Mohr Final Exam

MBA 2007 Full-Time MANAGING ORGANISATIONS AND HUMAN RESOURCES FINAL EXAMINATION

STUDENT EXAM NUMBER – FT 822

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“Human resource practices can play a key role in creating competitive advantage”. Identify and evaluate three practices in this regard.

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Table of content Abstract

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1. Literature Review

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2. Recruitment and Training of Employees

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3. Rewards

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4. Participative Structures

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5. Conclusion

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References

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Abstract

Critical to a corporation’s growth and prosperity is gaining and retaining competitive advantage. Although corporations may pursue many paths to this end, one that is frequently not recognized is capitalizing on superior human resource management. This report makes an effort to examine theory and research on three key roles human resource practices play in creating competitive advantage in organizations today. Successful agents know that finding employees with the right skills and the right attitude is often difficult. And when they do find them, they face an even more challenging task: holding on to them. Both formal incentives installed by the management team (e.g., pay-forperformance systems) and incentives arising by chance (e.g., helpfulness among employees) are part of a company’s total reward and incentive systems. The literature  endorsing participative systems in management and regulation articulates well the benefits  of involving workers more widely in organizational decision making, reducing costs of  intense   regulatory   conflict,   and   easing   destructive   friction   more   generally.  Ultimately, because the cost of poor employee engagement will be detrimental to organizational success, it is vital for HR to foster positive, effective people managers along with workplace policies and practices that focus on employee well—being, health and work/life balance.

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1. LITERATURE REVIEW Critical to a corporation’s growth and prosperity is gaining and retaining competitive advantage. Although corporations may pursue many paths to this end, one that is frequently not recognized is capitalizing on superior human resource management. (Schuler

and

MacMillan,

1984) According to Boxall (2003), the work systems and employment models seen as supportive of high performance imply a mix of key practices: more rigorous selection and better training systems to increase ability levels, more comprehensive incentives (such as employee bonuses and internal career ladders) to enhance motivation and participative structures (such as selfmanaging teams and quality circles) that improve opportunity to contribute (Appelbaum et al, 2000: 26-7, 39-46, 103-4). While there is significant debate about the particular mix of high-performance practices, one of the key arguments running through the literature is that the relevant practices work much better when ‘bundled’ together (Ichniowski et al, 1996: McDuffie, 1995). The idea is that productivity is best served by the systemic interactions among the practices (Boxall, 2003). Adding only one of the practices is likely to ‘have little or no effect on performance’ (Ichniowski et al, 1997: 311). People become strategic asset when we create proprietary knowledge, tools and training capabilities which are difficult to replicate or trade and help in creating the desired competitive advantage (Hariharan, 2006). He adds that HR managers need to start thinking of efficient assessment systems to create employee value resulting in profitability and enhancing shareholder value.

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6 In the book “The HR Score Card” the authors Brian Becker, Mark Huselid and David Ulrich talk about how HR can play a strategic partner’s role by hiring the best and developing excellent employees, using compensation as a differentiator, and Senior Executives in a company viewing HR as a system, embedded within a larger system of the firm’s strategy implementation. Gutek (1995) argues that interactions within an organization can take place in one of two ways: as a “relationship” where the customer and organization know each other and have ongoing contact (e.g., frequent interactions with employees in a local office or with one’s accountant), and as an “encounter” where customers may know the organization but receive the same service from whoever is available at the time (e.g., an inquiry to a call centre or a transaction at a large branch office). Blount, Castleman & Swatman (2004) suggests that organizations whose dealings with customers are based on face-to-face communication must develop new ways to manage their employees when moving to an on-line environment and must consider in more detail the qualities they need to develop in their human resources. Schuler and MacMillan (1984) argues that care in selecting to bring the right people on board leads naturally to another important staffing problem: socialization, which represents the process used by companies to expose new employees to their culture and ways of doing things. When done successfully, it results in intensely loyal employees who are dedicated to the company. The challenge today is not just retaining talented people, but fully engaging them, capturing their minds and hearts at each stage of their work lives (Kaye & Jordan-Evans, 2003). While each company may define employee engagement differently, ultimately, the key to effective engagement will be rooted in the flexibility of approach most appropriate for each individual firm. Consequently, there are many pathways to foster engagement, with no one ‘kit’ that fits all organizations (Lockwood, 2006). Today, society and businesses are witnessing unprecedented change in an increasingly global marketplace, with many companies competing for talent. In view of these changes, a number of trends, as identified in the SHRM Special expertise Panels 2006 Trends Report, are likely to have a significant impact on employee engagement. 6

