THE EFFECT OF HUMAN RESOURCE MANAGEMENT (HRM) PRACTICES ON ORGANIZATIONAL PERFORMANCE

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Introduction

1.1 Background of the Study

Human Resource Management can be described as a strategic, integrated and coherent approach to the employment, development and well-being of the people working in organizations. It has a strong conceptual basis drawn from the behavioral sciences and from strategic management, human capital and industrial relations theories. This foundation has been built with the help of a multitude of research projects (Armstrong, 2010).

Human resource management (HRM) is the policies, practices, and systems that influence employees’ behavior, attitudes, and performance. Many companies refer to HRM as involving people practices. There are several important HRM practices that should support the organization’s business strategy: analyzing work and designing jobs, determining how many employees with specific knowledge and skills are needed (human resource planning), attracting potential employees (recruiting), choosing employees (selection), teaching employees how to perform their jobs and preparing them for the future (training and development), evaluating their performance (performance management), rewarding employees (compensation), and creating a positive work environment (employee relations). An organization performs best when all of these practices are managed well. At companies with effective HRM, employees and customers tend to be more satisfied, and the companies tend to be more innovative, have greater productivity, and develop a more favorable reputation in the community (Raymond, 2011).

Organizational performance (OP) is an indicator which measures how well an enterprise achieves their objectives (Hamon, 2003). Organizational performance is concerned with product or service quality, product or service innovation, employee attraction, employee retention, customer satisfaction, management/employee relation and employee relation (Delaney and Huselid, 1996). Human resources have been identified to be both valuable and a source of competitive advantage (Legge, 1995). According to Bontis (1999), the human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization. Delery (1998) observed that the methods used by an organization to manage its human resources can have a substantial impact on many organizationally relevant outcomes.

When organizations face challenges such as an economy recession, it depend thoroughly trained professionals who react quickly to changes in the environment and create strategies for success. Human resource management (HRM) is responsible for carefully selecting and training people with the necessary skills to pursue the strategy effectively. Some external factors can be predicted; others, such as the collapse of large banks and insurance companies, can seemingly come out of nowhere (Robbins, 2010).

According to Noe (2011) human resource management is critical to the success of organizations because human capital has certain qualities that make it valuable. In terms of business strategy, an organization can succeed if it has a sustainable competitive advantage (is better than competitors at something and can hold that advantage over a sustained period of time). Therefore, we can conclude that organizations need the kind of resources that will give them such an advantage.

Employees are one of the most important assets of an organization as they contribute to its growth and success (Danish and Usman, 2010). Malik, Nawab, Naeem, and Danish (2010) concluded that in the era characterized by rapid and continuous change, knowledge capital must be retained in order for organizations to be productive and responsive to the needs of their stakeholders. Likewise, banks as fianacial institutions need to attract, retain and develop their employees. Banks need employees who are well trained and motivated so that they are committed to their work of conducting research and training for the development of the nations (Lew, 2009). Research literature has shown that effective application of some human resources management (HRM) practices enables organization employees to be committed to their work for good performance of the bank ( Shahzad, Bashir, & Ramay 2008).

Implementation of appropriate HRM practices for banks employees will promote university performance as Lew (2009) noted that employees play a strategic role in improving ratings in key areas like proper customer financial management. Realizing the importance of promoting banks’ performance, many banks are embarking into strategizing its HRM (Sirat, 2005). For this to materialize, it is significant that the country’s financial institution improve their world class bank ranking by attracting and retaining excellent and experience staff.

One of the sectors which will play an important role is banking sector especially the commercial bank. The nation needs more human resources capable of performing different activities both in public and private sectors. Subsequently, the commercial bank are expected to properly management customers’ money. Malik et al. (2010) training and development of well-qualified human resources will depend on the performance of the bank subjected to effective implementation of different bundles of HRM practices such as selection, compensation, information sharing, participative decision making, job definition, training, career planning and performance management among others.

Little empirical research has been conducted to examine the effects of HRM practices on commercial bank performance in Nigeria. In order to effectively investigate whether human resources are capable of contributing to competitive advantage, it is pragmatic to examine HRM practices in as many settings as possible. Therefore, this study is to examine the impact of HRM practices on organizational performance in Nigeria with a particular focus on a eco bank.

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1.2 Statement of the Problem

HRM is extremely important for banks especially because banking is a service industry (Mathivanan, 2013). Banking industry viewed from personnel angle has its peculiarities. It is a labor intensive industry and efficiency of employees has got a bearing on the quality of services offered. This being the case, it should have been natural that professionalization of personnel management should have gained better priority but unfortunately personnel management happened to be the most neglected aspect of banks management (Mathivanan, 2013). However, there are also significant risks which should be carefully managed in the human resource area. These risks include the consequences of recruiting the wrong people; inadequately training and developing them; losing them prematurely; instilling misguided motivation; and failing to consider future human resource capability needs. Therefore, the bank, like most organizations with key dependency on the skills, experience, and judgment of its staff, should maintain structures and policies to identify and manage these risks (Suarez 2009), as this could have significant effect on the organizational performance.

