ENHANCING ORGANIZATIONAL PERFORMANCE OF MALAYSIAN SMEs THROUGH HUMAN RESOURCE MANAGEMENT (HRM) PRACTICES AND ORGANIZATIONAL INNOVATIVE CAPABILITY: Organizational Performance

There are several approaches in studying HRM practices in relation to organizational performance: universalistic, contingency or configurational approach (Delery & Doty, 1996; Youndt, Snell, Dean Jr, & Lepak, 1996). The universal, or “best practices” perspective is the simplest form of a theoretical model in HRM literature, and their researchers are micro analytical in nature. This perspective involves a direct relationship between HRM practices and performance (Youndt et al., 1996) whereby some HRM practices are hypothesized as constantly superior to others and these best practices should be adopted by all organizations (Delery & Doty, 1996). The contingency perspective, on the other hand, posits that the impact of HRM practices on firm performance is conditioned by an organization’s strategic posture. Researchers in the contingency approach dispute that HRM practices that applied by any organization must be coherent with other aspects of the organization so as to be effective. They have tried to explain the interaction between various HRM practices and specific organization strategies as they relate to organizational performance (Youndt et al., 1996). In contrast to “best practice” and contingency approach, the configurational perspective is interested on how the pattern of multiple HRM practices is related to organizational performance. Wright & McMahan argued that there is the pattern of intended human resource deployments and activities that can facilitate organization in achieving their goals. In order to be effective, an organization must build up its HRM system that reaches both horizontal and vertical fit. Horizontal fit refers to the internal consistency of the organization’s HRM practices, and vertical fit refers to the congruence of the HRM system with other organizational characteristics such as a firm strategy.
Consequently, in order to explain the process of examining HRM practices that are related to organizational performance, researchers can comply with either one of the approaches or a combination of the three different approaches. This conceptual paper adopts the universalistic perspective for several reasons. Firstly, the universalistic perspective is suggested as the primary approach since most of HR studies have centered on a holistic or universal view of HRM practices and organizational performance, highlighting set of practices used by all firm employees and the uniformity of these practices across firms. Secondly, this perspective enables researchers to study the contribution of each HRM practice on organizational performance relatively. add comment

Drawing from universalistic or “best practices,” there are several combinations of HRM best practices that have been studied in the context of SMEs, and yet no consistency has been achieved about which combination of practices is good or better than other combination. For example, Subramaniam et al. adapted four practices; Nasution et al. used two practices; Osman et al. (2011a) applied nine practices; Daud and Mohamad explored six practices; Kwang et al. adapted four practices; Vlachos adapted six practices; Carlson et al. applied five practices and Cardon and Stevens analyzed six practices in their studies (see Table 2.1 for a summary of best HR practices used by different studies in SMEs).

Table 2.1: Summary of Best Practices in Human Resource used by different studies in SMEs

Subramaniam et al. 1.    Compensation policy2.    Information sharing

3.    Training and development

4.    Job security

Nasution et al. 1.    Job related2.    Reward related
Osman et al. (2011a) 1.    HR planning2.    Staffing

3.    Job work design

4.    Training & development

5.    Performance appraisal

6.    Compensation

7.    Employee relations and communication

8.    Health and safety

9.    Job satisfaction

Daud and Mohamad 1.    Recruitment & selection2.    Training & development

3.    Performance appraisal

4.    Preparation of payroll

5.    Communication with employees

6.    Administrative management of HR

Kwang, et al. 1.    Selection and recruitment2.    Incentive and compensation

3.    Training and development

4.    Team-based problem-solving

Vlachos 1.    Compensation policy2.    Decentralization and self-managed teams

3.    Information sharing

4.    Selective hiring

5.    Training and development

6.    Job security

Carlson et al. 1.    Training and development2.    Recruitment package

3.    Maintaining morale

4.    Performance appraisals

5.    Compensation

Cardon and Stevens 1.    Staffing2.    Compensation

3.    Training & development

4.    Performance management

5.    Organizational change

6.    Labor relations