People Management

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The Linkage Between Effective People Management And Organisational Performance

The Linkage Between Effective People Management And Organisational Performance


This paper describes why People Management decisions are likely to have an important and unique influence on organizational performance. Our hope is that this research forum will help advance research on the link between People Management and organizational performance. We identify key unresolved questions in need of future study and make several suggestions intended to help researchers studying these questions build a more cumulative body of knowledge that will have key implications for both theory and practice.


The conceptual and empirical work relevant to this question has progressed far enough to suggest that the role of human resources can be crucial (Arthur, 1994; Cutcher-Gershenfeld, 1991; Huselid, 1995; Huselid & Becker, 1996; Gerhart & Milkovich, 1990; Ichniowski, Shaw, & Prennushi, 1994; MacDuffie, 1995). However, given the importance and complexities of the issue, this body of work is relatively small, and most of the key questions are sorely in need of further attention. We hope that the publication of this special forum will encourage and reinforce interest in this area, as well as help researchers in their decisions regarding what to study and how to study it. We also hope that it will demonstrate to senior human resources (People Management) and line managers that their People Management systems represent a largely untapped opportunity to improve firm performance.

Reflecting this multidisciplinary interest, the mechanisms by which human resource decisions create and sustain value are complicated and not well understood. Early efforts, such as utility analysis, sought to quantify the dollar value of improvements in employee selection and other human resource activities (Boudreau, 1992; Brogden & Taylor, 1950; Cascio, 1991; Schmidt, Hunter, McKenzie, & Muldrow, 1979). However, these estimates typically have rather broad confidence intervals (Alexander & Barrick, 1987) and are not always as robust as one would like in the face of changes in assumptions (e.g., those regarding the standard deviation of performance in dollars). Moreover, there is some doubt regarding whether managers' decisions are particularly responsive to information about the estimated dollar value of alternative decisions, especially as the estimation procedures become increasingly complex and difficult to understand (Latham & Whyte, 1994).

Empirical research on the subject of this special forum will likely encounter some similar obstacles in making the translation from research to policy implications. However, a potential advantage in this respect is that most of the papers herein look directly at the impact of People Management decisions on performance outcomes that have clear meaning and relevance to managers, such as stock performance, productivity, profits, quality, and organizational survival. In addition, this research suggests that People Management can go beyond its traditional organizational role to become a strategic partner in most organizations. The subject of this special forum should be of equal interest to senior line executives and senior human resource executives. Indeed, creating this strategic impact very likely requires a system focus and a degree of attention to alignments ...
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