Why Might Employees Be Crucial to Competitive Success - Research Paper Example

Why might employees be crucial to competitive success Provide empirical evidence for the role of employees in business success a) Today, the effectiveness of any work organisation is depended upon the efficient use of resources, in particular human resources. The human element, as Armstrong and Baron (1995) called it, plays a major part in the overall success of the organisation. Employees are crucial for competitive success because they create added value for organizations. Employees play a major and continuing role in the competitive success, especially with the growth of large-scale business organisations and the divorce of ownership from management. They are crucial to competitive success because, of one form or another, employees are a necessary part of any company. In general, competitive success of an organization has an increasing impact on individuals and the community. The problem under analysis has been widely discussed in the literature. Such gurus of management as M. Porter (1985), Tomer (1987), Storey (1989), Arthur (1994), Huselid (1995), Pfeffer (1996), Huselid and Becker (1996), Pickus and Spratt (1 997), Ichniowski, et al (1997), Patterson et al (1998), Guest (2000) etc. analysed the impact of employees performance on competitive success of a firm and interdependence between HR strategies and successful business performance. They explain why employees are crucial to competitive success and what strategies a company should implement to achieve competitive success. M. Porter, in his book "Competitive Advantage" singles out the main criteria for success. Cost leadership, high quality and innovation are the main elements of competitive success (Porter, 1985). Cost leadership advantage is based on a firm's position as the industry's low-cost producer, in broadly defined markets or across a wide mix of products. For a company managing for high quality means more than just fine-tuning production controls. High quality is used as a weapon and companies are wanting to produce products that meet customers requirement. The idea is to get products to a market with fewer defects. A high degree of rivalry usually compromises the potential profitability of an industry and typically results in innovation which stimulates consumer demand for the products of the industry. Without an adequate supply of staff and employees commitment to work, it will be difficult to achieve sustainable competitive advantage. M. Armstrong agrees with Porter saying that: "unique talents among employees, including superior performance, productivity, flexibility, innovation and the ability to deliver high levels of personal customer service, are ways in which people provide a critical ingredient in developing an organization's competitive position". (Armstrong, 2001, p. 110) Decision about the future strategy of the organization are made by people and strategies are implemented by people. The success or failure of a current strategy will depend not only on decisions made in the past but also on how those decisions are being implemented now by people employed by the organization. It is therefore important to questions about who, how and why people are doing what they are doing and what they should do to achieve competitive success. Employees' skills, knowledge, and abilities are among the most distinctive and renewable resources on which a company can draw, their strategic management is more important than ever. Increasingly, organizations are recognized that their success depends on what people know, that is, their knowledge and skills. According to this Porter's theory (1985) any organization can gain competitive advantage by developing resources, which add unique value, which can't be adopted by another company. Human capital adds value to the company and it cannot be imitated. Employees are crucial for competitive success because human capital becomes" a philosophy that appeals to managements who are striving to increase competitive advantage and appreciate that to do this they must invest in human resources as well as new technology (Storey 1989, p. 34). For instance, on individual production work variety provides interest and workers have some control over quality. On continuous process work tends to be a high ratio of managers to operatives who work in smaller groups and thus closer relations develop. The ability to motivate and inspire employees is also crucial for competitive success. In order to achieve optimal goals three basics would be taken into account: motivation, reward and commitment. Motivating other people is about getting them to move in the direction you want them to go in order to achieve a result. Motivation can be described as goal-directed behaviour and ability to contribute to a solution. People are motivated when they expect that a course of action is likely to lead to the attainment of a goal and a valued reward - one that satisfies their needs In their article, Becker et al (1997) emphasize the fact that "unlike conventional assists, this form of intellectual property or "organizational capital (Tomer, 1987) is largely "invisible" (Itami, (1987) and does not appear on the firms balanve sheet". The sources of the sources of intellectual capital are found in a skilled, motivated and adaptable work force" (Becker et al (1997). These concepts include managing layoffs: addressing employee loyalty issues: managing diversity: creating a well-trained, highly motivated workforce; and containing health care costs. In the process of investing in human capital there are certain skills that need to be developed and new competences to be acquired. It should be a team effort between the individual and his or her mentor, coach and colleagues to identify and action such development. Only in this case, the company will be able to achieve competitive success through added value created by employees. Clearly a skilled workforce is one that can adapt readily to technical changes. Skills shortages may have been responsible for the relatively slow adoption of computerized aids to manufacturing. This aspect illustrates the interaction between innovation and the labour force. Any innovation can only be effective if it is matched by a labour force having the requisite skills (Pfeffer, 1998). The development of new processes may prove even more costly if they remain idle waiting the skills of the workforce to catch up. To create added value, it is important to encourage talented individuals to regain personal control with attendant support and training. In the article, "Human Resource Practices and Employee and Organizational Performance", Hall borrowed a model of HRM and performance, developed by Guest (1997) illustrating the impact of HR practices on productivity level. Guest's model consists of 4 steps and include: "HR practices - Employee Commitment - Productivity Quality - Sales, Financial Performance" (cited Hall, 2004). Hall critiques this model supposing that the role of commitment and HR practices is exaggerated by Guest, nevertheless, Productivity Quality and Financial Performance of the company is an integral part of any productivity process. In spite critical remarks on this topic (Hall, for instance), it is impossible to ignore the impact of employees on organizational