Strategic Human Resource Management - Essay Example

Multinational Corporation Table of Contents Table of Contents 2 Introduction 3 Internal/Horizontal Fit Versus External/Vertical Fit 4 Contingent Approach for Best Fit and Universalism for Best-Practice 5 Best Fit and Best Practice for Achieving Organizational Goals 7 Weaknesses of Best-Fit and Best-Practice 10 Best Fit Approach in Wal-Mart 11 Debate 11 Strategic Constraints of Wal-Mart’s Best Fit Approach 13 Strategic Constraints of Toyota’s Best Practice Approach 14 Conclusion 15 References 17 Bibliography 21 Introduction In present day’s business context, the human resource management has considerably evolved from customary personnel management system. Besides, several corporations are implementing strategic human resource management tactics in order to attain competitive advantage. The paper discusses the strategic tactics of human resource management and how they can provide benefits to multinational corporations (MNCs). The competitiveness of multinational corporations (MNCs) in the international business environment of the present era is dependent on the capabilities to transform and adjust their organisational resources tactically. In the global setting, human resource managers face challenging duties for improving the performance of organisation. They must develop human resource management (HRM) approaches to effectively handle the abilities of employees in order to meet organisational goals. HRM approaches can balance the financial, social, governmental and legal restraints of numerous host nations which are essential for MNCs to maintain the strategic alignment. In the global arena, the HR practices need to be aligned with the approach of MNCs. Generally, organisations use two kinds of HRM approaches to manage their performance which are best practice approach and best fit approach. To remain competitive, an effective approach needs to be taken which can help to manage the tasks more effectively. It is up to the management of organisations to decide whether they use best practice or best fit for their HRM strategy which can determine the success of organisation (Caligiuri & Colakoglu, 2007). The paper will explore human resource practices of one multinational company named Wal-Mart. The reason for choosing Wal-Mart is that the company has successfully implemented human resource practices to gain cost advantage. Wal-Mart has their unique HR approaches which help the company to keep their functional expenses lower compared to the competitors. Wal-Mart has three types of strategy in their businesses at the commercial level, business level and operational level. The strategies of operational level serve overall company strategy so that the commercial strategies are applied more successfully and competently. The paper will focus on the human resource strategy which falls under operational strategies of Wal-Mart. Wal-Mart has developed low cost status in the market with its exclusive human resource approach. Through strategic human resource approaches, Wal-Mart attempts to maintain lead position in the retail industry. Thus, the case of Wal-Mart is suitable for studying how the human resources practices can be applied in organizations for gaining benefits. Internal/Horizontal Fit Versus External/Vertical Fit In strategic human resource management (SHRM), fit signifies the exploitation of human resources to assist with the accomplishment of organizational objectives. There are two kinds of fit in SHRM which are horizontal fit and vertical fit. While Horizontal fit denotes similarity within several HR activities, vertical fit denotes configuration of HR activities within organization with strategic administration procedure. Generally, horizontal fit is essential when organizations want to make appropriate utilization of its resources and vertical fit is used as a serious measure towards accomplishing organizational objectives by introducing HR practices. Overall, horizontal fit denotes the synchronization within several HR practices and vertical fit is based on maintaining compatibility within several HR practices. Both approaches contribute to the competitiveness of an organization and it is vital to position ranges of HR practices in a methodical manner (Wei, 2006). Contingent Approach for Best Fit and Universalism for Best-Practice Adopting best HRM practices is a significant aspect for every MNC. It is a vital decision for MNCs whether to adopt universalistic best practice approach of HRM or contingent best-fit approach of HRM. There are no certain resolutions yet to conclude that ‘best practice’ approach always offers high performance. In the case of MNCs, there is an ongoing dissimilarity between these two approaches of HRM. It can be observed that organisations that display strong performance have strong discipline in HRM (Stiles & Et. Al., 2006). In contingent approach, organisations concentrate more on the suitability of HR policies in relation to the organisation. Best-fit approach considers the aspects such as culture, functional procedures and external business atmosphere (Armstrong, 2006). In best-fit approach, organisations learn about what fits preferably and what does not fit in the operational process. It is up to organisation to select what is appropriate for it in general terms and what can be amended to fit organisation’s specific strategic and operational necessities. The best-fit approach initiates by the analysis of business requirements of the organisation with considering culture, organisational structure, accessible technology, and operational process. Analysing business requirements along with these factors help organisations to indicate what should be done which can be