SPECIAL TOPICS IN HRM

HUMAN RESOURCE MANAGEMENT

 The process of planning, organizing,
directing (motivating), and controlling
the procurement, development,
compensation, integration,
maintenance, and separation of
organizational human resources to the
end that organizational, individual, and
societal needs are satisfied.
 Human Resource Management includes all
activities used to attract & retain employees
and to ensure they perform at a high level in
meeting organizational goals.

These activities are made up of

1. Recruitment & selection.
2. Training and development.
3. Performance appraisal and feedback.
4. Pay and benefits.
5. Labor relations.
 MAIN TASKS OF HRM
Right results – Through people
Right people for the right jobs
Motivating these folks
Measuring their productivity
Develop their full potential
MISSING FOCUS FOR HR
• Improving productivity
• Increasing quality
• Facilitating mergers and acquisitions
• Managing knowledge
• Improving organizations ability to bring
new product/services to market
CORE COMPETENCIES
• Knowledge of Employment Law
• Soft Leadership Skills
• High ethical standards
• Technology skills (Human Resources
Information Systems
 HUMAN RESOURCE PLANNING
HR Planning includes all activities
managers do to forecast current and future
HR needs.
• Must be done prior to recruitment and
selection
• Demand forecasts made by managers
estimate the number & qualifications the
firm will need.
• Supply forecasts estimate the availability and
qualifications of current workers and
those in the labor market.
HUMAN RESOURCE
PLANNING (HRP)
is the continuous process of systematic planning
ahead to achieve optimum use of an
organization's most valuable asset—quality
employees
continuous process of predicting future
workforce needs and predicting future plans to
make optimal use of employees’ skills and
aptitudes
ensures the best fit between employees and jobs
while avoiding manpower shortages or surpluses.
Steps to Human Resource Planning

1st Step – Analyzing Labor Supply

• is to identify the company's current human

resources supply. In this step, the HR
department studies the strength of the
organization based on the number of
employees, their skills, qualifications,
positions, benefits, and performance levels.
2nd Step – Forecasting Labor Demand

• requires the company to outline the future of

its workforce. Here, the HR department can
consider certain issues like promotions,
retirements, layoffs, and transfers—anything
that factors into the future needs of a company.
The HR department can also look at external
conditions impacting labor demand, such as
new technology that might increase or decrease
the need for workers.
3rd Step – Balancing Labor Demand
With Supply

• is forecasting the employment demand. HR

creates a gap analysis that lays out specific
needs to narrow the supply of the company's
labor versus future demand. This analysis will
often generate a series of questions, such as:
Should employees learn new skills?
Does the company need more managers?
Do all employees play to their strengths in
their current roles?
4th Step – Developing and Implementing
a Plan

• the answers to questions from the gap analysis

 help HR determine how to proceed, which is
the final phase of the HRP process. HR must
now take practical steps to integrate its plan
with the rest of the company. The department
needs a budget, the ability to implement the
plan, and a collaborative effort with all
departments to execute that plan.
HRM COMPONENTS
Component should be consistent with the others,
organization structure, and strategy.
Recruitment: develop a pool of qualified
applicants.
• Selection: determine relative qualifications &
potential for a job.
Training & Development: ongoing process to
develop worker’s abilities and skills.
Performance appraisal & feedback: provides
information about how to train, motivate, and
reward workers.
• Managers can evaluate and then give feedback
to enhance worker performance.
HRM COMPONENTS
Pay and Benefits: high performing employees
should be rewarded with raises, bonuses.
• Increased pay provides additional incentive.
• Benefits, such as health insurance, reward
membership in firm.
Labor relations: managers need an effective
relationship with labor unions that represent
workers.
• Unions help establish pay, and working
conditions.
If management moves to a decentralized structure, HRM
should be adjusted as well.
RECRUITMENT
External recruiting: managers look outside the firm
for people who have not worked at the firm before.
• Managers advertise in newspapers, hold open
houses, recruit at universities, and on the Internet.
• External recruitment is difficult since many new
jobs have specific skill needs.
• A multi-prong approach to external recruiting
works best.
Internal Recruiting: positions filled within the firm.
• Internal recruiting has several benefits:
• Workers know the firm’s culture, may not have
new ideas.
• Managers likely already know the candidates.
• Internal advancement can motivate employees.
HRM Planning: Outsourcing
Outsourcing: managers can decide to contract
with outside workers rather than hiring them.
• Outsourcing is more flexible for the firm.
• Outsourcing often provides human capital
at a lower cost.
• Outsource problems: managers lose
control over output.
• Outsource contractors are not committed to
the firm.
• Unions typically are against outsourcing that
has potential to eliminate member’s jobs.
Selection Tools
Background
Information

