IMPACT OF STRATEGIC HR MANAGEMENT ON ORGANIZATIONAL PERFORMANCES

Abstract

How a company’s human capital management can significantly affects its financial performance, is a timely study, considering the emerging turbulent economy in the business world. While the state of the economy is largely uncertain, the changing nature of demographics, technological innovation, has also brought various challenges to the business world. The purpose of this literature review is to address a set of essential problematic issues provoked by many industries in Sri Lanka. Lack of empirical evidences of the links between HR practices and firm performances have suppressed the harness of the potentials of competitive advantage of human asset. If a firm is to gain a competitive advantage from human capital, it first needs to address questions such as: is the human resource management playing a strategic role within the organizations? Do the HR management practices add value for the business outcomes? And, what is the impact of strategic human resource management practices on financial performances? Within the body of HR research, there is significant empirical evidence linking certain HR practices to firm performance, and recent research suggests that bundles, or systems, of HR practices are more influential than individual practices working in isolation. Previous studies have strongly emphasized that HR manager plays a key role as a strategic partner of the company. A number of conceptual models have attempted to depict the processes through which HR practices ultimately impact a firm’s financial performance. Many conceptual models have been used to support these views. Most of them support similar views such as, HR practices most proximally impact employee skills, employee motivation, and work designs which consequently influence employees’ creativity, productivity, and discretionary behaviour. These variables, in turn, result in improved operational performance, which relates to profitability and growth, ultimately determining firm market values. With these findings, this review becomes a significant source to emphasize the value of HR manager’s strategic role in directing organizations towards financial gain via strategic HR management practices.