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The implication for HR managers is that engaged employees are more likely to view the organization and job as a healthy environment and therefore more likely to support the organization (Crabtree, 2005). This report makes an effort to examine theory and research on three key roles human resource practices play in creating competitive advantage in organizations today. 2. RECRUITMENT AND TRAINING OF EMPLOYEES “Successful agents know that finding employees with the right skills and the right attitude is often difficult. And when they do find them, they face an even more challenging task: holding on to them”. (Willis, 2007, p.67) Recruitment is aimed at attracting, obtaining and retaining people with the required competencies (knowledge, skills, and behavior) and attitude. Fair and equitable recruitment includes the employment of candidates purely on the basis of job-related requirements, personal attributes, competencies and abilities and that individuals must be given equal opportunities to be recruited, i.e., recruitment actions should extend to all communities. Employment Equity strategies and targets must be taken into consideration when recruiting candidates. Cisco, the global networking major, used effective recruitment as a powerful weapon through various ways. They realized that a candidate would approach the company if he had been  informed by a friend about better opportunities at Cisco. This led to the launch of the ‘friends  program’.   Cisco   encouraged   internal   referrals   for   recruitment   through   a   program   called  ‘Amazing People.’ This system allowed Cisco employees to refer their friends’ acquaintances  for positions within Cisco. Cisco launched a tool called Profiler on the employment page of its  website to accelerate and standardize online resume submission using pull­down menus. To  avoid applicants from being caught by their current employers, Cisco designed each screen  with an escape button that opened webpage about gift suggestions for co­workers.

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8 Companies can reach backward or forward to help shape the HRM practices of other companies. For instance, Pepsico trains store managers in ‘merchandising techniques’ to help increase store sales as well as sales of Pepsico. Unifi helps customers with their performance appraisal systems, making their customers more competitive and thus better able to buy Unifi products. As organizations move forward into a boundaryless environment, the ability to attract, engage, develop and retain talent will become increasingly important.

3. REWARDS Building on the model of Rosenstiel (1975), reward and incentive systems are defined broadly, including all monetary and non-monetary rewards and incentives the organization provides. According to this framework, both formal incentives installed by the management team (e.g., pay-for-performance systems) and incentives arising by chance (e.g., helpfulness among employees) are part of a company’s total reward and incentive systems. The basic principles of effective reward system are that the rewards should be quick, linked to achievements (over & above standard salary) and significant. It should also be known, understandable and attainable, performance related (even if individual is on salary maximum) and compatible with measurement. The payment method SAB drivers negotiated with FAWU had introduced a system which rewards lucratively, but makes no distinction between exceptional or inferior performance. Monetary rewards, if not accompanied by recognition, is of little value to the employees and do not necessarily motivate the employees. Morgan  Stanley's  head   of   world­wide   fixed  income,  foreign   exchange  and  securities,   Zoe  Cruz, earned $16.1 million dollars during 2003 due in large part to a $7.9 million bonus.   Consequently,   her   total   compensation   exceeded   that   of   CEO   Philip   Purcell   by   about   $1  million.   Cruz   was   paid   the   massive   bonus   because   her   division   was   a   major   reason   for  Morgan Stanley's annual profit of $3.8 billion.  Although this is somewhat unusual, there is a  trend toward a larger percentage of compensation being tied to achievement of performance  goals. 

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9 Rewards   and   incentives   are   partly   responsible   for   employee   motivation,   including   the  motivation to join the company, to stay with the company, and to perform for the company  (March and Simon, (1966); Rosenstiel (1975); Weinert (1998)). 

