Introduction

A rapidly changing economic environment, characterized by such phenomena as the globalization, and deregulation of markets, changing customer and investor demands, and ever increasing product market competition, has become the norm for most organization. To compete, they must continually improve their performance by reducing costs; innovating products and processes; improving quality, productivity, and speed to market; and more importantly by improving their individual performance within the organization. In order to do this, a set of distinctive human resource strategies, defined as internally consistent bundles of human resource practices (Dyer & Reeves, 1995), is clearly essential. Sparrow and Marchington (1998) suggested that HR practices are the most advanced, the most sophisticated, and the most efficient basis for organizing and for obtaining high performance from employees since it seeks to strategically integrate the interests of an organization and its employees. In addition, a number of studies have also indicated that there is a positive relationship between effective HR strategies and organizational performance. Specifically, it is suggested that HR practices can improve organizational and operational performance when matched with quality manufacturing strategies (Stone, 2002).

Nevertheless, despite the positive relationship found between HR practices and firm performance, there are a number of issues and questions surrounding them. One problem in relating HRM and performance is the lack of theoretical background; resulting in both terms remain ambiguous concepts. Other questions arise in relation with the link between HR strategies and performance are the inconsistent findings in regards to what constitutes a high performance HR strategy (Becker & Gerhart, 1996; Cooke, 2001) and the problems with HRM and performance measurements (Guest et al., 2003).

The aim of this essay is to outline and explain the issues in developing human...