HUMAN RESOURCE MANAGEMENT STRATEGIC HUMAN RESOURCE MANAGEMENT CHAPTER NO. 8.
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
HUMAN RESOURCE MANAGEMENT, PERFORMANCE AND
ORGANISATIONAL SUSTAINABILITY: A NEW PARADIGM
Professor Robin Kramar, Macquarie Graduate School of Management, Macquarie
University
Melia Famiola Hariadi, Macquarie Graduate School of Management, Macquarie
University
ABSTRACT
The issues of environmental and social sustainability are firmly on the international political
agenda and these two areas of sustainability are also now claimed to be a major concern for
business organisations. The desire for long term environmental, social, as well as financial
sustainability poses a number of challenges for business organisations. It also poses
challenges for managers, for policymakers and for employees. Sustainability challenges
management concepts, such as performance, and frameworks, such as human resource
frameworks, used by managers.
This paper focuses on a particular area of management, human resource management. The
paper explores the concept of organisational performance, sustainability and the relationship
between organisational performance, sustainability and human resource management. The
analysis reveals that most of the existing research is framed within a world view that is
mechanistic and static. Such a view limits an understanding of the dynamic relationship
between human resource management, organisational performance and sustainability. An
alternative view is proposed and the implications for human resource management,
organisational performance and sustainability are explored.
Keywords: Sustainability, human resource management, performance, theory
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
INTRODUCTION
Sustainability issues are now on the international political agenda and are a serious concern
for many business organisations. The broad concept of sustainability, which encompasses
financial, environmental and social long term outcomes, requires managers, policy makers
and employees to examine and review their definitions of organisational performance and the
purpose of management practice. It also requires an evaluation of the way these long-term
outcomes are to be achieved. Human resource management practices are important for
developing capabilities and organisational culture and they therefore contribute to sustainable
outcomes. Human resource practices and the outcomes of these practices, such as creative,
risk-taking and innovative capabilities, are also an outcome of sustainable practice and a
mediator between sustainability objectives and organisational performance.
This paper will focus on the relationship between sustainability, organisational performance
and human resource management. The research question examines whether human resource
management can contribute to sustainability and organisational performance. This is a
complex question which examines relationships between concepts which are ill-defined and
shaped by assumptions about the world and the nature of organisations. Examination of the
research question requires not only an examination of the literature about the relationship
between organisational performance, human resource management and sustainability, it also
requires an evaluation of the dominant world view which informs this literature. When an
alternative world view is used to examine this relationship, the concepts of human resource
management and organisational performance are defined in broader ways.
The methodology used to examine this question involves an examination of the literature
published in journals and books. The literature falls into three main areas: the relationship
between human resource management and organisational performance, the contribution of
human resource management to sustainability and the relationship between organisational
performance and sustainability. The first part of the paper examines the connection between
human resource management and organisational performance and the processes by which
human resource management contributes to organisational performance. This section also
explores the relationship between sustainability and organisational performance and the role
of human resource management practices for furthering sustainability outcomes. The second
part examines the world view which informs most of the above literature and the concepts of
organizational performance and human resource management. The final section explores the
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
implications of an alternative view of the world and organisations for the concepts and
practice of human resource management, organisational performance and sustainability.
OVERVIEW OF THE RELATIONSHIP BETWEEN HUMAN RESOURCE
MANAGEMEMENT, ORGANISATIONAL PERFORMANCE AND
SUSTAINABILITY
The terms organisational performance, sustainability and human resource management are the
subject of considerable debate. The definitions of these terms vary according to particular
stakeholder interests, the time frame used and the national and industry contexts being
considered. However, irrespective of these factors, organisational performance and
sustainability are inextricably linked: organisational performance contributes to the
sustainability of the organisation. For the purposes of the first part of this paper, the definition
of sustainability and organisational performance are those which are explicitly or implicitly
embodied in the operation of businesses in a neo-liberal form of capitalism and the
management theories, such as strategic human resource management (SHRM) which have
been developed to support the operation of organisations in this economic system.
Sustainability is therefore defined as the long term survival of the organisation.
Organisational performance refers to both short term and long term measurable outcomes
which contribute to the sustainability of the organisation. These outcomes could include
financial, human/social and environmental outcomes. However, the emphasis is on the way
these outcomes contribute to the long term financial survival and adaptation of the
organisation.
