European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Impact of SHRM Practices on Organizational Performance: An application of Universalistic approach Junaid Khalid (Corresponding author) Department of Management Sciences The Islamia University of Bahawalpur Pakistan Junaidkhalid219@gmail.com Abdul Latif Department of Management Sciences The Islamia University of Bahawalpur Pakistan firstname.lastname@example.org Syed Usman Ali Gillani Department of Management Sciences The Islamia University of Bahawalpur Pakistan email@example.comAbstract:The purpose of this study is to examine the relationship of Strategic Human Resource Management (SHRM)practices with organizational performance. The data for this study is collected through verified structuredquestionnaire from sample of 120 banks of Bahawalpur district (Pakistan). Target respondents are branchmanagers because of their expert opinion. Data is analyzed by using software SPSS 19 version byimplementing the statistical techniques, correlation and regression. In general, results of this study shows thatfour out of seven SHRM practices are positively related to organizational performance. Organizations tend toexhibit higher organizational performance when trained its employees extensively provide them employmentsecurity and give them open mechanism for participation, and finally the evaluation criteria should be basedon outcomes. HR managers, practitioners and firms can focus immensely on these variables to enhance theirorganization’s performance.Key words- Strategic Human Resource Management (SHRM), Human Resource Management (HRM),Universalistic Approach, Organizational Performance1. IntroductionIn this age of vulnerable environment of globalization, intense competition towards innovative products, andsupplier bargaining power transformed to buyers bargaining power, all these are the major challenges for theorganizations. In order to cope up with all these challenges firms must have to give profound consideration to theirperformance and on sustainable competitive advantage. Recent studies show that SHRM has a positive impact onperformance and it can be used as a sustainable competitive advantage because it creates such strategic asset that isinvisible and difficult to imitate (Wan-Jing and Tung, 2005).In recent years, the major key area in HR literature is the implication of universalistic approach. According touniversalistic approach, there is a certain set of SHRM practices that are equally beneficial for every organization(Bamberger and Meshoulam 2000; Delery and Doty, 1996). This study is very important with respect to its
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)contribution to SHRM (universalistic) literature. First, this study contributes in the shape of identification ofuniversal best SHRM practices, which is the bone of contention in the universalistic literature. Second, this studyexplored that whether there is any difference in the relationship of SHRM with performance in developed countrieswith developing countries.The SHRM practices that are presented by delery and doty (1996) and used by Syed et al., (2008) are included inthis study. The purpose of this study is to examine the relationship between SHRM practices and organizationalperformance.2. Literature reviewClassical sources of competitive advantage have become obsolete, because they are really easy to duplicate (Wan-Jing and Tung, 2005). According to resource-based view, firms must have to work to develop such a competitiveadvantage that is difficult to imitate (Barney, 1986). Recent literature on HRM shows that firms can achievecompetitive advantage through their Human Resource and when HR is used as a strategic asset and implanted inoperational system in a value added manner that adds beauty to the whole operational system and creates aninvisible competitive advantage (Wan-Jing and Tung, 2005).Schuler, Dolan, and Jackson, (2001) describes evolution of SHRM from personnel management to traditional HRMand then from traditional HRM to SHRM. Furthermore, SHRM practices are more inclined in the way to create amore powerful competitive advantage. That is why these strategies are more focused towards strategic businessorientation. Literature of SHRM shows that primarily there are three school of thoughts related to implementation ofSHRM practices:Universalistic approachThis is the simplest approach, it starts operating with a basic assumption that there is a linear relationship betweenvariables and that can be extendable to entire population (Delery and Doty, 1996).Contingency approachMost of the authors have agreed upon the fact that contingency approach is more complex then universalisticapproach because contingency approach is more inclined towards interactions rather than simple linear relationship(Schoonhoven, 1981, van, A, and Drazin, 1985; Venkatraman, 1989).Configurational approachThis is the most complex one because this approach is concerned about the synergetic effect of a certain SHRMpractice (Doty, Glick, and Huber, 1994).Although there is more theoretical significance of contingency and configurational approach, but