Critically Assess Whether Strategic Hrm Leads to ‘High Performance’’.
Essay Question 1: ‘Critically assess whether strategic HRM leads to ‘high performance’’ Introduction There is a controversy whether the Strategic Human Resources Management (SHRM) leads to ‘high performance’. A general idea of SHRM is that “the linkage of management and deployment of the individual within the firm to the business overall and its environment whereas HRM is the activities that take place under this area. ” Truss and Gratton (1994). It spotlights on long-term strategy.
Two theoretical perspectives to the Strategic Human Resources Management (SHRM) will be introduced and compared to determine whether they manage to ‘high performance’ or not. First, the Universalist approach is ‘one best way’ of dealing human resource to improve business performance. Second, the Contingency approach is to align HR policies and practices with the details of business strategy to create a positive impact on business. In addition, two examples: a large company and a medium-size company will be used to illustrate both approaches practically.
At the same time, there are issues associate with theoretical perspectives that need to be discussed. Such issues are the implementation problems as well as the measurement problems. After all, the question will be answered with analysing all of the above. The advantages and disadvantages of each approach will be identified by gathering views of researchers. To the final stage, both approaches are being recognised if the linkage is existence to ‘high performance’ and to the level of measure that are being noticed. Different approaches to SHRM * Universalist approach
A Universalist approach is known as ‘best practice’ human resource management (HRM). This approach describes there is ‘one best way’ to manage people in order to improve organizational performance. It argues that all organizations, regardless of sector, size or country, will benefit from identifying, gaining commitment to and implementing a set of best HRM practices. The job of a researcher is to identify what the practices are, and a job of HR professional to implement them. For example, a research from Delery and Doty (1996) identify certain practices that improve organizational performance.
The detailed components are ‘high performance work systems (HPWS)’ Berg (1999); Appelbaum et al (2000), ‘high commitment management’ Walton (1985); Guest (2001a, 2001b) and ‘high involvement management’ Wood (1999a). Another researcher by Jeffrey Pfeffer (1998) identifies that seven universally applicable practices will benefit all firms. The components include: 1) Employment security, 2) Careful hiring, 3) Self-managed teams and decentralized decision-making, 4) Comparatively high compensation, 5) Extensive training, 6) Low status distinctions and barriers, 7) Extensive sharing of financial and performance information.
The implication is that when a coherent bundle of HR practices is outlined, the integrated HR practices will impact positively on organizational performance. The ‘best practice’ HRM sees there is ‘one best way’ of managing people and that is appropriate across all circumstances. * Contingency Approach On the other hand, the Contingency approach is known as ‘best-fit’ HRM. It takes account of factors such as organizational size, location, sector, strategy and the nature of work. Baird and Meshoulam’s (1998) model advocates that HRM approaches will differ giving to different life-cycle stages.
These life cycle stages ranges from start-up to maturity. While an organization is growing and maturing over time, it becomes gradually complex. Therefore, more sophisticated HR structures and policies are needed. This approach focuses on two types of ‘fit’ and ‘line management integration’. The first type is ‘External fit’ and it is commonly known as ‘vertical fit’. It is in coherence and alignment with business strategy and external market factors. When HR policies and practices are aligned to strategic focus, performance will improve.
Porter’s (1985) strategic options on 1) Cost Leadership, 2) Differentiation and Innovation and 3) Focus are adopted. The second type is ‘Internal fit’ and it can also interpret to ‘horizontal fit’. HR policies and practices are all fit together so that they are in coherence. They are also mutually reinforcing and are applied continuously. Jeffrey Pfeffer’s (1998) seven practices are adopted. Lastly, ‘Line management integration’ is when line managers act as a critical character in implementing HRM strategy. Best-fit’ HRM suggests that the best to manage people will vary depending on organizational circumstances, and hence, the link to business strategy is key. Empirical evidence of SHRM model * A large company – Tarmac The UK quarrying company Tarmac has over 12500 employees at present. The operations function is key to overall company’s performance. It needs the support of finance managers, zone managers and HR managers. A finance manager delivers financial and management accounts to contribute the strategic decision-making process by forecasting financial performance.
A zone manager manages operational performance. They meet and improve targets for cost, quality, delivery, safety and business ethics shown in key performance indicators (KPIs). Lastly a HR manager ensures business managers apply HR policies and procedures. The company’s goal is to achieve objectives by motivating all individuals working together as one team across the business units and functions. Each objective has its strategies. The followings practices are to achieve ‘Engage employees’ and ‘Act Responsibly’ objectives.
Firstly, Tarmac focuses on a high level of employee involvement and encourages high employee commitment to the organization so that workers feel they are trusted and treated in an open and positive attitude. For example, employees regularly discuss with managers about their viewpoints within development teams. This helps workers feel part of the wider team, strengthens employee engagement and commitment to the company. Secondly, team-working practices create a closer supervision and a flat hierarchy. A coaching style manager develops employees to manage themselves rather than to manage each task.
