Strategic Human Resource Management and Competitive Advantage - Dissertation Example

Strategic Human Resource Management and Competitive Advantage 1. Strategic Human Resource Management and Competitive Advantage There have been significant changes in the last few decades because of globalization, and companies have underwent structural reorganisation and have focused their attention on the way they manage and influence their workforce. It has changed the way organizations work. In response to the various changes taking place globally at a very rapid pace organizations have started realizing the significance of human competitiveness for the success and survival of an organization. While realising the importance of Strategic Human Resource Management (SHRM) that looks at the human resources as competitive assets of an organization who are to be motivated, led and deployed in a way which helps in realizing the organizational goals, organizations have adopted a Resource Based View (RBV) that considers organisational workforce as a valuable resource whose knowledge and skills cannot be easily imitated and can form the backbone for attaining competitive advantage in a global world (Faugoo, 2009). The basic assumption of RBV is heterogeneity, which means that the resources of an organization are different from each other. Furthermore, it propounds that the resources should be valuable, rare, non-sustainable and inimitable. If a firm’s resources are not capable of being imitated, substituted and they are rare and valuable the competitors cannot easily imitate them and thus a firm would have competitive advantage. Human resources of a firm meet the above criteria. Moreover the link between a firm’s strategy and organizational resources cannot be easily imitated or identified. Thus by integrating human resources with the firm’s strategy a firm can gain competitive advantage. RBV differs from traditional models of competitive advantage which focuses on market structure as the as the most important factor of a firm’s success. The RBV approach focuses on the firm’s internal assets for gaining competitive advantage (Dinsmore & Cabanis-Brewin, 2006, pp.272). It assumes that resources within an organization remain imperfectly mobile with time. When resources are considered to be immobile it becomes difficult to imitate them and thus helps a firm attain competitive advantage. The heterogeneity concept of RBV is very relevant for MNCs since the workforce in an MNC are heterogeneous. MNCs have lot of heterogeneity not only in their people but also in their practices which vary from country to country. The variation is a big advantage for MNCs at a local level and can also be a source for global advantage in terms of knowledge, capabilities and skills. The RBV framework of human resource focuses on both HR function (i.e. practices, policies and structure) as well as workforce (i.e. people). In order to be competitive a firm must have people with superior skills than the competitors or it should have HR practices that differentiate it from competitors. Secondly these skills should not be imitable by competitors (Morris, Snell & Wright, 2005). Technical HRM differs from strategic HRM. Technical HRM deals with attracting quality employees, placing them in positions that suits their profile, training them and motivating and orienting them in accordance with the company’s mission and vision. This can also help a firm gain competitive advantage because by selecting highly skilled and valuable employees, a firm can differentiate itself from its competitors. Strategic HRM activities try to integrate the company’s strategies and thus reduce a firm’s inimitability. A company’s competitiveness in the global market depends primarily on three factors, viz. quality and price, and delivery times. However, the quality of the product plays a crucial role in the product being accepted by the target market segment. Customer demands have changed from rudimentary to sophisticated demands. Cheap labour and low cost would not be sufficient for gaining competitive advantage. Quality is going to be the most crucial factor for a company to be competitive. Quality of goods and services and availability of skilled, educated and well trained human resources go hand in hand. Particularly in the service sector human resources play a crucial role in delivering better quality and customer satisfaction. In a service sector there is no tangible product as such and the customer’s perception regarding the quality of the service depends a lot on the interaction with the company’s representative. Strategic human resource management is different from traditional HR management. Strategic human resource management focuses on organization rather than individuals. SHRM also tries to find solutions to business problems rather than individual problems. SHRM model tries to integrate the firm’s business objectives with that of HR architecture. The HR architecture of a firm is comprised of the practices, competencies, systems and performance of human resources which is a reflection of the management and development of an organization’s strategic human capital. For example, strategic HRM focuses on rewarding the outcomes rather than the processes. It encourages managers to take risk which is in line with a firm’s innovation strategies for attaining competitive advantage. Since the types of competitive strategies are limited, the number of HR architectures is also limited. HR architecture is differentiated based on value and uniqueness of the skills of an employee. It is the employees who can help a firm attain its strategic objectives by creating value. By integrating a firms objectives with human resources, strategic HRM plays a key role in gaining competitive advantage (Becker & Hushelid, 2006). The concept of “fit” between HR policies and business strategies has become extremely important in today’s competitive world. Fit denotes the way the human resources are deployed for attaining organizational goals. It is of two types: horizontal and vertical. Horizontal fit indicates the degree of congruence between various HRM practices and Vertical fit refers to the degree to which a firm’s goals are aligned with the HRM practices. A firm has to strike a balance in creating an optimal package of human capital required to implement its strategies and enhance its performance. These two types of fit help a firm in gaining competitive advantage. And it is essential that firms arrange their HR practices in a proper way. Properly arranged HR practices can contribute to a firm’s objective provided they are implemented in the right way. Figure 1: 'Fit' between HR Policies and Business Strategies (Source: Tyson, 2006, pp.92) HR Systems form an important aspect of an organization and are crucial for an organization’s success and achievement of business goals through proper management of people. First, from a competency perspective it is the managerial competencies which add value to a firm by acquiring and arranging business resources, transformation of resources to create more value and organizational processes. Secondly HR managers play an important role in determining internal competency and compatibility of HR systems. They play an important role in decisions related to business strategy. It is important that HR managers understand the kind of employees needed for achieving organizational goals. 