The Link between Business Strategy and Human Resource Strategy - Case Study Example

EXECUTIVE SUMMARY The link between business strategy and human resource strategy is analyzed by looking into a representative service organization which is McDonald's Corporation. McDonald's business strategy employs serving the untapped market of informal out of home eating in a way that is evasive of head to head competition. This business strategy of the company is referred to as the blue ocean strategy. It entails targeting of customers who have preference over quick service restaurants as opposed to traditional restaurants. Value innovation is what keeps the business strategy from other known management tools. Fast and quality service that comes with quality foods is the primary element in the operations of the organization. As such, operations mainly depend on the functions of the human resource pool which undertakes the strategy. Investments in the company allot a considerable proportion for the employees to motivate them. Studies show that labor intensive organizations need to address the need of the human resource to succeed since success depends on the most heavily used factor. McDonald's investments throughout the years have been geared towards employee development. This includes training, incentives for good performance and recognition for quality. With the long years of investments in human resource, the organization has been reaping success in various locations worldwide where it operates. The human resource has been complementing the physical capital employed by the company. When traced what implements the business strategies that define the company through relationships on investments, motivation and productivity, factors point out to the link in human resource of the organization. 1. INTRODUCTION Human resources are probably the best assets that an organization could utilize to undertake its business strategies and obtain market advantage particularly on service sectors. Due to the labor-intensive nature of service sectors, it is technically the manpower that performs the necessary functions developed to target strategic management needs. The aim of this discussion is to provide a paradigm in which to analyze the contribution of human resources in bringing success to business operations. With a review of an organizational strategy, this discussion will present a link between business strategy and human resources strategy. In addition, this discussion will identify issues and influences of business strategy on the human resource strategic process. To adequately illustrate the point of this discussion, descriptions on business strategy will be drawn from a chosen service sector firm. The methodology employed to demonstrate the primary elements of the discussion is practical analysis of technical processes embedded on the business operations of the representative service sector company. It is essential to explain certain studies that have been done to connect business strategy with human resource techniques utilized so as to provide a clear picture of the analysis. Researches done on similar labor intensive industries will be used for the over all framework on demonstrating the primary elements of this discussion. As an applied illustration of the link of business strategy to human resource strategy, this discussion will provide certain actual strategies used by the chosen organization. This discussion focuses on the relationship of business strategy with human resource strategy in a service sector setting. Since the center of the discussion is mainly on the nature of a labor intensive sector organization, several points might not be applied to other companies with different organizational orientation. Further, the company used in this discussion as the representative organization employs a strategy which is fairly distinct to other organizations and therefore could not be a conclusive effort to relate with other companies. The representative organization chosen for the purpose of this discussion is the global firm McDonald's Corporation. McDonald's Corporation is the largest chain of fast food restaurants in the world with international operations on various countries primary selling hamburgers, chicken, French fries, breakfast meals and soft drinks. In some countries, it also offers salads, fruits, snack wraps and carrot sticks. As McDonald's Corporation itself states, the company's global food service include more than thirty thousand local restaurants serving fifty-two million people in more than one hundred countries each day (McDonald's, 2000). More than seventy percent of the company's restaurants all over the world are owned and operated by independent local men and women. The company has earned the reputation of being one of the world's most valuable brands which holds a leading share in the globally branded quick service restaurant segment of the informal eating out market in practically each and every country where business operations are present. As a quick service restaurant that is basically labor intensive, the organization's main investments are its employees, that is to say, its human resources. Operations of the business are dependent on the employees who conduct the daily work processes. The satisfaction of customers served by the company is greatly affected by the people who interact directly with everyone stepping into the restaurants. A considerable proportion of the organization's investments are allotted towards human resources. These investments are geared towards the development of the employees for them to be able function effectively and efficiently. With such dependence on human resources, it is easy to surmise a prima facie evidence of business strategy link with human resources strategy. 