During times of economic uncertainty or decline, organizations are pushed to look for cost-cutting strategies to drive down cost and to increase the business’ chances of survival. In the area of Human Resource Management, the common contribution that the HR department can give during tough economic times is downsizing the human resources or other cost-cutting approaches.
IT has been argued that during economic uncertainty, instead of looking for cost-cutting strategies, the HR department must focus more on excellent Human Resource Management. This paper explores the proposition that during times of economic uncertainty organizations should be focusing even more on excellent HRM rather than looking to cut costs in this area.
Lawler (2003) asserts that if the organization wants to be more competitive, it needs to treat its people right (cited in Burke and Cooper 2004). When an organization is faced with economic uncertainty, the key is not downsizing or restructuring but on how its treats people. According to Lawler, it is common believed that there is a conflict between what is good for an organization and what is good for people. While sometimes true, when people are treated right the likelihood of such conflict is reduced. Lawler sees this as a two-way street. Organizations must adopt new attitudes; employees have a responsibility in meeting goals or high organizational performance. Perhaps, what Lawler is trying to make us understand is that no matter what the organization is undergoing (such as economic uncertainty) the organization can benefit from treating its employees right, meaning the organization can benefit from having a more streamlined and strategic human resource management. Employees need to take responsibility for their knowledge, skills, development and performance. These efforts foster virtuous spiral success. When organizations value and reward people, those people are committed to performing well. As a result, the organization accomplishes more and it can then reward employees more and attract and retain more talented employees. This leads to even higher organizational performance. This involves developing a variety of HRM practices that motivate people to peak performance with accompanying rewards. Employees, in return, are more committed to the organization and more responsible for their own behaviors.
Excellent HRM is more beneficial to the organization rather than cost-cutting strategies in the area of Human Resources. I think the foundation of this proposition is the view of human resources as a source of the company’s competitive advantage. This perspective is also commonly termed as ‘resource-based perspective’. Looking at the firm in a resourced-based view has given birth to the idea that Human Resource can be a source of competitive advantage for the firm. The importance of HR as a source of competitive advantage sprung up from the resourced-based view of the firm, which presents a notion that firms develop competitive advantages through valuable and inimitable internal resources. The resource-based view is a conceptualization of firms as unique bundles of accumulated tangible and intangible resource stocks. Resource stocks are defined as internal attributes, including assets, capabilities, processes, routines, and knowledge, that are tied semi-permanently to or controlled by a firm (Barney 1991; Wernerfelt 1984 cited in Niehaus 1995). Examples of resources according to Niehaus (1995) are brand names, in-house knowledge of technology, employment of skilled personnel, trade contracts, machinery, efficient procedures and capital.
Viewing HRM as a source of competitive advantage provides a strong argument supporting the proposition that in times of economic uncertainty, it is more advantageous to develop excellent HRM practices and procedures instead of cost-cutting. Firms must focus on attracting the right people. Streamlining the recruitment and selection process, will lessen the cost spent on attracting applicants that the company does not need. Attracting the right people will make training of new hires more effective, thereby avoiding the necessity to constantly look for applicants. Effective training and development strategies are expected to increase employee performance. Increased employee performance has positive effects on organizational performance and earnings.
HRM is particularly linked with all the activities that contribute to successfully attracting, developing, motivating, and maintaining a high-performing workforce that adds to an organization’s competitive advantage (Sims 2002, p. 2-3). HRM is involved with the institution and implementation of policies, programs, and procedures that affect the performance, competences, and loyalty of the organization’s workforce. Through these policies and procedures, individuals are attracted, retained, motivated, and developed to perform the work of the organization. It is through these policies and procedures that the organization seeks to mold and shape the actions of the employees to operate successfully, comply with various public policies, provide satisfactory quality of employment, and improve its position in the market place through strengthened ability to compete and serve (Clardy 1996, p.1).
