The Establishment of Firms in Modern Market - Term Paper Example

Critically evaluate the claim that organisations that use different competitive strategies also adopt different human resource strategies Introduction The establishment of firms in modern market is depended on their ability to understand the market’s trends and identify their key advantages towards their competitors. Most commonly, the competitive strategies of the firms indicate their potentials to achieve a stable growth; however, the rules that these strategies include cannot perform at the level required unless they are effectively aligned with the firm’s strategies in other organizational sectors. The theorists (Grundy et al., 2003, Daft et al., 2008, Burke et al., 2006) who have studied the relationship between the competitive strategies and the human resource strategies have come to the conclusion that the former are directly related to the latter; in fact, the level of their dependency is such that organisations that differentiate their competitive strategies are likely to change also their human resource strategies. The terms of the above phenomenon are analyzed in this paper using appropriate theoretical frameworks. The key finding of the research developed for this study is that human resource strategies can exist – and operate - independently from competitive strategies; however, when HR strategies need to be used in order to support the increase of the organizational competitiveness, then they have to be aligned with the firm’s competitive strategies. However, the mode of cooperation between the HR strategies and the competitive strategies is not standardized – as revealed through the academic studies presented below. 2. Human Resource strategies and competitive strategies – interaction Human resources is a sector that highly contributes to the increase of the organizational competitiveness. In accordance with Daft et al. (2008) human resources has a key role in the competitiveness of business worldwide. The above view is based on the fact that the success of all organizational plans is depended on the employees’ ability to realize them. Through this way, employees can influence the position of the firm towards its competitors. Moreover, Daft et al. (2008) note that through the decades human resources had to change in order to best support the increase of organization’s competitiveness. In this context, currently, human resources management focuses on the following activities: ‘a) building human capital, b) developing global HR strategies, c) using information technology’ (Daft et al., 2008, p.322). From another point of view, Grundy et al. (2003) noted that the relationship between human resources management and organization’s competitiveness can be derived from the following fact: HR has a common mission with competitiveness – as an organizational concept. It is explained by Grundy (2003) that through the introduction of HR management, business managers have been able to update the existing personnel management practices (Grundy, 2003, p.28). In this way, the performance of the specific organizational department has been improved – compared to the other departments of the particular organization. Furthermore, competitiveness supports a similar target: the increase of the organizational performance in order for the firm to improve its position towards its rivals. Under these terms, HR strategies and competitive strategies serve similar organizational needs; the only difference is that the former refers mainly to the internal organizational environment (although there are certain aspects of the HR policies that refer to the external organizational environment, for instance, the case of outsourcing) while the latter is involved in the organization’s external environment (Sims, 2002, p.30). The relationship between HR management and the competitive strategies has been made clearer in modern businesses. More specifically, in its current form, HR management is used in order to promote policies that ‘fit the internal with the external business strategy’ (Bratton et al., 2001, p.47); the reason for the above strategic fit – between the internal and the external organizational strategies – is the increase of the firm’s competitiveness. In this way, HR strategies are related to competitive strategies. In fact, the latter set the principles on which HR strategies will be based. However, the above rule may not always apply. For instance, in small and medium firms where the resources available for the realization of business policies are limited – compared to large enterprises – HR strategies are not based on the competitive strategies of the firm; rather, the HR strategies of firms of this size need to be based on the firms’ financial and technological status (Deb, 2006, p.50). In large firms where resources availability is not a constraint for the development of HR strategies – usually the firms of this size can identify the funds/ technology required for the development of their HR schemes; in large firms the HR strategies are likely to be driven primarily by those firms’ competitive strategies. The interaction between HR strategies and competitive strategies is also derived from the following view of Porter (1998, p.38): ‘every value activity employs purchased