Chapter II

CHAPTER - II
CONCEPTS AND REVIEW OF LITERATURE
Introduction
There have been many studies conducted in the field of Human resource
practices and Human resource audit in different industries both at national and
international level. This review focuses on literature that makes a more holistic
approach to examining the effective HR practices and HR audit. This review includes
both academic and professional literature.
The literature review addresses the following research questions
• What are the best HR practices?

• How to discover Effectiveness of HR practices through HR audit?
2.1 HR Practices
1
Augustine, Lado and Wilson have noted that managing people is more
2
difficult than managing technology or capital. Wright has pointed out that the firms
which have learnt how to manage their human resources well, would have an edge
over others for a long time to come because acquiring and deploying human resources
3
effectively is cumbersome and takes much longer. According to Khatri people are
one of the most important factors providing flexibility and adaptability to
4
organizations. Rundle argues that one needs to bear in mind that HR Professionals
not the firm, are the adaptive mechanism in determining how the firm will respond to
the competitive environment.
1
Augustine A. Lado and Mary C. Wilson, “ Human Resource Systems and Sustained Competitive
Advantages: A Competency Based Perspective,” Academy of Management Review, 19 (1994) pp. 699-
727.
2
P. M. Wright, G.C. MacMahan and A. MacWilliams, “Human Resource and Sustained Competitive
Advantage : A Resource Based Perspective”, The International Journal of Human Resource
Management, 5, No.2 (1994) pp. 302-326.
3
N. Khatri, “Emerging Issues in Strategic HRM IN Singapore “, International Journal of Manpower,
20, no. 8 (1999) pp. 516-529.
4
S. J. Rundle, “Flexibility, Adaptiveness and Responsiveness (FAR-ness) as the Key Success Factors
in Market Entry in the South East Asian Growth Wedge,” PhD Thesis, Department of Management,
Monash University,Victoria, 1997.
8
5
Koch and McGrath views that HRM can help firms improve organizational
behaviour in such areas as staff commitment, competency and flexibility, which in
turn leads to improved staff performance. The effective management of human
resources requires sound Human Resource Management systems such as Recruitment,
People Management, Salary Management, Competence and Talent Management,
Carrier Management, Learning Management, Change Management, Absence
6
Management, and Time Management. Storey defines HRM as a distinctive approach
to employment management, which seeks to obtain competitive advantage through
the deployment of a highly committed and skilled workforce, using an array of
techniques. In order to develop a sound HRM system, the organization should have
effective Human Resource Management practices.
7
Schuler and Jackson HRM practices refer to organizational activities directed
at managing the pool of human resources and ensuring that the resources are
8
employed towards the fulfilment of organizational goals. Hamel and Prahalad argue
that a competitive advantage is obtained if a firm can obtain and develop human
resources, which facilitate it to learn quicker and apply its learning more successfully.
9
E. Guest says that the HRM has evolved as one of the most important areas of
organizational science and practices. It has not been developed in isolation, but rather
in the context of industrial change and economic development. The uniqueness of the
Human Resources (HR) approach needs a total different type of attention from
managers. The HR has characteristics that provide the greatest challenge as well as
opportunity. A company‘s HR is fragile with delicate relationships, along with
unpredictable contributions, and permanency is uncertain.
5
M.J. Koch and R.G. McGrath, “Improving Labor Productivity: Human Resource Management
Policies Do Matter’, Strategic Management Journal, 17 (1996) pp. 335–354.
6
J. Storey, ed., Human Resource Management: A Critical Text, London: 1995, and Tayeb M.
Routledge, “Transfer of HRM practices across cultures: An American Company in Scotland,” The
International Journal of Human Resource Management, 9, no. 2 (1998) 332-358.
7
R. S. Schuler and S.E. Jackson, “Linking Competitive Strategies with Human Resource Management
Practices”, Academy of Management Executive, 1, No.3 (1987) pp. 207-219.
8
Hamel and C. K. Prahalad, “Strategic Intent”. Harvard Business Review (May-June, 1991) pp. 63–76.
9
E. Guest, “Personnel Management: The End of Orthodoxy?”, British Journal of Industrial Relations,
3, no. 5 (1991) pp. 137–156.
9
10
Wright, Smart, and McMahan state that the crucial inputs among others in
the organization are its human resources. People bring to their jobs diversity of skills,
needs, goals, and expectations. They are socialized into the organization through their
hiring to begin with, and their continuous functioning in the organization. According
11
to Bulla and Scott there is a need to ensure that the human resource requirements of
an organization are identified and plans are made for satisfying those requirements.
12
Shay and others in their study examine the consequences of emerging
human resource management (HRM) practices for employees’ trust in their managers
from a combination of the theory of exchange and a resource-base perspective.
13
MacDuffie found that the measures of HR practices were related to quality
14
and productivity on auto assembly lines, Youndt and others discovered that human
capital enhancing HR practices were related to operational performance among a
sample of manufacturing plants. Though much of the research on the relationship
between HR practices and performance has somewhat consistently revealed a
significant relationship, some recent debates have emerged regarding the value of
different approaches to studying this phenomenon. Debates have arisen regarding the
proper sources for gaining the most valid reports of HR practice measures, the proper
level of analysis and proximity of Performance Measures (PM), and the timing of
measurement.
Dyer and Reeves 15 reviewed much of the existing research on the relationship
between HR practices and performance and proposed that measures of performance
could be broken down into four categories. First, employee outcomes deal with the
consequences of the practices on employees such as their attitudes and behavior,
particularly behavior such as absenteeism and turnover. Secondly, organizational
10
P. M. Wright, D. L. Smart and G. C. Mc-Mahan, “Matches between Human Resources and Strategy
among NCAA Basketball Teams”, Academy of Management Journal, 38 (1995) pp. 1052–1074.
11
http://www.chinaabout.net/human-resource-planning-strategic-recruitment-selection-procedures-pay-
rates-setting/
12
http://shodhganga.inflibnet.ac.in/bitstream/10603/4838/11/11_chapter%202.pdf
13
J.P. MacDuffie, “Human Resource Bundles and Manufacturing Performance: Organizational Logic
and Flexible production systems in the world auto industry’.Industrial and Labor Relations Review, 48,
197-221.
14
M. A. Youndt, S. A. Snell, J.W. Dean and D. P. Lepak, “Human Resource Management,
Manufacturing Strategy and Firm Performance”, Academy of Management Journal, 39, no. 4 (1996)
pp. 836-866.
15
L. Dyer, and T. Reeves, “HR Strategies and Firm Performance: What Do We Know and Where Do
We Need to Go?” International Journal of Human Resource Management, 6, no. 3 (1995) pp. 656-670.
10
outcomes focus on more operational measures of performance such as productivity,
quality and shrinkage, many or all of which would be precursors to profitability.
Thirdly, financial/ accounting outcomes refer to the actual financial performance
measures and include expenses, revenues and profitability. Finally, market-based
outcomes reflect how the financial markets value a firm, particularly stock price or
variations of it.
According to Seyed-Mahmoud Aghazadeh 16 Human resource management

must change as the business environment in which it operates changes. He outlines
the key challenges facing human resources managers as they move from simply
handling personnel issues to making a strategic contribution to the future direction
and development of an organization. He demonstrates that human resources managers
can contribute both to performance enhancement and cost reduction thus contributing
directly to the productivity of the organization.
Seyed-Mahmoud Aghazadeh 17 also investigates three aspects of human

resource management facing future challenges, personnel, technology and
globalization. He suggests that the human resource professionals in a successful
business must be able to attract and retain individuals who have the ability to manage
a globally responsive business. He covers the use of technology for competitive
advantage. He advocates global strategies in operations management and
empowerment of the individual.
The global turmoil has witnessed the rising importance of Human Resources
Management (HRM) in both business and public life. The turbulent business climate
brought in the wake of liberalization, globalization, changing technologies, growth in
knowledge and advances in information technology is offering managers a complex
and challenging situation. Indian organizations are tending to become competitive to
meet up globally relevant standards. The growing stress on privatization has
warranted a new focus in terms of result orientation. Singh 18 in his article speaks of
long-term strategies, consumer focus, initiative and different mindsets for internal and
16
Seyed-Mahmoud Aghazadeh, “A New Mandate for Operations Managers”, Work Study, 52 No. 6
(2003) pp. 310 – 316.
17
Seyed-Mahmoud Aghazadeh, “Human Resource Management: Issues and Challenges in the New
Illennium”, Management Research News, 22, no. 12 (1999) pp. 19 – 32.
18
K. Singh, “Strategic HR Orientation and Firm Performance in India”, International Journal of
Human Resource Management. 14, no. 7 (2003) pp. 530–554.
11
external communication. Indian organizations normally direct their HRM efforts
towards the development of competencies, culture and effectiveness among
employees individually or in groups. Best HR practices vary from industry to
industry, among companies within an industry. The most effective practices are not
necessarily uniform across geographical regions. However, more similarities than
differences exist in the types of HR practices advocated within and outside India.
The next section of the paper will discuss the types of HRM practices,
followed by the detailed discussion of the factors affecting HRM practices and
various models of HRM practices. The relationship between HRM practices and other
important organizational variables is then presented including the HR best practices of
Indian companies.
2.2 Types of HRM Practices
Many researches on HRM practices have been conducted from time to time
and researchers have identified different practices by different names. Huselid and
Becker 19 discussed eleven HRM practices in his study they are personnel selection,
performance appraisal, incentive compensation, job design, grievance procedures,
information sharing, attitude assessment, labor management participation, recruitment
efforts, employee training and promotion criteria.
Teseema & Soeters20 used eight HR practices in their research paper namely
recruitment and selection practices, placement practices, training practices,
compensation practices, employee performance evaluation practices,
promotion practices, grievance procedure and pension system. According to them
21
these HR practices can affect the performance of the employee. Huselid speaks of
“best practice,” or “High – performance and Aldrich and Langton 22 speak of formal
19
M. A. Huselid and B. E. Becker, The Strategic Impact of High Performance Work Systems, Paper
presented at the Academy of Management Annual Meetings, Vancouver, BC, 1995.
20
M. Tessema, and J. Soeters, “Challenges and Prospects of HRM in Developing Countries: Testing
the HRM-Performance Link in Eritrean Civil Service, International Journal of Human Resource
Management, 17, no. 1 (2006) pp. 86-105.
21
A. Huselid Mark, “The Impact of Human Resource Management Practices on Turnover, Productivity
and Corporate Financial Performance”, Academy of Management Journal, 38, No.3 (1995) pp. 635-
672.
22
H. Aldrich, and N. Langton, Human Resource Management Practices and Organizational Life
Cycles, 1997, in P. D. Reynolds, WD. Bygrave, N. M. Carter, P. Davidsson, W. B. Gartner, C. M.
Mason, and P. P. McDougall, (eds.), Frontiers of Entrepreneurship Research, Wellesley, MA: Babson
College Center for Entrepreneurship, pp. 349-357.
12
HR practices. Heneman and Berkley 23 refer to HR practice as “sophisticated” while
Gnan and Songini 24 perceived it as “professional”
According to Chandler and McEvoy 25, one of the lingering questions in HRM
research is whether or not there is a single set of policies or practices that represents a
‘universally superior approach’ to managing people. Theories on best practices or
high commitment theories suggest that universally, certain HRM practices, either
separately or in combination are associated with improved organizational
performance. Boxall 26 has also found that the well-paid, well-motivated workers,
working in an atmosphere of mutuality and trust, generate higher productivity gains
and lower unit costs.
In order to determine any effects of HR practices on firm growth, we prefer to

27
examine HR practices initially proposed by Pfeffer , which according to the
literature, can be expected to influence the firm performance. In his seminal work,
Pfeffer proposed the following seven HRM practices
(1) Employment security

(2) Selective hiring,
(3) Self-managed teams and decentralization of decision making
(4) Comparatively high compensation contingent on organizational performance,
(5) Extensive training,
(6) Reduced status distinctions and barriers, including dress, language, office
arrangements, and wage differences across levels, and
(7) Extensive sharing of financial and performance information throughout the
organization.
23
H. Heneman, and R. Berkley, “Applicant Attraction Practices and Outcomes among Small
Businesses”, Journal of Small Business Management, 37, no. 1 (1999) pp. 53-74.
24
L. Gnan, and L. Songini, The Professionalization of Family Firms: The Role of Agency Cost Control
Mechanisms, FBN Proceedings, 2003, pp. 141-172.
25
G. N. Chandler, and G. M. McEvoy, “Human Resource Management, TQM, and Firm Performance
in Small and Medium- Size Enterprises”, Entrepreneurship: Theory and Practice, 25, No.1 (2000) pp.
43-58.
26
P. Boxall, “The Strategic HRM Debate and the Resource- Based View of the Firm”, HRM Journal,
6, no. 3, (1996) pp. 59-75.
27
J. Pfeffer, “Seven Practices of Successful Organizations”, California Management Review, 40, no. 2
(1998) pp. 96-124.
13
In one another study, Redman and Matthews 28 identify an ‘HRM bundle’ of
key practices that support service organizations quality strategies, these being:
1. Careful recruitment and selection, for example, ‘total quality recruitment’,

