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In response to the globalization of the business, organizations have to face various challenges and seek new ways to survive in the fierce competition(Hirst, Thompson, HYPERLINK "#_ENREF_13"&HYPERLINK "#_ENREF_13" Bromley, 1999). The value of human resource management has been recognized as a strategic asset to the organization, which contribute to the competitive advantage of the company(Boxall HYPERLINK "#_ENREF_4"&HYPERLINK "#_ENREF_4" Purcell, 2003). However the debate regarding in what types of organisation is human resource management (HRM) most likely to make an effective contribution to competitive advantage. HR managers also need to comprehend relevant competencies to achieve the strategic role(Ulrich, Brockbank, Yeung, HYPERLINK "#_ENREF_37"&HYPERLINK "#_ENREF_37" Lake, 1995). In the first part, it will provide an introduction to the idea and overview of HRM. Next, it will describe two perspectives on HRM's role in achieving competitive advantage. Then it will analyze a few contextual factors that have influence on both HRM and organizational performance. Two company cases will be discussed to explain the question of in what types of organisation is HRM most likely to make an effective contribution to competitive advantage. In the second part, this essay will describe a few significant competencies for HR managers to comprehend when HRM endeavours to fit in organizations and become strategic partner. It will also present how organizations can obtain these competencies among HR managers.
HRM is defined as the processes that aimed at utilizing all human resource to achieve organization's business goal. It has close relationship with entrepreneurial success and organizational growth (Boxall HYPERLINK "#_ENREF_4"&HYPERLINK "#_ENREF_4" Purcell, 2003; Macky, 2008). Previously, the role of HRM is largely associated with the administrative cost centre and daily transactions in separate functions such as recruitment, remuneration, compliance, employment relations and training, etc(Lawler III HYPERLINK "#_ENREF_20"&HYPERLINK "#_ENREF_20" Mohrman, 2003). The personnel staffs are treated as functional specialists and the status of HR people are comparatively low in the organizations than other module such as accounting and finance(Macky, 2008). Ironically, Meyer(1979) depicted the status personnel management as "a bunch of drones whose apparent mission in life was to create paperwork, harmless chaps who spent their careers worshipping files." This exactly shows the status of personnel management within the organization.
In recent years, the role of HRM has gradually evolved into a strategic partner, sharing the comparable status with finance, accounting and marketing due to the increasing competition in the world markets and the globalization of the business(Dulebohn, Ferris, HYPERLINK "#_ENREF_6"&HYPERLINK "#_ENREF_6" Stodd, 1995).Johnson, Scholes and Whittington (2008) defined strategy as " the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations". It is an integrated and coordinated set of commitments and actions designed to identify core competencies and gain a competitive advantage(Yao, 2003). Galbraith (1992)advocated that HRM should have more important role in organizations. HR practitioners need to be liberated from routine administrations and focus more on strategic functions like change management and maintaining key talents(Galbraith, 1992). HR function has been recognized that has impact on organization's performance and should be aligned with corporate goals and strategy. Reich (1991) pointed out that with the increasing business competition, people are the only sustainable resource of competitive advantage. Consequently, HR function is linked with organization's business performance.
The "best fit" and resource-based view have been recognized as two most important perspectives regarding the strategic role of HRM(Macky, 2008). In the Harvard framework(Ulrich, 1998), the concept of "best fit" between HR practices and organization's competitive advantage has been illustrated. Organization should align company's HR practices horizontally with their strategic goal and ultimately help organization to achieve the strategy. Likewise, Wright, McMahan and McWilliams (1994) also claimed that a firm's HR practices should guide and develop employee's knowledge, skills and abilities and their behaviours should be aligned with a particular strategy that the organization implements. Moreover, Huselid, Schuler and Jackson(1997) argued that HR practices should reinforce employees' behavioural implications of organization's competitive strategy. Organization should clearly and carefully design one specialized strategy (for example, cost-leadership, differentiation or focus) and align HR practices to mutually reinforce the competitive strategy(Huselid, et al., 1997).
