THE IMPACT OF HRM PRACTICES ON ORGANISATIONAL PERFORMANCE: THE CASE STUDY OF SOME SELECTED RURAL BANKS

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THE IMPACT OF HRM PRACTICES ON ORGANISATIONAL PERFORMANCE: THE CASE STUDY OF SOME SELECTED RURAL BANKS

CHAPTER ONE

 

 

INTRODUCTION

 

            BACKGROUND TO THE STUDY

 

In the last ten years, organisations especially in Africa have been hit with the  undisputable fact that the creation of competitive advantage lies in people. Organisations have increasingly recognised the potential for their people to be a source of competitive advantage. Not too long ago, so called HR functions was the preserve of „Personnel Managers‟ whose duties were to recruit and select, appraise, promote and demote. These superficial duties could be performed by any manager, it therefore never seemed necessary to employ an expert in the form of a human resource manager let alone create a whole department dedicated to HRM. Little attention was paid to human resource management issues and its impact on organisational performance. The emphasis on traditions and socio-cultural issues injected an element of subjectivity in „personnel manager‟ functions such as recruitment and selection, performance appraisal, promotion, demotion, and compensation.

In today‟s competitive and rapidly changing business world, organisations especially in the service industry need to ensure maximum utilisation of their resources to their own advantage; a necessity for organisational survival. Studies have shown that organisations can create and sustain competitive position through management of non-substitutable, rare, valuable, and inimitable internal resources (Barney, 1991). HRM has transcended from policies that gather dust to practices that produce results. Human resource management practices has the ability to create organisations that are more intelligent, flexible and competent than their rivals through the application of policies and practices that concentrate on recruiting, selecting, training skilled employees and directing their

 

best efforts to cooperate within the resource bundle of the organisation. This can potentially consolidate organisation performance and create competitive advantage as a result of the historical sensitivity of human resources and the social complex of policies and practices that rivals may not be able to imitate or replicate their diversity and depth.

Lately, organisations are focused on achieving superior performance through the best use of talented human resources as a strategic asset. HRM policies or strategies must now be aligned to business strategies for organisational success. No matter the amount of technology and mechanisation developed, human resource remains the singular most important resource of any success-oriented organisation. After all, successful businesses are built on the strengths of exceptional people. HRM has now gained significance academically and business wise and can therefore not be relegated to the background or left in the hands of non-experts. Attention must be paid to the human resources organisations spent considerable time and resources to select.

Armstrong (2009) defines Human Resource Management (HRM) as a strategic and coherent approach to the management of an organisation‟s most valued assets; that is, the people working there who individually and collectively contribute to the achievement of its objectives. Moreover, Human resource management practices can be defined as a set of organisational activities that aims at managing a pool of human capital and ensuring that this capital is employed towards the achievement of organisational objectives  (Wright and Boswell, 2002). The adoption of certain bundles of human resource management practices has the ability to positively influence organisation performance by creating powerful connections or to detract from performance when certain combinations of practices are inadvertently placed in the mix (Wagar and Rondeau, 2006). So if we think human resource management as just the services any manager may provide in recruiting and selecting, appraising, training and compensating employees, then we rather

 

would have to take the backseat for those who understand the influence HRM has on corporate performance to take the centre stage. Research has recorded a positive relationship between human resource management practices and corporate performance. Thus in order to stimulate corporate performance, management is required to develop skilled and talented employees who are capable of performing their jobs successfully (Klein, 2004).

Achieving better corporate performance requires successful, effective and efficient exploit of organisation resources and competencies in order to create and sustain competitive position locally and globally. HRM policies on selection, training and development, performance appraisal, compensation, promotion, incentives, work design, participation, involvement, communication, employment security, etc must be formulated and implemented by HRM specialist with the help of line managers to achieve the following outcomes: competence, cooperation with management, cooperation among employees, motivation, commitment, satisfaction, retention, presence, etc

In fact, Ahmad and Schroeder (2003) found a positive influence of human resource management practices (information sharing, extensive training, selective hiring, compensation and incentives, status differences, employment security, and decentralization and use of teams) on organisational performance as operational performance (quality, cost reduction, flexibility, deliverability and commitment). In furtherance of this assertion, Sang (2005) also found a positive influence of human resource management practices (namely, human resource planning, staffing, incentives, appraisal, training, team work, employee participation, status difference, employment security) on organisation performance.

