Running Head: HUMAN RESOURCE MANAGEMENT IN BUSINESS
Human Resource Management in Business
Sylvan R. Wilcox
Warner Southern College
Human Resource Management (HRM) is no longer a personnel office that is simply a record-keeping and maintenance function. Huselid (1995) points out that there is a positive correlation that has developed between HRM as a strategic ally and company performance. HRM research has grown from an atheoretical origin to view organizational activities from an interdisciplinary perspective (Jennings, 1994) that is concerned with a movement toward methodological and theoretical development (Ferris & Judge, 1991). This review will look at the different ways HRM plays into the overall scheme of providing an organization with a more sustainable competitive edge.
Table of Contents
Strategic Human Resource Management.6
Multicultural Knowledge Transfer..8
HRM in the Public Sector9
Human Resource Management in Business
The fast paced area of HRM as seen many new developments in the science and practice of the field over its roughly 80-year history (Ferris et al., 1999). One of the earlier developments in HRM research that still has significance today was, at the time, a theoretical foundation that challenged researchers to design measures to assess the relationship between “individual personalities” and “company personalities” (Gilmer, 1960). This field of inquiry led to the research that has come to be known as strategic human resource management (SHRM), a field that attempts to align HRM functions and activities with the strategic goals of the organization (Butler, Ferris, & Napier, 1991).
Another aspect of this review takes a look at HRM from an international perspective. This viewpoint acknowledges the importance of the global economy, as well as emphasizes the value of the Human Resource (HR) activities that address cross-cultural concerns (Napier, Tibau, Janssens, & Pilenzo, 1995).
Lastly, the political perspective of HRM presents an opportunity to address those features of public sector HRM practices that have become outdated by contemporary organizational standards (Soni, 2004).
Human Resource Management is a diverse entity consisting of a variety of activities. Some of these activities include the decision about staffing needs and if hiring employees or contracting with independent sources will fill these needs, recruitment and training of employees, making sure those hired are high performers, dealing with performance and evaluation issues, and ensuring that HR practices comply with various regulations (McNamara, 1999). Additionally, McNamara (1999) points out three other activities that fall within the realm of HRMmanaging the approach to employee benefits and compensation, employee records, and personnel policies.
Several HRM practices may influence individual performance by providing incentives that bring out appropriate behaviors (Minbaeva et al., 2003). Such incentive systems may include performance-based compensation and the use of internal promotion systems that focus on employee merit and help employees overcome barriers to career growth (Huselid, 1995). Previous research has shown that employees are more motivated when they are informed about the organization. Sharing of information on strategy and company performance tells the employees that they are trusted. Additionally, it is important that employees are kept current on company performance so that they can use the knowledge that resides in the organization to its fullest potential (Pfeffer, 1998). And by factor-analyzing HRM practices, Huselid’s (1995) influential study of the impact of high performance work practices’ points out the importance of HRM as it relates to organizational turnover, productivity, and corporate financial performance. Without HRM practices in place, organizations are likely to suffer in the three areas described above. The importance of HRM as a business function is exemplified in Huselid’s (1995) view that HRM practices influence employees’ skills and competencies through the acquisition and development of a business’s “human capital.”
Because HRM is such a fast-changing study it seems appropriate here to explain the alternative terminology that is starting to make the scene. “Human capital” was introduced in a statement by David Walker (2000), the Comptroller General:
We at GAO use the term “human capital” because “in contrast with traditional terms such as personnel and human resource management” it focuses on two principles that are critical in a performance management environment. First, people are assets whose value can be enhanced through investment, as the value of people increases, so does the performance capacity of the organization, and therefore, its value to clients and other stake-holders. Second, an organization’s human capital approaches must be aligned to support the mission, vision for the future, core values, goals, and strategies by which the organization has defined its direction and its expectations for itself and its people… The term “human capital” originated in the field of economics. But both words human and capital are equally important to the concept as we apply it. Enhancing the value of employee is a win-win goal for employer and employees alike. (p. 34)
Strategic Human Resource Management
Over the past 10 or 15 years, numerous theoreticians have argued that the human resources of the firm are potentially the sole source of sustainable competitive advantage for organizations (Ferris et al., 1999). The works by these theoreticians have drawn on the resource based view of the organization (Barney, 1991, 1995) and have argued that few of the more traditional sources of sustainable competitive advantage, like technology and access to financial resources, create value in a manner that is nonsubstitutable (Ferris et al., 1999). According to Ferris et al. (1999), the slight differences of the human resource value creation process are extremely difficult to imitate, as they are “path dependent and causally ambiguous.” Each of the research programs that have been carried out is important and distinct in their own regard, but they also share a common characteristic. The similarity is that research in these areas is relatively new and has historically not had the benefit of a richly developed theoretical base to build upon. However, this trend appears to be changing as researchers have developed conceptual models of HRM that have moved research away from its atheoretical origins (Ferris et al., 1999).
