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Human Resource is defined in bnet as the discipline of managing people in an organization and also as the personnel department of an organization, dealing with the recruitment, administration, management and training of employees (Wiktionary). Both these definitions fail to provide the key insight into the most crucial productive resource that can possibly create the largest and longest lasting competitive advantage for an organization. People management is a necessary skill to be learned by good leaders, it is not and should not be confined to the HR department only.
Through this final project, I will discussed on the change in the role of HR over the years and identify the necessary attributes needed to continually value-add to the organization in the present times and future as well as the key linkages that affect the competitive advantages of the organization.
This research study will review the HR strategies adopted by a multi-national company and develop a process for conceptualizing strategic human resource using a combination of qualitative and quantitative approaches. I will examine the current approach and the possible reasons for their lack of success and how the changes introduced could have a higher successful rate integrating new comers into the corporate culture of the organization.
A good fit will logically enable new employees to contribute at a higher level to the organization. Employees will be more motivated and committed and hence more likely to contribute at a higher level than employees who do not fit in to the organization. Furthermore, people who can socialize well with colleagues not just from the same department but from other department as well are not likely to quit the organization. In addition, base on the well known Maslow's hierarchy of needs, shown below, when the basic needs are met, an individual will strive for the higher levels which will lead to a much higher level of value adding to the organization.
Through this thesis, I would review the HR strategies that have changed in substance and direction over the past decade and how the changes compared to the current practice in my company CA Pte Ltd. I will be addressing the following questions during this coursework: How has HR changes its focus? How has the role of HR expanded and what are the new areas that it can contribute? Do people issues only come under the jurisdiction of HR department? What are the key people issues faced in CA Pte Ltd? What are the concerns of the employee as reflected in the survey as well as recommendations made to tweak the current HR policies/strategies?
1.1 Human Resource Strategy
Human resources are increasingly taking on a more important role in providing a sustainable competitive advantage in many organizations. The business environment has gone through numerous changes with increasing globalization, changing demographics of the workforce, increased focus on profitability through growth, technological changes, intellectual capital and the never ending changes that corporations are going through that have led to ever increasing need of ensuring employees needs are met as much as possible.
There have been so much detailed studies in the past on how HR practices and strategy are interlinked (Wright & McMahan 1992, Wright & Snell 1998). As there is a lack of substantial studies, it is contested that this relationship is generally weaker than the relationships among internal HR practices. From the view of the resource based view (RBV) of the firm (Barney 1986), researchers supported the view that HR systems in line with the organization's strategy help to create a competitive advantage.
The basis of resource based view is resource diversity. According to the RBV of the firm, the categories of resources that have the capability of being used to help a firm achieve sustainable competitive advantage must meet four requirements. These resources must be (a)important, (b)scarce, (c)not-replicable, and (d)not-replaceable. What really does it means for a firm's resources to be non-substitutable? It would mean that this resource is rare and almost impossible to imitate. That saying the competitive advantage that arises due to any of the above resource will be leveled off if competitors are able to substitute that resource. Some scholars have claimed that human resource seems to be able to fulfill these key requirements (Snell, Youndt & Wright 1996). In addition, the linkage between organizational resources and firm strategy cannot be easily identified and imitated by other firms due to the social complexity and causal ambiguity (Barney 1991, Boxall 1998). Therefore, the integration of human resources with the appropriate strategy can generate a powerful sustainable competitive advantage for an organization.
Ichniowski et al. (1997) in a separate study has regrouped individual practices into seven HRM policy areas: incentive pay, recruiting, teamwork, employment security, job flexibility, training, and labour-management communication. From there, he classified companies with HRM system into four categories: firms in the first category (most sophisticated) are engaged in the seven HRM policy areas, while firms in the fourth category (least sophisticated) are not engaged in any of these HRM policy areas. Ichniowski et al. found a striking difference in the economic performance of firms using the most and least sophisticated HRM systems.
There had been many research done that confirms that the human resources are a valuable component for an organization attempting to develop a strategic competitive advantage (Wright et al, 1994; Lepak and Snell,1999). Human resources need to be deployed strategically before people can be more efficient in this new era. In my opinion, the difficult key word to achieve is "employed strategically" as this again draw us to the "right fit" mentioned earlier.
