How HRM Can Help Firms Secure a Competitive Advantage - Coursework Example

HRM Strategies and Competitive Advantage Name Course Tutor Date How HRM can help firms a secure competitive advantage Introduction With rapidly globalization in the business environment, competition has increased tremendously, paving way and revitalizing the reality of survival for the fittest (Dalton, 2005, p.193). For that matter, the sustainability and survival have emerged as major issues to rethink in a competitive setting. Companies are now focusing in creating activities which can give them additional competitive advantages. One such factor that has come up as an area that organization can use to establish competitive advantage is Human resource management (Dalton, 2005, p.199). Successful human resource practices lead to committed employees and firm’s growth. Based on the information, this paper explains how HRM can help firms a secure competitive advantage. This paper will define what Human Resource and competitive advantage means, and use Universalist and contingency approaches to justify how the competitive advantage can be achieved Human Resource Management and Competitive Advantage According to Wang & Shyu (2007, p.94), Human resource is defined the set of people who compose of the employees of a firm or economy. At times, it used simultaneously with the word human capital. On the other hand competitive advantage is that attribute that an organization which develops or acquires to allow it outdo or outshine it competitors. Competitive advantage is created on the premise that cheap labor is omnipresent (Powell, 2001, p.877). In this aspect, it is how the company develops its human resources to outshine its competitors. The managing practices of the human capital are referred to as human resource management (HRM) (Torrington, Hall & Taylor, 2005). The most recent theory in HRM considers that human resources are a “unique” asset (Mello, 2006, p.11). Employees and their individual skills are the one asset which competing companies cannot duplicate. According to Myloni et al (2004, p.518), efficient and effective labor force has been demonstrated to improve organization’s performance by resulting to consumer satisfaction, productivity, innovation and creation of a positive reputation of the organization. This effectiveness can be achieved when the right person is hired; he or she comes with unique skills and experience that some companies do not have (Leopold, Harris & Watson, 2005). Green et al. (2006, p.264) argues that when employees offer outstanding customer services, they are surpassing job expectations. The recognition of the service is based, partly on the service level the customers get. If the organization concentrates in the creation of innovative, high-class products, and customer service, it is the customer service then that realizes the competitive advantage (Schuler & Jackson, 2005, .p11). However, this customer’s service advantages the company most, if that service (labor) can be provided at a lower cost (Addison, McKinley, Blackburn & Chad, 2012, p.412). With the increased expenses of the company, such as on raw material and operation in general, managers normally look at the ways they can lower unit labor cost so as to reduce wage bill that pulls the company down. One factor that the company can use to achieve lower unit labor cost is to invest in training of its employees to increase productivity and reduce costs in the period of economic recession (Pfeffer, 1998, p.99). This can be done on assumption after training, the average output will increase significantly and in return, the employer output will be at the same level as the wage and thus reduce the unit labor cost. Pfeffer (1998, p.102) claims that when the company has skilled and effective employees, the better way to lower labor cost is to reduce the number of the hours while maintaining efficiency. These employees should be hired from a country with cheap labor where there will be no pressure to increase salary. Any company must understand how the economy is trending. This will help the company lower its unit of labor and wage bill while marinating its operations. Such strategies have helped Ford Motor Company and other countries like Germany, France and Netherlands to reduce wage bill by working for few hours in a week so as to maintain its workers (Addison eta al, 2012, p.421). In some circumstances, the organization should create a plan where employees share jobs. This will be a win-win strategy for both employees and management. The company will not loose its skilled employees who will also acquire skills when handling shared roles (Katou & Budhwar, 2007, p.7). When people share jobs they work fast and on part-time basis. The output will increase while the employees will be paid on-time basis. For instance, in the late 1980s and early 1990s at the time the economy of the US was facing recession, General Motors strategized to train its technicians and engineers to be sales executives (Addison at el, 2012). The strategy worked for the people since they did a better job in selling automobiles directly to dealers and customers compared to the company traditional marketing and sales executives. The engineers are claimed to have far better technical expertise of the products compared to their sales people. Other alternative used by the companies could be to freeze salary, bonus holiday or even to get rid overtime benefits for a particular duration in but to offer job security for its skilled employees (Katou & Budhwar, 2007, p.21). Addison et al (2012, p.412) argues that some companies have employed the use of economic formulas to reduce the labor cost and increase competitive advantage during economic downturn. One such formula is based on the efficiency theory, that is E(f+w)/Q. In this formula, it is held that in any economy, it is more if the system can produce more products and services for public without employing more resources (Addison et al 2012). This is similar to labor cost. It can be argued that the company is more efficient if it can manufacture more products without using more resources. In a nutshell, the company can use the same workforce to produce more products in a shorter time. Experts reason that managers sometimes choose to compensate efficiency wages