both of theseapproaches have a lack of statistical significance while on the other hand universalistic approach having moreempirical significance (Syed et al., 2008). This study is concerned towards the implication of universalisticapproach. We are using seven best practices of HRM that are described by Delery and Doty (1996) and furtherimplemented by Syed et al., (2008) these practices are as following:2.1 Internal career opportunitiesInternal career opportunities refer to the tendency to hire employees mostly from within the organization or from theoutside. According to Delery and Doty (1996), organizations give importance to internal hiring as compared toexternal. Pfeffe (1994) describes it as a give and take process in which manager promotes their employees primarilyfrom within the organization and show trust on them and in return expect greater performance.The relationship between internal career opportunities and organizational performance is empirically supported byBlackwell, Brickley, and Weisbach (1994) and Shay (2006) who found a positive correlation between thesevariables. While on the other hand Gaertner and Nollen (1989) relates the promotion rate with psychological
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)commitment furthermore Ngo and Tsang, (1998) provides support to Gaertner and Nollen’s argument in their studyof 778 business executives in Hong Kong also found a positive impact on commitment.2.2 TrainingTraining refers to the quantity of official training given to employees. Organizations may choose in between eitherto provide extensive official training or to rely on attaining expertise through selection. Literature of universalisticapproach shows that training has the most significant effect on organization’s performance (Pfeffer, 1998, Pfefferand Veiga 1999, Harel and Tzafrirs, 1999, Syed et al., 2008, Shay, 2006). Most of the authors are agreed upon thattraining was a universal best practice (Arthur, 1992, Delaney and Huselid, 1996, Huselid and Becker, 1996, Youndt,Snell, Dean, and Lepak, 1996).In a study of Chinese firms Syed et al., (2008) found training as the most influencing SHRM practice that accountsfor 12.17% variance in organizational performance. Hatch and Dyer, (2004) found that extensive training causefewer defects in products in his study of 25 semiconductor manufacturing firms. Huang (2001a, b) studies of 568Taiwan’s companies found a significant direct relationship among training and product and service quality. Thisargument is supported by the findings of the study of managerial attitude toward HRM in which Jennings, Cyr, andMoore, (1995) found training and development is the most significant SHRM practice.2.3 Employee participationSeveral researchers believe that employees participation is directly associated with organization’s performance(Arthur, 1992, Batt; Pfeffe, 1994; Colvin, and Keefe, 2002; Hodson, 2002; Kato and Morishima, 2002; Shay, 2006).Batt, Colvin, and Keefe, (2002) found an indirect relationship between employee participation in decision makingand employee turnover rate. While Hodson, (2002) found another dimension and shows workplace conflicts can bereduced through employee’s participation.2.4 Result-oriented appraisalsAccording to Delery and Doty (1996), primarily appraisals are based on two types: results based and behaviorbased. Behavior-based appraisals focus on the specific behaviors that best matches the job while result-orientedappraisals focus purely on the results of those behaviors. In a result-oriented appraisal system, certain incentives aregiven to employees on completion of their performance objectives (Pfeffer, 1998). Delery and Doty, (1996) found asignificant positive relationship between result-oriented appraisal and organizational performance; furthermore thisrelationship also has the same results in the study of Syed et al., (2008).2.5 Profit sharingProfit sharing refers to the integration of pay with organizational performance. Delery and Doty, (1996) found apositive significant relationship of profit sharing with performance. In a study of Chinese firms Syed et al., (2008)investigated the impact of profit sharing on twofold performance measures and found a unique relation in whichprofit sharing had a positive significant relation with only financial measures of organizational performance and notsignificant relation with other dimensions of performance ( product/service quality).2.6 Employment securityThe importance of employment security is emphasized by Pfeffer, (1998) by saying; this is unrealistic that anorganization expects hard work, devotion and commitment from their employees in absence of employmentsecurity. Syed et al., (2008) found a positive significant relationship between employment security andorganizational performance. Furthermore, Pfeffer, (1998) describes that the importance of employment securityaccording to firm’s point of view is twofold cost and competition. If organization does not provide its employeeswith job security then they obviously switch towards better opportunities and thus increasing cost (training, selectionetc) and competition.