‘zero defects recruitment’, ‘right first time recruitment’.
2. Extensive remuneration systems, for example, bonuses available for staff
willing to be multi-skilled.
3. Team working and flexible job design, for example, encouraging a sense of
cohesiveness and designing empowered jobs.
4. Training and learning, for example, front line staff having enhanced
interpersonal and social skills.
5. Employee involvement, for example, keeping employees informed of key
changes in the organization.
6. Performance appraisals with links to contingent reward systems, for
example, gathering customer feedback to recognize the work by employees
over and above their expected duties, which in turn is likely to lead to a
bonus for staff.
Recently, Saxena and Tiwari 29 examined the HRM Practices implemented by

leading IT Companies such as TATA, Infosys and Wipro in India. They developed
the 3cTER Framework of HRM practices and identified Training and Development,
Employer-Employee Relations, Recognition through Rewards, Culture building,
Career Development, Compensation and Benefits as important HRM Practices.
2.3 HR Functions
2.3.1 HR Structure
Wright and others 30 argue that top line executives represent the best source of
evaluative information on this topic, for two main reasons. First, they are the most
involved of all ‘service users’, in that they are both subject to HR policies, and
additionally have vested interests in their positive impact on employees. Secondly,
28
T. Redman and P. B. Mathews, “Service Quality and Human Resource Management: A Review and
Research Agends”, Personnel Review, 27, no. 1 (1998) pp. 57-77.
29
Saxena Karunesh and Tiwari Pankaj, “A Study of HRM Practices in Selected IT Companies of
India”, AIMS Journal of Management, 1, no. 3 (2009) pp. 29-44.
30
P. Wright, G. McMahan, S. Snell and B. Gerhart, “Comparing Line and HR Executives’ Perceptions
of HR Effectiveness: Services, Roles and Contributions”, Human Resource Management, 40
(2001)pp.111-123.
14
they are in a good position to judge what practices are likely to be in the firm’s best
interests, providing a more rounded view that balances ‘what employees [think they]
want against the actual returns to those employees, or the financial impact on the
business, related to particular courses of action.
31
Overall, as Huselid and others nonetheless notes, the concept of ‘HRM
effectiveness’ is a very broad one, and so any assessments in this area should ideally
reflect the needs and desires of diverse stakeholders. Buyens and De Vos 32 stated that
comparing customer views across organizational sizes, sectors and locations, as the
value of the HR function can be perceived differently according to these factors. As
mentioned previously, it may also be the case that employee status and demographics
are a source of variation in customer views, in which case these too should be taken
into account in a survey instrument.
2.3.2 Man Power

Wright and others 33 mentioned that the issue of what contributes to
competitive advantage has seen a shift in emphasis away from external positioning in
the industry and the relative balance of competitive forces, towards an
acknowledgement that internal resources be seen as crucial to sustained effectiveness.
2.3.3 Recruitment and Selection

Shen and Edward 34 defined Recruitment as a process that seeks and obtains
potential job applicants in sufficient numbers and quality in order to fulfil the
available work positions, as well as meeting the organisation’s requirements and
expectations. Recruitment is highly dependent on job analysis, and recruitment is also
linked to organisational strategy through HRM planning. Recruitment policy is very
important to organisations, and it reflects an organisations’ general strategy.
31
M. Huselid, S. Jackson and R. Schuler, “Technical and Strategic Human Resource Management
Effectiveness as Determinants of Firm Performance”, Academy of Management Journal, 40 (1990) pp.
171-188.
32
D. Buyens and A. De Vos, “Perceptions of the Value of the HR function”, Human Resources
Management Journal, 11 (2001) pp. 70-89.
33
P. M. Wright, B. B. Dunford, and S. A. Snell, “Human Resources and the Resource based View of
the Firm”, Journal of Management, 27 (2001) pp. 701-721.
34
J. Shen, and V. Edwards, “Recruitment and Selection in Chinese MNEs”, The International Journal
of Human Resource Management, 15, no. 4 (2004) pp. 814 – 835.
15
Werther and Davis 35 are of the opinion that Exit interviews are conducted with
departing employees to learn their views and experiences with the organization.
Questions asked along these lines are reviewed later to find out if there is a major
cause for turnover, absenteeism, dissatisfaction etc. The Human Resource department
must take an active interest in exit interviews. Some employees may be hesitant to
pass judgment on and speak their mind. Reasons must be studied to determine if
trends exist among employees of the organizations. The scope for taking interviews is
however time consuming and limited, therefore there is a trend among Human
Resource departments to use questionnaires to widen the scope of their research.
Survey Questionnaires may lead to more honest answers than face-to-face interviews.
Attitude survey feedback can find answers to concerns.
Crompton, Morrissey and Nankervis 36 have suggested that effective worker

recruitment, selection and retention can be deemed to contribute to successful work
performance and business outcomes. Small business has many challenges in
maintaining a competitive advantage with increasingly hard-line nature of competitive
recruitment in a buoyant economy. This of course is the result of the fact that
recruitment for larger organizations that have specific HR staff and departments to
deal with such matters must employ formal strategies to maintain control. On the
other hand, it is apparent that in the family owned and managed small business,
restraints of time and money may contribute to the lack of formal process involved in
the attraction of possible new employees to the business. Notwithstanding this, small
business must “attract” a sufficient number of employees from which to select and
retain employees within the same competitive environment as large business.
Attracting the appropriate employee is the first phase in establishing the
relationship between employer and employee. From this, it is possible to identify
what characteristics of the small business recruitment processes contribute to
effective attraction out come. Having briefly reviewed recruitment, attention is now
turned to staff selection. Selection of staff from the recruitment process can often be a
more complex experience.
35
William B. Werther, and Keith Davis, Human Resources and Personnel Management. Prentice Hall,
New York, 2000. Available at https://www.google.co.in/?gfe_rd=cr&ei=2OyAU7HHGZKDuASLvo
G4Dg#q=ijrcm+VOLUME+NO.+3+(2012)%2C+ISSUE+NO.+8+(AUGUST).
36
http://epubs.scu.edu.au/cgi/viewcontent.cgi?article=1078&context=gcm_pubs
16
The selection process can include activities such as checking references,
interviewing in order to obtain an appropriate match between the vacancy and the
possible new employee. Other selection activities can include testing the employee’s
abilities to see if they meet the organizations needs. Cook 37 recognized that it is
important that the candidate selected must be the person who can most effectively
contribute to the business’ goals. Carlson 38 mentions that small business owners are
repeatedly forced to have a reactive recruitment and selection process due to financial
and time constraints.
2.3.4 Performance Appraisal and Management

Rondeau and Wager 39 examined the relationship between HRM practices,
workplace climate and perceptions of organizational performance, in a large sample
of Canadian nursing homes and found that nursing homes, which had implemented
more ‘progressive’ HRM practices and which reported a workplace climate that
strongly valued employee participation, empowerment and accountability tended to be
perceived to generally perform better on a number of valued organizational outcomes.
As with turnover, it is important to distinguish what we mean when we talk

about performance. Probably the most important distinction is the unit of analysis:
individual, unit, or organization. Higher level performance measures, such as profit or
productivity for a business are obviously affected by many factors aside from those
related to human resources. On the other hand, Van Iddekinge and others 40 consider
that a focus on individual-level performance can miss the group- and organizational-
level dynamics which also affect outcomes. It is not necessarily true that a collection
of high-performing individual employees added together will result in equally strong
overall performance.
37
R. Cook, Recruitment, Selection & Induction in Australia & New Zealand: A work and Case-Based
Learning Guide (Sydney: Prentice Hall, 1998) p.4
38
Carlson, N. Upton, and S. Seaman, “The Impact of Human Resources Practices and Compensation
Design on Performance: An Analysis of Family-Owned SME’s”, Journal of Small Business
Management, 44, no. 4 (October 2006) pp. 531-543.
39
V. Rondeau Kent and H. Wager Terry, “Impact of Human Resource Management Practices on
Nursing Home Performance”, Health Service Management Research, 14, no. 3 (2001) pp. 192-202.
40
C. H. V. Iddekinge, G. R. Ferris, P. L. Perrewé, F. R. Blass, A. A. Perryman and T. D. Heetderks,
“Effects of Selection and Training on Unit-Level Performance Over Time: A Latent Growth Modeling
Approach”, Journal of Applied Psychology, 94, no. 4 (2009) pp. 829-843.
17
Boswell 41 in his research article investigates how employee perceptions of
performance appraisal use relate to employee satisfaction with the performance
appraisal and with the appraiser the employees’ immediate supervisor. Employee
perceptions that appraisals were used for development positively associated with both
attitudinal variables, after controlling for justice perceptions, performance, and
demographics. Perceptions of PA use for evaluation did not show a significant
relationship with employee attitude. The researcher has used Mean, Standard
Deviations and Correlations as the statistical tool. It appears that there is a strong,
positive relationship between perceived developmental use and employees’ feelings
about the appraiser and the appraisal. The relationship between perceived evaluative
PA use and these attitudes is less clear.
Welsh 42 in his paper namely “Perceived Fairness of and Satisfaction with

Employee Performance Appraisal” investigated employee reactions to fairness and
satisfaction with an existing performance appraisal system utilizing a hypothesized
four-factor model of organizational justice. Data were obtained via a survey
questionnaire from 440 participants from two organizations that were part of a large
public employment system. Ten multi-item scales representing four factors of
organizational justice and performance appraisal fairness and three scales indicating
satisfaction were included. The tools used by the researcher are Standard Deviation,
Correlation, T-Test and F-Test. The findings of the study indicated that respondents
perceived the performance appraisal system to be fair as indicated by their agreement.
The paper by Thomas 43 with the title “Performance Appraisal Effectiveness

Analysis” evaluates the performance appraisal effectiveness at Champion voyager
designers Private Limited. The researcher has used percentage analysis as a tool to
represent the number of respondents. It was found that if greater amount of objectivity
can be infused into the appraisal system it could help to bring more transparency. The
communication, fairness and managerial efficiency play an important part in
effectiveness of performance appraisal.
41
M. Boswell Baid, “Employee Attitudinal Effects of Perceived Performance Appraisal Use”, France,
Bandialla News Magazine (2001) pp. 36-56.
42
N. Welsh Mansuri, “Perceived Fairness of and Satisfaction with Employee Performance Appraisal”,
Scotland, Ryon Journals (2003) pp. 25-89.
43
M. Thomas Dick, “Performance Appraisal Effectiveness Analysis”, Mascow, Mathew Pack System
Journals (2006) pp. 136-178.
18
Sekhar 44 studies whether qualitative or quantitative on performance appraisal
system have been quite exhaustively conducted across the world and for its inherent
potential to activate the human resources in all type of organization. It attempts to
explore the association between the employees profile and the perceived effectiveness
of the PHS on a sample of 240 from one of the oldest private engineering companies.
The researcher has used Mean, Standard Deviation, F-Test and Chi-Square. The
researcher has developed a stable and reliable scale, which could help in assessing the
effectiveness of performance appraisal.
Soundria 45, says that Performance appraisal is a process of assessing,

summarizing and developing the work of an employee on qualitative as well as
quantitative terms .The communication, fairness and managerial efficiency play an
important part in effectiveness of performance appraisal. The articles showed that the
procedural justice and interaction justice has a significant effect on individual
information ethical behaviors. The study indicated that respondents perceived the
performance appraisal system to be fair as indicated by their agreement.
2.3.5 Talent Identification

Snell and others 46 mentioned that ‘If the types and levels of skills are not
equally distributed, some firms can acquire the talent that they need and others
cannot, then (ceteris paribus) that form of human capital can be a source of sustained
47
competitive advantage’. According to Becker and Gerhart there are at least two
reasons why human resources may be difficult to imitate causal ambiguity and path
dependency. ‘First, it is difficult to grasp the precise mechanism by which the
interplay of human resource practice and policies generates value. Second, these HR
systems are path dependent. They consist of policies that are developed over time and
cannot be simply purchased in the market by competitors’.
44
Sekhar Mussah, “Assessment of Effectiveness of Performance Appraisal System: Scale Development
and Its Usage”, 16 (2007) pp. 27-39.
45
S. M. Soundria, A Study On Performance Appraisal System At Srf Limited, Viralimalai, Tamilnadu,
St. Joseph’s College (Autonomous), August-2011, pp. 44-50.
46
S. A. Snell, M. A. Youndt, and P. M. Wright, “Establishing a Framework for Research in Strategic
Human Resource Management: Merging Resource Theory and Organisational Learning”, in G. Ferris
(Ed.) Research in Personnel and Human Resource Management, 14 (1996) pp. 61-90.
47
B. Becker, and B. Gerhart, “The Impact of Human Resource Management on Organisational
Performance: Progress and Prospects”, Academy of Management Journal, 39 (1996) pp. 779-801.
19
The interdependency between HR practices combined with the idiosyncratic
context of particular companies creates high barriers for imitation. Essentially, the
human resources must be valuable; they must, as Boxall 48 says, be ‘latent with
productive possibilities’. Therefore, the human capital advantage depends on securing
exceptional talent, or, in the familiar phrase, ‘the best and the brightest.’
Ulrich 49 noted that the ability to attract and retain high quality workers is
critical to organizational competitiveness and a stream of research in strategic HRM
has examined the linkage between HR practices and firm performance and
effectiveness. However, Becker & Huselid 50 have suggested that a systematic
approach in creating a workplace within high performance work systems serve as an
inimitable resource supporting the effective implementation of corporate strategy.
Combs and others 51 pointed out that the attainment of operational goals may not be
sufficient to attract and retain high skilled employees nor lead to firm performance.
Boxall & Macky52 ascertain that Organizations also need to provide employee-
focused good employment/ high involvement practices that build a positive workplace
experience to attract and retain employees.
2.3.6 Employee Welfare Measures
Purna Chandra Rao 53 made and empirical study on the execution of the
welfare provisions in a milk factory. The aim of the study is to assess the
implementation of the welfare provisions, both statutory and non-statutory, by
eliciting the opinions of the employees. A majority of the employees were satisfied
with the facilities provided by the statutory welfare measures, except for those related
to washing and a separate room for lunch. In the case of non-statutory or voluntary
welfare measures, the facility of credit society was good, whereas the recreation
48
P. F. Boxall, “The Strategic HRM Debateand the Resource-based View of the Firm”, Human
Resource Management Journal, 6, no. 3 (1996) p. 67.
49
D. Ulrich, “Profiling Organizational Competitiveness: Cultivating Capabilities”, Human Resource
Planning, 16, no. 3 (1993) pp. 1-17.
50
B. E. Becker, and M. A. Huselid, “High Performance Work Systems and Firm Performance: A
Synthesis of Research and Managerial Implications”, Research in Personnel and Human Resources
Journal, 16, no. 1 (1998) p. 53.
51
J. Combs, Y. Liu, A. Hall, and D. Ketchen, “How much do High-Performance Work Practices
Matter? A Meta-Analysis of Their Effects on Organizational Performance”, Personnel Psychology, 59,
(2006) pp. 501-528.
52
P. Boxall, K. Macky, “Research and Theory on High-Performance Work Systems: Progressing the
High Involvement System”, Human Resource Management Journal, 19, no. 1 (2009) pp. 3-23.
53
Purna Chandra Rao, “Workmen’s Welfare Under Free Enterprise Era: An Empirical Study”, The
Icfaian Journal of Managemant Reaserch, VIII, no. 6 (2009) pp. 41-50.
20
facility was not good. The cost of welfare by the management was very meager and it
should be hiked to provide better voluntary welfare measures for the employees.
Tsung-Chih and others 54 discuss safety culture in the petrochemical sector and
the causes and consequences of safety culture. A sample of 520 responses selected by
simple random sampling completed questionnaires for this survey, the return rate was
86.75%. The research instrument consists of four sections: basic information, the
safety leadership scale (SLS), the safety climate scale (SCS), and the safety
performance scale (SPS). Exploratory factor analysis indicated that (1) SLS included
three factors namely safety caring, safety controlling and safety coaching. (2) SCS
comprised three factors namely emergency response, safety commitment and risk
perception; and (3) SPS was composed of accident investigation, safety training,
safety inspections and safety motivation. The conclusions were the SLS, SCS, SPS
developed in this paper had good construct validity and internal consistency and can
serve as the basis for future research.
Julie Malveaux 55 said that the majority of human resource professionals

