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Impact of HR Practices on Organizational Performance in Bangladesh

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 Impact of HR Practices on Organizational
Performance in Bangladesh
Mir Mohammed Nurul Absar1 Balasundaram Nimalathasan2 Munshi Muhammad Abdul Kader Jilani3

Abstract

Impact of human resource management practices on organizational performance has been a widely researched area
for years. But unfortunately, very insufficient number of studies have been conducted on this area in the context of
Bangladesh and other developing countries. This study was undertaken to fill this obvious research gap. Data collected
from fifty manufacturing firms in Bangladesh shows that HR practices have significant association with organizational
performance. Out of HR practices, only performance appraisal is found to have significant impact on organizational
performance.

Keywords: HR Practices, Organizational Performance, Manufacturing Firms

JEC Classification: M12, D24

1. Introduction resource(HR)’ aspects of a management position including

Impact of human resource management practices on
organizational performance has been a widely researched
area for years. Results of studies, from developed countries
to developing countries, have been time and again showing
that HR practices have significant impact on organizational
performance (Delaney & Huselid, 1996; Katou & Budhwar,
2007; Sing, 2004; Tzafrir, 2006). But unfortunately, very
insufficient number of studies have been conducted in this
area context of Bangladesh and other developing countries. To
augment the contemporary knowledge base of HR practices
of developing countries, this study has been undertaken.
2. Research Questions
Specifically, this study was undertaken to explore the answer
to the following research questions (RQ):
RQ1: Is there any association between HR practices and
Organizational Performance?
RQ2: Do HR practices have any impact on Organizational
Performance?
3. Objectives
The main purpose of the study was to identity the impact
of HR practices on organizational performance. In order to
materialize this objective, the following specific objectives
were considered.
• To address the linkage between HR practices and
organizational performance.
• To indentify the impact of HR practices on organizational
performance.
• To offer some measures in order to enhance the
organizational performance of the selected manufacturing
firms in Bangladesh and other similar countries.
4. HR Practices and Organizational
Performance: Conceptual and Empirical
Overview
4.1 HR Practices
Human resource management (HRM) refers to the
policies and practices involved in carrying out the ‘human
human resource planning, job analysis, recruitment, selection,
orientation, compensation, performance appraisal, training
and development, and labour relations (Dessler, 2007, p. 4).
HRM is composed of the policies, practices, and systems that
influence employees’ behaviour, attitude, and performance
(Noe, Hollenbeck, Gerhart, & Wright, 2007, p. 5). There are
four top models of HRM such as the Fombrun, Tichy, and
Devana Model of HRM, the Harvard Model of HRM, the Guest
Model of HRM, and the Warwick Model of HRM (Bratton &
Gold, 1999, pp. 17-24). Out of these models, the Fombrun,
Tichy, and Devana Model of HRM are considered to be the first
one (Aswathappa, 2008, p. 18). The present study selected the
HR practices such as recruitment and selection, training and
development, performance appraisal, and compensation which
were incorporated by the Fombrun, Tichy, and Devana Model
of HRM. The model assumed that these four key HR practices
have significant impact on organizational performance.
4.2 Organizational Performance
The ultimate goal of a business organization is higher financial
performance or maximisation of wealth for stake holders
(Becker & Huselid, 1998; Horngren, Foster, & Datar, 2000).
Nonetheless, attaining the organization’s goals depends upon
the extent to which its organizational performance is reached
(Katou & Budhwar, 2007). Organizational performance is
generally indicated by effectiveness (whether an organization
can achieve its objectives), efficiency (whether an organization
uses resources properly), satisfaction of employees and
customers, innovation, quality of products or services, and
ability to maintain a unique human pool (Delaney & Huselid,
1996; Dyer & Reeves, 1995; Guest, 2001; Katou & Budhwar,
2007). The organizational performance variables of the
present study included features such as product quality,
customer satisfaction, new product development, ability to
attract employees, ability to retain employees, and relationship
between management and employees. According to the earlier
studies (Delaney & Huselid, 1996; Harel & Tzafrir, 1999;
Singh, 2004), the respondents were asked to assess their
organizations’ performance in comparison to the performance
of their competitors.

1
Mir Mohammed Nurul Absar, Assistant Professor, East Delta University, Agrabad, Chittagong, Bangladesh.
2
Balasundaram Nimalathasan, Faculty, Department of Commerce, University of Jaffna, Sri Lanka.
3
Munshi Muhammad Abdul Kader Jilani, Faculty, University of Information Technology & Sciences Bangladesh.