Kieser (1992) argues that companies in the early start­up phase are typically faced with the  problems of recruiting qualified employees, defining efficient and clear job functions, and  interacting with new employees. Kober, Uhlenbruck, and Sarason (1996) argue that the phase  of   the  organizational life­cycle also  affects product  innovation and so  start­ups  may offer  individuals fewer financial incentives in exchange for the opportunity to learn and share in the  excitement and commitment associated with an entrepreneurial venture. 

4.  PARTICIPATIVE STRUCTURES  The literature endorsing participative systems in management and regulation articulates well  the benefits of involving workers more widely in organizational decision making, reducing  costs of intense regulatory conflict, and easing destructive friction more generally (Lawler,  1992; Gray, 1989; Bryson and Crosby 1992). 

With the increasing popularity of re­engineering, total quality management, cooperative labor­ management   relationships   and   other   forms   of   worker   participation,   more   and   more  organizations are developing policies that define the scope and breadth of employee influence  in managing the organization. Such policies specify the degree of authority and responsibility  that   are   delegated   to   employees   and   employee   groups,   and   the   way   in   which   those  relationships (e.g., quality circles vs. self­managed work groups/teams) may most effectively  be institutionalized (Carrell, Elbert, & Hatfield, 2006)

Semco, a small business located in an old industrial district in Sao Paulo, Brazil, with 2000  revenues   approaching   US$   100m,   has   been   projected   internationally   as   the   most   unusual  workplace. It prides itself on being a democratic, transparent place with little controls as each  individual is responsible for his or her own actions. The democracy that permeates Semco  seems   to   work.   According   to   Semler,   who   owns   90%   of   Semco:   “Look   at   the   results.  9

10 Productivity is up seven­fold, and profits are up five­fold. We took a moribund company and  made it thrive, chiefly by refusing to squander our greatest asset: people.”

Reportedly   there   has   been   a   growing   movement   in   the   United   States   towards   more  “participative”   methods   of   decision   making.   Academics   and   practitioners   have   endorsed  participative   methods   in   areas   as   different   as   the   organization   of   work   and   government  regulation (McCaffrey, Faerman, & Hart, 1995)

Consider,   for   example,   the   following   statements:   Today   there   is   an   unmistakable   and  important change taking place in the way many major U.S companies are being managed.  They   are   changing   their   management   practices   and   systems   to   encourage   employees   to  become   more   involved   in   the   management   of   their   organizations.   Organization   after  organization in the United States is concluding that, unless they utilize their people more fully,  they cannot compete in world markets. Participative management is being recognized as a way  to do this (Lawler, 1989, p.91)

5.  CONCLUSION  Researchers in the field of strategic human resource management (SHRM) have increasingly relied on the resource-based view of the firm to explain the role of human resource practices in firm performance (Wright, Dunford, & Snell, 2001). Indeed, theoretical research on SHRM has suggested that systems of HR practices may lead to higher firm performance and be sources of sustained competitive advantage because these systems of practices are often unique, causally ambiguous, and difficult to imitate (Lado & Wilson, 1994). However, HR practices can only be a source of sustained competitive advantage when they support resources or competencies that provide value to a firm (Wright et al., 2001). Thus, Wright, Snell, and their colleagues (e.g., Snell, Youndt, & Wright, 1996; Wright et al., 2001) have argued that SHRM research should identify resources that are critical for advantage in a given competitive context and the HR practices to build and support these resources. High-technology firms are an important and interesting context in which to study the effects of human resource practices and employee-based resources because such firms play an 10

11 increasingly important economic role and exist in an environment characterized by rapid change, ambiguity, and hyper competition (D'Aveni, 1994). These turbulent environmental conditions place a premium on both the speed and the quality of top management team (TMT) decision making and firm action (Eisenhardt, 1989). A key factor in a TMT's ability to achieve both speed and quality is the use of real-time information (Eisenhardt, 1989). The social networks of top managers, defined as the systems of relationships top managers have with employees and other actors outside of their organization, are a chief source of timely and relevant information on the state of both the external environment and the organization. Thus, the distinct information capabilities created though different TMT networks-- both external networks and internal networks--may provide a competitive advantage for high-tech firms (Barney, 1991). Lastly, the level of engagement determines whether people are productive and stay with the organization – or move to the competition. Research highlights that the employee connection to the organizational strategy and goals, acknowledgment for work well done, and a culture of learning and development foster high levels of engagement. Ultimately, because the cost of poor employee engagement will be detrimental to organizational success, it is vital for HR to foster positive, effective people managers along with workplace policies and practices that focus on employee well—being, health and work/life balance (Lockwood, 2006).

