The impact of HRM and Performance Management on performance

Since HRM in general and performance management approaches in particular, aim at enhancing individual and organizational performance, there has been a lot of research effort during the last decades to investigate whether those approaches perform well and whether they have an impact on performance at all (Armstrong, 2018). Furthermore there seems to be little understanding about the underlying mechanisms through which HR practices influence organizational performance (Wall and Wood, 2005). Hence, this section will discuss evidence on the impact of performance management on organizational and individual performance.

3.2.8.1 Impact on organizational performance

To establish a link between HRM practices - including performance management - and organizational outcome, is problematic since determining causality is a major issue in this field of research(Armstrong, 2018). Nonetheless, there are several research projects and studies that dealt with this question. Generally speaking, there are two main strands of research:

(1) Studies that doubt or even deny any linkage between HR practices and organizational outcome

(2) Studies that support the linkage between HR practices and organizational outcome

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Table 5: Studies on the linkage of HR practices and performance

Although literature provides no definite answer to the question whether there is a linkage between HR practices and organizational outcome, it becomes obvious that some progress has been made in the last two decades. In spite of the different levels of confidence about the strength of the association, recent reviews reveal that there is a

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growing body of research that consistently demonstrated a relationship between and HR practices performance (Paauwe et al., 2013). In this respect, it seems reasonable to suggest that HR practices and organizational outcome are at least weakly associated in a positive way.

Even by assuming a linkage, there is no clear understanding about the mediating mechanisms between HRM and organizational performance. In 1996, Becker pointed out the lack of knowledge about “the process (how and why) through which HRM creates

organisational value”. Guest (1997) addressed this challenge by emphasizing that

literature lacks “a theory of HRM, a theory of performance and a theory of how the two

are linked”. Purcell et al. (2003) argued that previous studies demonstrated that there is

a positive association, but there is no explanation to the nature of this connection. Those statements, pointing out the existing gap in explaining the link, illustrate an issue, which HRM literature refers to as the “black box” (Boselie et al., 2005). In order to address this issue, several authors attempted to open the box by providing models to map the relationships including intermediary ones, in the HRM-Performance chain (Savaneviciene and Stankeviciute, 2010). Most of these models, which are also known as “causal pathways”, are based on the concept of Dyer and Reeves (1995), who defined four different categories of output (Boselie et al., 2005; Savaneviciene and Stankeviciute, 2010):

- HR-related outputs (affective, cognitive, behaviour) - Organizational outputs (quality, productivity)

- Financial outcomes (profit, sales) - Market based outcomes (market value)

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The relevance of the “causal pathway” models lies in two aspects. First, there are outcomes, such as HR-related outcomes, that are closer related to HR practices than others. Second, the impact that HR practices have on more distal outcomes is achieved by the impact on more proximal outcomes (Savaneviciene and Stankeviciute, 2010). Some of the most relevant and frequently cited “causal pathway” models are:

• The Black box model of Becker et al. (1997): HR practices have a direct impact on employee´s skills and motivation, which in consequence influence more distal outcomes.

• The Black box model of Guest et al. (1997): High performance on individual level does not only depend on high motivation, but also on the possession of the necessary skills, abilities and an appropriate role.

• Black box model of Wright and Nishii (2007): Each organization selects HR practices resulting from a HR strategy, which the organization´s management believes will most effectively elicit the employee responses desired. However, not all intended practices are actually going to be implemented exactly the way they were meant. (Purcell et al., 2003).

By comparing the three models, three findings become apparent. First, HR practices result from HR-strategy, which again is derived from the organization´s strategy. Differences in the composition and focus of HRM therefore may result in differences in employee´s attitudes and behaviour. Thus, control oriented HR systems may result in rather compliance oriented behaviour (Messersmith et al., 2011). Second, HRM and HR practices should focus on group or on individual level, as each employee may in fact experience a different HRM system. More recent studies provide evidence that there is a relationship between employee well-being and organizational performance. This line of research indicates, that understanding how HR practices impact individuals is a prerequisite for understanding the relationship of HRM and performance (Paauwe et al., 2013). Third, HR practices impact HR-related outcomes. Again, those outcomes influence more distal outcomes such as financial performance. Although the “causal pathway” models do not completely unlock the “black box”, they offer a reasonable basis to argue that to have a positive impact on performance and HR-related outcomes do have an impact on organizational performance.

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3.2.8.2 Impact on individual performance

In contrast to performance management´s impact on organizational performance, there is convincing evidence of a causal link between performance management and a positive impact performance improvement on individual level (Armstrong, 2018).

Of course, there are also studies that found no such linkage. Armstrong (2018) reports on a study carried out by Guest and Conway (1998) who used achievement of financial targets and skill development as key criteria for determining the impact of performance management approaches. Although they found that ninety per cent of respondents rated performance management as “moderate” to “highly” effective, a more detailed statistical analysis produced no convincing evidence of any link between performance management practice and target achievement or skill development.

However, there is a large number of studies that provide convincing evidence that there is a link. In a comprehensive review of more than 3,000 research articles, Kluger and De Nisi (1996) showed that feedback had a moderate-sized positive impact on performance. They, however, pointed out that results had a strong variation which might be due to different approaches. Further, Kochanski (2007) found that high-performing organizations have a strong leadership support for performance management. Despite identifying several issues with performance management practices (see chapter 3.2.9), in a comprehensive review the CIPD identified several studies indicating a positive relationship of performance management and individual performance (Chartered Institute of Personnel and Development, 2016a; Chartered Institute of Personnel and Development, 2016b). Regarding the practice of target setting, Corgnet at. al (2015) found that employees who found their targets challenging increased their performance by forty per cent compared to the control group. Jeffrey et al. (2012) showed that ability- based targets were more suitable to improve performance results than a “one-size-fits- all” approach. From a reversed point of view, Menefee and Murphy (2004) noted that strong performers are more attracted by organizations that recognize individual contributions.

In conclusion, there is evidence to believe that there are benefits of performance management to individual performance. However, there are also critical voices on the practice and the context performance management operates. These issues will be addressed in the following section.

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