Human resource management (HRM) and SHRM refer to the systems of practices used to
manage people and teams who do the work of an organisation and to those practices used to
build the relationships between organisations and external stakeholders. The ultimate purpose
of HRM/SHRM is to further organisational performance and the sustainability of the
organisation. The contribution of HRM/SHRM to competitive advantage has been a dominant
theme in the literature (Boxall & Purcell, 2003, 71-88; Pfeffer, 1995).
Human resource management and organisational performance
Various approaches have been developed to support the important influence of human
resource management on organizational performance (Chew & Sharma, 2005; Combs, Liu,
Hall, & Ketchen, 2006; Evans & Davis, 2005; Liu, Combs, Ketchen Jr, & Ireland, 2007; Wan
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
& Huang, 2005). Studies reveal a number of mediating factors that contribute to
organizational performance. These include HRM's capacity to influence aspects of
organisational outcomes, particularly individual capabilities and organisational capabilities
which contribute to organisational performance in the short term and long term. HRM
practices have been shown to further organisational performance by developing individual
capabilities such as knowledge, skills, abilities (Daniels, 2003; Machin & Vignoles, 2001) as
well as behaviours and attitudes (Schuler & Jackson, 1987). Studies also show HR practices
contribute to the development of inimitable cultures (Delery & Doty 1996), and
organisational capabilities such as innovation (Laursen & Foss, 2003) and knowledge
management (Goll, Johnson & Rasheed, 2007).
Although there are semantic difficulties associated with the terms HRM and SHRM, it is
possible to identify HRM and SHRM as those practices which positively impact on
organisation outcomes and organisational performance (Schuler & Jackson 1997). Central to
the notion of SHRM is the assertion that an explicit organisational strategy provides the
framework for the development of human resource management practices. A prominent body
of research indicates that high performance work practices (HPWPs), such as incentive
compensation, training, information sharing, employee participation, selective selection and
recruitment, an egalitarian culture and teamwork are practices which contribute to
organisational performance (Pfeffer 1998). SHRM theory asserts there should be a ‘strategic
fit’ between HPWPs and organisational strategy in order to improve performance (Delery &
Doty 1996; Capelli & Crocker-Hefter 1996).
A meta-analysis of research (Combs, Liu, Hall & Ketchen 2006) on the link between HPWPS
and organisational performance found that HPWPs did positively impact organisational
performance, however the practices of performance appraisal, teams and information sharing
were not shown to have a positive impact. The analysis also found systems of practices, rather
than individual practices had a stronger impact and that the positive relationship between
human resource practices and organisational performance existed irrespective of the
performance measure used. Context was found to influence the size of the impact of the
HPWPs-organisational performance relationship, with impact being double in manufacturing
than it was in services. Although Coombs et al (2006) identified organisational strategy as a
moderator between HPWPs and organisational performance, they were unable to test for this
link because of the difficulties in coding studies according to the appropriateness of the
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
“strategic fit” of the organisations in the studies and the lack of information about the
correlations between organisational performance and strategy-HPWPs .
Particular HRM practices such as training and development, effective selection, performance
feedback and performance pay can often improve employee productivity and performance so
people display the necessary capabilities to further organisational objectives. HRM practices
are also able to create a positive psychological contract between the employee and the
employer. This can result in increased trust, commitment, organisational citizenship,
engagement and a sense of fairness (Coyle-Shapiro 2002; Stajkovic & Luthans 1998; Guest &
Conway 1997; Patterson et al 1997).
Although the concept of organisational capabilities can be understood in a variety of ways, a
commonly accepted definition refers to organised activities which enable the achievement of
significant outcomes within a large scale unit of analysis with a recognisable purpose. These
activities are developed through conscious intent (Dosi, Nelson & Winter, 2000, 7) and
indicate an organisational ability to balance continuity and change in rapidly changing
circumstances (Teece et al, 516). Organisational capabilities such as innovation and
knowledge management, contribute to organisational performance. As mentioned previously,
it has been shown that a variety of human resource management practices contribute to the
development of these capabilities and to the organisational change and development resulting
from these capabilities.
Organisational performance, sustainability and human resource management
The studies referred to above have focussed on performance in terms of financial and tangible
outcomes. These are essential for the longer term survival of an organisation and its
sustainability, however, there are indications that social/human and environmental outcomes
are also important for organisational sustainability. It has been shown an organisation’s
financial performance can be improved in a number of ways. These include addressing
human/social outcomes by providing internal benefits such as developing capabilities,
providing career opportunities, work-life balance programs and an ethical culture. In addition,
addressing environmental outcomes of the business have been shown to positively influence
corporate reputation and image (Orlitzy, Schmidt & Rynes, 2003; Brammer et al 2007; Turker
2009; Branco and Rodrigues, 2006; Valentine et al 2008; Beaureguard & Henry 2009;
Boudreau & Ramstad, 2005; Gollan, 2005; Jabbour & Santos, 2008).
