Posted: November 8th, 2023
CHAPTER TWO: LITERATURE REVIEW
This chapter assesses the arguments and findings from scientific studies carried out by other academicians and practitioners in HRM. The section identifies the specific HRM functions influencing organizational performance, namely employee participation and involvement, employee rewards, employee recruitment and selection, and employee training and development. The literature review is subdivided into two categories, an empirical review and a theoretical review.
2. 1 Theoretical Review
2.1.1. The Resource Dependency Theory (RDT)
The theory explains the behaviour of an organization through a critical analysis of its resources and utilization rate. The theory expounds on what companies require to meet the minimal threshold for surviving and functioning. In HRM, RDT is employed to assess the relationship between a company and the products it needs to operate (Yeager et al., 2014). Organizational resources come in many forms, including human capital, financing, and raw materials. However, the acquisition process of these external resources is often underlooked, especially its importance in the strategic management of operability. Research finds that companies with too much external dependence face increased uncertainties and vulnerabilities (Yeager et al., 2014). There is a heightened likelihood of external conditions being imposed on the organization. RDT is based on the understanding that resources are essential to a company’s success, and access and control of these resources are key to achieving power.
RDT is becoming a more influential concept in business because the resources organizations need are increasingly scarce, unavailable, and hard to source. Under imperfect market conditions, the unequal exchanges of resources establish power differences, which are, in turn, applied to further influence access to the resources. Yeager et al.’s (2014) literature review identifies that the main purpose of using RDT is to minimize dependencies. Organizations develop strategies and structures to better place them in a position of power when negotiating resource-related transactions. From an internal perspective, the main approaches applied to reduce dependency are increasing the scale of production and product and service diversification (Yeagar et al., 2014). Companies also prioritize establishing new relationships with other organizations. Groups of companies can engage in political action to target dependencies associated with state and federal policies.
More recent research outlines that RDT does not solely focus on the dependency on physical resources. Organizations understand that success relies on other external factors, such as consumer demand (Leeman et al., 2022). Dependency on physical resources explains why non-profit organizations are leaning towards commercialization. Current markets are characterized by fewer government subsidies for social services, resulting in contract competition in the non-profit sector. RDT also explains the increased emphasis on corporate sustainability, as sustainability aspects tend to reduce dependency on physical resources (Leeman et al., 2022). The problem with sustainability is that it has direct influences on work. Governments often place restrictions and conditions for using renewable energy, increasing operational costs. Progress in science and technology will, however, continue reducing the cost of energy, accelerating corporate growth.
The Resource Dependency Theory looks at how an organization’s workforce can be used to establish sustainability. The workforce is perceived as a critical resource, who if not efficient and effective, will require the company to seek alternatives and exceed their operational budget (Yeager et al., 2014). Therefore, it is mandatory that a firm buy the right quantities of people within a set threshold. The theory will inform the research the extent to which organizations will depend on the resource, and how changes in external factors, such as abundance in the labour market, can help reduce this dependence. The theory also informs how internal factors, such as employee training and development, can be harness to increase resilience and productivity in workers (Yeager et al., 2014). The theory will mostly apply to small and medium sized retailers faced with the challenge of sustaining small workforces.
2.1.2 The Social/Relational Exchange Theory
The roots of the theory can be traced back to the late 1960s, when it was first hypothesized that human social behaviour is an exchange. The Social Exchange Theory (SET) is based on the notion that the relationship between two or more people is established through a cost-benefit analysis (Ahmad, 2022). The concept does not consider the strength of human relationships using emotional metrics but instead applies logic and mathematics to assess how people balance relationships. Within the calculations, costs refer to the negatives of social exchanges. For instance, an employee who tends to be absent is a cost. On the other hand, benefits refer to the positives of social exchanges. Such relations offer friendship, social support, and companionship. The cost-benefit analysis is not the only measure applied in SET. Expectations also play a role in determining the worthiness of social exchange.
Research indicates that social exchange influences organizational citizenship and employee behaviours. Employees tend to respond to the type of treatment they receive, from management or clientele (Ahmad, 2022). The action-response reflex underpins the concept of reciprocity in social exchanges. For instance, mature leadership relationships inspire employees to build trust, respect, and admiration from peers and management. Contrastingly, aggressive demands from customers are met with resistance and ignorance in customer service. Since SET is based on a give-and-take notion, any relations that are not considered equitable will harm individual and collective performance (Ahmad, 2022). The primary driver of sustained performance in social exchanges is equity. Balanced exchanges that occur twice or thrice result in long-term constructive relationships, which is essential in forming multidisciplinary teams.
