Strategic Human Resource Management Entails - Essay Example

? Topic: Lecturer: Presentation: Introduction Due to increased globalization and competitiveness, cotemporary firms have to devise ways of ensuring a sustained competitive advantage. This involves developing strategies appropriate to achieve the organisational effectiveness. As such, firms have realised that the only way to achieve effectiveness is to strategically manage its human resources who are now considered as ‘assets’ or ‘resources’. There is considerable debate as to what strategic human resource management entails and what approach is appropriate. What makes some organisations prosper while others fail? Is applying the ‘best practices’ more successful than applying the ‘best fit’ approach to strategic HRM. These are questions that need to be addressed for a firm to develop the right strategy to drive it to success. According to Boxall and Purcell (2000, p. 193), ‘there are various principles and processes of good labour management but the methods firm adopt to reach their performance goals are affected by societal, sectoral, and organisational factors.’ This is a statement that needs to be explored further bearing in mind the importance attached to SHRM by firms as a means of achieving effectiveness and thus will be the subject of this research. To explore this issue further, the paper will first define the concepts used since various definitions affect the results of any research. Concepts such as strategy, strategic management, HR strategy and business strategy need to be understood for better evaluation of the different approaches involved. It will then discuss the ‘best fit’ and ‘best practice’ approaches to strategic human resource management (SHRM), their strengths as well as weaknesses. Though both approaches have been known to work for organisations, it should be argued that the ‘best practice’ approach is the most suitable in achieving organisational success. Besides the two approaches, the resource-based view of the firm is also worthy noting since it can solve the problems of ‘best fit’ and ‘best practice’ approaches. Definitions The strategic human resource management is derived from two concepts: strategy and HRM. Strategy is defined by Armstrong (2006, p. 113 cited in Johnstone and Scholes, 1993) as ‘the direction and scope of an organisation over longer time which matches its resources to its changing environment and in particular, to its markets, customers and clients to meet shareholder expectations.’ The strategy is developed by managers to give the firm purpose and direction and as such, for strategy to be developed the firm has to have specific goals it wants to pursue and indicated in its vision and mission statement. It is essential in informing the stakeholders where the company is heading so that all their behaviours can be directed in the same direction. There are various levels of strategy: corporate, business and HR strategy. The corporate strategy is designed to direct the whole organisation whether local or global. It is developed at the top level of the corporation. Business strategy on the other hand, it designed for specific business units to achieve competitive advantage (Armstrong, 2006). HR strategies are aimed at ensuring the employees perform according to expected standards for organisational success, and these will be the concern for this paper. It is a pattern of strategic choices in labour management (Boxall and Purcell, 2000, p. 184). Human resource management is defined by Boxall and Purcell (2000, p. 184) as ‘anything and everything associated with management of employment relations in the firm’. They acknowledge the use of various management styles in contemporary workplaces depending on organisation context and the leadership in place. HRM concept has evolved over time from traditional personnel management to the now popular international SHRM and thus has been the object of debate in social sciences and academics. Theorists have come up with various methods of managing people in organisations but as Armstrong (2006) notes, there is no one best way of managing people, and it all depends on the context. Due to the importance of HRM in enhancing organisational effectiveness, the term ‘strategic’ has been coined to derive the concept SHRM. SHRM is defined by Armstrong (2006, p. 115) as ‘an approach to making decisions on intention and plans of organisation.’ Hendry and Pettigrew (1986) developed a series of meanings associated with SHRM, which include: use of planning; coherent approach; matching HRM activities and policies to business strategy and the view of people in a firm as ‘strategic resource’ for achieving competitive advantage (Armstrong, 2006, p. 115). It aims at stipulating the critical issues to be addressed in the organisation and also to ensure that the organisation achieves sustained competitive advantage. The term ‘strategic’, according to Boxall and Purcell (2000, p. 184), is used in contemporary HRM studies used to emphasize the role played by HRM in underpinning a firm’s viability and also how it accounts for major ongoing differences in business performance. Besides focusing on long term issues facing people in an organisation, it also focuses on the needs of both the organisation and its employees. It also involves learning about what works in the organisation and what does not work thus adapting its practices to fit its strategic and operational requirements (Armstrong, 2006, p. 138). This can be achieved through benchmarking in other organisations and learning from them. To achieve ‘strategic fit’, SHRM need to be well integrated, i.e., achieve vertical as well as horizontal integration with the business and HR strategy. Vertical integration is achieved by aligning HRM with business strategy for congruence while horizontal strategy aims at ensuring the different elements of HR strategy fit together and are mutually