indicated that their organizations have been negatively affected by the U.S and global
economic recession. In this ever-changing economic climate, organizations are
looking for ways to manage costs at the same time dealing with the escalating
expenses of employee benefits. Therefore, it is not surprising that 72% of human
resource professionals reported that the benefits offered by their organizations have
been affected in one way or other.
Sabarirajan and others56, reported that textile industries are one of the
important industries of India for earning Foreign Exchange and giving employment to
lakhs of workers. Being a highly labor intensive industry it needs to concentrate more
on the welfare of employees. The study shows that 15% of the employees are highly
satisfied, 22% of the employees are satisfied, 39% of the employees are average with
their welfare measures and 16% of them are in highly dissatisfied. Welfare measures
54
Tsung-chih Wu, Lin, Chia-hung and Sen-yu Shiau, “Developing Measures for Assessing the
Causality of Safety Culture in a Petrochemical Industry, Water Air Soil pollution”, Focus (November,
2009) pp. 507-515.
55
Julie Malveaux, 2010 Employee Benefits in the Midst of a Recovering Economy, A Research Report
by the Society for Human Resource Management, www.shrm.org/research, Society for Human
Resource Management, February-2010, pp. 1-85.
56
T. Sabarirajan, Meharajan and B. Arun, “A Study on the Various Welfare Measures and Their
Impact on QWL Provided by the Textile Mills with Reference to Salem District, Tamil Nadu, India”,
Asian Journal of Management Research (2010) pp. 15-24.
21
play an important role in satisfying the employees and it improves the quality of work
life.
Chukwunenye and others 57 examined staff welfare and organizations’

productivity, using Patani Local Government Council in Delta State, Nigeria as a
reference. The methodology was primarily qualitative and involved use of In-depth
Interviews and Focus Group Discussion to secure information from employees at the
council. Data revealed general awareness about staff welfare among the employees
and ability to identify the elements of welfare. There was absence of staff welfare in
the council. The working environment was poor, in terms of office accommodation
and furniture, paucity of working materials, scarcely available monetary incentives,
unreliable health, and safety facilities, which altogether reduce morale and efficiency
in job performance.
Chaudhay and Iqbal 58 said that no technical labor had been able to undermine
the place of labor in the industrial field. The main reason is that employees were the
only active factor of production in the best possible manner. The main aim of the
employee’s welfare is to establish and maintain relationship at all levels of
management by giving satisfactory conditions of employment and also provide their
requirement.
2.3.7 Compensation Policy

Collins and K.D. Clark 59 say that Performance-based compensation is the
dominant HR practice that firms use to evaluate and reward employees’ efforts. For
Cardon and Stevens 60 performance-based compensation has a positive effect upon
employee and organizational performance.
57
Chukwunenye Iheanacho Okereke and Amgbare Daniel, “Staff Welfare and Productivity in Patani
Local Government Council, Delta State Nigeria”, Journal of Economics and International Finance, II,
12 (December 2010) pp. 313-320.
58
Asiya Chaudhay and Roohi Iqbal, “An Empirical Study on Effect of Welfare Measures on
Employees’ Satisfaction in Indian Railways”, International Journal of Research in Commerce and
Management, 2, no.7 (July 2011) pp. 130-138.
59
J. Collins and K. D. Clark, “Strategic Human Resource Practices, Top Management Commitment,
Team Social Networks and Firm Performance: The Role of Human Resource Practices in Creating
Organizational Competitive Advantage”, Academy of Management Journal, 46, no. 6 (2003) pp. 740-
751.
60
S. Cardon and C. E. Stevens, “Managing Human Resources in Small Organizations: What Do We
Know?”, Human Resource Management Review, 14 (2004) pp. 295–323.
22
Singh 61 says that there is scarce evidence of the effects of compensation policy
on firm growth. Empirical studies on the relationship between performance-related
pay and company performance have generally found a positive relationship, but a
growing body of empirical evidence suggests that it is not just pay level that matters,
but pay structure as well.
Barringer and others62 conducted a quantitative content analysis of the

narrative descriptions of 50 rapid-growth firms and a comparison group of 50 slow-
growth companies. Results demonstrated that employee incentives differentiated the
rapid-growth from the slow-growth firms. Firms that were eager to achieve rapid-
growth provided their employees financial incentives and stock options as part of their
compensation packages. In doing so, firms managed to elicit high levels of
performance from employees, provide employees the feeling that they have an
ownership interest in the firm, attract and retain high-quality employees, and shift a
portion of a firm’s business risk to the employees.
Delery and Doty 63 identified performance-based compensation as the single

strongest predictor of firm performance. Paul and Anantharaman 64 found that
compensation and incentives directly affect operational performance. To be effective,
compensation practices and policies must be aligned with organizational objectives.
While performance-based compensation can motivate employees, sometimes
employees perceive it as a management mechanism to control their behavior. Baron
and Hannan 65 noted that employee turnover could significantly slow revenue growth,
particularly in knowledge-intensive industries. Given that much of the tacit
knowledge resides within employees, significant turnover poses a threat to firm
performance and its future growth potential. With high turnover rates, firm growth
61
J. C. Wimbush, “Spotlight on Human Resource Management, Business Horizons, 48 (2005) pp. 463-
467.
62
R. Barringer, F. F. Jones, and D. O. Neubaum, “Aquantitative Content Analysis of the
Characteristics of Rapid-growth Firms and Their Founders”, Journal of Business Venturing, 20 (2005)
pp. 663–687.
63
J. E. Delery and D. H. Doty, “Modes of Theorizing in Strategic Human Resource Management: Tests
of Universalistic, Contingency and Configurational Performance Predictions”, Academy of
Management Journal, 39, no. 4 (1996) pp. 802-835.
64
K. Paul and R. N. Anantharaman, “Impact of People Management Practices on Organizational
Performance: Analysis of a Causal Model”, International Journal of Human Resource Management,
14, no. 7 (2003) pp. 1246-1266.
65
N. Baron and M. T. Hannan, “Organizational Blueprints for Success in High-Tech Start-Ups:
Lessons from the Stanford Project on Emerging Companies”, California Management Review, 44, no.
3 (2002) pp. 8–36.
23
decreased with leaving managers who often become employers of rival firms or
establish themselves rival firms.
2.3.8 Decentralization and Self-Managed Teams

Tata and Prasad 66 says that more and more, employees are required to work in
teams, make joint decisions, and undertake common initiatives in order to meet the
objectives of their team and organization. Self-managed teams can affect firm growth
in two ways: Firstly, a surplus of junior managers in a firm may create and support
dynamics of firm growth. The growth stage is the most dynamic stage of a firm’s life
cycle. As the business expands, new levels of management are added. Decision-
making becomes more decentralized, middle managers gain authority and self-
managed teams proliferate as the firm adds more and more projects and customers.
Secondly, teamwork and decentralization of decision-making promotes employee
commitment participation and create a sense of attachment, thus indirectly affecting
firm performance. Wagner 67 identified self-managed teams and decentralization as
important high-performance HRM practices. Jayaram and his companions 68 found that
decentralized teams have a positive effect on two dimensions of the performance,
namely time and flexibility.
2.3.9 Selective Hiring
Selective hiring can ensure that the right people, with the desirable
characteristics and knowledge, are in the right place, so that they fit in the culture and
the climate of the organization. Moreover, pinpointing the rights of employees would
decrease the cost of employees’ education and development. Huselid 69 examined HR
practices of high performance companies and found that attracting and selecting the
right employees increases the employee productivity, boosts organizational
performance, and contributes in reducing turnover.
66
J. Tata and S. Prasad, “Team Self-Management, Organisational Structure and Judgments of Team
Effectiveness”, Journal of Management Issues, 16, no. 2 (2004) pp. 248-265.
67
A. Wagner, “Participation’s Effect on Performance and Satisfaction: A Reconsideration of Research
Evidence”, Academy of Management Review, 19 (1994) pp. 312-331; D. E. Yeatts and C. Hyten, High-
Performing Self-Managed Work Teams, A Comparison of Theory and Practice (Thousand Oaks, CA:
Sage, 1998)
68
J. Jayaram, C. Droge and S. K. Vickery, “The Impact of Human Resource Management Practices on
Manufacturing Performance”, Journal of Operations Management, 18, no. 1 (1999) pp. 1-20.
69
M. A. Huselid, “The Impact of Human Resource Management Practices on Turnover, Productivity
and Corporate Financial Performance”, Academy of Management Journal, 38 (1995) pp. 635-672.
24
2.3.10 Training and Development
Antonacopoulou 70 defined Training and development as activities within
organisations, and managers have limited control over these activities. Training and
development as a learning opportunity provides employees with deep understanding
of their organisation’s value and performance standard. Garavan 71 suggests that
General training is understood by its applicability to most employers, and specific
training is understood as the attainment of KSAs valuable to one employer. As
supported by the literature, training and development is an essential function in HRM;
and it plays a key role in giving employees an opportunity to improve their
performance, and to gather more understanding of their organisation’s expectations
and future directions. The literature leads to the sub-question requesting information
from the respondents regarding HRM practices such as training and development.
Birdi and others 72 mentioned that training and development could enhance an
organisation’s specific knowledge, especially in developing employees’ KSAs in their
professional area. It would not be easy to have fully capable and developed employees
in organisations; however, Cunningham 73 says that organisations can provide
opportunities through effective training and development systems or programmes to
improve their employees’ capability.
Huselid 74 says that Training and development may be related to firm

performance in many ways. First, training programs increase the firm specificity of
employee skills, which, in turn, increases employee productivity and reduces job
dissatisfaction that results in employee turnover. Secondly, training and developing
internal personnel reduces the cost and risk of selecting, hiring, and internalizing
people from external labor markets, which again increases employee productivity and
reduces turnover. Training and development as well as job security requires a certain
degree of reciprocity: A company that trains and develops systematically its
70
E. P. Antonacopoulou, “Reconnecting Education, Development and Training through Learning: A
Holographic Perspective”, Education and Training, 42, no. 4/5 (2000) pp. 255 – 263.
71
T. N. Garavan, “Training, Development, Education and Learning: Different or the Same”, Journal of
European Industrial Training, 21, no. 2 (1997) pp. 39 – 50.
72
K. Birdi, C. Clegg, M. Patterson, A. Robinson, C. B. Stride, T. D. Wall, and S. J. Wood, “The Impact
of Human Resource and Operational Management Practices on Company Productivity: A Longitudinal
Study”, Personnel Psychology, 61(2008) pp. 467–501.
73
I. Cunningham, “Talent Management: Making It Real”, Development and Learning in
Organisations, 21, no. 2 (2007) pp. 4 – 6.
74
and Corporate Financial Performance”, Academy of Management Journal, 38 (1995) pp. 635-672.
25
employees advocates them that their market value develops more favorably than in
other firms. This increases employees’ productivity, commitment, and lowers
turnover.
2.3.11 Human Resource Information Systems (HRIS)
The use of Human Resource Information Systems (HRIS) has been advocated
as an opportunity for human resource (HR) professionals to be strategic partners with
top management. The HRIS would allow the HR function to become more efficient
and to provide better information for decision-making. Yukika and Kevin 75 mention
that the most basic form of HRIS is a system used to acquire, store, manipulate,
analyze, retrieve and distribute pertinent information about an organization’s human
resources. It is often regarded as a service provided to an organization in the form of
information.
Lengnick and Moritz 76 have postulated that HRIS will be implemented at three
different levels: the publishing of information; the automation of transactions; and,
finally, a change in the way human resource management is conducted in the
organization by transforming HR into a strategic partner with the line business.
In their view, the evolution of HR as promoted by HRIS evolves from

information to automation and from automation to transformation. They note that
while HRIS has been widely deployed, a transformation of human resource
management has occurred in relatively few organizations. The evolution that
Lengnick and Moritz 77 propose, along with Alfred 78 revolves around the perspective
that HRIS will create informational efficiencies and cost savings such that HR
departments can turn their attention to providing better analysis of current data and
creative uses of the HRIS to provide better and more accurate data upon which to base
strategic decisions. Ultimately, the goal of both is to increase human resource service
delivery. HRIS efficiency and administrative effectiveness can be described by
studies of administrative HRIS, but the overall efficiency and effectiveness of an
75
Yukika Awazu and Kevin C. Desouza, “Knowledge Management”, HR Magazine, 48, no. 11 (2003)
p. 107.
76
M. L. Lengnick-Hall and S. Moritz, “The Impact of E-HR on the Human Resource Management
Function”, Journal of Labor Research, 24 (2003) pp. 365-379.
77
M. L. Lengnick-Hall and S. Moritz, “The Impact of E-HR on the Human Resource Management
Function”, Journal of Labor Research, 24 (2003) pp. 365-379.
78
Alfred J. Walker, How the Web and Other Trends are Changing Human Resources, 2007 in Alfred J.
Walker, ed., Web-Based Human Resources (New York: McGraw-Hill, 2001)
26
organization can only be reached through strategic deployment of the information
provided by an HRIS. Administrative HRIS is used in day -to -day operations and it is
usually in the form of records that hold employee’s information.
Kirstiel 79 says that administrative HR is much more efficient when it is used

