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Industry sector: Various

Location: UK

No. of companies in study: 237

Theoretical background: The study is based on a model developed by Guest (1997). In this model

Guest argues that the financial performance of companies is influenced by four factors:(1) Business and HR strategies;

(2) Effectiveness of HR departments and HR practices;

(3) HR outcomes; and

(4) Productivity coupled with product and service quality.

The model simply argues that business and HR strategies will point to the appropriateness of certain HR

practices. The extent to which the HR practices are conducted effectively together with the effectiveness of

the HR department will influence the achievement of the HR outcomes which Guest specifies: employeecompetence, commitment and flexibility. These three HR outcomes will in turn affect productivity and

product and service qualify which will have a significant influence upon the company's financial

performance.

Research strategy and method: The study concentrated upon the private sector, both manufacturing and

service. The respondents were heads of HR and CEOs. The research report is based upon interviews with

835 companies and over 1,000 managers. In 237 companies there were matched responses from both

the head of HR and the CEO.

Two separate questionnaires were sent: one to CEOs and the other to heads of HR. The head of HR

questionnaire asked questions about: the workforce, HR strategy and practices, HR outcomes and

performance outcomes. The CEO questionnaire covered: HR strategy, a limited amount of HR practices,

HR outcomes and performance outcomes, and additional questions on the business strategy and the state

of the market in which the company operated.

Results and conclusions:

(1) The most important factor in the defining of business strategies was responsiveness to customers (74

per cent) and high service quality (59 per cent), whereas beating competitors on price was rated lowly (10 per

cent).

(2) Only 10 per cent of managers thought issues concerning people were more important than finance or

marketing.

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(3) Only one-quarter of organizations had more than 50 per cent of a list of 18 typical HR practices in

place.

(4) The most highly rated areas of HR activity were internal labor market practices (promotion from

within) and employment security.

(5) Managers rated employee flexibility and performance outputs highly.(6) Approximately one-half of CEOs rated their company's productivity and financial performance as

above average for their industry.

(7) Overall responses led the researchers to conclude that there was link between HR practices and HR

department effectiveness, employee attitudes and behavior and corporate performance.

Study strengths:

(1) The sample size was one of the biggest in all the studies linking HR with corporate performance.

(2) There was an attempt to measure the effectiveness, rather than simply the presence, of HR practices.

(3) The clarity with which the research is based upon the variables which link HR and organizational

performance.

Study limitations:

(1) Interviews were by telephone, which limited the degree of 'insight' which could be developed by

researchers (particularly when contrasted with, for example, the observational tours of production plants

undertaken by researchers(2) The absence of employee data.

(3) The self-report nature of the managerial responses which raises questions about respondent objectivity.

This is particularly relevant where questions about such items as organizational performance in relation to

competitors are concerned.

(4) Although the study points to the relationship between certain key variables it is less helpful in

explaining the reasons for certain associations between variables.