HRM practices according to Sims (2002) are increasingly viewed as a means to contribute profitability, quality, and other organizational goals through enhancing and supporting organizational operations. Mannix and Peterson (2003), argues that a carefully crafted human resources strategy can be or at least can result in, a source of competitive advantage in the market place.
According to Sims (2002), incorporating the top management’s goals to the HRM practices and policies will bring out and reward the types of behaviour necessary for achieving an organizations’ strategy. Effective HRM practices can enhance an organization’s competitive advantage by creating both cist leadership and differentiation. The HRM function focuses its activities on ways to help the organization achieve corporate goals like growing through recruiting and hiring employees, orienting and training them and making their initial and future job assignments. HRM contributions to a cost leadership strategy focus on recruiting and retaining employees who can work as efficient and productive as possible. HRM contributes to the successful use of differentiation strategy by recruiting and retaining employees who can perform high quality work and who can provide exemplary customer service (Sims 2002).
Human Resource Management is a source of an organization’s competitive advantage because:
1. It provides the right kinds of talent to the organization at the right time. HRM is expected to assure that a supply of qualified labor in a timely fashion (Clardy 1996, p.20).
2. It ensures that the organization is properly staffed. When done effectively, the staffing, recruitment, and selection process provides a flow of qualified individuals for filling open positions within the organization on a timely and efficient basis (Clardy 1996, p. 41).
3. Using appraisals, the employees are assesses and evaluated. Employee appraisals have very profound implications for both the employees and for the future success of the organization (Clardy 1996, p.58).
4. Using effective pay systems, the management can focus employees’ efforts toward desired organizational goals (Clardy 1996, p.79).
5. Ensures that the employees are properly skilled to perform their tasks and supports the organization’s growth through career development. The goal of training as part of the human resources management processes is to create cost-effective programs that build the skills to perform effectively (Clardy 1996, p.103).
Over the years, HRM has taken a more active role in the decision-making and management processes of the organization. HRM is now viewed by more and more organizations as a strategic partner and thus Strategic Human Resource Management arose. Strategic human resource management aims at the improvement of the way human resources are managed strategically within organizations, with the definitive goal of improving organizational performance, as judged by its impact on the organization’s declared corporate strategy, the customer or shareholders (Brewster et al 2000, p.6). Strategic human resource management (SHRM) is a philosophy of people management based on the belief that human resources are uniquely important to sustain the success of a business. SHRM can be defined as the process of linking the human resource functions with the strategic objectives of the organization in order to improve performance (Ahmed et al 2006). According to Sims (2002), effective SHRM planning aids in creating a competitive advantage for an organization (p.30). SHRM planning when done correctly provides a number of direct and indirect benefits for an organization.
- Identification of gaps between an organization’s current situation and desired future
- Explicit communication of organizational goals
- Encouragement of proactive instead of reactive behavior
- Stimulation of critical thinking
- Creation of common bonds and a sense of shared values and expectations
- Identification of the potential problems and opportunities
- HRM costs may be lower because management can anticipate imbalances before they become unmanageable and expensive
- More time is available to locate talent because needs are anticipated and identified before the actual staffing is required
- Better opportunities exist to include women and minority groups in future growth plans.
- Development of managers can be better planned
Viewing SHRM in a resource-based perspective, Wright and McMahan (1992) argues that human resources have the ability to provide sustained competitive advantage through the fulfillment of four basic requirements.
1. Human Resources can be a source of competitive advantage if they are able to add value to the production processes of the firm.
2. Human Resources can be a source of competitive advantage if they are equipped with rare skills.
3. Human Resources can be a source of competitive advantage if they are able to yield a human capital that is hard to imitate. Although human resources are not subject to the same degree of imitation as equipment of facilities, the firm can invest on its human capita to in order to further decrease the probability of such imitation by qualitatively differentiating a firm’s employees from those of its competitors.