with IT because HR professionals are able to handle large amounts of information
efficiently. For instance, Watson survey report 80 concluded that it does not take a high
progression of e-HR to reach high HRIS performance on the administrative side. The
results showed that a properly integrated e-HR system is the key to the evolution of
the system. The survey covered all organization sizes, and the measures used included
productivity improvements within the HR organization, cost reductions, return on
investment, and enhanced employee communications. They concluded that by
properly implementing an eHR system an organization should be able to reduce the
amount of work for which the HR department is responsible and then leave HR
professionals free to concentrate on performing more strategic roles for the
organization.
Shikha and Karishma 81 stated that Human resource information system (HRIS)
is not a new concept but it is growing day by day with changing environment. Its
major role is in human resource planning (HRP) which itself a crucial activity in any
organization. Ineffective HRP can lead to extra or fewer numbers of employees than
needed. Both over and under number of employees can create crappy situations. HRIS
helps in proper planning of human resources. This paper focuses on the role of HRIS
in HRP. The research is empirical in nature as 127 respondents from seven of the top
IT companies (as per their market share) are taken to see the sights of the objectives.
The survey is done with the assistance of the questionnaire. After investigation, it is
concluded that HRIS has various benefits but the foremost is HRIS that stores ample
data about the employees of the organizations that helps in escalating the snail’s pace
of HRP. HRIS also helps in the strategic activities of HR managers and more in
training and development, succession planning, applicant tracking in recruitment and
selection and manpower planning. While analyzing the overall contribution of HRIS
79
Kirstie S. Ball, “The Use of Human Resource Information Systems: A Survey”, Personnel Review.
30, no. 6 (2001) pp. 667-693.
80
Watson Wyatt, “e-HR: Getting Results Along the Journey- 2002”, Survey Report: Watson Wyatt
Worldwide, 2002, available at www.emeraldinsight.com/0048-3486.html
81
Dr. Shikha N. Khera, “Ms. Karishma Gulati”, Journal of Business and Management, 3, no. 6 (2012)
pp. 6-13.
27
in HRP, it is concluded that HRIS identifies occupied and unoccupied positions in an
organization very effectively and accurately.
2.4 Sources of HR Practice Measures

Regarding the use of single respondent designs, Gerhart and others82 provided
evidence calling into question the reliability of measures of HR practices stemming
from single respondents. They found single-rater reliabilities to be frighteningly low.
Huselid and Becker 83in response to Gerhart and others article, suggested that
in many cases single respondents (senior HR executives) were the best placed, and
perhaps the only ones qualified, to provide HR practice information across a number
of jobs. This led to the debate regarding the most valid source of HR practice
information. As noted above, Huselid and Becker defended their use of senior HR
executives as the most valid source of HR practice data. However, they also argued
that the construct to be measured should be the HR practices actually implemented in
the firm rather than HR policies that were not necessarily carried out. This led Gerhart
and others 84 to suggest that, if one seeks to assess the actual practices, then using
employees as the source of HR practice data would be a more logical approach.
While not obvious to most, the timing of measurement in much of the research
on the impact of HR practices on performance has precluded drawing firm, causal
conclusions of this relationship. Very few studies have used simple, cross-sectional
designs that present problems in drawing causal inferences. However, many of the
studies accepted as being somewhat predictive are not true predictive designs. For
instance, Ichniowski and others 85 used monthly performance data from steel finishing
lines over a three-year period. However, they measured HR practices by asking
respondents after the three-year production period to recall which HR systems were in
82
B. Gerhart, P.M. Wright, G. C. McMahan and S. A. Snell, “Measurement Error in Research on
Human Resources and Firm Performance: How much Error Is There and How Does It Influence Effect
Size Estimates?”, Personnel Psychology, 53, (2000b) pp. 803-834.
83
M. A. Huselid and B. E. Becker, “Comment on Measurement Error in Research on Human
Resources and Firm Performance: How much Error Is There and How Does It Influence Effect Size
Estimates?”, Personnel Psychology, 53 (2000) pp. 835-854.
84
B. Gerhart, P. M. Wright and G. C. McMahan, “Measurement Error and Estimates of the HR Firm
Performance Relationship: Further Evidence and Analysis”, Personnel Psychology, 53, (2000a) pp.
855-872.
85
C. Ichniowski, K. Shaw and G. Prennushi, “The Effects of Human Resource Management Practices
on Productivity”, American Economic Review, 87 (1997) pp. 291-313.
28
place at different points during the timeframe. Similarly, Guthrie 86 used performance
data from 1996-97 but asked respondents during that time to report the practices that
existed during 1995-96. Given the potential problems noted above with regard to the
unreliability of single-rater responses, compounded with the memory requirements to
report practices that existed from one to three years in the past, such retrospective
designs are problematic for drawing causal conclusions.
For instance, Delery and Doty 87 gathered HR practice data during 1992 and
used the year-end performance data. Because the year-end data includes performance
from months prior to and concurrent with the HR practice measure, it is difficult to
draw firm causal conclusions. Huselid 88 gathered both contemporaneous and
subsequent year performance data and reported only the subsequent year data in his
study in order to provide more conservative effect size estimates. As can be seen by
this detailed analysis of the designs, some of the seminal studies in the HR
performance literature fail to provide predictive designs that allow the drawing of
more confident causal inferences. Concurrent and retrospective designs are
particularly weak for drawing causal conclusions because they may be subject to
implicit performance theories, suggesting that knowledge of firm performance can
influence reports of HR practices.
2.5 Impact of HR Practices
Guest 89 explains that impact of HR practices on performance of employees is

also related with the response of employees towards HR practices. Because
employees have their own perception regarding the HR practices. Huselid 90 explains
that adopting effective HR practices in organization can produce the positive results in
employee performance and can improve the organizational culture in a positive way.
Compensation, promotion and performance evaluation and perceived employee
86
. Guthrie, “High-Involvement Work Practices, Turnover and Productivity: Evidence from New
Zealand”, Academy of Management Journal, 44 (2001) pp. 180-192.
87
of Universalistic, Contingency and Configurational Performance Predictions”, Academy of
Management Journal, 39, no. 4 (1996) pp. 802-835.
88
and Corporate Financial Performance”, Academy of Management Journal, 38, no. 3 (1995) pp. 635-
672.
89
Guest, “Human Resource Management, Corporate Performance and Employee Wellbeing: Building
the Worker into HRM”, The Journal of Industrial Relations, 44, no.3 (2002) pp. 335-358.
90
and Corporate Financial Performance”, pp. 335-358.
29
performance are those three practices, which are related to financial earning and
social issues of an individual so these can be used as determinants of employee
performance. The performance of employee’s possibly related with their skills,
knowledge and competencies, but most important is their level of motivation toward
jobs. Employees who have great skills and competencies and well-motivated normally
perform better than others.
Arthur 91 says Firms with a high commitment strategy had significantly higher
levels of both productivity and quality than those with a control strategy Huselid 92
noted Productivity is influenced by employee motivation; financial performance is
influenced by employee skills, motivation and organizational structures. Huselid and
Becker 93 state that firms with high values on the index had economically and
statistically higher levels of performance. Purcell 94 give clear evidence existed
between positive attitudes towards HR policies and practices, levels of satisfaction,
motivation and commitment, and operational performance. Policy and practice
implementation (not the number of HR practices adopted) is the vital ingredient in
linking people management to business performance and this is primarily the task of
line managers.
Huselid 95 examined the relationship between HR practices and corporate

turnover, profitability and market value. Huselid 96surveyed senior HR executives in a
sample of 968 publicly traded corporations in the US regarding the percentage of
employees who were covered by a set of HR practices generally considered
representative of a high-performance work system (HPWS). After controlling a
number of variables, he found that his HR index was significantly related to the gross
rate of return on assets (a measure of profitability) and Tobin’s Q (the ratio of the
market value of a firm to its book value). This study provided the foundation for much
91
Jeffrey Arthur, “The Link Between Business Strategy and Industrial Relations Systems in American
Steel Minimills”, Industrial and Labor Relations Review, 45, no. 4 (1992) pp. 88-506.
92
93
M. A. Huselid and B. E. Becker, “Methodological Issues in Cross-Sectional and Panel Estimates of
the HR-Firm Performance Link”, Industrial Relations, 35 (1996) pp. 400-422.
94
Purcell, Business strategies and human resource management: Uneasy bedfellows or strategic
partners?, Working paper presented at the International seminar on HRM: What’s next? Organized by
the Erasmus University Rotterdam, June 2004.
95
96
Ibid.
30
of the research that followed. Delery and Doty 97 examined the relationship between
HR practices and profitability in a sample of banks in the US. In testing universalistic,
contingency and configurational approaches to HRM, they found that, in general, HR
practices were positively related to profitability.
Guthrie 98 examined the impact of HR practices on turnover and firm

productivity among a sample of firms in New Zealand. He noted that HR practices
had an impact on turnover, and that the relationship between retention and
productivity was positive when firms implemented high-involvement HR practices,
but negative when they did not. Two major studies at the plant level have been
conducted examining the relationship between HR practices and firm performance.
MacDuffie 99 found that the HR practice ‘bundles’ he measured were related to

quality and productivity on auto assembly lines. Meanwhile, Snell and others 100
discovered that human capital enhancing HR practices were related to operational
performance among a sample of manufacturing plants. While much of the research on
the relationship between HR practices and performance has somewhat consistently
revealed a significant relationship, some recent debates have emerged regarding the
value of different approaches to study this phenomenon. Debates have arisen
regarding the proper sources for gaining the most valid reports of HR practice
measures, the proper level of analysis and proximity of performance measures, and
the timing of measurement.
2.6 Factors Affecting HRM Practices

HRM practices differ from one country to another and the factors, which
affect the HRM practices, include external and internal factors. As quoted by Ozutku
and Ozturkler, 101 external and internal factors affecting HR practices differs
significantly across countries. Some of the major potential influences are as follows:
97
of Universalistic, Contingency and Configurational Performance Predictions”, pp. 802-835.
98
J. Guthrie, “High-Involvement Work Practices, Turnover and Productivity: Evidence from New
Zealand”, Academy of Management Journal, 44 (2001) pp. 180-192.
99
P. MacDuffie, “Human Resource Bundles and Manufacturing Performance: Organizational Logic
and Flexible Production Systems in the World Auto Industry”. Industrial and Labor Relations Review,
48 (1995) pp. 197-221.
100
S. A. Snell, M. A. Youndt, and P. M. Wright, “Establishing a Framework for Research in Strategic
Human Resource Management: Merging Resource Theory and Organisational Learning”, pp. 61-90.
101
H. Ozutku and H. Ozturkler, “The Determinants of Human Resource Practices: An Empirical
Investigation in the Turkish Manufacturing Industry”, Ege Academic Review, 9, no.1 (2009) pp.73-93.
31
2.6.1 External Factors
Kane and Palmer 102 state that external factors affecting HR practices are those
pressures on firms that cannot be controlled and changed in a favorable way in the
short run.
These factors include the following:
1. Economic Changes: Satow & Wang 103 found that the result of development of the
global economy, the international dimension of HR practices has become more and
more significant .The focus of HR practices has shifted from traditional topics such as
internal selection and rewards to concepts such as globalization and international
competition.
2. Technological Changes: DeFillippi 104 says that Technology affects HRM to a great
extent. Technology changes the way we work, the roles we undertake and the
interactions through which work gets done. Verkinderen and Altman 105argued that
technology facilitates the growth of a multinational enterprise but generates
simultaneous problem of “unpluggedness” among a geographically dispersed
workforce.
3. National Culture: Chandrakumara and Sparrow 106 found that culture has crucial
importance in organizations preferences in developing appropriate structure and
methods for HR practices effectively.
4. Legislations /Regulations: Kane and Palmer 107 mentioned that Legislations and
regulations are frequently cited as having a direct impact on HR practices. Every
country has developed a set of regulations for the management of human resources,
so, the HRM practices have to be designed or modified according to these regulations.
102
B. Kane and I. Palmer, “ Strategic HRM or Managing Employment Relationship?”, International
Journal of Manpower, 16, no. 5 (1995) pp. 6-21.
103
T. Satow, and Z. M. Wang, “Cultural and Organisational Factors in Human Resource Management
in China and Japan”, Journal of Managerial Psychology, 9, no. 4 (1994) pp. 3-11.
104
R. J. DeFillippi, “Organisational Models for Collaboration in New Economy”, Human Resource
Planning, 25, no. 4 (2002) pp. 7-18.
105
F. Verkinderen, and Y. Altman, “Leisureplanet.com – Organization and HRM in the New
Economy”, Human Resource Planning, 25, no. 4 (2002) pp. 19-29.
106
A. Chandrakumara, and P. Sparrow, “ Work Orientation as an Element of National Culture and Its
Impact on HRM Policy-Research Practice Design Choices”, International Journal of Manpower, 25,
no. 6 (2004) pp. 564-589.
107
B. Kane, and I. Palmer, “ Strategic HRM or Managing Employment Relationship?”, International
Journal of Manpower, 16, no. 5 (1995) pp.6-21.
32
5. Actions of Competitors: Narsimha 108 says that there are many ways in which
companies can gain a competitive edge or a lasting and sustained advantage over their
competitors, among them being the development of comprehensive human resource
practices.
6. Action of Unions: Kochan and others109 state that the presence or absence of
unions in organizations is a salient variable known to be associated with some HR.
7. Globalization : As a result of globalization, the whole world has become a single

market, the companies have crossed the boundaries of their country of origin and
opened their operations in other countries. This has created a challenge for the
organization in terms of management of human resources and some companies have
tried to transfer the HRM practices from one country to another. It has been found that
some practices can be transferred across nations almost without any change but some
must be modified to become workable in another setting and some are more deeply
culture-specific and may not always be transferable. The findings of the study
conducted by Tayeb 110 support the argument that multinational companies’ HRM
practices are more prone to local cultural influences than are their overall policies and
strategies. Moreover, some of the practices, which the company had imported from
abroad, had to be modified to make them workable, given its local cultural and non-
cultural contexts.
2.6.2 Internal Factors