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
These practices contribute to organisational performance through improved employee
perception of the organisation, improved morale and job satisfaction, an ability to attract and
retain employees, a greater sense of organisational justice and employee commitment
(Peterson 2004; Brammer et al 2007; Kuvaas & Dysvik 2009). These outcomes contribute to
greater cost efficiencies through lower salaries, increased productivity, reduced turnover and
lower recruitment and training costs (Albinger and Freeman 2000; Greening & Turban 2000;
Bachaus et al 2002; Peterson 2004). Therefore, performing well on social, human and
environmental indicators represents a form of strategic investment that has a positive impact
on financial outcomes (Brammer, Millington, & Rayton, 2007; Daily & Su, 2001; Jin & Wei,
2009; Koh & Boo, 2004; Loi, Ngo, & Foley, 2006; Neves, 2009; Peterson, 2004; Puig,
Martin, Tena, & Llusar, 2007; Turker, 2009).
The term corporate social responsibility (CSR) or corporate social performance (CSP) has
been used to refer to an organisations’s performance along a range of performance indicators:
financial, human/social and environmental. Although there a range of systems and debates
about what constitutes CSR (Dahlsrud 2008), a commonly held view is that organisations are
responsible to the society in which they are part (van Marrewijk, 2001). However, it is
noteworthy that the ‘economic rationale’ dominates the research on the relationship between
CSR initiatives and organisational performance (Walsh et al, 2003, 868). An analysis of
research on CSP/CSR found 121 studies empirically examined the relationship between CSR
and financial performance. The study found 100 of these studies were concerned with the
relationship between CSR and financial outcomes, rather than social performance (Walsh et
al, 2003).
It has been shown that environmental and human/ social outcomes are interrelated and
contribute to organisational sustainability. Relationships between the development and
implementation of an environmental management system, human resource policies and the
development of capabilities necessary for an organisation’s sustainability have been
demonstrated in a number of studies (Dunphy et al, 2000; Daily & Huang 2001; Wilkinson et
al 2001; Benn & Dunphy, 2004). The development and implementation of advanced
environmental policies and capabilities are dependent on the creation of HRM policies that
create trust between employees, management and the communities in which the organisation
operates.
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
The above review suggests that organisational performance and sustainability can be
furthered by moving beyond the traditional performance indicators such as financial and
marketing targets (Boudreau et al., 2005). An organisation could benefit from the use of
social and environmental measures which contribute to the future success of the organisation
and to the welfare of future generations (Benn & Baker, 2009; Hall & Vredenburg, 2003).
Although the rational for the adoption of these broader performance measures rely on their
contribution to short term and long term financial outcomes, the use of these broader
indicators require an acknowledgement that various stakeholders will have different
perceptions about sustainability, success and organisational performance. This raises
additional challenges about the need to manage a variety of stakeholders and stakeholder
relationships.
VIEWS OF ORGANISATIONS: DOMINANT VIEW AND ALTERNATIVE,
EMERGING VIEW
The research discussed in the previous sections is based on assumptions about the nature of
the economy, organisations and management processes. These assumptions frame the way
relationships between institutions, outcomes and processes are conceptualised. This research
is based on assumptions consistent with a mechanistic view of the world. This view is
encapsulated in the neo-classical view of economics, a rational view of organisations, the
‘homo-economicus view’ of individuals and a mechanisitic view of management that
underpins concepts such as strategic management. However, these assumptions limit our
understanding of organisational performance, sustainability and the influence of HRM to
outcomes in these areas.
When a different set of assumptions are adopted about the economy, institutions, outcomes
and management processes, the nature of organisational performance, sustainability and the
HRM processes required to achieve these outcomes emerge. The following section briefly and
simplisticly outlines the dominant assumptions which inform the majority of the research on
the relationship between organisation performance, sustainability and HRM. It also raises a
number of implications for these relationships when alternative assumptions are adopted.
The dominant prevailing view of organisations
The assumptions informing the dominant view of the economy, organisations and HRM
emerge from the industrial and scientific revolutions which promulgated a rational,
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
mechanistic view of the operation of markets and institutions. The neo-classical view of the
economy assumed markets operated as perfectly functioning ‘clearing mechanisms’ by
balancing price and cost. This view was based on assumptions about perfect knowledge and
equal power of the participants in the market. These market mechanisms were assumed to
allocate resources in the most efficient way.