I have lived in the age where HRD practitioners used to be operational and administrative but now, as pointed out by McLagan (1989), they have to spend more time in strategic and cultural work, knowing that everyone is in a knowledge era characterized by accelerated change in which people issues are central to organizational success. Shifts in business strategy to stay in competitive edge require strategic thinking and planning of the human resources. Similarly, sensitivity to cross-cultural differences in business practices will be a required part of any management development program, regardless of the locations of the participants (Gutteridge, 1998). Surprising many companies who consider the HR department within an organization to be a necessary overhead that must be incurred to run a business still exists today. HR department operating in the historical realm could still be effective, but it will be very difficult to synergize corporate strategy and HR. This step needs to be done before it can give rise to competitive advantage in the marketplace with the human capital within the organization.
In addition, the new World of Work shifts the relationship paradigm from domination and dependency to self-management and partnership (McLagan, 1989). That requires new roles and orientations from everyone. HRD practitioners must train people to thrive and contribute and teach them how to be successful with the new people systems. However, this changing process will be made difficult if people, including managers, are not competent enough to play the new roles. Unfortunately, in a fast changing global organization, such as my current organization, it is difficult for any centralized entity to make effective decisions on how and what things need to be done in a localized area. I believe that it is crucial for managers to take on the role as a key deliverer of HR activities. I have "Google" what managers mean and the result is "Management in all business and human organization activity, including the act of having people coming together to achieve pre-set goals and objectives " (en.wikipedia.org/wiki/Managers). Hence, it is definitely not way beyond the scope of managers to take responsibility for their own people issues. That saying, HR would need to give the managers autonomy and other related information before they can make the right decisions.
Historically, HR has developed programs applicable to all, with no differentiation for high performers. The new approach should not be "one size fits one", where managers will be allowed to differentiate and encouraged to make localized decisions based on local needs and results. An interesting article I read some time back on Disney emphasis this point. Disney has just successfully replicated its theme park outside USA in Japan. It then proceed to do the same in Disney Paris, however it did not carefully considered the culture in Europe during the process. As a result, after the theme park was opened in Paris, the management in Disney was forced to break some of its rules, such as having liquor in the theme park, after the local people protested that by not having liquor Disney is not adhering to the local culture. From here, we can learn that the painful process can be avoided if a good understanding of the local culture is made. I understand that it is a very tedious approach to have different programs for different category of employees but high performers should logically be emphasised on as they are the ones that sets apart between a mediocre organization and a high performing one. This painful but important change toward managers doing most of HR will mean that line managers will be in full control and responsible of their staff issues. In my opinion, they are in the best position to make the right HR decisions as they are constantly accessing the quality of work of their staff unlike HR. In addition, information technology, such as ERP system, should be able to take care of the majority of the remaining HR workload. The remaining operational HR tasks can be considered to outsource to a third party vendor, who may be more efficiently equip. The advancement of technology now allows managers to multitask without negatively affecting their functional responsibilities. Studies conducted by Huselid and Becker (1997) found that there were substantial monetary returns for organizations whose human resource management (HRM) system are congruent to strategic business goals.
We need to relook at how certain HR benchmark information commonly available needs to be fine tune. If financial information is disclosed only on a need to basis, so does HR information. If a highly successful organization is able to achieve competitive advantage because of it's highly develop HR programs, should they then share such information with the industry? This may be a selfish reason but could be a key reason why some companies are able to not just survive but thrive in this competitive world. A simple but key objective is to understand the needs of the employees which are constantly evolving. HR has to maximise the returns of the company limited resources by focusing on the "key" needs. An example is found in a recent 2005 article by Business Wire, (http://www.thefreelibrary.com/America's+Largest+Companies+Expand+Benefits+to+Meet+Changing+Employee...-a0135431270), where many companies are expanding their healthcare benefits to align with the increasing healthcare costs. HR has to constantly know the trend of HR benefits so as to ensure that high performers are attracted to the organization.
