Human Resources Essay - Critical analysis of best fit, best practice & resource-based view PDF

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to evaluate and critically analyse the three most popular viewpoints in Human resource management - best fit, best practice and resource-based view....

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The purpose of this work is to firstly describe and then to evaluate and critically analyse the three most popular viewpoints in Human resource management - best fit, best practice and resourcebased view. The significance of HR’s strategic role has been at the epicenter of much of the contemporary literature in this field for the past couple of decades, with many authors pointing out the importance of people in organisational performance. ”Human resources in many organizations is mostly involved in systems, operations, and the pressing issues of setting pay, recruiting, and developing people. Furthermore, it has been described as one of the important keepers and analysts of an organization’s culture. Even when HR adopts a more strategic role, it is mostly focused on designing specific systems to produce higher levels of performance in the immediate future.” 1 In order to further analyse and evaluate this view we are going to discuss three widespread theoretical perspectives.

Firstly we are going analyse the best fit model. A popular definition of it states – “It is based on the view that different types of HRM practices are suitable for different kinds of business conditions. It asserts that there is a link between HRM practices and competitive advantage but that HRM activity is contingent upon the particular circumstances of each business.” 2 Taking into account this statement firms need to choose strategies which best fit their goals and what works for one company doesn’t necessarily applies for another in the same industry. The best fit model focuses on strategic integration. Integration means achieving a smooth fit between the HR policies and the company’s policy bearing in mind the strategic planning. Two very popular approaches are the life cycle approach 3 and the competitive advantage approach4. The life cycle approach focuses on different development phases during each cycle stage. In the introduction phase HRM policies are used to stimulate entrepreneurialism. “This model links HRM policies and practices with the different needs firms have at different stages in their life cycles from startup through to growth, maturity and decline, with each stage in an organisation’s life cycle requiring different approaches”5. During the growth stage, development of formal HR policies and procedures occur and training and development are essential in the team building and improvement. Throughout maturity profit margins shrink and the focus is on cost cutting, flexibility and building-up new skills. In the stage of decline, HR is mainly about handling redundancies. According to Porter (1985)6 competitive advantage perceives organisations as making strategic decisions as to how to achieve and maintain competitive advantage. “This involves gaining advantage either through cost leadership, asserting differentiation through quality of produce or service, or through focus in a ‘niche’ market.” 7 “The contention is that the economic performance of the organisation will improve when HR practices are in harmony and complement each other in the service of the chosen strategy for the organisation, which is to foster competitiveness” 8 As examples we could use the clothing retailers Primark, M&S and Louis Vuitton. Primark focuses on a cost cutting policies and relatively low prices, M&S concentrates on the quality of its products and Louis Vuitton makes high-fashion clothes tailored for individual customers.

Another good example of successful HRM policy is Toshiba as they managed to break down conventional functional obstacles and introduced the so called “crosspollination”. For instance they mixed teams of IT and marketing departments, which led to more heterogenetic knowledge and ideas. Another aspect is the delayering of the hierarchy and reward system for creative ideas, which led to greater dedication from employees. As a result their strategy has “yielded 10 million pounds savings in UK and 3 billion worldwide” 9

However, not everything happens to flourish under this theoretical perspective, and as a result it attracts a lot of debate and criticism. Mintzberg (1998)10 suggests that the rational model is in discrepancy with the reality of organisational life. “The existence of this constraint makes it very difficult to accept the idea of rational “linear” model of organisational decision making”11 Owing to this fact, matching HR and corporate strategy might lead to a greater inflexibility, in comparison with competitors. Another criticism occurs when, for example the corporate plan dictates cost minimisation through reduction of labour costs, is in contradiction with HRM perspective that puts the accent on commitment to employees. As well it tends to undermine the concerns of workers in the chase for better productivity performance. This brings the need for employers to consider how the organisation fits with each employee, whose skills are crucial for the economic survival of the firm.

The resource-based model is an inside-out knowledge-based model. “A noticeable feature of the resource-based model is its primary concern with what is going on within the organisational boundaries in order to be well placed to respond to opportunities in the external environment”12. This view is supported by the idea that human capital and technological assets cannot be infinitely restructured and deployed in order to squeeze out productivity and maximise market share, compared to the best-fit approach. Consequently, the emphasis here is on personal attributes and how to utilise them to achieve sustainable corporate growth. “The resource-based view owes much of its genesis to a remarkable book by a University of London Professor of Economics, Edith Penrose (1959). Arguing that her theoretical purpose was different from that of neoclassical price theory, Penrose (p. 31) conceptualised the firm as ‘an administrative organization and a collection of productive resources’. She distinguished between ‘physical’ and ‘human resources’. “13 . If we define companies as bundles of resources, then this view would highlight the inescapable impact of factor markets, some of which could be bought and sold, however there are numerous efficiency factors that can be build-up only internally. Again Barney (1991) has done some research on this topic and he manages to distinguish between current competitive advantage and potential one, more commonly known as “sustained competitive advantage”. He points out four crucial factors which enables firms to develop the current competitive advantage into a sustained. These are value, rarity, inimitability and organisation.”14 Value refers to the ability of the company to catch and capitalise on an

