Human Resource Management in a Business Context - Essay Example

Human Resource Management in Business Context inserts his/her s Department’s The use of the term strategic human resource management has often been used to study employment relationship. Whether strategic HRM is an outcome or a process remains a vague domain. Some authors have viewed strategic HRM as a process by which employment relationships are managed such that optimal contribution is made to the achievement of organizational goals (Legge, 2005). Others such as Ulrich have defined strategic HRM as a process which ties the social, intellectual and human capital to the strategic needs of organizations (Ulrich, 1997). On the other hand, authors such as Snell et al. claim strategic HRM as organizational systems that use people as a means to achieve sustainable competitive advantage (Snell et al., 1996). Nevertheless, almost all theorists agree on the fact that strategic HRM involves the achievement of a strategic fit between business strategy and HR strategy. For instance, rather than waiting for the employee to design and find his/her replacement, managers now proactively get involved in strategic planning to determine the staffing needs of organizations and conduct recruitment and selection accordingly. This has given way to the matching model whereby HR strategy flows out of the business strategy. The “fit” perspective has been widely acknowledged in HRM literature with the claim that the HR function needs to be aligned with other functions in the organization. Holistically, HR domains such as the recruitment, selection, training and development of employees are contingent on organizational goals. For instance, companies wishing to enhance their customer management would require corresponding HR practices that empower employees to ensure their satisfaction so that they may keep their customers satisfied. Furthermore, it is important to note that this “fit” may be internal or external. An external fit would require HR practices to be aligned with external environment (such as recession, outsourcing, downsizing, increased female participation), whereas, an internal fit would require the HR working in sync with other departments in the organization such as finance, IT, marketing etc. In the contemporary world, however, an “internal” fit is almost always assumed with HR of most organizations. It is the “external” fit that is gaining momentum owing to globalization and the volatile environment. Strategic HRM has evolved as a means of securing sustainable competitive advantage. This is in line with the theory of “rational choice” which claims that giving strategic importance to HRM is a logical and conscious decision by managers to ensure the achievement of a sustainable competitive advantage that is valuable, rare and inimitable (Barney, 1991). This is based on the premise that, as technology is advancing at rapid rates and becoming cheaper than before, firms find it difficult to differentiate themselves on the basis of it. It is therefore, the unique, untapped potential for employees that make firms stand out from one another. If an organization succeeds at motivating people to come to work and being more productive with less inclination to leave the company or be absent, it achieves an edge over its rivals that do not manage to do so. This is the idea behind the strategic alignment or fit between HR and the business. For instance, Southwest Airlines has demonstrated this by ensuring strategic planning as far as its HRM is concerned. It has been ranked in Fortune’s top 100 list for companies to work for. Southwest represents a classic example of companies that align their HR practices and programs with business and corporate strategy. The company’s business strategy of ensuring ‘customer satisfaction’ has been tied to its HRM strategy of ensuring ‘employee satisfaction’. In other words, happy employees make happy customers. The fun-loving and relaxed corporate culture at Southwest encourages people to “break the rules” if required and deal with “compassion” and “common sense”. The organizational structure is virtually flat with direct communication between the employees and the president/manager. This is line with the informal code of conduct at the airline. Employees have been empowered to solve problems as they arise without ever seeking the permission of their managers for that. This is what it terms as a sense of ownership. Furthermore, information is freely and widely available across the entire organization which means that profit is no longer just the concern of the senior management but also attached to employee performance. This makes employees or the human resources of Southwest direct contributors towards the achievement of its corporate strategy of securing profits and customer satisfaction. The “fit” between HR and business strategy may be examined by understanding the link between Porter’s five forces strategy and HR strategy. For instance, the cost leadership strategy requires increased efficiency and reduced costs which translates to HR focusing on short-term performance through specialized jobs and cross-training. This may require laying off employees as well as outsourcing HR to cheaper, less-developed countries (Mello, 2011). Cost leadership requires embodying the view that employees are costs to be minimized. This is often termed as the hard HRM philosophy. A differentiation strategy, on the other hand, requires charging premium prices based on generating superior perceptions amongst customers (Mello, 2011). This may necessitate hiring unique and highly talented individuals through external agencies as well as rewarding creative and innovative employees (Mello, 2011). This requires establishing long-term relationships with customers and involves incorporating the view that employees are valuable investments. This is often referred to as the soft HRM approach. Finally, a focus strategy, whereby narrow market segments are targeted, may