 

For businesses to survive, HRM should be given its rightful place of relevance in any organisation and not left in the hands of line managers who neither have the expertise nor the time and space to carry out the enormous functions of a human resource manager.

The purpose of this study is to determine the impact of HRM practices on organisational performance of 4 rural banks in the Ashanti region.

            STATEMENT OF THE PROBLEM

 

HRM has made significant inroads into the Ghanaian corporate world. It is common to see large organisations in Ghana set up a whole department for the sole purpose of managing human resources and hire experts in the field to be in charge of HRM. The enormous benefits of properly managing human resource cannot be over emphasised. However, the majority of the rural banks in Ghana are yet to catch the „HRM cold‟. Inappropriate HRM policies and practices of some of these banks can be attributed to the non-existence of HRM specialists or HRM departments. Research has established significantly a positive relationship between an organisation‟s HRM practices and performance. Most of these banks do not realise the impact of properly managing its human resource and therefore leave policies in the hands of line managers and board of directors who are non-HRM experts to implement or enforce strategies, policies, processes, programmes and practices. The value of properly managing human resources  is lost to such rural banks.

Human Resource Management is extremely important for banks especially because banking is a service industry. Management of people and management of risk are two key challenges facing banks. How you manage the people and how you manage the risks determines your success in the banking business. Efficient risk management may not be possible without efficient and skilled manpower.

 

Banking has been and will always be a “People Business”. Though pricing is important, there may be other valid reasons why people select and stay with a particular bank. Rural Banks must try to distinguish themselves by creating their own niches or images, especially in transparent situations with a high level of competitiveness. In coming times, the very survival of the banks would depend on customer satisfaction. Those who do not meet the customer expectations will find survival difficult. Banks must articulate and emphasize the core values to attract and retain certain customer segments. Values such as “sound”, “reliable”, “innovative”, “close”, “socially responsible”, “Ghanaian”, etc. need to be emphasized through concrete actions on the ground and it would be the bank‟s human resource that would deliver this.

HRM has sank into oblivion to most of the rural banks in the Ashanti region and it is about time rural banks saw the role and impact of HRM on performance and worked towards properly managing their manpower. It is in the face of this existing state that the researcher wishes to establish the impact of HRM on organisational performance and how rural banks can, through appropriate HRM practices improve performance.

            OBJECTIVES OF THE STUDY

 

The primary aim of this study was to evaluate the perceptions of employees towards HRM practices of rural banks and to establish the impact of such practices on organisational performance.

1.3.1 General Objectives

 

The general objective of this study is to explore the role of HRM in organisations and its effects on organisational performance.

 

                Specific objectives are to:

 

  1. Examine the general HR practices, policies and programmes of these rural banks in the Ashanti
  2. Evaluate the perceptions of employees on HR practices, policies and programmes of these rural
  3. Assess the level of productivity in these selected rural

 

  1. Establish the   impact    of   properly   managing    human   resources   on     the organisational performance of selected rural

            RESEARCH QUESTIONS

 

  1. What are the general HR practices existing in the selected rural banks?

 

  1. What are the perceptions of employees and managers about HR practices of the selected rural banks?
  2. To what extent do these practices impact on the achievement of organisational goals?
  3. What practices can ensure the proper management of human resource and impact on the organisational performance of the selected rural

            METHODS OF THE STUDY

 

The purpose of the study was to examine the impact of HRM on the organisational performance of selected rural banks in the Ashanti region. The target population for the study was the employees and managers of four rural banks namely Juabeng, Asokore, Amanano and Atwima Kwanwoma Rural Banks in the Ashanti region. A preliminary investigation carried out revealed that this study had a population size of not less than one hundred and fifty (150) people and this served as the sample size for the study. This study collected date from two main sources; primary and secondary data sources. The primary data are those collected and analysed by the researcher from the field mainly through

 

responses obtained from the respondents to questionnaires and interviews. The researcher also relied on secondary data which are data already collected for some other purpose by another person other than the researcher. The sources included rural banks handbook, employment policies, annual financial reports, ARB Apex performance reports and websites.