IJBIT/Volume 3/Issue 2/April - September 10 | 15

Mir Mohammed Nurul Absar et al.
4.3. Relationship between HR Practices and
Organizational Performance
Though most of the studies have been conducted in the
western world, it is now well established that HR practices
have significant impact on productivity, corporate financial
performance, and employee turnover (Arthur, 1994; Huselid,
1995; Ichniowski, Shaw, & Prennushi, 1997; Katou & Budhwar,
2007). Pollitt (2004) found that the HRM practices of Nokia
played vital role in helping the company in reaching its 40%
percent share of the global handset market, and industry leading
profit margins of 20%-25% at a time of unmatched change and
competition. Katou and Budhwar (2007) through an in-depth
study on 178 manufacturing firms of Greece found that HR
practices such as recruitment, training, promotion, incentives,
benefits, involvement, and safety and health were positively
related with the elements of organizational performance such
as innovation and satisfaction of stakeholders. Singh (2004) in
a study on 82 Indian firms observed that HR practices such as
training and compensation had significant impact on perceived
organizational performance. Two recent studies (Billah & Islam,
2009; Billah, Prince, & Islam, 2009) in context of Bangladesh
also found that HR practices have significant association with
employee turnover and organizational commitment.
Hypothesis 1: HR practices have significant association
with organizational performance
Hypothesis 2: HR practices have significant impact on
organizational performance:
The Recruitment and selection process determines the
decisions as to which candidates will get employment
offers. The aim of this practice is to improve the fit between
employees, the organization, teams, and work requirements,
and thus, to create a better work environment (Tzafrir, 2006).
Sophisticated recruitment and selection system can ensure a
better fit between the individual’s abilities and the organization’s
requirement (Fernandez, 1992). Hunter and Schmidt (1982)
concluded that employment stability can be achieved through
a selection procedure based on ability. Katou and Budhwar
(2007) also found that recruitment and selection was
positively related to all organizational performance variables
such as effectiveness, efficiency, innovation, and quality.
Hypothesis 3: Recruitment and selection positively
influences on organizational performance:
Training and development is considered to be the most
common HR practice (Tzafrir, 2006).Training and development
refers to any effort to improve current of future employees’
skills, abilities, and knowledge (Aswathappa, 2008). Thang
and Buyens (2008) through reviewing 66 studies conducted
in different parts of the world opined that training and
development leads to superior knowledge, skills, abilities,
attitudes, and behaviour of employees that eventually enhance
organizational performance. Hoque (1994) unearthed that
training and development had positive impact on organizational
effectiveness in Bangladeshi context.
Hypothesis 4: Training and development positively
influences on organizational performance:
Performance appraisal is a systematic process to evaluate
the performance of an employee after certain period (Schuler,
1981, p. 211). Performance appraisal also influences other
HR practices such as recruitment and selection, training
and development, compensation, and employee relations.
IJBIT/Volume 3/Issue 2/April - September 10 |16
Impact of HR Practices on Organizational Performance in Bangladesh
As performance appraisal leads to pay raise, promotion, and
training; it is assumed that better performance appraisal can
have impact on organizational performance.
Hypothesis 5: Performance appraisal positively influences
on organizational performance:
Compensation refers to all types of pay or rewards going to
employees and arising from their employment (Dessler, 2007,
p. 390). Compensation is very much important for employees
because it is one of the main reasons for which people work.
Employees’ living status in the society, satisfaction, loyalty,
and productivity are also influenced by the compensation
(Aswathappa, 2008). Delaney & Huselid (1996) found that
incentive compensation was associated with perceived market
performance in USA. Employee compensation, particularly the
performance based compensation system, resulted in better
organizational performance in Indian firms (Singh, 2004).
Hypothesis 6: Compensation positively influences on
organizational performance:
Moyeen and Huq (2001) studied HRM practices of 92 medium
and large business enterprises (public and private sector)
located in Dhaka, Bangladesh. They found that only 62% of
surveyed organizations had an HR/Industrial Relations (IR)
department. HRM practices of ten local private manufacturing
enterprises listed under Dhaka Stock Exchange (DSE)
were examined by Akhter (2002). She measured correlation
between employees’ opinions regarding HRM practices in their
enterprises, their age, education, and experience. Mahmood
(2004) observed that other than organizational contingencies,
the institutional context such as national education and
training system, national industrial relations system, regulatory
frameworks, and overall societal context had significant
influence on the development of HR practices in Bangladesh.
Furthermore, HR practices were found to have significant
impact on affective commitment in context to Bangladesh
(Haque & Azim, 2008)
Thus, the above review of literature shows that there have been
several studies around the globe focusing on HR practices and
organizational performance. However, very limited numbers of
studies have been conducted on the impact of HR Practices
on organizational performance in context of Bangladesh and
other developing countries. This study has been undertaken to
fill this obvious research gap.
5. RESEARCH FRAMEWORK ( Figure 1 )
6. Research Methodology
Research methodologies of the present study were outlined
below.
6.1 Sample
A directory of 85 manufacturing firms listed under Chittagong
Stock Exchange (CSE) was prepared (Chittagong Stock
Exchange, 2010). The structured questionnaire was sent to
the HR managers of the all 85 manufacturing firms. Finally
50 useable questionnaires were found for the study (63%
response rate).
6.2 Data Sources and Instrumentation
The study was complied with the help of primary data and
secondary data. Questionnaire survey method was used to
gather primary data in the present study. A 23-item and a 05-
Impact of HR Practices on Organizational Performance in Bangladesh Mir Mohammed Nurul Absar et al.

