Employees Are the Key Source of Competitive Advantage - Essay Example

More organizations recognize that their employees are the key source of competitive advantage. Today Human Resource departments have evolved from playing the merely administration role too strategic partner contributing to the achievement of the business strategy. Such evolution has changed the traditional definition and evaluation of the Human Resource functions. Technological progress, especially the accessibility of information and establishment of the networking facilities, removal of trade barriers and globalization of the markets are the characteristics of the modern business environment. The abilities of people to cope with such environment define the success of any organization. Because of this, human resource function has become the integral part of the corporate strategic planning. Top executives are increasingly looking to HR to improve the bottom-line. In addition to staffing, recruiting and compensation, new value-added HR functions have evolved including career planning, training, organizational development and succession planning. Strategic Human Resource Management contributes not only to achievement of the motivated workforce, but also to the accomplishment of the company's long-term strategy and to competitive advantage. The traditional roles of the Human Resource managers has changed from planning and recruiting, and today HR policies and practices influence the organizational performance. This new proactive approach to HRM is the shift from traditional view of personnel that focused on micro issues such as individual performance and satisfaction to the helping managers in maximizing the contribution of employees in achieving competitive advantage (Luthans 1998). Multinational organizations no longer rely on the technology or patents, but they utilize their people to create the competitive advantage. Luthans outlined the following types of HRM practices with characterize the effective functioning of the organization though people management (1998): employment security (commitment of organization to employees and their career advancement), information sharing (granting employees an access to the information about strategies), participation and empowerment (encouraging initiations and idea sharing), incentive pay (people should be paid as much as they deserve). Human Resource Management can build the organizational capacity and sustained competitive advantage. Organizations must be able to adapt to the changing environments and be ready to react to risks. "Any organization that wants to remain successful must continually assess and formulate new strategies to meet the needs of its customers (both internal and external) in more effective ways" (Luthans 1998). For example, if the organization is emphasizing the cost strategy, the changes in HRM activities will enable those strategies to become the major focus of organization. If particular, the multi-skilled employees and less expensive staff will help to meet the cost objectives. Without proper changes in HRM functions, organizational strategy might fail. In addition to personnel administration, HR is supporting the company's competitive advantage by providing the talented employees AND helping the managers to strategically plan the functions of these employees within the company (Rowden 1999). Transformation of HR function into the strategic business partner positively affects the company's income. To ensure successful transformation, the overall company's business strategy should be clear. Human Resource Managers help to create customized strategic plans which do influence the effectives of the company's performance. In particular, the strategic HR manager ensures that employees understand their roles in mission accomplishment. This can be difficult to achieve in changing organization because of lack of stability and people leaving organization. The top managers usually know very little about the human resource management and their knowledge is limited to maintaining employee records and avoiding staff "problems" (Spencer 1992). However, over the past decade, this attitude has much changed and the HRM has gained the increasing role of the contributor to the overall effectiveness of organization. In the late 1980s, the airline industry has been deregulated and many carriers have failed. Delta Airlines has managed to transform itself from the regional carrier to the international company. Many reasons can be attributed to this success - fuel-efficient fleet and poor management of competitors. However, the most distinguishing characteristic of Delta Airlines at that time was the successful implementation of the human resource management. In the early 1990s, Delta was one of the few corporations where personnel managers had access to the top job. "Delta's HRM system made this contribution through its development of valuable and rare organizational skills and human resource relationships that could not be perfectly imitated by competitors, and for which there were no close substitutes" (Spencer 1992). Delta executives understood the value of human resources as the mean of increasing productivity as well as the costs associated with the poor management of employees. Personnel managers were involved in every stage of strategic managerial process and as the result Delta was operating much more effectively than its competitors. Delta was applied the policies and practices which helped to create and sustain the climate of trust within the company and demonstrated the appreciation of its employees through adjusting the wages to contribution (Spencer 1992). One of the most successful initiative at Delta was the wage adjustment which not only motivated the employees to perform better and contribute more, but also gave the company the financial space necessary to stay competitive, to purchase new equipment and hire expensive professionals. Delta Airlines managers have realized the importance of strategic human resource management 15 years ago while most of the global companies have only started to integrate human resource management into corporate strategy. For example, American Express views the role of human resource management in motivating employees and developing the organizational culture. As Fairbairn has noted, American Express has strong core values which contribute to the company's historical success (2005). Employees are proud for being part of the company. According to the surveys, employees highly appreciate the teamwork and mutual respect, working environment and opportunities for growth and advancement. In helping the company to grow, American Express has focused on two characteristics: the will to grow and being personally