A Proposal on
Impact of Human Resource Practices on Employee Performance
A case of Nepalese Service Sector
Submitted by
Bunu Sherpa
Master of Business Administration (MBA)
Rajdhani Model College
Pokhara University
Submitted to
Rajdhani Model College
Mid Baneshwor, Kathmandu
Submitted on
February 24, 2020
(In partial fulfillment of the degree of Master of Business Administration (MBA)
Introduction of the study
In current era of highly volatile business environment organizations are facing emerging
challenges in form of acquisition and optimization of human resource. Being valuable and scarce
capabilities, human resources are considered as a source of sustainable competitive advantage.
The success of an organization depends upon several factors but the most crucial factor that
affects the organization performance is its employee. Human resources play an integral role in
achieving an innovative and high-quality product/ service. If the employees of an organization
are satisfied with their jobs, the organization can achieve its goals very straightforwardly. In any
organization HRM practices focuses on optimal utilization and management of their human
resource effectively in order to achieve maximum output. In any organization, employees are
considered the essential strategic asset.
Therefore, employees could be a competitive advantage if their organization provides more
attention and invest in developing employees’ skills at the workplace (Danish and Usman, 2010;
Zaharie and Osoian, 2013). Similarly, universities strive to attract the talent, well trained and
enthusiastic employees as well as dedicated to their work through carrying out research and
training for the development of humanity (Lew, 2009). Prior empirical studies revealed that
successful and good effective implementation of some human resources management practices
(HRMPs) empowers university employees and improve their performance positively (Shahzad et
al., 2008; Chen et al., 2009).Lew (2009) argue that employees have an important and strategic
role in enhancing university positioning in significant fields such as quality of research,
academic reputation, and community
HRM is a planned and rational scheme for the management of population functioning in an
organization that alone and together puts in the effort for the accomplishment of organizational
objectives. HRM is a pool of unified policies, guidelines and procedures with ideological and
rational foundations. The main focus of HRM is on four aspects i.e. a particular group of beliefs
and assumptions, strategic thrust notifying choices regarding HRM, fundamental participation of
line managers and dependence on a set of levers to form employment affiliations (Storey, 1989).
Legge (1995) described HRM as based on hard and soft aspects by distinguishing differences
between human resource and material resource. Hard perspective emphasizes business strategies
as calculative and quantitative aspects of HR like other economic factors. Story (1987)
considered human resource as a factor of production, and their treatment is like that of the
variable cost of doing business. Soft perspective by Guest (1987) is the competitive advantage
focused approach, in selecting skilled, devoted and a flexible workforce. HR is treated as a
distinctive resource that turns factors of production into wealth. Thus the focus is on acquiring
long run competitive advantages by effective leadership, proper motivation and effective
communication, and by investing in people through training & development.
Managing people is concerned with deciding approaches and strategies to find alternatives of
how to achieve organization goals. Khan (2010) revealed that in energetic business atmosphere,
there is a need of an approach to achieve better performance, to originate and implement HRM
practices. In considerable and insubstantial extent the organizations need to invest in such
practices to get a competitive advantage. Human resources management practices play a very
crucial role in achieving the organization’s goals and maintain the competitive advantage. HRM
practices refer to organizational activities directed at managing the pool of human resource and
ensuring that the resources are employed towards the fulfillment of organizational goals (Schuler
& Jackson 1987).
Human resource management practices is the management of people within the internal
environment of organizations, comprises the activities, policies, and practices involved in
planning, obtaining, developing, utilizing, evaluating, maintaining, and retaining the appropriate
