Thursday, 13 October 2011

Contributions (Importance) of SHRM to Organizational Performance

In a global economy, business organizations are driven by market pressures and they need to include in their goals- improved quality and productivity, greater flexibility, continuous innovation and the ability to change to respond rapidly to market needs and demands. Thus, in today’s intensely competitive and global marketplace, maintaining a competitive advantage by becoming a low-cost leader or a differentiator entails having a highly committed and competent workforce. Competitive advantage lies not just in differentiating a product or service or in becoming the low-cost leader but in also being able to tap the organization’s special skills or core competencies and rapidly respond to customer’s needs and competitor’s moves. In other words, competitive advantage lies in management ability to consolidate corporate wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities.
Also globalization of business has increased the need to identify and analyze ways in which business organization can operate effectively now and in the future. Thus, for organizations looking for ways to gain a competitive advantage, the implication of human resources strategic choices for organizational performance is certainly the key factor.
Traditional human resource management cannot ensure it and hence, it is essential to study Strategic Human Resource Management, (Tapomoy, 2006).

Traditional View of HRM

Traditionally, human resource management is the term commonly used to describe all those organizational activities concerned with recruiting and selecting, designing work for, training and developing, appraising and rewarding, directing, motivating and controlling workers. In other words, HRM refers to the framework of philosophies, policies, procedures and practices for the management of the relationship that exists between an employer and worker, (Nick, 2010).

Literature Review of SHRM
Among HR practitioners, the term “strategic human resource management” is used broadly to signal the view that human resource management activities should contribute to business effectiveness. This linkage between HRM activities, the needs of the business, and organizational effectiveness is the core of the area called strategic human resource management.
Two guiding assumptions of strategic human resource management are that (1) effective human resource management requires an understanding of and integration with an organization’s strategic objectives, and (2) effective human resource management leads to improved organizational performance. When HR policies and practices are aligned with an organization’s strategic objectives, the system can be described as “vertically integrated”, (Randall & Jackson, 2007).
In another view, strategic human resource management (SHRM) is an approach to the development and implementation of HR strategies that are integrated with business strategies and enable the organization to achieve its goals.
In essence, strategic HRM is conceptual; it is a general notion of how integration or ‘fit’ between HR and business strategies is achieved, the benefits of taking a longer-term view of where HR should be going and how to get there, and how coherent and mutually supporting HR strategies should be developed and implemented. Importantly, it is also about how members of the HR function should adopt a strategic approach on a day-to-day basis. This means that they operate as part of the management team, ensure that HR activities support the achievement of business strategies on a continuous basis and are consciously concerned with seeing that their activities add value, (Armstrong, 2008).
Understanding the strategic objectives of an organization requires developing a deeper understanding of the entire context in which organizations must function. Furthermore, it provides a basis for conceptualizing an organization’s HR policies and practices as a system of many elements that are more or less well-aligned. The goal of developing HR policies and practices that are aligned to form a coherent system is often referred to as achieving “horizontal integration” among HRM activities. Achieving both vertical and horizontal integration requires that HR professionals work in partnerships with line managers and employees (and their representatives). In sum, strategic human resource management is about:
      Vertical integration- understanding the organization and its context;
      Horizontal integration- creating coherent HRM systems;
      Demonstrating effectiveness- showing how HRM systems affect organizational performance;
      Partnership- HR professionals working cooperatively with line managers as well as with non-management employees, (Randall & Jackson, 2007).