Training and Development

Recruitment and Selection Performance Appraisal Organizational
Performance
Compensation

Positive
Negative
Source: Modified from Fomburn, C.J., Tichy, N.M., & Devanna, M.A. (1984) No Impact
Figure-1: Research Framework

item Likert type questionnaire (where1=strongly disagree to From the table-1, it is seen that reliability value was estimated
5 = strongly agree) were developed with some modifications to be α =.726 to .818, if we compare reliability value of the
from earlier studies (Delaney & Huselid, 1996; Harel & scale used in the present study with the standard value alpha
Tzafrir, 1999; Singh, 2004) to measure the HR practices of 0.6 advocated by Cronbach (1951), Nunnally and Bernstein
and organizational performance of manufacturing firms in (1994), and Bagozzi and Yi’s (1988); it is observed that the
Bangladesh respectively. As HR managers are the most scale of the present study was highly reliable for data analysis.
reliable persons to provide data related to HR practices and Validation procedures involved initial consultation of the
overall organizations (Huselid & Becker, 1996; Tzafrir, 2006), questionnaires. The experts also judged the face and content
the structured questionnaire was sent to the HR managers of validity of the questionnaires as adequate. Hence, researchers
the surveyed manufacturing firms. Moreover, the desk study satisfied reliability and validity of the scale.
covered various published and unpublished materials on the
subject. 7. Data Analysis and Findings
In the present study, we analysed our data by an enter wise
6.3 Variables method in a multiple regression analysis. In this context, a
Independent Variables: multiple regression was performed, by making use of all the
According to Fomburn, Tichy, and Devanna, (1984), the discrete variables (i.e., dependent and independent variables)
following four (04) HR practices were selected as independent available in the dataset. The estimation process was based
variables. on Ordinary Least Squares (OLS) [i.e.,Y= a + bx]. For this,
RNS : Recruitment and Selection. purpose, we consider the following model specifications, by
TND : Training and Development. taking as dependent variable i.e., organizational performance
PA : Performance Appraisal. by making HR practices as independent variables.
COM : Compensation.
Dependent Variable: OP=ßO+ß1(RNS)+ß2(TND)+ß3(PA)+ß4(COM)+e...Model (1)
Organizational Performance (Perceived)
Where ß0 , ß1, ß2, ß3, and ß4, are the regression co-efficient
6.4 Reliability and Validity OP : Organizational Performance
Before applying statistical tools, testing of the reliability of the RNS : Recruitment and Selection
scale is very much important as its shows the extent to which a TND : Training and Development
scale produces consistent result if measurements were made PA : Performance Appraisal
repeatedly. This is done by determining the association in COM : Compensation
between scores obtained from different administrations of the e : error term
scales. If the association is high, the scale yields consistent
result, thus is reliable. Cronbach’s alpha is most widely used To test how well the mode-1 fit the data and findings, correlation
method. It may be mentioned that its value varies from 0 to 1 (r), R, R2 (Coefficient of determination), variance, analysis of
but satisfactory value is required to be more than 0.6 for the variance (ANOVA) and the t statistic were used. Correlation
scale to be reliable (Malhotra, 2002; Cronbach, 1951). In the analysis was performed to find out the pair wise relationship
present study, we, therefore, used Cronbach’s alpha scale as between variables; RNS, TND, PA, COM, and OP. Hence, the
a measure of reliability. results are summarised in table-2.
Table 2: Correlations Matrix for HR Practices and POP
Table 1: Reliability value of the Scale Variables RNS TND PA COM OP
No. of Cronbach’s RNS 1
Scale
Items Alpha (α)
0.497**
1. Recruitment and Selection 05 .780 TND 1
(0.000)
2. Training and Development 06 .774 0.569** 0.635**
PA 1
3. Performance Appraisal 07 .818 (0.000) (0.000)
4. Compensation 05 .726 0.509** 0.404** 0.660**
COM 1
(0.000) (0.000) (0.000)
5. Organizational Performance 05 .799
0.557** 0.508** 0.723** 0.595**
Source: Survey data OP 1
(0.000) (0.000) (0.000) (0.000)