Interviews References

Selection

Performance tests Paper tests

Physical
Ability tests
Selection Process
After a pool of applicants are identified, qualifications
related to the job requirements are determined:
• Background Information: includes education,
prior employment, college major, etc.
• Interview: almost all firms use one of two types:
• Structured interview: managers ask each person
the same job-related questions.
• Unstructured interview: held like a normal
conversation.
• Usually structured interviews preferred; bias is
possible.
• Physical Ability Test: measure strength &
endurance.
• Good for physically demanding jobs.
 Paper & Pencil Tests: Either an ability and
personality test.
• Ability test: assess if applicant has right skills for
the job.
• Personality test: seek traits relevant to job
performance.
• Be sure test is a good predictor of job
performance.
Performance Tests: measure job performance.
• Typing speed test is one example.
• Assessment Center: candidates assessed on job-
related activities over a period of a few days.
References: outside people provide candid
information about candidate.
• Can be hard to get accurate information.
 Reliability & Validity
Selection tools must be reliable and valid.
• Reliability: the degree to which the tool
measures the same thing each time it is used.
• Scores should be close for the same person
taking the same test over time.
• Validity: Does the test measure what it is
supposed to measure?
• Example: does a physical ability test really
predict the job performance of a firefighter?
• Managers have an ethical and legal duty to
develop good selection tools.
Terms
• Labor Union-an organization with legal
authority to negotiate with the employer
on behalf of employees
• Bonafide Occupational Qualification
(BOQ)-individual characteristics
necessary for performance of job
requirements
• Employees Vs Independent Contractors
Terms
• Right-to-work laws - can’t force
membership
• Contrast Error-interviewer bases
judgement of a candidate upon a
comparison with preceding interviewee
• Similarity Error-bias toward a candidate
that is similar to the interviewee
• Situational Interviews-give scenarios to
candidates and judge their responses
TRAINING & DEVELOPMENT
Training: teach organizational
members how to perform current jobs.
• Help worker’s acquire skills to
perform effectively.
Development: build worker’s skills to
enable them to take on new duties.
• Training is used more often at lower levels
of firm, development is common with
managers.
• A Needs Assessment should be taken first to
determine who needs which program and
what topics should be stressed.
 Types of Development
Varied Work Experiences: Top managers
must build expertise in many areas.
• Workers identified as possible top
managers given many different tasks.

Formal Education: tuition reimbursement is

common for managers taking classes for MBA
or similar.
• Long-distance learning can also be used to
reduce travel.
Whatever training and development efforts used,
results must be transferred to the workplace.
Job Analysis
• Job Analysis-the act of examining
positions within an organization
• Job Description-narrative explaining the
scope of a position
• Job Characteristics-tasks involved in a
position
• Job Requirements-personal
characteristics necessary to fill a position
PERFORMANCE APPRAISAL
• Process of evaluating employee
performance
• job related strengths
• development needs
• progress toward goals
• determine ways to improve performance
• Pay and promotion decisions
• More systematic is better, for the most part
• Self Appraisal
• Peer Appraisal
• 360 Degree appraisal
• Central Tendency Error-
everyone ranked as average
• Leniency-individuals are ranked
higher than they deserve
Who Appraises Performance?
Supervisors

