HRM is no longer considered as just a function, but has been given an important position in the strategic success of the organizations today. There are internal forces and external forces which play a significant role in shaping the HRM policy at work.
When we get into a detailed account of the external factors/forces, we can list them as follows:
Labour market and Employment Patterns
Societal and Environmental factors - National Culture
Trade Unions and other Institutions
Legal conditions of the country
Involvement of Third party agencies like ACAS, CBC, EHRC etc
Business Process Re-engineering (BPRE) - Outsourcing, downsizing, de-layering etc.
The current economic conditions of a country is vital for the basic functioning of the HR department and strategic decisions have to be made in terms of recruitment, incentive upgrades and promotions, training and development etc. It is the role of the HR dept. to ensure that the organization does not disintegrate with the pressure of the economy condition. A good illustration of this can be the collapse of major companies like Lehman Brothers, Woolworths, Rosebys under the pressure of soaring costs, falling consumer spending and the credit crunch.
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The labour market has seen a fundamental shift in the employment from manufacturing to the service sector over the past few years. The number of manufacturing employee jobs in August 2009 was 2.63 million, down 223,000 over the year. The total employment level was 28.95 million, which has fallen down by 45,000. All this leads to strategic changes in the decisions of the organization and the HR department has to deal with the redundancy and re-structuring processes.
The UK and EU laws also play an important role as the HR dept. in the organizations have to ensure that they are followed (for example the National Minimum Wage Act of 1998) in order to avoid lawsuits and other legal problems. Third party agencies like ACAS, EHRC and CBC are formed in order to ensure that there are sound industrial relations and that effective collective bargaining is practised.
The radical advancement in technology has helped in progressive industrialization and organizations are on the prowl for innovations so as to have an edge. The competition among organizations has reached a global level and this affects the policies of HRM as it varies geographically.
All this has resulted in flatter organizational structures, new work patterns and changed contractual agreements, increased performance expectations, changes in career pattern and opportunities for many employees.
What is meant by the notion of the HR bundle as it is portrayed in the high commitment/best practice HRM model? Do you think that some practices are more important than others? Why/why not?
For the past 15 years, a lot of studies have been conducted in linking HRM and organizational performance. It is believed that the role of the HR department is crucial in significantly improving the performance of its employees and the organization on the whole. The 'high-commitment'/'best practice' model is the key to the future growth and success of the organization in terms of performance. Linkages to High Performance Work Systems (HPWS) can also be seen which basically is a bundle of HR practices that are designed to improve employee attitudes and behaviours, lower the levels of absenteeism and labour turnover and higher the levels of productivity, quality and customer service in all types of organizations thereby generating higher levels of profitability.
The components of High Commitment HRM Model are:
Employment security and internal labour markets.
Selective hiring and sophisticated selection.
Extensive training, learning and development.
Employee involvement and participation (EIP): worker voice.
Self-managed teams/team working.
High compensation contingent on performance.
Performance review, appraisal and career development.
Reduction of status differentials/harmonisation.
There is also an argument which doubts the universal applicability of the high commitment model and also its attractiveness to the workers. If we take each component separately, we can know that they are extremely vital. But when the components are combined, it leads to a series of uncertainties on its application. For example, when Microsoft does selective hiring and sophisticated selection, it cannot have extensive training and development for its employees as they would not be requiring it. And also once selective hiring has been done, employment security cannot be promised as it is all based on quality performance.
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EIP becomes irrelevant in organizations which have their production/ part of their business outsourced and also when the employees are temporary or on contract basis. For example, around three fourth of the workforce in the Hewlett Packard manufacturing site in Bristol are agency employees and are excluded from the `HP Way'.
It is also essential to keep in mind that the application the high commitment model is expensive and cannot be applied by small organizations. Moreover, Guest et al's study explains that even though strong evidences are found of HRM being linked with performance, it still does not indicate that the greater application of HRM is likely to result in improved corporate performance. Hence, not all the components of the high commitment model can be taken as a bundle and practised.
Explain briefly how, according to theory, HRM might be expected to differ between organizations adopting a cost-reduction, a quality-enhancement and an innovation strategy. To what extent does the evidence support this theory? Use examples to support your answer.
Achieving a competitive advantage has become a rationale in today's business world in order to get maximum profits. This rationale enables us in predicting, studying, refining, and modifying both strategy and practices in specific circumstances. It was argued by Porter that the employers have three basic strategic options in order to gain a competitive advantage: cost reduction, quality enhancement and innovation.
The cost reducer strategy is very common in small firms as they neither have the resources nor the commitment to develop their staff. Such employers tend to produce their goods and services at very low costs, pay barely the minimum wage at times, provides no training, development or appraisal in any form and also likely follow the minimum health and safety standards. Ryan Air for example focuses on cost reduction and provides even the basic in-flight facilities at a cost to the passengers like hand luggage, food on flight etc. Another example can be Lidl, the supermarket chain which is also influenced by the cost reduction technique and offers carry bags at a price to its customers after the purchase of products.