IJBIT/Volume 3/Issue 2/April - September 10 | 17

Mir Mohammed Nurul Absar et al.
Mean 3.584 3.643 3.760 3.448 4.032
Standard
.840 .844 .750 .856 .722
deviation
Source: Survey data; **Correlation is significant at the
0.01 level (2-tailed)
Table-2 shows that the factors RNS, TND, PA, and COM
are independently positively correlated with OP and also
highly significant at 1% levels. Therefore, Hypothesis 1 of
the present study was accepted. Here it is obvious that the
maximum correlation (r =0.723) is existed between PA and OP,
followed by the association (r =0.595) between COM and OP;
RNS and OP(r= 0.557); and TND and OP (r =0.508). It should
be needed to give the highest emphasis on PA for superb
OP. Compensation is also crucial for wonderful perceived
organizational performance followed by other HR practices
(i.e., RNS and TND). HR practices are pair-wise positively
correlated with one to another and also statistically significant
at P-value 0.000. Among the four HR practices, the relationship
(r =0.660) between PA and COM is the highest, followed by the
link (r =0.635) between TND and PA.
Further, a multiple regression analysis was performed to
identify the predictors of OP as conceptualized in the model.
An enter-wise variable selection was used in the regression
analysis and table-3 and table-4 show the summary measure
and analysis of variance (ANOVA) of the model.
Table 3: Predictors of JS - Model summary
a. Predictors: (Constant), RNS; TND; PA; and COM.
Model R R2 Adjusted R2
1 0.755a 0.570 0.532
Tables 4: ANOVA
Sum of Mean
Model df
Squares Square
1 Regression 14.568 4 also be undertaken.
Residual 10.981 45
Total 25.549 49
Predictors: (Constant), RNS; TND; PA; and COM.
Dependent Variable: OP
The HR practices (RNS; TND; PA; and COM) in the above
model revealed the ability to predict OP (R2 = 0.570). In this
model value of R2 denotes that 57.0 percent of the observed
variability in OP can be explained by the HR practices namely
RNS; TND; PA and COM. The remaining 43.0 percent is not
explained which means that the rest 43.0 percent of the variation
of OP is related to other variables which are not depicted in
the model. This variance is highly significant as indicated by
the F value (F=14.926 and P = 0.000) [For details please see
table-4]. An examination of the model summary presented
by the table-3 in conjunction with ANOVA, presented by the
table-3, indicates that the model explains the most possible
combination of predictor variables that could contribute to the
relationship with the dependent variable.
IJBIT/Volume 3/Issue 2/April - September 10 |18
Impact of HR Practices on Organizational Performance in Bangladesh
Table 5: Coefficients for Predictors of JS
Unstandardized Standardized
t Sig
Coefficients Coefficients
Models
Std.
ß Beta
Effor
1 Constant 1.114 .392 2.845 .007
RNS .148 .107 .172 1.380 .174
TND .039 .111 .046 .354 .725
PA .467 .151 .485 3.081 .004
COM .142 .113 .168 1.258 .215
Source: Survey data
The table-5 shows that PA is positively influencing on OP.
For PA, the value of t is 3.081(p=0.004). Thus we accept
Hypothesis 5 But for RNS, TND, and COM which fall in the area
of rejection. Thus, we do not accept the Hypothesis 3, 4, and 6.
Hence, it can be concluded that PA has significant impact on
OP. Therefore, hypothesis-2 is also partially accepted.
8. Conclusion
From the correlation matrix, the highest positive value of
correlation between PA and OP clarifies that the authorities
of selected manufacturing firms are required to give main
focus on PA for getting fabulous organizational performance.
In addition, the maximum average point (3.760) of PA also
discloses the identical conclusion followed by COM; RNS and
TND (For details please see table-2). It is also found that PA
has significant impact on POP.
9. Limitations and Directions for the
Future Researches
The study used only perceptual measure of HR practices and
organizational performance. Only single source (HR managers)
was also used to collect data. Future studies may be conducted
in context of the service sector enterprises with larger sample
size. Case studies, focus groups, and longitudinal studies may
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IJBIT/Volume 3/Issue 2/April - September 10 | 19

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