necessitate an HR strategy that focuses on extensive training and hiring employees from the segment(s) being targeted to ensure that they closely understand market dynamics and are sympathetic towards them (Mello, 2011). This can best be demonstrated with the example of Dell which caters to an important market segment: the Hispanics. This strategy has led the company hire Hispanic employees as well as partner with Hispanic student bodies such as National Society of Hispanic MBAs and Society of Hispanic Professional Engineers (Dell, 2013). These bodies are also used to identify qualified candidates in this segment. This example, therefore, proves just how necessary the alignment between business strategy and HR strategy may be. Furthermore, companies such as Merck have identified competencies required from leaders in line with the company’s strategy over a 5-10 year horizon (Wright, 1998). Next, the company established HR systems in line with those competencies amongst employees with high potential. This clearly demonstrates how critical it is to ensure a “fit” with respect to HR. Furthermore, in the contemporary information age, it is “knowledge” or the interpretation of information that makes companies distinct from each other. Majority of the countries, including the U.S, has jobs available that require skills that are possessed by a meager 20% of the population. The shortage of knowledge workers is, therefore, an external (environmental) factor that is affecting firms’ HR. Demographic changes also imply an ageing workforce which will be the most skilled along with increased immigrant labor force and a diverse organization. Therefore, the HR practices, procedures and systems must adapt or fit with these forces to ensure smooth sailing. For example, older workers (55 and above) may require seniority-based pay systems, pension funds as well as greater medical allowances as opposed to younger workers. Greater female participation, on the other hand, may pose challenges such as dealing with discrimination, maternity leaves, flexible timings, children’s’ day-care and various other adjustments in the HR systems. Similarly, cultural diversity in the workforce may necessitate training to enable the employee understand the company’s culture and expectations. On the other hand, achieving congruence between HRM systems and organizational strategy may be quite challenging. Consider the case of Lundbeck Korea whereby the regional manager Rajar was in conflict with the Korean Manager Jun (Roberts, 2010). Rajar insisted on imposing the global philosophy and decisions on the Korean division which had an entirely different culture. The decision to launch a medicine (corporate decision) was in conflict with the decision of the Korean subsidiary which was negatively affecting relations between Rajar and Jun (Roberts, 2010). One might wonder here whether a strategic fit between HR and corporate strategy is always viable or not. Clearly, the two may not be aligned in the contemporary age of cross-cultural working environment. One of the strongest criticisms of the idea of strategic fit come from the “constituency-based model” which claims that this concept has been deliberately utilized by HR managers and practitioners to appear “strategic” and enhance their status, power and respect in organizations (Bratton & Gold, 2012). This is because organizations comprise of network of actors and groups that work to secure their power within the organizations. Considering this institutional view of organizations, political motives have forced HR practitioners to steal the limelight by reinforcing the strategic HRM view. Furthermore, a major assumption behind most models that propagate a fit between HR and organizational strategy is that there isn’t sufficient evidence to suggest that firms that adopt this view have superior performance. Even where such a relationship has been established, there is criticism surrounding the focus on mediating factors in the relationship. Although substantial research has been conducted which delineate the role of strategic HRM in achieving superior performance of the organization, the one-way relationship remains debatable. Little consideration has been given to which practices of HRM bring about such superior performance; therefore, questioning the intermediate linkage between strategic HRM and firm performance. While several empirical studies have been conducted documenting the link between the two in developed countries, little has been done to address the importance on the mediating HR policies and practices responsible for such relationship. Furthermore, the over-emphasis on demonstrating a fit between HR strategy and business strategy has lead researchers to ignore the contextual variables that may affect the relationship between strategic HRM and organizational performance. Contextual factors such as competitive strategies may affect this linkage. Therefore, it is not always about achieving a fit between strategic HRM and organizational strategy and strategic HRM may require making adjustments to mediating factors such as environmental forces. Furthermore, the Universalist view propagates a set a best practices in HR whose adoption will automatically guarantee improved performance of the firm. These best practices, if adopted irrespective of the economic, environmental, competitive or other external situation, will lead to performance gains for firms in the form of reduced absenteeism, turnover and higher skills and productivity. For instance, FedEx has adopted the best practices model for its HR with which it has managed to find a place for itself in Fortune’s list of top 100 companies to work for with high rating in areas of employee morale, compensation and diversity (Prashanth & Gupta, 2003). As part of its best practices policy, FedEx launched practices such as “Survey Action Program” whereby employees’ feedback was obtained regarding management policies (Prashanth & Gupta, 2003). Furthermore, its “Job Change