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Human resource management best practices and firm performance: A

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Article  in  Serbian Journal of Management · November 2013

DOI: 10.5937/sjm8-4573

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Serbian Journal of Management 8 (2) (2013) 155 - 167 Journal
of
Management
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HUMAN RESOURCE MANAGEMENT BEST PRACTICES AND FIRM

PERFORMANCE: A UNIVERSALISTIC PERSPECTIVE APPROACH

Loo-See Beha* and Leap-Han Looa

aFaculty of Economics and Administration, University of Malaya,

50603 Kuala Lumpur, Malaysia

(Received 15 May 2013; accepted 8 October 2013)

Abstract

The universalistic perspective of human resource management practices perceives that a set of
practices can achieve competitive advantage and firm performance. This study sought to investigate
the relationship between best human resource practices and firm performance. A descriptive survey
research design was used to gather primary data using self-administered questionnaire. The study
population (n=312) was comprised of non-executives, executives, managers, and top management
from seven major insurance firms at headquarters in the Klang Valley, Malaysia. The study found that
performance appraisal, internal communication, SHRM alignment in the organization, and career
planning were the human resource management best practices.

Keywords: Human Resource Management Practices, Competitive Advantage, Firm Performance,

Insurance Firm.

1. INTRODUCTION indicator in achieving improved sales growth

and the creation of innovative insurance
The perceived level of productivity and products. Therefore, local insurance firms
customer service provided by the insurance have to be more efficient, productive and
industry in Malaysia has deteriorated due to innovative on its HRM practices
lack of skilled and competent workforce. implementation that is closely aligned to the
Organization today, specifically insurance firm’s objective, business needs as well as
industry is aware of the importance of human the culture to sustain competitive advantage
resource management (HRM) as the leading in the market. The contribution of this paper
* Corresponding author: lucybeh@[Link]

