Best Fit and Best Practice Approaches in Strategic HRM

The concepts of ‘best fit’ and ‘best practice’ are two well known approaches to human resource management. The ‘best fit’ perspective claims that HR strategy become more and more efficient when it is linked to its environment of the business. It explores the close link between strategic management and HRM by assessing the extend to which there is a vertical integration between an organizations business strategy and its HRM policies and practices. ‘Best practice’ approach claims that certain ‘best’ human resource practices would result in enhanced organizational performance, manifested in improved employee attitude, lower level of absenteeism and turnover, higher level of skills for higher productivity, enhanced quality and efficiency. That is why the ‘best practice’ model is also referred as high commitment models.

Best Fit Approach

The best-fit model is considered as a variant from precedent models of Harvard, Michigan and York and is called “matching model” for HRM. It is based on developing HRM policies according to business strategy. Strategy involves planning future activities, performances objectives, and policies towards reaching the corporate aims. HRM strategy should be designed and applied to support the given corporate strategy. The “best-fit” approach questions the universality assumption of the best-practice perspective. It emphasizes contingency fit between HR activities and the organization’s stage of development, an organization’s internal structures and its external environment like clients, suppliers, competition and labor markets. HR policy should be minted by the appropriate context of individual employees and therefore support the overall competitive strategy. Aligning HRM practices to strategies can enable companies to create potential competitive advantages.

The best fit approach is also subject to sever criticism. Firstly, in a changing business environment, companies and their strategies are subject to multiple alternating contingencies and that it is merely possible to adjust entire HR systems to new challenges frequently. Secondly, as companies move through their life-cycle HR practices have to be aligned which leads to an alternating treatment of employees which can have a demotivating effect and show inconsistency in corporate culture.

Best Practice Approach

The best practice approach claims that certain bundles of HR activities exist which universally support companies in reaching a competitive advantage regardless of the organizational setting or industry. Best practice models imply a close connection between HR practices and organizational performance and are often associated with high commitment management. Studies in the best-practice field shows similar groups of HR polices which are especially suitable for maximizing performance irrespective of market and product strategies. Best practice bundles of activities are characterized as mutually compatible HR activities which forge high levels of workforce competence, encourage motivation and introduce a work-design boosting employee commitment. Based on concepts from expectancy theory best practice HR will result in higher levels of quality, productivity and low rates of absenteeism and wastage.

The best practice approach suffers from a series of limitations. Firstly, when implementing best practice standards organizations run risk of introducing mutually prohibitive combinations like team working and compensation based on individual performance resulting in a deterioration of employee collaboration through over-exaggerated competition. Secondly, high commitment management systems are generally a complex undertaking requiring large inputs of planning and top level management commitment. Thirdly, best practice HR lacks direct linkages with organizational strategies and is minted by the belief that outstanding high performing human resources will influence strategy. By making HR policy precede corporate strategy an organization risks prescribing standardized sets of “one size fits all” best practice approaches which will not support the particular needs of employees and be detrimental to overall strategic objectives.

Similarities of Best Fit and Best Practice Approaches

Having defined the two systems, let’s now look at the agreements points between ‘best fit’ and ‘best practice’.

Both approaches aim to achieve high performance in organisations. These models could be classified as ‘matching models’ because of their common aim is to match the human resources strategy with that of the corporation.

The ‘best fit’ school of SHRM focuses on the fact that close alignment between organisational strategy and other systems is respected. All organisational systems must start with business strategy because it specifies what the company wants to accomplish, how it wants to behave, and the kinds of performance and performance levels it must demonstrate to be effective. The ‘Best practice’ theory acknowledges also that importance of business strategy on performances. Both approaches believe that HR practices should be complimentary.

Whether ‘best fit’ or ‘best practice’, organisation needs of staff is acknowledged. Thus, both concepts need employees in order to achieve its goals. Therefore they both have staffing and hiring strategies and procedures. Recruiting, testing, selection and staffing are considered in the two systems. Advocates suggest there are mutually compatible ‘bundles’ of HR policies that promote high levels of employee motivation and commitment that positively impact on organisational performance. Although there is not unanimous agreement in identifying these practices, the list generally includes: selective hiring, extensive training, employment security, a structure that encourages employee participation and pay policies that lead in relation to industry competitors. And reward for example is another important issue within the application of each approach. In the most general sense, both approaches view HR as having an important role in supporting organisational strategy and objectives.