The Internal environment of organizations strongly affects their HR practices.
The important internal factors are as follows:
1. Organizations Size: McPherson 111 suggests that there are a large number of small
firms that do not institute formal HR practices used in large organizations and
108
S. Narsimha, “Organisational Knowledge, Human Resource Management and Sustained
Competitive Advantage: Towards A Framework”, Competitiveness Review, 10, no. 1 (2000) pp. 123-
136.
109
T. A. Kochan, R. B. Mc Kersie and P. Capelli, “Strategic Choice and Industrial Relations Theory”,
Industrial Relations, 23 (1984) pp. 16-39.
110
M. Tayeb, “Transfer of HRM Practices across Cultures: An American Company in Scotland”, The
International Journal of Human Resource Management, 9, no. 2 (1998) pp. 332-358.
111
M. McPherson, “ HRM Practices and Systems within South Asian Small Business”, International
Journal of Entrepreneurial Behavior and Research, 14, no. 6 (2008) pp. 414-439.
33
Jackson 112 says that for each functional level there may a need for a different HR
department.
113
2. Organizational Structure: Garvin views that a firm’s strategy and structure are
important in determining HR practices, their flexibility and integration. There are
important structural differences among firms that affect the way in which HR
practices are designed and implemented.
3. Business Strategy: Schuler 114 says that to gain competitive advantage, firms use
different competitive strategies .These strategies are more productive when they are
systematically linked with human resource management practices Companies can
improve their environment by making efficient choices about human resource
practices that consistently support their chosen strategy.
4. Human Resource Strategy: Garavan and others 115 say that HR strategy is an
important determinant of both intensity and diversity of HR practices. As a rule, HR
practices are shaped in accordance with HR strategy.
5. History, Tradition and Past Practices: Kane and Palmer 116 mention that a number
of closely related factors, such as history, traditions and past practices tend to generate
resistance to change in most organizations.
6. Top Management: Ondrack and Nininger 117 argue that the influence of top
management on HR practices is acknowledged by most writers, even if only to the
extent of advising that top managements support should be present in designing and
implementing HR policies.
7. Line Management: Okpara and Wynn 118consider that Line Management

participation in designing and implementing HR activities is the key to organizational
112
S. E. Jackson, R. S. Schuler and J. C. Rivero, “ Organisational Characteristics As Predictors of
Personnel Practices”, Personnel Psychology, 42, no. 4 (1989) pp. 727-786.
113
D. A. Gravin, “What Does Product Quality Really Mean?”, Sloan Management Review, (1986) pp.
25-43.
114
R. S Schuler, “Strategic Human Resource Management: Linking People with the Needs of the
Business”, Organisational Dynamics, 20 (1992) pp.19-32.
115
T. N. Garavan, J. P. Wilson, C. Cross and R. Carbery, “Mapping The Context and Practice of
Training, Development and HRD in European Call Centers”, Journal of European Industrial Training,
32, no. 8 (2008) pp. 612-728.
116
B. Kane and I. Palmer, “ Strategic HRM or Managing Employment Relationship?”, pp. 6-21.
117
D. A. Ondrack, and J. R Nininger, “Human Resource Strategies-The Corporate Perspective”,
Business Quarterly, 49, no.4 (1984) pp. 101-109.
118
J. O. Okpara and P. Wynn, “ Human Resource Management Practices in a Transition Economy”,
Management Research News, 31, no. 1 (2008) pp. 57-76.
34
success. Since line managers are responsible for creating value, they should integrate
HR practices in their work.
8. Power and Politics: Tsui and Milkovich 119 found that organizational power and
politics as exercised by various constituencies are crucial determinants of HR
practices.
9. Academic and Professional Influence on HR Practices: Kane and Palmer 120

speak that HR staff are often involved in the decision making process about HR
policies and practices. Their knowledge about alternative HR practices may represent
important variables in their own right.
2.7 HRM Practices and other Variables

HRM practice directly or indirectly affects several other variables in the
organization. The following relationships have been identified in the literature.
2.7.1 HRM Practices & Competitive Advantage

HRM practices help the organizations to achieve competitive advantage.
According to the resource-based view of the firm, Barney121 says that the competitive
advantage can be developed and sustained by creating value in a way that is rare and
difficult for competitors to imitate and the quality of the human resource within is
difficult to imitate.
2.7.2 HRM Practices & Employee-Employer Relationship
Employee-employer relations can be improved if the organization implements

effective HRM practices. Tzafrir and others 122 conducted a survey to find out the
consequences of effective human resource management practices on employees trust.
The result indicated a positive and significant influence of empowerment,
organizational communication and procedural justice as determinants of employees
trust in their managers. The result also indicated that procedural justice mediates the
119
A. S. Tsui, and G. T. Milkovich, “ Personnel Department Activities : Constituency Perspectives and
Preferences”, Personnel Psychology, 40 (1987) pp. 519-537.
120
B. Kane and I. Palmer, “ Strategic HRM or Managing Employment Relationship?”, pp. 6-21.
121
Jay Barney, “Firm Resources and Sustained Competitive Advantage”, Journal of Management, 17
(1991) pp. 99-120.
122
S. Tzafrir Shay, H. Harel Gedaliahu, Yehuda Baruch and L. Dolan Shimon, “The Consequences of
Emerging HRM Practices for Employee’ Trust in Their Managers”, Personnel Review, 33, no. 6 (2004)
pp. 628-647.
35
impact of employee development of their trust in their managers. The HRM practices
help the organization to increase mutual understanding between the employees and
123
the employer. Guzzo and Noonan considered HRM practices as a communication
channel between employer and employees. Rousseau and Greller 124 proposed HRM
practices as contract-shaping events.
2.7.3 HRM Practices and Trust

Vanhala and Ahteela 125 in their study found that employee’s trust in the whole
organization is connected to perceptions of the fairness and functioning of HRM
practices. Such practices can therefore be used in order to build the impersonal
dimension of Organizational trust
2.7.4 HRM Practices & Effective Utilization of Employees

126
Bailey presented an argument for the application of promoting HRM
practices because human resources are frequently underutilized. Employees often
perform below their potential. Bailey points out that HRM practices may have an
influence on employee skills and motivation. HRM practices influence employee
skills through the acquisition and development of a firm’s human capital. Recruiting
procedures and selection regimes will have an influence over the quality and type of
skills new employees possess.
2.7.5 HRM Practices & Service Quality

Researches provide evidence to show that HRM practices help the
organization to improve the quality of services. Tsaura and Lin 127 empirically
explored the relationship among human resource management practices, service
behavior and service quality in the tourist hotels. The results indicated that HRM
practices had partially a direct effect on customer perceptions of service quality and
123
R. A. Guzzo, and K. A. Noonan, “Human Resource Practices as Communications and The
Psychological Contract”, Human Resource Management, 33, no. 3 (1994) pp. 447-462.
124
D. M. Rousseau and M. M. Greller “Human Resource Practices: Administrative Contract Makers”,
Human Resource Management, 33, no. 3 (1994) pp. 385-401.
125
M. Vanhala and R. Ahteela, “The Effect of HRM Practices on Impersonal Organizational Trust”,
Management Research Review, 34, no. 8 (2011) pp. 869-888.
126
Thomas Bailey, “ Discretionary Efforts and the Organisation of Work: Employee Participation and
Work Reform Since Hawthorne,” Working Paper, Columbia University, 1993, in Jay Barney, “ Firm
Resources and Sustained Competitive Advantage”, Journal of Management, 17 (1991) pp. 99-120.
127
S. H. Tsaur, and Y. C. Lin, “ Promoting Service Quality in Tourist Hotels: The Role of HRM
Practices and Service Behavior”, Tourism Management, 25 (2004) pp. 471–481.
36
an indirect effect through employees’ service behavior. This means that service
behavior only partially mediates the relationship between human resource
management practices and service quality.
2.7.6 HRM Practices and Employee Commitment
The implementation of HRM practices in the organization leads to enhanced

employee commitment. Maheshwari and others128 conducted a study to find out the
commitment of health officials and its implications for HR practices in Maharashtra.
The study suggests that the district health officials do not share a strong emotional
bond with their department. The state needs to reform its Human Resource
Management practices effectively strengthen the functioning of the health system.
The study also suggests that investing in development of multiple strategies for the
growth and career development of health professionals is required. Similarly, Smeenk
and others 129 examined the factors, which affect organizational commitment among
Dutch university employees in two faculties with different academic identities. The
analysis of data reveals that in the separate faculties decentralization, compensation,
training/development, positional tenure and career mobility have significant effects.
Age, organizational tenure, level of autonomy, working hours, social involvement and
personal importance significantly affects the employees’ organizational commitment
in the hegemonies faculties. Participation, social interactions and job level are factors
that are important in both faculties.
Shahnawaz and Juyal 130 compared various HRM practices in two different
organizations—a consultancy/research based organization and a fashion firm. The
study also aimed at assessing how much of commitment in the two industries can be
attributed to HRM practices. HRM practices were found significantly different in the
two organizations and mean scores on various HRM practices were found more in the
128
S. Maheshwari, R. Bhat and S. Saha, Human Resource Practices and Commitment of Senior
Officials in Health System: Reflections from a Progressive State in Developing Economy, Research and
Publications, Indian Institute of Ahmedabad, 2005.
129
S. G. A. Smeenk, R. N. Eisinga, J. C. Teelken and J. A. C. M. Doorewaard, “The Effects of HRM
Practices and Antecedents on Organizational Commitment Among University Employees”,
International Journal of Human Resource Management, 17, no. 12, (2006) pp. 2035–2054 and also
available at http://ics.uda.ub.rug.nl/FILES/root/ Articles/2006/SmeenkSGA-effects/36-EisingaRN-
Effects-2006.pdf (Assessed on 6/5/2009).
130
M. G. Shahnawaz and C. Juyal Rakesh, “Human Resource Management Practices and
Organisational Commitment in different organization”, Journal of the Indian Academy of Applied
Psychology, 32, no. 3 (2006) pp. 171-178.
37
fashion organization. Regression results showed that various HRM practices were
significantly predicting organizational commitment in both organizations and when
they were combined. Performance appraisal and ‘attitudes towards HRM department’
were the significant predictors of organizational commitment in both the
organizations. In another study, Chew and Chan 131 examined the impact of HR
practices on permanent employee’s organizational commitment and their intention to
stay and found that organizational commitment was positively affected by person-
organization fit, remuneration, recognition, and an opportunity to undertake
challenging employment assignments. Intention to stay was significantly related to
person-organization fit, remuneration, recognition, training and career development.
Further, he found that training and career development were not significantly related
to organizational commitment and challenging assignments were not significantly
related to intention to stay.
2.7.7 HRM Practices and Organizational Performance

HRM practices enhance organizational performance. Rondeau and Wager 132
examined the relationship between HRM practices, workplace climate and
perceptions of organizational performance, in a large sample of Canadian nursing
homes and found that nursing homes, which had implemented more ‘progressive’
HRM practices and which reported a workplace climate that strongly valued
employee participation, empowerment and accountability tended to be perceived to
generally perform better on a number of valued organizational outcomes.
Chand and Katou 133 conducted a study to investigate whether some specific
characteristics of hotels affect organizational performance in the hotel industry in
India; and whether some HRM systems affect organizational performance .They
found that hotel performance is positively associated with hotel category and type of
hotel and hotel performance is positively related to the HRM systems of recruitment
and selection, manpower planning, job design, training and development, quality
circle, and pay system.
131
Chew Janet and C. A. Chan Christopher, “Human Resource Practices, Organizational Commitment
an Intention to Stay”, International Journal of Manpower, 29, no. 6 (2008) pp. 503-522.
132
V. Rondeau Kent and H. Wager Terry, “Impact of Human Resource Management Practices on
Nursing Home Performance”, Health Service Management Research, 14, no. 3 (2001) pp. 192-202.
133
M. Chand and A. Katou, “The Impact of HRM Practices on Organizational Performance in the
Indian Hotel Industry”, Employee Relations, 29, no. 6 (2007) pp. 576-594.
38
Joseph & Dai 134 found that there are significant connections between HRM
practices and firm performance; that the strategic alignment of HRM is also a driver
for firm performance.
Nayaab and others135 found that HRM practices contributes to the enhanced
banks’ performance. Further, the result indicated that HRM practices like training,
employee participation in decision-making was found significantly related with banks
136
performance. Further, Osman and others found that the effectiveness of
implementing HR practices in a company does indeed have a major impact towards a
firm’s performance. The findings also show that HR practices have an impact of
nearly 50 percent on firm performance.
2.7.8 HRM Practices & Financial Performance

