Impact of HR Practices on Organizational Performance in Bangladesh

Impact of HR Practices on Organizational Performance in Bangladesh

Mir Mohammed Nurul Absar1’s abstract Impact of human resource management practices on organizational performance has been a widely researched area for years. But unfortunately, a very insufficient number of studies have been conducted in this area in the context of Bangladesh and other developing countries. This study was undertaken to fill this obvious research gap. Data collected from fifty manufacturing firms in Bangladesh shows that HR practices have a significant association with organizational performance. Out of HR practices, only performance appraisal is found to have a significant impact on organizational performance. Keywords: HR Practices, Organizational Performance, Manufacturing Firms JEC Classification: M12, D24 Balasundaram Nimalathasan2 Munshi Muhammad Abdul Kader Jilani3 1. IntroductIon Impact of human resource management practices on organizational performance has been a widely researched area for years.

The present study selected HR practices such as recruitment and selection, training and development, performance appraisal, and compensation which were incorporated by the Fombrun, Tichy, and Devana Model of HRM. The model assumed that these four key HR practices have a significant impact on organizational performance. The main purpose of the study was to identify the impact of HR practices on organizational performance. In order to materialize this objective, the following specific objectives were considered. To address the linkage between HR practices and organizational performance. To identify the impact of HR practices on organizational performance. To offer some measures in order to enhance the organizational performance of the selected manufacturing firms in Bangladesh and other similar countries. The ultimate goal of a business organization is higher financial performance or maximization of wealth for stakeholders. Organizational performance is generally indicated by effectiveness (whether an organization can achieve its objectives), efficiency (whether an organization uses resources properly), the satisfaction of employees and customers, innovation, quality of products or services, and ability to maintain a unique human pool.

The organizational performance variables of the present study included features such as product quality, customer satisfaction, new product development, ability to attract employees, ability to retain employees, and the relationship between management and employees. According to the earlier studies, the respondents were asked to assess their organizations’ performance in comparison to the performance of their competitors. Though most of the studies have been conducted in the western world, it is now well established that HR practices have a significant impact on productivity, corporate financial performance, and employee turnover. Pollitt (2004) found that the HRM practices of Nokia played a vital role in helping the company in reaching its 40% percent share of the global handset market, and industry-leading profit margins of 20%-25% at a time of unmatched change and competition. Katou and Budhwar (2007) through an in-depth study on 178 manufacturing firms of Greece found that HR practices such as recruitment, training, promotion, incentives, benefits, involvement, and safety and health were positively related to the elements of organizational performance such as innovation and satisfaction of stakeholders. Singh (2004) in a study on 82 Indian firms observed that HR practices such as training and compensation had a significant impact on perceived organizational performance. Two recent studies in the context of Bangladesh also found that HR practices have a significant association with employee turnover and organizational commitment.

Hypothesis 1: HR practices have a significant association with organizational performance.

Hypothesis 2: HR practices have a significant impact on organizational performance: The Recruitment and selection process determines the decisions as to which candidates will get employment offers. The aim of this practice is to improve the fit between employees, the organization, teams, and work requirements, and thus, to create a better work environment. Sophisticated recruitment and selection systems can ensure a better fit between the individual’s abilities and the organization’s requirements. Hunter and Schmidt (1982) concluded that employment stability can be achieved through a selection procedure based on ability. Katou and Budhwar (2007) also found that recruitment and selection were positively related to all organizational performance variables such as effectiveness, efficiency, innovation, and quality.

Hypothesis 3: Recruitment and selection positively influence organizational performance: Training and development are considered to be the most common HR practice. Training and development refer to any effort to improve current or future employees’ skills, abilities, and knowledge.

Compensation is very much important for employees because it is one of the main reasons for which people work. Employees’ living status in society, satisfaction, loyalty, and productivity are also influenced by compensation. Delaney & Huselid (1996) found that incentive compensation was associated with perceived market performance in the USA. Employee compensation, particularly the performance-based compensation system, resulted in better organizational performance in Indian firms. Mahmood observed that other than organizational contingencies, the institutional context such as national education and training system, national industrial relations system, regulatory frameworks, and overall societal context had a significant influence on the development of HR practices in Bangladesh. Furthermore, HR practices were found to have a significant impact on affective commitment in the context of Bangladesh. Thus, the above review of the literature shows that there have been several studies around the globe focusing on HR practices and organizational performance. This is done by determining the association between scores obtained from different administrations of the scales. If the association is high, the scale yields consistent results thus are reliable. Cronbach’s alpha is the most widely used method. It may be mentioned that its value varies from 0 to 1 but a satisfactory value is required to be more than 0.6 for the scale to be reliable.

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