inputs, human resources (labor and management) and some form of technology to perform its function’; therefore, the appropriate HR strategies are necessary for the creation of value within modern organizations. Burke et al. (2006) have explained the relationship between the HR strategies and the competitive strategies using the following framework: traditional HR strategies have not been proved adequate for the increase of the organizational performance. This weakness has been made identifiable under the pressure of the global market turbulences. Additionally, in the context of globalisation, business managers had to locate methods for the increase of organizational competitiveness – which could also guarantee the stabilization of each firm’s position in each industry. Among all organizational sectors, human resources has been considered to have a key role in the increase of organizational performance – having in mind the role of employees in the achievement of business goals. Therefore, emphasis has been given to the potential update and restructuring of the particular sector (HR) in order to be more aligned with the firm’s competitive strategies. In accordance with the above view, the involvement of HR management in the achievement of competitive strategies has been a strategic decision based on certain criteria – as explained above; this means that if the market conditions change the involvement of HR management in the development of competitive strategies could be differentiated. In this case, it would be necessary for legislators and theorists to define the criteria under which this task could be completed. 3. Organisations that use different competitive strategies also adopt different human resource strategies – analysis and explanation In accordance with Marchington et al. (2005) the choice of HR strategies by managers in modern organizations is based on specific criteria: a) the needs of the organization, b) the skills of employees, c) the resources available – referring to the funds available for the remuneration of employees but also to the technology required for the various organizational schemes; the social, economic and political framework of the organization is also likely to affect the organization’s HR plans (Marchington et al., 2005, p.3, 5). When HR strategies need to be employed for the achievement of the organization’s competitive strategies, then the criteria on which the HR plans are based are differentiated. The level at which existing HR strategies are transformed in order to be aligned with the changes in a firm’s competitive strategies is depended on the theoretical basis on which the specific HR policies are based – i.e. on the view that business managers have regarding their firms’ HR strategies. If HR strategies are considered to be an autonomous framework, then there is no dependency on the competitive strategies. However, if HR strategies were considered as an indispensable part of the firm’s competitive strategies, then the transformation of existing competitive strategies would lead to the simultaneous transformation of the firm’s HR policies. According to Smith et al. (2006) the relationship between HR strategies and competitive strategies can be understood by referring to a series of specific HR strategies: ‘the utilization, the facilitation and the accumulation’ (Smith et al., 2006, p.24). In case that the main element of the firm’s competitive strategies is the increase of production, then the first HR strategy would be chosen – employees would be chosen in accordance with their ability to start working immediately and achieve a high level of performance; the case of the supermarket checkout operator is mentioned by Smith et al. (2006) as an indicative example of the above case. However, if innovation is the key element of a firm’s competitive strategy, then the facilitation strategy should be chosen – the example of the employees in the game software industry best describes the terms of the above case. The above arguments can be supported by referring to the theory of Schuler and Jackson (1987), which was based on the theory of Porter on competitive advantage. The theory of Schuler and Jackson (1987) helps to understand the role of HR strategies within modern organizations and to explain under which terms HR strategies are transformed in order to support the achievement of a firm’s competitive goals. In accordance with Purcell et al. (2007) two are the main theoretical frameworks that can explain the dependency of HR strategies on competitive strategies – and thus explain the conditions under which the alteration of a firm’s competitive strategies results to the alteration of this firm’s HR policies. The two theoretical frameworks are based on different approaches in regard to the relationship between HR strategies and competitive strategies. Therefore, they lead to different assumptions whether a firm’s HR strategies are likely to change when the firm’s competitive strategies are transformed. The first theoretical framework has been that of Baird and Meshulam (1988); in accordance with the above theory, the HR policies adopted by an organization should be depended on the level of development of this organization (Purcell et al., 2007, p.53); other criteria, like the similar policies of