Employee’s suggestions are offered, and this contributes to improvements in organizational performance. An example of Tarmac targets and measures a decline in waste. In 2010, eighteen workshop-training sessions were held for all site employees on CO2 awareness and energy. All district managers were involved in the programme. Some external experts from Carbon Trust were also invited to support the rollout of the training programme. As a result, Tarmac gained benefit from 500 energy and CO2 reduction. Overall, Tarmac adopted a high commitment strategy to meet the objectives.
Therefore, it improved the company’s performance. * A small-medium size company – i-LEVEL i-Level is one of the most innovative digital media companies and is ranked the ‘Sunday Times 100 best companies to work for’ in 2004. It has a size of workforce of 60 employees. The i-Level company has a high level of financial performance. There was a 33 per cent increase in earnings per annum. Their guiding principles are used as a framework. This is to ensure the internal fit and the external fit of company. The company is at the growing stage which a lot of the recruitment effort is on discovering the potential staff. -Level frequently seeks appropriate employees to be supported to work with the company. To fit HR policies and practices together, i-Level uses physical arrangements to remove top-down hierarchy in order to encourage employees’ participation, communication, creativity, self-managed teams and organisational values. As a result, a complete, open plan office is the environment where employees conduct their normal day-to-day operations. Moreover, i-Level sees pay is significant for performance. 15 per cent of the company’s pre-tax profit is kept for performance bonuses from 2003 to 2004.
Meanwhile, the company argues pay is not their primary motivating force. On the other hand, the company aligns with business strategy and external environment by providing training courses for technical skills in media advertising. The company also offers an unusual training budget. There is an annual allowance provided for personal training and development purposes that are no obvious relation with work. The belief is to develop the skills and interests of workers in ways not studied before. This is expected to enhance i-level workers’ innovative thoughts at work through practices outside the company’s work area.
To summaries, i-LEVEL achieves competitive advantage through innovation and which competes in very tight labour markets. It adopted Porter’s strategic option of ‘Focus’ and Pfeffer’s 7 practices to enhance the company’s performance. Additional issues to reflect * Problems of implementation Line managers are central HRM performers in the organization, and they play a vital role in implementation of HR policies and practices. They influence their team‘s performance in a direct manner. A number of factors account for the line management problem. Firstly, it seems there is devolution to line managers.
For instance, line managers do not want the responsibility of being a line manager or do not have enough time to deal with it accurately. They might not have the skills to handle HR issues successfully or are unaware of recent developments in view of HRM. Some managers do not consider a long-term view of the company or are inefficient for making policy in this area. Secondly, McGovern et al (1997), Marchington (2001) and Hutchinson and Purcell (2003) identify there are differences between ‘espoused’ and ‘actual’ policies that are relatively recognized to line managers.
For example, some policies are normative rather than positive. Some descriptions of policies and practices are in general terms rather than analytical about actual situations. Hence, managers are unable to implement them specifically to meet the company’s goals. Furthermore, a broader issue, the line manager jobs in firms become progressively complex due to new firms’ structures. For instance, virtual and network companies have less clear line manager characters than the layered hierarchical company. One observable implication is pressure for reducing the size of the HR department.
There will be a cut down in numbers of HR professionals. Ultimately, these factors all affect the organizational performance due to unsuccessful implementation of HR policies and practices. * Problems of measurement Fitzgerald (1991) and Neely (1998) stated that performance measurement is a key issue in guaranteeing the effective implementation of a firm’s strategy. However, using inadequate measurements is poor in supporting managements’ business objectives. The followings are the circumstances. Scientists use large-scale data groups made self-completed questionnaires.
This will lead to two problems. First of all, there is dependence on one person, to represent the whole group. Secondly, there is dependence on a design of questionnaires. For example, respondents are answering yes or no questions rather than giving thoughts and opinions. This type of questions may generate a less accurate result. Moreover, there is uncertainty of how the data should be gathered, presented and analysed. The major problem is mis-reporting single respondents. Respondents may have limited knowledge of the area and use of policies.
Furthermore, the measures of performance commonly take account of the financial performance, whereas there is a few findings focus on the broader issue of employee attitudes and well-being. Equally, there are matters to the range of HR practices. For instance, a report shows statistics of whether a company has self-managed teams, some may look at the proportion of workers running in a self-managed team. Lastly, Atkinson (2005) suggests that the measurement of productivity in the service sector can be exceptionally challenging.
It is always easy to get typical, comparable financial statistics. To sum up, the measurement of data are related to the level of relevance to business performance. Critical analysis of the beyond * Best practice Pros ; Cons Research states there is a positive link between the HR practices and organisational performance. Firstly, Huselid (1995, p. 667) discovered that ‘the degree of returns for investments in High Performance Work Systems is significant’. In fact, ‘A one standard deviation rise in High Performance Work Systems practices is associated with a comparative 7. 5 per cent drop in labour turnover. On ‘per employee’ base, $27,044, $18,641 and $3814 more in sales, more in market value and profits respectively. Secondly, the workplace employee relation survey (Cully et al 1999) indicates that there is 14 per cent of organisations adopted high commitment strategy. In contrast, researcher (Delery 1998) also emphasized ‘deadly’ bundles of practices need to be avoided. For example, it occurs to managers giving reward based on individual performance while they are working as a team.