How HR practices is linked with organizational performance and competitive advantage can also be revealed in the resource-based view(RBV) of organizations (Ferris, Hochwarter, Buckley, Harrell-Cook, HYPERLINK "#_ENREF_8"&HYPERLINK "#_ENREF_8" Frink, 1999). The RBV illustrated that organization's resources can become unique sources of competitive advantage. Mata, Fuerst and Barney(1995) categorized organization's resources in to three types including physical capital resources, organizational capital resource and human capital resources. Since people vary in their competencies, human resources are the quality of the individual talent recruited, selected and retained in the firm(Foss et al., 1997). If organization wish to survive in the competitive markets, the human capital is critical for organization to adapt to the change. The HRM becomes a source of competitive advantage that is rare, inimitable and irreplaceable(Barney, 1991). As a result, organization's human resource has strong influence on organizations' performance and provides a unique source of competitive advantage that is difficult to imitate and reproduce (Wright, et al., 1994).
Contextual factors on HRM and organization's performance
The interaction between HRM and company's external and internal environment has been mentioned in a few studies (Lee, MacDermid, Williams, Buck, HYPERLINK "#_ENREF_21"&HYPERLINK "#_ENREF_21" Leiba OHYPERLINK "#_ENREF_21"'HYPERLINK "#_ENREF_21"Sullivan, 2002; Schuler HYPERLINK "#_ENREF_32"&HYPERLINK "#_ENREF_32" Jackson, 1987; Truss HYPERLINK "#_ENREF_34"&HYPERLINK "#_ENREF_34" Gratton, 1994). In the study of Hendry and Pettigrew (1999), they tried to identify the influence of both inner and outer context on HRM and organizational performance and how HR adapts to the change in context. Researchers discovered a few contextual factors including sectors (industry conditions), labour market conditions, technologies and business strategy exert influence on HRM and organizational performance(MacDuffie HYPERLINK "#_ENREF_23"&HYPERLINK "#_ENREF_23" Kochan, 1995; Youndt, Snell, Dean, HYPERLINK "#_ENREF_43"&HYPERLINK "#_ENREF_43" Lepak, 1996).
Hollingworth (1994) defined sector as a population of company producing a range of potentially or actually competing products. Although each firm is unique and has its own characteristics, firms within the same sector tend to share common and distinct features. HR practices within the same sector tend to converge due to the cultural and structural influence. In the study of Datta, Guthrie and Wright(2003), they discovered sector characteristics affect the impact of HR practices on organization's productivity. Moreover, they found the sector growth; differentiation and capital intensity exert the most influence on organization's implementation of HR practices(Datta, et al., 2003). For example, organizations from the private-sector endeavour to develop the high trust organizational cultures by implementing effective HR practices to build the employer-employee trust(Legge, 1999). Hickson and Pugh (1995) found that HR practices are similar within the same sector and management structure from the same sector is becoming alike. The increasing convergence of HR practices within the same sector indicate that organization use HRM as an effective tool to gain competitive advantage.
Youndt,et al., (1996) reported a direct influence of technology on HRM. They discovered that manufacturing technology, total quality management and just-in time have the strongest influence. For example, organization adopted technology are more likely to use performance appraisal that determine remunerations, training and development compared to other companies(Schuler HYPERLINK "#_ENREF_32"&HYPERLINK "#_ENREF_32" Jackson, 1987). HRM are influenced and shaped by the technology.
Business strategy is another significant contextual factor that has strong implications for HRM (Porter HYPERLINK "#_ENREF_29"&HYPERLINK "#_ENREF_29" Millar, 1985). For example, if an organization adopted innovation and risk-taking strategy, correspondingly, HR practices need to guarantee that employees have the sense of security internally and develop a long term orientation among them(Schuler HYPERLINK "#_ENREF_32"&HYPERLINK "#_ENREF_32" Jackson, 1987). Likewise, Snow and Snell (1993) proposed three types of business strategy and their different influence on HR implications. For example, the "defenders" strategy relies heavily on internally developed human resources; the "prospector" strategy use HR as an entrepreneurial role. Organizations using "prospector" strategy develop HR both internally and externally.