Peers Customers &

Clients
Sources of
performance
appraisals

Self Subordinates
PAY AND BENEFITS
Pay level: how the firm’s pay incentives compare to
other firms in the industry.
• Managers can decide to offer low or high
relative wages.
• Pay Structure: clusters jobs into categories
based on importance, skills, and other
issues.
Benefits: Some are required (social security, workers
comp).
• Others (health insurance, day care, and
others) are provided at the employers
option.
• Cafeteria-style plan: employee can choose
the best mix of benefits for them. Can be
hard to manage.
PAY
• Base Wage
• Job Based Pay-paid for the job that is
done
• Competency Based Pay-pay is linked
to job-relevant skills, knowledge, and
experience
• Incentive Pay-linked to job performance
• can increase motivation
• links employees to firm performance
• works well when employees trust firm
Individual Incentives
• Piece-Rate - Pay for each unit of output
• Commissions - Pay from percentage of
sales or profits
• Bonuses - Lump sum payments
• Merit Pay - Permanent increases in base
pay linked to individual’s previous
performance
• Seniority - Increases over time
Team or Organizational Incentive
• Gain Sharing - teams of employees share
in gains from improvements in
productivity or cost saving measures
• Profit Sharing - A percentage of profits
earned by a department or company
• Stock Ownership
• Options
• Employee Stock Ownership Plans
Labor Legislation Laws
Fair Labor Law
• Minimum Wage
• Pay for overtime
• Does not cover commission, salary, or tips

Pro-Union/Labor Legislation
Pro-Individual
• Equal Pay Act
• Men and women must be paid equally when doing
equal work
• requiring similar skill, effort, responsibility, and
conditions
• Equal Pay Vs Comparable Worth
Civil Rights Act
• Prohibits discrimination in all phases of
employment based on race, color, religion, sex,
or national origin.
• Such information can’t be considered in
hiring, firing, promotions, training, or
granting raises
• religious discrimination
• EEOC monitors, justice department
enforces
Individual Rights
• Age Discrimination
• Occupational and Safety Health Act
• Requires employers to provide a safe and healthful
workplace with adequate protection against
hazards
• Dangerous Equipment
• Chemicals
• Established Occupational Safety and Health
Centers
Individual Rights
• Equal Employment Opportunity Principle thru
R.A. 10524

• No person with disability shall be denied access to

opportunities for suitable employment. A qualified
employee with disability shall be subject to the
same terms and conditions of employment and the
same compensation, privileges, benefits, fringe
benefits, incentives or allowances as a qualified
able bodied
Human Resources
Theories
Human Resource theories is a general term for the strategies, tactics and
objectives used by business owners and managers to administer policies and
procedures related to employees.

Human resource theories explain how management practices and structures

can influence employee behavior in a favorable or bad way. Small business
owners can optimize staff productivity and creativity while reducing employee
turnover by having a basic understanding of organizational behavior and HR
theories and acting on it.
Motivation Theories
Abraham Maslow’s Hierarchy of Needs

Many other theorists tried to explain the importance

of the human resources approach. One of these
individuals was Abraham Maslow. Maslow, A. H.
(1943). A theory of human motivation. He is widely
known for his creation of Maslow’s Hierarchy of Needs.
In order to get employees to work, he tried to
understand what motivates people. He came up with
five needs that need to be satisfied at one stage before
moving on to another stage. Maslow felt that needs vary
from person and person and that individuals want their
need fulfilled. One must determine what is the
motivational factor.
Physiological Needs. The first level of Maslow’s Hierarchy of Needs is psychological,
which means that physical needs such as food and water need to be met before moving to the
next level. If workers do not make enough money to buy food and water, then it will be hard
for them to continue working.
Safety Needs. The second level is called safety. Workers need to be in a safe environment
and know that their bodies and belongings will be protected. If workers don’t feel secure, then
they will find it hard to work efficiently. Think of the many occupations that are highly unsafe.

