Proceedings of the Australasian Conference on Business and Social Sciences 2015, Sydney (in partnership with The Journal of Developing Areas) ISBN 978-0-9925622-1-2 169 UNLOCKING THE BLACK BOX OF THE CONCEPTUAL RELATIONSHIP BETWEEN HRM SYSTEM AND ORGANIZATIONAL PERFORMANCE Zeyad Almutawa RMIT University, Australia Nuttawuth Muenjohn RMIT University, Australia Jiaying Zhang RMIT University, Australia ABSTRACT Scholars and researchers have devoted a great deal of time and effort in the last two decades in exploring the relationship between Human Resource Management (HRM) and organizational performance (OP). Despite the promising relationship that exists between HRM and performance, questions remain about what is referred to as the “black box” that are yet to be answered. The aim of this paper, therefore, is to develop and propose a conceptual model that captures the mediating effects of organizational variables such as “AMO” (skills and Abilities, Motivation, and Opportunity to participate), employees‟ attitudes, and employees‟ behaviors on the relationship between the HRM system and organizational performance. The proposed model intends to integrate both the content and the process approach to HRM. Investigating the proposed model would provide a clear and better understanding of the mechanisms that underlie the relationships and the effects of key organizational variables on the relationship between HRM system and organizational performance. JEL Classifications: M12, M54 Keywords: HRM, Organizational performance, HR system, Strong climate, AMO model Corresponding Author’s Email Address: Zeyad.almutawa@rmit.edu.au INTRODUCTION Several studies have indicated an existing relationship between HRM and performance (e.g., Wright and Gardner, 2000). However, there are still some remaining questions referred to as the “black box” that are yet to be answered. This black box question refers to the intervening and mediating variables linking HRM and performance, in addition to the mechanisms by which such relationships occur. In response to this black box question, some models have been proposed that were assumed to be the key to opening of the black box, and served as the mediating stage between HRM and performance (Guest, 1997; Becker et al., 1997; Wright and Nishii, 2007b). Although many models have been proposed, the widely accepted theoretical basis is the “AMO” framework (Savaneviciene and Stankeviciute, 2011), which suggests that HRM can affect organizational performance by enhancing employees‟ skills and abilities (A), motivation (M), and opportunity to participate (O). Having a system of HRM that enhances the three main pillars of the AMO model, however, is not enough to have the desired positive effect on organizational performance. According to Bowen and Ostroff (2004), a “strong climate” that is characterized by shared perceptions among employees is an important component to operationalize the AMO model effectively. To have such a strong climate, HRM system needs to be distinctive in its presence, consistent in its messages, and deliver a well-developed consensus between both, HR managers and other managers regarding HRM system importance, objectives, and practices. These attributes form what Bowen and Ostroff (2004) called a “strong HR system”. Given the importance of considering employees‟ perception (strong climate) in extending our understanding of the relationship between HRM and performance, no empirical studies have been found that investigate the effects of strong climate as a “moderating variable” on the relationship between HRM system and the AMO model. Moreover, many studies have been conducted to discover the possible effects of HRM systems on organizational performance (Chadwick, 2010; Liao et al., 2009; Batt & Colvin, 2011); nevertheless, according to Delaney and Huselid, (1996), Bowen and Ostroff (2004), and Gardner and his colleagues (2001), the field of HRM studies has been criticized by many authors for its lack of empirical studies specifying the mediating variables by which HRM practices lead to organizational outcomes. Finally, according to Katou