Strategic human resource management and organisational performance: An investigation in the country of Jordan

Abstract

The purpose of this research is to contribute to the understanding of the debate surrounding strategic human resource management (SHRM) and organisational performance. The relationship between SHRM and organisational performance has been a heavily deliberated issue over the last decade. A survey of literature on SHRM and its impacts in terms of performance reveals that empirical results on this topic are, as yet, inconclusive. Whilst some studies have found the impact to be positive, the results from several other studies cast doubts concerning the overall efficacy of (positive) HR practices on firms’ performance. Moreover, researchers have argued that there is a need for additional studies on the HRM-performance link, and that further investigations in different contexts are required.

This study responds to the call of researchers, and is conducted in a new non-Western context in the country of Jordan. The work contributes to our understanding of HR practices’ impacts on employee turnover rate as well as on the actual and perceived financial performance of organisations. The empirical analysis is based on theoretical propositions which state that motivated employees, through good HR practices, remain in their positions longer and contribute positively to the overall financial performance of organisations. Rigorous statistical testing of the data on the population of financial firms shows that careful recruitment and selection, training, and internal career opportunities all have a positive impact in terms of reducing employee turnover. Training, in particular, is found to have a strong positive impact on actual and perceived financial performance. The findings do not support the indirect HRM-performance relationship mediated by employee turnover. The study provides strong support for the universalistic approach that a group of best HR practices will continuously and directly generate superior performance for the companies. We also find no evidence to support the notion that bundles or complementarities of HR practices impact better on financial performance than individual HR practices.

We test the impact of strategic HR involvement (involving HR functions in the overall strategic process of the company) and HR devolvement (delegating the day-to-day HR issues to line managers) on organisational performance. Our results show that financial performance can be enhanced and employee turnover rate decreased by involving HR directors in the overall strategic decision-making process of the companies. The results indicate that the alignment of HRM with organisational strategy would improve the financial performance of the companies; however, our results suggest that the devolvement of routine HR issues to line managers may not be positively related to the financial performance of the companies or negatively related to employee turnover.