The Social Exchange Theory will inform the report on how concepts of organizational behaviour can be leverage to enhance resilience and productivity in employees. Given that the research hypothesizes that organizational change will be required in the retail sector to enhance employee productivity, it is prudent that there is a comprehensive understanding of the roles of trust and control. The theory will inform on how trust is an essential variable in determining how employees perceive the change process (Ahmad, 2022). Kenyan retailers will need to reduce the distance between the workforce and leadership if they are to compete and overcome market challenges. Integration of the social exchange theory in the report will help propose a model that represents different organizational factors impacting employee performance, namely organizational culture, managerial commitment, and strategic orientation.
2.2 Empirical Review
2.2.1. Employee Participation, Involvement, and Organizational Performance
Hung (2022) conducted a research survey involving 438 employees of a food processing plant as participants. The research sought to explore the relationship between HRM involvement of employees and organizational performance. Using the Structure Equation Model, the research found that accepting employee participation in corporate decision-making tends to reduce the power distance between management and the employee base, helping shift the organizational culture from individualism to collectivism (Hung, 2022). The anticipated result is that the workers are more motivated, committed, productive, and satisfied with their work. Hung (2022) acknowledges a problem in contemporary organizations where employee participation is perceived as worker-initiated. In such a flawed environment, management anticipates that the employees will encourage themselves to identify ways to be involved in the company. Employee involvement is a management initiative that should revolve around management creating opportunities for personnel to discuss work-related issues. Leadership should only reserve the right to govern.
Rodjam et al. (2020) employed self-administered questions to explore the relationship of employee participation in job design and job performance. Involvement in how a job is set up and implemented was associated with enhanced job satisfaction. One of the primary mediators to the relationship was job security. It was realized that employees are bound to become more confident and committed to the work environment if they perceive they benefit from high job security (Rodjam et al., 2020). Job security demands some level of reciprocity between management and employees. Management expresses how safe jobs are, and workers tailor their commitment to the information. Acosta Prado et al. (2020) mirrors this finding by claiming that experimental evidence teaches that high levels of perceived job security positively affect employee commitment and organizational performance. However, research has yet to specify the benefits and costs of guaranteeing job security. It is unclear whether the gains in organizational performance outweigh the costs of maintaining job positions.
Kampkotter (2017) employed a longitudinal study of over 10500 German employees to assess the causal effect of employee involvement on job satisfaction and performance. Involvement was associated with autonomy, which, in turn, plays an essential role in enhancing individual performance. Scientific research outlines the negative implications of micromanagement on employee risk-taking behaviour, which implies it is a barrier to creativity and innovation. Acosta Prado et al. (2020) employed experiential research to find that self-managed employees and teams perform better and contribute more to corporate success. Literature on employee autonomy highlights the importance of a decentralized leadership structure. Decentralization creates opportunities for employees to be used as delegates, enhancing their involvement and inclusion in corporate decisions and activities (Acosta Prado et al., 2020). The engaged and autonomous employee is more likely to prioritize accountability and collaboration in their dealings. Rodjam et al. (2020) stipulate that empowering employees also involves including them in the company’s vision and mission.
There is a relationship between worker participation in policy development and organizational productivity. A literature review of over 40 articles based on the Democratic Participatory Theory found that employee participation in decision-making impacts organizational performance in different ways (Barinua & Obah, 2022). Foremost, participation increases worker morale, which has an aggregate impact on job commitment. The motivated employee is more likely to fulfil their tasks and obligations, resulting in improved productivity. Therefore, there is a direct relationship between employee participation and motivation. Secondly, participation was identified as a prerequisite for trust (Barinua & Obah, 2022). Employee involvement helps workers develop a sense of recognition and control, which contribute to them trusting management and the organization. Kampkotter (2017) associates high levels of trust in the workforce with reduced turnover. Employee involvement, thus, impact employee absenteeism and turnover.
Sofinajanova and Chatleska conducted a primary research to assess which performance factors was mostly impacted by the relationship between employee involvement and organizational performance. From a survey of 36 studies, the researchers hypothesized that the relationship had the biggest effect on employee commitment (Sofinajanova & Chatleska, 2013). The study found that employee participation in policy and decision making has a net positive effect on affective commitment, continuance commitment, and normative commitment. The results align with Rodjam et al.’s (2020) study that found employee involvement inspires employee to establish emotional attachments with their job, making them more willing to stay with an employer and fulfil set duties. The implication for managers is to use employee participation to inspire commitment.
A summary of the impacts of employee involvement and participation on organizational performance highlights multivariate effects. The section concludes that worker involvement enhances trust between management and the workforce. Trust is cited as critical to ascertaining collaboration and accountability in team-oriented jobs. Participation also offers workers a sense of recognition and control, which impacts their perception of job security. High levels of perceived job security positively affect employee commitment. Employee participation influences the employee’s perceived self-confidence and competence. The worker who has high belief in their capabilities is more likely to fulfil their work obligations. Perhaps the biggest impact of employee participation in decision-making and policy development is on motivation. Numerous assessed studies emphasize the importance of involvement in motivating employees to commit to an employer.