The quality enhancement strategy on the other hand is exactly opposite to the cost reduction technique. The primary focus in quality intensive organizations would be to make products of the highest quality in order to differentiate from the competition. They will also have systematic recruitment, selection and induction, empowerment of EIP, extensive training and development, high pay packages with benefits etc. For example Toyota, which is a world leader in the automobile industry, focuses on qualitative techniques like TQM (Total Quality Management) and JIT (Just In Time) concept to ensure superior quality production and service. At Xerox, CEO David Kearns defines quality as "being right the first time every time."
The innovation strategy is the least prevalent one among the three as not many organizations have it inducted within them. The features are nearly similar to that of the quality focus organizations. But there is greater emphasis on informality, problem-solving groups, a commitment to broadly defined goals and flexibility. The best example here can be Google Inc., which is an organization purely based on innovation and growth. To encourage as many employees as possible to be innovative, 3M has developed an informal doctrine of allowing employees to "bootleg" 15% of their time on their own projects. A less systematic approach to innovation is encouraging employees to offer suggestions for new and improved ways of doing their own job or manufacturing products.
Does the resource-based view of HRM offer a valuable way in which to analyse and explain HRM? Why/why not?
The resource based view of strategy has a rational and integrative role that places it well ahead of other mechanisms of strategic decision making. The role of strategic HRM is gaining considerable importance in today's business world. Only key strategic decisions and its effective implementation can give a company its competitive niche. The resource-based view or the 'inside-out' perspective is the third most prominent strand among the strategic models like best fit (outside-in) and best practice (high commitment).
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The resource-based view is directly associated with the internal resources at the disposal of the firm and its agents. It begins with the assumption that the desired outcome of managerial effort within the firm is a sustainable competitive advantage (SCA). In order to have higher returns, the firm's must achieve SCA. This focuses attention on how firms achieve and sustain the competitive advantages. The resource-based view asserts that the possession of certain key resources that have characteristics such as value, barriers to duplication and suitability helps to answer these questions. When the firm effectively deploys these resources in its product-markets, the advantage is attained. The prime focus is on how the internal resources such as the manpower, the organization policies, the organization structure etc play a vital role in shaping the strategic decisions. It is concerned with the organizational capability and analyses the internal strengths.
The key features of RBV which must be focused upon are:
Ability to add value/make a difference.
Rarity in the labour market.
Imperfect replication due to unique history; causal ambiguity, and complexity of HRM
Lack of substitutes to replace labour.
RBV asserts that it is a firm's ability to learn faster and apply its learning more effectively than its rivals so that it gains a competitive advantage and thus the notion of focusing on the 'core competencies' of the organization is vital. Flexibility of the organization and Talent management are crucial in helping the organization achieve success. Companies are not restrained only by imagination. They are limited by their own capabilities, by technology, by competition, and by the demands of their customers.
While there are many examples - take General Motors or International Business Machines - of companies which suffered from failing to see the future even after it had arrived, there are almost none companies building sustainable competitive advantages from superior forecasting abilities. Another common example of a firm following a resource-based strategy is Honda. Honda built its strategy around the firm's strength in building petrol based engines.
Under what circumstances do you think is best for the work of the HR function to be outsourced to an external organization and /or become part of a shared services operation? Give examples to illustrate your answer.
The current economic climate is forcing organizations to explore tactics to remain competitive. In order to allow HR professionals time to play a more strategic role in their organizations, Business process outsourcing of certain functions is becoming an increasingly popular way to improve basic services. So far, very few organisations have outsourced their entire HR function. Strategic outsourcing is also becoming vital as firms rely on the intermediate markets to provide specialized capabilities that supplement the existing capabilities.
In large organisations it is most common to have outsourced the operational elements of delivering HR activities like Employee Assistance/Counselling, Temporary Staffing, Training and Development programs, Health care benefits administration, Payroll, Risk Management, Recruitment etc whilst retaining control over HR strategy and decision-making.
There are a number of examples of large, mainly global organisations that have outsourced large parts of their HR operational activities, often for five to ten years in contract. For instance BT, Procter & Gamble and Unilever have outsourced operations to firms like Accenture, McKinsey, Boston Consulting Group etc. Interestingly, small organisations often do the reverse, effectively outsourcing their strategy (to HR consultants and other professional advisers) and keeping the delivery of HR processes internal.
Shared services operations refer to the creation of a centre within the organization for the delivery of HR services. They generally provide routine administrative services and also sometimes provide additional HR practices. Their primary focus is on service and hence makes it very comfortable for the customer due to its flexibility.
Some well-known multinational organisations like IBM, Shell, Standard Chartered Bank, Lloyds TSB and Royal Bank of Scotland have set up HR shared services. The circumstances under which the business processes are outsourced and shared services is/is not offered are vital to the organizations success. The most elemental situations are:
To save money and reduce costs on operation.
When there is lack of experience in-house (especially start up companies).
Take advantage of the technological advances.
To focus on core strategy and business.
To get an extra edge by offering services which otherwise were not provided.
To have expertise in Risk management.
It acts as a catalyst of change for organizations.
Considering the fact that a lot of risk is also involved in outsourcing such as loss of control, low quality production etc, certain organizations prefer to spend more and have the complete control of operations. But again outsourcing and the shared services operations are fast becoming popular as the aspiration to achieve the edge over the competitors is immense. The consideration of outsourcing being a catalyst for change is important to any business as it is essential to be adaptable and flexible in today's dynamic business arena.