Quantitative and qualitative research methods were used to help triangulate and back up each set of findings with the different methodologies. To elicit for relevant information for this study, two sets of questionnaire were designed and administered personally to the banks‟ employees and managers. This was because the diverse opinions of both employees and managers on HRM issues were what the researcher sought for.

The questionnaire as an instrument was self-explanatory and consisted of only closed questions. The questionnaire had three sections; Section A asked for the personal details of the respondents, Section B had different questions on seven HRM dimensions such as recruitment and selection systems, compensation and rewards, training and development, performance management and appraisal, employee involvement, employment security, career planning; and two HRM outcomes specifically for non-managerial employees. The last section, Section C, tackled employee and organisational performance. There were, in all 70 items in the questionnaire for employees and 63 items in that of managers. (See Appendix 1 & 2)

Moreover, a semi-structured interviewing schedule solely for managers was developed and administered with a mixture of closed and open ended questions on existing HR strategies, policies, programmes and practices and the perceived outcomes that affect organisational performance.

 

            SIGNIFICANCE OF THE STUDY

 

The banking industry has changed from who runs the best adverts, has an international status, is prestigious, or has the finest offices to who develops innovative products, manages risks, is IT friendly, has great customer relationship management and keeps the customer coming back. Banking will need employees with special skills and abilities, right attitudes and behaviours to make these happen. Organisational performance culminating into effectiveness, efficiency, success and development depend on the optimal utilisation of human resource. Notwithstanding the level of technology, banking is primarily a labour intensive service sector. Hence it will not be possible for the banks  to sustain performance unless human resource management is given prime importance because the technology is only an aid to human effort and not a substitution thereof. Banks will need to create competitive advantage through their employees. Because no meaningful change is possible without the proper management of human resources, organisations would have to now emphasise on using human resources to differentiate in the competitive environment. It is a recognized fact that HR occupies a unique and sensitive position in the banking industry; therefore a study of this nature will help the selected rural banks to appreciate the impact of HRM of organisational performance. This study will propose appropriate HRM strategies, policies, processes, programmes and practices and the possible outcomes in the rural bank settings. It will also provide insights into adopting the “best fit” practices as strategic response for rural banks in the near future. The larger community stands to benefit since the improved performance of rural banks will enhance the living standard of mostly the majority informal sector that deals with them and contribute significantly to the growth of the Ghanaian economy. This  study will prompt policy makers and implementers to pay due attention to HRM practices and the role of HRM strategies in achieving organisational goals. The academic

 

significance of this work is to add to existing theories on HRM, serve as reference to those engaged in other related studies and create the leeway for another to further research into HRM and organisational performance. The findings and recommendations will provide a solid basis for rural banks to properly manage their human resources and serve as an opportunity for the selected banks to improve performance with existing workforce. The study is also to add to the knowledge of HRM concepts in the Ghanaian corporate world and serve as reference for future studies.

1.8 ORGANISATION OF THE STUDY

 

This work is organised into five chapters.

 

The first chapter is the introductory chapter and it comprises; background to the study, statement of the problem, research questions which raise research objectives. It also covers the significance of the study and the sequential arrangement of the study.

Chapter two provides a broad background for the subsequent chapters and an extensive review of existing research works on the concepts and theories which give a better understanding of the subject matter.

Chapter three encompasses the methodology to the study. It provides for research design; procedure and method, population covered by the study, description of the study area, sampling techniques, instruments, data collection procedure and analysis. A review of the methodology is provided under this chapter.

Chapter four focuses on data analysis and interpretation of the results and discussions whiles Chapter five embodies the conclusions drawn based on the findings of the study upon which recommendations are made as well as directions for future research on the subject matter.

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