competitors or the market conditions would not affect the HR policies developed within a particular organization. This theory leads to the assumption that the competitive strategies need not to be taken into consideration when the HR policies are designed. In fact, it would be possible for the above two sectors to be completely differently orientated. Under these terms, the changes on a firm’s competitive strategies cannot lead to the change of the firm’s HR strategies. Schuler and Jackson (1987) have adopted a different approach – being aligned with the view of Porter on the competitive advantages of modern organizations. The above theorists noted that ‘the key priority of HR strategies is to achieve a fit with the organization’s competitive strategies’ (Purcell et al., 2007, p.53). In this context, when business managers change their firm’s competitive strategies – in order to compete its rivals more effectively – they also need to change the HR strategies involved in the particular organization. The Porter’s theory on competitive advantage, which is based on the concept of ‘cost leadership versus differentiation’ (Purcell et al., 2007, p.53), may also be used in the specific case. A similar approach is used in order to justify the view of Wilton (2010) on the relationship between HR policies and competitive strategies. In accordance with the above researcher, the concept of ‘best fit’, which is extensively used in modern organizations, promotes the idea that the HR policies of each organization need to be based ‘on the market trends or the organization’s life cycle’ (Wilton, 2010, p.67). In the context described above, ‘best fit’ prohibits the alignment of the firm’s HR strategies with the competitive strategies; in this way, it is noted that a significant benefit of the HR strategies is not appropriately evaluated – reference is made to the fact that the HR strategies of an organization are based on innovation offering to the firm a competitive advantage. If the theory of ‘best fit’ is applied then ‘the above advantage is eliminated’ (Wilton, 2010, p.67). In accordance with the above view, the differentiation of a firm’s HR strategies should be combined with a differentiation in the firm’s competitive strategies since the above two frameworks are closely linked especially in cases that one of the two has unique characteristics that can lead to competitive advantage. In modern market, the dependency of a firm’s HR strategies from the external organizational environment is considered as standardized at such level that the following view has been developed: ‘the firm can never be the complete author of its own HRM’ (Boxall and Purcell, 2003, p.61, in Beardwell et al., 2007, p.50). 4. Conclusion One of the most critical challenges of HR managers worldwide is to understand the organization’s needs and develop the strategies required for the support of the organizational performance – both in the short and the long term. In practice, it has been proved that HR strategies can be related with the business policies in other organizational sectors – referring especially to the firm’s policies towards its competitors. In this context, the introduction of changes in a firm’s competitive strategies need to be followed by changes in the firm’s HR strategies – and vice versa (Vance et al., 2006, p.95). The interaction between HR strategies and competitive strategies has been explained using different theoretical approaches; in accordance with the most common view, human resources can denote the potential uniqueness of the firm towards its competitors – and thus give to the firm an advantage within its industry (Kok et al., 2003, p.8, Τorrington et al., 2008, p.34). However, the above target can be achieved only if innovation is used as a criterion for the development of HR strategies; otherwise, the increase of the firm’s competitiveness could be achieved by introducing innovative competitive strategies – which would be supported by the firm’s existing HR strategies. In other words, innovation can involve in either the HR strategies or the competitive strategies. The interaction between these two frameworks can benefit the organization no matter the direction that the relevant activities follow. References Beardwell, J., Claydon, T. (2007) Human resource management: a contemporary approach. Pearson Education Bratton, J., Gold, J. (2001) Human Resource Management: Theory and Practice. Routledge Burke, R., Cooper, C. (2006) The human resources revolution: why putting people first matters. Emerald Group Publishing Daft, R., Marcic, D. (2008) Understanding Management. Cengage Learning Deb, T. (2006) Strategic Approach to Human Resource Management. Atlantic Publishers & Distributors Grundy, T., Brown, L. (2003) Value-based human resource strategy: developing your consultancy role. Butterworth-Heinemann Jackson, S., Hitt, M., DeNisi, A. (2003) Managing knowledge for sustained competitive advantage: designing strategies for effective human resource management. John Wiley and Sons Kok, J., Marinus, J. (2003) Human resource management within small and medium-sized enterprises. Rozenberg Publishers Marchington, M., Wilkinson, A. (2005) Human resource management at work: people management and development. 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