References Appelbaum, E. & Batt, R, 1994, The New American Workplace, Ithaca, New York: ILR Press.

Barney,   J.   1991.   Firm   Resources   and   Sustained   Competitive   Advantage.  Journal   of   Management, 17(1):990­120.

Bau,   F.   &   Dowling,   M.   2007.   An   Empirical   Study   of   Reward   and   Incentive   Systems   in  German Entrepreneurial Firms. Schmalenbach Business Review, 59(2): 160­175.

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12 Blount,   Y.,   Castleman,   T.   &   Swatman,   P.   M.   C.   2005.   E­Commerce,   Human   Resource  Strategies, and Competitive Advantage: Two Australian banking Case Studies.  International   Journal of Electronic Commerce, 9(3): 73­89.

Boxall,   P.   2003.   HR   Strategy   and   Competitive   Advantage   in   the   Service   Sector.  Human   Resource Management Journal, 13(3):5­20.

Bryson, John & Crosby. B, 1992,  Leadership for the Common Good,  San Francisco: CA.  Jossey­Bass

Costello,   M.   2004.   Morgan   Stanley’s   Fixed­Income   Head   paid   more   than   Purcell.  eFinancialNews, March 5, 2004, access through LexisNexis on December 21, 2004.

Collins, R.J., & Clark, K.D. 1993. Strategic Human Resource Practices, Top management  Team Social Networks,  and Firm Performance: The Role of Human resource Practices  in  Creating   Organizational   Competitive   Advantage.  Academy   of   Management   Journal,  46(6):740­751.

Gray, B. 1985. Conditions facilitating Interorganizational Collaboration. Human Relations, 38:  911­936. Hariharan, K. 2006. The Strategic Role. Career, 40-41, Aug.

Ichniowski, C., Shaw. K. & Prennushi, G. 1997. The Effects of Human Resource Management  Practices  on  productivity:  A Study of  Steel Finishing  Lines.  American Economic Review,  87(3): 291­313.

Kieser,   A.  1992. Lebenszyklus von Organisationen, in Eduard Gaugler and Walter Weber  (eds.), Handworterbuch des Personalwesens, 2nd ed., Stuttgart: Schaffer­Poeschel, 1222­39. 12

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Kober, C.S., Uhlenbruck, N. & Sarason, Y. 1996. Facilitators of Organizational Innovation:  The Role of Life­Cycle Stage, Journal of Business venturing, 11: 133­49.

Lado, A. A., & Wilson, M. C. 1994. Human Resource Systems and Sustained Competitive  Advantage: A Competency­based Perspective. Academy of management Review, 19: 699­727. Lawler, E. 1986. High-Involvement Management, San Francisco, CA: Jossey-Bass. Lockwood, N.R. 2006, “Leveraging Employee Engagement for Competitive Advantage”, unpublished notes. March, J. G. & Herbert, A. S. 1966. Organizations, New York: Wiley & Sons. McCaffrey, D., Faerman, S.R. & Hart, D.W. 1995. The Appeal and Difficulties of Participative Systems. Organization Science, 6(6): 603-625. Rosenstiel, L. 1975. Die motivationalen Grundlagen des Verhaltens in Organisationen, Berlin: Duncker & Humblot. Schuler, R.S. & MacMillan I.C. 1984, “Gaining Competitive Advantage through Human Resource management Practices”, Human Resource Management, Fall, pp. 241-255. Weinert, A. B. 1998. Organisationspsychologie, Weinheim: Psychologie Verlags Union. Wright, P.M., Dunford, B. B., & Snell, S. A. 2001. Human Resources and the Resource-based View of the Firm. Journal of Management, 27: 701-721. .

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