performance, and its competitive success. It is possible to summaries that competitive success is based on the human relations, their skills and commitment to work. Without skillful, highly motivated and rewarded employees, it will be difficult (or impossible) for organizations to achieve competitive success, because employees is the core for any business. b) The role of labour in economy has been characterized by Adam Smith who, in "The Wealth of Nations" described the concepts of labour and its role in economy. He explains: "the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour." (Smith, n.d.). According to Smith "labour is a function of national wealth and original foundation of all property, it is the first price" (Smith, n.d.). Following Porter, Ichniowski, et al (1997) in his article states that innovation has a direct impact on productivity and employees commitment to work. On the one hand, innovation help to maintained high-speed growth through continuous optimization of a product mix, but on the other hand, it stimulates employees becoming as integral part of competitive success. Their analysis is based on real data gathered from 36 production lines. They compare productivity results of traditional management practices and a new approach based on incentive pay schems, reward systems, training programs and employment security. At the end, they came to conclusion that the "new approach" creates more value for organizations which treat their employees as a "valued assets". This theory has been described by Storey (1989) who writes that " treating employees as valued assets, a source of competitive advantage through their commitment, adaptability and high quality (Storey 1989, p. 33). For example, when researchers talk about a competitive success they are really talking about the philosophy, attitudes and actions of top managers and/or departmental managers, or possibly an individual manager. Arthur (1990) examined interdependence between productivity and employees commitment to work colleting data from from 30 US steel mini-mills. He found: "comparing steel mills with a high-commitment strategy with those having a low-commitment strategy, that the former had significantly higher levels of both productivity and quality (Armstrong, 2001). In short, he proved that fact that employees add value, manage the business and can contribute to strategic success but, conversely, they can make spectacular errors that can be very costly to the organization. Employees increase value through their efforts. It is important to treat labour as one of a range of interrelated and interactive personnel processes that are integrated with the major business processes. Hollywood and Wall Street provide the best example how business competes through people, and how employees create added value for such great industries as financial and entertainment industries. In other words, the approach to labour should be governed by how the business functions in its constantly changing environment. According to Armstrong "It is people at various levels in the organizations who create visions, define values and missions, set goals, develop strategic plans, and implement those plans in accordance with the underpinning values" (Armstrong, 2001, p.110). The research provided by Becker et al (1997) shows that "knowledge, systems understanding, self-motivated creativity" is the way to inspire employees to achieve certain goals, and create added value. Without the direct participation and support of an institution's leadership, this power cannot be pushed to its full potential. They write that: "based on recent work in the field of competitive strategy (Barney, 1991), we would expect that if a firm's HRM system is to be a source of sustained competitive advantage, it must be difficult to imitate (Becker et al, 1997). In any case, the role of employees in business success is based on understanding the unique environment in which they work. It includes improvement of communication, and the environment composed of all the individual services used for implementation of the group communication primitives. The research provided by Patterson et al, (1997) examined the role of these factors in successful organizational performance. Patterson et al examined "the impact of employee attitudes, organizational culture, human resource management practices, and various other managerial activities" on business success. The following results were obtained: "Job satisfaction explained 5 per cent of the variation between companies in change of profitability and 16 per cent of the variation in productivity; organizational culture explained 10 per cent of the variation in profitability and 29 per cent of the variation in productivity; human resource management practices explained 19 per cent of the variation in profitability and 18 per cent of the variation in productivity" (Patterson et al, 1997, cited Armstrong, 2001, p. 114). These results depict that productive efficiency is the perceived advantage of having an agreed and understood basis for developing approaches to people management in the longer term. The role of employees in business success is connected with the concept of intrinsic value which is based on the belief that what jobs and jobholders are worth is related inherently to what they are and what they do, respectively. The financial costs of the selection process are immediately apparent and usually clearly identified, for example selectors time and administrative expense. The research provided by Nalbantian and Schotter (1997) examined the impact of incentive programs on the business success. They found that: 1) history matters-how a group performs in one incentive scheme depends on its history together under the scheme that preceded it; (2) relative performance schemes outperform target-based schemes; and (3) monitoring can elicit high effort from workers, but the probability of monitoring must be high and, therefore, costly" (Nalbantian, Schotter, 1997). To conclude it is possible to say that business success and employees are interdependent and both parties benefit from this interdependence. Management is concerned in the well-being of employees as well as the success of the organization, and employees are just as concerned in the success of the organization as in their own well-being. References 1. Armstrong, M. A Handbook of Human Resource Management Practice. Kogan Page.. 8nd edn. Boston: Kent Publishing. 2001. 2. Becker, B.E., Huselid, M.A., Pickus, P.S., Spratt, M.F. Human Resource Management Journal, Vol. 31 (1), Spring, 1997. Available at: Hall, L. Human Resource Practices and Employee and Organizational Performance: A critique of the Research and Guests' Model. MANCHESTER METROPOLITAN UNIVERSITY CHESHIRE. 2004. Available at: 3. Nalbantian, H. and A. Schotter, "Productivity Under Group Incentives: An Experimental Study". American Economic Review. 87 (3), 1997, pp. 314-41. 4. Ichniowski, C. K. Shaw and G. Prennushi, A. "The Effects of Human Resource Practices on Productivity: A study of Steel Finishing Lines". American Economic Review 87 (3), 1997, pp. 291-313. 5. Pfeffer J. Competitive Advantage Through People: Unleashing the Power of the Work Force Harvard Business School Press, 1996. 6. Storey, J. New perspectives on Human Management, Routledge, London, 1989. Read More