Huselid 137 conducted a study to evaluate the link between systems of High
Performance work practices and firm performance and found that these practices have
a statistically significant impact on intermediate employee outcomes (turnover and
productivity) and short and long term measures of corporate financial performance.
Hyde and others 138 examined the impact of HRM practices on firm profitability. They
found little support for a positive relationship between HRM practices and firm
profitability. Fey Carl 139 investigated the relationship between human resource
management (HRM) practices and the performance of 101 foreign-owned subsidiaries
in Russia. The study’s results provide support for the assertion that investments in
HRM practices can substantially help a firm perform better.
Further, different HRM practices for managerial and non- managerial

employees are found to be significantly related with firm performance. Ngo and
134
K. E. Joseph and C. Dai, “HRM Practices and Organizational Performance: An Empirical
Analysis”, International Journal of Business and Management, 4, no. 8 (2009) pp. 117-127.
135
H. H. Nayyab, M. Hamid, F. Naseer and M. Iqbal, “The Impact of HRM Practices on the
Organizational Performance: The Study of Banking Sector in Okara, Punjab Pakistan”,
Interdisciplinary Journal Of Contemporary Research In Business, 3, no. 3 (2011) pp. 661-672.
136
I. Osman, T. C. F. Ho and M. C. Galang, “The Relationship between Human Resource Practices and
Firm Performance: An Empirical Assessment of Firms in Malaysia”, Business Strategy Series, 12 no.
1, pp. 41-48.
137
138
Hyde, Jeffrey, Richard Stup, and Lisa Holden, “The Effect of Human Resource Management
Practices on Farm Profitability:An Initial Assessment”, Economics Bulletin, 17, no. 12 (2008) pp. 1-10.
139
Carl F. Fey, “The Effect of Human Resource Management Practices on MNC Subsidiary
Performance in Russia”, SSE/EFI Working Paper Series in Business Administration, no.6, (2000) and
also available at http://swoba.hhs.se/hastba/papers/hastba2000_006.pdf(Assessed on 24/04/2009).
39
others 140 examined SHRM (Strategic Human Resource Management) practices in
China to assess the impact of these practices on firm performance and employee
relation climate and found that SHRM practices have direct and positive effects on
financial performance, operational performance, and the employee relations climate.
2.7. 9 HRM Practices and Employees Productivity
Boselie and Wiele 141 show that certain HRM practices, such as working in
teams, greater discretion and autonomy in the workplace and various employee
involvement and pay schemes, do motivate workers and generate higher labor
productivity. Wallace 142 says that employees’ involvement in terms of delegation of
responsibility and systems of collecting proposals from employees may have a
positive impact on productivity. Banker and others 143 mention that cross-functional
teams, job rotation, quality circles and integration of functions may all contribute
positively to labor productivity. Recently in the study conducted by Soomro and
others 144 it has been found that HRM practices (training, selection, career planning,
employee participation, job definition, compensation, performance appraisal) were
correlated positively with the employee’s performance. Further respondents gave
highest importance to performance appraisal and then to compensation among
individual HRM practices.
2.7.10 HRM Practices and Effective Management of Employees

145
Tripathy Laxman and Tripathy Kumuda found that the majority of the IT
companies sampled, institute such HRM practices that are complex in nature and a
majority of the IT companies do follow such HRM practices which can be termed as
140
Ngo Hang Yue, Lau Chung Ming and Foley Sharon, “Strategic Human Resource Management,
Firm Performance ,and Employee relations climate in China”, Human Resource Management, 47, no. 1
(2008) pp. 73-90.
141
P. Boselie, and T. Van der Wiele, “Employees Perception of HRM and TQM, and the Effects on
Satisfaction and Intention to Leave”, Managing Service Quality, 12, no. 3 (2002) pp. 165-172.
142
Jean E. Wallace, “Corporatist Control and Organisational Commitment Among Professional”,
Social Forces, 73, (1995) pp. 811-840.
143
Rajiv D. Banker, Seok-Young Lee, Gordon Potter, and Dhinu Srinivasan, “Contextual Analysis of
Performance Impacts of Outcome Based Incentive Compensation”, Academy of Management Journal,
39 (1996) pp. 920-949.
144
R. B. Soomro, R. G. Gilal, and M. M. Jatoi, “Examing the Impact of Human Resources
Management (HRM) Practices on Employees Performance: A Case Study of Pakistani Commercial
Banking Sector”, Interdisciplinary Journal Of Contemporary Research In Business, 3, no. 1 (2011) pp.
865-878.
145
Tripathy Laxman and Tripathy Kumuda, “Human Resource Management Practices in IT Industry: A
Complex Adaptive Systems Perspective”, AIMS International Journal of Management, 2, no. 1 (2008)
pp. 1-15.
40
adaptive in nature. They suggested that offering job plus education referral
recruitment, online and open house tests (in case of recruitment & selection), flexible
training choice, skills & project centric training (in case of training & development)
and lastly, transparent appraisal systems, above average salary, more non- salary
benefits, flexi timing and opportunity for growth are some of the selective practices
which, if followed with rigor, would help managing enhance human resources of an
IT company.
2.7.11 HRM Practices and Growth and Innovations
Panayotopoulou and Papalexandris146 found that HRM has a more significant

influence on growth / innovation indices as opposed to financial performance. Li and
others 147 examined the relationship between HRM, technology innovation and
performance in China and found that employee training, immaterial motivation and
process control have positive effects on technological innovation, while material
motivation and outcome control have a negative influence on technological
innovation. It is also found that technological innovation is positively related with
performance.
2.7.12 HRM Practices & HRD Climate

It has been found that the HRM practices help the organization to develop
better HRD climate in the organization. Hassan and others 148 measured employee’s
perception of HRD practices, to explore whether ISO certification leads to any
improvement in HRD climate and examined the role of HRD practices on employee’s
developmental climate and quality orientation in the organization. They found that
ISO certified companies obtained higher means on some HRD variables as compared
to others. Organizations with better learning, training and development systems,
reward and recognition, and information systems promoted a favorable HRD climate.
Quality orientation was predicted by career planning, performance guidance and
development, role efficacy and reward and recognition system.
146
Panayotopoulou Leda and Papalexandris Nancy, “Examining the Link between Human Resource
Management Orientation and Firm Performance”, Personnel Review, 33, no. 5 (2004) pp. 499-520.
147
Y. Li, Y. Zhao and Y. Liu, “The Relationship between HRM, Technology Innovation and
Performance in China”, International Journal of Manpower, 27, no. 7 (2006) pp. 679-697.
148
A. Hassan, J. Hashim and A. Z. Ismail, “Human Resource Development Practices as Determinant of
HRD Climate and Quality Orientation”, Journal of European Industrial Training, 30, no. 1 (2006) pp.
4-18.
41
2.7.13 HRM Practices and Technology
HRM practices and Technology affect each other. According to Bondarouk
and Rue 149 HRM practices affect implementation of the technology because the
success of information technology (IT) projects is highly dependent upon the end-
users’ behaviour. Whether end- users are able and willing to work with newly
introduced software applications is fundamental. Hence, a key issue is supporting
targeted employees of newly introduced software applications in their proper
utilization. HRM practices have the potential to provide such support.
150
Lawler & Mohrman , argued that with the growth of information
technology, much of the administrative aspects of human resource management can
be accomplished through technology solutions hosted by the company or outsourced.
As technology frees up HR from some of its routine tasks, there is a greater
opportunity for HR professionals to become a strategic partner.
2.7.14 HRM Practices and Job Satisfaction

HRM practices also affect the level of job satisfaction of the employees.
Petrescu and Simmons 151 studied the relationship between HRM practices and
workers’ overall job satisfaction and their satisfaction with pay. The result indicated
that several HRM practices raise workers overall job satisfaction and their satisfaction
with pay.
2.7.15 HRM Practices and Employees Intention to Leave
Employee turnover is a major challenge for the organization but the

companies implementing effective HRM practices can reduce the rate of the
employee turnover. Abeysekera 152 empirically evaluated six HR practices (realistic job
information, job analysis, work family balance, career development, compensation
and supervisor support) and their likely impact on marketing executives intention to
149
T. V. Bondarouk and H. J. M. Rue, ¨HRM Systems for Successful Information Technology
Implementation: Evidence from Three Case Studies”, European Management Journal, 26, (2008) pp.
153– 165.
150
E. E. Lawler, and S. A. Mohrman, “HR as a Strategic Partner: What Does It Take to Make It
Happen?”, Human Resource Planning, 26, (2003) pp. 15-29.
151
Petrescu Alina Ileana and Simmons Rob, “Human Resource Management Practices and Workers
Job Satisfaction”, International Journal of Manpower, 29, no.7 (2008) pp. 651-667.
152
Abeysekera Ruwan, “The Impact of Human Resource Management Practices on Marketing
Executives Turnover of Leasing Companies in Sri Lanka”, Contemporary Management Research, 3.
no. 3, (2007).
42
leave (MEIL) in the Sri Lankan leasing companies. The result indicated Job Analysis,
Compensation, Career Development, Realistic Job Information variables were
negatively and significantly correlated with MEIL. The work family balance was not
negatively correlated with MEIL. Results of the HR practices on MEIL showed that
compensation and job analysis are strong predictors of MEIL.
2.7.16 Organizational Effectiveness

Extending the concept of Sense of Efficacy to the role Udai Pareek 153
formulated a term called “Role, Efficacy”. According to these formulation individuals
with high degree of role efficacy, carry with them different perceptions and feeling of
their role.
Role efficacy is defined as the potential effectiveness of an individual

occupying a particular role in an organization. It consists of making your role the way
you like (role making), feeling important and central in the organization through your
role (role centering) and linking various aspects of the role to make it stronger (role
linking).
The various dimension of role efficacy include:
1. Increase in the individual efficiency

2. Conducive inter personal relationship
3. Increase in the monetary and non monetary benefits
4. Considerable increase in the productivity
5. Significant quality of work life
6. Job security is ensured
7. Carrier growth and opportunities are more
8. Decreased job related problems
9. Perfection in the ethical behavior and organizational culture
10. Increase in the personality development
11. There is a significant decision making abilities
12. Able to realize the profitability of the organization
153
http://www.absi.edu.in/wp-content/uploads/file/July-Sept_-2012-2.pdf
43
2.8 HR Audit
The general meaning of an audit according to Arens and others 154 is ‘Auditing
is the accumulation and evaluation of evidence about information to determine and
report on the degree of correspondence between the information and established
criteria. Auditing should be performed by a competent, independent person.’ Like any
other audit of the accounts of firm or organization, there was also a distinct audit
called Human Resource Audit.
Cantera 155 says that HR auditing is a basic tool for the management of a
company. Its objective is not only the control and quantifying of results, but also the
adoption of a wider perspective that will aid in deepening future lines of action in the
HRM field. According to Nevado 156 the basic functions of the audit of conformity or
of performance as an element of HR auditing are threefold. The first function is
examining to see if the firm is fulfilling all its administrative social obligations, as
well as those relative to the collective rights of its personnel. The second is to study
the relationship between the employees and the firm based on the legal statutes. The
final function is verifying if the firm fulfills its financial obligations (for example,
social security payments), as well as its informative ones.
157
According to Adler the HR auditing process is an independent, objective,
and systematic evaluation that provides assurance that: 1) compliance and governance
requirements are being met; 2) business and talent management objectives are being
achieved; 3) human resource management risks are fully identified, assessed, and
managed; and 4) the organization’s human capital adds value. Under this definition,
HR audits are more than an audit activity that solely collects and presents evidence of
compliance. HR audits are increasingly expected to look behind and beyond the
organization’s assertions of sound and proper HR management practices and to assess
the assumptions being made, to benchmark the organization’s processes and practices,
154
A. Arens, P. Best, G. Shailer, B. Fielder, R. Elder, and M. Beasley, Auditing and Assurance Services
In Australia - An Integrated Approach, 6th edn., (Australia: Pearson Education, Frenchs Forest, 2005)
p.12.
155
J. Cantera, Del Control Externo a la Auditoría de Recursos Humanos,. en Ordóñez, M., La Nueva
Gestión De Los Recursos Humanos, (Aedipe: Gestión, 2000, Madrid: 1995) pp. 369-397.
156
D. Nevado Peña, La Auditoría de Recursos Humanos: Características y Desarrollos, (Técnica
Contable: 1998) p. 49.
157
http://www.linkedin.com/groups/HR-Audit-is-now-open-2254479.S.38640305.
44
and to provide the necessary consultative services that help the organization achieve
its business goals and objectives.
Lengnick & Lengnick 158 mention that today’s role of Human Resource
department is more pro-active and it has responsibility to find out the causes of
employee dissatisfaction and mismanagement. If there is need to scan the
environment for identifying the changing trends of the business practices, there is also
a need of using a research based approach to evaluating Human Resource activities
and Florkowski & Schuler 159 says that it can be achieved by widening the scope of the
Human Resource audit so that it covers the corporate strategy, the Human Resource
function, managerial conformity and employee satisfaction.
Wright & Snell 160 rightly pointed out that Human Resources have an ultimate
and significant role in meeting the organization’s corporate strategy. Organizations
consist of people and the main responsibility of Human Resource department is to
find the right people for the right jobs so that the organization can gain a competitive
edge in the marketplace. Understanding the organization’s corporate strategy is very
much important for planning, staffing, compensation, employee relations and
retention, training and other Human Resource activities. Human Resources are
effective for the organization only when they contribute to the firm’s strategic goals.
It is necessary for Human Resource department to learn about the firm’s overall
strategy through interviews with key executives, review of long-range business plans,
and logical scanning of the environment to reveal changing trend for its effective and
efficient role in the organization.
161
Lengnick & Lengnick suggest that the next step of audit team is to identify
who is responsible for each activity of the department and determines the objectives
of each activity. The team appraises the policies and procedures used in the
organization regarding the Human Resource Management and get the sample of
158
A. Cynthia Lengnick, A. Mark Lengnick, “Strategic Human Resource Management: A Review of
Literature and Proposed Typology,” Academy of Management Review, 13, no. 2 (1988) pp. 454-470.
159
Gary W. Florkowski, and Randall S. Schuler, “Auditing Human Resource Management in the
Global Environment,” The International Journal of Human Resource Management, 5 (1994) pp. 118-
121.
160
Patrick M. Wright, and Scott A. Snell, “Toward a Unifying Framework for Exploring Fit and
Flexibility in Strategic Human Resource Management”, The Academy of Management Review, 23, no.
2 (1998) pp. 723-776.
161
45
available records to find if the policies and procedures are being followed or not and
prepare an audit report including proper objectives, policies and procedures. A
complete action plan is being developed on the basis of analysis of objectives, policies
and procedures, the errors in the objectives if any are being corrected and follow up
on the action plan at a later stage to see it has worked or not.
162
Lengnick & Lengnick further said that the audit team starts the Human
Resource audit with the gathering of data from workers to find out how well their
needs are being met. Employee feedback and information is gathered on wages,
benefits, supervision, career planning, and performance appraisals. The effectiveness
of the Human Resource department can be judged by its ability to meet the
employee’s needs as well as serving the organization’s interests at the same time.
Employee actions including turnover, absenteeism and unionism are more likely to
occur when their needs are not being met.
Candace Walters 163 gives the importance of the HR audit. How can an
organization avoid the time, expense and embarrassment of a DOL investigation? The
best solution: Conduct an audit of your own HR Department and make sure your pay
practices and other policies comply with ever changing state and federal regulations.
Further, he says that Progressive organizations will embrace a well-executed HR audit
as an important tool for creating, updating and executing HR strategies and best
practices that will provide long-term support to the organization's big picture.
Sanjeev and Matsuo 164 studies that because of rapid evolution in product and
process technology, many operations in the manufacturing and service industries in
recent years require workers to acquire and maintain more extensive ``knowledge
stock'' than before.
Ishrat and Habib 165 find that in the changing economic and business
environment, proper Human Resource Management has assumed a crucial role in the
growth of the organization. It has become imperative to re-look at this most important
asset of the organization. The main objective behind this research was to gain in-depth
162
163
Candace Walters (2003) available at http://www.hrworks-inc.com/topics-in-hr/articles/5-
compliance/102-conducting-an-effective-human-resource-audit.
164
Sanjeev K. Bordoloi and Hirofumi Matsuo, European Journal of Operational Research, 130 (2001)
pp. 169-189.
165
Ghazala Ishrat and Javed Habib, Journal of Business and Management, 6, no. 2 (2012) pp. 01-08.
46
knowledge of the Human Resource and the effectiveness of HR functions within an
organization. The HR audit in University was planned to get a clear judgment about
the overall status of most faculties/Departments and to find out whether existing
systems and procedures are yielding desired result. This information will be an
invaluable input while making strategic decisions. The human resource audit involved
examining current policies, practices and strategies of all the departments/faculties to
verify the effectiveness and helping the university to improve its productivity,
transparency and efficiency. To conduct Human Resource Audit in the university
extensive study on various aspects related to faculties, students and staff were
analyzed and studied through interviews of staff at various levels, observation of
working of non-teaching staff, taking responses from students and staff by
questionnaire method and documents review at various levels.
Therefore, through the Human Resources Audit one can understand a complex
of activities of monitoring and collecting information, that ensures the manager that
the activities developed in the Human Resources field are running according to the
plan, measuring the progress in the direction of the established objectives and
detecting this way the deviations from the plan in order to take corrective measures.
Derived from the monitoring activity of the results of the Human Resources, the
Human Resources Audit evolved in time and became a ground rule of the Human
Resources Management. Except the fact that it succeeds in pointing out the real
dimensions of the Human Resources activities, the audit helps the manager within all
phases of the managing process, the decisions resulted from the information provided
by the audit being well fundamental.
2.8.1 Evolution of HR Audit
Adler 166 speaks about evolution of HR Audit. Evolution is a process of change.