2. Impact of National Culture Differences on Business Performance Globalization, rapid improvement in technology and transportation facilities has resulted in people working globally either by being physically located in a foreign country or by forming virtual teams by using the power of internet to communicate with team members globally. In the past decades people could only communicate within their own localities and towns with others who shared the same set of values and beliefs. By 2001 the world became a global village and communication with people from different backgrounds became extremely easy. Even in the 1990’s when the market was dominated by American management theories, it was felt that the concept of ‘one size fits all’ was applicable to management decisions. It was believed that the management principals practiced in America could be effective in any part of the world. However it has been realized now that managerial behaviours, attitudes, efficacy and values differ from country to country. There is no one best way of doing things. Globalization paves the way for standardization, and it has been said that “globalisation will lead to a homogenised common culture of consumption if we expose them to the full gamut of globalisation theory” (Ritzer, 2009, pp.348). Culture refers to a common pattern of behaviours, values and beliefs learned during childhood among people coming from the same national origin. This concept of national culture is in unity with Hofstede’s notion which regarded national culture as a software of the mind. For example culture can be British culture, American Culture, Brazilian culture etc. A person need not be living in his country of origin to display his culture. The beliefs and values that people bring to their workplace affect the quality of work. Things may become complicated when people from different cultural backgrounds come to work together. The main problem arises when management practices differ from the cultural values of the employees. Differences may lead to an employee feeling dissatisfied, uncomfortable and distracted. Management practices which are consistent with the values of the employees will yield higher performance. Cultural differences lead to differences in business practices because certain business practices which may be accepted in one region may be insulting for another; however, it is also believed in the context of modern business that “cultural differences, if well managed, are resources, not handicaps” (Moran, Harris & Moran, 2007, pp.43). Globalization has resulted in an increase in cross border acquisitions and mergers. Acquisition and merger of foreign companies means acquiring and merging with the culture of the foreign companies. HRM plays a key role in merging different cultures. It is extremely important that the employees coming from different cultural backgrounds are able to work comfortably with each other. It is extremely important that the goals of the employees are in line with that of the organizational goals. It is only when all the employees share one common culture and goal that it would create a synergy and help the organization attain its objectives and gain competitive advantage. That the business processes need to be modified in accordance with the national culture is explained by Hofstede’s model. It helps in understanding five important dimensions of national culture which are as follows: Power Distance: It refers to the extent to which employees feel that power and status are unequally distributed in the society. It influences the degree of formal hierarchy, participation in decision making and centralization. Companies in East Asia and Europe are more centralized. In US power distance is low. Uncertainty Avoidance: It refers to the degree to which people are exposed to unknown situations. An organization which has proper structure, plans and strategies are high on uncertainty avoidance and vice versa. Western countries are low on uncertainty avoidance compared to eastern countries. Individualism-Collectivism: Individualism refers to a culture where people tend to be more self centered and only take care of their immediate families, personal status etc. collectivism refers to a culture where people rely more on groups, communities, social classes etc. Anglo countries like Britain, New Zealand, US, Canada are individualistic in nature whereas East Asian countries like Korea, Taiwan, Singapore, and Hong Kong believe in collectivism. Masculinity-Femininity: In masculine cultures people are achievement oriented and hate failure whereas in feminine cultures importance is given to value affiliation and give less importance to failure. Japan, USA and Germany are masculine in nature whereas Countries like Denmark, Sweden and Norway have a feministic culture. Long Term-Short Term: Long term cultures have more patience, respect for others, perseverance; sense of duty etc whereas in short term cultures it is the opposite. Hong Kong, Taiwan, Japan and Asia are long term oriented whereas countries like US, UK are short term oriented (Newman & Nollen, 1996). 