Furthermore, Boxall and Purcell (2003, p. 64) commented while multi-national companies make the effort standardise their practices across nations, national perspective and organisational sectoral perspectives show criticism on the effectiveness of these practices. Marchington and Grulis (2000, p. 1117) argue the most common example is in labour intensive organisations recognise costs are expensive when they use these practices. To summaries the best practice approach, Guest’s (1987) argues that there is no best practice.
At the same time, he also suggests a set of best practices such as high commitment management is the route to survival of UK business. This leads to an argument that in order to enhance company performance, managers must alter their HR policies and practices to the framework that is operational. The interpretation comes to ‘best-fit’ approach. * Best-fit Pros ; Cons Thompson (2000) conducted two studies of firms in the UK aerospace industry. His first study in 1997 showed that with higher levels of value added per worker encourages greater diffusion of innovative working practices with their non-management employees.
These organisations are towards to more heavily engaged in specialist production for niche markets and hired technical and professional workers. The second study in 1999 showed evidence that organizations introduced a larger number of high performance work practices had much enhanced business performance. As a result, companies moving from less than five to more than six innovative practices created a 34 per cent increase in value added per worker. On the other hand, Miles and Snow (1984) align suitable managerial types to three genetic strategies of prospector, defender and analyser.
If managerial properties and skills are aligned to company strategy, there will be a higher level of link to organisational performance. Thomas and Ramaswamy (1996) offered such support. As a result, performance in aligned firms was statistically excellent. In comparison, (Purcell 1999 p. 35) outlines that a number of successful organisations features that are unable to model. These are the cultural norms that have been developed gradually over a long period associated with accomplishment. It is easy to identify the key factors that drive to success. Especially when the organisations are large and complex.
Imaginably the major problem is that many organisations exist inside complex external environments with multiple contingencies that are not to be ignored or recognized. * Comparing both approaches Each approach has advantages evidence and disadvantages evidence. It could be argued that different approaches can apply in different sectors. For example, Guest (2001) advocates that there is the possibility that a high commitment management is most applicable in manufacturing i. e. Tarmac, while strategic choice for fitting with business strategy, is more credible in the service sector i. . i-LEVEL. As a whole, critically discuss the link between SHRM and performance. Evidence from Patterson et al (1997) examined sixty-seven manufacturing businesses in the UK for a period. The outcomes were 19 per cent of profitability and 18 per cent of the variation in productivity could be certified to HRM practices. This demonstrated HRM practices has a positive impact on organisational performance. Conclusion In summary, SHRM consists of a number of practices and is an organization level analysis of how HRM systems impact on performance.
Two theoretical perspectives outline different views. The ‘best-practice’ approach defines there is ‘one best way’ of managing people. It is appropriate across all circumstances. Whereas ‘best-fit’ approach terms the best to manage people will change depending on organizational circumstances. It highlights the essence of linking business strategy. Tarmac was used as an example. It applied the ‘best practice’ approach and adopted a high commitment strategy to meet the objectives. Hence Tarmac improved its firm’s performance.
I-Level was used an example to describe the competitive advantage the company had achieved through innovation while competing in extremely tight labour market. It adopted Porter’s strategic option of ‘Focus’ and Pfeffer’s 7 practices to enhance the firm’s performance. Empirical evidences show both organisations are successful with adopting different approaches to their specific, targeted firms. These firms had a positive impact on performance. This can be concluded that SHRM has a clear link to business performance practically. In depth, other issues such as implementation and measurement roblems are considered. Problems of implementation affect the organizational performance due to unsuccessful implementation of HR policies and practices in line management. On the other hand, problems of measurement are valued on the basis of how easy and difficult the data is to represent and most importantly the level of relevance to business performance. If the relevance is slight, it may have little or no impact on business performance. In the final stage of comparing both approaches, many researchers’ point of views is gathered. ‘Best-practice’ approach has advantages and disadvantages.
It seems to argue that high commitment management is the route to successful business performance. On the other hand, the advantages and disadvantages of ‘best-fit’ approach suggest that applying this approach can be rigid and inflexibility due exists of complex external environments. Furthermore, in recent arguments, the product labour market seems to be emerged to a new post-industrial age where employers will tend to hire self-employed workers to carry out specific, time-limited projects for companies. This is due to the prediction of radical change.
It can lead to a view that ‘best-fit’ approach should to be managed appropriately. This means practices should be adequate in different company’s life-cycle stage and align with different strategies. So that, it can feasibly enhance the organizational performance. Finally, strategic human resources management gives evidences, views, researches and facts to enhance organizational performance. However, the degree of high performance in context varies in different organizations under their circumstances. Hence, it does not necessary impact to ‘high’ performance.