to attract productive employees, avoid shirking and reduce turnover (Addison at al, 2012, p.430) Universalist and contingency approaches to HR strategy In the recent years, the research has pointed out the relation between Human Resource Management and the organizational performance (Boxall & Macky, 2007, p.265). Majority of research has focused on the significance and the level of which HRM best practices have an influence on the general performance of an organization. The basic concept is that some certain Human Resource practices created in a package can hold influence on enhanced employee behaviors and attitude, reduce the degree of absenteeism and job turnover, and high degree of productivity and quality products and customer service in any organization (Boxall & Macky, 2007, p. 262). The ‘universalistic’ practice hypothesizes the ‘best’ of Human Resource practices, meaning that organization strategies and HRM approaches are mutually independent in recognizing business performance. According to Schuler & Jackson (2007), the Universalist approach maintains that some payment policies will probably be resourceful irrespective of the organizational situation. In relation to the efficiency wage hypothesis, organizations which implements a lead position as opposed to the market could be rewarded based on low hiring and costs of training, presence of better skilled candidates, low rate of turnover and improved productivity (Datta, Guthrie & Wright, 2005, p.135). Nevertheless, the gains emerging from the process of hiring may be lost since the labor costs rising from this pay position will be accumulated after every year. However, the rate of output is connected to the competence of applicants the firms hired and would look to compensate for the increased costs (Datta, Guthrie & Wright, 2005, p. 140). Even though organization embraces the Universalist approach in HRM practices, what matters and can enable it achieve its competitive advantage is the internal fit. Internal fit is defined as the process of making sure that the different HR practices are adequately incorporated to produce a sound human resource approach (Chênevert & Tremblay, 2009, p. 739). Under the universality best practices, Pfeffer describes 7 HR Practices. These practices comprise of employment security, careful hiring, and self-managed teams and decentralized decision-making, comparatively high compensation based on organization’s performance, extensive training, low status distinctions and barriers and extensive sharing of financial and performance information (Pfeffer, 1998, p.98). In any company that intend to do better and have a competitive advantage over its rivals must make employees its number one agenda. This is because it is the employees that run the operations of the company to satisfy its customer’s needs. The workforce needs to feel that their job is secure and can stay for long without their job interrupted. Sometimes, the company may face the challenges of the economic downtown. IPA (2001) argues that how they handle employment issues determines whether they will survive competitions. The company must find a way of handling wage bill without necessarily laying-off its skilled employees. The management can ensure job security by putting in place an approach where employees work on a part time basis while still retaining the same employees on its payroll (Pfeffer, 1998, p.112). When a company wants to have high performing employees, the management must ensure that its workforce is highly compensated. According to Pfeffer (1998, p.99), High compensation is dependent on performance and assists to attract and retain skilled labor. Pfeffer argues that there are two components to this policy; higher than average payment and performance-related rewards. Employees find a means to deserve beater contribution. Huselid considered two elements, first, the work force proportion which has access to the organization incentive packages and the percentage whose performance evaluations are applied to determine their compensation (Huselid, 1995, p.636). This practice of merit and performance is used in the UK. Low status distinctions and barriers is another practice that if practiced in an organization, the employees becomes motivated because they feel treated equally despite of their inadequacies. Low status differences are practices in Japanese organization. The major notion behind these practices is that it breaks the stereotypical barriers between various groups of employees that encourage team flexibility and working in workers (Collins & Smith, 2006, p.544). In Japanese organizations, it sends messages to manual workforce and lower grade employees that they are important assets who merit being treated in the same way like the senior staff. Even as the managers run the organization, they must analyze the external environment conditions so as to come up with strategies to gain competitive advantage. This external environment is what Huselid (1995, p.637) claims to be external fit. Focusing on external fit ensures that the HR strategy conforms to the wider organization strategy. This strategy presumes that the best fit between the two approaches will generate the best performance of the workforce in the company. The external fit is founded of the contingency approach which looks at the wider business environment. While Universalist approach is about best practice, contingency approach is a technique of decision making which is frequently used in devising suitable human resource (HR) strategies which “best fit” the organization (Huselid, 1995, p.653). This approach is founded on the principle that in order to be efficient, the HRM of an organization has to be consistent with its strategy. The contingent elements impacting HR strategy may consist of management skills, form of strategy pursued, and size of the organization, geographic location, labor market, technology type, economic conditions, geographic location and industry sector. The company that has the best strategies on this issue will definitely have competitive advantage over other market players. Conclusion In this phase of rapid globalization, competition is becoming stiff and managers are compelled to rethink their strategies so as to sustain competition. 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