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$description =”Business Essay – It would be a fallacy to say that this business dynamics does not have any implications for the human resource management (HRM) function within an organization”;
$subject = “Business”;
“It is change, continuing change, inevitable change that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.” (Source: http://www.ft.com) This statement made by the redoubtable Isaac Asimov is the profound reality of the 21st Century global economy. The practices of managing a business also then need to evolve taking this reality into consideration.
“Barclaycard became the latest company to move jobs to India after it announced plans to close a call centre in Manchester and move some employment offshore.” This is just one of the many examples in the last decade illustrating how most Western companies are juggling with alternatives such as downsizing, reengineering, and delayering in order to survive and grow. There is a continuous overhaul in the way in which structures and relationships have existed traditionally within a business. It would be a fallacy to say that this business dynamics does not have any implications for the human resource management (HRM) function within an organization. The pace with which the competitive forces act on a present day business is the reason enough for re-evaluating the role of HRM within a business.
The debate on the need for human resource function to contribute effectively had started long back with Karen Legge (1978) questioning the objectives of what was then called personnel management. Her contention was that human resource management (HRM) needs to be driven by goals. This questioning has become more pronounced since the exponential growth of the high-technology businesses in the 1980’s. The developed economies have made a transition from primarily industrial in nature, which were driven by passive and reactive practices of personnel management, to knowledge-driven economies fuelled by creativity emanating from human mind. In this environment, capital, in the form of money, is relatively much easier to obtain, while expertise, which in form of employees, required for driving creativity and innovation, is much more challenging to source. What’s more, globalization is forcing businesses to develop action plans keeping local conditions in mind. The resulting implications for HRM are:
- the realization of the fact that it is the human capital of the organization that can provide sustained competitive advantage
- the emergence of the concept of intangible assets, in which human capital is seen as one of the key assets and not as a cost to the company
- the belief, that for an organization to succeed, its human resource management needs to in alignment with the business strategy
It is in this context of business and economy that traditional, day-to-day practice of human resource function is evolving into a future-focussed, proactive discipline of strategic human resource management (SHRM).
In this essay, we will explore this nascent discipline and evaluate how it is important for businesses competing on global canvas need to transform their human resource function.
Introduction
The overall premise of SHRM is that it should get aligned with business strategy or strategic management of a business. If this is not achieved, then the human resource function is not adding value to a business.
To bring clarity to this premise, it is important to define strategic management as well as strategic human resource management:
- Strategy: One of the best definitions existing in all its simplicity is “strategic management is a human process beset with all the pitfalls that characterise human attempts to make decisions in conditions of uncertainty, rivalry and limited resources.” (Strategy and Human Resource Management, Boxall, Peter and Purcell, John).
- Strategic HRM: may be defined as “the pattern of planned human resource deployments and activities intended to enable a business to achieve its goals.” It is focused on longer-term people issues, organizational culture and its climate with the view to matching resources for future needs. (Source: Corporate and HR Strategy-CIPD).
New Role Required
Dave Ulrich, professor of business at the University of Michigan, has identified 4 new roles for the human resource function. He states that these involve HRM becoming:
1. A partner in Strategy Execution: This involves contributing to defining an organizational architecture, conducting an organizational audit, renovation in structure, self-assessment and goal setting within the HR department.
2. An administrative expert: Creation of internal processes within HR department that improve efficiency and credibility.
3. An employee champion: This involves engaging employees and improving organizational climate.
4. A change agent: By transforming the base culture of a business that uniformly binds people with common vision and goals. This role involves preparing the organization for facing and managing changes in external environment.
(Source: Ulrich, Dave)
Models and frameworks
There are innumerable thoughts on how HRM can be aligned with business strategy and a number of theoretical frameworks have being proposed. However the bottom line in all these models is clearly that: HRM needs to contribute to business performance and for achieving this goal there need to be clear HR strategies that transform human capital for achieving business goals.
One model that attempts to link HRM to business goals is visually expressed as:
(Source: Boxall, Peter and Purcell, John, Strategy and Human Resource Management, p5)
Essentially this is a broad framework of strategic human resource management and it implies that if a business is able to create an outstanding mix of outcomes across the three areas encompassing labour productivity, organizational flexibility and social legitimacy, it can achieve sustained competitive advantage.
Labour productivity (cost-effectiveness) and organizational flexibility are a challenge in the globalized business environment. Practices like outsourcing are a direct result of this need for cost-effectiveness and flexibility. There can be a conflict between the short-term and long-term needs. The third area of practice is social legitimacy, which involves fair employment practices, if a business wants to be perceived as a progressive organization by the society in which it operates. An organization also needs to make it imperative for its partners such as suppliers to comply with conditions that accord social legitimacy.
