Competitive Advantage of an HR Strategy - Essay Example

A critical examination of how a firm’s HR strategy can be its source of competitive advantage BY YOU YOUR ACADEMIC ORGANISATION HERE YOUR HERE DATE HERE A critical examination of how a firm’s HR strategy can be its source of competitive advantage Introduction The fast-paced business world of today requires companies to consider multiple aspects of the organisation from finance to regulating job functions. These activities appear to occur as a means to securing business longevity and also managing whether the company maintains enough quality assets (either financial or human-related) to succeed amongst heavy competition. However, outside of the regular business review and oversight is the necessity to create a quality human resources system which provides benefit to both the business and the employee. When a company finds their proverbial niche related to positive HR policies and benefits, the end result can be a firm with high competitive advantage. Competitive advantage, from a traditional business perspective, generally involves the tangible activities of the company such as the financial rewards from a streamlined production system or the positive service delivery performed by a shipping and receiving department. When the organisation performs a specific work-related activity better than other companies in similar marketplaces, the organisation has developed a unique competitive advantage. However, in terms of managing human resources, competitive advantage occurs simply by creating policies and workplace environments which are congruent to business and employee needs. It would seem that a satisfied staff is a staff which is motivated to provide excellence to job role function. This paper identifies the various methods by which HR policies can create competitive advantage for today’s organisations; both internally and externally. Sources of internal competitive advantage Having a streamlined system of HR management appears to provide competitive advantage from a human capital development perspective. Karami, Jones and Kakabadse (2008) suggest that attitude, stemming from management professionals at the firm, greatly impact whether a firm will develop an appropriate pool of talent. There appears to be many organisations, today, which under-utilise staff members, considering them as only vessels through which to achieve company goals. The aforementioned authors stress the importance of providing workers with new opportunities and increased job role flexibility as a means to secure psychological perceptions of staff importance toward meeting company goals. It might appear that job role flexibility and opportunities (such as advancement or job rotation) are rather common sense HR policies and procedures, however in terms of supplying a company with competitive advantage it is important to understand why these practices build a stronger firm. Wirtz, Heracleous and Pangarkar (2008) offer the importance of empowering employees as a means of enhancing the service output for employees in a company where service is a key strategy to winning and keeping loyal customers. The authors identify that service employees are a “key input” in delivering service excellence and are among some of the most difficult jobs as they often deal with the public (Wirtz et al, 2008: 4). Empowering employees in this environment might involve offering employees less management visibility in their unique job role functions as a reward for consistent service delivery. Empowerment could also involve, in any variety of industries, offering opportunities for advancement/promotion in the company as a promise for the fulfillment of various, and optional management training packages. Empowered employees, it would appear, are highly motivated toward achieving company goals, and seem to respond positively when the entire performance management system is designed around job role autonomy and when reward for performance is both observable and measurable. When an employee is receiving a benefits structure and job role expectation which befits their personality profile and are offered opportunities to further train and develop, the end result appears to be a staff which is more dedicated to achievement and assisting the company with long-term goal attainment. When comparing such a firm to another company which does not consider human capital development and empowerment as being vital tools to success, the firm which devotes more time to positive HR policies dealing with growth and empowerment will likely sustain the competitive advantage in far greater degree; as related to internal staff capabilities and motivation to perform. Also related to internal competitive advantage is the idea of increased engagement between managerial leaders and the subordinate staff worker. One human resources professional identifies that “an engaged employee is 100% psychologically committed to their job. Those who are engaged are safer, more likely to stay, more productive and more likely to succeed” (Harrington, 2008: 72). However, what is engagement from the HR perspective? A traditional line manager or divisional manager is responsible for ensuring that the division’s work expectations are being performed to business guidelines. This role further coordinates staff activities and rewards or disciplines based on individual staff performance. Engagement, however, is creating a relationship of trust between workers and managers by acting as more than a coordinator and stepping into the role of mentor or developing partner (Harrington). This