A strategic approach to human resource management (HRM)
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It is widely acknowledged and accepted in business that the sources of sustained competitive advantage lie not only in access to finance or capital, but within the organisation, in people and processes capable of delivering business strategies such as customer satisfaction or rapid innovation. (Lundy, 1994). A strategic approach to human resource management (HRM) ensures that a firm’s human capital contributes to the achievement of its business objectives. Various influential writers have expressed differing opinions on the importance of employees as a direct influence on an organisations competitive advantage. Although no firm agreement has been reached, it is generally accepted that the use of strategic human resource management (SHRM), (i.e. proactively changing and implementing a series of internal HR policies to ensure effective contribution from a firms human capital to the achievement of business objectives), is relevant within HR intensive firms. 2 Perspectives on HRMStrategic human resource management is often used as the basic framework for the investigation of human resource strategy and its relation to the organisations performance.
Three main theories have been focused on by the top writers on the subject. These are the universalistic, resource-based and configurational perspectives of HRM. Briefly these are: 2.1 Universalistic theory Universalistic perspective is the simplest and most widely used model in literature. Basically, the follower of the universalistic view seeks to instill ‘best practices’. That is, they believe some HR practices are always better than others and that firms adopting these practices will experience an improved performance. Seven practices have been identified as ‘best’. These are: Good internal career opportunities Formal training systems Results and behavior based appraisals Profit sharing plans Strong employment security Voice mechanisms, e.g. participation in decision making Tightly defined jobs A number of authors have spoken in support of this theory. Leonard (1990) found that firms with long-term incentive plans in place for their executives had greater increases in return on equity over a four-year period than other organisations. Abowd (1990) also proved that the degree to which managerial remuneration was tied to their firm’s performance was strongly correlated with future financial performance.
There are however a number of critics of the universalistic theory. The first and most obvious fault is that a lot of organisations that do not adopt ‘best practices’ manage to survive in, and even lead their markets. It is also obvious that any competitive advantage gained through the use of ‘best practices’ will be hard to sustain, as competitors will be quick to catch on and imitate. It is apparent that the universalistic approach is not suitable to all types of business. It has even been suggested by some prolific thinkers, that only profit sharing, result-orientated appraisals and employee security could have any strong relationship with important measures of performance. 2.2 Resource-based theory The resource-based theorists hypothesize that an organisation needs to adopt specific HR policies and practices for different business strategies. Thus, in order to be effective, an organisations HR policies must be consistent with other aspects of the company. An organisations strategy thus demands certain skills and behavioral requirements for success, and the use of HR practices can control employee behavior to be consistent with this strategy.
An organisation can establish HR systems and practices to ensure that staff with the required abilities are hired and retained, and then motivated to behave in ways consistent with the business strategy (Fama & Jenson 1983). 2.3 Configurational theory The configurational theory is concerned with how patterns of multiple planned human resource activities can achieve the organizations goals. To achieve this, an HR system has to be developed that achieves both an internal consistency with the firm’s HR practices, but also fits in with other organisational characteristics such as a firm’s business strategy. Miles and Snow (1984) developed a series of equally effective combinations of HR practices and they argued that different sets of practices are suited for different firm strategies. MacDuffie (1995) derived specific configurations of HR practices that enhanced firm performance in a series of case studies.
The configurational perspective is still a very speculative framework without much factual support. Additional theory development and testing is necessary to validate the model. All of these theories have been criticized. In particular, despite numerous studies of the universalistic model, the evidence in support of the theory remains inconclusive. Guest (1997) concludes that although the research evidence suggests that HRM does work, this is ‘a skeletal finding’ which needs ‘more flesh on the bones’. The resource-based view of the firm provides an alternative approach to the question of human resource management and organisational performance. From this perspective it is the human resource, or human capital in which the firm invests which has the potential to create superior performance. Thus, in contrast to the universalistic models of HRM and competitive advantage, the emphasis is shifted from the practices that the firm adopts to the people it employs. The resource-based view also differs from the universalistic approach to HRM in that it is company focused, rather than environment focused. Neither does it rely on the purely reactive notions of the configurational model.
3 HRM in organisational success A lot of writing on strategic HRM has emphasized the significance of HRM and people as a source of competitive advantage. (Lawler, 1991; Barney 1991; Snell et al 1996) Together they suggest that greater emphasis should be placed on the development of human capital. This is essentially because the more management believe that HRM contributes towards success as a company, the more its role will be recognized as important, and the more it will be integrated into the companies strategic long-term planning. In our current turbulent environment, two of the most critical factors for effective organisations are quality and service. To be successful, firms must be flexible enough to shift production and resources to meet changing markets and customer demand. They must therefore have employees that possess the skill and training to perform a variety of different tasks. Historically, a lack of employee flexibility has been the cause of the downfall of a number of massive organisations.