Love, Affection, and Belongingness Needs. The third layer is called love, affection, and
belongingness needs. Maslow believed that if an individual met the basic physiological and
safety needs, then that individual would start attempting to achieve love, affection, and
belongingness needs next, “He [or she] will hunger for affectionate relations with people in
general, namely, for a place in his [or her] group, and he [or she] will strive with great
intensity to achieve this goal. Maslow believed that organizations would have better worker
retention and satisfaction if they kept their employees in a cohesive environment.
Furthermore, if a worker feels isolated or ostracized from their environment, then he or she
would feel less motivated to work, which will lead to a decrease in overall productivity.
Maslow believed that organizations would have better worker retention and satisfaction if
they kept their employees in a cohesive environment. Furthermore, if a worker feels isolated
or ostracized from their environment, then he or she would feel less motivated to work, which
will lead to a decrease in overall productivity.
Esteem Needs. The fourth layer is called esteem, and is represented by two different sets
of needs according to Maslow. First, individuals are motivated by the “desire for strength,
for achievement, for adequacy, for confidence in the face of the world, and for
independence and freedom.” Maslow goes on to discuss a second subset of esteem needs,
“we have what we may call the desire for reputation or prestige (defining it as respect or
esteem from other people), recognition, attention, importance or appreciation.” While
Maslow originally separated these two lists from each other, they clearly have more in
common than not. If employees do not feel that their input is valued at the organization,
they will seek out other places of employment that will value their input, because humans
have an intrinsic need to be appreciated for their efforts.

Self-Actualization Needs. The fifth layer is called self-actualization, and it is the

hardest to attain. Self-actualization “refers to the desire for self-fulfillment, namely, to the
tendency for [a person] to become actualized in what he [or she] is potentially. This
tendency might be phrased as the desire to become more and more what one is, to become
everything that one is capable of becoming.” Maslow goes on to explain, “A musician must
make music, an artist must paint, a poet must write, if he [or she] is to be ultimately
happy. What a man [or woman] can be, he [or she] must be. Maslow felt that if individuals
can have their needs met in order of the layers, then they would be both motivated and
seek opportunities to excel.
All in all, Maslow’s hierarchy of needs helps us
understand how to motivate workers to strive for more
in the organization. Hence, communication is very
important, because we need to understand what our
employees need in order to motivate them to work
more proficiently and productively.
Frederick Herzberg’s Motivation-Hygiene
Theory
Originally trained as a clinical psychologist, over the course of Herzberg’s
career he switched focused and became one of the first researchers in the
growing field of industrial psychology. The original notion of Frederick
Herzberg’s Motivation-Hygiene Theory was that traditional perspectives on
motivation, like Maslow’s, only looked at one side of the coin—how to
motivate people. Herzberg and his original colleagues Herzberg, F., Mausner,
B., & Snyderman, B. S. (1959). theorized that what ultimately motivated
individuals to work were not necessarily the same factors that led to
demotivation at work. In Herzberg’s worldview, motivation on the job should
lead to satisfied workers, but he theorized that satisfaction and dissatisfaction
were not opposite ends of one continuum. Instead, he predicted that the
factors that lead to positive job attitudes (and thus motivation) were different
from the factors that lead to negative job attitudes (and thus demotivation).
For the purposes of his theory, he called the factors that led to positive job
attitudes motivators and those factors that led to negative job
attitudes hygiene factors
 Motivators Hygiene Factors

Achievement Policy and administration

Recognition Micromanagement

Relationships (Supervisor, Peers, &

Advancement
Subordinates)

The work itself Job security

Responsibility Personal life

Potential for promotion Work conditions

Potential for personal growth Status

Salary
Decision Making
Douglas McGregor’s Theory X and
Theory Y
The classical perspective felt that leadership should control and
order subordinates. Then, in the human relations approach, we
learned that superiors need to cultivate and support their employees.
Douglas McGregor. McGregor, D. (1960), a management professor at
the Massachusetts Institute of Technology in the 1950s and 1960s, felt
that there are two different perspectives, which he termed as Theory
X and Theory Y. These theories were based on assumptions that
managers have about their workers.
a management professor at the Massachusetts Institute of Technology
in the 1950s and 1960s, felt that there are two different perspectives,
which he termed as Theory X and Theory Y. These theories were
based on assumptions that managers have about their workers.
McGregor defined a Theory X manager who believes
that most people do not like work. Workers are not
smart or creative. People do not care about the
organization, and will adequately work when there are
promises for rewards and potential punishments.
Moreover, Theory X manager believes that people want
to have direction in order to evade responsibility.