Labour market conditions can be described as the level of unemployment, labour diversity and labour market structure(Jackson HYPERLINK "#_ENREF_16"&HYPERLINK "#_ENREF_16" Schuler, 1995). Among them, levels of unemployment and labour market structure have great influence on organization's HRM practices and performance. The unemployment level shows the demand of the labour markets to the workforce supply(Schuler HYPERLINK "#_ENREF_32"&HYPERLINK "#_ENREF_32" Jackson, 1987). Excess demand is linked with low unemployment rate while excess supply leads to high unemployment rate. In terms of the influence on HRM, when unemployment rate rise, the turnover rate and absenteeism seems to decline. On the contrary, low unemployment rate might leads to high wage costs and decline in investment. Schuler and Jackson (1987) also noticed the influence of labour market on organizations' recruitment strategy. For example, Low unemployment rate makes organizations use more advanced and expensive recruitment methods. Organizations also make great effort to increase employee wages, retain high talents and improve working conditions. The change in the labour market conditions has strong implications for HR practices and strategy(Jackson HYPERLINK "#_ENREF_16"&HYPERLINK "#_ENREF_16" Schuler, 1995).
In what types of organisation is HRM most likely to make an effective contribution to competitive advantage?
In the highly competitive fast food sector, companies like McDonald control labour as a "hard" resource(Lashley, 1998). Since organizations tend to meet demand patterns and minimize labour costs, workers employed by fast food companies are most part-time workers and turnover rates are comparatively high. Employees also get low-paid and the work itself is low-skilled and repetitive. Ritzer(1998) identified three dimensions that McDonald conducted business and manage its human resource. Efficiency and speedy service is the first dimension. To achieve this, organization use simplified job design and maximize the use of cheap labours more efficiently. The second dimension is the easily quantified and calculated services. Employee's job performance and organizations' need for labour hour can be easily calculated and predicted by "Taylorist" job design and productivity levels(Niepcel HYPERLINK "#_ENREF_28"&HYPERLINK "#_ENREF_28" Molleman, 1998). Finally, organizations apply standardized control and management hierarchy to maintain the service standards and aim to ensure the maximum control of employee's performance. In a highly standardized and tightly controlled company like McDonald, the strategic role of HRM seems to be weak and indifferent.
On the contrary, company like American express view employees as valuable and important asset to the organization(Fairbairn, 2005). A "soft" HRM approach has been used when organization deal with the core workforce. For example, employees have high job security. Since organization view them as the inimitable and unique resource to the company. Employees are offered with satisfactory pay and benefits. Personal training and development plans are also provided to the employees(Fairbairn, 2005). MacDuffie and Kochan(1995) argued human resource can contribute to organization's improved performance and competitive advantage when employees possess inimitable knowledge and skills. In these organizations, strategy can be achieved only by employees' discretionary effort and employees are motivated to exert discretionary effort. When employees' skills and commitment are valued as the most important assets that contribute to business success, HR tends to have the strongest strategic role. Becker, Huselid, Pickus and Spratt (1999) claimed that when HRM is able to develop and maintain organization's strategic infrastructure, which means it is directly linked with the strategy, HRM will be considered as an essential part of organization's value creation process. Since HR contribute itself as a unique source of advantage and holds the characteristics like value-creation, inimitableness and rareness, they can make a key strategic contribution to business success and ultimately organization's competitive advantage(Ulrich HYPERLINK "#_ENREF_39"&HYPERLINK "#_ENREF_39" Lake, 1990). To conclude, HR's strategic role and influence may be strongest where competitive advantage is based on quality and innovation and employees are treated as valuable and unique resource to the organization. In this type of organizations, HR is most likely to make an effective contribution to competitive advantage.
What competencies do HR managers need to achieve this?
As the above discussion has demonstrated, the role of HRM varies in business due to the influence of both internal and external factors. Some organizations view it as a cost to the business while other view it as a strategic partner which is critical to organizations' success and improvement in performance(Becker, et al., 1999). As a business partner and important strategic function of the organization, HR managers need to have a few competencies to add higher value to the organizations rather than previously HR transactions and compliance. They should comprehend strategic core competency and understand the business. Competency is defined as a characteristic of a person that results in consistently effective performance in a job' (McClelland HYPERLINK "#_ENREF_26"&HYPERLINK "#_ENREF_26" Boyatzis, 1982). In the Michigan's HR competency Research, Ulrich, Brockbank and Yeung(1995) highlighted the need for three categories of HR competencies which include business knowledge, delivering of HR practices and change management skills in the frame work.