Application Tracking System” allowed temporary employees to secure regular employment at FedEx (Prashanth & Gupta, 2003). This philosophy was so effective that employees continued serving the company despite financial losses and late salaries (Prashanth & Gupta, 2003). Furthermore, the best-practices approach prohibits employees from being made redundant in the face of economic downturns or strategic decisions by senior management. High-performance practices such as extensive training, delegation and selective hiring are encouraged. Furthermore, continuous change and innovation in the contemporary marketplace has forced companies to supply their workers with as much information as possible. This is one of the seven best practices in HR highlighted by Pfeffer and is based on the premise that, since each employee is bound to make decisions, all employees must be provided with adequate information to ensure high quality of decisions (Pfeffer, 1995). This is termed as “people analytics” and has been used by Google whereby employees rate managers twice a year and “what-if” analysis is done to manage foreseeable problems in HR (Sullivan, 2013). On the contrary, there is evidence of Google “not” using the best-practices approach in HR. This can be traced to one of the strongest criticisms of the best-practices model that firms must have “distinct” HR practices to shape their core competencies and achieve competitive advantage (Cappelli & Crocker-Hefter, 1996). This is in line with the theory discussed earlier which suggests that HR is used as the basis of sustainable competitive advantage. In line with this thinking, Google has adopted the use of “analytics” to address problems in workforce diversity “unlike” other firms (Sullivan, 2013). Similarly it is “one of the few firms” to have established a scientific algorithm for predicting the success rate of candidates after being hired (Sullivan, 2013). These unique set of HR practices have guaranteed Google the first place in search engines and the third on the list of most innovative companies (Sullivan, 2013). This presents a strong case for achieving a strategic fit with respect to HR. The debate between the “best practices” school and the “fit” ideology, therefore, remains intense. However, there has been work by researchers who have attempted to achieve some reconciliation in this regard. The abstract internal culture of organizations may dictate the HR systems of the same. The internal culture and strategy of a firm may need to be aligned its compensation structure. Firms that seek rapid growth may opt for stock options rather than simple pay based on merit (Wright, 1998). Similarly, those aiming for high level of efficiency may opt for piece-rate pay as opposed to profit-sharing. A performance culture, on the other hand, may be reinforced by use of bonuses to encourage superior performance. Therefore, organizational culture and the supporting strategy may dictate HR strategy. Also, authors have argued that the best practice model provides “competitive parity” (Barney & Wright, 1998). This means that firms that do not adopt HR best practices will be at a competitive disadvantage. This can certainly be held true for companies that develop benchmarks for new industry best practices in HR. Google’s use of people analytics as an industry new best practice, for instance, demonstrates this. However, these authors have also acknowledged how developing unique HR competencies can lead to competitive advantage, thereby leaving this conflict unresolved. Furthermore, there are other critical reasons to suggest the significance of achieving a fit between business strategy and HR strategy. One of these is the recent trend towards downsizing and outsourcing. Downsizing has gained momentum in recent years with the computer and technology sector witnessing high levels of layoffs. According to statistics provided by a job placement firm “Gray and Christmas”, approximately 144% more job cuts were announced in the technology in the U.S for the period April-June as opposed to January-March whereas 68% of layoffs were announced by electronics companies (United Press International, 2013). This may be partially attributed to the repercussions of the economic downturn which has made companies cash-starved who then resort to cost-cutting practices such as laying off workers. This not only presents the HR with the challenge of communicating the termination of contract to laid-off workers but also makes it a daunting task to retain the existing employees. Rumors may spread throughout the organization leading to workers fleeing the company in search of more secure jobs. In such cases, the HR must enhance the motivation of existing workforce by keeping them up-to-date on the most recent changes in organizational structure and rewarding existing employees for their valuable input. Furthermore, the HR is required to maintain positive relationships with “laid-off” employees so that they may be re-hired in future when the economic conditions turn favorable. Therefore, HR professionals constantly find themselves aligning with external economic conditions and the resulting changes in business strategy. Achieving a fit is necessary because the HR cannot conduct its workings and planning in isolation. For instance, given the above scenario of laying-off employees, the HR cannot conduct manpower planning and come up with the figures for prospective number of hires in the upcoming year without understanding the changes in external environment and business strategy. Out-sourcing is another external trend which has greatly affected both the business and HR strategy. Out-sourcing has emerged not only as a response to dealing with economic depression but also maintaining flexibility in operations with respect to latest business processes. According to research conducted by HfS Research and KPMG International, a growth in outsourcing would be witnessed with majority of the firms outsourcing their applications, finance