Recruitment and selection practices in the Nigerian banking industry is characterized by internal job posting, where employees are recruited and selected based on who they know in the bank. There is a tendency to prefer recruits who come through known contacts within the system. This doesn’t give room for the best person to be selected for the job. Internal job posting is prevalent in Nigeria. A large number of organizations fill vacancies at middle and senior levels from existing employee pool, significant importance is not attached to the process of succession planning. People not deserving them are given the opportunity, this may be because of family ties, political influence or just merely being the favorite of the boss. The effectiveness of human resource practices, particularly employee recruitment and selection procedures, performance appraisals, compensation management, and employee training and development often have a direct bearing on organizational performance. Contributing to this assertion, Boohene et al (2011) present that, the result of effectively managing human resources is an enhanced ability to attract and retain qualified employees who are motivated to perform. According to them, the benefits of having the right employees motivated to perform include greater efficiency, high service quality, employee commitment, and more rapid acceptance and implementation of corporate strategy. Recruiting unqualified people for the job will definitely have an effect on their effectiveness on the job.

Performance appraisal has attracted a great deal of attention, due to the under-performance of several banks which led to the winding down of some banks. Annual performance appraisals enable management to monitor the standards, to agree on the expectations and objectives, and to delegate the responsibilities and tasks. The effect of the economic recession on the Nigerian economy has pushed banks to find ways to increase its level of employee productivity and maintain competitive advantage in the industry. The performance of a bank is largely dependent on the performance of its employees. And the only way to continually have the best hands on the job is through the implementation of effective performance appraisal systems

Similarly, Remuneration/ Reward has been found to play motivational role and include but not limited to pay strategies such as performance related pay, production based pay, skill based pay, knowledge based pay and base pay Brown (1989). Compensation is a very important aspect of HRM in Nigeria where employees are commonly low paid with little or no fringe benefits, this in turn affects the employee’s motivation to work. Employees are usually not properly motivated to put in their best performance due to the low level of compensation for their effort, poor compensation demotivates employees and they seldom not go beyond the required organizational target or go the extra mile on their job.

It is evident in organizations today that managers focus more on output rather than developing and training their employees with skills so as to be more productive and satisfied (Gazioglu & Tansel, 2006; Barrows & Wesson, 2000). With this development in the sector, staff that lacks proper training in the evolving competitive landscape are redundant with their old knowledge and skill being obsolete. (Osibanjo, Kehinde & Abiodun, 2012). Obsolete skills and knowledge needs to be brushed up through proper training and development. The most important concern of the employers is to make the employees to contribute their very best toward the organizational objectives attainment. Training though accepted as a vital part of any administrative functions is still carried out in an ad-hoc way which wastes a considerable proportion of money without identifying the need for such exercise. Many companies do not regard Human resources development as a professional activity and in many cases training officers are employees sent to colleges without any serious thought being given to the real training needs of a company. (Akujuru & Enyioko, 2015). Dessler (2003) sums up how training and development influences organization performance by arguing that developing human capital through continuing training may increase the productive output from each employee either through improvement in skill level or through improvement in morale and job satisfaction. An employee properly trained with the right skills for the job will be more committed to the job being trained for, this in the long run improves the organizational performance.

The effect of Human Resource Management (HRM) practices on organizational performance has been a widely researched area. Result of studies, from developed countries to developing countries; have been time and again showing that HR practices have significant effect on organizational performance. But unluckily, very insufficient numbers of studies have been conducted to check the effectiveness of existing and currently implemented HRM practices in Nigerian banks. The main aim of this study is to fill this existing gap by exploring the effect of HRM practices on organizational performance of Eco bank (Nigeria) Plc. as well as examining whether there is a positive or negative effect of HRM practices on organizational performance.

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1.3 Objectives of the Study

The main objective of this study is to examine the effect of human resource management (HRM) practices on organizational performance of Eco bank (Nigeria) plc.

The specific objectives are to:

determine how Recruitment and selection practices affects employee effectiveness in Eco bank (Nigeria) Plc.
assess the effect of performance appraisal on employee performance in Eco bank (Nigeria) plc.
evaluate the influence of compensation plan on Employee Motivation in Eco bank Nigeria Plc.
investigate how training and development programs affects organizational commitment in Eco bank (Nigeria) plc.

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1.4 Research Questions

The research question focus on soliciting information on the HRM practices adopted by Eco bank of Nigeria Plc, designed for effective and efficient management of the company’s human and material resources towards achieving organization performance.

The questions include:

1. How does recruitment and selection practices affects employee effectiveness in Eco bank (Nigeria) Plc?
2. What are the effects of performance appraisal on employee performance in Eco bank (Nigeria) plc?
3. How does compensation plan influence employee motivation in Eco bank Nigeria Plc?
4. How do training and development programs affect organizational commitment in Eco bank (Nigeria) plc?

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1.5 Research Hypotheses

The following hypotheses were set out to guide the study at 0.05 level of significant.

H0: Recruitment and Selection practices does not affect employee effectiveness in Eco bank (Nigeria) Plc.

