An integrative approach to HRM–firm performance relationship: a missing link to corporate governance

AuthorJelena Petrovic, George Saridakis, Stewart Johnstone
DOIhttps://doi.org/10.1108/CG-07-2017-0133
Pages331-352
Publication Date03 Apr 2018
An integrative approach to HRMrm
performance relationship: a missing link to
corporate governance
Jelena Petrovic, George Saridakis and Stewart Johnstone
Abstract
Purpose The purpose of this paper is to contributeto ongoing debates regarding the human resource
management (HRM)-firmperformance relationship. In seekingto provide a more complete picture of the
relationship, the paper discusses the existing literature and proposes an integrative framework that
draws upondifferent literatures and multipletheoretical perspectives.
Design/methodology/approach This review includes nearly 100 research studies published in this
field. The review includes papers published in mainstream HRM journals and broader management
journals with strong tiesto HRM literature. Importantly, the paper also identifiesa gap – a missing link –
that concerns the importanceof incorporating insights from corporate governance(CG) literature when
consideringstrategic HR decision-making.
Findings A significant contributionof this paper to theory is to propose an integrative framework that
conceptualises the elusive relationship between HRM and firm performance, and which draws on
different literatures and multiple theoretical perspectives in to offer more holistic insights into the
relationship.The paper discusses the implicationsof the integrative perspective for theory and practice.
Originality value This paper argues that one of the main stumbling blocks for developing a better
understanding of the mechanisms through which HRM creates value in an organisation is the
fragmentation of the HRM literaturebetween “HR as practices” and “HR as the department/profession”,
as well as a tendencyto neglect insights from the CG literature.
Keywords HRM, Corporate governance, Firm performance
Paper type Literature review
Introduction
A shareholder perspective has traditionally been used to measure firm performance, using
financial performance indicators such as return on investment (ROI), financial and market
performance and productivity (Becker and Gerhart, 1996). This is not surprising given that
the primacy of shareholder concerns (in the Anglo-Saxon corporate governance [CG]
system at least) means that for boards chargedwith satisfying interests of shareholders, the
ultimate human resource management(HRM)–firm performance-related question would be:
How does a particular change inHRM affect shareholder returns? The main HRM issue from
this perspective can therefore be summed up as a question of costs versus contribution/
value creation.
There is a general agreement in the literature that HRM has the potential to affect firm
performance through its influence on employee behaviour (Combs et al.,2006;Beer, 2015;
Chadwick et al.,2015;Cappelli, 2015). However, there is very little agreement regarding
how to achieve this potential because of various methodological and conceptual limitations.
These include a lack of consensus regarding how to best operationalise HRM and firm
performance, a tendency to examine different human resource (HR) practices as well as to
Jelena Petrovic is Associate
Professor at Kingston
Business School, Kingston
upon Thames, UK.
George Saridakis is
Professor at Kingston
Business School, Kingston
University, Kingston upon
Thames, UK.
Stewart Johnstone is Senior
Lecturer at Newcastle
University Business School,
Newcastle University,
Newcastle upon Tyne, UK.
Received 12 July 2017
Revised 7 November 2017
Accepted 3 December 2017
DOI 10.1108/CG-07-2017-0133 VOL. 18 NO. 2 2018, pp. 331-352, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 331
use different measures, and to report associations rather than causation. Studies are also
inconsistent in how they define the concept of firm performance, and are questionable in
terms of their cross-national generalisability (Wall and Wood, 2005;Guest, 2011;Paauwe
et al.,2013;Brewster et al.,2016).
There is also further evidence thatsuggests that executives fail to see tangible associations
between the role of the HR department and firm performance (Charanet al.,2015). Creating
models that reflect a broader view of performance and more complete taxonomies of
factors influencing business andHR strategies remains a challenge (Cascio, 2015). Becker
and Gerhart (1996) noted over 20 years ago when empirical HR-performance research was
in its infancy, that the mechanisms through whichHR decisions create and sustain value are
complicated and not well understood. Some two decades and many empiricalstudies later,
Guest (2011, p. 3) suggests that “we are more knowledgeable but not much wiser, in that
we have not been able to explain the demonstrated association between HRM and
performance with any conviction”.
With some exceptions (Welbourne and Cyr, 1999;Hope Hailey et al., 2005;Singh et al.,
2012;Martin and Gollan, 2012;Sheehanet al.,2014;Chadwick et al.,2016), most studies of
the so-called “black box” of the HRM–firm performance relationship focus upon HR
practices (processes/systems/policies/strategies), rather than the role played by the HR
department in making strategic HR decisions. On the other hand, the stream of research
that focuses on the influence of HR department/professionals on strategic decision-making
on the board (Ulrich and Brockbank, 2005;Kelly and Gennard, 2007;Charan et al., 2015)
tends to exclude a more in-depth consideration of HR practices and their relationshipto firm
performance. Moreover, while one would expect this stream of literature to be
complemented by research in the field of CG (top management teams/board directors) this
does not tend to be the case.
Considering a significant body of existing literature, this paper argues that one of the main
stumbling blocks for developing a better understanding of the mechanisms through which
HRM creates value in an organisation, is the fragmentation of the literature between studies
of HR practices with those that explore therole of the HR department/profession,aswellas
a tendency to neglect insights from the CG literature. Given the vast literature on HRM–
performance, to make the task manageableand for reasons of brevity, the studies included
in this review are necessarily selective ratherthan exhaustive. Nevertheless, we believe they
allow for an overview of the recent trajectory of research on HRM and performance. In
seeking to provide a more complete picture of the HRM–firm performance relationship, this
paper proposes a framework that integrates these different streams of the HRM literature
(HR as practices vs HR as the department/profession) as well as insights from the CG
literature. In doing so, the paper draws on multiple theoretical perspectives to develop a
more holistic understanding of the HRM–performance link. The need for an integrative
review of the literature has been highlighted by variousscholars (Guest, 2011;Wright et al.,
2014). Indeed, as suggested by Wright et al. (2014), who used the story of blind men and
the elephant to illustrate that no one’s subjective experience completely describes a
phenomenon, “if all the blind men were to communicate with one another about the part
they describe, their pooled descriptions would closely resemble the elephant”(p. 368).
The paper is structured as follows. The first section discusses key published work that
concentrates on HR practices and the relationship with firm performance. This stream of
literature has been divided into two sub-areas, each seen through a different theoretical
lens such as designing HR practices (the resource based view – RBV – of the firm) and
implementing HR practices (the resource orchestration perspective). The section that
follows discusses the literature about the role of HR department/professionals in influencing
strategic decision-making on the board. The next section then considers issues of HR
metrics (workforce/analytics) and firm performance, as these concern both HR practices
and the role of HR department/professionals. The following sectionthen proposes a missing
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