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The importance of HRM (Human Resource Management) in improving performance is well documented. (1) Based on a year long study analyzing the HRM practises at more than 400 companies, Watson Wyatt developed a Human Capital Index (HCI) which outlined 30 key HRM practises which contribute to shareholder value. These 30 practises illustrate the importance of: (i) recruiting excellence, (ii) clear rewards and accountability, (iii) collegial and flexible workplaces, (iv) communications integrity, and (v) the prudent use of resources in implementing HRM policies and practises, (2) Other studies highlight the importance of strategies, motivation, and selection and development practises in improving performance. (3)
There is an on-going debate on what specific HRM practices or combination of practices should be used in improving organizational performance. (4) It is possible to assess a configuration or aggregation of HRM practices on performance (5) rather than reviewing the effects of individual practices. (6) Some researchers adopt a behavioral perspective in suggesting that valued employee behaviors are an important source of performance. (7) Others suggest that HRM practices are contingent on the "fit" between the HRM system and the organizational strategy. (8)
The "fit" perspective is prominent in the strategic human resource management literature which suggests that the HRM function has to be aligned to assist the formulation and implementation of an organization's strategies and priorities. The nature of the "fit" between HRM and strategic objectives is very specific and idiosyncratic in any organization. (9) As such, HRM processes for recruiting, selecting, training, evaluating and rewarding employees might depend on the nature of the organization's objectives. A strategic objective like improving customer relations would need to be supported by HRM policies, programs, practices, skills, and behaviors which encouraged client or customer relations.
"Fit" can be defined internally or externally. External fit relates to programs, activities and strategies that the organization develops to respond to the external environment. Internal fit might focus on how organizational and HRM systems are connected and are useful to each other and to internal clients.
This paper illustrates how an HR Scorecard was used in facilitating a better "fit" between HR's practices, behaviors, and skills and organizational strategies and objectives in two public service organizations. In this sense, this project focused on improving the internal "fit" of HRM to other organizational units. The purpose was to assist HRM staff realign their practices in being helpful to line managers.
Strategic HRM and Organizational Fit
The idea of "fit" underlies numerous individual, group, or organizational frameworks that suggest that one organizational part should be consistent with the needs, demands, goals, objectives, and/or structure of another. (10) Inherent in most applications of "fit" is the assumption that organizations are more effective if the various parts of an organization "fit" well together. (11) In strategic HRM, researchers suggest that a strategy should fit with three generic variables: (i) HRM practices, (ii) employee skills, and (iii) employee behaviors. (12)
A model of strategic HRM that promotes "fit" would start with a definition of the organization's vision, mission, and strategies, and an examination of internal resources, (strengths and weaknesses) and external developments (opportunities and threats). (13) Given an organization's strategies, the process involves assessing the strengths, weaknesses, opportunities, and threats related to HRM. In this model, HRM's role is in providing practices and people with skills and behaviors to implement the various strategies.
In much of the literature on achieving "fit" between strategy and organizational systems, scholars assume that HRM departments can quickly adjust their functions and easily implement new practices. (14) However, most administrative systems are held in place by numerous forces, including written records, regulations, union contracts and employee expectations. As a result, there is likely to be a great deal of structural inertia in refocusing HRM to better "fit" with an organization's strategies and objectives. (15)
One mechanism for facilitating "fit" is through feedback systems that provide information on the practices (16) and their use in implementing strategic objectives. Recognizing some of the weaknesses of other performance management approaches which have focused only on financial performance measures, the Balanced Scorecard provides a model which illustrates a "fit" between various HRM activities and an organization's strategic objectives. The Balanced Scorecard illustrates a causal relationship between four sets of objectives--customer or client, financial, internal processes, and learning and growth. In achieving an organization's strategic objective, we are encouraged to define client, financial, process, and learning and growth objectives and activities to implement it. More specifically, HR managers are encouraged to ask what HRM practices, skills, and behaviors would assist line managers as they implement the organization's strategic objectives. The objectives represent four areas or perspectives of the Balanced Scorecard.
1. The Customer or Client Perspective. We might think of external and internal clients as customers. External clients in public sector organizations represent citizens and key stakeholder groups focused on issues such as: community crime prevention, heritage restoration, or environment. Internal clients include groups in the organization we offer services to. Most of HRM's clients are internal in the organization and include line managers and employees who rely on HRM to do their work in responding to external clients.
2. The Financial Perspective. Timely and accurate financial data will always be a priority, since financial objectives and measures are valuable in summarizing the consequences of budgetary expenditure. In public sector organizations, financial objectives typically highlight activities, outputs and outcomes. For example, an education program might be evaluated by students taught (activity), degrees granted for resources expended (output), and recognition of the degree in the community (outcomes). Financial measures related to HRM might include: cost per hire, cost of turnover, legal costs related to HRM, HRM expenditures as a percentage of overall budget, costs of training, and the like.
3. The Internal-Work Process Perspective. In the internal-work process perspective, managers identify the critical internal processes the organization must excel at. These processes enable the organization to make sure it delivers its services efficiently. That is, in an emergency ward, the internal process perspective is defined by how work is designed so that patients are dealt with in an efficient and effective manner. HRM specific measures might be: motivating potential of different job designs, time to fill staff vacancies, percentage of annual performance reports completed, and costs of grievances and other labor relations issues.
4. The Learning and Growth Perspective. The focus on learning and growth recognizes employee capability or what organizations need to do to survive in the long term. Organizational learning comes from three potential sources: people, systems, and organizational procedures. HRM specific measures might review the training related to performance management for managers, supervisor …