HRM Contribution to Organisational Performance - Essay Example

HRM Contribution to Organisational Performance: Best Fit, Best Practices and RBV Perspectives Introduction Existing debate on effective organisational strategy for enhancement of performance is divided between arguments on the effectiveness of best fit, best practice and RBV perspectives with advocates of each perspective arguing that they have greater impact on organisational performance. However, existing research supports best-fit SHRM as having greater contribution in enhancing organisational performance as recorded in aspects such as employee productivity and organisational profitability. The foregoing essay critically assesses the implications of this research for best practice and RBV perspectives especially when there are examples of firms such as Google that have successful employed these perspectives. However, it is concluded that the greater success of best-fit perspective does not mean best practices and RBV perspectives should be discarded as the two have important contribution to management efforts to improve organisational performance. Contribution of Best Fit, Best Practice and RBV Perspectives According to Barney (1991), firms establish competitive advantage over the rest within a particular industry when they control heterogeneous resources including human resources. Further, such resources of the firm must not be perfectly mobile or transferable across the rest of competing firms in order to establish a long-lasting heterogeneity. Therefore, the RBV of a firm model argues that a firm that successfully creates sustainable competitive advantage over the rest in an industry is one that has unique resources and capabilities within the environment. To establish how a firm controls its resources, Barney (1991) established the VRIN model to account for valuable, rare, imperfectly imitable, non-Substitutable features of resources that a firm must control to establish its competitive advantage in an industry. Therefore, establishing competitive advantage based on these features of resources is perceived as the best approach for firms to enhance their performance and be ahead of others in the industry. While applying RBV of a firm to HRM Boxall and Purcell (2003) argues that firms adopting this framework will establish human resource advantage over the rest in the industry. For firms adopting this framework in their practices, the goal according to the authors is develop strategic capability in terms of strategic fit between resources and opportunities. Additionally, such firms must endeavour to ensure deployed resources generate benefit while recruitment and employment policies result in developing people with knowledge and skills essential in strategic thinking and planning. Adoption of these HR practices is essential in developing people with extensive understanding of key strategic issues and strategic goals of the business. Therefore, application of RBV of a firm in HR practices provides an important avenue for effective management of human capital. The approach to HRM also provides validation for firm’s decision to invest in people through practices such as talent management, resourcing and introduction of employee learning and development programmes as part of efforts to enhance competitive advantage. There are also researchers who argue that firms that establish competitive advantage in a particular industry are those that establish best practices regardless of context. Therefore, performance improvement for any firm is because of management introducing measures to identity and implement policies in support of best practices. In his contribution to best practices approach in HRM, Pfeffer (1998) identified a number of practices including reduction of status differences, employment security, selective hiring, information sharing, team-working, training and high pay that is pegged on performance of the firm that are essential in enhancing organizational performance. Consequently, research on best practices have led to establishment of what has been referred to as universalist approach to organisational performance and is based on the identified set of superior HRM practices whose application lead to superior performance of the firm (Luthans and Sommer, 2005). Support for best practices necessary for improvement in firm’s performance gained wider support in the United States as researchers sought to identify a set of features that can be adopted in human resource practices to enhanced performance. The outcome of implementing best practices was to be observed in improved employee attitude and behaviour towards workplace responsibilities, reduction in the levels of employee absenteeism and turnover and maintenance of high levels of employee skills. These outcomes observed in employees were to result in higher productivity, improved efficiency and quality with increased profitability being the main target (Marchington and Wilkinson, 2008). Therefore, application of best practices in HRM is based on the universalistic perspective that insists firms will experience improvement in performance when management identify and implement these practices regardless of industry, product market or the firm’s location (Pfeffer, 2001). The best-fit practice in HRM is based on the belief that no universal practices that inform HR practices for all the firms operating in different industries and locations. This approach is based on the argument that operations of organisations are influenced by their contexts, culture and business strategies adopted by management (Wright & Snell, 2005). Best-fit approach to enhancement of organizational performance is based on the contingency perspective of HR policies where success of the firm is dependent on application of strategies that are appropriate for particular environmental and organizational context. Application of best-fit approach to organizational policies emphasizes the need for HR strategies to be apposite to particular conditions affecting the organization in both external and internal environments. In ensuring HR strategies, consider the interests of the organization and its people, the best-fit approach emphasizes the need for vertical integration between a firm’s business strategy and HRM policies and practices (Dyer, 2005). Best-fit approach in firm’s strategy for improvement of performance has been advocated based on models such as the Harvard model developed by Beer, Spector, Lawrence, Quin Mills and Walton (1984). The model provides a strategic framework for managers to develop relationships with employees and focus on soft aspect of HRM. The model strives to establish employee commitment as opposed to managerial approaches of the time, which sought to control the functioning of workers in the organization. According to Beer et al (1984), the firm will record improved performance when workers are employed based congruence, competency and cost effectiveness. The model also contains aspects of strategies to be adopted in recruiting and selecting in addition to developing reward system for workplace commitment to improved job performance (Beardwell, Holden and Claydon, 2004). These features of organizations adopting best-fit approaches have resulted in the argument that it is the best strategy for improvement of workers’ output as they relate to all the aspects of worker motivation therefore commitment to the workplace responsibilities. Supporters have argued for the superiority of best-fit approach in enhancing performance of the organization due to established link between people processes and policies in the internal environment and factors influencing business operations present in the external market. These features, it is argued by Wright, Gardner, Moynihan and Allen, 2005) are important in establishing competences that are essential sources of sustained competitive advantage for the firm. Implication of evidence on best fit SHRM for best practice and RBV perspectives Support for best-fit strategic management as being the most effective for organisations stems from a number of inconsistencies recognised in best practice approach and RBV perspective. Cited weakness of best practice model relates to the assumption about universally effective human resource practices that are transferable across organisations and time (Armstrong and Taylor, 2014). The concept of best practices has been determined to be overstated as a number of studies have identified differences in management practices adopted by firms operating in different industries. Firms have distinctive competencies that act as areas of strength for them to compete favourably with others in particular industries (Armstrong and Taylor, 2014). Application of distinctive HR practices means firms will develop distinct core competences to inform how they compete in a particular context; therefore, what works for one might not fit the strategy of another firm. Apart from the industry-specific factors limiting universality of the best practices, there are also other variables based on the location of an organisation. According to Boxall and Purcell (2000), these variables include factors such as national culture, management traditions and cultural practices. Different countries have unique cultural norms and history that inform how society adopts practices related to methods of labour management. The differences is further experienced on the goals that determine employers’ emphasis on profit and productivity where for instance studies in German determined that employers is seek to pick essential lessons from US firms without sacrificing their own identities such as adoption of practices favouring collectivism. The RBV model has also been criticised for having a number of weaknesses that make it ineffective in determining how a firm should operate to improve efficiency. Firstly, a number of researchers have noted the definition of what resources are for any firm noting that existing definitions are overly inclusive (Priem and Butler, 2001). Including every factor associated with the firm into the resource category reduces their strategic importance to the enhancement of performance. Inclusiveness in determination of what constitutes the firm’s resources is a weakness because it creates a situation where the management cannot distinguish between resources operating as input to the firm and capabilities whose role is to enable selection, deployment, and organization of the inputs. Further, the model does not address the differences in these resources although it is clear that different types of resources make different contribution to the organization’s sustained competitive advantage. The RBV framework the firms control of different types of resource including human capital, physical capital and organizational capital (Barney, 1991). However, in assessing their contribution to organizational performance, all the resources are treated in the same way. The noted weaknesses of best practices and RBV has led to researchers citing best fit model as the best strategy for firms that seek to improve their performance. Best-fit approach has been advocated as the most effective strategic framework for firms seeking to establish sustained competitive advantage in a particular market at it allows for the analysis of factors that are specific to the firm at a particular cycle of its operation. Therefore, the best-fit approach is flexible in determining how the firm will organise its human resources to improve productivity and profitability while also recognising the unique factors affecting operations of the organisation. However, a number of researchers have noted the importance of best practices and RBV by insisting on how the frameworks can be adopted to suit the firm’s situation at a particular time. Armstrong (2014) advices that best practices can still find significance in organisational decision-making processes especially when deciding on particular practices that are fit for organisational practices under particular circumstances. However, this adoption should be based on prior determination regarding why certain operations should be regarded as best practice in addition to mechanisms necessary to make them applicable in the context of current organisation. Additionally, the ideas presented in the best practices framework are important in determining principles that underlie specific choice of practices instead of focusing on the practices themselves. Identification of principles used in deriving the best practices will lead to creation of knowledge necessary for determining factors, whether similar or different, affecting other organisations in different national or industry context. Best Practice, RBV and Integration of Strategies Given evidence from companies such as Google that have successfully adopted alternative approaches to human resource management, best practice and RBV approaches remain influential in determining a firm’s performance. These approaches cannot be disregarded as they have shown their importance in driving the firm’s quest for competitive advantage. In the case of Goggle, the technology-based company identified the importance of its employees in driving its innovativeness especially when they are highly motivated to perform particular organisational tasks (Nightingale and Girija, 2008). The need for best practices and RBV approaches has been enhanced by the rise of knowledge-based industries where the main inputs are technology and human capital. Knowledge based industries face stiff competition due to the accelerated technological change with the result being transformation in the management of supply chains within and across firms. The competitiveness of the industry is exuberated by increased demand for highly innovative products from the customers who are kin on exploring new products from competing firms. In this scenario, means people are the greatest asset for firms operating in the knowledge based economies since the management will focus on best practices that would lead to harnessing that competencies possessed by workers to manage the knowledge economy. Realisation that people are at the centre of organisational success is important in determining the practices that enhances their contribution