2.2.2. Employee Rewards and Organizational Performance
Compensation practice is perceived as one of a company’s most important and strategic HRM functions. Compensation is defined as the types of monetary rewards or pay given to workers with respect to their employment agreement (Alagaraja, 2013). More recent research defines compensation as the range of financial and non-financial rewards an organization offers for the skill, time, and effort committed by employees toward the pursuit of job requirements and corporate objectives. Monetary rewards can be in the form of cash, bonuses, and even corporate-backed loans. Non-monetary rewards are more diverse and require management to be creative to attain positive benefits (Alagaraja, 2013). Most existing studies associate compensation with a positive effect on corporate performance. Employees are likelier to perform better and commit to an organization if they receive above-average market salaries and wages for specific job requirements.
The level of influence compensation has on job performance will depend on its type since different types of compensation strategies have a divergent impact on employee satisfaction. There is the notion that incentives enhance risk-taking among employees, motivating them to be more creative and innovative (Anwar & Abdullah, 2021). Employees are more likely to go outside the box to derive solutions if the outcome is associated with receiving incentives, such as bonuses and allowances. Incentives tend to provide employees with internal praise from management, which acts as a source of motivation. According to Kampkotter (2017), public recognition is a reward in itself. The practice makes employees feel more at home and appreciated for their efforts. The assertion highlights the emergence of non-conventional approaches to compensation that might have a bigger effect on employee commitment and performance. Contemporary HRM is responsible for developing attractive compensation packages lest they risk losing employees to competitors.
Abdillahi et al. (2015) conducted an empirical research to examine the degree to which extrinsic rewards impact the achievement of organizational objectives. Based on the Job Characteristics Theory and the Equity Theory, the authors hypothesized that rewards mainly influence job satisfaction, which, in turn, boosts organizational performance. A descriptive study involving over 140 employees of a large chain hotel showed that there was a strong positive relationship between extrinsic rewards and employee satisfaction (Abdillahi et al., 2015). The findings march Alagaraja’s (2013) finding that the provision of fringe benefits, bonuses, and commissions to workers creates a sense of recognition, which inspires commitment and individual-level improvement in work. Unfortunately, the two studies do not expound on which of the two, intrinsic or extrinsic, rewards have the biggest impact on job satisfaction and performance.
2.2.3. Employee Recruitment, Selection, and Organizational Performance
Abbas et al. (2021) carried out a critical review of literature on recruitment and selection methods to assess the different ways in which it impacts business performance. With over 500 reviewed scientific articles, the authors identify various variables that influence the impact of recruitment and selection on organizational performance. For instance, recruitment via online platforms was associated with higher chances of acquiring competent employees (Abbas et al., 2021). There is a significant rise in the use of electronic media for recruitment purposes. Selection is cited as critical in allowing organizations to maintain space and quality of organizational efficiency (Abbas et al., 2021). Such a conclusion mirrors Rasool et al. (2019), who considers selection as the facilitator of organizational efficiency via human capital. Employee selection is the same as an elimination process, as employers seek to identify the best fit candidate by comparing suitability.
Rasool et al. (2019) equally conduct a literature review to assess staffing policies with regards to how they impact organizational performance. According to the authors, changes in the concept of business competition and changes in the global labour market have led to a renewed focus on how recruitment and hiring practices impact organizational performance. Rasool et al. (2019) consider recruitment the starting point of a company’s employment policies. Recruitment and placement are based on shared principles, meaning organizations pursue merit, gender balance, and geographical distribution. The effectiveness of a firm’s human capital will rely on the reliability of the two functions. Recruiting the wrong candidates will result in negative costs that the business cannot afford (Rasool et al., 2019). The article highlights that the major concern for employers is not to lose money paying wages and salaries to non-competent or unsuitable workers. The skill level of the applicant must directly correlate with the quality of work that they will output in the advertised positions.
Anwar and Abdallah’s (2021) study seeks to clarify the definition of selection and recruitment, specifically the processes and measures entailed. The authors reveal that selection involves using particular instruments and metrics to engage potential applicants in activities to determine their suitability (Anwar & Abdullah, 2021). Therefore, selection can also be perceived as a subtle process of employee rejection. The objective is to find individuals that are not only skilled but can also maintain the good image of the employer. Selection is highly strategic and important, so some companies contract the function to external experts (Anwar & Abdullah, 2021). Often, the performance of a role will depend on the individual working on it. Any mistakes result in additional hiring and placement costs. It is prudent that organizations have well-designed and well-optimized recruitment and selection procedures to reduce operational costs and ensure the maximized benefit of the organization from the identified candidate.