On the other hand, Theory Y managers feel that people

want to do what is best for the organization and can
direct themselves under the right conditions.
 Theory X Theory Y

People dislike work and find ways to People perceive work as natural and find it
avoid it enjoyable
Workers want to avoid
People want responsibility
responsibility

Want direction Prefer self-direction

Resists change Wants to work toward organizational goals

Not intelligent Have the potential to develop & adapt

Not creative Are intelligent

Managers must control, reward,

and/or punish employees to Are creative
maintain performance

Work conditions need to be set to achieve

worker & organizational goals
Rensis Likert’s Participative Decision
Making Theory

The last major theorist we are going to explore related to the human
resources side of management theory is Rensis Likert’s Participative
Decision Making (PDM) Theory. Likert originally explored the idea of
how organizational leaders make decisions in his book The Human
Organization.Likert, R. (1967). Likert’s ideas were based in the notion
that supervisors with strong worker productivity tended to focus on the
human aspects of subordinate problems while creating teams that
emphasized high achievement. In other words, these supervisors were
employee centered and believed that effective management required
treating employees as humans and not just worker bees. Likert further
noted that these highly productive leaders also tended to involve
subordinates in the decision making process. Out of this basic
understanding of productive versus unproductive management, Likert
created a series of four distinct management styles.
System 1: Exploitive Authoritative. System 1,
exploitative authoritative management, starts with the basic
issue of trust. Under this system of management, the
manager simply does not trust subordinates and has no
confidence in subordinate decision making capabilities.
Because of this lack of trust, all decisions are simply decided
upon by people at the upper echelons of the hierarchy and
then imposed on the workers. Communication under these
leaders is typically unidirectional (from management to
workers), and employees are motivated to comply with
management dictates out of fear.
System 2: Benevolent Authoritative. System 2,
benevolent authoritative management, starts with the
basic notion that decision making should be situated with
those in managerial positions. Because managers believe
that decision making should be theirs and theirs alone,
managers believe that workers will simply comply with
managerial dictates because of the manager’s legitimate
right to make decisions. This type of management almost
takes on a master-servant style relationship. As for
communication, subordinates are not free to discuss
decisions or any job-related matters with their superiors.
Ultimately, employ motivation to comply with managerial
dictates is done through a system of rewards.
System 3: Consultative. System 3, consultative management, starts
with a lot more trust in employee decision making capabilities.
However, the manager may either not have complete confidence in
employee decision making or may have the ultimate responsibility for
decisions made, so he or she does not allow workers to just make and
implement decisions autonomously. Typically, the manager seeks input
from workers and then uses this input to make the ultimate decision.
Under consultative management, communication, decision making
participation, and teamwork is fair, and employees tend to be more
motivated and satisfied than the previous two styles of management.
However, consultative management can be very effective if, and only if,
the input process is conducted legitimately. One of the biggest mistakes
some managers make is to use pseudo-consultative practices where they
pretend to seek out input from subordinates even though the actual
decision has already been made. Pseudo-consultative decision making is
just a different flavor of benevolent authoritative management.
System 4: Participative. System 4, participative management, is
built on the goal of ensuring that decision making and organizational
goal attainment is widespread throughout the organizational
hierarchy. In these organizations, organizational leaders have
complete confidence in worker ability to make and implement
decisions, so workers are constantly encouraged to be very active in
the decision making process. Under participative management,
communication, decision making participation, and teamwork is good,
and employees tend to be motivated and satisfied.
 

KEY TAKEAWAYS
 Human Resources encourages an environment where employees have the
ability to be creative and take risks in order to maximize outcomes.
 Human resources places an emphasis on more communication than
human relations.
 Maslow’s hierarchy of needs help us to understand what motivates people
in organizations.
 Herzberg’s theory focuses on what motivates individuals to work and he
also focused on what factors lead individuals to demotivation at work.
 McGregor’s Theory X and Theory Y are assumptions that managers have
about their employees. They differ in the type of communication involved
as well as the expectations of workers.
 Rensis Likert’s ideas were based on the idea that supervisors are
employee centered and to treat all employees as unique humans rather
than just another worker.
Organization Behavior Theory
The study of organizational behavior (OB) is applied to HRM
functions and its related subjects helps us understand what people in
organizational environments think, feel and do. This knowledge helps to
anticipate, recognize and monitor organizational events for HR and,
realistically all employees. Organizational behavior study includes research
areas dedicated to improving performance at work, increasing job
stability, fostering creativity, and fostering leadership. A focus on
organizational behavior helps to explain why certain different behaviors
impact workers ' efficiency and discretionary effort, as well as how to
consider and forecast the effects of different policies on managing human
resources.
There are several important aspects from the viewpoint of organizational
behavior that Pfeffer in (2007) illustrated three:

