talent Management); Performance
Management; Learning and Development; Reward Management; Employee Relations;
Employee Well-Being.
As mentioned above, when these HR practices are integrated with firm’s strategy they
will contribute to organizational superior outcomes. Thus, the following proposition is
presented as; HR practices, integrated with firm’s strategy, lead to organizational
superior performance. Here we concluded that the term ‘strategy’ is used to explain
both the processes (organizational restructuring) and the outcomes (market position) of
chosen long-term directions; and it can be either a conscious, planned activity or a
series of events, which lead to a desirable objective (Najia, 2008).
Several researchers (Snell - Youndt, 1995; Guest et al., 2000) have found a positive
relation between HRM practice and firm financial performance. They found that the
strategic orientation of HR in high productivity firms differed obviously from that in
low productivity firms. According to the resource-based view, the firm could develop
sustained competitive advantage through creating value in a manner that is rare and
difficult for competitors to imitate. Traditional sources of competitive advantage such
as natural resources, technology and economics of scale have become increasingly
easy to imitate (Boselie et al, 2001). HR is an invisible asset that creates value when it
is embedded in the operational system in a manner that enhances firm ability to deal
with a turbulent environment.
Konrad - Mangel (2000) has made a case that firms wishing to succeed in today’s
global business environment must make appropriate HR investments to acquire and
build employees who possess better skills and capabilities than their competitors.
Human capital theory suggests that HR practices can directly influence firm
performance. People possess skills, knowledge and abilities that provide economic
value to firms - since firm investments to increase employee skills, knowledge and
abilities carry both out-of pocket and opportunity costs, they are only justified if they
produce future returns via increased productivity. The higher the potential for
employee contribution in a firm, the more likely it is that the firm will invest in human
capital via HRM activities, and that these investments will lead to higher individual
productivity and firm performance (see Figure 1).
Guest et al. (2002b) modelled the relationship between HRM and performance as
shown in Figure 1. They analysed data on links between SHRM/employment relations
and performance. The broad theoretical framework guiding the analysis constituted a
path model linking together business and HR strategies on one-hand and performance
outcomes on the other. The latter included measures like financial performance,
quality and productivity. The overall framework was glued together by a number of
HR practices such as recruitment and selection, training and development, pay and

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rewards and HR function. A key finding was that a large proportion of organizations
used a wide range of the HR practices outlined, and thus had an influence on the
performance Guest et al. (2002). Although there are various stakeholders in an
organization, the chief strategic goal of any business is higher financial performance or
maximization of wealth for the shareholders (Gerhart – Milkovich, 1990).
Financial performance of an organization depends to a large extent on effective
operational performance. The operational performance of an organization is a function
of people, process and technology. For effective interaction of people with technology
and process, the people in the organization have to be competent enough, with the
required knowledge, skill and abilities. Competence of the individual is an important
factor that decides operational effectiveness in terms of providing quality products and
services within a short time. HRM practices such as selection, training, work
environment and performance appraisal may enhance the competence of employees for
higher performance.
Figure 1: Model of the link between HRM and performance

Source: Guest et al., 2000

Obviously, human resources rarely have a direct effect on firm performance. This is
particularly true when the business logic of human resources effect requires that
human resources drive firm performance through its contribution to effective strategy
execution. HR professionals (and line managers) need to recognize that effective
strategy execution is the basis of shareholder value and that effective strategy
execution is a system of intermediate outcomes. A strategy manager means
recognizing the importance of the causal relationships between HR decisions and these
intermediate outcomes that ultimately drive strategic success in organizations (Allen,
2006). The practice areas covered by HR strategies that impact on performance can be
seen in Table 2.
According to Allen’s (2006) study on assessment of the impact of people management
on organizational performance, some of people management on organizational
performance, some works have been able to show an association between HR policies
used and performance outcomes, but it was often hard to explain when, why and how
this association existed and to identify the interconnections. The study concluded that
the impact of people management on organization performance is more obvious in the
medium than it is in the short term, and it is here that investigations of high
commitment management are particularly relevant.