and accounting and HR (McKendrick, 2013). In order to achieve a competitive advantage, companies are looking forward to align their business processes with those of competitors or adopting best practice processes. In doing so, the active participation of HR professionals is required. Furthermore, these professionals are expected to possess a command over negotiation, project management, vendor management, finance, change management, team-working and general business skills. These individuals bring in their unique contribution in terms of focusing on cultural aspects when selecting vendors, assessing the level of relationship and trust (and enhancing it) as well as enabling the fulfillment of HR objectives while keeping in view the organizational objective of reducing costs. Furthermore, outsourcing the HR function itself presents a unique set of challenges. Research has highlighted the significance of achieving a fit between organizational aims and HR strategy by claiming that most attempts to outsource HR fail because of a mismatch between the vendor’s objectives and company’s objectives. In other words, the organization’s vision of achieving structural advantages may not be in sync with the provision of less expensive or faster service. While outsourcing may be a viable strategy for outsourcing non-core HR functions (such as recruitment and selection, training and development, health and safety, compensation strategies), it may not be feasible as far as core HR activities are concerned (such as the development of HR policies and top management).Furthermore, the extent to which these “bought-in” services are useful is debatable. For some, it allows the organization to concentrate on its core HR activities that need to be aligned with business objectives. This is where authors have distinguished between strategic and non-strategic HRM classifying the former as transformational and latter as transactional in nature. On the other hand, however, out-sourcing HR may present challenges such as lack of cultural alignment between the external HR agency and the corporate culture. In such cases, there is a strong business case for avoiding the outsourcing of HR altogether because of the fit between HR and business strategy that must be achieved. Therefore, keeping in view the dynamic nature of environment in which businesses operate these days, it is necessary to achieve congruence between HR and business strategy. The environment, cultural, economic and other aspects affect the HR practices and systems of organizations. Here, the significance of regulatory environment must not be undermined. For instance, child labor and below minimum working wage are just some of the issues causing firms to rethink their HR strategy. This is best explained by the example of Nike which had to undergo litigation owing to its “sweatshops” where workers were kept under deplorable conditions with little health and safety measures and poor sanitation and other facilities (Nisen, 2013). One of the workers was paid as little as 14 cents an hour in Indonesia (Nisen, 2013). In response to media and regulatory pressure to curb this practice of sweatshops in countries such as Indonesia, China and Vietnam, Nike had to redraft its HR policy and reinforce a formal code of conduct (Nisen, 2013). Furthermore, a separate department was established which had to improve the working lives of individuals (Nisen, 2013). With more abuses, the company was forced to publish its list of contractor factories. This demonstrates just how critical the role of HR is to deal with issues such as child labor in the wake of increased public awareness of social issues and regulatory compliance. This means that the HR policy, practice and process cannot remain aloof of developments in the external environment. Therefore, a fit between the two is absolutely necessary. This approach is contrary to the concept of achieving an internal fit which ignores the significance of external factors when developing HR strategy. This confined approach brings with it the problem of incorporating current issues such as the work life balance. This is because, as per the internal fit concept, the need to grow rapidly may demand long working hours from employees making the same appropriate, whereas, the demands for work-life balance mean that workers ought not long working hours. Similarly, the need to provide adequate maternity leaves and offer flexibility to working mothers questions the effectiveness of the concept of “fit”. Often the two fits (internal and external) work in opposing direction creating a conflict as explained above. To conclude, there are strong reasons to believe that HR strategies, plans, processes and practices must be aligned with corporate and business strategy. This is in line with case of Southwest Airlines whereby the company’s strategy to deliver customer satisfaction was met with the HR objective of maintain happy employees. Furthermore, Dell’s strategy of catering to the Hispanics segment by hiring Hispanic employees further explains the notion. However, this may not always be a feasible choice considering volatility in the external environment in the midst of economic crisis with trends such as outsourcing forcing firms to minimize their local hiring and managing distant employees and downsizing that brings the challenge of maintaining the motivation of existing employees. Furthermore, the introduction of work-life balance in the internal fit concept remains challenging. Keeping in view this paradox, it seems prudent for companies to adopt both an internal and external fit of their HR. References Barney, J., 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), pp.99-120. Barney, J. & Wright, P., 1998. On becoming a strategic partner: The role of human resources in gaining competitive advantage. Human Resource Management, 37(1), pp.31-46. [Accessed 6 November 2013]. 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Human Resource Planning , 21(4), pp.56-57. Read More