DOI:10.5937/sjm8-4573
156 L. - S. Beh / SJM 8 (2) (2013) 155 - 167
to the literature is twofold. First, the number of empirical studies show that the
conceptual model of the study tested the best practices of HRM has positive
relationship between HRM best practices relationship on firm performance and also
and firm performance at the organizational can be the source of sustainable competitive
level. The second contribution is to advantage to the organization (Schuler &
demonstrate the impact of the strength of the MacMillan, 1984; Ulrich, 1991, Wright &
HRM best practices on firm performance. McMahan, 1992; Huselid, 1995; Jackson &
Schuler, 1995; Bjorkman & Fan, 2002;
Collins & Clark, 2003; Guest et al., 2003;
2. BACKGROUND OF THE STUDY Panayotopoulou et al., 2003; Wright et al.,
2005; Hiltrop, 2005; Gooderham et al., 2006;
The impact of globalisation, market force Othman, 2009).
and highly competitive markets has forced
the insurance industry to be competitive
(Kundu & Malhan, 2009) in order to sustain 3. LITERATURE REVIEW
in the market, locally and internationally. A
high level of skilled and competent There is little agreement as to which
workforce can contribute to the firm’s HRM best practices can be considered as
success by developing a comprehensive and strategic in an organization (Paauwe, 2004;
internally cohesive human resource Marchington & Grugulis, 2000). However,
management (HRM) system that is there is a broad consensus that there is a
embedded in the organization’s structure and positive link between HRM practices and
culture (Liu et al., 2007). A synergistic HRM firm performance (Wattanasupachoke, 2009;
system is a pathway through which the firm’s Tessema & Soeters, 2006; Wright et al.,
human capital has the potential to become an 2005; Bjorkman & Fan, 2002; Singh, 2003a;
important source of competitive advantage Bae & Lawler, 2000; Huselid et al., 1997;
and to enhance firm performance (Boxall & Harel & Tzafrir, 1999; Huselid & Becker,
Purcell, 2003) by shifting their focus to 1996; Huselid, 1995; Arthur, 1992).
making service quality, productivity, product Huselid’s (1995) groundbreaking study
innovation and sales growth a priority in established that a set of human resource
gaining competitive advantage. practices, also known as high performance
Strategic HRM practices generally focus work systems (HPWS) were strongly related
on human resource strategy, integration and to turnover, accounting profits and firm
add to the key notions of strategies market value. Since then, many studies have
(Armstrong, 2007). Literature review shows shown similar positive relationship between
that organizations engaging or adopting HRM practices and various measures of firm
HRM best practices will outperform performance such as productivity and quality
organizations that do not. Given the rapid in the auto assembly plants (MacDuffie,
growth and development in the insurance 1995), accounting profits in the bank sector
industry, human resources are considered a (Delery & Doty, 1996), employee
firm’s key internal resource and are productivity, machine efficiency, and
increasingly deployed as the source of customer alignment and its link with quality
competitiveness in an organization. A great manufacturing strategy (Youndt et al., 1996),
 L. - S. Beh / SJM 8 (2) (2013) 155 - 167 157
and profitability (Guthrie, 2001). The training, participation, employment security,
literature review in this study includes only job description, result-oriented appraisal,
those studies covering multiple HRM internal career opportunities, and
practices, because the focus is on the HRM stocks/profit sharing) approach to examine
system as a whole that promotes overall firm the validity of HRM practices and their
performance. The review on measurement of effects on company performance among the
organizational outcomes (productivity, 465 Chinese enterprises. The findings
quality, and service) and capital market showed that training, participation, result-
outcome (sales growth) is based on Dyer & oriented appraisal, and internal career
Reeves’s (1995) and Delaney & Huselid’s opportunities were identified as the “core” of
(1996) studies. HRM practices that positively affect both
Review of literatures indicate that product/service performance and financial
essential HRM practices such as workforce performance. Akhtar et al.’s, (2008) findings
planning (Mathis & Jackson, 2004; Chang & are consistent with the results study done by
Chen, 2002), training and development Shipton et al., (2005). On the other hand,
(Khan, 2010; Katuo & Budhwar, 2006; Gooderham et al. (2006) conducted a similar
Ahmad & Schroeder, 2003; Kundu, 2003; study using a factor analysis of 80 different
Chang & Chen, 2002; Lam & White, 1998; HRM practices on its relationship with
Ngo et al., 1998), recruitment and selection organizational performance among the
(Khan, 2010; Katuo & Budhwar, 2006; European firms. The study shows that
Kulik, 2004; Ahmad & Schroeder, 2003; training monitoring, share-options,
Chiu et al., 2002; Lam & White, 1998), evaluation of Human Resource Department,
performance appraisal (Khan, 2010; Chang profit-sharing, group-bonus, and
& Chen, 2002; Bernardin & Russel, 1993), performance related pay have a statistically
career planning management (Schein, 1996), significant impact on performance.
compensation (Ahmad & Schroeder, 2003; Furthermore, Ngo et al.’s (1998) findings
Chiu et al., 2002; Lam & White, 1998; Ngo indicate that firms that provide more
et al., 1998), internal communication structural training and development create
(Ulrich, 1997; Richard & Johnson, 2001; more new products, have more satisfied
Geringer et al., 2002; Oladipo & Abdulkadir, employees and higher sales. Fey et al. (2000)
2011; Osman et al., 2011), and job design also finds that non-technical training, high
(Champion, 1988 ; Morgeson & Humphrey, salaries and promotions based on merit will
2006) have positive association with firm have a direct positive impact on firm
performance. These practices capitalise on performance among the managers while job
the strength of the human capital for security among the non-managerial
sustained competitive advantage (Jackson & employees.
Schuler, 2000). Furthermore, these studies Universalistic perspective focuses on the
also provide an insight to the management ‘best practices’, which implies that firms will
and human resource practitioner to exercise be better off if they identify and adopt ‘best
these practices as strategic tool for superior practice’ in the way they manage people
performance (Khan, 2010). (Boxall & Purcell, 2000). In other words,
Akhtar et al. (2008) adopted Delery & some human resource practices are always
Doty’s (1996) seven best practices (i.e. better than others (Rose & Kumar, 2006)
158 L. - S. Beh / SJM 8 (2) (2013) 155 - 167

