Understanding Universal or Best-Practice Approach to HRM Practices - Essay Example

Human Resource Strategy Introduction Over the years, the interest of companies in human resource management (HRM) has increased manifold. The HRM is now currently viewed as one of the important strategic disciplines to meet the goals of organization. According to Myloni et al. (2004), the HRM is an integral part of the overall strategy of the organisation. That is why often, it is called as Strategic Human Resource Management (SHRM). The business environment has changed a lot after liberalization and globalization process in the last two decades in most parts of the world. Currently, companies are facing increasingly complex and dynamic business environment necessitating change in their ways they operate in harnessing their resources including human resources. The main objective behind HRM is to ensure organizational success through its people (Armstrong, 2006). The paper aims at exploring the advantages and disadvantages of universal and contingent approaches to human resource strategies that are currently practiced. Caldwell (2004) argues that HRM is concerned with several policy goals to be listed as: managing people as assets to build competitive strength; aligning corporate strategy and HRM policies; creating a flexible organisation responsive to external environment; to promote more cohesive team working; creating a strong customer orientation; empowerment to workforce for self-management and learning; institute proper reward system to develop a performance-driven environment; enhancing employee commitment within the organisation. Companies attempt to achieve these goals either through universal also known as best-practice approach to human resource strategies or take a diversion from it and deploy contingent approach to human resource strategies depending upon the need or the type of business they operate. Understanding Universal or Best-Practice Approach to HRM Practices Universal or the best practice approach is based on the basic premise that adopting certain proven HRM practices will inevitably lead to superior organizational performance. For example, most firms in 1960s and 1970s and a huge proportion even today adopt a sophisticated selection and recruitment processes so that the best from the available lot is selected. Induction programme is also sophisticated providing necessary training to the recruits so that they can accomplish the task given to them. The appraisal system is quite coherent so that none has reason to complain. Workforce skills are allowed to develop such that they attain flexibility. Comprehensive and frequent communication to workforce is maintained. All employment terms and conditions are harmonized so that there is no feeling of favour or disfavour. Superior pay structures with possibility of incentives form a good basis for smooth functioning of organisation (Patterson et al, 1997). It has been observed that in order to achieve a high level of organisational performance all HR activities must align with each other. It has been found that HR practices such as comprehensive training, decentralized decision making, employee participation apart from salaried compensation lead to higher performance. It has been also discovered that HR practices that focus on reduction of discretion and employee skills and exert control on employees lead to higher employee turnover and poorer performance. Furthermore, investments in HR related activities such as selective staffing techniques, employee participation, and incentive compensation cause lower turnover, higher productivity and enhanced organizational performance (Yongdt et al, 1996). Advantages of Universal Approach The biggest advantage with the universal or the best-practice approach of HR policies is that they can be employed straight away because not only they are time tested but also they are easy to implement. In the absence of consensus on best-fit or contingent HR policies, it is better to go for universal HR practices. Usually, they are preferred most in government organizations where the companies face less of a competitive pressure. Another advantage with the best-practice or universal approach is that it can be applied regardless of the market or economic situation and the long term goals of the organization. The fact is that the universal approach is more flexible when compared with the contingency approach. All large transnational companies such as Unilever, GE, Proctor and Gamble, Ford, BP solar, HSBC, IBM have grown and expanded out of the universal HR practices at least until 1970s. Usually, the government institutions follow a careful and extensive approach for its workforce needs with a provision of ensuring proper training for them. Ensuring a high-level participation process, they always have a formal system of sharing information with new and old recruits. Moreover, they also provide a proper grievance remediation system. As per Pfeffer (1994), employment security is also a part of the best practice approach in many countries. Over the years, it has been discovered that certain HR practices can directly influence firm’s performance. Terpstra & Rozell (1993) argue that selection procedure and training facilities are associated with firm productivity and performance. Moreover, researchers have also discovered that systems or a bunch of HR practices exert considerable