Schools of thought
Multiple models of linking HRM to strategy have been proposed. Broadly, there are two schools of thoughts:
1. The “best fit” school: entails linking HR strategy to competitive strategy in a business’s environmental context. This involves vertical integration by way of which the business goals are integrated with the individual goals. One of the many models within this school is the competitive advantage model which stresses that HR policies and practices should fit the generic strategies of cost reduction, quality enhancement and innovation.
2. The “best practice” school is also called universalism. It advocates the adoption of “high commitment” approach to enhancing organizational performance by improving employee morale, attitudes, commitment and skills. The focus is on horizontal integration where policies have a degree of consonance with each other.
Both have their own shortfalls. While the “best fit” school overlooks the interests of one of the most important stakeholders of a business – its employees, the “best practice” school ignores business goals.
Resource based view: This view discounts the focus on the relationship between an organization and its external environment and emphasizes the need to treat an organization’s human resources as strategic assets for achieving sustainable competitive advantage. It suggests a VRIO framework for achieving this edge. In short, this implies:
Value Customer added value or revenue enhancement rather than cost-reduction
Rarity Focus on rare characteristics of firms’ human resources. For example, a young workforce
Inimitability Develop HR traits that cannot be easily copied by competitors and rise above competitive parity. A climate of trust and empowerment is an example of this.
Organization This involves a need to develop an integrated, coherent system of HR practices rather than standalone efforts.
Applying SHRM
Let’s understand these conceptual models in context of a business case of Café Expresso as presented in (
Current business scenario Goals and Approach
Industry scenaio
- Competitive industry dominated by three brands
- Sustainable business advantage is an important requirement for survival and growth
Café Expresso’s current position
- 8000 stores worldwide
- New competition in a business with low-entry barrier in a growing industry, leading to falling market share and high staff turnover
- Results in loss of leadership position (No. 1) retained for over a decade. Currently ranked number three in the business
Management goal
- Revive Café Expresso to number 1 position in the global marketplace
Approach
- Clear definition of business goals; customer service goals; people goals; and system goals
- Involvement of human resource management function on a pro-active basis to apply strategies that result in value-addition to business strategy for reaching the goal of number 1 position
HRM role and strategies to match Café Expresso’s new business goal
HR Strategies Results and Framework applied
A new HRM head recruited took the following steps:
1. Repositioned the HRM function in the organization as “Partner Resources”
2. Re-christened the staff as “Partners”
3. Revised the salary upwards and broke away from the traditional minimum wage model existing in the industry. Also introduced broad pay structure for store managers
4. Recruiting strategy: Adopted a unique approach towards recruiting new “partners” at the store level through word-of-mouth and window advertising
5. Retention strategy: Introduced equality of compensation, share option and “partner” discount of 30%
6. Learning and development strategy: Introduced mentoring system and ambassador program
7. Performance management: “Partner” empowerment by involving them in deciding on objectives and all kinds of development needs. Also introduced suggestion scheme for encouraging and rewarding ideas
8. Communication strategy: Team briefings and introduction of an in-house magazine
Remaining challenge
How to move beyond competitive parity by ensuring inimitability in its resources.
- Improved levels of service
- Market share improved
- Employee turnover reduced by 25%
- Café Expresso moved to number two position
Analysis
Clearly the HRM adopts a resource based approach on an overall basis by understanding the importance of people in the service and experience based business. It has clearly decided to treat its internal human resources as strategic assets who can help the business in achieving its goal.
What’s more, application of best-practice framework is also visible in the congruity between HR policies across the organization. There is horizontal integration. The use of the “organization” principal of VRIO model is visible all across.
In re-christening and recruiting strategy, emphasis has been given to the principal of “value” in VRIO. A focus on enticing customers to join as “partners” so that they can give an enhanced experience to their customers is smart and workable as new “partners” already familiar with the expectations from their experience with the business.
Retention, learning and development as well as performance management strategies attempt to provide “inimitability” to the strategic human resources.
(Source: Beardwell Julie and Claydon Tim (2007), Human resource Management, p. 76)
References:
- Beardwell Julie and Claydon Tim (2007), Human resource Management, Prentice Hall
- Boxall, Peter and Purcell (2003), John, Strategy and Human Resource Management, Palgrave Macmillan
- Ulrich, Dave, A New Mandate for Human Resources, Harvard Business Review 1998, 76(1)
- Barclaycard call centre jobs blow (7 March 2007)accessed from http://www.ft.com
- Strategic human resource management: an overview, accessed from http://www.cipd.co.uk/subjects/corpstrtgy/general/strathrm.htm?IsSrchRes=1