One change that has come about from the research is the creation of professional employer organizations (PEO) that provide HR services to small and medium organizations that must outsource their HR activities (Klass, 2003). Various reasons exist for organizations having to outsource their HR activities, and consideration must be given before deciding on a particular PEO. According to this framework, Klass (2003) indicates that substantial differences exist among small and medium enterprise (SME) outcome variables in terms of their determinants. The suggestion is that factors that allow a PEO to improve one outcome for an SME may at the same time make it more difficult to achieve positive effects on a different SME outcome. So, the implication here is that while some SMEs sacrifice part of the overall financial savings that might result from PEO use in order to gain improvements in HR outcomes, others focus mainly on cost and time savings (Klass, 2003).
Several potential advantages have been identified favoring the use of a PEO. Cost savings in the form of grater economies of scale and the ability to negotiate better rates for benefit programs are two identifiable benefits. Another plus is the access to HR expertise that offers mechanisms for improving the quality of HR programs and outcomes (Klass, McClendon, & Gainey, 1999). These advantages appear to be appealing to more and more SMEs. Current estimates indicate that three million employees are receiving HR services from PEOs, with this number growing by 30 percent annually (Hirschman, 2000).
There are certain variables one must consider when deciding on the PEO an SME will choose. These variables are trust, firm-specific knowledge, and client receptivity (Klass, 2003). It is logical to assume that the selection process should use consideration beyond a “gut feeling.” As Klass (2003) indicates, the considerations that are relevant in this selection process include whether a PEO employs a service delivery model that allows repeated interaction with the same set of PEO service providers, whether PEO policies and cultural characteristics promote the retention of PEO personnel, human capital resources, and PEO size.
Multicultural Knowledge Transfer
HRM policy in corporate America has begun to emphasize the concept that diversity is a practical choice, based on rapidly evolving U.S. demographics. Recognizing the economic opportunity, corporate leaders are spearheading mandates for multicultural workforces and emerging markets strategies (Council, 2001).
Diversity is increasing within organizations at an astronomical rate. Corporations are becoming global, building strategic alliances, and facilitating mergers and acquisitions inside and outside their primary domain of work (Jackson, May, & Whitney, 1995). Concurrently, organizations are implementing work teams with greater frequency to integrate the knowledge of workers across broad specializations, as well as geographic locations (Sundstrom, DeMeuse, & Futrell, 1990). This increasing diversity of the workforce necessitates a better understanding of how such individual differences affect the functioning of work groups, as well as which types of differences are most consequential (Harrison, Price, & Bell, 1998). The result is that two of the most complex phenomena in the work place, diversity and work teams, are being merged together with the goal of creating more innovative, high-performing organizations (Webber, 2001).
Multinational corporations (MNC) play an important part in the research of HRM practices as it relates to the transfer of knowledge through multicultural interaction. This transfer of knowledge benefits the organization through an interactive process that teaches customs and norms and foreign business practices, while simultaneously promoting good will (Minbaeva et al., 2003). In doing business with ethnic populations, it is important to know your market. For example, there is not one Hispanic market. Hispanics in the United States come from Mexico, Puerto Rico, Cuba, and Latin America, and they have different beliefs and customs (Romano, 1995). These demographic trends make it necessary for HRM to look at the feasibility of employing more bilingual employees because it would be strategically advantageous for the organization to have personnel who speak their customers’ language (Romano, 1995).
