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IMPACT OF HUMAN RESOURCE PRACTICES

ONORGANIZATIONAL PERFORMANCE:
A STUDY OF BANKING SECTOR OF
GUJRANWALA

AMER ISHAQ BHUTTA

B.sc (Hons), Business Administration
Gift University Gujranwala
SEERAT FATIMAH
B.sc (Hons), Business Administration
Gift University Gujranwala

Keywords: Organizational Performance, Employee Satisfaction, Recruitment &Selection, Training &

Development, Performance Appraisal and Compensation
Abstract:
The purpose of this study is to evaluate HRM practices and their impact on organizational
performance in banking sector. People believe that HR is not important its just a sunk cost and have no
significant positive effect on org. performance. The aim of this study was to check the impact between
Human resource management and organizational performance. The research was conducted in banking
sector of Gujranwala .We have evaluated the impact of functions of HR like Selection, Training,
Appraisal and Compensation (as Independent Variables) on Organizational Performance (Dependent
Variables). We have done research with the help of questionnaires. The conclusion and results are
presented at the end of this paper. The analysis showed the positive relation between the dependent and
independent variables.
Introduction:
Our financial sector evolved very differently from banks in the developed world. For nearly a year after
partition, Pakistan had no central bank. Habib Bank established in 1941 filled this gap initially, until
the State Bank of Pakistan (SBP) was set up in 1948 under quasi-government ownership. Commercial
banking grew favorably in Pakistan until 1974. Under the nationalization policy implemented by Zulfikar
Ali Bhuttos government, thirteen banks were brought under full government control, and consolidated
into six nationalized banks. By 1991, the Bank Nationalization Act was amended, and 23 banks were
established of which ten were domestically licensed. After privatization, transformational reforms were
pushed through. The central banks regulatory powers were restored via amendments to the Banking
Companies Ordinance (1962) and the State Bank of Pakistan Act (1956)..Subsequently, corporate
governance, internal controls and bank supervision was strengthened substantially. Legal impediments
and delays in recovery of bad loans were streamlined in 2001.

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World over in depth studies have been under taken in recent years to find out direct impact of Human
Resource Management practices on Organizational performance.. Researches have shown that there is
positive impact of HRM practices on organizational performance. The HR department has become
important part in multinational industry. In developing countries like Pakistan is no concept of HR
practices. Likewise in Gujranwala all functions of HRM are practice by owner himself, perhaps HRM
practice is consider as sunk cost. Due to globalization, Industry trends have also changed in Pakistan.
(http://tribune.com.pk/story/286458/history-of-banking-in-pakistan--of-humble-origins-and-vastpotential/). In Large organizations especially in services sector HR practices play a vital role effecting
organizational performance. In local perspective research is required to confirm relationship between
organizational performance and HR practices.
The purpose of this study is to investigate recent trends in employee management in banking sector and to
confirm positive relationship between HR practices and organizational performance. The aim of this is to
identify the factors and their importance that lead towards the job satisfaction in banking sector. This
study wills managers in improving organizational performance.
Research question:
Is there a significant effect between high values HRM practices like Recruitment and Selection, Training
and development, performance appraisal, compensation and Organizational Performance?
Problem statement:
Is Organizational performance being affected due to lack of HRM practices in banking sector of Pakistan?
Literature Review:

Dependent Variable
Organizational performance: Oxford dictionary defines organization as an organized group of people
with a particular purpose. Performance is defined to include the action or process of performing a
task or function seen in terms of how successfully it is performed. When these definitions are put
together, we can say organization performance relates to how successfully an organized group of people
with a particular purpose perform a function.

Independent Variable: Recruitment is the process of finding and engaging the people the organization
needs. Selection is an aspect of recruitment concerned with deciding which applicants or candidates