influence on performance rather than individual practices. There is a variety in universal or best human resource practices among the different practitioners; however, most of the practitioners emphasize on improving the skill base of employees through selective staffing, job rotation, comprehensive training etc. Employee empowerment, teamwork, participative problem solving, shift from hourly compensation to salaried compensation for production workers are some of the themes that promote organisational performance. The logic behind these HR practices are also supported by other disciplines such as micro economics that proposes that improved people skills are likely to add economic value to firms. Firms carry opportunity costs of investments made in enhancing personnel skills and therefore their investment justification comes through productivity and overall performance improvement of the firm (Armstrong, 2006). Disadvantages of Universal Approach The first and foremost disadvantage of best-practice approach to HRM is that there is a great diversity in it to maintain uniformity. Pfeffer (1994) described 16 HR practices for gaining competitive advantage and that could be cause for downsizing or reengineering. Best-practices if not exercised prudently could become an end in itself sidelining company goals. It may not be appropriate in all situations where competition is intense and cost cutting measures are necessary for firms survival. It is also not suitable for most translational companies to have universal approach to HR practices across the regions. Different regions foster different cultural values. They also differ in their value system of decision making processes – collectivism and individualism. For example, in Unilever major strategic decision making process with respect to production processes, resource-build up including human resources, marketing is done at the corporate headquarter. The company employs some of the universal HR practices such as sophisticated staff selection and recruitment processes, salaried compensation, competitive pay structure, comprehensive training, yearly appraisal system. At times, the best-practice approach of HRM developed at the company headquarter is not suitable in other parts of Europe and Asia where the company aspires to penetrate the market and increase its business (Gartside et al., 2011). It would be worthwhile to mention the case of IBM where the researcher identified value differences among 11,000 employees working in some 40 countries. IBM employees across the different regions had varied ethos of work cultures such as masculinity versus Femininity, individualism versus collectivism and so on. Based on these findings, the company then found impractical to enforce a universal or best-practice approach to HR policies across its all centers in the different countries. For example, Japanese offer lifetime employment in contrast to hire and fire system operate in the US. Promotions are done from within the organization in Japan while in the US they are facilitated from outside. In Japan, career paths are non-specified against specified career paths in the US. Employees in Japanese culture believe in shared decision-making in contrast to the individual decision-making in the US. Managers and employees enjoy high level of trust with each other compared to their counterparts in the US. In the US, short-term performance is more important against long-term performance appraisal system in Japan. Finally, in Japan, success is considered a team effort and not an achievement of an individual as is the case in the US business traditions. That is how the universalistic approach to HRM was challenged by contingent approach and IBM was forced to consider contingent approach of HRM in 1990s and beyond (Moti, 1997). Understanding Contingent or Best-fit Approach Boselie (2010) argues that HR strategy is one of the essential aspects of the overall business strategy designed to achieve organisational goals. In contingent approaches to human resource strategy, it becomes imperative that business strategy of a firm is aligned with its HR strategy. Advantages of Contingent Approach The biggest advantage is that HR strategy in contingency model becomes more efficient because it is tailored to the needs of the organisation. When fully aligned with operations strategy as observed in the below-mentioned case of easyJet or value based functioning as seen in the case of IKEA, the organisational performance can improve enormously. In the intense competitive world, the best-fit approach to HR strategy is one of the potential tools in the hands of management to gain competitive advantage over rivals. Companies currently aspire for certain values as a part of strategic vision and in order to further their short-term and long-term goals. For example, IKEA fosters values such as humbleness, cost-consciousness and simplicity in order to create edge over competition and that is where employee development programme becomes strategically important. IKEA is not known for its high compensation to workers; however, employee development and involvement is a crucial part and that is done through training and development across all levels. IKEA runs continuous and regular training programme for its workers and that is why the company has developed excellent training and development infrastructure to impart training that nurtures