fitting for better organisational performance. Thus, it is useful for organisations to select and blend several ‘best-fit’ elements and develop an HRM approach which is appropriate for supporting the recognised business requirements (Armstrong, 2006). HRM researchers have developed numerous viewpoints regarding best-fit approach. The best-fit approach concentrates on the way of relating HR practices with business plans. In best-fit approach the primary assumption is that organisational policy leads to HR strategy (Verweire & Berghe, 2004). The best-practice approach focuses on the universal principle that there are several best HRM practices and accepting them in organisational activities can result in improved performance. Universalism approach concentrates on comprehensive features of business atmosphere. With respect to organisational performance, it is being said that there are certain specific practices of HRM which should be abided by the organisation so as to achieve greater performance (Armstrong & Baron, 2002). This approach concentrates on the components of HRM. According to Pfeffer (1996) there are seven best practices in HRM which help to make a successful organization which are: selective hiring, self-managed teams, employment security, high compensation on performance, training, lessening status difference, and sharing information (Mess 2004; Armstrong & Baron, 2002). There is significant argument in HRM about two approaches ‘best fit’ and ‘best practice’ regarding how organisations can make strategic selections between them. Some argued that ‘best fit’ approach is more efficient if it is properly combined with particular organisational and environmental setting such as healthy organizational culture, innovative work environment, strong commercial law and fair corporate atmosphere among others. On the other hand, a few argued that organisations will perform better if they recognise and approve ‘best practice’ approach for managing human resources (Boxall & Purcell, 2000). Organisations’ HRM practices must adjust with the ‘structure and system’. Majority of activities of ‘best fit’ are related with external fit of organisations and the way of achieving it. HR performances in organisations need to be aimed to strengthen the behavioural insinuations of ‘generic strategies’ described by Michael Porter. Thus, it is inferred that organisations’ performances will develop if HRM activities jointly support organisation’s strategies for gaining competitive advantage. A beneficial HRM model is that which can fit with current competitive strategy of organisation. The ‘best fit’ approach claims that HRM practice becomes more efficient if it is made to fit particular serious likelihoods in the organisation’s specific situation (Boxall & Purcell, 2000). Certain authors claim that organisations should adopt ‘best practice’ approach in HRM for improving the performance. Though ‘best practice’ approach is about making sustainable improvement, only limited number of organisations can accomplish it. If ‘best practice’ approach assists both investors’ as well as the employees’ desires, then it can improve the performance of organisations. The main problem of using ‘best practice’ is the interests of people within organisation. If certain activities of ‘best practice’ conflict with the interests of people, then it can hamper the performance of organisation. For example, if a HRM practice is beneficial for business return but bad for employees or if a HRM practice is worthy for managers but disadvantageous for shareholders then it will cause conflict within organisation and subsequently impact on the performance (Boxall & Purcell, 2000). Best Fit and Best Practice for Achieving Organizational Goals In certain conditions, organisations use different approaches of HRM to improve the satisfaction of employees, for example, senior managers may differ with sharing of information which can be necessary for maintaining good performance. Thus, it can lead to a different approach of HRM, on the other hand, middle level managers in an organisation may not use grand approaches if they are not qualified sufficiently to manage employees or trade unions in that organisation which can hamper the activities of management (Marchington & Et. Al., 1993). Pfeffer suggested that ‘best practice’ is appropriate in any kind of circumstances, but in real life circumstances it is not completely true. For example, ‘employment security’ is one of the ‘best practices’ for HRM according to Pfeffer, but security cannot be accomplished by compromising commercial profits of organisation. Another example of argument about ‘best practice’ is the ‘self-managed team’ (Pfeffer, 1996). Evidence proposes that employees who work in a team usually become more motivated and satisfied but the degree of satisfaction also is influenced by the decisions regarding selection of team leader, obligation for organisational task and control on employees’ activities (Marchington & Grugulis, 2011). To gain maximum satisfaction of employees’ organisations first need to conduct a descriptive research about the two approaches to examine which approach can do better. The reward system of HRM can assist in motivating and satisfying employees and thus organizations use ‘best fit’ and ‘best practice’ approach in it. In the reward systems of MNCs, the ‘best fit’ perception states that organisation’s reward system must be associated to strengthen the business strategy to accomplish competitive advantage. On the other hand, ‘best practice’ states that there are several HRM strategies comprising of the reward schemes that result in satisfied employees. The fundamental principle for ‘best fit’ approach is that close