regardless of the firm, its strategy or its performance. Organization needs to develop
environment (Delery & Doty, 1996) and all a human resource system that achieves both
organisations should adopt them (Miles & horizontal and vertical integration in
Snow, 1984). From this perspective, for a achieving competitive advantage. However,
firm to have effective human resource there is no consensus or consistency
practices, it needs to copy and implement evidence illustrating what constitutes these
these universal best practices. There are HRM best practices that associate with high
many empirical evidences suggesting that firm performance. While a substantial body
human capital is the pre-eminent of literature has been developed linking
organisational resource and the main key to HRM best practices to firm performance,
achieving superior performance. Therefore, this research study applies the universalistic
human capital provides organisation with an perspective of human resource practices to :
important source of sustainable competitive 1) Investigate the individual HRM best
advantage (Huselid, 1995). practices on firm performance in the
The universalistic academicians consider Malaysian insurance industry.
strategic HRM practices to positively 2) Assess the relationship between
influence firm performance and help firms HRM best practices and firm performance in
improve their human resource cost benefits, the Malaysian insurance industry.
improve operating efficiency, increase Identifying the important components of
innovation, and increase overall HRM best practices for firm
organisational performance benefits (Dyer & performancewill help us better theorize the
Reeves, 1995). According to Osterman nature and impact of HRM-performance
(1987) and Sonnenfeld & Peiperl (1988), the relationship. Therefore, from the literature
most influential best practices set consist of review, the conceptual model of this study is
seven practices namely internal career presented in Figure 1.
opportunities, training systems, appraisals,
profit-sharing plans, employment security,
voice mechanisms (grievance systems and 4. RESEARCH METHODOLOGY
participation in decision making) and degree
to which jobs are narrowly designed. Many The descriptive research method is used
scholars have supported this universalistic to facilitate the description of the SHRM and
prediction (Terpstra & Rozell, 1993; Delery firm performance of seven major insurance
& Doty, 1996) and firms desire to succeed in firms operating in Klang Valley. The
today’s global environment and competition descriptive method provides logical
must make appropriate human resource approach because the data consisted of the
investment to acquire and develop human perceptions of respondents, which were
capital who acquire better skills, capabilities, gathered through the administered survey
and knowledge than their competitors. questionnaire. This method of data collection
In summary, the above reviews have was chosen for this study as it provides
unified a list of HRM practices needed for greatest anonymity and lowest chance of
HRM best practices research and argued that biasness. The sample was composed of the
it is the synergistic effect of multiple HRM non-executive, executive and managerial/top
practices that contributes to firm’s management employees of seven major
 L. - S. Beh / SJM 8 (2) (2013) 155 - 167 159

Figure 1. Conceptual model of the study

insurance firms available in Klang Valley. Social Science (SPSS) Version 19. The
Permission was granted from the Life analysis of data began with the reliability test
Insurance Association of Malaysia and for the scales using Cronbach’s Alpha. This
General Insurance Association of Malaysia is followed by the examination and
to conduct this survey among its members. A presentation of demographic profile of
total of 350 questionnaires were distributed respondents using descriptive statistics.
to seven different major insurance firms Pearson correlation analysis were carried out
using the method of stratified sampling. The to determine the relationships between
response rate is 89%. For the purpose of this independent and dependent variables.
study, the survey questionnaire constitutes Multiple regression analysis was used to
three parts. The first part comprises analyze the level of significance in testing
demographic characteristics of the the relationship between HRM best practices
respondents such as gender, name of and firm performance.
organization, age, education, year of service,
designation and total employees. The second
part of the questionnaire consists of 64 items 5. RESULTS
which represent eight HRM best practices
and rated anonymously by the respondents The results of the demographic
on a 5-point Likert scale of 1 = “strongly characteristics of the respondents show that
disagree” to 5 = “strongly agree”. The third 57.4% of the respondents are female while
part of the questionnaire measures the firm 42.6% of the respondents are male. This
performance by the following variables implies that insurance industry in this
namely: 1) rate of productivity of your country gives female preference in the
company, 2) customer service, 3) quality of recruitment and selection process. The study
products, and 4) sales growth developed by also indicates that the majority of the
Dyer & Reeves (1995) and Delaney & respondents are aged 31 years and above
Huselid (1996). Respondents were to rate on (80.4%) implying that age is an important
a 5-point Likert scale of 1 = “very poor” to 5 factor in appointment of executives, manager
= “very good”. The overall Cronbach’s and top management. These are responsible
Alpha score is 0.87. The collected data were positions with high accountability and
analyzed using the Statistical Package for required a great deal of experience in
160 L. - S. Beh / SJM 8 (2) (2013) 155 - 167

