Human Resource Management and Development

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Bradford Centre for International Development

2007/08 Human Resource Management and Development

What do you understand by Strategic HRM and how this can create the ‘competitive edge’ in a private sector organisation?

UB: 07014568 By Aboubaker Suleiman A. BADI

Word count: 4,287

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Introduction: To accomplish work, organisations need different resources. They need human financial, material resources and time. Perhaps the most important and difficult to manage is the human resources. After all it is the human that can manage other resources and enable organisations function and survive. Thus, Analoui (1998) points out “People constitute the most important ingredient of the work organisation”. (1998, p.3)

Over the decade, many researchers have advocated that HR in a strategic role can greatly add value and exert tremendous influence over the ability to attract, retain and motivate its human resources, which could in turn, have a huge impact on growing the business and achieving major organizational goals. HR strategies help to strengthen the underlying culture and the way an organization operates; they are important determinants of the quality of an organization’s workforce and the infrastructure which helps to train, develop, motivate employees as well as focus employees in the right direction to achieve the company’s targets.

In recent times, HRM has assumed new prominence because of continuing concerns about global competition, the internationalisation of technology and the productivity of labour (Bratton & Gold, 2003). It is argued that these market imperatives require managers to change the way in which they manage the employment relationship in order to allow for the most effective utilisation of human resource (HR). Managers and academics argue that the traditional approaches to managing workers are inappropriate and can no longer deliver the goods (Betcherman et al., 1994, p.2). Harnessing worker’s full potential and producing the attitudes and behaviour

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considered necessary for a competitive advantage require three aspects of managerial control to change: organizational design, culture, and HR policies and practices (Bratton and Gold, 2003).

The aim of this essay is to discuss the Strategic Human Resource Management (SHRM) impact on organization competitiveness. The essay will begin by analysing the following concepts : Human Resource Management (HRM), resource-based View on Strategic Human Resource Management. Then, it will examine the impact of SHRM on organization competitiveness. Finally, the essay will attempt to assess the Future Challenge of SHRM.

The first thing that needs to be done is to provide an actual definition and analysis to what it actually means to be SHRM. In order to define this concept, it is first important to actually explain what is meant by human resources in general. Appleby & Mavin (2000) explain that “Human resources are the efforts, skills, and capabilities that people contribute to an employing organization which enable it to continue in existence. Although difficult to define, SHRM is generally

perceived as a distinctive approach to managing people which seeks to achieve competitive advantage through the strategic development of a highly committed and capable workforce” (p.555).

The definition that is provided here explains that human resources is really about the skills that the people of an organization bring together in order to keep it alive. In addition, the authors explain that moving into the realm of SHRM is about

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managing the human capital of an organization in such a way as to achieve some type of competitive edge. Having not only a committed workforce, but also having a workforce that is highly trained for the job that must be performed achieves the competitive edge. SHRM. Van Donk (2001) explaining where in the planning process of a company the human resource management role must fit in order to make it strategic in nature. He also explains how this role has evolved in the past twenty years or so: Moving in this direction is where human resources becomes

“From the 80s onward there have been pleas for integrating human resource management and corporate strategy. A number of authors have been working on approaches to the achievement of what is called Strategic Human Resource Management. These approaches place the human resource management policy formulation at the strategic level. In these approaches to Strategic Human Resource Management it is claimed that: (1) human resource problems are problems solved by linking HRM and strategy formulation at an early stage; and (2) problems with strategy implementation are solved by early adjustment of the HRM to these strategies” (p299).

He adds to the definition of SHRM is that human resources cannot be called in at the last minute to fix a hiring problem. Instead, human resources must be

involved from the very early planning stages in terms of the type of human resources that are needed. This early involvement allows human resources to understand

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exactly what is needed. It also allows human resources to be able to adjust so that the decisions that are made about the people that are needed can be adjusted immediately to fit new or changed strategies for the company.