accountable for the company's success (Fairbairn 2005). American Express has focused on delivering products of superior value, understanding the competitors, capitalizing their weaknesses and serving the customers the best. Being personally accountable for the company's success is not only about delivering commitments but also challenging the superiors. American Express HR managers realized that cultural transformation could not take place on its own and the strong partnership with business leaders was crucial for success. Human Resource Managers worked closely with individual employees and teams to assess how to implement the cultural changes. In the year 2004, American Express has established the processes and tools to reinforce the behavior change and revise the leadership competencies. The performance management was also revised to make sure that employees are compensated in accordance to their competencies (Fairbairn 2005). As it was already stated, strategic human resource management is about hiring the talented individuals and motivating them to achieve the organizational mission. HR managers gain the strategic influence and have increasing knowledge of finance and marketing. Human resource functions are not limited to recruiting only and HR managers are getting involved into other departments. Such cooperation between departments, requires the "decision science" that enhances decisions about talented individuals and marketing decisions about money and customers (Boudreau 2005). Employees as the intellectual capital of the organization are crucial for the overall strategic success. "Digitization, labor shortages, growth through acquisitions, simultaneous downsizing and expansion, workforce demographic changes, and globalization are just a few of the trends that have made talent a top priority" (Boudreau 2005). There is the two-sided relation between HRM and business strategy - the business strategy is developed taking into account the potential of workforce, while the HR managers translate the strategy into priority of HR department. Strategies HR managers develop the policies working for strategy realization. There are three reasons to utilize strategy and HR: business are able to adopt to change faster and more successfully, the customer demands are met better and financial gains are achieved through successful execution of the strategy (Armstrong 2002). In few words, the strategic HRM is vital for utilizing the human resources for the overall company advantage and successful accomplishment of the strategy. How can the strategic HRM aid the goal achievement The answer is easier than it might seem - HR manager ensures that the employees support the organization strategy and are motivated to meet the set goals. Personnel should be able to perform for the goal achievement and be rewarded for their contribution. One of the essential elements is corporate culture (shared values and beliefs). Strategic HRM is focused on "encouraging the employees to have faith and trust in organization" (Marchington 2005). The strategic approach to HRM is about implementing the policies which ensure that the employee's skills and knowledge contribute to the goal achievement. If the organization wants to be successful on the international market, managers have to continually develop new strategies meeting the needs of the customers effectively as well as meeting the strategic goals. This is especially important in the periods of organizational change. Strategic HRM becomes the central department in helping organizations at the stage of transition. HR professionals, as the facilitators of the change, assume the role of consultants and provide necessary resources for team building, information sharing, and employee motivation. Customizing the hiring and appraisal processes reflecting the competitive competences, managerial reviews and restructuring arrangements are all the functions of the strategic HR manager and should meet the requirements of the new external as well as internal environments. It is important to note that "managing human resources strategically requires that a firm's HR department realize both the more traditional operations roles of administrative expert and employee champion, as well as the more current roles of strategic partner and change agent" (Cabrera 2003). The strategic HR roles are clearly related to the firm performance and once the certain level of operational efficiency is reached, further improvements seem not to have significant impact on the financial performance of organization. However, the shift from purely operational focus to strategic orientation does improve the profitability of company. In conclusion, connecting workforce to the strategy results in long-term benefits and helps to meet the demands of customers better. The talented employees are valuable and important for the overall company success, however, they are scarce. Strategic HRM has the function to create the attractive working environment, identify the right people and recruit them to join the company. Workforce has become the most important asset in any company because it is the only source of service and knowledge. Globalization forces the companies to struggle twice harder to succeed or at least remain on the same level. Different challenges place the greater demand for successful employees able to contribute to the company strategy. Strategic HRM is an important element because the organizations first look at the available resources, including human, while developing the strategy. Word Count: 1778 References Armstrong, M & Baron, A. 2002, Strategic HRM: The Key to Improved Business Performance, Chartered Institute of Personnel & Development Publishing. Boudreau, J 2005, "Talentship and the New Paradigm for Human Resource Management: From Professional Practices to Strategic Talent Decision Science", Human Resource Planning, vol. 28, no. 2, pp. 17+. Cabrera, E 2003, "Strategic Human Resource Evaluation", Human Resource Planning, vol. 26, no. 1, pp. 41+. Fairbairn, U 2005, "HR as a Strategic Partner: Culture Change as an American Express Case Study", Human Resource Management, vol. 44, no. 1, pp. 79-84. Luthans, K 1998, "Using HRM to Compete in the 21st Century", Management Quarterly, vol. 38, no. 4, pp. 17+. Marchington, M & Wilkinson, A 2005, Human Resource Management at Work, Chartered Institute of Personnel & Development Publishing. Rowden, R 1999, "Potential Roles of the Human Resource Management Professional in the Strategic Planning Process", SAM Advanced Management Journal, vol. 64, no. 3, pp. 22+. Spencer, B & Swiercz, P 1992, "HRM and Sustainable Competitive Advantage: Lessons from Delta Air Lines", Human Resource Planning, vol. 15, no. 2, pp. 35+. Read More