In recent years business environment has become highly competitive. It has forced the manager to develop different strategies to cope with competitiveness. These strategies help organizations to survive in competitive environment. One area that has been important as a means of providing a competitive advantage is the management of the Human Resource function. Over the past decade there has been a dramatic shift in the field of Human Resource Management, with great emphasis being applied to the human resource management function and its significant contribution to organisational performance. However in order to influence organisational performance it is required that there are certain ‘practices’ of human resource management that must be abided by in order for improved performance to be achieved.
Unfortunately there has been no authoritative definition of best practice that has been agreed by academics or practitioners. This leads to a lack of conceptual clarity of the HRM best practice definition. HRM best practices are designed to increase the overall performance of employees within the organisation, ultimately resulting in increased organisational performances. Commitment shown by the employer with regard to areas such as training and development for example, is ultimately reciprocated by the employee, with this increased commitment toward the organisation, performance enhances as employees are more skilled and committed to the profession, resulting in a win win situation for both parties.
In simple terms, each best practice technique is aimed at developing the employee, increasing commitment, with the resulting intention to improve the organisational performance ultimately create a sustainable competitive advantage. All of this stems from the nurturing of the human resources of the organisation, through the best practices that will be discussed within this review. Ultimately these measures are taken by an organisation as employees are viewed as extremely valuable resources, which undoubtedly have the ability to provide the organisation with a competitive edge. Coupled with this is the additive effects of implementation of numerous complementing best practices that enable the organisation to create a significant competitive advantage through the human resources held within the organisation.
Core competencies are resources and capabilities that serve as a source of competitive advantage over a company’s rivals and represent the dominant influences on the appropriateness of a company’s strategic actions.
One strategy that may enable a company to transform or develop its resources and capabilities into core competencies is to organise itself to take advantage of them through firm-specific patterns of combinations of its human resources. Using these resources companies may be able to better utilize their managerial competencies to better organize and manage diverse, complex operations, develop and communicate a strategic intent and mission or to reengineer products to better meet changing customer expectations.
The Resource-Based Model
The Resource-Based model adopts an internal perspective to explain how a company’s internal resources and capabilities represent the foundation upon which v strategies should be built. Resources are inputs into a company’s production process, such as capital equipment, individual employee’s skills, brand names, finance and talented managers. These resources can be tangible or intangible.
Thus, according to the Resource-Based model, a company’s resources and capabilities are more critical to determining the appropriateness of strategic actions than are the conditions and characteristics of the external environment. Thus, strategies should be selected that enable the company to best exploit its core competencies, relative to opportunities in the external environment.
The Resource-Based model of above-average returns is grounded in the uniqueness of a company’s internal resources and capabilities. The five-step model describes the linkages between resource identification and strategy selection that will lead to above-average returns.
- Companies should identify their internal resources and assess their strengths and weaknesses. The strengths and weaknesses of company resources should be assessed relative to competitors.
- Companies should identify the set of resources that provide the company with capabilities that are unique to the firm, relative to its competitors. The company should identify those capabilities that enable the company to perform a task or activity better than its competitors.
- Companies should assess or determine the potential for their unique sets of resources and capabilities to outperform its competitors in terms of returns. Determine how a company’s resources and capabilities can be used to gain competitive advantage.
- Locate and compete in an attractive industry. Determine the industry that provides the best fit between the characteristics of the industry and the company’s resources and capabilities.
- To attain a sustainable competitive advantage and earn above-average returns, companies should formulate and implement strategies that enable them to better exploit their resources and capabilities to take advantage of opportunities in the external environment than can their competitors.
However, taking advantage of or exploiting resources and capabilities in the new competitive landscape may not always result in a company achieving a sustainable competitive advantage and above-average returns. The potential to achieve a sustainable competitive advantage will be realised when company resources and capabilities are:
- Valuable, allowing the company to exploit opportunities or neutralize threats in the external environment
- Rare or possessed by few, if any, current and potential competitors
- Costly to imitate such that other companies will be able to obtain them only at a cost disadvantage relative to companies that already have them
- Non-substitutable as there are no strategic equivalents
Best Fit Model
Best fit model is also known as matching model or Michigan Model. This model has a harder, less humanistic edge, holding that employees are resources in the same way as any other business resource. People have to be managed in a similar manner to equipment and raw material. Requires that human resource strategies have a tight fit to the overall strategies of the business.
The matching model has attracted criticism. At a conceptual level, it is seen to depend on a rational, mechanical form of organizational decision-making. In reality, strategies are often determined and operationalised on a more intuitive, political and subjective level. Certainly, the decision-making is more complex than the model allows. It is also both prescriptive and normative, implying that the fit to business strategy should determine HR strategy.