HR is more than just identifying business needs and having a standard selection and developing practices to achieve this need. It is more crucial to develop and implement a comprehensive performance evaluation plan that links the performance of the employees to the organization's strategic goals. Unfortunately, measuring and evaluating the effectiveness of HRD practices on the impact of an intervention on individual, team or organizational performance is probably one of the most critical components which limits the extent to which HRD can be recognized as playing a strategic organizational role as they have not found a generally acceptable methodology for evaluating the transfer of training and its effectiveness in the work place (Horwitz, 1999). Knowledge is crucial for any organizational performance and the ability to implement and develop a HR strategy to develop and retain its employee knowledge, the organization will be able to create use it effectively to develop a competitive advantage. If valuable time and resources can be spent on training employees, shouldn't some resources be spent on how such knowledge can be retained? A possible way is to encourage sharing sessions between co-workers and possibly job rotation.
This has resulted in knowledge materializing as the most strategically important resource of the firm (Grant, 1996b) and is built into the very nature of the firm (Penrose, 1959
Workers that carry valuable knowledge are not labor, they should be considered capital in nature (Drucker, 2002). The faithfulness of these workers and ways to reduce turnover are important management problems (Alvesson, 2000).
An important emerging trend in the human resource management literature is a desire to address the dilemmas in workforce management. This is shown in a shift away from the urge to prescribe how to manage employees to an approach that takes a more contingent view of human resources practices considered suitable for that particular organization. The main contingency affecting a company's workforce practices is its business strategy (Gunnigle, 1997)
Comparing human resource management and personnel management, it is apparent that human resource management is the missing piece between management of the workforce and the strategic thrust of the organization. Harris (1984) reinforces this idea:
"Successful companies are able to mold their company's culture to fit their strategy. One of the ways used to achieve this molding is by emphasizing on certain ideas, values and behaviours and discouraging others by means of human resource management activities."
Competitive advantage, not necessary sustainable competitive advantage, was commonly acquired by the availability of financial capital in the nineteen century because it was a relatively scarce commodity. As financial capital becomes no longer scarce and technology easily imitated, these resources are clearly not capable of sustaining this competitive advantage. The biggest and having the largest financial strength no longer assured any organization of survival in this century. We have seen some of the biggest organization, such as JAL, filed for bankruptcy protection. Japan Airlines (JAL) was one of the biggest air carriers in Asia but was not able to weather through the recent financial crisis. It is a 15,000 staff organization but due to the decline in air travel in 2009, JAL is reported to be indebted to a tune of $25 billion. In this century, only people can sustain the competitive advantage of an organization, reason being people have three characteristic that can bring sustainable advantage, the ability to create rarity, value and inimitability (Gratton, 2000: 9-11).
People can be the source of competitive advantage when they are managed effectively. New products or new technologies can win in the short run but rival companies can be expected eventually to regain the advantage. An example, I would like to draw here is Intel. I do not believe that their key success factor is because they always produces the fastest processing chip as AMD would usually responds with an equally fast chipset within days or weeks and at times even earlier than Intel. In the long run no other competitive strategies can maintain its momentum. The organization in this century that can stay at the helm as industry leaders because they have superior talent, manage their resources more efficiently, respond to opportunities faster, are more resourceful in tackling problems, are more creative in developing new approaches, or are great at satisfying customers. As argued by Zack (1999), it is important to concentrate on the development of unique and valuable capabilities, rather than exclusively focusing attention on the production of goods or services. A concentration of goods and services can, at the best, only provide short-term solutions because organizations engaging in invention, innovation and imitation in a continual cycle are just rendering current products and services obsolete. Organizations who wish to improve their performance need to understand and develop underlying skills and know-how and channel these into process improvements.
The traditional attention on efficiency is still crucial but that should not be the ultimate target, the drive to get better will make it very difficult to accept change, move in a new direction or respond to unanticipated problems. Just as the mouse in "Who moved my cheese". Initially, it refuses to give up and keep trying the old way. It is only after some time that it realizes that it needs to move on to look for food and he discover a much bigger cheese elsewhere. The old work management paradigm should be made obsolete in every organization.