Over the last 25 years we have seen significant change in the HR auditing process, the
value derived from HR auditing, and the HR audit tools used. HR audits have evolved
from a simple checklist of dos and don’ts or periodic affirmative action plans to a
comprehensive, sustainable process that: 1) is an integral part of the organization’s
internal controls, due diligence, and risk management; 2) is a fundamental activity of
166
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47
strategic management; and 3) uses sophisticated auditing products and consulting
services. Increasingly HR audits are conducted of HR rather than by HR.
2.8.2 Definitions
According to Jack J. Phillips 167 “HR audit as an investigative, analytical and
comparative process that attempts to reflect the effectiveness of the human resource
functions”.
Eric 168 defines HR audit as a systematic assessment of the strengths,

limitations and developmental needs of its existing human resources in the context of
organizational performance.
David Campbell 169 says that “The human resource audit is an investigation into
size, skill, structure, and all other issues surrounding those currently employed by the
organization and its future human resource needs.” 170
Rosemary Harrison 171 defines HR audit as “a way of assessing the nature and
impact of human resource department activity at particular points in time.”
The American specialist in this field, Bill Coy 172 says, “The human resources
audit represents a process of politics, procedures, documentations, and system and
research practices regarding the functions of the human resources within an
organization.”
2.8.3 Objectives of HR Audit
Jack J. Phillips173 says that the Basic objective of an HR audit is to evaluate the
current HR policies, procedure and practices of an organization to determine the
extent of their contribution to the accomplishment of corporate objectives. The
167
Jack J. Phillips, Ron D. Stone and Patricia Pulliam Phillips, The Human Resources Scorecard:
Measuring the Return on Investment (Boston, MA: Butterworth Heinemann, 2001) p. 5.
168
Eric G. Flamholtz, and Yvonne Randle, The Inner Game of Management: How to Make the
Transition to a Managerial Role ( New York: AMACOM,1987).
169
David Campbell, George Stonehouse and Bill Houston, Business Strategy: An Introduction (Boston,
MA: Butterworth-Heinemann, 2002) pp. 48-49.
170
David Campbell, George Stonehouse and Bill Houston, Business Strategy: An Introduction, pp. 48-
49.
171
Rosemary Harrison, Employee Development (New Delhi: University Press, 2003) p. 215.
172
Bill Coy, Senior Associate for HR Consultation L Piana Associates, Inc. – “Introduction to the
Human Resources Audit”, 2002, p. 162.
173
Jack J. Phillips, Ron D. Stone and Patricia Pulliam Phillips, The Human Resources Scorecard:
Measuring the Return on Investment, p. 14.
48
evaluation is usually done in terms of completeness, accuracy and effectiveness of the
HR policies and practices.
Paul Banfield and Rebecca Kay 174 suggest that the organization has to provide
feedback to the employees about the areas of good performance and areas where
improvements are required.
We can summarize the objectives in the following six points
i. To review the performance of the Human Resource Department and its

relative activities in order to assess the effectiveness on the implementation of
the various policies to realize the Organizational goals.
ii. To identify the gaps, lapses, irregularities, short-comings, in the
implementation of the Policies, procedures, practices, directives, of the Human
Resource Department and to suggest remedial actions.
iii. To know the factors which are detrimental to the non-implementation or
wrong implementation of the planned Programs and activities.
iv. To suggest measures and corrective steps to rectify the mistakes, shortcomings
if any, for future guidance, and advise for effective performance of the work
of the Human Resource Department.
v. To evaluate the Personnel staff and employees with reference to the
Performance Appraisal Reports and suggest suitable recommendations for
improving the efficiency of the employees.
vi. To evaluate the job chart of the Human Resource Managers, Executives,
Administrative Officers, Executive Officers, Recruitment Officers, whether
they have implemented the directives and guidelines for effective
Management of the Human resources in their respective Departments.
2.8.4 Levels of HR Audit
Rosemary Harrison 175 says that the success of HR activities depends on the
involvement and commitment of different levels of management. HR audit needs to
be done at various levels of organization. There are three levels of HR audit. A)
Corporate level B) Managerial level C) Functional level.
174
Paul Banfield and Rebecca Kay, Introduction to Human Resource Management (New York: Oxford
University Press, 2008) p.182.
175
Rosemary Harrison, Employee Development, p. 218.
49
Corporate Level (Board Level): C.J. Fombrun and others176 stated that the
HR auditor must ascertain the relevance, completeness and accuracy of the corporate
strategies, mission, vision and other directives which provide a broad framework and
directions for the HR activities of an organization. HR audit at corporate level usually
focuses on issues relating to the designing of organizational structure, institution of
reporting and accountability structure among the various levels of management.
Managerial Level (Line Managers): Rothwell and Kazanas 177 mentioned that
the line managers play a crucial role in the implementations of HR policies of an
organization. The HR auditor should examine and evaluate critically the extent to
which line managers apply the HR policies and practices while dealing with
employees. As a matter of fact, the rate of labor turnover is affected more by what line
managers do in their own department than what anyone at the HR department is
doing.
Functional Level (HR Department): Rosemary Harrison 178 speaks about

functional level of HR audit in the following way. An HR audit at this level generally
focuses on the design and development of various human resource policies and
procedures and proper functioning of the human resource department. The HR audit
may specifically focus on the levels of employee commitment, involvement and
morale in the HR department. The HR auditor may make use of exhaustive
questionnaires to gather information about the employees’ roles, activities, and
dissensions in order to assess the internal strengths and weaknesses of the HR
department.
2.8.5 Steps in an HR Audit
Rothwell and Kazanas 179 suggest eight steps in HR audit:
• Determining the objectives of the HR audit

• Developing a rough audit plan and its process
• Gathering background data
176
C. J. Fombrun, M. A. Devanna and N. M. Tichy, eds., Strategic Human Resource Management
(NewYork: John Wiley and Sons, 1984) pp. 238-239.
177
J. Rothwell and H. C. Kazanas, Planning and Managing Human Resources: Strategic Planning for
Human Resource Management, Amherst (MA: HRD Press, 2003) p. 144.
178
Rosemary Harrison, Employee Development, p. 217.
179
William J. Rothwell and H. C. Kazanas, Planning and Managing Human Resources: Strategic
Planning for Human Resource Management, Amherst (MA: HRD Press, 2003) p. 217.
50
• Determining the criteria and techniques of data collection
• Firming up the audit plan
• Gathering complete audit data
• Developing audit report
• Action based on report
2.8.6 Approaches to HR Auditing
Due to the growth of service sector in the economy, the importance of human
resources has increased enormously in the organizations and this has hastened the
process of the introduction of HR audit in the organizations. The role of the HR audit
in these firms is to streamline the managerial control over HR activities. Based on the
role and utility of the HR audit Walker 180 proposed two approaches that is Internal and
External approach.
1. Internal Approach
Olalla and Castillo 181 discuss the internal approach in the following way. The
HR audit focuses on examining the effectiveness of the contribution of the HR
department to the internal operations of the organization. From this perspective, the
emphasis of the HR audit is on the cost – benefit of the HR activities measured in
terms of the organizational productivity and overall cost. Quality, quantity, cost,
speed and reliability are some of the criteria used in measuring the performance of the
HR department in this method.
2. External Approach
182
Pravin Durai says the emphasis of the HR audit is on measuring the
contribution of HR activities to the external performance of the organization. For
instance, the organization may obtain competitive advantage in the market through
efficiency of the HR department. Certainly, the ultimate benefit of efficiency of any
operation must come only from outside the organization. In this method, the criteria
would include external performance of the organization.
180
J. W. Walker, “Are We Using the Right Human Resource Measures?”, Human Resource Planning,
21, no. 2 (1998) pp. 7-8.
181
Marta Fossas Olalla and Miguel Angel Sastre Castillo, “Human Resources Audit,” International
Advances in Economic Research, February 2002, available at http://www.entrepreneur.com/trade-
journals/article/84303177_1. html
182
Pravin Durai, Human Resource Management (Chennai: Pearson, 2010) p. 576.
51
2.8.7 The HR Audit Process
183
According to Candace Walters auditing a human resource department is a
systematic process that involves at least two steps:
1. Gathering information to determine compliance, effectiveness, costs

and efficiencies.
2. Evaluating the information and preparing a written report, with an

action plan based on exposures, priorities and a timeline for instituting
changes. In order to reduce exposure to legal liability, some changes
will need to be implemented immediately, while others can be
completed in three to six months.
Like a financial audit, an HR audit must be comprehensive in order to be

effective. The audit review includes but is not limited to:
• Department infrastructure
• Compliance with state and federal employment laws
• Recruitment and selection processes
• Employment-related tests
• Employee relations
• Performance-evaluation processes
• Documentation, including employee handbooks
• Job descriptions
• Personnel records and files
• Benefits administration practices
• Benefit costs
• Exempt and non-exempt classifications
• Time-keeping and pay practices
• Recordkeeping and posting requirements
• Policies governing independent contractors
• Training and Development
• Technology
• Safety and security
• Labour relations
183
compliance/102-conducting-an-effective-human-resource-audit
52
2.8.8 The Five Critical Components of the HR Audit Process
Adler 184 discussed the five critical components of the HR audit process by
designing HR audit Model, are shown and discussed below in the HR Audit Model™.
Figure 2.1: HR Audit Model
1) Activities: The starting point of the HR auditing process is a review of the

organization’s activities, that is, the tasks and actions that create or implement
employment policies, practices, procedures, and programs. The Activities component
of HR audits is typically evaluated by using a “checklist approach,” that is, the item is
checked off when it is completed.
2) Behaviors: Behaviors in this context are actions and conduct that affect ─ either
positively or negatively ─ the implementation or effectiveness of the organization’s
policies, practices, procedures, and programs, and demonstrate the organization’s
commitment to stated goals and objectives.
3) Risk Assessment: Risk assessment is the identification of current and/or future

events that have the potential to cause loss, peril, or vulnerabilities, and
184
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53
management’s willingness to accept those risks. Risk assessment is also the
identification of events or conditions that create new opportunities for the
organization to achieve its business objectives.
4) Internal Controls: Internal controls are processes, tests, and assessments that help
ensure compliance, manage risks, identify fraud, and help ensure the achievement of
organizational goals. HR auditing activities include: 1) assessments of the
effectiveness and efficiency of HR management processes, policies, practices, and
procedures; 2) the reliability and accuracy of HR management reporting; and 3) the
level of compliance with: laws and regulations; industry and professional standards;
codes of conduct and ethics; organizational policies; and budgets.
5) Outcomes: Outcomes are quantitative and qualitative measurements and metrics

that measure and help assess the achievement of organizational goals and objectives.
HR auditing activity includes the identification of metrics used by the organization to
measure organizational and individual performance; the assessment of results by
comparing actual results against projected results, budgets, and internal and external
standards; and a description of the activities, behaviors, and internal controls that are
needed to maintain or improve future results.
2.8.9 Determining the Scope of the Audit