numbers and skill mix of employees to achieve the organization’s objectives (Appelbaum 2001).
Presently organizations are competing through implementing the unique HRM practices and due
to the globalization organizations adopt the most up-to-date HRM practices in order to
accomplish the organizational goals. Best HRM practices are advantageous for both employee
and employer; it plays an important role in constructive growth of the organization. Job
satisfaction is an attitude which is an outcome of harmonizing and summation of numerous
precise likes and dislikes experiences with the job. Job satisfaction for an employee is the level
of satisfaction according to job. Job satisfaction is a crucial indicator of how employees feel
about their job and describes how much they are contented with his or her job. The satisfaction
level of employees also associated with increase output of the organization. Job satisfaction of an
employee is essential to the success of an organization. In an organization a high rate of
employee contentedness is directly related to a lower turnover rate. Thus, keeping employees’
satisfaction in their jobs with their careers should be a foremost priority for every organization.
Bogdanova et al (2008) stated that HRM practices try to develop and allocate human capital in
the best possible ways in order to achieve long-term goals; they provide them with many benefits
and good environments that would boost employee’s motivation, job satisfaction, and increase
their performance. Gürbüz (2009) remarked that in order to sustain in the market human resource
management (HRM) practices and job satisfaction of employees have many significant benefits
for organization.
Employees are one of the most important assets of an organization as they contribute to its
growth and success (Danish and Usman, 2010). Malik et al. (2010) concluded that in the era
characterized by rapid and continuous change, knowledge capital must be retained in order for
organizations to be productive and responsive to the needs of their stakeholders.The impact of
HRM practices well trained and motivated so that they are committed to their work of
conducting research and training for the development of the nations (Lew, 2009). Research
literature has shown that effective application of some human resources management (HRM)
practices enables employees to be committed to their work for good performance of the (Chen et
al., 2009; Shahzad et al., 2008). Training and development of well-qualified human resources
will depend on the performance (Malik et al., 2010) subjected to effective implementation of
different bundles of HRM practices such as selection, compensation, information sharing,
participative decision making, job definition, training, career planning and performance
management among others (Delery and Doty, 1996; Smeenk et al., 2006).
Statement of the Problem
Impact of Human Resource Management practices on organizational performance has been a
widely researched area. Result of studies, from developed countries to developing countries;
have been time and again showing that HR practices have significant impact on employee
performance. But very insufficient numbers of studies have been conducted in this area other
than developed countries. To augment the contemporary knowledge base of HR practices of
developing countries, this study has been undertaken. This study assessed the impact of human
resource management on employee’s performance and investigates impact of service industries
human resource practices (recruitment & selection, training & development, compensation and
performance appraisal) on employee’s performance. Although, it was accepted that HRM is
positively related to employee’s performance. There is a great need for additional evidence to
support the HRM-performance relationship from different contexts. The observations of the
researcher in service sectors criticize about that they are not satisfied with their well being in
terms of compensation i.e. wages and benefits.
Research Question
Following are the research questions for the study:
1. Is there a linkage between Human resource practices and employees performance?
2. Does recruitment and selection process have impact in employee’s performance?
3. Does training and development have impact in employee’s performance?
4. Does compensation and incentive have impact in employee’s performance?
5. Does performance appraisal have impact in employee’s performance?
Objectives of the study