type of relationship-building and focus on the psychological aspects of staff needs and motivations is what creates competitive advantage from an internal perspective and builds higher talent in the process. In fact, the author again points out that 69 percent of workers who are not engaged routinely by managers cost billions of pounds to companies from lower productivity (Harrington). The benefits, in terms of sustaining or building competitive advantage, are obvious if engagement occurs as a matter of routine, managerial activities. However, this would likely require managers to be legitimately-focused toward treating the staff members like a valued contributor, which may be something which requires executive-level training and development to reinforce. This would likely have to be decided by a competent HR professional who is able to assess the human capital management capabilities of each divisional manager. One different, professional perspective on competitive advantage describes yet another human resources philosophy: The human capital-centric business. According to Stern (2008), the method by which an organisation considers talent will be the key to whether the company experiences competitive advantage. For example, some organisations appear to describe talent as a rarity or only provide positive feedback for staff performance when the activity or action performed goes significantly above-and-beyond corporate expectations (Stern). This would be comparable to a basic performance management system where positive performance is rewarded only when superior to other staff members or corporate guidelines. However, firms which consider talent as a routine and everyday output of staff dedication to job performance achieve competitive advantage simply because the staff members are treated as business assets rather than as subordinate tools designed to perform a single job task. The human-centric organisation is one in which the HR function is blended directly into divisional management practices and the entire focus of staff interaction is based on issues of subordinate respect, reward for achievement, and recognition for a job well-done. Once again, these would appear to be rather common sense elements of the HR function, however the evidence provided consistently suggests that talent management is often under-looked and therefore the staff members’ willingness to provide superior performance is eroded due to simply being dissatisfied with their role in the company. Interestingly, Stern (2008) is somewhat bold when stating that in order to achieve high competitive advantage, firms must absolutely abandon policies and principles which are rigid and do not allow employees the space to perform adequately. What the author is suggesting is that the very mechanisms which drive human resources policy can actually turn against the company and erode total business performance. For instance, an HR policy which demands rigid compliance to specific organisational guidelines, in a performance management system which only rewards for above-and-beyond performance will likely achieve only small-scale results and only with specific top-talent employees. By nature, this type of system which does not reward or recognise for adequate performance to meeting corporate goals will likely create both animosity between the manager and the internal staff members. The attempts to develop a reward-for-performance system, however still using rigid guidelines and a non-human-centric philosophy of flexibility, will likely lead to dissatisfied employees who are not motivated to succeed simply because the receipt of reward for performance is too difficult and unrealistic to achieve. It would seem, then, that the basic learning lesson for companies striving to achieve competitive advantage through HR policies and procedures is to drop rigid performance guidelines, reward even for moderate performance, and do not fail to provide employees with the autonomous environment necessary to make themselves believe they are valued as vital components to business success. It was important in this paper to identify the various sources of internal competitive advantage as the majority of business successes seem to come from policies which are designed to foster employee satisfaction, autonomy, and development. The next section describes aspects of HR policy which can theoretically create external competitive advantage. One external source of competitive advantage Knowing your competitor activities is the most significant source of competitive advantage when assessing the organisation comparatively. Understanding what types of benefits packages exist in similar competitor marketplaces, such as pension schemes, car allowances, or health (among many other options) is another key to building advantage. Hills (2008) identifies that understanding competitor costs of benefits will create a picture of how the external recruitment environment is able to lure prospective employees. It is suggested that in order to sustain competitive advantage in areas of selection and recruitment, knowing how competition structures cash pay versus bonus pay can help to create a budget-conscious HR system of benefits as well as creating benefits packages which can actively compete with external job offerings. It might simply be an under-valued concept that understanding competitor benefits and pay structures is a tool to achieving competitive advantage or simply that companies, today, are so focused on sustaining the profitability bottom-line that they miss opportunities to actively scan