supportive (Shield, 2007). Best Fit Approach to SHRM The ‘best fit’ approach to SHRM is based on the assumption that ‘one size does not fit all’. It is a contingency theory that assumes that strategy is affected by various factors such as cultural, social, operational processes and external environment (Shield, 2007, p. 89). Each firm is different in the way it handles its human capital depending on the context. For example, in countries with collectivist cultures, teamwork is emphasized as opposed to individual work while in individualistic cultures, individual work is given more importance in designing HR strategies and practices such as rewards and performance management. Furthermore, different sectors of the economy have different requirements thus it would be impossible to use an approach that does not recognise the differences as effectiveness would not be achieved. This approach is of the view that the bundle of practices that is likely to give stronger support to organisational effectiveness will be that which best matches organisation specific strategic purpose, its external environment and internal structure , culture and capabilities (Ibid., p. 89). There are two types of ‘fit’ in this case: external or vertical fit and internal or horizontal fit. The external fit, according to Boxall and Purcell (2000), assumes that HR activities fit the organisation’s stage of development or competitive strategy. At each stage of development, a firm has various requirements that differ from other states or business cycles. For example, when a business is starting it needs more flexible styles of HRM than when it is mature. Since the firm is also small at this stage, informal communication is preferred rather than formal communication. On the other hand, internal fit ensures HR policies support each other for success. HR policies that work in the opposite direction or contradict each other only lead to confusion and consequently failure. Managers should be clear of what is expected of the employees so that their behaviour can be modelled in that direction but in there is no consistency then problems arise. For example, HR policies on compensation should not contradict with organisation goals; if the company is pursuing individual work then compensation and performance evaluation should be on individual basis and not team work. Another approach to achieve external fit rather than stages of development is the competitive strategy whereby the firm seeks to ensure that it gains and sustains a competitive position in the market. This, according to Boxall and Purcell (2000, p. 187), is reinforcing Porter’s generic strategies of cost leadership, differentiation and focus. A firm wishing to pursue any of the competitive strategies should devise various strategies to ensure success. For example, differentiation strategy will involve a combination of technologies, skills and structures for it to be effective. Once external fit and internal fit are achieved, the firm should aim at ensuring the best combination for effectives, that is, external fit-internal fit or coherence (Boxall and Purcell, 2000). Coherence is achieved when HR policies and practices support each other instead of working in the opposite direction. Besides the competitive strategy, a firm can adopt the configurational perspective to ‘best fit’. Instead of focusing on just the competitive strategy, a firm can combine different strategies at the same time for maximum effectiveness and depending on the situation. These elements are interdependent and include competitive strategy, sectoral choice, technology, organisation structure, finance and human capital (Boxall and Purcell, 2000, p. 188). For example, if a firm wishes to achieve a competitive advantage, it can use advanced technology, train employees to improve their skills or recruit highly qualified employees who can lead innovations to differentiate the company from others. Theorists believe that a superior strategy is one that links all these strategies in a more effective configuration (Shield, 2007). However, it is challenging for managers for combine these elements since sometimes they are contradictory. For example, a firm may wish to achieve effectiveness by reducing its workforce or restructuring but this has negative consequences especially if the firm is pursuing full employment policies. The ‘best fit’ approach is preferred since it recognises the differences that exist between firms in terms of operations and also sectoral requirements. For example, the technology industry requires different strategies from tourism sector. However, it is criticised for various reasons. First, by concentrating on the competitive strategy, the approach fails to recognise that different stakeholders have different interests thus align them with business strategy. Though recognising that the external environment has a lot of influence on the firm and its strategic choices, the employees and management interests are equally important (Shield, 2007). These strategies should be acceptable to the employees and should also serve the interests of other stakeholders if any success is to be achieved. Otherwise, there may be a lot of resistance from all corners. Secondly, the strategies employed must comply with the legal requirements of the employment industry as a whole or on specific industries (Boxall and Purcell, 2000). For example, while pursuing a competitive strategy in the hotel industry, the firms in this sector need to consider requirements such as food and drugs acts, Otherwise, the strategy may be a failure. This approach does not take into account such issues. The big question is: Due to these criticisms, do firms still use the ‘best fit’ approach or should they adopt the ‘best practice’ approach? Which approach is better in ensuring organisation effectiveness in the face of an ever changing environment? The next section discusses the ‘best