To examine the impact of human resource practices on employee’s performance in
Nepalese service sector.

To identify the impact of recruitment and selection process on employee’s performance
in Nepalese service sector.

To determine the impact of training and development on employee’s performance in
Nepalese service sector.

To identify the impact of compensation and incentive employee’s performance in
Nepalese service sector.

To identify the impact of performance appraisal on employee’s performance in Nepalese
service sector.
Literature review
According to Noe et al. (2011) human resource management is critical to the success of
organizations because human capital has certain qualities that make it valuable. In terms of
business strategy, an organization can succeed if it has a sustainable competitive advantage (is
better than competitors at something and can hold that advantage over a sustained period of
time). Therefore, we can conclude that organizations need the kind of resources that will give
them such an advantage. Employees are one of the most important assets of an organization as
they contribute to its growth and success (Danish and Usman, 2010). Malik et al. (2010)
concluded that in the era characterized by rapid and continuous change, knowledge capital must
be retained in order for organizations to be productive and responsive to the needs of their
stakeholders.
HRPs are essential for ideal integration for success in the global business environment. The
challenges and trends of HRPs have been revolutionized over the years. Thus, HRPs is vital for
successful implementation of HR policies effectively and efficiently to achieve the
organizational goals (Mathis and Jackson, 2008). Likewise, practices of HRM are valuable for
the organization to take practical measures for improving the efficiency of the workers and
enhancing commitment among them (Deb, 2006). Moreover, by implementing HRPs effectively
leads to attract motivate, retain employees in order to enhance individual and organizational level
performance (Pablos and Lytras, 2008). There is a growing concern based on the belief that
human resource should be valued as essential assets rather than a cost for the organization and as
a strategic factor which supports and source of sustained competitive advantage (Delaney and
Huselid, 1996; Wright et al., 2001; Sun et al., 2007). In addition, successful HRPs lead to an
improved level of individual and organizational performance (Chang and Huang, 2005).Many
researchers have studied the concept of HRPs and its relationship with individual and
organizational outcomes. For example (Kehoe and Wright, 2013) have examined the influence of
high-performance HR practice on employees’ attitudes and behaviors. They revealed that that
high-performance HR practice positively related to employees’ attitudes and behaviors which
affect the organizational commitment and fully mediate the relationship between employees’
retention and HR practices. Furthermore, Vanhala and Ahteela (2011) investigated the
relationship between HRPs and trust; they found that the perceptions of the fairness and
functioning of HRPs are connected to employee’s trust.
After reviewing the previous studies which have discussed the concept of HR practices and its
relationship with variant variables in the organization. The researchers concluded that HR
practices differ from firm to another and from country to another as well as the factors which
affect HRPs. These factors could be internal (e.g., organization size, organization structure,
business strategy, organizational culture) or external factors (economic, technological changes,
industry characteristics, national culture, legalization and regulations, competitors and
globalization). These HRPs directly or indirectly affect several variables within the organization.
Guest (2002) has argued that the Impact of HRM on performance depends upon worker’s
response to HRM practices, so the impact will move in direction of the perception of HRM
practices by the employee. Wood (1999) and Guest (2002) has stressed that a competent,
committed and highly involved work force is the one required for best implementation of
business strategy. Huselid (1995) have found that the effectiveness of employees will depend on
impact of HRM on behavior of the employees. Patterson et al (1997) while discussing impact of
people management practices on business performance has argued that HR practices in selection
and training influence performance by providing appropriate skills. Their research has found that
HR practices have powerful impact on performance even if measured as productivity. Huselid
(1995) stressed that by adopting best practices in selection, inflow of best quality of skill set will
be inducted adding value to skills inventory of the organization. He also stressed on importance
of training as complement of selection practices through which the organizational culture and
employee behavior can be aligned to produce positive results. Cooke (2000) has included
efficiency and effectiveness as ingredients of performance apart from competitiveness and
productivity. He further argued that training is the tool to develop knowledge and skills as means
of increasing individual’s performance (efficiency and effectiveness). Singh (2004), whose
observations are more relevant in our cultural context, argues that compensation is a behavior
aligning mechanism of employees with business strategy of the firm.
Hypothesis
Human Resource Management Practices are positively correlated to Employee’s Performance.
H1: Recruitment and selection has positive impact on employee’s performance.
H2: Training and development has positive impact on employee’s performance.
H3: Compensation and incentive has positive impact on employee’s performance.
H4: Performance appraisal has positive impact on employee’s performance.
Theoretical Framework
This study suggests a theoretical research framework which is developed on the basis of
extensive literature review. This study empirically tests the model. The Figure 1 shows the
