Chapter 1 Human Resource Management and Competitive Advantage

Chapter 1Human Resource Management and Competitive Advantage

Chapter Outline • 1-1 Human Resource Management • 1-2 Who Is Responsible for Developing and Implementing HRM Practices? • 1-3 Gaining a Competitive Advantage • 1-4 Competitive Advantage and HRM

1-1 Human Resource Management • Human resource management: Consists of practices that help the organization deal effectively with its people during the various phases of the employment cycle. • Three phases of the employment cycle: • Pre-selection – Planning practices. • Selection – Recruiting applicants and selecting the most qualified. • Post-selection – Practices designed to maximize the performance and satisfaction levels of employees.

1-1a HRM Preselection Practices • Human resource planning: Anticipate and meet changing needs relating to the acquisition, deployment, and utilization of employees; accomplished through strategic planning and demand and supply forecasting. • Job analysis: A systematic procedure for gathering, analyzing, and documenting information about particular jobs.

Figure 4-1 Job Analysis

1-1b HRM Selection Practices • Recruitment: Locate and attract job applicants for particular positions quickly, cost efficiently, and legally. • Selection: Assessing and choosing job candidates through a technically sound and legal procedure.

1-1c HRM Postselection Practices • Training and development: Planned learning experiences that teach workers how to perform their current or future jobs effectively. • Performance appraisal: Measures the adequacy of employees’ job performances and communicates these evaluations to them.

1-1c HRM Postselection Practices (cont.) • Compensation: Entails pay and benefits, and aims to establish and maintain a competent and loyal workforce at an affordable cost. • Productivity improvement programs: Tie job behavior to rewards, and aim to motivate employees to engage in appropriate job behaviors.

1-1d HRM Practices Influenced by External Factors • Legal and environmental issues: • Federal, state, and local laws are designed to guarantee employees’ rights to fair and safe treatment. • Social, economic, and technological events also strongly influence HRM practices. • Workplace justice laws: Addresses the issue of employee rights. • Union influences: Regulate many HRM practices such as discipline, promotion, grievance procedures, and overtime allocations.

1-1d HRM Practices Influenced by External Factors (cont.) • Safety and health concerns: Institution of accident prevention programs, wellness programs, and employee assistance programs to ensure the health and mental well-being of employees. • International influences: Development of globally oriented managers who understand foreign languages and cultures, as well as the dynamics of foreign marketplaces.

1-2 Who Is Responsible for Developing and Implementing HRM Practices? • Human resource professionals • Establish HRM procedures and methods. • Monitor and evaluate HR practices. • Advise and assist managers on HRM-related matters. • Line managers • Direct employees’ day-to-day tasks. • Implement HRM practices. • Provide HR professionals with needed inputs for developing effective practices.

1-3 Gaining a Competitive Advantage & 1-3a Competitive Advantage Defined • Firms gain competitive advantage by effectively managing their human resources. • Competitive advantage is a status achieved by a company when gaining a superior marketplace position relative to its competition. • This is accomplished through cost leadership and product differentiation.

1-3b Cost Leadership • Cost leadership strategy: A firm provides the same services or products as its competitors, but produces them at a lower cost. • A firm can reduce its per unit cost by increasing the value of Number of units produced/total cost of production. • Per unit cost can be reduced by: • Using new technology. • Devising more efficient work methods . • Cutting overhead costs.

1-3c Product Differentiation • Occurs when a firm produces a product or service that is preferred by buyers. • A firm can accomplish this aim by: • Creating a better quality product or service. • Providing innovative products or services. • Choosing a superior location. • Promoting and packaging its product to create a perception of higher quality. • Creates a competitive advantage if the firm’s customers are willing to pay enough to cover extra production costs.

1-4 Competitive Advantage and HRM • Studies have indicated: • A strong link between HRM effectiveness and productivity. • The impact of a broad range of HRM practices on shareholder return; 15–30 percent of the total value of a company could be attributed to the quality of its HRM practices.

1-4a Evidence Linking HRM Practices to Competitive Advantage • Jeffrey Pfeffer identified 16 HRM practices: • Employment security • Selectivity in recruiting • High wages • Incentive pay • Employee ownership • Information sharing • Participation and empowerment • Teams and job redesign

1-4a Evidence Linking HRM Practices to Competitive Advantage (cont.) • Jeffrey Pfeffer identified 16 HRM practices (cont.): • Training and skill development • Cross-utilization and cross-training • Symbolic egalitarianism • Wage compression • Promotion from within • Long-term perspective • Measurement of practices • Overarching philosophy

Figure 1-4 A Model Linking HRM Practices to Competitive Advantage

1-4b A Model Linking HRM Practices to Competitive Advantage • Direct path: The way an HRM practice is carried out can, by itself, have an immediate impact on competitive advantage. • Cost leadership can be achieved through the use of effective HRM practices. • Firms doing the best job of containing HRM-related costs stand to gain a financial advantage over their competitors.

1-4b A Model Linking HRM Practices to Competitive Advantage (cont.) • Indirect path: An HRM practice can impact competitive advantage by causing certain outcomes, which, in turn, create competitive advantage. • HRM practices  Employee-centered outcomes • Employee-centered outcomes  Organization-centered outcomes • Organization-centered outcomes  Competitive advantage

1-4b A Model Linking HRM Practices to Competitive Advantage (cont.) • HRM Practices  Employee-centered outcomes • Competence – Extent of knowledge, skills, and abilities possessed for the job. • Motivation – Willingness to exert necessary effort to perform the job well.

1-4b A Model Linking HRM Practices to Competitive Advantage (cont.) • HRM Practices  Employee-centered outcomes • Work-related attitudes – Extent of • Job satisfaction – Favorableness of employee attitudes toward their jobs. • Organizational commitment – Psychological attachment to, identification with, and involvement in the organization. • Organizational citizenship – Willingness to engage in behaviors that help the organization achieve its goals.

1-4b A Model Linking HRM Practices to Competitive Advantage (cont.) • Employee-centered outcomes  Organizational-centered outcomes • Output – Quantity, quality, and innovativeness of the product or service offered by a firm. • Employee retention – Amount of employee turnover. • Legal compliance – Conformance to various employment laws. • Company reputation/Image – Favorable view of the organization by potential applicants and customers.

1-4b A Model Linking HRM Practices to Competitive Advantage (cont.) • Achievement of employee-centered outcomes leads to favorable organization-centered outcomes. • Positive job attitude, motivation, and high productivity. • Reduction of HRM-related lawsuits. • Enhances the reputation of the company. • Helps the customers view the company positively.

1-4b A Model Linking HRM Practices to Competitive Advantage (cont.) • Organization-centered outcomes  Competitive advantage • Cost leadership – Achieved through using technology, minimizing turnover rates, and avoiding lawsuits resulting from noncompliance. • Product differentiation – Achieved through: • Individuals performing their jobs well. • Treating employees in a manner that helps retain long-term employees.

1-4c HRM Practices and Sustained Competitive Advantage • Management of human resources is less susceptible to imitation. • The competitive advantage achieved through HRM practices is likely to be more sustainable. • Competitors rarely have access to a firm’s HRM practices; the practices are not very visible to outsiders. • Even when these practices are visible, their impact may not be as favorable when used by competitors.

Chapter 1 Human Resource Management and Competitive Advantage