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 1.7. Links between HRM and organizational performance

Table 2: HR impacts on organizational performance

HR practice area How it impacts

Matches people to the strategic and operational needs of the
Attracting, developing organization. Provides for the acquisition, development and retention of
and retaining high- talented employees who can deliver superior performance, productivity,
quality people flexibility, innovation and high levels of personal customer service and
who ‘fit’ the culture and the strategic requirements of the organization.
Ensure that the talented and well-motivated people required by the
Talent management
organization are available to meet present and future needs.
Provides individuals with stimulating and interesting work and gives
them the autonomy and flexibility to perform their jobs well. Enhances
Job and work design
job satisfaction and flexibility, which encourages high performance and
productivity.
Enlarges the skill base and develops the levels of competence required
in the workforce. Encourages discretionary learning, which happens
Learning and when individuals actively seek to acquire the knowledge and skills that
development promote the organization’s objectives. Develops a climate of learning -
a growth medium in which self-managed learning as well as coaching,
mentoring and training flourish.
Focuses on both organizational and individual learning and on
providing learning opportunities and opportunities to share knowledge
Manage knowledge
in a systematic way. Ensures that vital stocks of knowledge are retained
and intellectual capital
and deals with improving the flow of knowledge, information and
learning within the organization.
Encourage productive discretionary effort by ensuring that people are
Increase engagement,
positive and interested in their jobs, that they are proud to work for the
commitment and
organization and want to go on working there, and that they take action
motivation
to achieve organizational and individual goals.
Develop a positive and balanced psychological contract, which
Psychological contract provides for a continuing, harmonious relationship between the
employee and the organization.
Develop a performance culture, which encourages high performance in
such areas as productivity, quality, levels of customer service, growth,
profits, and ultimately the delivery of increased shareholder value.
High-performance
Empower employees to exhibit the discretionary behaviours most
management
closely associated with higher business performance, such as risk
taking, innovation, and knowledge sharing of knowledge and
establishing trust between managers and their team members.
Develop motivation and job engagement by valuing people in
Reward management
accordance with their contribution.
Develop involvement practices and an employee relations climate,
Employee relations
which encourages commitment and cooperation.
Working Develop ‘the big idea’ (Purcell et al., 2003): that is, a clear vision and a
environment, core set of integrated values. Make the organization ‘a great place to work’.
values, leadership,
work-life balance,
managing diversity,
secure employment
Source: Armstrong (2010, pp. 18-19)

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The competitiveness of firm strongly depends on the FDI (foreign direct investment)
inflow, which was very active before the world economic crisis of 2008. According to
UNCTAD, 2009:217 and Table 3) the measure of foreign penetration into Central East
European region was very considerable, because in 2005 this was about 26.000 foreign
affiliates located in Hungary, comparably to Poland this was about 14.500 in 2001, and
7.100 in Bulgaria in 2000.
The FDI inflows were extending in value of US Dollar 1615 and Dollar 513 per capita
from Estonia to Poland between 2006 and 2008, which FDI inflows were concerning
the economic transition and privatization process carried out directly by multinational
companies (MNCs) additionally to the national companies borrowing from
multinational banks in real expansion of non-national ownership of services and
manufacturing firms in this region. (Mickiewicz, et al, 2000:10). The economic
strategy followed by countries receiving the FDI inflows realised by MNCs is to boost
exports or develop substitutes for import. In the 1990s of the total privatization
investments 43% was sourced locally – some of whose capital was loaned through
foreign banks – and the rest was FDI (Martin, 2006).
According to the Eurostat data base before the crisis year of 2008 the unemployment
rate was at very highly in Poland, Bulgaria and Slovakia, between 18-20%, this
unemployment rate was moderately highly in Lithuania and Estonia. The other
countries of the CEE (Central East European region) Hungary, Romania, Slovenia and
Czech Republic could keep their unemployment level mostly under the 10% level,
which mostly could thanks to FDI inflow to the region (see Table 3 and Figure 2).
Figure 2: Unemployment rates by sex, age and educational attainment level (%)
(lfsa_urgaed) Last update: 17-06-2015
25