Given the composition of the workforce today and its projected future composition, understanding and predicting employee reactions to all levels of diversity is critical. Most organizational research on these reactions has been gloomy, suggesting that demographic diversity diminishes work group cohesion and organizational attachment and heightens risks of employee withdrawal and turnover (Harrison, Price, ; Bell, 1998). This has major implications for those in the HRM field. The challenge will be to implement programs that, coupled with effective hiring practices, will place people in work groups that will function at maximum efficiency for the good of the individuals involved and the organization, even in the midst of cultural differences.
HRM in the Public Sector
The state of public service has been characterized as a “quiet crisis” for decades. The term was attached to the slow weakening of the public service from the 1970s and 1980s, and has continued through the 1990s into the present (Soni, 2004). The crisis that exists presents unique challenges for public sector HRM because of the issues surrounding the crisis itself. As Soni (2004) points out, “the current crisis is building as large numbers of government workers are expected to retire in the coming years and not enough younger people are in the pipeline for government jobs.” These trends in public service seem to reflect the shift in young people’s attitudes toward government itself. The younger generation tends not to choose public service careers because of the negative reputation of government’s hiring process, lack of challenging work, and its system of rewards (Soni, 2004). For this trend to change reforms must be initiated that will address the problems in civil service. Any reforms should also take into account the lack of managerial flexibility experienced and the changing nature of public service (Light, 1999). Many external and internal organizational forces such as workforce demographics, technology, and privatization, as well as the eroding trust in government institutions have drastically altered the atmosphere of government service. Accordingly, traditional human resource management approaches no longer work. The HR supply and demand problem must be addressed at multiple levels. Educating people about government service, raising the image of government workers, providing competent and reliable leadership in government agencies, conducting career development and training of existing personnel, and actively recruiting, particularly in technological and scientific fields, all will have to be done simultaneously to adequately respond to the human resource crisis in the public sector (Soni, 2004).
The government’s downsizing during the early 1990s helped to throw the civilian workforce into a tailspin. Walker (2000) points out that the federal civilian payroll is at its lowest level since 1950. Many agencies did not strategically assess their human resources requirements before initiating the downsizing of the 1990s, and as a result, saw some of their best talent, especially in the technical fields, accept buyouts and move to higher-paying private sector jobs. During the same period, the government conducted very little hiring, which reduced the influx of people with new knowledge, new energy, and new ideas. The result is a federal workforce that is steadily declining in accountability, feels more and more overworked, and whose skills are out of balance with the needs of the public it serves (Soni, 2004).
In response to these deficiencies the Office of Personnel Management (OPM) has taken steps to improve the skills of human resources professionals so that they can be prepared to take a strategic role in agency management. The OPM Director James in addressing this issue states, “We are hoping to elevate the entire profession, advise agencies on the kind of training and skills that the human resources professionals need and urge every agency to have their HR professionals at the table when they are developing their strategic plans and goals for the next several years” (MSPB, 2002).
The field of Human Resource Management is an ever-changing study of activities undertaken by organizations in an effort to gain the competitive advantage over other firms. It has become clear that in truly progressive organizations in the future, HRM will not be merely viewed as a set of policies and practices, nor will it be defined as just a department or function. Instead, in such effective organizations, HRM will be a “mentality” or way of thinking. It will have to be an extensive entity in the organization and integral to all of its decisions and actions. Organizations will have to make the choice to expend capital in order to have the diversity offered by HRM. Smaller firms will need to incorporate some form of HRM if they hope to remain, or become, competitive with other similarly sized organizations. The public sector will have to build and maintain a strong HRM body so that declines of the past are not realized today. They must also offer something to potential recruits that will be enticing enough to draw good stock from the workforce pool. And regardless of how contemporary an organization believes they have become in the field of HRM, it would behoove them not to become lax in their diligence to stay on top of the competition. New theories and models are being tested with greater frequency in order to further the field of study and maintain, or gain, the competitive advantage.
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