Organisations would not have a place if markets operated perfectly, however, they are
necessary for `internalizing’ recurring economic exchanges, increasing the efficiency of
resource allocation and reducing the cost of individual transactions through standardisation
and establishing routines (Coarse 1937). Therefore in this economy, organisations are
assumed to operate in a rational way, ie by seeking to maximize efficiency and effectiveness
by reducing market costs, maximizing market returns and operating in a deliberate and
purposeful way (Barnard, 1938, p4). According to this view, organisations represent a
common purpose or a unitary frame in which conflict between stakeholders’ interests is an
aberration. The owners of organisations and managers therefore, are responsible for
maximising the interests of their shareholders by increasing the profits of the company. This
is reflected in the notions of organisational performance which are measured solely in terms
of profits, rather than social or environmental outcomes. “There is one and only one social
responsibility of business – to use its resources and use its resources to engage in activities
designed to increase its profits so long as it stays within the rules of the game, which is to say,
engages in open and free competition without deception or fraud” (Friedman, 1970).
According to this view, it is appropriate for organisations to only engage in activities that
improve social/human outcomes only if they contribute to financial outcomes. As the review
of the research on the relationship between organisational performance, human resource
management and sustainability demonstrates, the focus of the research has been on ultimately
achieving financial outcomes. Social/human and environmental outcomes have been accorded
value if they contribute to these outcomes.
HRM practices are therefore, ideally seen as contributing to the more effective operation of
the organisation by maximising financial outcomes in the short and long term. These HRM
practices also ideally contribute to shaping employee behaviour so it is efficient and effective
and the organisation operates optimally (Bourdreau and Ramstad, 2007). This view of
organisations and HRM can accommodate assumptions about people being influenced by
their feelings, emotions and social needs because these characteristics are an element in their
attempts to maximise their personal outcomes. When these aspects of people are
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
acknowledged, one of the challenges for HRM is to manage them so financial returns are
maximised.
This simple view of the purpose and nature of organisations has been challenged in a number
of ways over the years, however, it is still the dominant perspective in most organisations
(Zappala, 2010, p7) and it underpins the focus of research in this area. Among the challenges
have been the development of reporting and accounting standards that measure a range of
outcomes eg the Global Reporting Initiative (GRI) and the Accountability AA1000 standards;
moves towards responsible investment eg the United Nations Principle for Responsible
Investment (PRI) initiative; the development in global corporations of initiatives in the areas
of Corporate Citizenship, CSR and Sustainability (Zappala, 2010, 7); and the development of
measures such as human capital analysis (O’Donnell, Kramar & Dyball, 2009). Despite, these
developments, an understanding and integration of broader sustainability outcomes reflected
in the concept of CSR is still limited and fragmented (Zappala, 2010, 7-16). “The current
focus is primarily on how to operationalize CSR – how to integrate it into the corporation’s
vocabulary, policies, stakeholder communications, and reporting systems” (Pruzan, 2008,
553). This approach limits a deep review of the meaning and nature of organisational
outcomes and performance, the practice of corporate responsibility and the facets of
sustainability and what they mean for business practice.
Alternative, emerging view of organisations
In order to confront these issues and therefore the nature of the relationships between HRM,
organisational performance and sustainability, it is necessary to frame these relationships
within a different view of organisations, or as Zappala would argue, “a new world view”
(Zappala, 2010, p16). This world view can take a variety of forms, but some of its aspects
include the notion of organisations and markets consisting of stakeholders with varying
interests (Freeman 1984), an explicit acknowledgment of the exercise of power and
differential access to knowledge in the market and in organisations (Clegg 1994) and its
impact on the development and implementation of HRM practices (Kramar, 1992) and a view
that the world and organisations are complex adaptive systems (CAS) which are self
organising, unpredictable and non-linear. Incorporated as part of this world view are the
explicit acknowledgement of personal characteristics such as passion, creativity, spirituality
and the importance of meaning and connectedness with nature and ecosystems (Wheatley,
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
2006). Spirituality acknowledges the importance of mindfulness, belonging, connectedness
and relational consciousness (Zappala 2010).
When organisations are viewed as CAS, it enables a dynamic focus which acknowledges that
change involving internal and external parties is a constant aspect of organisational life.
