What are the advantages and disadvantages of using the distinction between ‘best practice’ and ‘best fit’ as the means of examining the relationship between hrm and organisational performance?
The current ongoing debate discusses the added value of HRM in relation to best practice versus best-fit. Best practice suggests the universal success of certain HR practices, while best-fit acknowledges the relevant impact of contextual factors. This paper will discuss the impact they have on the employee and the organisation.
The exploration for the effect of types of HRM on organisational performance has focused on a universally applicable best practice model of high commitment management. There are fundamental problems with this approach in the theory on the lack of a link with the organisational strategies. Recently authors have demonstrated that good practice in HRM has an affect on the bottom line. The Sheffield study Patterson et al, (1998) suggests that "if managers wish to influence performance of their companies, the most important area they should emphasise is the management of people" (Patterson et al, (1998) cited in Purcell, J 1999:27).
The concept of human resource management has emerged from the 1980s into a core consideration of corporate strategy in the 1990s, (Legge, L 1995). There is no single definition of HRM in the literature yet the emphasis has to a large extent been on the strategic role of human resource management in organisations. Some research has identified HRM with strategic aspects of 'best-fit' or aligning people to the needs of the organisation as expressed in corporate strategy and others have examined HRM as a means of gaining enhanced organisational performance, (Golding, N (2004) cited in Beardwell, I. et al 2004). However the contribution that human resource may make to an organisation's performance and effectiveness has been linked closely to the changes in different business environments including macro and micro contexts.
Recognition of the importance of HR has increased in recent years; this is a result of competition from overseas economies. In countries for example Japan, Germany and Sweden investment in employee development is higher that the UK. This has led to some organisations reviewing their policies on training introducing continuous investment in their employees. Although when multi national organisations have entered the UK, they have introduced their global HR policies (Beardwell, I. et al 2004).
For HR to succeed it must take on a proactive role within the organisation. Strategic HR creates value by providing opportunities for organic learning, development of intellectual capital and enhances core competencies. This value is crucial to the organisation’s future success (Treen, D. 2000). Employers are increasing extorting the best possible performance from employees. Best practice will increase the skills of the current workforce, and with recruiting it will reinforce the culture of a highly skilled work force (Mullins, L. 2005). Strategic HRM has gained both credibility and popularity over the past decade, specifically with respect to its impact on organisational performance (Paauwe, J & Boselie P. 2003).
There is a need for a higher value to be placed on employees, and therefore get the best performance from the employees. This resource requires development to gain and maintain competitive advantage According to Delany (2001) "successful organisations keep people issues at the fore front of their thinking and at the core of their decision making and planning". Delany adds "organisations that get the people things right are the organisations likely to be around in the future" (Delany (2001) cited in Mullins, L. 2005:748).
There are fundamental differences in the approach to HR. Storey (1987) discussed these as ‘hard’ and `soft' versions of HRM. The ‘hard’ version places little emphasis on workers' concerns and, therefore, within its concept, any judgments of the effectiveness of HRM would be based on business performance criteria only. In contrast, ’soft’ HRM, while also having business performance as its primary concern, would be more likely to advocate a parallel concern for workers' outcomes (Storey cited in Guest, D. 1999).
These models of HR theory, will justify why there has been an increase in this management practice. Walton (1985) defined HR as "mutual goals, mutual influence, mutual respect, mutual rewards, and mutual responsibility" Walton further added that the ‘psychological contract’ under this unitarist, high commitment model is one of mutuality, but it is a mutuality strictly bounded by the need to operate within an essentially unitary framework (Walton cited in Beardwell, l. et al 2004)
This view reflects a longstanding capitalist tradition in which the worker is viewed as a commodity. The consequential exploitation may be paternalist and benevolent; but, equally, it may operate against the interests of workers. Essentially, workers are simply resources to be squeezed and disposed of as business requirements dictate. More importantly, the interests of workers and their well-being are of no significance in themselves. As John Monks (1998) stated "In the wrong hands HRM becomes both a sharp weapon to prise workers apart from their union and a blunt instrument to bully workers" (Monks (1998) cited in Guest, D 1999:258).
Although some commentators have argued that the role of human resource what ever model is used explicitly views employees as another resource for managers to exploit. In the past, managements had failed to align their human resource systems with business strategy and therefore failed to exploit or utilise their human resources to the full. The force to take on HRM is therefore, based on the business case of a need to respond to an external threat from increasing competition (Guest, D 1999).
Today's HR departments will recruit and develop the real strategic human resource needs of a modern business. The image of recruiting, training and development has changed and can be used a key driver for delivering shareholder value (Rogers 2004:25). Employers are increasing extorting the best possible performance from employees. Best practice will increase the skills of the current workforce, and with recruiting it will reinforce the culture of a highly skilled work force (Mullins, L. 2005). Organisational strategy is at the heart of the best fit/best practice debate. Therefore if best fit prevails, then it is possible to model the type of HR required for a given type of business, and this practice can be adopted in a wide number of firms in similar circumstances (Purcell, J 1999).
Commentators now agree that there is no need to look any further than the human resource to gain competitive advantage, although the models use vary. Pfeffer (1998) discharges all other models in the search for alternative sources of organisational competitive advantage, arguing that the only advantage is to "manage people right" in an employee-centred approach, introducing a model of "seven practices of successful organizations" This is the foundation for best practice, demonstrating how human resource practices can be aligned with the skills and behaviours needed for business strategy. These practices includes employment security, selective recruiting, self-managed teams and the decentralisation of decision-making, comparatively high compensation contingent on organizational performance, extensive training, reduced status distinctions, and extensive sharing of financial and performance information throughout the organisation (Pfeffer, J 1998).
Pfeffer (1998) further suggests that effective performance depends upon the link between HR policies and the business strategies. Firms with a cost minimisation approach to HR can be successful in cost-competitive markets whereas adopting high-performance work practices may match competition on the basis of quality and service. The role of HR managers in identifying and building core competencies, there is a close fit between strategy and human resources. Competencies are complex, multidimensional, interrelated and interdependent knowledge systems. Consequently, if HR managers design HR policies to match the core competencies of an organisation, they may also build in rigidities that simultaneously work against future change (Pfeffer, J 1998).
Johnson and Scholes, (1997) discussed "organisations which successfully manage change are those which have integrated their human resource management policies with their strategies and the strategic change process… training, employee relations, compensation packages and so on are not merely operational issues for the personnel department; they are crucially concerned with the way in which employees relate to the nature and direction of the firm, and as such they can both block strategic change and also be significant facilitators of strategic change". Concluding that aligning HR practices with organisational strategy will add value to the organisations resources (Johnson G & Scholes K 1997:494)
Both models advocate the value that is placed in the human resource and aligned to the organisational strategy. Best practice will place the emphasis on the core competencies of the employee and develop these to address the overall organisation's strategy. Whereas Best fit HR will compliment the strategy and fit in with the organisations culture. Neither model is a panacea; organisations should choose HR practices and strategies that fit with their culture, and requirements. The employee should be a valued resource, integrated into the organisational strategy.
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