The overall purpose of human resource management is to ensure that the organization is able to achieve success through people. As Ulrich and lake (1990) remark: ‘HRM systems can be the source of organizational capabilities that allow firms to learn and capitalize on new opportunities  (Armstrong, 2008).
Contributions (Importance) of SHRM to Organizational Performance
Modern developed economies are increasingly relying on human capital to gain their competitive advantage. In such a “knowledge economy”, it is the skills and knowledge of employees rather than just the abilities inherent in technology and machinery that are crucial. The capacity of an organization to manage its talent is what will set it apart from other competitors. In Honk Kong, the HKSAR government asserts that human resources are the key for successful economic development. Indeed, Tung Chee Hwa made the following statement in his policy address. “Our people are our most valuable resources and the key to the development of a knowledge-based economy. Only by developing our own local human resources and providing opportunities for continuing education for people of all walks of life can we prepare ourselves for the changes in the marketplace. This is of utmost importance to the well-being of our people and the long-term development of Honk Kong”.
However, talented people are scarce, as a result companies must pay closer attention to the issue of talent management, in terms of attracting, recruiting, and developing talent in an economy that is increasingly knowledge-based, (Anna, Tsui & Lai, 2009).
The importance of human resource management function to an organization’s strategy is underscored by reviewing the overall functions of strategic planning. These include periodic forward scanning, analysis based on longer time frame, communication about goals and resource allocation, framework for short-term plan evaluation and integration, institutionalizing longer term time horizons necessary for investments, and decisional criteria for short-term decision making. It is impossible to address these critical issues without bringing in the human resources factor at each element of the process.
In the early development of strategic management, there was little concern about the human resources function until the actual implementation began. Rarely was the human resource brought into the planning process. Now this is changing. Strategy and human resource planning are integrated early in the process. There are several benefits of integrating human resource planning with strategic planning, making it imperative for this integration to be regularly pursued. Some experts have suggested that the human resource manager be labeled Director of People Strategy.
Because of the importance of strategy in the success of firms and the critical ingredient of human resources in the strategic plan, human resource managers are finding themselves heavily involved in the strategic planning process. Because strategy is related to the organizational goals, the ultimate opportunity to show the contribution of human resources begins in the strategic planning arena, (Jack, 1996).
The strategic importance of human resources has been widely recognized. As a result, strategic human resource management (SHRM) has been argued to be positively related to organization performance. More especially, HRM has been linked to increased productivity, good customer service, improved efficiency, increased firm value, greater profitability or financial returns and overall organizational survival.
Snell, Youndt, and Wright (1996) characterized the strategic role of HRM as “organizational systems designed to achieve competitive advantage through people”. In turn, competitive advantage may be defined as a set of capabilities or resources giving an organization an advantage that leads to superior performance relative to that of competitors. In this respect, the main focus of SHRM is on integrated combinations of HRM practices, through which organizations should create competitive advantage rather than simply adapting to the existing context. A review of the literature reveals five interrelated approaches to the link between the competitive position of an organization and the creation of superior human assets.
First, the resource-based approach of competitive advantage focuses on the relationships between a firm’s internal resources, its profitability and the ability to stay competitive through its strategy formulation. According to this approach, a resource is considered as an internal strength only if it meets the five criteria for sustainable competitive advantage. Specifically, a resource must (1) be immobile; (2) be difficult to replicate; (3) have no close substitutes; (4) be rare: and (5) create value. The central idea of the resource-based theory is that a firm’s systems, among its other attributes, enable the organization to achieve success relative to competitors.
Another approach focuses on the way human resource systems support competitive advantage and organizational learning through people. This perspective implies that human resource management should focus on how the integration of organizational resources, practices and capabilities can lead to sustainable competitive advantage. To understand this integration researchers have used notions of internal or horizontal fit and external or vertical fit. Management must have a clear understanding of internal fit and the way such fit facilitates organizational learning and adaptation. Furthermore, practices with external fit create capabilities that maintain the organization’s overall strategy and support multiple strategic dimensions in order to lead to sustainable competitive advantage, (Rudiger, 2005). 
It is obvious from the literature review and researches that in today’s global and knowledge-based business environment, the role or importance of Strategic Human Resources Management (SHRM) in every business organizations cannot be underscored or undermined in helping the organization realized its business objects (gaining a competitive advantage, profitability, increasing shareholders wealth, etc.). Therefore, for every organization to achieve its goals, it must place a premium to its strategic human resource management. 

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Anna, P. Y., Tsui, K. and Lai. T. (2009). Professional practices of human resource management in Hong Kong. Hong Kong: Hong Kong University Press
Jack J. P. (1996). Accountability in human resource management. USA: Gulf Publishers
Tapomoy, D. (2006). Strategic Approach to Human Resource Management. USA: Atlantic Publishers & Dist
Nick, W. (2010). An Introduction to Human Resource Management. USA: Sage Publications Ltd
Randall, S., Schuler, S. and Jackson, E. (2007). Strategic human resource management (2th ed.). USA: Wiley-Blackwell
Armstrong, M. (2008). Strategic human resource management; a guide to action (4th ed.). USA: Kogan Page
Rudiger K. (2005). Special issue: Human resource management and economic success. Journal of Management Revue, Vol. 16, ISS.  2

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