Organisations in this world view would have broader purposes and take different forms from
those shaped by the corporations law. The purpose of organisations could be ‘to harness
private interests to serve the public interests’ and to engage a range of stakeholders in
decision making and sharing of rewards (Zappala, 2010, 19-20; Hinkley 2002). Alternatively
the purpose of organisations could be described as ‘beneficial’ or a B Corporation in which
the power of consumers, investors, government procurers and other stakeholders are engaged
to broaden corporate purpose and standards of accountability (Zappala, 2010, 21-22).
When the relationship between HRM, organisational performance and sustainability is
considered within this ‘world view’, organisational performance and outcomes are much
broader than the maximisation of profits and financial outcomes. Social/human outcomes and
environmental outcomes represent outcomes in their right, not just a means of contributing to
financial results. In addition, organisational performance could be measured in terms of
outcomes which arise from the engagement of stakeholders in the organisation, rather than
just organisationally mandated outcomes. The concept of sustainability also assumes a
broader meaning. A broader meaning would explicitly recognize that values are incorporated
in its conceptualization and that it involves the balancing of competing interests, values and
priorities of a range of stakeholders, including future generations and ecological systems.
The requirement to manage a range of internal and external stakeholders has significant
implications for HRM. Stakeholder relationships represent a ‘complex interplay of shifting,
ambiguous and contested relationships’ (Gao and Zhang, 2006, p725) and at a minimum,
stakeholder management requires communication between the stakeholders. The process of
stakeholder management involves incorporating the views of stakeholders such as employees,
customers, regulators, the community and shareholders into decision making (Freeman, 1984;
Carroll & Buchholtz, 2002). Effective stakeholder management requires particular
capabilities, such as dialogue, long-term thinking, critical reflection, systemic thinking,
conflict management and collaborative skills (Gao & Zhang 2006). The research on the links
between HRM, organisational performance and sustainability discussed in the previous
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
section and framed in terms of the traditional world view have not addressed these
capabilities.
Consequently, HRM practices and systems explicitly seek to achieve outcomes broader than
just measures of financial performance. Their focus could be on facilitating greater
understanding of the various interests of the stakeholders and the emergence of organisational
outcomes which reflect these interests. Just as the concepts of organisational performance and
sustainability became broader, so does the concept and practice of HRM. Essential elements
of HRM would include processes of individual and team development of capabilities
associated with understanding different mental models/frameworks, knowledge and power
bases of stakeholders; increased self knowledge and an understanding of values and influence
of emotions on perception and behaviour; critical reflection and systems thinking; and an
ability to understand the interconnectedness of individuals, organisations and the
environment, including the ecological system (Kramar 2009; Taylor 2007). Other essential
capabilities required of stakeholders is the ability to engage in debate, manage conflict
constructively and at the same time engage in dialogue and collaboration so new
understandings, decisions, practices and even institutions emerge.
The role and nature of leadership emerges as a process in which the purposes of organisations
and the way the organisation does business are questioned. Leadership is recognized as a
process of symbolic, emotional management involving the exercise of power. It is a process
that involves all aspects of an individual, including their spiritual and emotional lives, and
their values (Sinclair 2007). Leadership is therefore an essential component of HRM.
The previous discussion has not acknowledged the influence of national contexts on
perceptions of organisational performance, sustainability and the relationship and contribution
of HRM to these outcomes. The Rhineland model of capitalism which is evident in Germany
and Switzerland provides a framework for “a system of long-term cooperative relationships
between different parties”, including companies, trade unions, banks, suppliers and clients
(Avery, 2005, p17). Social outcomes, including egalitarian welfare distribution, social
benefits, community infrastructure and social justice are regarded as important outcomes of
the operation of business (Avery, 2005, p14-15). This suggests that governments and
regulators can play a role in shaping the ‘world view’ in which organisations operate and
HRM is practiced.
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Social Responsibility, Professional Ethics, and ManagementProceedings of the 11th International ConferenceAnkara, Turkey, 24–27 November 20102010
CONCLUSION
Sustainability requires a new way of thinking about business success. It requires a rethinking
of the notion of business success, organisational performance and a clarification about the
meaning of sustainability for the business and for the broader society. HRM could have a
significant role in furthering broader organisational outcomes and, in particular sustainability
outcomes. However, most recent attempts to further sustainability and organisational
performance have been grounded in a view of the world based on a mechanistic, incomplete
view of the market, organisations and individuals.
To more completely understand the relationship between HRM, organisational performance
and sustainability a more comprehensive, non-linear view of the world and a non-rational
view of individuals needs to be adopted. When the relationship is considered in this context,
different questions will emerge, research methods will need to be able to deal with dynamic
change and the nature of the concepts will be much broader.
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