configuration among organisational strategy and other structures comprising reward can develop organisational efficiency (Morris & Maloney, n.d.). Weaknesses of Best-Fit and Best-Practice The ‘best-fit’ approach plays a significant part in strategic HRM of organisations, but there are numerous problems with respect to this method. Whereas best-fit approach accepts that efficiency of HR practices is situation oriented, the best practice approach accepts that certain HR practices outperform compared to other practices and admits that there are certain activities which can result in organisational success. Researchers who verified both approaches have constantly established stronger indication for success of best practice approach. Best-fit has several deficits which involves that the actual characteristic of fit is not apprehended in organisation. In actual situation, the ‘best fit’ approach is unclear, more complex and contains several components which are difficult to maintain. According to the observation of Becker and Huselid, best-fit is essentially multidimensional and not simply apprehended by ‘simple bivariate’ announcements (Wood, 2009). The best practice approach has been criticised by several analysts. Generally, it is difficult to admit that there are certain collective best practices for HRM because a few best practices might result well in one company but similar practices will not essentially work well in other companies as it might not fit in the organisational strategies. Organisational performance is highly distinctive and needs to be personalised wisely according to each organisation’s individual condition to accomplish maximum efficiency. To get optimum performance, organisations need to decide about HRM practices that are most likely to satisfy the business requirements. The awareness of best practice approach can be more suitable for recognising the ethics essential for the selection of practices (Armstrong & Baron, 2002). Best Fit Approach in Wal-Mart Wal-Mart, which is one of the leading MNCs, implements ‘best fit’ approach of HRM in their operations. By putting ‘best fit’ approach Wal-Mart seeks to accomplish competitive advantage over other organisations. For instance, instead of going for ‘selective hiring’ in ‘best practice’, Wal-Mart employs part time and temporary employees or fresh graduates for their business operations which is less expensive than hiring expert employees. Through this approach, Wal-Mart seeks to achieve low operating cost which in turn helps the firm to gain cost advantage over other competitors. Wal-Mart has selected the contingent approach of HRM for accomplishing the organizational objectives. The individual HR practices are aligned with the Wal-Mart’s strategy for developing business performance; therefore the universalism approach might not be appropriate for the company. With respect to recruitment, Wal-Mart attempts to decrease the expenses of managing huge number of workers (Scribd Inc, 2011). Debate Unlike other retail organization Wal-Mart has different strategy which helps to differentiate it from other competitors. Wal-Mart had implemented distinct human resource practices that are best fitted for the company. From training point of view, Wal-Mart denotes its workers as associates and inspires supervisors to serve others while concentrating on maintaining organization’s value and honesty. Wal-Mart’s HR strategy requires behavioural constraint for achievement and utilization of HR practices in such a way so that the company can gain complete control over employees’ behaviour and performance. Thus, Wal-Mart has best fitted its training so that it can amend employees’ behaviour and abilities with obligation of company’s strategy which is to maintain the product cost. Through implementing contingency best fit approach Wal-Mart seeks to inhibit as well as decrease unsatisfactory behaviour of employees so that they can put much effort on the work (Scribd Inc, 2011). To control the performance of employees, Wal-Mart had not applied best practices rather it tailored its HR approaches which is developing high performance criteria and customised job design (Zingheim & Et. Al., 1996). To maintain its low cost strategy, Wal-Mart had displayed aggressive approaches and discriminated among employees regarding payment. With respect to employee welfare and security, the HR practices of Wal-Mart are aligned with the commercial level. It can be observed that in every level of human resource management, Wal-Mart had put the best-fit approach only to pursue its prime objective that is to maintain low cost (Scribd Inc, 2011). Unlike Wal-Mart, Toyota implements ‘best practice’ approach for HRM in their operations. Toyota’s strategies are made on the basis of two aspects which are ‘respect for people’ and ‘continuous improvement’. Toyota believes in teamwork and thus it adopted ‘best practice’ approach for improving the foreign and domestic sales, employee performance and procurement activities. As a part of ‘best practice’, Toyota had established ‘Toyota Institute’ in the year 2002, for developing HRM and strengthening the global performance of the company. Toyota Institute provides training for employees for international leadership applicants and middle level managers to develop the understanding of Toyota’s approach for business and facilitate ‘best practice’ in organisation. The main concern for putting ‘best practice’ is that it depends on the condition and culture of organisation. Though ‘best practice’ works well for Toyota, it does not mean that it will provide same results for first movers as well. It is impossible to accomplish equal results by implementing ‘best practice’ because the condition of MNCs differs