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)2.7 Job descriptionThe degree to which job duties are well defined is very important. Delery and Doty, (1996) found a moderatecorrelation between job description and firm performance. Furthermore, the study of Syed et al., (2008) shows that8.30% variance is accounted for in organizational performance only due to job description3. Conceptual Model and Hypotheses Universalistic approach 1. Internal career opportunities Organization 2. Training Performance 3. Employee participation 4. Result-oriented appraisals 5. Profit sharing 6. Employment security 7. Job descriptionSeven variables are used to measure organizational performance as depicted in the conceptual model. Researchmodel was adopted from the study of (Delery and Doty, 1996; Syed et al., 2008).Hypotheses:H1: Training and organizational performance are positively related to each other.H2: Participation and organizational performance are positively related to each other.H3: Employment security and organizational performance are positively related to each other.H4: Job description and organizational performance are positively related to each other.H5: Profit sharing and organizational performance are positively related to each other.H6: Result-oriented appraisals and organizational performance are positively related to each other.H7: Internal career opportunities and organizational performance are positively related to each other.4. Methodology4.1 Sample size and sampling techniqueThis study concentrates on banking industry in order to control the issues of heterogeneity. The sampling frame ofthis study was obtained from the database of state bank of Pakistan, which shows that there are 400 branches inBahawalpur district (Pakistan). Sample size is selected on the basis of the criteria presented by James, Joe, andChadwick (2001) for a known population. In this study, the population is known as described above that there are400 branches in Bahawalpur district and according to the criteria of James, Joe, and Chadwick (2001) minimumsample size for this population is 92. However, owing to the consideration of usable response in this study sample of120 banks are taken out of which 100 usable questionnaires were returned that are further used for data analysis.
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)4.2Research InstrumentThe questionnaire adopted for the study was developed by Delery and Doty (1996) and used by Syed et al., (2008).However, a little modification has been done in questionnaire with regard to the measurement of organizationalperformance in the context of this study.4.3 Measurement of independent variablesRespondents were asked to rate their answers on multi-item scale. Training, participation, employment security, jobdescription and profit sharing were measured on four point likert scale while internal career opportunities wasmeasured on seven point likert scale and result oriented appraisal are measured on two point likert scale. Highervalues on likert scale indicate strong deeds towards each independent variable.4.4 Dependent variableFive point likert scale was used to rate the response of respondents where higher values indicate high performanceand vice versa. In order to cope up with the difficulty of obtaining financial data due to conservative behavior andintense competition, we have adopted self-evaluation approach. According to Dess and Robinson (1984), self-reporting measures can be an acceptable proxy and are evenly reliable in the deficiency of objective data. Powel(1992) found a positive correlation (0.40) between self-reported firm performance measures and objective firmperformance measures.5. Data analysis:Data analysis is done by using software SPSS version 19. Statistical techniques applied to analyze the data are asfollows: Cronbach’s alpha Descriptive statistics (Mean and Standard deviation) Correlation Linear regression5.1 Cronbach’s alphaInternal reliability of the instrument is checked by using Cronbach’s alpha. The result of cronbach alpha is 0.731which is well above the stander presented by (Nummally, 1978) that is 0.70. Therefore, this is clear that theinstrument used in this study having strong internal reliability and it can be used with confidence for the applicationof further statistical analysis and interpretation5.2 Descriptive statistics and correlation analysisTable 1 represents descriptive statistics and correlation between each variable. If the mean scores are observed thenit is clear that internal career opportunities having higher value 3.89 the reason behind this is that it is measured on7-point likert scale. While the first five variables are measured on 4-point likert scale and rest of the two aremeasured on two and five point likert scale respectively. So if the ratio of their mean score is calculated then it isclear that training has the highest value of mean and then the number of internal career opportunities and the rest ofthe order is as follows employment security, result-oriented appraisals, job description, participation and profitsharing. Range of correlation between SHRM practices is between -0.264 to 0.630. Except result-orientedappraisals, all the variables are positively related to each other.