 First, people are social beings and as such are concerned with their
interactions with one another and affected by what others say and do.

 Secondly, people are worried with equality and justice, both the
distributive results and the mechanisms by which those results are
decided. Because of this equal role in both systems and results, people will
be gradually known as economists, in reality, spend money to "punish"
people who violate fairness standards.

 Thirdly, organizations as entities are also embedded in a social context

and are influenced and imitated by the other organizations, partly in order
to achieve validity by acting like or look like others and partly in
accordance with social expectations and standards. So, organizational
behavior is an area of study that examines the impact those human beings,
groups and structures have on behavior within organizations in order to
apply this knowledge to improve the effectiveness of an organization.
AMO theory (Ability, motivation and
opportunity) to participate
According to AMO theory the components of Ability, Motivation, and
Opportunity are the three-independent work-system elements that form
employee characteristics and eventually lead to organizational success.

Ability refers to those practices and policies that HR undertakes to ensure

that employees have or gain the required skills, knowledge and ability to
perform their tasks with minimum supervision as Yahya, Tan and Tay (2017)
states that ability-enhancing HRM practices are the practices that increase
the employee’s abilities and competencies to achieve organizational goals. On
the other hand, ability enhancing practices also refer to those practices that
are taken to ensure effective recruitment and selection process to hire the right
employees who have the right skills for the role requirements. In
addition to and selection ability-enhancing HRM practices cover training
and development practices as well, which provide employees with the
necessary skills and knowledge to perform tasks
Motivation refers to employee performance, amendment polices
performed by HR to manage motivation in the organization. It also refers to
the ways in which the employees are motivated to put more and extra efforts
in performing assigned tasks mainly by rewarding them for the efforts
they have already put in their jobs “motivation enhancing HRM practice
within the organizations to perform better which included contingent
rewards and performance management”. Motivation enhancing practices can
be performed in different forms, for example an organization can increase
motivation through communicating performance feedback to their
employees or through providing them with financial rewards.

The last component is the opportunity-enhancing HRM practices which

aim at engaging employee involvement through providing opportunities.
According to Bello-Pintado (2015), opportunities-enhancing HRM practices
are referred to as the practices that delegate decision making authority and
responsibility from top level hierarchy to lower level hierarchy through
information sharing. This practice strengths employee trust in the
organization and it fastens organization growth through collective work (Bos-
Nehles, Riemsdijk, & Looise, 2013).
Human Capital Theory
Human capital is an illustration of people’s investment in themselves, in other
word in their skills, that eventually increases their economic productivity. Their
theory is based on the idea that human capital leads to creativity which eventually
results in receiving higher personal income. This theory’s supporters believe
that educated people are productive people meaning people who are educated,
earn higher personal income than the rest of the population. “Human capital
theory rests on the assumption that formal education is highly instrumental and
even necessary to increase production capacity of a population”.