Human Resources Industry Whitepaper – June 2011 185 deals with the scope of
Audit. Once you have committed to undertaking an audit, you will need to decide
what areas the audit will cover. An all-encompassing audit would look at policies,
forms and tools, employment records, the employment process (from recruiting to on
boarding), job descriptions, compensation, training and development, retention and
succession plans, benefits, the performance management process, discipline and
termination, posting requirements, immigration, and human resource staffing. The
audit can also look at key metrics, such as turnover, cost per hire, spans of control,
salary compact-ratios, and more. If this list seems overwhelming, you may want to
consider limiting the scope of the audit, or breaking it into manageable segments. The
deciding factors regarding the scope of the audit should be centered on the status of
the business and the strategic plan. You may want to focus the audit on a key segment
185
Human Resources Industry Whitepaper – June 2011
54
of the function that is struggling, such as recruiting and selection, or performance
management and discipline.
2.8.10 Immediate Benefits of an HR Audit

186
Candace Walters gives two important benefits of HR audit. As with
accounting audits, the findings and recommendations from HR audits are only as
good as the information provided. If you are not entirely honest and objective, no
purpose is served. However, if staying on the right side of the law and reducing legal
exposure are not enough incentive to launch your organization on the audit path
today, consider the other benefits. Very typically, small to medium-size companies
realize almost instant cost savings once an audit is complete and changes are
implemented. For example:
• Correcting benefit premium errors and overpayments can generate many

thousands of dollars in savings.
• Initiating a safety program can reduce workers compensation, experience

modification numbers, reducing annual premium costs by tens of thousands
of dollars.
• Shopping benefit costs among alternative carriers and modifying

employer/employee co-pay ratios can recoup dramatic savings.
• Examining the effectiveness of recruiting tools can pare the expense of filling
positions.
A small or medium-size firm also may benefit from using an HR audit to:
 Study retention and turnover, employing a neutral party to solicit honest

feedback from employees, and allowing the company to develop an action
plan.
 Examine the company's foundation for its compensation philosophies and

develop an objective method of grading jobs, with new ranges that are
market-competitive and internally equitable.
 Create or enhance an employee-referral program or internal jobs board.
186
http://www.hrworks-inc.com/topics-in-hr/articles/5-compliance/102-conducting-an-effective-
human-resource-audit
55
 Improve employee communication and ensure that the HR department is
accessible.
 Identify opportunities to outsource areas within human resources that offer

more value to the company
2.8.11 Tools of HR Audit

187
Blaird and Meshoulam argue that in a Comparative Approach, another
company or unit that has more developed practices or results is chosen as the model.
The audit team audits and weighs the audited firm’s results with the best practices of
the model organization. This approach is normally used to match the results of certain
activities or programs. This approach is usually used for comparing the results of
turnover, absenteeism, salary data and staffing levels. It helps to identify areas for
improvement. It also makes sense to compare where a procedure is being used for the
first time.
Martocchio 188 says that the Statistical Approach depends on performance

measures drawn from the company’s existing information system. From existing
records, the audit team creates statistical standards against which activities and
programs are appraised. With the mathematical standards as a base, the team may
discover errors while they are still minor. For example, by tracking and managing
turnover and absenteeism rates from one period to another, the team can compare and
analyze the data to see how well Human Resource and operating managers control
these problem areas. Often this approach is supplemented with comparative data from
external sources such as other firms, or industry association surveys. The information
is usually expressed in ratios or formulas that are easy to compute and use.
Wright and others189 deal with the Compliance Approach; the auditor reviews
past practices, to determine if actions taken followed legal requirements and company
policies and procedures. The audit team here often examines a sample of employment,
compensation, discipline and employee appraisal forms. The purpose of the review is
187
Lloyd Blaird, and Llan Meshoulam, “Managing Two Fits of Strategic Human Resource
Management”, The Academy of Management Review, 113, no. 2 (1998) pp. 116-124.
188
Joseph J. Martocchio, “Strategic Compensation: A Human Resource Management Approach”, (New
York: Prentice Hall, 2001) Available at https://www.google.co.in/?gfe_rd=cr&ei=2OyAU7HHGZKDu
ASLvoG4Dg#q=ijrcm+VOLUME+NO.+3+(2012)%2C+ISSUE+NO.+8+(AUGUST)
189
Patrick M. Wright, Timothy M. Gardner, Mathew R. Allen, “The Relationship between HR
Practices and Firm Performance: Examining Causal Order,” Personnel Psychology, 58, no. 2 (2005)
pp. 409-446.
56
to ensure that the field offices and the operating managers have complied with
internal rules and legal regulations, such as minimum wages and equal employment
opportunity laws. By sampling elements of the Human Resources information system,
the audit team looks for deviations from laws and company policies and procedures.
The team can then determine the degree of compliance achieved.
Werther & Davis 190 consider the MBO (Management by Objectives)

Approach where managers and specialists set objectives in their area of responsibility.
Then they create specific goals against which this performance can be measured. The
audit team investigates actual performance and compares it with the previously set
objectives. They can then evaluate the trends in this area. According to Wright and
others 191 audit teams normally use several of the above strategies, depending on the
specific activities under consideration. Feedback is then given to senior management,
the operating managers and the employees. Unfavourable feedback leads to remedial
action and development in the contribution of the Human Resource department.
Noe and Raymond 192 state that the audit team uses a combination of several
information-gathering tools to collect data about the firm’s Human Resource
activities. These tools include interviews, surveys, historical analysis, external
information, Human Resource experiments and international audits. Each tool
provides partial insights into the firm’s activities. By using these tools skillfully, the
audit team can get an insight into the effectiveness of the organization’s Human
Resource activities.
Grip and Sieben 193 say that an analysis of historical records can also reveal
important trends. Compliance with laws and company policies and procedures can
also be determined, as well as the success of action plans to remove points of concern.
Specific areas that may be covered include employee safety and health, grievances,
190
William B. Werther, Jr., and Keith Davis, Human Resources and Personnel Management, (New
York: Prentice Hall, 2000) Available at https://www.google.co.in/?gfe_rd=cr&ei=2OyAU7HHGZKDu
ASLvoG4Dg#q=ijrcm+ VOLUME+NO.+3+(2012)%2C+ISSUE+NO.+8+(AUGUST)
191
Patrick M. Wright, Timothy M. Gardner, Mathew R. Allen, “The Relationship between HR
Practices and Firm Performance: Examining Causal Order,” Personnel Psychology, 58, no. 2 (2005)
pp. 409-446.
192
A. Noe and Raymond, Employee Training and Development, (New York: Prentice Hall, 2002)
Available at
https://www.google.co.in/?gfe_rd=cr&ei=2OyAU7HHGZKDuASLvoG4Dg#q=ijrcm+VOLUME+NO.
+3+(2012)%2C+ISSUE+NO.+8+(AUGUST)
193
Andries Grip, Inge Sieben, “The Effect of Human Resource Management on Small Firms
Productivity and Employee Wage”, Applied Economics, 37, no. 3 (2005) pp. 1047-1054.
57
compensation, affirmative action, programs and policies. There may be a conflict
between these laws and the organization’s practices, however a proper study and
analysis is helpful to level out these discrepancies and meet the organizational goals.
Florkowski and Schuler 194 state that external information can also be helpful
in giving the audit team a perspective against which the firm’s activities can be
judged. Such information can be available from various public and private agencies
and government departments. Examples include wages and salary surveys, employee
turnover rates, workforce projections, future employment opportunities, and accident
rates by professions that can serve as benchmarks for comparison purposes.
Workforce demographics such as age, sex, education and racial composition are
useful in evaluation of affirmative action programs. Some information may also be
provided from consultant studies and research bureaus.
2.8.12 HR Auditing Techniques

Like a financial audit, an HR audit must be comprehensive in order to be
effective. The audit review includes but is not limited to
• Department infrastructure
• Compliance with state and federal employment laws
• Recruitment and selection processes
• Employment-related tests
• Employee relations
• Performance-evaluation processes
• Documentation, including employee handbooks
• Job descriptions
• Personnel records and files
• Benefits administration practices
• Benefit costs
• Exempt and non-exempt classifications
• Time-keeping and pay practices
• Recordkeeping and posting requirements
• Policies governing independent contractors
194
Gary W. Florkowski and Randall S. Schuler, “Auditing Human Resource Management in the Global
Environment”, The International Journal of Human Resource Management, 5 (1994) pp. 118-121.
58
• Training and Development
• Technology
• Safety and security
• Labor relations
A small or medium-size firm also may benefit from using an HR audit to:
• Study retention and turnover, employing a neutral party to solicit

honest feedback from employees, and allowing the company to
develop an action plan.
• Examine the company's foundation for its compensation philosophies

and develop an objective method of grading jobs, with new ranges that
are market-competitive and internally equitable.
• Create or enhance an employee-referral program or internal jobs board.
• Improve employee communication and ensure that the HR department

is accessible.
• Identify opportunities to outsource areas within human resources that

offer more value to the company
2.8.13 The Optimal Outcome: Taking HR to the Next Level

Candace Walters 195 assures to those companies that complete an HR audit for
compliance and cost reasons that they will enjoy an improved employment climate
and a healthier bottom line. Organizations that opt to gain maximum benefit,
however, also will use the HR audit to ensure that HR practices are linked to and play
a vital role in the company's strategic planning and execution.
Conclusion
The review of literature on HRM practices and HR audit have shown how
effectively human resources can be managed. For effective management the
organization have to implement innovative HR audit practices. The organization
which implements HR audit practice with dedication remains ahead of their
competitors because HR audit affects other variables such as competitive advantage,
195
compliance/102-conducting-an-effective-human-resource-audit.
59
job satisfaction, financial performance, employee turnover, service Quality, employee
commitment etc. in a positive manner and leads to overall performance. While
designing and implementing HR audit practices, one important thing is to be kept in
mind that the HR practices should be analyzed from time to time and it should be
updated accordingly.
Managers should be involved in designing HR practices and HR audit should

be conducted among employees to know their opinion about HR practices by external
HR auditors. This will help the organization to take corrective steps at the right time.
One of the primary benefits of a do-it-yourself audit is that you know your
organization better than any outsider (you know where the skeletons are hidden).
Outsourcing your audit provides several benefits. Most importantly, you get the
credibility and validity of a third party, expert opinion of your HR practices. They can
give you a fresh perspective on your processes and policies. Since a good audit
includes gathering feedback from stakeholders, allowing a third party to conduct
interviews with employees and management will allow for a level of confidentiality.
Stakeholders may tend to be less candid if you ask them directly whether your HR
department is meeting their expectations.
In addition, outsourcing the audit will consume less of your time. Finally, a
third party auditor could continue to be an ongoing resource to you for questions and
issues you have going forward. Whether conducted in-house or by an outside party,
an HR audit can provide an opportunity to examine the HR function in your
organization and offer useful feedback to improve the department’s contribution to
the success of the organization.
60

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CHAPTER - II

CONCEPTS AND REVIEW OF LITERATURE

The literature review addresses the following research questions

• What are the best HR practices?

According to Seyed-Mahmoud Aghazadeh 16 Human resource management

Seyed-Mahmoud Aghazadeh 17 also investigates three aspects of human

2.2 Types of HRM Practices

In order to determine any effects of HR practices on firm growth, we prefer to

(1) Employment security

1. Careful recruitment and selection, for example, ‘total quality recruitment’,

Recently, Saxena and Tiwari 29 examined the HRM Practices implemented by

2.3.2 Man Power

2.3.3 Recruitment and Selection

Crompton, Morrissey and Nankervis 36 have suggested that effective worker

2.3.4 Performance Appraisal and Management

As with turnover, it is important to distinguish what we mean when we talk

Welsh 42 in his paper namely “Perceived Fairness of and Satisfaction with

The paper by Thomas 43 with the title “Performance Appraisal Effectiveness

Soundria 45, says that Performance appraisal is a process of assessing,

2.3.5 Talent Identification

2.3.6 Employee Welfare Measures

Julie Malveaux 55 said that the majority of human resource professionals

Chukwunenye and others 57 examined staff welfare and organizations’

2.3.7 Compensation Policy

Barringer and others62 conducted a quantitative content analysis of the

Delery and Doty 63 identified performance-based compensation as the single

2.3.8 Decentralization and Self-Managed Teams

2.3.9 Selective Hiring

Huselid 74 says that Training and development may be related to firm

2.3.11 Human Resource Information Systems (HRIS)

In their view, the evolution of HR as promoted by HRIS evolves from

Kirstiel 79 says that administrative HR is much more efficient when it is used

2.4 Sources of HR Practice Measures

2.5 Impact of HR Practices

Guest 89 explains that impact of HR practices on performance of employees is

Huselid 95 examined the relationship between HR practices and corporate

Guthrie 98 examined the impact of HR practices on turnover and firm

MacDuffie 99 found that the HR practice ‘bundles’ he measured were related to

2.6 Factors Affecting HRM Practices

These factors include the following:

7. Globalization : As a result of globalization, the whole world has become a single

2.6.2 Internal Factors

The important internal factors are as follows:

7. Line Management: Okpara and Wynn 118consider that Line Management

9. Academic and Professional Influence on HR Practices: Kane and Palmer 120

2.7 HRM Practices and other Variables

2.7.1 HRM Practices & Competitive Advantage

2.7.2 HRM Practices & Employee-Employer Relationship

Employee-employer relations can be improved if the organization implements

2.7.3 HRM Practices and Trust

2.7.4 HRM Practices & Effective Utilization of Employees

2.7.5 HRM Practices & Service Quality

2.7.6 HRM Practices and Employee Commitment

The implementation of HRM practices in the organization leads to enhanced

2.7.7 HRM Practices and Organizational Performance

2.7.8 HRM Practices & Financial Performance

Further, different HRM practices for managerial and non- managerial

2.7. 9 HRM Practices and Employees Productivity

2.7.10 HRM Practices and Effective Management of Employees

2.7.11 HRM Practices and Growth and Innovations