2.2.4 Employee Training and Development and Organizational Performance
Some studies have found that employee training and development positively influence corporate performance and individual welfare. Vermeeren et al. (2014) found that the biggest change associated with employee training and development is the quality of activity execution. Employees become more confident and able to perform routine tasks, improving their speed and production quality. Vermeeren et al. (2014) maintain that the main benefit translates into improved employee efficiency. The workers are able to offer the best of their abilities by educating and working with each other. Collins and McNulty (2020) hypothesized differences in the impact of on-the-job and off-the-job training. The researchers concluded that offsite training and development delivers more net positives than training done on the job. The finding suggests the need to design employee training activities as separate endeavors from normal work duties.
Employee training and development boost employee efficiency, satisfaction, and motivation. Research highlights that workers are happier when they have the skills and competencies to fulfill work obligations (Anwar & Abdullah, 2021). Training connects company needs and employee skills for the marketplace, making workers feel better about themselves. The employee feels safer in the company because they are able to achieve the obligations assigned to them. Training also translates into increased corporate engagements, which is known to motivate and enhance employee commitment to a firm. Frequent short-term training has been proven to make employees stay longer at a company (Anwar & Abdullah, 2021). Therefore, HRM employs employee training and development to boost employee retention. Teams that have worked together for years tend to be more efficient and cost-effective compared to new teams. There are fewer instances of conflict and more instances of positive collaboration.
Kampkotter’s (2017) longitudinal survey found that the approach to training and development has aggregate effects on organizational performance. The findings of the primary research study emphasized the need for HR to engage employees in their career preferences. Workers are positioned and developed per an action plan that matches their skills and competencies with organizational interests and opportunities. Employees should be able to tell whether there is a career path within their company. The prospect of a better position, pay, and inclusion in decision-making acts as an incentive for improved performance. HR can ensure career planning addresses both corporate and individual needs through competency alignment (Anwar & Abdullah, 2021). Therefore, competency frameworks, also used in employee training and development, can be used in employee empowerment.
2.3 Research Gaps in the Literature Review
While the empirical review identifies four categories of HRM practices that influence organizational performance, the reviewed studies highlight cross-cultural differences in beliefs concerning HR practices. National culture influences the features of the external environment that influence business performance, including employment regulations. For instance, Chesula and Nkobe (2018) highlight the lack of emphasis on the importance of work-life balance in the Kenyan retail sector. The difference informs that not all HR practices contain the same power of cultural specificity. For instance, the Kenyan retail sector still prioritizes interpersonal relationships, which is why they conduct performance appraisals and career development programs as opposed to employee recruitment and selection. The management approach shows that HR practices in the country are more culture-bound. The cultural inclinations could explain the poor performance of human capital in the Kenyan retail sector. Business performance will not be high when the national culture impedes constructive organizational behaviours.
There is a big gap between research and practice. Various scientific studies have been done on the relationship between HRM practices and organizational performance. However, most of the assessed articles employ a secondary research method, assessing published articles on the topic or reviewing opinions on the articles. Kampkotter (2017) laments that HR professionals tend to agree with published research findings. However, there is minimal application in some content areas. One of the main issues where there are discrepancies between research and practice is in employee recruitment and selection. Differences in beliefs and practice dissuade HR personnel from applying evidence-based practice. As mentioned, Kenyan retail sector recruitment occurs in tightly-knit circles that do not prioritize competencies (Chesula & Nkobe, 2018). A cultural shift is required to encourage HR professionals to develop positive attitudes about the applicability of existing academic research.
Existing research on HRM practices has not considered changes to the work environment since the pandemic. The assessed articles assume that all workspaces follow the traditional routine of employees physically working within particular work hours. The research also assumes that employee satisfaction and motivation are based on the same criteria. A growing pool of academic literature highlights that the millennial worker is less intent on securing promotions and titles in career development. The shift to remote working and the emphasis on social justice since the pandemic have altered the meaning of job performance (Hung, 2022). Moreover, there have been changes to the factors that impact job performance. Further research is required for HRM strategies to mirror the realities of the contemporary workplace. Such studies are bound to promote the use of ‘soft’ HRM strategies due to the need to maintain and promote employee wellbeing.
The extant literature focuses on stakeholder involvement and the role of leadership in reducing the adverse effect of external factors on worker performance. However, the literature fails to acknowledge the conflicting natures of organizational performance and HRM practice (Bratton et al., 2023). Organizational performance is more numeric, focusing on tangible outputs, such as the bottom line and market share. On the other hand, contemporary HRM practice focuses more on intangibles, such as employee happiness, sense of belonging, and loyalty (Bratton et al., 2023). The process and cost of achieving the HRM practices can conflict with organizational performance. For instance, a company must fund employee training and development, affecting the business’s bottom line. Many managers fail to implement evidence-based HRM practices to avoid this conflict.
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