Do we understand how many of our latest cliché - intellectual capital, human capital, capabilities, talent, knowledge management, and learning organization - refer in some way to people and the knowledge, skills and abilities they bring to the job? The problem or question is how to leverage their potential to gain a sustainable competitive advantage.
One of the most striking characteristics that differentiate organizations is the level of energy that is evident in plant tours or walks through an office building. In one of my ex-company, you could literally hear the pin drop as you walk through the main office. The energy level in staff is almost palpable. Though energy by itself is not sufficient; every soccer team has energy but the game plan and the talent of the players are also important. That saying, energy, is normally evidence of engagement and that is the key. How many times have we watched a football game on British Premier League and can evidently feel the difference in energy between the two teams? And it is usually the team with a stronger desire that wins the game.
1.2 Problem Statement
This research study is based on a multi-national corporation with the headquarters located in the United States:
CA Pte Ltd, is a multi-national company in the Fast Moving Consumer Goods (FMCG) industry. The company was founded in the United States in 1999 and has achieved phenomenal growth in 40 countries around the world within 5 years with global sales topping USD 800 million and has manufacturing facilities in Asia, Europe and United States. This remarkable growth has bring forth financial success to the organization but at the same time, the key departments (Finance, IT, HR, Operations) are also having a difficult time in trying to keep up with the growth. For the purpose of this research, I would just focus on how HR can have an impact on its competitive advantage.
In view of the downturn in the global economy, CA is facing tremendous pressure from the senior management located in the US head-office to improve the profits as well as working capital utilization. New hires are put on hold and need approval from senior management before proceeding. This freeze applies for both replacement as well as additional headcount requests. It is easy for any organization to hire when the economy is booming but with the downturn in economy, HR will play an even critical role in ensuring "right fit" for new hires as well as retrenching the "right" people who are not adding value to the organization.
With the freeze on headcount, quarterly incentives and annual increment, what are the strategies that HR needs to develop to create a high performing workforce that is motivated and happy? The ability of CA to come out of the current global crisis will probably be dependent on HR's ability to hire, develop and keep quality employees. In addition, despite the downturn in the economy, turnover has been high in the company. Per HR records, the percentage of turnover is about 20% for the past 1 year. That is way above the national average of about 2.5% (http://www.mom.gov.sg/publish/momportal/en/communities/others/mrsd/statistics/Labour_Turnover.html). For an organization that is viewed by many to be so successful, has the foundations not been set right to support the tremendous growth? Does financial success in an organization always translates into high employee morale?
There is growing evidence that HR practices are critical to the success of organization and could possibly give the best return on investment for sustainable competitive advantage. Jeffery Pfeffer's has done extensive research in his book The Human Equation, which summarizes discouraging findings that only about half of today's organizations and their managers believe that human resources really does matter. And only about half of those organizations act upon their beliefs, instead of just paying superficial lip service to this vital resource. Only a handful of organizations have implemented high performance work practices, such as 360-degree feedback, management by objectives (MBO), employee empowerment, and other human-oriented initiatives. A point I would like to emphasis on in the book is that about half of those who "believe" that human resources are their most important asset and "do something about it" actually "stick to" their beliefs and commit to these high performance work practices over time. Pfeffer has documented that this minority group are currently some of the world-class organizations such as Southwest Airlines Co., General Electric Co., Microsoft Corp and many others that vary in size but share worldwide superiority in profitability, productivity, innovation, quality, customer satisfaction, and bottom-line profitability. It would seem too much of a coincidence that this unique group who truly believes in investing in their employees also enjoys financial success. There seems to be some realization that human resources are no longer just a cost of doing business but have elevated up a notch to be an indispensable asset, and, an investment that needs to be effectively managed so that the organization can profit from the high return of sustainable competitive advantage.
Through this downturn in the global economy, I believe organizations should take this opportunity to differentiate themselves from the rest of the competitors by their ability to optimize the human-centredness of their technology. The slogan, commonly repeated by multi-national corporations, "Our people are our greatest asset" will take on a deeper meaning, for it is the alertness and performance of an organization's people that determines how effectively the organization uses all its other resources (Moore-Ede, 1993: 191).