in the organisational performance. For instance, Google has developed a number of approaches to enhance the level of worker participation in organisational quest for highly innovative products. The company offers attractive benefit packages including flexible working hours, health care benefits, wearing casual clothing to work and free meals that motivates workers to give their best to the organisation. Offering these benefits to employees has positive effect on retaining of employees with Google registering only approximately 5 percent turnover annually. Additionally, the firm introduced the referral program where employees earn significant amount of reward when their candidate passes set recruitment interviews. Recruitment policies adopted in Google is aimed at reducing recruitment costs and increasing the level of success for successful candidates as a means of enhancing organisational performance. The recruitment policies are in line with the organisational perception that talent management is essential for success in performance of various functions (Nightingale and Girija, 2008). Other best practices aimed at enhancing employee performance include the compensation programme, which rewards employees with strong performance while training and development options are available to eliminate possible weaknesses in performance. The company emphasises a learning culture by providing opportunities through on the job learning, taking particular classes conducted by senior officials and departmental meets and lectures by renowned personnel. Further, Google’s workplace culture provides opportunity for workers to experiment and make mistakes in order to learn from them and enhance their level of performance (Nightingale and Girija, 2008). The success of companies such as Google, which has successfully adopted best practices in HRM, does not negate the importance of best fit in enhancing organisational performance, rather, the results obtained by these firms contributes to existing arguments that HRM is a holistic discipline with essential strategies whose inclusion into business strategies will have greater effect on firm’s performance. Including essential elements from best fit, best practices and RBV approaches into organisational operations lead to greater complexity in the process of evaluating the performance of a firm. This complexity results from the wider scope of analysis generated when the management seeks to analyse performance related factors in both internal and external environments. This proposition correlates with the output from the study conducted by Richardson and Thompson (1999) which notes the success of a strategy depends on combining vertical fit and horizontal fit. Integration of organisational strategies to enhance performance relate to perspectives on bundling which relates to development and implementation of multiple HR practices in order to determine areas of interrelation need to complement strengthen each other. The performance of organizations such as Google that have adopted RBV and best practices in developing policies and strategies lends credential to existing arguments that HR practices can be linked to make them interrelated. Such linking leads to establishment of complementary relationship among the practices to ensure that regardless of their basis of application, they reinforce each other. Arguments in favour of bundling is based on the belief that employee performance is as a result of combining motivation and ability to perform particular task, which means organisational policies should support both. Employers can acquire essential skills for organisational operations through careful selection and recruitment of employees with the specified qualifications or training existing employees to suit the demands of a particular position. There are also different approaches including introduction of financial and non-financial rewards through which an organisation enhances employee motivation (Armstrong, 2014). Bundling is an essential organisational approach to strategy that also supports the holistic nature of strategic HRM. Perception of the organization as a total system should be accompanied with strategies that emphasize operations that should be conducted across the whole system. While supporting bundling of organizational strategies, MacDuffie (2005) used the example of manufacturing plants in the United States to demonstrate how flexible production could accord employees improved role in the production system. Employees are faced with multiple tasks during the production process including solving problems that arise during this process. Therefore, flexible production processes will result in a situation where it is possible for the employees to possess an understanding of the production process as well as analytical skills necessary to determine causes of particular problems. However, these capabilities developed by workers in a flexible production environment will not necessarily result in enhanced production levels if the workers do not demonstrate high levels of commitment and motivation to meeting organizational goals. For workers’ high commitment and motivation to be achieved, there must be a general feeling that their interests are aligned to those of the organization based on efforts by the management to take care of employees’ wellbeing. Therefore, flexible production processes advocated by contingency perspectives including best-fit approach will only result in greater output from employees when they exhibit features of high-commitment human resource practices noted in best practices approach (MacDuffie, 2005). Therefore, in addition to firms practicing flexible production to reflect its operational context, features of best practices such as enhancement of employee job security, pegging pay level on performance, in addition to reduced status barriers between managers and employees must be addressed. Conclusion Evidence on the successful implementation of best practices and RBV perspectives in enhancing organisational performance supports the need to have an integrated approach to the three perspectives on HRM. Although research has, demonstrated best fit as the most effective of the three SHRM approaches, the disciple of HRM calls for a holistic approach to strategy for management to experience full impact of their strategies. Evidence from companies such as Google is enough to argue for the importance other perspectives such as best practices and RBV apart from best-fit approaches. Therefore, best practices and RBV are important perspectives for organisations that seek to enhance their performance beyond the contribution to be achieved when adopting best fit as a lone strategy. References Armstrong, M., & Taylor, S., 2014. Armstrongs handbook of human resource management practice. London: Kogan Page Publishers. Barney, J., 1991. Firm resources and sustainable competitive advantage. Journal of Management, 17, 99-120. Boxall, P., & Purcell, J., 2000. Strategic human resource management: where have we come from and where should we be going?. 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