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HR Management in Sustainable Competitive Advantage
Introduction
Employees are critical to achieving sustainable competitive advantage in work organizations. Therefore, human resource practices need to be integrated with the corporate strategy and the human resource specialists should help organizational controllers to meet both efficiency and equity objectives. The management of people is no different from the management of other resources of an organization but in practice what makes it different is the nature of the resource, people (Abowd & Barry 1991). A human being is potentially a creative and complex resource whose behavior is influenced by many diverse factors originating from either the individual or the surrounding environment. This article will evaluate the role the human resource manager needs to take when there are changes in external environmental factors and what human resource practices will help an organization gain a sustainable competitive advantage. The article will also explain whether compensation packages negotiated through collective bargaining agreements are a major cause of an organizations ability to compete in many sectors of the international market.
Role of Human Resource Manager when there are changes in external environment factors
Like other management functions, human resource management is influenced by several external factors. External factors influence management activities like planning, strategy formulation, and also personnel management. The economic environment factors influence the human resource management activities because they determine the number of people unemployed and have a difficult life because of poverty. Economic factors also include issues related to how many people have jobs, their salaries, and how productive they are (Brewster, Sparrow & Vernon 2007). These economic factors have a direct impact on an organization and its human resources. Labor productivity is one of the biggest economic challenges facing many organizations.
When human resource management is affected by economic factors which may result in low labor productivity, he may downsize the organization. The human resource manager may decrease the organizations personnel so that fewer employees are left. This leads to many employees being retrenched. In a very competitive environment, organizations need to cut costs. The human resource manager will retrench employees because their salaries and wages make up the biggest part of an organizations expenses. In Europe and North America, most of the large corporations also cut their workforce as global competition and high wages make it harder for companies to make a profit (Burke & Cooper 2005). The role of the Human Resource Manager should be to help the organization be more effective with fewer employees and to make sure that the organization focuses on the most important parts of the business that will keep it ahead of the competition. For example, in a free enterprise economy like the Federal Republic of Germany (FRG), the success of a company depends on its strategy to compete with other firms. Thus, Human Resource management ideally becomes an instrument to increase an organizations competitiveness. The major constraint and also driving force for human resource management that results from this type of economy is the survival and the financial success of a company.
The political environment also plays a major role in how organizations function. This is the environment, or the conditions created by the government in power in the country at a certain time (Beardwell & Claydon 2007). Every organization is run according to the laws and regulations of a countrys government. Trends in human resources are driven by training, legislation, and national needs. Government legislation may include labor relations Acts and Employment Equity Act. Government can impose new restrictions that affect a firms ability to operate effectively. Generally, new and unwelcome regulations are imposed either to raise revenues for the government or to encourage particular aspects of development. Human resource managers should invest in understanding government priorities, and this will help them predict government regulations. For example, if the government is concerned with unemployment, it may impose local employment requirements. If human resource managers can predict likely regulations, they can plan for them (Bratton & Gold 2001).
The social environment also affects the Human Resource function in an organization. The social environment is created by people who live in a particular area or community. Customers and employees of the organization, with their attitudes and values concerning work, products, and business, their education and skill level, and their expectations are all part of a social environment. To be successful, the organization must balance the needs of employees and customers with its own organizational goals. Human Resource Managers need to be sensitive to workers personal circumstances. For example, if a single parents child is ill, the manager should allow extra time off. Managing diversity should become an essential part of Human Resource management. Every individual is unique but at the same time share characteristics with other people. Diversity in the workplace means recognizing in a positive way that groups of people have common characteristics and that others have distinctive characteristics (Budhwar, Schuler & Sparrow2009). Characteristics like age, what people believe in, level of education, and cultural traditions divide employees and thus the human resource manager has to respect the different characteristics and at the same time help to create unity among the employees.
Sustainable Competitive Advantage
Every competitive firm attempts to beat its competitors. This competition to gain a superior advantage is the heart of the market economy. Making human resource management practice a competitive advantage involves a set of actions. Instead of thinking in isolation, Human Resource practitioners need to think about what they can do in comparison to what the organizations competitors do. They must continually monitor what the competitor is doing and try to counter those actions. For example, if a competitor is continually poaching away talent, the human resource manager must react to block their actions.