opportunity or dealing with a threat relying only on its resources and capabilities. Rarity discusses the competitive advantage achieved through unique feature of the company, such as resource or image. Inimitability defines to what extent the operations and activities of a company are vulnerable to duplication or substitution from a competitor. Lastly, organisation refers to the overall preparedness of a firm to exploit efficiently its resources and achieve economies of scale. An example of that is the innovation of Dell which allowed customers to build-toorder their computers online and achieved great success. This was achieved through extraordinary level of supply chain management and they’ve been through several drops and upsurges.15 Nonetheless, this model provokes a lot of debates and discussions as well. One of the arguments claims that the internal focus might fail to recognise external factors like customers and competitors. “Some firms have a competitive advantage because they are located in societies with superior educational and technical infrastructures. HRM choices are therefore going to be fashioned by external forces and not just by line managers”16 Secondly, does this model implies for all the workers in the company or just for senior management and experienced employees? This model might neglect some workers and affect their commitment, performance and psychological contract17. Furthermore, it raises the question how these practices could apply in a company that relies on flexibly employed workforce.

Last but not least, the best practice model is the third most common HR strategic perspective. It’s a belief that the implementation of definite best practices in HR is going to increase employees’ attitudes and behaviour, develop and master new skills and as a result improve productivity and efficiency. The most striking feature of this model is that it doesn’t refer to company strategy at all. “This suggests there is a set of practices that can and should be adopted by firms, which will lead to improvements in performance. Practically, not only firms must become aware of these policies, but need top-management support to adopt them”18 In this model there are two widespread approaches. These are the universal one and the high-performance working practices (bundles). The Universal approach is a belief that modifications in the external environment in the industry have narrowed down the influence of conventional drivers of competitive advantage, such as capital and technology. Consequently, it tries to stress on the importance of workers, as they are the crucial feature which allows companies to innovate and adapt. “The optimism implicit in the best practice or universal model has libertarian consequences.

Since all will gain by adopting HCM, there is no need for state intervention; neither for any form of labour market regulation; nor for trade unions, since employers will maximised  that both profits and employee welfare can be  maximized. Top managers and equity owners can therefore be relied on, as rational economic agents, to act in their own best interests, since these coincide with the needs of employees for mutual benefit.”19

The High-performance working practices suggest that “individual practices cannot be implemented effectively in isolation from each other, but that the ways in which they are bundled together in a complementary fashion is the crucial factor”20 According to Purcell (2006) “if high commitment management is universally applicable, only two substantial

problems remain to be tackled. First, the need is to identify components of HCM, what authors increasingly refer to as the ‘HR bundle. The second problem is the diffusion. If HRM is ‘the most important’ area to focus on if managers want to improve organisational performance, why do so many firms fail to do so?” 21 Marchington, M. and Wilkinson, A. (2002)22 point out best practices measures which contribute to the analysis of the effectiveness of this model. These are secure employment and opportunities to progress; involvement, freedom to express opinion; fostering of learning and development by training; efficient reward system; reduction of status differentials among employees.

A good example here is Bacardi – Martini with their strategy to manage transformation and innovation via value-based and employee-orientated culture. The company tries to reduce the hierarchical levels, create common values, uses reward behaviour for team performance and uses training and recruitment to fill the gap between prospective and current employees. Finally, this model cannot get away without any scepticism and criticism. Borrowing a best practice from a different business doesn’t guarantee success. This could be due to differences in legislation, cultural discrepancies or dissimilarities of organisational structures. Another argument is that this approach suggests a more long-term view of the organisation, which in many cases, like economic downturn or business decline, is hard to achieve and management has to focus on day-to-day issues. Furthermore, some authors like Wilkinson (2005) and Purcell (1999) raised the question about the link between HRM best practices and performance. They suggest that performance could be attributed to other factors like a new technology or externality like a competitor in decline. Finally, “, the inability to cope with change and the inter-connection between contingent variables, leads to the conclusion that the most fruitful area for linking HRM with the behaviour of the firm is centred on the management of change.”23

Taking everything into account, the three popular theoretical perspectives, which we have discussed, attract a lot of controversial opinions in the literature. The theoretical development in strategic HRM depends on a robust engagement with the strategic management literature, including debates over the conception of strategy and the firm. All things considered, it will be possible to identify particular firms in any industry and economy which have built human resource advantage.

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P.41 17 - Rousseau, D. M. (1989). Psychological and implied contracts in organizations. Employee Responsibilities and Rights Journal , 2: 121-139 18 – Redman, T. & Wilkinson, A. (2006) Contemporary human resource management; Essex, England: Pearson Education Limited; 2nd edition; p. 30 19 - – Purcell, J. (2006). Best Practice and best fit: chimera or cul ‐de‐sac. Human Resource Management Journal, 9(3), p. 28

20 - Gilmore, S. & Williams, S. (2009). Human resource management. London: Oxford University Press. P.37 21 - Purcell, J. (2006). Best Practice and best fit: chimera or cul‐de‐sac . Human Resource

Management Journal, 9(3), p. 29 22 - Marchington, M. and Wilkinson, A. (2002); People management and development; London: CIPD 23 - Purcel, J. (1999). Best practice and best fit: chimera or cul-de-sac?.HUMAN RESOURCE MANAGEMENT JOURNAL. 9 (3), p. 28....