2. ORGANIZATION REVIEW This section presents the strategies utilized by the organization in conducting its business operations. In addition, the human resource strategy employed by the company is discussed. 2.1 Business Strategy The business strategy of McDonald's Corporation is what is referred to as the blue ocean strategy. McDonald's framework on its operations is set in relation to its strategic management goals. A blue ocean is a market space that is created by identifying an untapped set of customers, then delivering to them a compelling revolutionary value proposition which is done by reconfiguring what is on offer to better balance customer needs with the economic costs incurred in the pursuit of doing the actions required (Kim and Mauborgne 2004, p.5). In effect, the blue ocean strategy is all about avoiding head to head competition. As a result of the saturation of different established markets in the developed world, it is risky to undertake head to head competition since it will be hard to bring attractive returns. McDonald's Corporation initiates the blue ocean strategy through its use of the concept of value innovation. With value innovation, the company aligns its innovation undertakings with utility, price and cost positions. The strategy is intensely focused on delivering customers the best value possible. There is a balance with the costs of delivering the value proposition of the firm with what the buyer values. No compromise arises with the value wanted by the customer because of the avoidance of the potential high costs associated with delivering the product offers of the company, which is essentially food embedded with quality service. Such is maintained by the company's elimination and reduction of costs if there is no or less value placed on the offering by the customers. It is well known that McDonald's opted to relinquish its targets in providing so-called customized products when the market was not able to give value on the strategy because the quick service expected was not delivered. Customers highly value the services given by the company which makes the role of the human resources essential. In simpler terms, McDonald's employs the blue ocean strategy by providing a radically different value proposition from other restaurants. The company does not take on head to head competition with restaurants since its entry in the food industry was not aimed to become a restaurant. It directs its efforts towards competing with meals at home. The quick service concept is the strategy to lure the target customers who wanted more than good food and expected fast and efficient service. Customers order the foods that they prefer which are prepared in advance and could be ordered as ala carte or in meals. As the preparation of foods offered by the company is done in advance, the personnel in charge in the counters could deliver the products to the customers in no time. The key to such strategy is to respond to processes that could cause delays such as bottle neck processes. Human resource roles in such are inevitable. With the value proposition intended, the organization is able to provide a unique product value better than the ones offered by usual restaurants wherein customers needed time to have the ordered foods delivered. Fast service in the company is always coupled with quality, both in the foods served and the service rendered. Another business strategy that McDonald's undertakes to innovate and evade head to head competition is the entry to the market of children. The company offers a new way of getting children fed. Aside from the fact that service in the company is quick, it gives the children an exciting and enjoyable environment clearly different from the ambiance at home. It gives the impression to children that eating is a fun activity. The customer promotions given to children are themselves a differentiation to common restaurants in the market. Though the blue ocean strategy does not in any way point out a single technique to succeed with operations, the company relies on the strengths of its pool of human resources. With the business strategy of the company, it is able to create a value gap among usual restaurants. The value gap created by McDonald's is shown below (Lasher 2006, p.7). 2.2 Human Resource Strategy The work system and employment standards in McDonald's is in line with what the industry deems as the effective way which is a mix of key practices that includes rigorous selection and training systems aimed to increase ability levels, comprehensive incentives to enhance motivation and participative structures that improve opportunity to contribute (Appelbaum et al 2000, 26-27, 39-46, 103-104). In a bigger picture, the organization's way is a group of the practices. It is beneficial for the company to observe such bundling of practices since relevant practices work much better when bundled together (Ichniowski et al 1997, p.311). The company sees that productivity is best served by the systematic interactions among the practices which the theory suggests. The central issue on the company's human resource is how to get the things working in line with the business strategy. Since the human resource plays a pivotal role in the business operations, motivation is the target of the company. Investments in employees have been the way of the company in producing motivation. In manufacturing companies which are labor intensive, business strategies are undertaken better when employers complement high investments in physical capital with high investment in human capital (Arthur 1994, p 670-687). This has been true with the organization. Investments in information technology in processes were effective due to investments in training and development of employees. There has even been a university for training in Australia called the Hamburger University. The following illustration based on studies of labor intensive manufacturing companies, explains the link of human resource strategy with business strategy which fits in what has been in practice with the company to succeed (Boxall and Purcell 2003, p. 180). The practices in McDonald's include incentives that recognize the good performance of employees. Recognition of the employees provides the needed boost in the motivation of employees. In theory, such activities of firms to motivate increases total factor productivity (Ramsay, Scholarios and Harley 2000, p. 501-531). Opportunities for growth in the company are of equal stance where everyone gets the chance to rise on top based on performance. Most of the top officials in the company have actually started in store operations. 