Despite the widespread use of the term, the concept of HRM remains elusive and varied (Thomson, 1991; Brewster and Larsen, 1992). According to Storey’s (2001) discussion on the definition of HRM best summarizes the various meanings given to HRM. He points out that there are four meanings frequently attached to HRM. The first is that HRM is simply just another word for personnel management and is also used to cover other concepts such as employee relations and people management. The second meaning refers to the use of specific personnel management techniques in an integrated manner. In this definition, HRM is seen as the integrated and coherent use of policies and techniques such as selection, performance appraisal, reward and training to enhance organisational performance (Storey and Sission, 1993). The third meaning emphasises on the importance of a business-oriented and business- integrated approach in the management of employees. This definition emphasizes that the way an organisation manages its workforce should match the strategy it pursues. The term “strategic HRM” is often used to refer to this strategically oriented HRM practice. The fourth definition given by (Thomson, 1991) goes a step further; besides the importance of integration with strategy, it also emphasises the use of employee management techniques which seek to develop employee commitment to certain desired outcomes. This emphasis on the integration of HRM practices and policies with strategy has been described as a paradigm shift from a tactical to a strategic orientation (Thomson, 1991).

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In the perspective of Strategic HRM applies in Resource-Based View, much attention has been given to human resource management yet often its varied roles within the organisation have been the subject of neglect (Analoui, 1998). One of the major problems is identifying what differentiates HRM from strategic HRM, or makes strategic HRM more strategic than HRM (Karami and Analoui, 1999). One of the key differences between traditional conceptions of human resource management and strategic human resource management is the extent to which human resource management is integrated with the strategic decision making processes that tend to direct organisational efforts to cope with the environment (Guest, 2000). Competition, globalisation and continuous change in market and technology are principal reasons for the transformation of human resource management (Beer, 1997). Based on the condition of competitive and global market the new strategic roles for human resource management have been defined.

Traditional human resource ideas emphasise solely on physical skills; training covering only specific tasks; functional and sub-functional specialisation; and concern for individual efficiency (Beer, 1997). The traditional perspective did not place the emphasis on ‘people’ and therefore paid more attention to ‘task’ at the expense of people and their development (Analoui, 1998). However, the emerging strategic human resource management ideas emphasise the total contribution on the firm; innovative and creative behavior; overall effectiveness and cross-functional integration.

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Pfeffer (1994) describes how changing market conditions have rendered many of the traditional sources of competitive advantage, such as patents, economies of scales and access to capital and market regulations, less important than they have been in the recent past (Karami et al., 2004). Unlike conventional assets, strategic human resources as an intellectual or organisational capital are largely invisible and, therefore, do not appear on the firms balance sheet (Karami, 1999). They are found in a skilled, committed and adaptable workforce, and in the HRM system that develops and sustains it. As intellectual capital has come to represent an increasing fraction of many firms’ total assets, the strategic role of the HRM system has also become more important. Karami (1999) points to such an HRM system as the source of organisational capabilities which allows firms to learn and capitalise on new opportunities.

The HRM system that develops and maintains a firm’s strategic infrastructure should be considered an investment. It is an essential element of the infrastructure that supports this value creation process and a potential strategic lever for the organization (Karami et al., 2004). The system level is considerable in the new role of SHRM. This system level focus is consistent with the conceptual rationale for the process of a strategic impact and referred to as a high performance work system (Karami et al., 2004). SHRM system produces employee behaviors that are focused on key business priorities, which in turn drive profits, growth and ultimately market value (Becker & Gerhart, B., 1996). Becker and Gerhart (1996) emphasised that HR not only must focus on business level outcomes rather than HR level inputs but also it must become a strategic core competency. They focused on strategic competencies instead of functional competencies. Their study indicated that the

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most important missing element in the HR functional expertise is a system perspective.

Finally, as a result of reduced transportation and information costs and the removal of social and political barriers the globalisation of business is proceeding at unprecedented and unexpected rates (Karami et al., 2004). Both the criteria and intensive competition are changing as a result of globalisation (Karami et al., 2004). This approach emphasises the integration of human resources with the rest of business and its environment. According to Miller (1991) ‘Strategic human resource management encompasses those decisions and actions which concern the management of employees at all levels in the business and which are directed towards creating and sustaining competitive advantage’. (Miller, 1991, p.114).

Human resources act as differentiating asset solely when wisely managed, when the strength of enterprise’s HR system is unquestionable, in other words, when an enterprise has a high-performing HRM. Accordingly, the value of human

resources in an enterprise can rise, maintain the same level or decline depending on the way in which those human resources are managed.