However, there are some researchers who stand against the human capital theory,
such as Fix, Blair (2018) they suggest that the correlation between income and
education is weak. “Simple correlations between earnings and years of schooling
are quite weak. Moreover, in multiple regressions when variables correlated with
schooling are added
Human capital theorists claim that productivity and efficiency of
employees increases by education through raising the level of cognitive
stock of economically productive human ability that is an outcome of innate
capability and investment in human beings. According to Babalola (2003)
stated in Olanyan and Okemakinde (2008) the logic behind investing in
human capital is built on three points of view which are first, the new
generation must be provided with the knowledge that previous generations
also had. Second, the new generation should be trained in the ways in which
the existing knowledge can be used to develop and invent different products
or social services.
Resource-based Theory
The resource-based view is applied as a theoretical foundation in HRM that
is based on the assumptions that firm resource variedly distributed and
remained stable over time. A firm’s resources include materials, skills,
organizational processes and systems, plus information and data of the
organization. This theory ties HRM with competitive advantage
generation through focusing on fostering the internal resources that the
organization owns which most probably are unique and special to the firm,
in different words no two organizations have the same exact resources,
either tangible or intangible. “If resources and capabilities of a firm are
mixed and deployed in a proper way, they can create competitive
advantage for the firm. Eventually, only companies themselves can
achieve and sustain competitive advantage by innovation and
strategically positioning in the market”. However, theorists argue that
effective human resource practices can easily be copied by other competitors
while the type human capital an organization has cannot be copied which
ultimately turns into competitive advantage for the firm.
Theorists distinguish between resources and capabilities arguing that sources
are the inputs in the production process that are the fundamentals of analysis.
According to Grant (1999) researchers face some problems in identifying
the resource basis for specific organizations due to the fact that the two main
sources of data and information which are IT and financial statements and
both of those factors fail to provide adequate information about intangible
resources and people-based skills and only provide a fragmented picture of
resource bases.

In order to find a tactic to identify resources a classification approach is

produced that consist of six categories of resources which are financial
resources, physical resources, human resources, technological resources,
reputation and organizational resources.
Institution theory
Institution theory suggests that the environment inside the organization has a
direct impact on formal organizational structure development. The
organizational environment features such as cultural elements, symbols,
normative beliefs, and other shape institutional structure. According to Meyer
and Rowan (1977) cited in Mohamed (2017) argued that organizational forms
depend on “rational myths‟ or shared beliefs. Through the Institutional theory
theorists explain the logic of organizational fields and organizational norms
and argue that after conforming these norms, organizations become optimal
and prolong their survival by putting these norms into practice finally grantees
organizational survival. However, one of institutional theory’s main
contributions is managing the organizational research in its cultural cognitive
dimension (Scott, 2008 cited in Mohamed, 2017), researchers have focused on
regulatory and normative aspects (Phillips and Malhotra, 2008) that create
stability by allowing deviating behavior in the organizations.
 It is argued that there are three different institutionalisms. Starting with
sociological intuitionalism which has three main stages. Firstly,
instruments that consist of individual ideas and assumptions. Secondly,
the linkage between observed reality and political instruments and
policy goals. Thirdly, culturally driven assumptions. The second form of
intuitionalism is historical institutionalism which has a moderately high
level of self-identity. The last element is political institutionalists
typically situate their claims at the state or macro-political level and
argue that the process of formation of states, political systems, and
political party systems strongly influence political processes and
outcomes.
Transaction Cost Theory
Transaction cost theory is one of the important organizational theories for
the analysis strategy and organizational issue and recently it has been applied to
the HRM functions for controlling employee’s behavior, which focuses on
examining the problem of human exchange (contract) based on finance and
economics. For the HR department, this theory is about understanding the
employee’s contract (Wright & McMahan, 1992). Transaction cost theory is
used for solving opportunism and rationality in the
contract. Firstly, Opportunism means a contract between parties behave as self-
interest, a firm must provide safeguards in the contract as guarantee to be sure
that the parties will not tend to act in self-interest. Secondly, rationality means
that the contract has no enough information and disable company to make the
right decision because the lack of adequate information (Williamson, 1994).

However, As Suska (2016) mentioned that the transaction cost divided into
three types; Marking transaction costs are the costs of collecting
information, conducting decision making about an agreement, and the cost of
implementation of the contract. The inter-company transaction costs are the
fixed and the variable costs of the company’s practices.
The last one is public transaction costs, which are the costs of organizing
and maintaining public order. Therefore, firms through marking
transaction cost can reduce the cost of searching for the qualified applicant
by providing enough information about the vacancies, checking the
application documents, references, and negotiation about contracts
(Suska, 2016).