practice’ approach to SHRM. The Best Practice Approach to SHRM The best practice approach is based on the belief that there is a universal best way of managing labour irrespective of context (Boxall and Purcell, 2000, p. 189). Contrary to ‘best fit’ which assumes no one size can fit all, this approach assumes one size can fit all. This is a prevalent approach especially in the USA which adopts different prescriptive models such as high-commitment, high-performance work systems, and high-involvement models and mutual gains models of people management (Shield, 2007, p. 90). It is believed that there is an exact set of HR practices that can lead to organisational effectiveness and are applicable to all contexts (Armstrong, 2006, p. 65). This begs an answer to the question whether in the current very dynamic environment such HR practices do exist. Shield (2007) asserts that in this case employees are viewed as valuable ‘assets’ or ‘resources’ that need to be trusted, involved, empowered and developed for HRM success. There are various HR practices that fall under this approach, but Pfeiffer (1998) bundled them into seven practices namely: employment security, selective hiring, self-managed teams or team working, high pay contingent on company performance, extensive training and reduction of status differences and sharing of information (Boxall and Purcell, 2000, p. 189; Shields, 2007, p. 90). Employment security is one of the most important requirements by employees. While searching for employment, most people are driven to accept a job due to security it offers. This is ensured through employment contracts especially in the UK that stipulate conditions of termination (Armstrong, 2006). Though the employee may feel secure for the time being, is this security guaranteed? In the contemporary organisations where change is a necessity and the order of the day, employment security may not be guaranteed. Furthermore, introduction of different work arrangements such as flexible working hours, flexitime, and part-time make this practice questionable as a universal practice. It all depends on the sectoral, social and organisational factors (Boxall and Purcell, 2000). For example, most service jobs are flexible and do not guarantee security. The organisation may also need to restructure or downsize leading to lay-offs. Teamwork is recognised as leading to high performance as evidenced by its application by many firms. It is helpful in the organisation as it enhances learning through sharing of ideas and skill exchanges (Armstrong, 2006). It also ensures shared goals of the organisation are achieved and that problems in the firm are solved; for example through quality circles or cross-functional project teams. However, not all organisations can employ teamwork especially where organisation culture does not allow, or bureaucratic organisations. Selective hiring and high pay may lead to a talented, productive and motivated workforce, but what happens to firms unable to pay high salaries or those trying to minimise costs? Some sectors such as the textile industries pay low wages and this may also affect the hiring process. Some firms depend on the minimum wages set by governments or market rates thus environmental factors play a part in setting pay and benefits (Shields, 2007). Extensive training also ensures effectiveness, but in some sectors employees do not stay for long, hence the resources used in training may go to waste and lead to high overheads, thus reducing returns. Sharing information through high-involvement models is crucial, but if the organisation structure is bureaucratic this may not be achieved (Armstrong, 2006). It also depends on the leadership style in the organisation. It does not, however, mean that best practices are not effective. According to Boxall and Purcell (2000), such practices are applicable in sectors that use innovation as a tool for competitive advantage. This is because some of these practices are costly and therefore, not viable for small firms or some sectors of the economy. Some firms depend on these high-commitment, high performance work systems to differentiate themselves from competitive and achieve sustained competitive advantage. Due to the criticisms levelled against these two approaches, a third approach that incorporates the two is inevitable. The resource-based view approach appreciates differences among firms and assumes that each firm has a unique bundle of resources both physical and human that allow it to take advantage of market opportunities and deal with threats in a way competitors are not currently able to (Boxall and Purcell, 2000, p. 194). Firms should, thus, aim at managing their resources in the best way to achieve effectiveness. Conclusion Strategic human resource management is critical in organisations that wish to achieve a sustainable competitive advantage and organisational effectiveness. Firms are involved in formulating different policies and practices aimed at managing labour to achieve effectiveness, but without making strategic choices, these may not be effective. A firm can either adopt ‘best fit’ approach or ‘best practice’ approach to SHRM but the ‘best fit’ is more important than ‘best practice’ since it fulfils particular needs of organisation and people. Best practice is suitable for identifying principles and processes but not practices. The resource-based view is more appropriate but it all depends on societal, sectoral and organisational factors. References Armstrong, M., 2006. A handbook of human resource management practice. 10th ed. London: Kogan Page. Boxall, P. and Purcell, J., 2000. Strategic human resource management: where have we come from and where should we be going? International Journal of Management Reviews, 2(2), pp. 183-203. Shields, J., 2007. Managing employee performance and rewards: concepts, practices, strategies. Cambridge: Cambridge University Press. Read More