carrying out their duties efficiently and appraisal (r=0.473, α=0.01), h) training &
effectively. A total of 64.7% of respondents development and internal communication
obtained Degree and we can presume that (r=0.321, α=0.01), i) training & development
overwhelming majority of the respondents and career planning (r=0.407, α=0.01), j)
were well educated in their area of expertise. compensation & benefits and performance
60.3% of the respondents have been in the appraisal (r=0.220, α=0.01), k)
industry for at least 5 years of working compensation & benefits and career planning
experience. Majority of the participating (r=0.303, α=0.01), l) compensation &
insurance firms employ above 200 benefits and job design (r=0.346, α=0.01),
employees. m) internal communication and career
Table 1 shows the inter-correlations planning (r=0.408, α=0.01), and n) career
between measures of HRM best practices planning and job design (r=0.469, α=0.01).
whereby the pattern of independent variables The findings also show a stronger and
are related to the dependent variable by positive correlation between performance
aiming to identify ideal HRM best practices appraisal practices and firm performance
that complement and reinforcing each other. (r=0.342, α= 0.01) and followed by internal
The Pearson’s product moment correlation communication practices (r=0.285, α= 0.01),
coefficient values reveal strong correlations career planning (r=0.247, α= 0.01), and
within the HRM best practice variables as training and development (r=0.238, α= 0.01).
follows: a) Strategic HRM alignment in the This implies that performance appraisal has
organization and internal communication greatest impact on insurance performance
(r=0.209, α=0.01), b) Strategic HRM compared with the rest of HRM best
alignment in the organization and career practices. Insurance firms view that
planning (r=0.311, α=0.01), c) recruitment & performance appraisal management is a
selection and training & development vehicle for the continuous improvement of
(r=0.338, α=0.01), d) recruitment & business improvement via a co-ordinate
selection and performance appraisal program of people management
(r=0.190, α=0.01), e) recruitment & selection interventions (Walters, 1995). However, the
and internal communication (r=0.218, insurance’s performance had negative
α=0.01), f) training & development and correlation with job design practices.
compensation & benefits (r=0.382, α= 0.01), The multiple regression model with all
g) training & development and performance eight predictors produced R²=0.254,