The sustainable competitive advantage arises when a firm creates value for its customers, selects market in which it can excel and present a moving target to its competitors by continually improving its position (Legge 2004, p.68). A company that relies on innovation, high-quality production, and excellent customer service is likely to gain a competitive advantage against all odds, even in a congested market. Unique talents among employees, including superior performance, productivity, flexibility, innovation, and the ability to deliver high levels of personal customer services are ways in which people provide a critical ingredient in developing organizations competitive position (Legge 2004).
An organizations human resource manager should come up with strategies, policies and practices which are unique in order to have a competitive advantage. One of the keys to achieving competitive advantage is the human resource managers ability to differentiate what the business supplies to its customer from those supplied by the competitors. Such differentiation can be achieved by having higher quality people than those of competitors. It can also be achieved by developing and nurturing the intellectual capital possessed by the business and by functioning as a learning organization. Knowing the economic value of the firms resources is necessary to human resource manager. In other words, resource-based approach of competitive advantage should focus on the relationship between a firms internal resources, its profitability and the ability to stay competitive through its strategy formulation (Price 2007). A resource is considered as an internal strength if it is immobile, difficulty to replicate, have no close substitute, be rare and create value (Michael 2006).
Clearly recruiting the best people and then applying value initiatives in the form of training, job enrichment and internal labor market development can propel an organization to the forefront of its industry by facilitating superior performance (Price 2007). Practitioners, academics, and policy makers have advocated approaches designed to make United States firms more competitive with foreign firms. One accepted key to a strategy of competitiveness is the development and implementation of human resource management policies that encourage employees to be more productive. In this policy, managers are covered more by formal and progressive human resource management policies than are the non-managerial workers. However, in some areas like the availability of complaint resolution system, non-managerial employees are more covered. In these firms in United State, unionization has a substantial and persuasive impact on many human resource policies. Union effects are greatest in policy areas that are subject to collective bargaining. However, unions do not seem to pose a substantial barrier to the implementation of certain human resource management policies, such as employee involvement that are asserted to improve the economic performance of firms.
Effects of Compensation Packages negotiated through Collective bargaining
I agree with the statement that compensation packages negotiated through collective bargaining agreements are a major cause of organizations inability to compete in many sectors of the international market. Collective bargaining aims at achieving better compensation packages, better working conditions and more job security for workers. The globalization of production and the search for larger and larger markets have created unparalleled conditions of change for employment conditions and for trade unions at the bargaining table (Schuler & Jackson 2007). Collective bargaining ensures that the employees are well paid, they get accrued vacation pay, health care benefits and they get employee security and protection plan benefits. Employees are also entitled to any commission due and any other compensation to which they are entitled under the collective bargaining agreements. These compensation packages negotiated through collective bargaining agreements hinder firms from competing in many sectors of the international market.
Some organizations pay the employees below the market level, especially when experiencing a shortage of funds. This makes the company to only attract those workers who have low skills and thus this reduces the organizations competitiveness. Some employers hire illegal immigrants at below-market rates because of the large number of individuals who want to work in the United States. This results to the likelihood of higher worker turnover. The organization also experiences problems in attracting and retaining workers when the labor market supply tightens.
Compensation competitiveness is difficult to achieve. The main reason for most organizations is the general unpredictability of operating budgets which often negatively impact the agencys ability to refund employee salary increases (Sparrow 2009). Most human resource managers address pay competitiveness issues from a tactical perspective focusing on individual situations as issues present themselves. Traditional pay structures with pre-determined pay steps and timing intervals are still common in many organizations. Many organizations use these structures for delivering base salaries and salaries increase. This makes these organizations unable to compete in the international market because compensation packages negotiated through collective bargaining are high compared to what the organization is paying.
When union workers push wages significantly above the competitive level, it will be more difficult for employers to compete effectively. Thus higher wages lead to employment reduction. The discipline of market force is eroded when the wages for all workers and firms in an industry are centrally set. As wages are pushed up, the costs both union and union employers will raise. As a result, there will be less opportunity for firms to expand and hire workers willing to work at a lower wage (Turnbull & Blyton 1992). Higher wages will encourage the substitution of capital for labor and make it more difficult for domestic firms to compete in international markets. Some firms will move production operations to other countries, where the services of workers of similar skills are available at a lower cost. Thus, when unions with a substantial degree of monopoly power can push wages to higher levels, their actions will cause high rates of unemployment growth as experienced in the European countries in the last two decades.