theoretical framework of this research study, has four independent variables includes recruitment
and selection, training and development, compensation and incentives, performance appraisal
and one dependent variable i.e. Employees’ performance.
Recruitment and Selection
Training and Development
Employees Performance
Compensation and Incentive
Dependent Variable
Performance appraisal
Independent Variables
Figure: Theoretical Framework
Research Methodology
Research methodology is a way of solving the research problem systematically. As per Kotler,
2004 “When we talk of research methodology we are not only talking about the research
methods but also considering the logic behind the methods that we are using in the context of our
research study”. Therefore this chapter presents the research methodology. It covers research
approach and design, population and sampling design, data collection methods, research
procedures and data analysis methods. The validity and reliability test is also discussed. The
chapter gives highlights on the research design and details of the research approach that issued
during the study. Data is collected by using questionnaires, which will be implementing after
conducting pre-testing on samples of employees. The data entry and analysis will be process
using a statistical analysis package of SPSS software.
Research Approach
This study will use both quantitative and qualitative data collection approach because it includes
range of methods such as documentation, interview, questioner and observation. As the
combination of qualitative and quantitative approaches provides the most complete or insightful
understanding (Rwegoshora, 2006) this research is expected to provide better understanding of
the raised research problems. According to Creswell, 2003 it can also provide better
opportunities for testing alternative interpretations of the data, for examining the extent to which
the context helped to shape the results and for arriving at convergence in tapping a construct.
Research Design and Source of Data
The explanatory research design is undertaken on this study. For quantitative methodology the
researcher used employ cross-sectional study in that the respondents are from different
departments, different regions and on different level of the organizational structure. The
structural questionnaire will be design to collect information. To measure the impact of the
factors on the effect of performance appraisal on employee performance, five Point Likert-types
of scales were developed. As Likert scale is simple to construct it is also highly reliable and easy
to understand. Plus it takes much less time to construct.
Significance of study
The purpose of this study is to explore the impact of HRPs on employee performance at service
sectors of Nepal and to suggest recommendations for its improvement. Human Resource
Management, surfaced as a designed and methodical approach in the latter half of the
20thcentury, while the evolution and origin of HRM can be traced back to the 1970s with the
upsurge of human resources accounting theory. Before the accounting theory, human resources
used in the production activity were paid equivalent to what they produced. Their importance
and value was not perceived in terms of their skills and ability to deliver, mental and physical
struggle that ultimately strengthened the financial power of the organization. Human resource
accounting theory reformed this ideology and brought fresh thoughts, that the people were the
strategic asset of an organization, and they had to be treated in a proper way for enhancing their
motivational level, that would ultimately increase organizational performance. Therefore, on the
basis of this approach, Human Resource Management (HRM) reviewed the policies and
practices needed to carry out the “people” or the human resource aspect of management position,
including selection, job definition, training, performance appraisal, compensation, career
planning and encouraging employee participation in decision making.
Limitations of the study
Since the lack of time, resources and technical know-how this study is finished up to knowing
how the employees are empowered and their effect in organizational performance in some
service industry of Nepal. Beside it is perceived now that the study has had following limitations:

There is time and resources constraint as the study has to be completed within limited
time frame.

Only few factors are used as variable to find out relationship between the employee
empowerment and organizational performance.

Employee from whole organization could not be included. The respondents may not be
the representative of the whole population.

Beside this there is a doubt as to whether manager and supervisors at all levels are
transparent enough to give details of the information that they know.
Chapter Plan:
The report will be divided into five chapters excluding preliminary sections and Appendix. The
preliminary section will include title page, approval page, acknowledgement, table of contents,
list of tables and figures, acronyms and abstract.
Chapter I: It will include introduction, statement of the problem, objective of the study,
significance of the study, limitation of the study and organization of the study.
Chapter II: This chapter is about review of related literature. It includes introduction, concept of
consumer-based brand equity, theoretical review.
Chapter III: This chapter is about research methodology. It includes introduction, research
design, study site description and rationale behind selection of study area, study population and
sampling, nature and sources of data and methods of data organization, processing and analysis.
Chapter IV: This chapter gives the brief introduction about characteristics of the study
population. It deals with the findings in accordance objectives.
Chapter V: This is the last chapter of the study. It will contain wrapped up the study with
summery of findings, conclusion and suggestion.
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