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)5.3 Regression AnalysisIn order to check the impact of each independent variable unconnectedly on dependent variable and to test thehypothesis developed linear regression analysis is applied. Results of linear regression analysis are presented in tableII.5.3.1 Hypothesis 1Hypothesis postulates that organizations that provide extensive training to their employees will outperform thosewho do not provide extensive training. H1: Training and organizational performance are positively related to each other. 47.1% variance in firm’s performance is explained by training which is evident by the value of R=0.471.F=27.877 at p=0.000 describe the model’s goodness of fit. Significant positive relationship between predictor andpredicted variable is evident by the value of t=5.280. Hence, on the basis of these results it can be inferred withconfidence that H1 is accepted.5.3.2 Hypothesis 2Hypothesis postulates that organizations that provide open forum of communication to their employees will increasetheir performance. H2: Participation and organizational performance are positively related to each other. 33.1% variance in firm’s performance is explained by participation which is evident by the value ofR=0.331. F=10.515 at p=0.002 describe the model’s goodness of fit. Significant positive relationship betweenpredictor and predicted variable is evident by the value of t=3.243. Hence, on the basis of these results it can beinferred with confidence that H2 is accepted.5.3.3 Hypothesis 3Hypothesis postulates that those organizations that provide their employees with job security get in return betterperformance. H3: Employment security and organizational performance are positively related to each other. 33.5% variance in firm’s performance is explained by employment security which is evident by the valueof R=0.335. F=10.819 at p=0.001 describe the model’s goodness of fit. Significant positive relationship betweenpredictor and predicted variable is evident by the value of t=3.298. Hence, based on the results it can be inferredwith confidence that H3 is accepted.5.3.4 Hypothesis 4Hypothesis postulate that clearly defined jobs leads organizations towards better performance. H4: Job description and organizational performance are positively related to each other.
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) 8.9% variance in firm’s performance is explained by employment security which is evident by the value ofR=0.089. F=0.771 at p=0.381 describe the model’s goodness of fit which is not satisfactory. Insignificantrelationship between predictor and predicted variable is evident by the value of t=0.880. Hence, based on the resultsit can be inferred with confidence that H4 is not accepted.5.3.5 Hypothesis 5Hypothesis postulates that profit sharing with employees other then their salaries has a positive relationship withorganizational performance. H5: Profit sharing and organizational performance are positively related to each other. 6.4% variance in firm’s performance is explained by employment security which is evident by the value ofR=0.064. F=0.402 at p=0.528 describe the model’s goodness of fit which is not satisfactory. Insignificantrelationship between predictor and predicted variable is evident by the value of t=0.634. Hence, on the basis of theseresults it can be inferred with confidence that H5 is not accepted.5.3.6 Hypothesis 6Hypothesis postulates that organizations with result-oriented appraisal system will be able to exceed theirperformance. H6: Result-oriented appraisals and organizational performance are positively related to each other. 36.0% variance in firm’s performance is explained by employment security which is evident by the valueof R=0.360. f=14.614 at p=0.000 describe the model’s goodness of fit. Significant positive relationship betweenpredictor and predicted variable is evident by the value of t=3.823. Hence, on the basis of these results we acceptH188.8.131.52 Hypothesis 7Hypothesis postulates that internal career opportunities for employees in a particular organization increase itsperformance. H7: Internal career opportunities and organizational performance are positively related to each other. 10% variance in firm’s performance is explained by employment security which is evident by the value ofR=0.01. F=0.009 at p=0.935 describe the model’s goodness of fit which is not satisfactory. Insignificant relationshipbetween predictor and predicted variable is evident by the value of t=-0.095. Hence, based on the results it can beinferred with confidence that H7 is not accepted.6. Discussion and conclusionThis study examines the impact of SHRM practices on organizational performance. Especially universal implicationof a set of SHRM practices, that is presented by (Delery and Doty, 1996). The results of this study are veryimportant due to their dual nature. Four individual SHRM practices (training, participation, employment securityand result-oriented appraisal) have significant positive relationship with organizational performance and theseresults are consistent with the literature of SHRM. While on the other hand the remaining three SHRM practices (job