the external business environment to create competitive bonus and benefits packages. It seems that there is a great deal of professional focus on companies which miss the opportunity to consider the needs of the employee during the recruitment phase. For example, a company which is experiencing a significantly-higher-than-average turnover ratio is forgetting to create attractive benefits packages which fail to satisfy the employee long-term. It is a likely assessment that the job search does not necessarily end even after the employee has been selected and hired by their new firm. If, after a few months of employment the staff member locates another competitor who is offering a superior benefits package, he or she will likely have diminished loyalty toward the firm and exit for a new opportunity. By performing the initial external environmental scan and comparing benefits structures to other external competitors, this is providing firms with the opportunity to provide a lower turnover ratio and also ensure that the company appears attractive to prospective job searchers. The above also describes the importance of benefits packages being created at a manageable level which is both congruent with budget and to avoid providing packages which might be too attractive and begin drawing prospective employees who would not fit in the organisational culture which exists at the firm. Understanding competitor actions related to compensation and other HR policies will put a firm in-line with staffing expectations on the current jobs market and avoid going over budget simply to attract top talent. Conclusion Managers and human resources professionals alike appear to have the most significant role in helping today’s firms build or sustain competitive advantage. Internal competitive advantage appears to be created by flexible policies and operational standards which are designed to assist employees in achieving strategic goals and also to develop their talents and become vital contributors to the business. This appears to be only accomplishable from the leadership perspective. It would seem that internal competitive advantage can be created by developing reward-for-performance schemes which are realistic and measurable, allowing employees increased autonomy and decreased management visibility, and offering various motivational tools such as trust-building and engagement. Competitive advantage appears to be an outcome of positive and rewarding human resources systems. Therefore, a business organisation should focus on human capital and talent management/development as the primary goal of managing people. It would seem, based on the evidence provided in this paper, that without a satisfied and motivated staff, achieving any measurable competitive advantage could be deemed virtually impossible. From an external perspective, understanding what drives competitor actions is not only good business practice from a traditional profitability standpoint, but also creates a template of comparison by which to develop appropriate benefits and compensatory packages. It would seem that businesses, today, run the risk of creating overtly-competitive packages which will eventually strain budgets or be impractical based on job role requirements. At the same time, delivering compensatory packages which are not equal to competition will likely draw undesirable, prospective employees during the recruitment process or lead to long-term issues with higher turnover ratios. Therefore, it would seem that understanding competitor activities is one of the most significant measures of competitive advantage as delivering packages which fit budget and employee expectations will position the firm as a leader in competitive employee practices and systems. The most common theme, it would appear, in creating competitive advantage for an organisation through human resources policies is in satisfying employee expectations and also establishing systems which monitor and reward employees based on performance guidelines. These guidelines, however, must be developed with the opportunity to alter them (flexibility) to fit unique business conditions and must accompany active engagement from managers to be implemented successfully. Because engaged employees, those which are developed, respected and treated as valuable contributors to the business or organisation, are psychologically committed to performing their job roles, competitive advantage occurs as somewhat of an unintended outcome or consequence of progressive HR policies. It seems, though, that competitive advantage cannot be achieved, either internally or externally, without superior contribution from focused and dedicated managers and human resources professionals who understand that the employee and their unique needs should be at the top of the leadership agenda. Bibliography Bach, S. (2005). Managing Human Resources, 4th ed. Blackwell Publishing. Harrington, Sian. (2007). ‘Commitment’s competitive edge’. Human Resources, London, September 1, 72. Hills, Jan. (2008). ‘Need to know staff costs’. Personnel Today, Sutton. June 24, 30. Karami, A., Jones, B.M. and Kakabadse, N. (2008). ‘Does strategic human resource management matter in high-tech sector? Some learning points for SME managers’. Corporate Governance, 8(1): 7-17. Stern, Stefan. (2008). ‘Time for a human-centric take on talent’. Financial Times, London, August 7, 10. Wirtz, J., Heracleous, L. and Pangarkar, N. (2008). ‘Managing human resources for service excellence and cost effectiveness at Singapore Airlines’. Managing Service Quality, Bradford. 18(1): 4. Read More