A Study on the Impact of Strategic Human Resource Practices on Organizational Performance

Abstract

The aim of the study is to explore the possible relationship between use of strategic human resource practices and the financial performance of manufacturing and service firms in India. The study assumes that there is a link between the business strategy pursued by the firm and its human resource policies and practices. It is also assumed that there is a ‘fit’ aspect (external and internal) between the business strategy and the human resources policies. The ‘external fit’, is the extent the human resource planning and implementation process is part of the strategy process in the organization. Data was collected using a structured questionnaire from 115 firms representing manufacturing and service sectors in India. ANOVA results show that firms pursuing different business strategies have different degree of the ‘external-internal fit’ of human resources. Also, firms pursuing different business strategies use different levels of strategic human resource practices. The ‘external-internal fit’ of human resources shows significant variance in the use of strategic human resources practices. The multiple comparisons indicate that the use of strategic human resources practices is more among firms having higher fit. The ANOVA test also confirms that the degree of ‘external-internal fit’ of human resources and use of strategic human resource practices has significant variance for all the three financial variables, Return on Capital, Return on Net Worth and Tobin' s q. Regression results show a difference between the manufacturing and service sector firms in the variability of all the dependent variables viz. strategic human resource practices, and financial performance variables of ‘Return on Capital’, ‘Return on Net Worth’ and ‘Tobin's q’.