2.3 Structure The company maintains the team structure of its business especially in local stores. Teams are organized in such a way that a leader is the supervisor that guides the team composed of crews to implement human resource strategy. Crews of the company are the people who deal directly and indirectly with customers. Those who deal directly are the crews in charge of the counter acting as cashiers and the supports who help customers, clean the place and maintain the organized look of the stores. Indirectly dealing with customers are the people behind the preparation of the foods. In each store, the leader, which is oftentimes the store manager, has the control of the operations and deals with problems in instances where unfortunate situations arise. Basically, the store structure of its human resources is representative of its overall human resource structure. The employed system is what is known as the top to bottom management technique. 2.4 Culture In the pursuit of the company to succeed especially that it is a service company, it focuses a lot on its human resources and provides an environment conducive to high productivity efforts. The culture of the company promotes fairness in which everyone is in equal footing in the way to the top with performance as the element of measure. In employing its staffs, biases in whatever way is eliminated. It is essentially an employee friendly structure that is observed in the company. Since the staffs work as part of a team, every team members are given the opportunity to provide feedbacks for the improvement of the processes in the stores. In terms of compensation, the company provides the market rate for the jobs and sometimes even higher. The company is known to be a rewarding organization towards high-performing employees and also recognized as a company where minorities are given great work opportunities. 3. CONCLUSION The success of McDonald's in its operations is anchored on the way it provides its human resources the venue to perform productively. Strategic management is most effective if it accounts for all the resources that create value. In labor intensive organizations like some manufacturing companies and particularly service sectors, the pursuit of success is the pursuit of human resource improvement (Miller 1992, Vol. 8 p. 391-408). Motivating employees through incentives that recognizes performance has paid off with the organization because motivation has been translated into increases in total factor productivity which in this case refers to labor. With a company's investment into the human resource, a competitive advantage is produced particularly in service sectors (Barney 1991, Vol. 17 p. 99-120). The competitive advantage stems from the will of the employees to do better for the organization they work with (Frenkel et al 1999, p. 57; Talman and Atchison 1996 p.132; Simon 1947, p.24). Results when traced to investments could provide the reason for either success or failure which when applied to the McDonald's would connect human resource to success. (Reed and De Fillippi 1990, Vol. 15 p.88). As a company, its core business strategy is to provide value. Value in turn is created through the human resource. Since it is the human resource that undertakes the business strategy, it is imperative that human resource takes into course in producing the needed customer value. 4. REFERENCES Appelbaum, E., Bailey, T. and Berg, P. (2000). Manufacturing Advantage: Why High Performance Systems Pay Off. Ithaca:ILR Press, p. 26-27, 39-46, 103-104 Arthur, J. (1994). Effects of Human Resource Systems on Manufacturing Performance and Turnover. Academy of Management Journal, p.670-687. Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, vol. 17, p.99-120. Boxall, P. and Purcell, J. (2003). Strategy and Human Resource Management, Basingstoke and New York: Palgrave Macmillan, p. 180. Frenkel, S., Korczynski, M., Shire, K. and Tam, M. (1999). On the Front Line: Organization of Work in the information Economy, Ithaca: ILR Press, p.57. Ichniowski, C., Shaw, K. and Prennushi, G. (1997). The Effects of Human Resource Management Practices On Productivity: A Study of Steel Finishing Lines. American Economic Review, p. 311. Kim, C. and Mauborgne, R. (2004). Blue Ocean Strategy. Cambridge, Massachusetts: Harvard Business School Press, p.5 Lasher, L. (2006). A Review of the Blue Ocean Strategy. London, p.7 McDonald's (2000). About McDonald's Corporation. Retrieved September 27, 2007 from McDonald's website htt://www. Miller, D. (1992). Generic Strategies; Classification, Combination and Context. Advances in Strategic Management, vol. 8 p. 391-408. Ramsay, H., Scholarios, D. and Harley, B. (2000). Employees and High-performance Work Systems:Testing Inside the Black Box. British Journal of Industrial Relations, p 501-531. Reed, R. and DeFillippi, R. (1990). Causal Ambiguity, Barriers to Imitation and Sustainable Competitive Advantage. Academy of Management Review, vol. 15, p. 88. Simon, H. (1947). Administrative Behavior. New York: Free Press, p.24). Talman, S. and Atchinson, D. (1996). Competence-based Competition. Oxford:Elsevier, p.132. Read More