4. Human Resources can be a source of competitive advantage if they are not subject to replacement by technological advances or other substitutes.
Viewing human resources as a resource that has the potential to contribute to the achievement of sustainable competitive advantage, Burke and Cooper (2004) argued that SHRM has emerged as a major approach to improving the competitive advantage of the firm. As an approach to improving the competitive advantage of the firm, the aim of SHRM is to attract, train and develop and retain employees of the highest quality. Over time and throughout rapidly changing circumstances, organizations must be able to sustain the competitive advantage that the knowledge and skills of these employees provide. In the past, competitive advantage could be gained through finding better, cheaper access to financial capital, or marketing a new product, or inventing some new technologies. While cheap and ready access to capital, high-quality products, and new technology remain important components of any organization’s competitive advantage, today’s business environment requires a greater focus on the human resources element in business. Out of this realization has come SHRM (Sims 2002). Sims (2002) considers human resources as a source of competitive advantage for the firm. Thus, he views SHRM as a contributor in developing and retaining this source of competitive advantage.
The strategic view of human resources as a source of competitive advantage has given birth to new roles for the HR department especially the HR manager. Ulrich’s (1997) model of HR roles seeks to focus HR delivery on a framework that promotes specialist knowledge and positions it to deliver on the challenges presented to HR. These challenges are:
- Strategy
- Financial Performance
- Change Management
- Business Performance Improvement
In Ulrich’s model, each role combines to focus on delivering improvement with the function and within the business. The new roles of the HR manager according to Ulrich (1997) are:
1. Strategic Partner – by having a strategic partner who clearly focuses ob strategic issues, HR is able to tackle them. As strategic partners, HR managers understand the critical factors affecting organizational competitiveness and communicate benefits that change strategies and interventions provide to the firm. Strategic partners thoroughly understand business fundamentals, core processes, operations and procedures (Gilley and Maycunich 2000).
2. Administrative Expert – through an administrative expert, the HR function is able to demonstrate it is supporting financial goals of the company by focusing on having efficient and high quality service.
3. Employee Champion – through the employee champion role, the HR function is able to focus on the employee relationship and improving employee capability. Human resource managers, according to Ulrich (1997), are in a unique position to serve as employee champions. As such, they reveal the correct balance between work demands and resources, identifying legitimate demands on employees and helping these workers focus by setting priorities. Employee champions also distinguish creative ways of leveraging resources so that employees do not feel overwhelmed by what is expected of them.
4. Change Agent – the change agent role allows the function to meet the challenges of the changing business environment and positioning the business to execute strategy. In the role of change agent, HR managers exercise the greatest organizational impact and influence. When HR managers act as change agents, they establish high credibility within the organization and great influence with key decision makers, line managers, and employees (Gilley and Maycunich 2000).
Shrinking HR vs. Transforming HR
Many companies will make across-the-board budget cuts to respond to mandates from senior management to lower costs. This strategy achieves short-term results, but dies not necessarily help a company achieve its long-term goals for greater efficiency. Although a short-term solution to reducing HR costs might be to cut “discretionary” programs like training, college relations, and health and wellness initiatives, forward-looking companies understand that these types of cuts will hurt the business in the long term. Delaying investment in HR can ultimately increase a company’s people-related costs (Rison and Tower 2005). Firms that have cost-reduction strategies do not invest in human resources. This in turn can result to lower levels of training, teamwork, internal labor markets, employee participation and pay (Marchington and Wilkinson 2005).
On the other hand, there are companies that instead of shrinking HR opt to transform HR. Transforming HR means closely aligning HR practices, policies, goals and objectives with the goals and objectives of the company. Thinking holistically about how HR delivers services is the most effective way to reduce costs over the long term. This means looking beyond the current costs to understand how work gets done and delivers value to the organization. It also means holding tenaciously to the goal of providing value through HR, even in a time of intense budget scrutiny (Rison and Tower 2005).
References
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