values such as humbleness, togetherness, simplicity, cost-consciousness and respect towards customers. Culture management is not seen in isolation to human resource management. Training and development could be on the job or through games via e-learning. In a bid to have continuous development programme, IKEA made it mandatory for all managers to be on the shop floor for at least a day in one year so that everyone could be reinforced with customer service experience (Boselie, 2010). How contingent approach of human resource strategy can help tackle intense competition within the airline industry can be learnt from the case of easyJet. The company was established in 1995 with the philosophy, "easyJet keeps costs low by eliminating the unnecessary costs and frills" (Boselie, 2010: 17). It is a significant challenge for HRM of the company to get best from the available workforce, especially when keeping the costs low is a fundamental necessity to thwart competition. The company used only two kinds of aircraft at least until 2007 essentially to optimise the use of pilots and cabin crew. Running flights on schedule and keeping passenger luggage loss to minimal is extremely necessary to keep customers happy with the carrier and the human resource management of easyJet has done it successfully taking diversion from the traditional best-practice approach of HRM. It is important to note that easyJet is pitted against much bigger resource-rich airlines such as British Airways (BA) or Air France-KLM. The company undoubtedly faces some of the serious challenges in managing people. The foremost challenge is to attract and retain pilots. It is a well known fact that the costs for pilot trainings are significant and high turnover rates among this crucial workforce is sure to disrupt operations. To attract pilots, easyJet provides them a facility to extend their flight hours. The higher flight hours enhances the value of pilots in the market place and that opportunity they cannot get in other airlines such as British Airways (BA) or Air France-KLM. Thus, for young pilots, easyJet always remains a grooming platform to enhance their market value. Similarly, the cabin crew gets limited career opportunities and HR challenges are significant in retaining and motivating good personnel. Due to nature of business, internal promotional opportunities are always limited. The fierce competition among airlines poses a significant pressure on easyJet to constantly expand its new destinations and enhance customer satisfaction while keeping the cost low to pass on the benefit to customers (Boselie, 2010). Boselie (2010) emphasises, "the companys cost-effectiveness and quality service strategy through the application of technology (the internet) and the standardization of processes is reflected in its HR strategy and policies" (19). There is a good alignment between the overall strategy and HRM in streamlining the work processes. For example, a limited number of aircraft types (only two aircraft types) need only two kinds of training programme (only two) enhancing employee flexibility. The bottom line is that a better contextual fit of organizational strategies with HRM practices enhances firm’s chances of success. Boon (2008) argues that the more HR fit of the firm the higher are the chances of superior performance. London-based Diageo, the premium beverage company, operates in 80 countries; universal HR practices cannot provide solutions to the needs of other markets. That is why Diageo created contingent models of HR policies suitable for local markets and needs. The centers opened in North America and Europe can provide HR services in compliance with local laws and market needs. In a bid to expand further and support the employees in other markets such as the Latin America and the Caribbean, the company goes ahead to set up its HR policies on the basis of the contingent model (Gartside et al., 2011). Disadvantages of Contingent Approach On disadvantage side, the contingent approach to human resource strategy is said to be too much focused sacrificing flexibility and agility. At times, it can overlook employee interests and eventually lead to tensions. With the change in external environment, which is often quite frequent, the contingent HR approach may get redundant or less applicable when compared with the ever applicable best-practice approach. It has been argued at many quarters that best-fit HRM policies works negatively on the firms engaged in new technology and R&D activities where more than productivity and efficiency end-results are more important (Cooke, 2000). Conclusion The best-practice approach to human resource strategy has served the companies including large translational companies ever since industrial revolution; however, now the times have changed and the best-practice approach alone is not sufficient enough to meet the current HR needs of the businesses due to increasing global competitive pressure. The companies are now increasingly inventing the best-fit model of HR depending upon their specific situations. There is no doubt that now integration of HR practices with the long-term strategic goals of the firm is extremely important for its success. References Armstrong, M. (2006). Human Resource Management Practice. 10th ed. Kogan Page Ltd. Boselie, P. (2010). “Strategic Human Resource Management”. 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