28 Jan 2008
HRM & its Influence on Organizations
The strategic role of Human Resources Management (HRM) and specifically, the influence of an organization’s Human Resources (HR) system on its financial performance have captured the interest of many academics, researchers and organizations. The role of human capital as a potential source of maintainable competitive advantage has only been realized in recent years. The increasing interest in “people” as a source of competitive advantage, rather than a cost to be minimized is reflected in current researches and emerging systems of more efficient human capital performance.
The need for a skilled and motivated workforce to meet the speed and flexibility required by new markets has enforced the significance of HRM as a vital element in the strategic decision-making process of businesses.
Nowadays, HRM issues are of cardinal importance at a time when traditional sources of competitive advantage, such as total quality management and technology, have become easier to imitate. In effect, while the markets for other sources of competitive advantage have become more efficient, the details surrounding the development of the HR system remain significant, yet unrealized for many organizations.
We, in the Arab region, have just started to understand the HR practices and their influence on individual performance, organizational productivity, and financial performance. This has resulted in a regional eagerness to adopt HRM practices to gain a more competitive edge in the global market.
"Using HRM to Compete in the 21st Century", an article published in the Management Quarterly journal, highlights the modern and more proactive approach to HRM. It illustrates that the traditional role of the HR/Personnel department, which essentially has been functional by nature, has revolved around specialized tasks such as HR planning, recruiting, job analysis, performance review, compensation, training, and legislative compliance. Certainly, according to the article, hiring, firing and providing benefits to employees remain important tasks that must be accomplished in any effective organization.
The article also underscores the dramatic changes such as deregulation and its influence on the external environment, which gave birth to a new, more strategic approach to HRM.
Fundamental to a strategic perspective is that HRM policies and practices influence organizational performance.
"This new, more proactive approach to HRM represents a shift from a more traditional view of personnel that focused on micro issues such as an employee's performance and satisfaction, to the new role of HRM that can be simply described as one of helping managers maximize the contribution of employees in achieving sustainable competitive advantage."
Moreover, it has been noted by J.Pfeifer that, over time, successful organizations do not rely on technology, patents, or strategic position for competitive advantage. Instead, they utilize their people to create sustained competitive advantage. J.Pfeifer identifies four types of HRM practices that seem to characterize organizations that are effective in achieving sustained competitive success, through the method(s) they use for managing staff. They include:
1. Employment Security: Successful organizations are characterized by commitment towards their employees, career development, and internal advancement opportunities.
2. Information Sharing: If people are to be a source of competitive advantage, they must have the information necessary to do what is required to be successful.
3. Participation and Empowerment: Studies show that people are more likely to participate in achieving company goals when they are actively involved in the decision-making process and empowered within their scope of work.
4. Incentive Pay: People are motivated by more than money. However, if people are responsible for enhanced levels of performance, they will want to have a share in the benefits. Merit pay and incentive bonus programs are benchmarks for creative HRM incentive-based compensation which have led to quality and performance improvement.
These four HRM practices are some of many effective ways for organizations to become more competitive, efficient and financially rewarding. Adopting HRM practices as discussed is the only true way for organizations to sustain success in today's global market.
Rima Al Khub - Bsc
HRM Consultant
AGCON
References
Pfeifer, J. "Producing Competitive Advantage Through the Effective Management of People." The Academy of Management Executive, February 1995, p. 55-69.