Transaction cost theory is quite useful for describing employee motivation

at the individual, group and organizational level. The theory linked to
compensation system and provide adequate rewards for employee’s
performance (Jones, 1984). Also, the transaction cost theory helps to arise
the contract implementation if any gaps, errors, unanticipated
disturbances occurred between the parties.
Agency Theory
Agency theory uses to understand situations in which a principal (owner)
delegate tasks to an agent (employees) on his behalf include some decision-
making authority. This theory applied to HRM by reducing the conflicts of
interest between principal and agents when responsibility delegated by
controlling behaviors and build employee relations. As Welbourne and Cyr
(1996) noted that agency cost will reduce when the firm is controlled by the
owner and conflict of interest eliminated and establish proper incentives to
ensure that the agent will not take harmful action toward principal. Agency
cost includes monitoring cost which directly related to the actions of the agent.
Firms managing and monitoring by owner required low agency cost, but when
the firm grows and more agents involve, the monitoring cost increase because
owner becomes less efficient.
Nevertheless, the agency theory has extensive consequences at both the
individual and organizational level for firms, because it linked between goals and
participation, tied employee attitudes, organize the relationship between
employer and employees, and employee withdraws behaviors (Levy and
Williams, 2004). Also, Welbourne and Cyr mentioned in their article that, the
HRM functions such as job analysis, job posting, writing and formalizing policy
which made for the purpose of standardizing and control employee behavior
may viewed as serving monitoring function by managers. Firms can get
benefit from choosing incentive alignment by increasing employee ownership
(Welbourne and Cyr, 1996). This focusing on aligning employee goals with
organization goals and makes employee become risk-taker and behave in the
interest of the principal benefit. Also, provide rewards to employees when
performance improved.
Contingency Theory
This theory suggested that in order firms to be effective, HRM functions
must fit with the organization or external environment aspects to achieve
organizational goals. According to Harney (2016) said that contingency
theory within HRM is based on external and internal fit. External fit
means HR practices must fit with the organizational strategy and
environment conditions. Internal fits mean HR practices must work
together to deliver the same message and the desired outcome. Also,
Delery and Doty (1996) stated that by using contingency theory, firms can
promote employee behaviors that are matched with business strategy
because behavior is the impact of an employee’s ability and motivation,
therefore by implementing HR practices such as promoting policies which
motivate the employee, an organization can influence behavior.
However, contingency factors such as culture, globalization and the
size of companies have a direct influence over the HRM functions.
According to Rekers (2013) stated that as different culture implies
different HR practices, when the organization involved in a new
environment which the culture is different form exist culture, the HRM
need more information to make decision, take care of changes and
maintain balance between employee’s behavior toward new environment.
Globalization is a contingent upon HR practices because the
consequences of the globalization are introducing firms to new
technology, which required more training for employee and hiring skilled
labor and globalization lead to new markets which introduce to new
cultures and managing these different become very important for the HR
department. Also, company size is contingent upon HRM, because on the
smaller firms, the HR department was not existing or very small and
sometime the responsibility takes by production manager while in larger
firms have a separate HR department which available for more issue
and required more HR expertise for being responsive.
Conclusion
In conclusion, HRM is the ability to use employee’s effectively and efficiency
to achieve the organization’s goal and HRM theories helps HR to achieve this purpose
and increase the motivation and commitment of workers. As discussed, the nine theories
support HRM functions. The organizational behavior theory helps HRM to
understand of employee’s behavior and explain why certain different behaviors impact
employee’s performance. Motivation theory is about creating a high amount of passion
between employees to obtain the desire goals and address individual needs. The AMO
theory paves the way for line managers to use effective approaches that result in
employee motivation using HR policies and practices. Human capital theory claim
that employee education is a key important point for raising productivity. The
resource-based theory is about HRM must know about the company’s sources and
capabilities that can be used for competitive advantage. Institution theory helps
HRM to anticipate about environmental dimensions that has direct impact over
organizational structure development. The transaction costs theory focuses on
examining the problem of human exchange based on finance and economics. The
agency theory is important for HRM for solving the conflict between principal and
agents. The last theory, contingency theory focuses of HRM functions must fit with
the organization or external environment aspects to achieve organizational goals.