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)description, profit sharing and internal career opportunities) have no significant relationship with organizationalperformance and these results are contradictory with the literature of SHRM.Results of training are consistent with the results of (Pfeffer, 1998, Pfeffer and Veiga 1999, Harel and Tzafrirs,1999, Syed et al., 2008, Shay, 2006). Most of the authors are agreed on the results of trainig in the litrature ofuniversalistic prespective that training has the most significant effect on performance and hence it is also proved inthe current that training has the most significant relationship with performance. Result-oriented appraisals is thesecond most significant SHRM practice that this study reveals. Furthermore the findings of this study related result-oriented appraisals are matched with the findings of (Delery and Doty, 1996; Syed et al., 2008).The third most influencing variable is employment security having a significant positive relationship withorganizational performance and these results are consistent with the results of (Pfeffer,1998; Syed et al., 2008).The last variable that has a positive relationship with organizational performance is employee participation and thefindings related to this variable also having a sound support in litrature (Arthur, 1992 Batt, Colvin, and Keefe, 2002,Hodson, 2002, Kato and Morishima, 2002, Pfeffe, 1994; Shay, 2006). Now the second stream of variables start thatare not significantly related to organizational performance these variables are job description, profit sharing andinternal career oppurtunities. All these three variables are showing contradictory results as compare to the previousresearchers (Delery and Doty, 1996; Syed et al., 2008; Pfeffe, 1994; Blackwell, Brickley, and Weisbach, 1994;Shay, 2006).Hence it can be concluded that training, employee participation, employment security and result-oriented appraisalsare univeralistic SHRM practices in context of this study. Training, participation, result-oriented appraisal andemployment security has got the positive relationship with organizational performance. The HR managers,practitioners and firms can focus immensely on these variables to enhance the organizational performance.7. Limitations and Future directionsDespite the importance of the contribution of this study to universalistic litrature and its valuable practicalimplication, it is not perfect as every research has some limitations it has also.First limitation of this study is the use of self evaluation criteria of measuring performance because it can be baised.Although previsoius studies are also based on the judgemental measures (Delaney and Huselid, 1996). Powel 1992and Dess and Robinson, 1984 argure that in order to cope up with difficulty of obtaining objective data subjectivemeasures can be used. But it would be worthewhile for future studies to examine the relationship between the sameSHRM variables and performance by taking objective measure of performance i.e. return on asset, return on equity,profit ratios sales ratios.Second limitation of this study is the use of cross sectional data in future same study can b done with longitudenaldata in order to overcome the limitations of cross sectional data.The results of this study were carried on by using the regression analysis, by using latest techniques such as DataEnvelopment Analysis the relationship of same variables could be modified. Furthermore the study was conductedkeeping in view the banking industry, for its effectiveness the study could be a helpful source of inter industrycomparison.
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Table IDescriptive Statistics and Correlation M SD 1 2 3 4 5 6 7 81.Training 2.97 0.54 12.Participation 2.56 0.56 .630** 13.Employment Security 2.68 0.62 .551** .424** 14.Job Description 2.61 0.42 .200** .512** .445** 15.Profit Sharing 2.48 0.79 .197* -.225* .464** .446** 16.Results Oriented Appraisals 1.33 0.31 .079 -.250* -.078 -.264** -.156 17.Internal Career Opportunities 3.89 0.98 .198* .356** .395** .575** .502** -.316** 18.Organizational Performance 3.70 0.51 .471** .311** .315** .088 .063 .360** -.10 1**Correlation is significant at the 0.01 level (2-tailed).*Correlation is significant at the 0.05 level (2-tailed).
European Journal of Business and Management www.iiste.orgISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)Table IIRegression Analysis. Variable R t-value coefficient F- value P-value1 Training 0.471 5.280 0.471 27.877 0.000 (-0.449)*2 participation 0.311 3.243 0.311 10.515 0.002 (-0.286)*3 employment security 0.315 3.298 0.315 10.819 0.001 (-0.261)*4 job description 0.089 0.880 0.089 0.774 0.381 (-0.107)*5 profit sharing 0.064 0.634 0.064 0.402 0.528 (-0.042)*6 Result oriented appraisals 0.360 3.823 0.36 14.614 0.000 (-0.6)*7 internal career opportunities 0.010 -0.095 -0.01 0.009 0.925 (-0.005)* *Unstandardized Beta Coefficients in parenthesis
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