from each other (Toyota Motor Corporation, 2003). Strategic Constraints of Wal-Mart’s Best Fit Approach The best-fit approach used by Wal-Mart has numerous strategic constrains. For instance, the strategy of employing temporary employees who are less skilled and talented, can affect the organisation’s business performance. Many employees are dissatisfied with the differentiated HRM strategy of Wal-Mart. Besides, Wal-Mart has also disrupted the state guidelines for employees’ welfare regarding lunchtimes and job breaks for accomplishing competitive advantage. Due to discrimination of workers, Wal-Mart has been criticised for providing inappropriate wages to the workers. It had been alleged that Wal-Mart maltreated the employees by making them work late night and at times not allowed them to leave job till morning (Mesa Community College, 2009). The best fit strategy of Wal-Mart had made their employees dissatisfied and it has also impacted on their shareholders. Though their activities can lead to lesser cost of operation, best fit approaches had de-motivated employees for contributing less towards the organization’s objectives. For gaining competitive advantage only lower cost strategy is not adequate, organization also need better human resource which comprises of abilities, devotion, and commitment towards company. Through various best fit practices, Wal-Mart had made its product cost lower, but at the same time, it had reduced the loyalty and dedication of employees which can impact on the performance of organization (Scribd Inc, 2011). Wal-Mart should learn from their mistakes in implementing HR approaches. Human resources are valuable assets for any organization and managing them properly can provide competitive advantage. Wal-Mart concentrates on short-term profit and it should pay more consideration on long-term advantages by effective HR practices. The present best fit approach used in Wal-Mart needs to be improved more, because the aggressive movement of the company to keep its cost lower may not be applicable for long run. As the number of grievances and criticisms increase, Wal-Mart can face difficulties in maintaining its brand image in the international market which can result in huge cost to the status of the company. Wal-Mart can learn from the best practices approach of Toyota, which has successfully established itself in the international market and has lesser grievances from employees against the company. Strategic Constraints of Toyota’s Best Practice Approach In contrast to Wal-Mart, Toyota’s success depends on innovative and differentiated products which call for using best practice approach in the company. The best practice approach helps Toyota to improve the capability, the knowledge and the proficiency through effective recruitment and training of employees. The best practice approach of Toyota focuses on motivating employees so that they can generate new thoughts, concepts, and designs and ultimately develop quality products which help to increase customer satisfaction (MacLeod & Clarke, n.d.). But the major strategic constraint of best practice approach is that it can lead to different results in other organizations. For instance, the innovative strategies that Toyota implements require varied organizational culture, work environment and management. Thus, it is hard for any other organization to reproduce them effectively; otherwise it cannot get similar outcomes. Besides, carelessly following best practice human resource approaches such as increase of salary to motivate employees can result in loss of competitive position due to higher labour expenses. Organizations should understand their financial position as well as the competitors to successfully imply the best practices. Conclusion From the above discussion, it can be said that human resource management practices are of great importance for any organization to gain competitive advantage and maintain a strong position in the market. The management of Wal-Mart must provide more concentration on using appropriate HR approaches in managing the valuable employees because they are the one who are in direct contact with the customers on a daily basis. If employees are not satisfied, then their performance will get hampered and it is bound to impact on the performance of the organization in future. HR aspects such training, reward and compensation among others play vital roles in motivating and developing employees and this can help to generate a better organizational culture. As a result, organization can save more expenses and keep its product cost at lower level. It is evident that ‘best fit’ and ‘best practice’ both approaches have their own advantages and disadvantages. Whereas ‘best fit’ focuses on the competitiveness of the organisation, ‘best practice’ is considered according to the organisation’s situation and business environment. In ‘best practice’ approach, an organisation refers to other organisations’ successful strategy for enhancing the performance. But this approach is inflexible and can cause diverse consequences while pursuing other organisations’ strategies. Applying ‘best practice’ approach in organisation, such as ‘selective hiring’ and ‘high compensation on performance’ among others, without adequate care, can lead to high operating cost and result in loss of competitive position in the international market. “Best fit’ and “best practice” approaches can be used to counterbalance the drawbacks of each other in organisations to construct robust and supportive HRM. References Armstrong, M. & Baron, A., 2002. Strategic HRM: The Key To Improved Business Performance. CIPD Publishing. Armstrong, M., 2006. 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