Bulgaria
20
Czech Republic
Estonia
15 Latvia
Lithuania
10 Hungary
Poland
Romania
5
Slovenia

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

Source EUROSTAT
http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=lfsa_urgaed&lang=en

However, the crisis caused a highly level increase of unemployment level in CEE
region, which let to the sharply increase of unemployment rate, even in Latvia,
Lithuania and Estonia about 15-20% mainly between 2008 and 2010. But after 2010
Lithuania, Latvia and Estonia could continuously decrease the unemployment rate.
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 1.7. Links between HRM and organizational performance

During this period, Bulgaria for longer time has had unemployment rate higher than in
Hungary, which had unemployment rate was higher over 10%, but this topes soon
decreased closed to 10% by the end of 2014.
The crisis of 2008 also was considerable obstacle for keeping FDI inflow into the CEE
region to ensure an adequate development. After the crisis of 2008 in Poland the FDI
inflow was decreased by 20%, because in three year period of 2006-2008 the FDI
inflow decreased from level of 58,8 billion Dollar US (3X19,6) to level of 47, 4 billion
dollar. In Hungary the FDI inflow decreased by 48% from the level of 2006-2008 to
the level of 2009-2011 (Table 3). Naturally the decreasing level of the FDI inflow
caused the slowly investment and firm performance, which made difficulty for
customers to keep adequate successful purchase power parity on the domestic market.
The FDI performance became continuously weak in supplying jobs for workers.
The policy makers should follow FDI inflow and create adequate institutional
background for FDI to improve their investments in host country and improve their
performance and extend job possibility. By their performance and extending job
network, they could increase level of employment. The jobs provide better marketing
positions by increasing the purchase power parity of local inhabitants.

Conclusions

SHRM researchers have long argued that human resources should be managed
strategically and that certain practices are essential to improving organizational
performance. However, the way an organization manages its HR has a significant
relationship with the organization’s results, a revelation that supports the resource-
based view, where business competitiveness is related, at least in part, to the
investments in company specific assets. Although the published research generally
reports positive statistical relationships between the greater adoption of HR practices
and business performance, it should also be kept in mind that many other factors
besides HR practices could influence organizational performance. Furthermore, it is
possible that there are complex relationships between HR practices and other resources
of the firm.
The causal linkage between HR and organizational performance will enable the HR
managers to design programmes that will bring forth better operational results to attain
higher organizational performance. The focus of the HR management should be to
understand organizational performance processes and design HR practices that
influence process and outcome variables. Furthermore, beyond understanding the
needs of the business, HR managers can enhance their strategic value, and the value of
HRM practices, by improving their competencies in three primary areas:
organizational design, managing change, and measuring performance. In addition to
HR managers, all personnel should be aware of their firm’s strategy.
This paper has reviewed the relevant literature and the considerable discussion and
deconstruction of SHRM, various elements of competitive strategies and the links
between these elements. Since it is clearly understood from academic research that
human resources are a source of sustained competitive advantage, while, traditionally,
the costs associated with the development of HR strategy have been regarded as an

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operating expense, these costs would be better considered as an investment in capital

assets. SHRM is one factor in the current socio-economic and technological changes,
which could play a role in the effectiveness of the organization and achieving
organizational success. Since today’s human resources as the most valuable factor of
production are the most important asset of any organization and the main source of
generating competitive advantage and create value-added functionality.
In the world economy the MNCs have considerable role for improving national
economies and their performance, also to implement wider FDI inflow into national
economies even in CEE region, as it has occurred for the last two decades.
Performance and investments of MNCs provide possible improvement of production
and services at firm level to increase the competitiveness of firms on the world and
local markets.

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