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FIGURE 1: A model of human resources as a source of sustained competitive advantage. Human Resources Practices

Human Capital Pool

Human Resource Behavior

Sustained Competitive Advantage

Source: Wright, Patrick M.; McMahan, Gary C.; McWilliams, Abagail.(1994) “Human resources and sustained competitive advantage: a resource-based perspective,” -----------------------------------------------------------------------------------------As Figure 1 shows, HRM does not only influence human resources behavior in an enterprise, but is crucial for development of human resources as a source of competitive advantage. Evidently, HRM proves to be the key factor for increasing employees’ productivity, meaning that HR practices turn employees into resource of development, as well as into source of competitiveness. Explicitly, HRM ensures presence of competent employees that enable an enterprise to build its competitiveness, motivates those employees, concerns of their development, etc. Furthermore, a competitive advantage is not only based upon the sum of people and talents one enterprise owns, but also upon positive climate and culture of an enterprise, which is a direct output of high-quality HRM. Namely, only encouraging work climate and culture assemble individuals, conjoin their personal goals with the ones of an enterprise, create synergy, and ensure that all members of a team perform with excellent results which ultimately lead to organizational success (Wright, et al. 1994).

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SHRM impact on organization competitiveness in the context of resource based view: Traditional sources of competitiveness, such as production capacities, financial resources, raw materials, distribution channels etc., are considered necessary, but no longer sufficient for organizational success. Human resources, their knowledge, skills and competencies as well as synergy among them, become the most valuable asset, the new source of wealth, and the key ingredient of competitive advantage. Consequently, the human resources function, which deals with recruiting, developing, and keeping the best people, now has the opportunity to move out of the background into the mainstream of organizational strategy and management. In other words, in a world in which all work is knowledge work and intellectual capital is crucial for economic success, it is logical that the ability to attract, retain, and use the talents of people provides a competitive edge.

When a firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors, then we can say the firm has a competitive advantage. And when a firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy, then we can say the firm has a sustained competitive advantage (Barney 1991). The struggle to gain competitive advantage in markets that grow more fiercely contested day to day has radically altered the complexion of many businesses. The HRM theorists start arguing that HRM should be recognised as a source of competitive advantage. The field of strategic human resource management has grown up alongside the field of strategic management in recent years. It represents attempts by HRM researchers

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to relate the worlds of HRM and strategic management to each other (Wright & McMaham 1992).

Only recently, organisational theorists have come to acknowledge the importance of HR competencies, capabilities, and skills as the sources of sustainable competitive advantage (Mabey et al., 1998). Researchers like Wright, et al. (2005) hold that HRM capability is a source of competitive advantage as it is embedded in the collective knowledge of the firm members, which is developed over a period of time, and valuable as the firm’s routines for managing people can direct employees: Talent and behaviors to meet objectives and create value. The concept of achieving competitive advantage through HRM is based on the rationale that competitive advantage is the essence of competitive strategy (Mabey et al., 1998). It encompasses HR capabilities, resource, relationship and decisions that permit an organisation to capitalise on opportunities in the market place and to avoid threats to its desired positions.

The resource-based approach emphasises the ability of the organisation for managing the “appropriability” of employees’ skills and knowledge. Appropriability refers to the different capacity of the organisations to benefit from the utilisation of their resources and capabilities (Mabey et al., 1998). It includes attracting and retaining relevant personnel; building and developing their expertise through development and learning systems and relationship; rewarding and sharing expertise; and learning (Richard and Johnson, 2001). Bernardin and Russell (1998) maintain that an organisational ability to sustain competitive advantage depends on its ability to attract and retain those individuals

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with skills needed to give the organisations the competitive edge. Attracting and retaining individuals with the skills related to the core competencies of the organisation are key HR activities directly relevant to organisational capability (Mabey et al., 1998).

A lot of interest is being generated in performance measurement of human resource management capability. Unlike conventional assets, human resource management capabilities as an intellectual or organisational capital, is largely invisible, and cannot appear on the firm’s balance sheet (Analoui, 1998). According to a recent study by (Boxall, 1992; and Wright & McMaham, 1992) have shows two models of strategic human resource management; which explained as follows:



The Matching Model or behavioural perspective: According to the study the matching model of strategic HRM is linked to the

product market oriented views of strategy advocated by Michael Porter 1985, the model asserts that organisational effectiveness depends on a ‘tight - fit’ between HRM strategy and business strategy. The essential idea of this model is that HR practices should be matched to the firm’s desired competitive position; this is seen to make the organisation more effective. In other words, management should work out what behaviours are required by the choice of a particular business position and adopt those HR practices, which reinforce them. Referring to Boxall, shows several weak points in this model such as; what is strategy; the typological problem; the issue of strategy - making, and the dynamism issue.