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should be appointed to jobs. (Armstrongs Essentialhuman Resourcemanagement Practice, Michael
Armstrong)
Training and development is a function of human resource management concerned with organizational
activity aimed at bettering the performance of individuals and groups in organizational settings. It has
been known by several names, including "human resource development", and "learning and
development".
Performance appraisal is the process of determining how well employees do their job relative to a
standard and communicating that information to the employee. (Human Resource Management; Robert l.
Mathis, john h. Jackson)
Compensation or total reward is define as Total rewards Monetary and non-monetary rewards provided
to employees in order to attract, motivate, and retain them.( Human Resource Management; Robert l.
Mathis , john h. Jackson)
At present HRM has appeared as inherent element for long term competitive advantage. Different studies
have indicated that prolonged competitive superiority can only be achieved by management of valuable
and scare resources.
In number of studies sustained performance of organization has been linked with true implementation of
HRM practices. HRM practices are key instrument for developing human capital. A dedicated, motivated
and proficient human force is source of competitive advantage, which leads to organizational sustained
performance. Bose lie.,(2005) pointed out that extensively used HR Management practices by different
researchers are Recruitment, Performance appraisal, Training and Compensation system.
Different views exist to calculate organizational performance. Researchers have identified
organizational performance on basis of financial and non-financial measures. Market share, sales and
profit is associated with financial measure and productivity, efficiency, satisfaction, commitment, quality
and intention to quit is linked with non-financial measures. (Dyer. 1995). Measurement of organizational
performance on basis of financial grounds is questionable due to lack of transparency in financial data
and reporting (Hoskisson. 2000).The more proficient and reliable measure to calculate organizational
performance is non-profit measure. Empirically effects of HRM practices has been investigated by
different researchers (Becker., 1998; Boselie.,2002) A study conducted in Greece explained that HRM
practices for staffing, training, incentives, promotion and health and safety have positive relationship with
organization performance (Kato., 2006). Japanese firms in comparison to United States firms were more
productive in implementing HRM practices (Ichnionski. 1999). There are two divergent views to measure

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organizational performance. 1st is financial measure, which includes market share, profit and sales and
2nd is non-financial measure which leads to productivity, quality, efficiency, satisfaction, commitment
and intent to quit. The financial measure of organizational performance is questionable due to lack of
transparency and accuracy in financial data. The non-financial evaluation of performance is more
associated with Human Capital transformation.

High productive work practices have direct effect on HPWOs. High organizational performance can only
be achieved by HRM practices. These practices create satisfaction and commitment in work force, which
as a result enhances their productivity, efficiency and retention. Strategic role of HRM is to in acquire,
develop and deploy appropriate resources at appropriate place and time. The execution of this concept is
only possible with the help of key HRM practices.
Importance of HRM practices have been under stood in all business industries. Government and
private sectors are resorting to high value practices to enhance their performance and productivity. Even
not for profit organizations also require highly motivated work force to achieve their objectives.
Production and service sector also have positive inclination towards HRM practices.
The basic purpose of high value practices is to create competitive advantage and that is achieved
by developing human resource into human capital. Management of Human capital is also domain of high
value practices. Differentiation is also created by HRM practices, which enables organization to achieve
its long term objectives.
Researchers identified key HRM practices as High Performance Work Practices (HPWPS) and these
were linked to organizational performance, (Huselid. 1995). Key HRM practices have negative impact on
organizational performance (Cappelli. 2001). Hiring the right person for right job is very import and in
organizational context. HR department plays a vital role in performing this job. A continuous place is
under taken to forecast hiring and selection requirement of firm. Job descriptions are prepared for all
appointments and new recruitment and selection is carried out on basis of job design. Knowledge, skills
and abilities (KSA) are matched with task, duties and responsibilities (TDR). A fair and comprehensive
process is under taken to hire best available candidate. This key element of HRM practice plays vital role
in organizational sources. Positive relationships exist between effective recruitment and firm performance
(Delamy. 1996). Training and development and organizational performance (Fey et al., 2000). Training
and development is essential element of HRM practices. This is more focused on development of
available resources to create advantage for organization. A systematic approach is carried done for
training assessment employee satisfaction and engagement is highly linked with training. Training