H0: Performance appraisal has no significant effect on employee performance in Eco bank (Nigeria) Plc.

H0: Compensation plan by management has no significant influence on employee motivation in in Eco bank (Nigeria) Plc.

H0: Training and development programs does not affect organizational commitment in Eco bank (Nigeria) Plc.

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1.6 Operationalization of the Variables

The independent variable (X) = Human Resource Management practices (HRMp)

The dependent variable (Y) = Organizational performance (OP)

The proxies used to measure the independent variable (HRMp) were Recruitment and Selection (RS), Performance Appraisal (PA), Compensation Plan (CP) and Training and Development (TD). While the dependent variable was measured with Employee Effectiveness (EE), Employee Performance (EP), Employee Motivation (EM) and Organizational Commitment (OC).

Y = f(X) where;

Y = (y1, y2, y3, y4)

X = (x1, x2, x3, x4)

Y = Organizational performance (OP)

X = Human Resource Management practices (HRMp)

OP = f (HRMp) ……. µ

Measuring the proxies of Human Resource Management practices (HRMp) and Organizational performance (OP)

OP = f (EE, EP, EM, OC) …… i

HRMp = f (RS, PA, CP, TD) ….. ii

Where; y1 is (EE) Employee Effectiveness

y2 is (EP) Employee Performance

y3 is (EM) Employee Motivation

y4 is (OC) Organizational Commitment

Where; x1 is (RS) Recruitment and Selection

x2 is (PA) Performance Appraisal

x3 is (CP) Compensation Plan

x4 is (TD) Training and Development

Functional relationship

EE = f (RS) ……. i

EP = f (PA) ……. ii

EM = f (CP) ……… iii

OC = f (TD) ……… iv

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1.7 Scope of the Study

This study focuses on the effect of Human Resource Management (HRM) practices on organizational performance. Examining the effectiveness of these practices on the bank employees. For the purpose of this study we will adopt the descriptive survey research design method and primary data will be collected so as to carry out our analysis. The study will be carried out at Eco bank (Nigeria) Plc. The bank branches where the survey will be carried out are located at Ikorodu, Ikeja, Ikoyi, Ibadan, and Victoria Island, Lagos.

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1.8 Limitations of the Study

The first limitation of this study is the limited extent to which the findings of the study can be generalized to wider geographical locations and/or sectors of the economy because the study covered Eco bank Plc only. As such, the findings cannot be generalized to companies in other sectors. The study is further limited to four factors which were the independent variables in this study; recruitment and selection, training and development, performance appraisal and compensation and the dependent variable was organization performance.

Secondly, the limited time within which the research work is required to be completed also serve as limitation of the study. It was due to this factor that the study could not cover many firms.

Finally, inadequate finance was also a major limitation of this study and as a result the researcher could not be able to cover wider geographical area and/or industries but limited to Eco bank Nigeria Plc.

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1.9 Significance of the Study

This study will contributes to the literature by critically examining the effectiveness of existing Human Resource Management (HRM) practices that are currently in place at Eco bank (Nigeria) Plc. such as recruitment and selection, performance appraisal, compensation plan and training and development, and what effects they have on the employee, as this will ultimately determine the bank’s performance.

The management of financial institutions especially the banking sector will definitely find the recommendations and findings of this work relevant and useful in charting a new course for improved organizational performance, through the utilization of HR tools for human resources management and development.

The study will be relevant to the government in terms of formulating and implementation of policies concerning the banking sectors of Nigeria.

The study will be useful to those who will carry out studies in related areas in future. It will serve as a reference material to them. Even, the findings can provide the bases for further studies.

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1.10 Operational Definitions of Terms

Performance appraisal (PA):

Also referred to as a performance review, performance evaluation, (career) development discussion, or employee appraisal is the method by which the job performance of an employee is documented and evaluated.

Employee compensation plan:

Collectively refers to all the components in addition to the manner in which the compensation is paid and for what purpose employees receive case bonuses, salary increases and incentives.

Recruitment:

This is the process of identifying that the organization needs to employ someone up to the point at which application forms for the post have arrived at the organization.

Selection:

This consists of the processes involved in choosing from applicants a suitable candidate to fill a position.

Training and development:

This is a function concerned with organizational activity aimed at bettering the job performance of individuals and groups in organizational settings.

Job Security:

This is an assurance that an individual will keep his or her job without the risk of becoming unemployed. He/she will have continuity in employment and it may be from the terms of a contract of employment, collective bargaining agreement, or labor legislation that prevents arbitrary termination.

Effectiveness:

The degree to which objectives are achieved and the extent to which targeted problems are solved. In contrast to efficiency, effectiveness is determined without reference to costs.

Efficiency:

This is the (often measurable) ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without waste.

Performance:

The accomplishment of a given task measured against preset known standards of accuracy, completeness, cost, and speed.

Human Resource:

This is a single person or employee within your organization. Human Resources is also the organizational function that deals with the people and issues related to people such as compensation, hiring, performance management, and training.

Personnel management:

This is an administrative function of an organization that exists to provide the personnel needed for organizational activities and to manage the general employee-employer relationship.