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The Capabilities Model: The second model is linked to the resource-based view of the firm. According

to Barney (1991) HRM can be valued not only for its role in implementing a given competitive scenario but for its role in generating strategic capability for its potential to create firms which are more intelligent and flexible than their competitors over the long haul firms which exhibit superior levels of co-operation and operation. By hiring and developing talented staff and their contribution within the resource bundle of the firm, HRM may lay the basis for sustained competitive advantage. In order to get more complete model of strategic HRM, it should be linked to the employment relationship.(Wright, et al 1994) The resource-based view of the firm, quite clearly, provides a basis for asserting that key human resources are sources of competitive advantage. It helps to lay the intellectual basis for a ‘capabilities’ model of strategic HRM. Such a model builds on the obvious point that learning is something that people do. Applying learning in a company involves people with skills who want to act together, who co-operate in powerful ways.

Future Challenge of SHRM SHRM has considerably grown in the last 15 years. Schuler et al. (2001) described the evolution of SHRM from personnel management in terms of a two phased transformation, first, from personnel management to traditional human resource management and then to SHRM. To improve firm performance and create firm competitive advantage, firm HR must focus on a new set of priorities these new priorities are more business and strategic oriented and less oriented towards traditional HR functions such as staffing, training, appraisals and compensation. 13

Strategic priorities include team based job designs, flexible work forces, quality improvement practices, employee empowerment and incentive compensation (Schuler et al., 2001). SHRM was designed to diagnose firm strategic needs and planned talent development which is required to implement a competitive strategy and achieve operational goals (Huselid, et al., 1997).

The contemporary nature of the HR function is not especially well documented. In light of the fact that the profession itself is changing with a growth and expansion of the HR role being matched by a progressively increasing emphasis on “professionalization”, so too may the function be changing in parallel taking on different structural configurations, taking advantage of new technologies and embracing new agendas. What appears to be emerging from these and various other developments is an increasing proliferation of HR approaches at enterprise level with no apparent convergence to any single model of HR types. This of course is not surprising and the proliferation of enterprise level models in response to changing contexts and circumstances has a long pedigree in the academic and practitioner literature. From a US perspective, Conner and Ulrich (1996) link the development of the personnel function to the history of business in the US.

However, a study by Harrison and Kessels (2004) have reviewed the body of research undertaken since the mid-1990s and have identified the fundamental challenges presently faced by organisationally based HRD. It is stated that the four following themes emerged consistently: • Achieving strategic thrust through integration of HRD strategies with current business and HR strategies, coupled with a focus on building future

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organisational capacity for superior speed, flexibility and knowledge creation. • Facilitating culture change and building a knowledge-productive learning culture. • Promoting high-quality workplace learning processes that will enhance the value of social as well as human capital. • Helping to develop managerial and leadership capability that will aid processes of strategising, organising and HRD, especially in newer organisational forms.

Harrison and Kessels (2004) speculate on the likely future challenges for HRD and explore the major implications for the HRD process and its practitioners. They conclude that HRD in knowledge-based organisations differs significantly from that of HRD in more traditional contexts. They recognise that this has particular significance and implications for the education and career development of HRD practitioners.

The current literature suggests that the role of the HRD practitioner is changing. There is a large body of research which examines the nature of these changes and the development implications for the HRD practitioner. The literature reveals the skills that HRD practitioners will need to develop and possess in order to perform the emergent role. There are some suggestions as to the type of intervention, activities and tasks that the HRD practitioner will need to undertake. There is a paucity of information as to how the HRD practitioner might actually acquire and develop the skills required to perform the emergent role. Most significantly, perhaps, the literature reveals an apparent discrepancy between the theory and the practice of HRD.

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Conclusion This paper has been discussed the SHRM impact on organization competitiveness. It has been addressed through an examination of the concepts of HRM, and has followed by analyzing a resource-based View on Strategic Human Resource Management. Finally, this essay concludes with a review of the Future Challenge of SHRM. Organisations that adopt best HR practices can generate greater returns. Such practices include profit sharing, results oriented appraisals, and greater employment security. Different studies hold that human resource managers must align some key organisational HR practices with business strategy. To conclude from the empirical and theoretical evidence HR can be a source of sustained competitive advantage and becomes a core competency which makes it difficult for the competitors to imitate.

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Reference:
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