HR managers can add value to the organizations when they fully understand the business and exert influence on the implementation of HR practices in the changing environment. HR managers with knowledge only in the HR field like employee or legislation is far less enough to be a real strategic partner(Ulrich HYPERLINK "#_ENREF_39"&HYPERLINK "#_ENREF_39" Lake, 1990). They also need to have the capacity to understand competitive issues impacting the business and to understand how business can create profit and value. It is important for HR people to know business knowledge such as finance, marketing, accounting. Business knowledge offers them a doorway to the strategic discussion with other business functions. To add, the requirement for HR people to have relevant business knowledge is not asking them to do all the functions but an understanding of them(Ulrich, et al., 1995).
Obviously, HR managers must have the knowledge of their human resource practices specialty(Ulrich, 1999). HR practices are usually categorized into the following parts including selection and recruitment, learning and development, remuneration, compliance, communication and structural design. Interestingly, Ulrich(1998) argued HR managers need to make sure that all routine transactions in company go well but simultaneously "shed" their traditional rule-making police image. It is HR managers' responsibility to improve the efficiency of their own functions and the entire organization as well. When HR managers are competent in successfully delivering HR practices to the whole organizations and improve the efficiency, they will gain credibility and recognition of the "administrative expert" among the organizational members. As a result, an understanding and competence to efficiently delivering HR practices is the "price of entry" into executing organization's strategy which enables HR managers to become a real strategic partner (Ulrich, Brockbank, Younger, Allen, HYPERLINK "#_ENREF_38"&HYPERLINK "#_ENREF_38" Nyman, 2009).
Due to the influence of globalization, customers' needs are increasing, new technologies emerge quickly, and the pace of whole business world is changing. HR managers play an important role to maintain the balance of internal change and the change in the external environment(Becker, et al., 1999). When HR managers have competency in change management, they can contribute to the competitive advantage by helping organizational members to change. Ulrich (1998) described HR managers' role as a change agent. They need to help the whole organization to prepare and embrace the change. They should also be able to contribute to organisational design and restructuring process. Moreover, they need to demonstrate the attributes including the ability to analyze the deal with the problem, maintaining relationship with clients, solving problem independently and implement goals(Ulrich, 1999). Baird and Meshoulam (1988) illustrated four responsibilities of HR managers when HRM is effective and fit the change of whole organization. First, HR needs to change and adapt to pressure and opportunities from both internal and external environment. Second, HR should change in stages and each stage has to demonstrate the orientation to HRM. Third, each change stage must be established based on the previous stage. Last, HRM should proactively feed the needs from organization(Ulrich, 1999). To summarize, change is an opportunity to prove the importance of HRM when it contributes to the competitive advantage of the organization. "HR matters most under conditions of change"(Ulrich, et al., 1995).
Since each company has its distinct culture and strategy, organization may choose to help HR managers within the company to gain these competencies by implementing personal training and development plan. These training plans may serve as an internal impetus that encourages HR managers to gain new competencies concurrently(Yeung, Woolcock, HYPERLINK "#_ENREF_42"&HYPERLINK "#_ENREF_42" Sullivan, 1996). Furthermore, organizations should also be aware of the influence of changing environment on competency patterns. The required competencies of HR managers may change over time(Lado HYPERLINK "#_ENREF_18"&HYPERLINK "#_ENREF_18" Wilson, 1994). Organizations and HR managers should regularly question and analyze what competency they need in a specific time.
This essay first explained what HRM is and how strategic HRM is linked with organizational business and contribute to the competitive advantage. Then it introduced two most important perspectives on strategic HRM, the "best fit" theory and the resource-based view. It has analyzed the contextual factors including sectors (industry conditions), labour market conditions, technologies and business strategy that have influence on both HRM and organizational performance. Then cases of McDonald and American Express were discussed to explain the question of in what types of organisation is HRM most likely to make an effective contribution to competitive advantage. Last but not least, this essay introduced three critical competencies for HR managers to comprehend in order to achieve the strategic role in the organizations. To conclude, when employees' skills and commitment are valued as the most important assets that contribute to business success, HR tends to have the strongest strategic role. In the highly competitive global market, HR managers need to have sufficient business knowledge, the ability to deliver HR practices and change management skills.