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provides carrier development to employees and their motivation and commitment enhances. These all
factors in return contribute to organization performance.
Work performance is evaluated through performance appraisal. Old fashioned evaluation reports have lost
its validity and credibility in new perspective of HRM. At present 360 degree evaluation system is carried
out, which is a non-ending process. The evaluation parameters are focused on feed backs and personal
linking and disliking error has been abolished. This evaluation system creates motivation, engagement,
commitment and satisfaction in work force and as result they are more productive and proficient. Positive
link between compensation and performance (Chie. 2002). It is an important instrument of HR practices.
Compensation and rewords is used to retain high value employees. This practice creates lot of dedication
and satisfaction in work force.
The present study will confirm effect of four HRM practices e.g. Training & development,
performance appraisal, recruitment & selection, and compensation on organizational performance in
regards to productivity, quality, efficiency, commitment, satisfaction and intent to quit.
HYPOTHESIS:
H1: Recruitment & selection has positive impact on organizational performance.
H2: Training & development has positive impact on Organization performance.
H3: Performance Appraisal system is positively associated with organizational performance.
H4: Compensation is positively related to organizational performance.
FRAME WORK:

Recruitmen
t&
Selection
Training &
Developme
nt
Performanc
e Appraisal

Compensat
ion

Organizationa
l Performance

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Research Design:
Objective of the Research:
The main purpose of the research was to get the insight effect of key Human resource practices and their
impact on organization performance. This study aimed to examine direct relationship between key HRM
practices and organizational performance.

Data Selection and Sampling:

We will use convenient sampling technique in sample selection of our study. The research is as we have
narrowed down the scope of research to banking sector and normally each branch has

staff from 6-10

members. Sample size for carrying out study will be 50. Total number of variables is 5 and each variable
has 5 questions. So total questions are 25.Data is collected from United Bank Limited, Allied Bank limited,
National Bank Limited, Bank Alflah and JS Bank.

Procedure:
Data is collected from full-time bank employees working in these 5 selected Banks of Gujranwala.
There will be direct interaction with the employees members to ensure the reliability of the
hypothesis. Quantitative approach is applied to this research. There will be questionnaires
conduction from the target sample... A total of 50 questionnaires will be delivered to the selected
Banks. The questionnaire will include total five questions for each variable. Questionnaire is
developed on Likert scale.
In local perspective of Gujranwala people are very less focus in accorded to HRM practices. Large
organization and service sector like banking sector have recognized that organizational performance
is strongly associated with HRM practices. In local perspective detailed research is required to
confirm relationship between organizational success and HRM practices. Purpose of study is to
investigate recent trends in employee management in local perspective in banking sector and to
confirm positive relationship between HR practices and organizational success.
Measures:
We use the method of convenient sampling. Limitations are always there, that is we cant do research in
whole Pakistan because we are students so it becomes so difficult to do gathered data from whole
Pakistan. As far as Number of banks is concerned we have collected data from 5 banks from central city

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of Gujranwala and from Wapda Town. We set our target for 5 banks because we have easily collected data
from those areas and also for the purpose of getting maximum information. The target population is the
employees specially cashiers. 0.01% of population can be used to determine the results. This study is
descriptive as research has already done on this topic. Secondly it is a field study and time horizon for this
will be cross sectional as data is gathered once.

Research Analysis:

Data Analysis
We have gathered data through questionnaire. Our population frame was Banking Sector employees. We
distributed our questionnaire in different private sector banks of Gujranwala. 50 questionnaires were
distributed in different banks. After entering our data in software SPSS, we processed and applied
statistical tool on the sample of 50 respondents. We used the convenient sampling technique for data
collection. To measure the impact of HRM practices on organizational performance we used, 25-item
questionnaire with 5-point Likert scale (strongly disagree 1- strongly agree 5) except of Demographic
information. Data cleaning and screening was initial step after processing data in SPSS software.

Results:
Regression:

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Model Summary

Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1
.677a
.458
.409
2.57107
a. Predictors: (Constant), Compensation, Traing.Dev, Recruit.Sel, Performance.Appraisal

Coefficientsa
Standardized
Unstandardized Coefficients

Coefficients

B
6.194
.432

Std. Error
2.738
.135

Beta

Recruit.Sel

.167

Performance.Appraisal
Compensation

Model
1
(Constant)
Traing.Dev

a. Dependent Variable: Org.Per

.500

t
2.263
3.191

Sig.
.029
.003

.186

.143

.896

.375

.109

.158

.126

.689

.494

-.011

.037

-.040

-.306

.761

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Correlation Matrix
Performa
Traing.