3. Analysis of the Links between Equal Opportunities and Diversity Although the concepts of equal opportunities and diversity “are quite different in the principles that drive them” Loosemore et al. (2003) have argued that “a company must have an equal opportunity and diversity policy if it is to have a balanced approach to this increasingly important area of SHRM” (Loosemore, Dainty & Lingard, 2003, pp.172-173). Figure 2: Workforce Diversity Framework (Source: Karma & Vedina, 2009, pp.529) It may be noted that while “most diversity research has focused on the diversity of easily detectable demographic characteristics such as age, gender, race and ethnicity, which are apparent after only a brief exposure to an individual”, they have been reluctant to look at “other possible types of diversity, which may have differing or moderating impact” (Karma & Vedina, 2009, pp.529). In the light of this limitation, van Knippenberg et al. (2007) have propounded that “what is important in social categorization perspective is that differences between workgroup members may engender the classification of others as either ingroup/similar or outgroup/dissimilar; and these categorizations may disrupt group process” (Karma & Vedina, 2009, pp.529), thereby pointing at the detrimental outcomes of equal opportunities as well as employee diversity. However, Kingsmill (2001) and Brett (2006) have argued that “companies taking positive action to promote equality of opportunity between men and women will benefit from a combination of cost minimisation and profit maximisation as a direct result of such action”, and as a justification to augment the statement, Thomson (n.d.) has opined that “Employers require robust, measurable evidence of the ‘bottom line’ benefits they will accrue by addressing the gender issues within their own workforce, particularly in an increasingly competitive marketplace” (Thomson, n.d. pp.10). Riley et al. (n.d.) have put forward the ideas that “equality of opportunity may increase the diversity of an organisation’s employees if the labour market includes groups previously discriminated against” and that “increased diversity is typically professed to bring three types of benefits: customer approval, better service to diverse customer groups and greater innovation”, and they have also categorically opined that “Successful Equal Opportunities policies (i.e. those which increase equality of opportunity) may improve business productivity and/or profits through a range of processes: improved recruitment; improved staff utilisation; improved morale and employee commitment; greater employee diversity; and customer approval” (Riley, Metcalf & Forth, n.d., pp.2-4). However, the prospect of combining these two SHRM concepts in order to achieve organisational synergy remains largely suspect because “equality of opportunity and diversity are actually incompatible to some degree; mainly because the essence of equal opportunities is to remove barriers to diversification rather than to actively seek its achievement” (Jordan & Johns, n.d., pp.6). 4. Analysis of the Links between Business Ethics and SHRM It is quite a correct observation that “unethical conduct in business has been with us as long as business transactions have occurred” (Salaman, Storey & Billsberry, 2005, pp.291) and it has been observed that “the concept of firm strategy is often though not necessarily included in SHRM research, as well” (Chadwick, 2005, pp.200). Perhaps this is the reason why “firm strategy has generally received inadequate and superficial treatment in SHRM education, a limitation that makes SHRM teaching unnecessarily narrow and reflects weaknesses in the SHRM research stream itself” (Chadwick, 2005, pp.200). Various scholars have conceptualised the approach of Strategic International Human Resource Management (SIHRM) and have distinguished three probable configurations; based on their propositions it has been observed that “A global strategy might be accompanied by exportive HRM and universal ethical norms; multidomestic strategies by adaptive HRM and relativism; and a transnational strategy by integrative HRM and cosmopolitan ethics” (Kolk & Van Tulder, 2004, pp.49). Owing to the increasing importance of business ethics, “several organisations in Europe have shifted their traditional focus of business ethics away from corporate social responsibility (CSR) issues to managing ethics performance within organisations” in recognition of the fact that “those in leadership positions in human resources are highly respected within their organisations for integrity, having the ability to solve complex ethical dilemmas, understanding the company’s culture and communicating it at all hierarchical levels in the organisation” (Van Vuuren & Eiselen, 2006, pp.22-23). Business ethics can also be linked to SHRM as HR specialists are thought to be located “at the heart of policy design and implementation, involved in the training of employees, and responding to change through organisational development” (Van Vuuren & Eiselen, 2006, pp.23). 5. Conclusion It has been observed that HR systems constitute a vital aspect of any successful organisation. Literature review has revealed that they play crucial role in the manifestation of corporate goals through efficient personnel management. However, it is necessary that HR managers should understand the kind of employees that are needed for this purpose. Subsequently it has been found that culture too plays an important role in SHRM as the beliefs and values that people bring to their workplaces influence the quality of work. Complicacies arise when people from diverse cultural backgrounds come to work together, and the problems get accentuated when management practices do not comply with the cultural values of the employees. The five-dimensional model propounded by Hofstede is helpful in understanding these organisational phenomena. Although modern organisational practices call for the integration of equal opportunity with workforce diversity in order to achieve organisational synergy, it has been observed that the prospect of blending these two SHRM concepts remains largely suspect because equal opportunity aims at removing obstacles to diversification. Finally, it has been observed that business ethics can also be linked to SHRM because of the fact they form the cornerstone of organisational human resource policies. References 1. Becker, B. & Huselid, M. A. 2006. STRATEGIC HUMAN RESOURCES MANAGEMENT: WHERE DO WE GO FROM HERE? Journal of Management. Vol. 32. No. 6. 2. Chadwick, C. 2005. THE VITAL ROLE OF STRATEGY IN STRATEGIC HUMAN RESOURCE MANAGEMENT EDUCATION. Human Resource Management Review. Vol. 15. Elsevier Inc. 3. Dinsmore, C. P. & Cabanis-Brewin, J. 2006. THE AMA HANDBOOK OF PROJECT MANAGEMENT. 2nd ed. AMACOM. 4. Faugoo, D. June, 2009. 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