Impact of strategy, strength of the HRM system and HRM bundles on organizational performance

This study analyzes the impact of human resource management content and process on leading indicators of organizational performance – service quality, productivity, profitability, rate of innovation and product to market time, as well as perceived financial results, on a large sample of companies. The paper contributes with a new integration of several levels of analysis, from the corporate strategic level to the functional human resource management level, considering both content and process. Content refers to the specific practices adopted by a company, whereas process refers to the clarity and consistency of the messages sent to employees, regarding the HRM policies and practices, as well as performance expectations. The outcomes are also analyzed considering short-term organizational performance and financial results. The study uses a large sample of companies, from the Cranet-E survey, and employs structural equation modeling to test a general model. Strategic management orientation is found to contribute to stronger HR systems. Strength of the HRM system, a process variable that integrates the ‘meta-features’ of an HRM system and provides a common interpretation of organizational goals, has a strong positive impact on HRM content, specifically the functional flexibility and performance management bundles, and also a smaller but significant impact on short-term organizational performance. Finally, both the functional flexibility and the performance management bundles have a significant positive effect on perceived financial results.