nce.Appr Compensatio

Org.Per

Org.Per Dev
1

Recruit.Sel aisal

Traing.Dev

.655**

Recruit.Sel

.500**

.573**

Performance.Apprais

.559**

.703**

.705**

.300*

.416**

.481**

.497**

al
Compensation

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).
N: 50

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The Data was entered in SPSS 19 and Pearson correlation software was used and table 2 illustrate the
Data Analysis:

correlation values. Total responses was 50 and a table shows a positive significance relation of training
and Development with Organization Performance which is .655. So it shows that if they provide proper
Training and Development facilities then Organizational Performance will increase.
The table 2 shows a positive significance relation of Recruitment and Selection with Organization
Performance which is .500. So it shows that if they perform proper Recruitment and Selection process
then Organizational Performance will increase.
Table 2 shows a positive significance relation of Performance and Appraisal with Organization
Performance which is .559. So it shows that if they provide proper Performance Appraisal process then
Organizational Performance will increase.
Table 2 shows a positive significance relation of Compensation with Organization Performance which is .
300. So it shows that if they provide proper Compensation process then Organizational Performance will
increase. Table 2 also shows a positive significant relation of Training & Development and Recruitment
& Selection which is .573. Table 2 shows positive relation of Training & Development and Performance
Appraisal which is 0703. Table 2 shows positive relation between Training & Development and
Compensation which is .416.
Table 2 shows a positive significance relation of Training and Development and Recruitment & Selection
which .573. Table 2 shows positive relation of Training and Development and Performance Appraisal
which is .703. Table 2 show positive relation between Training and Development and Compensation
which is .416.
Table 2 shows a significant positive relationship between of Recruitment &Selection and Performance
Appraisal which is .705. Table 2 also shows positive relationship of Performance Appraisal and
Compensation .481. Lastly Table 2 shows positive relation between Performance Appraisal and
Compensation which is .497. Our results also showed that reliability of our model is 67%.
Discussion:
Traditionally, the focus of a HRM system has been short-term, and the system has been used as a
bureaucratic control mechanism to enhance efficiency (Kalleberg and Moody, 1994). This study was
conducted to investigate the relationship between HR practices and Organizational Performance in
Banking sector of Gujranwala. It has been established by Boselie, (2005) that Recruitment selection,
Training & Development, Performance appraisal and Compensation has positive association with
Organizational Performance. Our results of correlation has also proved that HR practices are linked to
Organizational performance which also has been explained by (Huselid., 1995).

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All of hypothesis are accepted. Firstly our correlational results shows that Recruitment and Selection has
positive relation with Organization Performance; that is also explained by (Delamy.,1996). Hiring right
people for the right job is very important for organizational success and performance. Our second
hypothesis is supported by (Fey.,2000) that is Training and development has positive association with
Organizational Performance. The training and development motivate and in fact it is the way to improve
the performance of Organization. Performance Appraisal also has positive relation with Organizational
Performance. Proper performance Appraisal of employee make managers to easily compare the current
performance of employees with their TDR (task, duty, responsibility)
Our results also show that Compensation has significance relationship with Organizational Performance.
(Chie, 2002) has also support our results that if employees are properly compensated, this will increase
their productivity and ultimately increases organizational performance.

Findings:
This study evaluates the effects of HR practices on banking sector performance in Gujranwala. Review of
literature provides strong confirmation of useful HR practices and their affiliation with firms
performance. Study indicates importance of HRM practices to achieve and prolonged high performance
in present business environment. It is very important that best fit HRM practices should be adopted by
organizations to achieve high value results. Strategic alignment of HRM with business plan is always
more productive.

Conclusion:
This study evaluates the effects of HR practices on banking sector performance in Gujranwala.
Review of literature provides strong confirmation of useful HR practices and their affiliation
with firms performance. Study indicates importance of HRM practices to achieve and prolonged
high performance in present business environment. It is very important that best fit HRM
practices should be adopted by organizations to achieve high value results. Strategic alignment of
HRM with business plan is always more productive.

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Limitations:
Subject study was only focused on four key HRM practices and organizational performance was
measured on non monetary basis. The research was only specific to Banking sector and further it
was bounded to Gujranwala. Only Private sector banks were included in sample size. Sample size
was very small and data of respondents was only 50. Therefore generalize ability of findings were
bounded. This can lead to biasness of respondents (Paul et al., 2003).

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