In large countries with substantial differences in skill levels among workers and regional variations in the cost of living, centrally determined wages will lead to a substantial excess supply of workers in some areas and excess demand in others. By pushing wages up, lower-wage and lower-skill workers are priced out of the market and rendered less competitive. Furthermore, the centralized wage-setting largely removes the incentive of capital to move toward low-wage regions. Workers in Southern Italy have fewer skills and education than their northern counterparts. With centralized labor contracts, however, wages in the various job categories are the same in the two regions. As a result workers in South are less competitive and the incentive for capital to move towards that region is reduced. In recent years, the unemployment rate in southern Italy have ranged between 15 percent and 25 percent, two or three times the rate of the north.
The large firm sector usually recruits employees from new graduates and promotes them within the internal labor market of the firm (Sparrow 2009). The small firm sector depends more on family workers, retired people from large firms, and part-time workers or housewives. This is because the compensation rates for these people are less compared to those set through collective bargaining. The company, therefore, ends up hiring inexperienced people which thus reduces its ability to compete in the international markets.
Compensation packages negotiated through collective bargaining will be high thus making it hard for most organizations to hire experienced people. This will result to an organizations inability to compete in the international market with those firms that have a good reputation for compensating their employees fairly. This is because an organization with a reputation for paying significant incentives is far more likely to attract a greater number of applicants than a company that does not pay incentives. Moreover, within the total pool of applicants, the percentage of those willing to work hard will be higher for the well-paying institutions than for those badly paying organizations.
One of the most important considerations for multinational enterprises in the design of their compensation programs is the problem of comparability (Dessler 2008). The problem of comparability has two significant components. The first component is maintaining comparability in salaries and benefits for employees who transfer from one country to another and secondly, is maintaining competitive and equitable salaries and benefits among various operations of the organizations. In a globally competitive economy, recruiting and holding on to the best employees requires developing a compensation strategy and policy that will minimize problems associated with such comparisons (Sparrow 2009).
The task facing human resource and rewards practitioners is made more difficult because much of their armory is based upon and targeted at a jobbased systems. These include the payment systems that compare different jobs in terms of their complexity and place labor market valuations on jobs by comparing like with like and selection system that matches the person based on assumptions of predicted performance. Organizations for example are experiencing high levels of rewards failure because most of their pay systems do not reflect strongly enough strategic thrusts towards quality, team working and competition based on time (Dickmann, Brewster & Sparrow 2008).
The balance between the monetary and non-monetary rewards offered by an organization is likely to depend on a range of internal and external factors like the financial state of the company, competition within the labor market, and the policies of its rivals. For example, during boom times there is likely to be a greater emphasis on monetary reward particularly if rival employers are offering relatively high wages. Two-thirds of the German workforce is covered by collective bargaining. As a result, there is a high degree of standardization in conditions of employment within industries (Dessler 2008). However, in the context of recent national and international economic developments, employers have argued that regulations of collective bargaining are too inflexible and do not consider specific economic conditions of the individual companies.
Conclusion
Good human resource management becomes an important cornerstone of an enterprise competitiveness strategy. Human resource policies, functions, and practices should contribute to the creation and sustenance of the enterprises competitive advantage (Harzing & Ruysseveldt 2004). Thus the development of the culture of productivity and creativity, the building up of shared values and mutual trust, multi-skilling, and continuous learning must always be a priority goal of human resource management functions. The best way to create a strong human resource that can lead to a competitive advantage is through recruiting and maintaining employees with both soft and technical skills. With this, the employees will be able to compete effectively with others in similar organizations. This article has explained the functions of human resource managers when there are changes in the external environment. It has also explained the human resource practices that would help an organization gain a sustainable competitive advantage. The article has also given an explanation on how compensation packages negotiated through collective bargaining agreements cause organizations inability to compete in many sectors in the international markets. When an organization conflicts with its employees over salary packages, the likely outcome is a decline in production, poor service delivery, hence failure in the overall performance of the said firm.
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