A good example of the ill effects that unprepared and poorly controlled employees can have is the demise of Ford UK. Ford has struggled for years to educate their employees into a flexible mold, in an attempt to stem the tide of advancement from foreign firms. The poor quality of HRM at Ford prevented management from adapting to match the cost effectiveness and quality of certain Japanese and German car firms. The famous Ford employee quote, “I’m not doing that! It’s not in my job description.”, sums up the inherent lack of flexibility in the culture of Ford’s employees. This culture, predictably has ended with the halting of the majority of Fords manufacture in the UK, and moves to countries with more ‘readily-moldable’ staff. Snell et al (1996) argued that adaptation of so-called flexible forms of work is correlated with firms operating in a competitive market, having technology which requires high levels of skill, engaging in customized production, and following a strategy that emphasizes variety and quality an contrast to low cost.
Thus, offering skilled employees high level of involvement, autonomy, training, good wages and benefits can be seen as a way to attract, motivate, and keep qualified employees who will be committed to the long-term goals of the company. It is often argued that the effects of a flexible, competent and committed workforce results in a highly productive organisation, which in turn gives the employees job security and a decent standard of living. Thus, the relationship between HRM strategy and company performance is heavily linked with labour market flexibility. It is essential for a company to have staff that are flexible in every different way, if they are going to respond competitively to the market. Begin (1992) identified four different types of flexibility required. External numerical flexibility – the freedom to adjust the size of the work force. Internal numerical flexibility – the ability to adjust the working hours of the employees. Functional flexibility – the freedom to deploy workers across different tasks within the company. Financial flexibility – the ability to adjust employee rewards, i.e. pay, bonuses, etc.
Looking back to the Ford example, you can see that the management did not have the freedom to adjust any of these without risking extreme actions such as walk-outs, which would reduce productivity to an extent where it would have been more efficient to continue without change. A good example of competitive advantage being increased due to strategic human resource management is that of ICL Ltd. ICL were formed in the 1970’s at the very beginning of the IT revolution. Originally, they constructed their own systems and provided IT solutions to industry. From the early 1990’s their profit levels dropped steadily until 1997 when drastic action was taken. HRM consultants were hired who suggested an adoption of a ‘best practice’ policy.
The company was severely shaken up and remolded as a forerunner of good HRM practice. Several best practices were adopted, including better internal career opportunities, more intensive staff training systems, bi-yearly performance appraisals with a bonus package for staff who had shown development since the last appraisal, a profit sharing scheme, and a radical change in working methods by the formation of small project groups. In the past three years, profitability has increased dramatically, staff turnover has decreased and productivity per employee is higher than it ever has been. This shows just how important an effective HR function is at influencing the success of an organisation. Peter and Waterman (1982) carried out a study of successful American companies and identified a number of characteristics common among them all. One of these characteristics was productivity through people. This is where the company sees their employees as a key resource, and vital to the success of the firm. The contribution of the staff to the organisation was valued as a key provider of competitive advantage to each firm studied.
Another common characteristic was what they termed ‘simultaneous loose-tight properties’. This basically means the company values are strongly emphasized at all times, but staff were given considerable freedom within these, and errors were tolerated. They also identified a shift in the importance of corporate culture from bureaucratic structural based working to the style and skills of their workforce. Four key factors relating to excellence were discovered. These are concern for customers, innovation, attention to people and a strong leadership. All the firms studied that displayed these characteristics were found to be highly productive class leaders. 3 Conclusion There are a great many theories and practices believed in by HRM writers. What is apparent out of all these different models is that strategic human resource management is vital to the ongoing success of an organisation in today’s highly competitive market place. It is apparent that all of the HRM models discussed (universalistic, resource-based, configurational) are relevant and useful to organisations.
The methods used just depend on the size and structure of each company. It is widely accepted, except in monopoly situations, that the key to having happy customers is to employ staff that treat them well. If your staff are happy with the organisation they are going to project a good image to the consumers, thus attracting more business. So, how do you get happy staff? With the use of strategic HRM. If you can obtain employees who are sufficiently trained for their role, who understand that if they perform well they will receive a bountiful remuneration, along with the chance to better their position within the company, they will perform to their absolute best for you. Peter and Waterman (1982) discovered that the singular most outstanding aspects of all the companies studied in their report was an intelligent, well-trained flexible workforce. This goes to show the undeniable gains made possible to industry through strategic use of human resource management.
• Achieving corporate success through people, Burn, 1998 •Building competitive advantage, Snell & Bateman, 1999 •Building the competitive workforce: Investing in human capital for corporate success, Wovis, 1993 •Business driven HRM, Hussey, 1996 •HRM: A contemporary perspective, Beardwell & Holden, 1997HRM trends and challenges, Walton & Lawrence, 1985 • Human Resource Management, Torrington & Hall, 1995 • Working for Ford, Beynon, 1988 • People Management journal •HRM Human Resources – Internet guide to Human Resource Management http://guest.btinternet.com/~alan.price/hrm/site.htm Word Count: 1977