Both approaches agree that externally competitive reward packages are important to attracting and retaining qualified employees. Thus, ‘Best fit’ advocates emphasize the importance of external competitiveness for attracting and retaining employees. To be effective, a reward system must distribute rewards in a way that will lead the organisation’s most valuable employees to feel satisfied when they compare their rewards with those received by individuals performing similar jobs in similar organisations. Good performers tend to seek organisations where performance is recognized and rewarded. The same idea is found in ‘best practice’ books. Although labour markets are far from perfectly efficient, it is nonetheless the case that some relationship exists between what a firm pays and the quality of the workforce it attracts. There is therefore a shared view that an externally competitive reward system has an important role in attracting appropriate candidates and retaining employees.

In a sense, by promoting good rewards systems, the two concepts reinforce and define structure as well as the organisation culture. This because pay system is thought to have an influence in the way people behave in an organisation. Therefore, a good reward system consolidates and contributes to corporate culture. The reward strategy provides an opportunity to reinforce the organisation’s values and beliefs in such areas as performance, quality, teamwork and innovation. Pay system can help to change culture when the behaviors they evoke become the dominant patterns of behavior in the organisation and lead to perceptions about what it stands for, believes in and values. Both Strategic HR theories see rewards as a way of reinforcing organizational culture and structure.

To summarize, the concepts of ‘best fit’ and ‘best practice’ in strategic human resource management share some common points. In the most general sense, both approaches view HR as having an important role in supporting organisational strategy and objectives. Both approaches agree that reward practices should be consistent with other HR practices. There is a shared view that an externally competitive reward system has an important role in attracting appropriate candidates and retaining employees. Both see rewards as a way of reinforcing organisational culture and structure.

Differences between Best Fit and Best Practice Approaches

Indeed, the systems in SHRM have different approaches and therefore we can highlight many important differences between those systems.

At the most general level, best fit is a contingency approach while best practice is a universal approach. Best fit is based on the premise that picking the most effective HR policies and practices depends on matching them appropriately to the organization’s environment. The contingent factors influencing HR strategy might include type of business strategy pursued, organization size, type of technology, geographic location and labor market, management skills and preferences, industry sector and economic conditions. Contingency approach refers to a method of decision making often applied in devising appropriate human resource (HR) strategies and termed the “best fit” approach in contrast to “best practice” approaches. Best practice is referred as an universal approach because it documents the benefits of HRM across all context.

For best fit, organisational strategy comes first and all organisation systems and practices follow. Whereas for best practice a prescriptive set of practices, precede strategy but provide the human resources needed to fulfill the organisation’s objectives, whatever they are. We can see that the two concepts differ in their method. Within the ‘Best practice’ model the HR manager starts by identifying best practice, then give HR a high profile, get top level commitment, sell it, do it, measure it, reward champions. However the process is different for the ‘best fit’ model, where the HR manager identifies first the external fit linked to the operation strategy, marketing strategy etc.. and tries to ‘fit’ them with the HR strategy.

At a more specific level, regarding reward for example, both approaches have different point of view regarding the influence of pay in people performance. Best fit system shows a high margin of confidence regarding pay as a motivator. It follows the expectancy theory that believe that people will perform more and more better if they believe their effort will be rewarded. So, the best fit method focuses on the financial aspect and uses it as a driver for corporate human resource. Best fit proponents see rewards as the stick and the carrot. Since pay varies with performance, poor performers ‘vote with their feet’. Excellent performers are attracted to the large pay differentials that reward their performance. However, in relation to pay, best practice advocates usually use the term “… first. Do not harm.” Thus, they do not really believe in the great influence of pay that best practice advocates want to show. They see pay more as a factor helping to prevent dissatisfaction and provide symbolic recognition that employees are valued. Rewards, for best practice advocates, can even destroy the relationship and trust that are the basis of organizational commitment. This leads them to promote a reward system that does not differentiate with compressed pay bands, equal pay for all team members and collective incentives.

Due to all these difference, the question we ask ourselves is obviously: which one of the two systems is better? The CIPD (2010), talking about strategic human resource management, writes: “There is no single HRM strategy that will deliver success in all situations. Organisations need to define a strategy which is unique to their own situation in terms of context, goals, and the demands of organisational stakeholders.” Therefore, It is useful for all organisations to management their people within a planned and coherent framework which reflect the business strategy.

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