An important issue in today's global business environment, especially in CA Pte Ltd, is staff retention. Without having staff integrated well into the organization and making their full contribution, success will be short term. Personnel problems could have domino effects causing problems with training, planning and even strategic decision making. It seems logical for companies to spent time and effort in reviewing the reasons that make staff leave or stay in the company. When projected on a global context, this becomes even more complex and a multicultural approach has to be put in place. Health care insurance, which may be an area of focus in US, may not apply in Asia. Organization focus on staff retention should not be done for the purpose of making more profits but for the interests of the individual who make up the valuable workforce.
People centered management truly means leading others by first taking into account the individual's needs, within the context of long term benefit to the organization. It enables both managers and staff to have opportunities to co-create an organization environment where the full contribution of each members of the group is encourage and supported. In short, people centered management provides the organization with a natural capability to tap into the hidden potential of all employees and enables the organization to create a new culture of excellence (Browne, 2000: 57, 58, 171)
The challenge of this study lies in testing the proposition that by managing HR practices effectively, we can positively impact the organization's competitive advantage. In a report, jointly produced by the Boston Consulting Group (BCG) and the World Federation of Personnel Management Associations (WFPMA), Creating People Advantage: How to Address HR Challenges Worldwide Through 2015, it listed managing talent as the most important HR challenge facing organizations across the world today, and will stay at the top of the corporate agenda until 2015. Rainer Stack, one of the report's nine authors commented that "It may soon be harder to find and keep talented employees than it is to raise money in an IPO".
1.3 Aims and Objectives
In CA Pte Ltd, I have noticed that there seems to be a lack of focus by HR in creating bonding between employees, training for staff as well as creating a culture that employees can relate to. It is apparent that due to the downturn in the economy, various cost-cutting measures are implemented and HR activities bear the brunt of these measures. It is a stark contrast to my previous company where the HR polices is more developed, company activities are planned well in advance and approved in the annual budget exercise, two way communication sessions are conducted regularly between the various departments and the management staff and training whether internal or external is strongly encouraged and practiced.
That gives rise to this research where I will investigate the following linkage:
1. Validity of the linkage between human resource practices that encourage socialization, such as orientation programs, team building activities, communication sessions etc. in creating a competitive advantage.
2. Validity of the linkage between human resource practices, such as training (external and internal), in creating a competitive advantage.
3. Validity of the linkage between human resource behavior and competitive advantage.
1.4 Overview of Methodology
This study aims to investigate the linkage between the above human resource's practices and the development of the organization's competitive advantage. To test the concept, primary information was collected from employees, including department heads in CA Pte Ltd.
Informal face to face interview
The surveys will be handed out to colleagues from different departments. I have included a spread of ranks from senior to junior. Where possible I would sit down with the prospective colleague and go through the questions and answers. Where this is not possible, I would explain the purpose of my survey and explained on how the survey needs to be completed before handing over the form. I would then follow up with them if the completed survey has any ambiguity. Due to the possible sensitivity of the results, I have run through the questionnaires with the HR department and got their approval before the start of the survey. The results will be shared with the HR where we will work out the possibility of making changes to the current HR practice.
Review of HR policies
I would analyze the various applicable HR polices and examine its impact on promoting competitive advantage. Has there been a detailed thought through process to ensure that the HR policies are in sync with the corporate strategies? Is there any focus on creating a distinct culture that can create a sustainable competitive advantage? Do the polices encourage competition among staff to bring out the best in them? Do the policies cater to the different categories of staff (such as high performers)?
The categories of questionnaires and the questions in the different categories are derived after discussion with the HR manager. The questions are designed to be straight forward with minimal ambiguity. The questions would highlight some of the lack in the current HR policies in CA Pte Ltd but is present in some of my previous organizations and I would like to determine if the exclusions have any detrimental effect on the morale and ultimately the competitive advantage of the organization.
In total, 18 samples are given out to staff from varies departments; the data has been compiled and analyze in the later part of this study.
The literature data were collected from various secondary resources that include published journals, books, past studies and website materials.