Table 1. Correlations between HRM best practices and firm performance

 L. - S. Beh / SJM 8 (2) (2013) 155 - 167 161
F (8 303) = 12.93, p<.000. R² value of 0.254 2003(a)&(b); Quresh et al., 2010; Nayyab et
indicates that 25.4% of the variance in firm al., 2011), internal communication (Guest,
performance is accounted by Strategic HRM 1997; Hoque, 1999; Singh, 2003(a)&(b);
alignment in the organization, recruitment Erdil & Gunsel, 2007; Gurbuz & Mert,
and selection, training and development, 2011), and strategic HRM alignment in the
compensation and benefits, performance organization (Paauwe & Richardson, 1997;
appraisal, internal communication, career Abdullah et al., 2009; Gurbuz & Mert, 2011;
planning, and job design and its square. R Ishak et al., 2011; Osman et al., 2011; Pham,
value of 0.504 indicating a strong 2011). This study concludes that HRM plays
relationship between the independent a crucial role in service companies
variables (HRM best practices) and (Schneider & Bowen, 1993) and
dependent variable (firm performance). performance appraisal practices was high in
Findings show that the best predictions of an practice in the insurance firms.
insurance performance are performance Performance appraisal practices are
appraisal (β =.376), internal communication growing as a key role of managing individual
(β =.201), Strategic HRM alignment in the performance, discussing critical success
organization (β =.183), and career planning factors in the job, and provide the key inputs
(β =.149). These variables explain up to to decision on merit-based salary increases,
25.4% of firm performance with training, and promotion (Boxall & Purcell,
performance appraisal taking the lead. 2003). Insurance firms stress the importance
of effective performance appraisal
management based on the belief that
6. DISCUSSION AND CONCLUSION everything people do at work at any level
contributes to achieving the overall purpose
In this study, we have investigated the of the organization. It is therefore concerned
relationship of HRM best practices in with what employees do, how they behave,
enhancing firm performance. It was how they perform their work, and what they
discovered that HRM best practices enhance have achieved. The combined impact of
firm performance. The study found that performance appraisal practices will be
performance appraisal, internal expected to achieve more to improve firm
communication, career planning, training performance.
and development, recruitment and selection, The result of this study is consistent with
and SHRM alignment in the organization Huselid et al.’s (1997) finding concludes that
have positive relationship on firm there is positive link between HRM
performance. The results found in this effectiveness and firm performance. The
analysis are consistent with the previous practices of HRM undertaken in this study
studies, such as performance appraisal, are concerned with how people are
training, and recruitment (Youndt et al., employed, managed, developed, rewarded,
1996; Singh, 2003(a)&(b); Wright et al., and taken care of as to achieve competitive
2005; Cho et al., 2006; Khan, 2010; Quresh advantage through the strategic deployment
et al., 2010; Arumugam & Mojtahedzadeh, of a highly committed and capable
2011; Boohene & Asuinura, 2011), career workforce. This shows that organization is
planning (Fey et al., 2000; Singh highly dependent on human resource to
162 L. - S. Beh / SJM 8 (2) (2013) 155 - 167

achieve high firm performance. There has practices and firm performance. Only eight
been a debate by numerous academicians on out of a wide range of possible HRM best
the contribution of HRM practices in firm practices were selected in this study.
performance. Lau & Ngo (2004) argues that Selection of HRM best practices items were
a firm can achieve high performance through based on the most popular HRM best
a universal set of HRM best practices. practices quoted from previous studies.
However, Schuler & Jackson (1987); Schuler Therefore, the results of this study may be
& Walker (1990); Dyer & Reeves (1995) biased. This study only focused on the
view that HRM strategy would be more Malaysian insurance industry and the results
effective and efficient when appropriately may differ from other industries in Malaysia
integrated vertically between an or other countries. This study may be taken
organization’s business strategy and its HRM up to cover a wider area such as insurance
policies and practices. business unit branches and more respondents
The implications of this study indicate with cross cultural extensions. Future
that insurance firm must strategically researchers may take up studies on HRM for
manage its human resource practices to these aspects.
achieve maximum performance. Human
Resource Personnel should focus on how to
develop and sustain its human resource References
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ПРИМЕРИ НАЈБОЉЕ ПРАКСЕ УПРАВЉА ЉУДСКИМ

РЕСУРСИМА И УТИЦАЈ НА ПЕРФОРМАНСЕ КОМПАНИЈА:
ПРИСТУП УНИВЕРЗАЛНЕ ПЕРСПЕКТИВЕ

Loo-See Beh, Leap-Han Loo

Извод

Универзална перспектива менаџмента људским ресурсима подразумева да сет практичних

алата може унапредити конкурентску предност и показатеље компаније. Ова студија се
заснива на покушају истраживања односа између праксе управљања људским ресурсима и
перформанси компаније. Како би се сакупили полазни подаци коришћен је упитник, док је
испитивање вршено личним приступом. Популацију која је истраживана (312 испитаника)
сачињавали су нижи, виши и високи менаџмент нивои из седам највећих осигуравајућих
компанија из Кленг низије у Малезији. Истраживање је показало да је се најбоља пракса
менаџмента људских ресурса састоји у унапређењу личних перформанси, унутрашњој
комуникацији и планирању каријере запошљених.

Кључне речи: пракса управљања људским ресурсима, компаративна предност, перформансе

компаније, осигуравајуће компаније, Мaлезија

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