MBA 2007 Full-Time

MANAGING ORGANISATIONS AND HUMAN RESOURCES

FINAL EXAMINATION

STUDENT EXAM NUMBER – FT 822

“Human resource practices can play a key role in creating competitive

advantage”. Identify and evaluate three practices in this regard.

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Table of content

Abstract 4

1. Literature Review 5

2. Recruitment and Training of Employees 7

3. Rewards 8

4. Participative Structures 9

5. Conclusion 10

References 11

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Abstract

Critical to a corporation’s growth and prosperity is gaining and retaining competitive

advantage. Although corporations may pursue many paths to this end, one that is

frequently not recognized is capitalizing on superior human resource management. This

report makes an effort to examine theory and research on three key roles human resource

practices play in creating competitive advantage in organizations today. Successful agents

know that finding employees with the right skills and the right attitude is often difficult.

And when they do find them, they face an even more challenging task: holding on to

them. Both formal incentives installed by the management team (e.g., pay-for-

performance systems) and incentives arising by chance (e.g., helpfulness among

employees) are part of a company’s total reward and incentive systems. The literature 

endorsing participative systems in management and regulation articulates well the benefits 

of involving workers more widely in organizational decision making, reducing costs of 

intense   regulatory  conflict,   and easing  destructive   friction  more  generally.  Ultimately,

because the cost of poor employee engagement will be detrimental to organizational

success, it is vital for HR to foster positive, effective people managers along with

workplace policies and practices that focus on employee well—being, health and

work/life balance.

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1. LITERATURE REVIEW

Critical to a corporation’s growth and prosperity is gaining and retaining competitive

advantage. Although corporations may pursue many paths to this end, one that is

frequently not recognized is capitalizing on superior human resource management.

(Schuler and MacMillan,

1984)

According to Boxall (2003), the work systems and employment models seen as supportive of

high performance imply a mix of key practices: more rigorous selection and better training

systems to increase ability levels, more comprehensive incentives (such as employee bonuses

and internal career ladders) to enhance motivation and participative structures (such as self-

managing teams and quality circles) that improve opportunity to contribute (Appelbaum et al,

2000: 26-7, 39-46, 103-4).

While there is significant debate about the particular mix of high-performance practices, one

of the key arguments running through the literature is that the relevant practices work much

better when ‘bundled’ together (Ichniowski et al, 1996: McDuffie, 1995).

The idea is that productivity is best served by the systemic interactions among the practices

(Boxall, 2003). Adding only one of the practices is likely to ‘have little or no effect on

performance’ (Ichniowski et al, 1997: 311).

People become strategic asset when we create proprietary knowledge, tools and training

capabilities which are difficult to replicate or trade and help in creating the desired

competitive advantage (Hariharan, 2006). He adds that HR managers need to start thinking of

efficient assessment systems to create employee value resulting in profitability and enhancing

shareholder value.

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In the book “The HR Score Card” the authors Brian Becker, Mark Huselid and David Ulrich

talk about how HR can play a strategic partner’s role by hiring the best and developing

excellent employees, using compensation as a differentiator, and Senior Executives in a

company viewing HR as a system, embedded within a larger system of the firm’s strategy

implementation.

Gutek (1995) argues that interactions within an organization can take place in one of two

ways: as a “relationship” where the customer and organization know each other and have

ongoing contact (e.g., frequent interactions with employees in a local office or with one’s

accountant), and as an “encounter” where customers may know the organization but receive

the same service from whoever is available at the time (e.g., an inquiry to a call centre or a

transaction at a large branch office).

Blount, Castleman & Swatman (2004) suggests that organizations whose dealings with

customers are based on face-to-face communication must develop new ways to manage their

employees when moving to an on-line environment and must consider in more detail the

qualities they need to develop in their human resources.

Schuler and MacMillan (1984) argues that care in selecting to bring the right people on board

leads naturally to another important staffing problem: socialization, which represents the

process used by companies to expose new employees to their culture and ways of doing

things. When done successfully, it results in intensely loyal employees who are dedicated to

the company.

The challenge today is not just retaining talented people, but fully engaging them, capturing

their minds and hearts at each stage of their work lives (Kaye & Jordan-Evans, 2003). While

each company may define employee engagement differently, ultimately, the key to effective

engagement will be rooted in the flexibility of approach most appropriate for each individual

firm. Consequently, there are many pathways to foster engagement, with no one ‘kit’ that fits

all organizations (Lockwood, 2006).

Today, society and businesses are witnessing unprecedented change in an increasingly global

marketplace, with many companies competing for talent. In view of these changes, a number

of trends, as identified in the SHRM Special expertise Panels 2006 Trends Report, are likely

to have a significant impact on employee engagement.

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The implication for HR managers is that engaged employees are more likely to view the

organization and job as a healthy environment and therefore more likely to support the

organization (Crabtree, 2005).

This report makes an effort to examine theory and research on three key roles human resource

practices play in creating competitive advantage in organizations today.

2. RECRUITMENT AND TRAINING OF EMPLOYEES

“Successful agents know that finding employees with the right skills and the right attitude is

often difficult. And when they do find them, they face an even more challenging task: holding

on to them”. (Willis, 2007, p.67)

Recruitment is aimed at attracting, obtaining and retaining people with the required

competencies (knowledge, skills, and behavior) and attitude.

Fair and equitable recruitment includes the employment of candidates purely on the basis of

job-related requirements, personal attributes, competencies and abilities and that individuals

must be given equal opportunities to be recruited, i.e., recruitment actions should extend to all

communities. Employment Equity strategies and targets must be taken into consideration

when recruiting candidates.

Cisco, the global networking major, used effective recruitment as a powerful weapon through

various ways. They realized that a candidate would approach the company if he had been 

informed by a friend about better opportunities at Cisco. This led to the launch of the ‘friends 

program’.   Cisco   encouraged   internal   referrals   for   recruitment   through   a   program   called 

‘Amazing People.’ This system allowed Cisco employees to refer their friends’ acquaintances 

for positions within Cisco. Cisco launched a tool called Profiler on the employment page of its 

website to accelerate and standardize online resume submission using pull­down menus. To 

avoid applicants from being caught by their current employers, Cisco designed each screen 

with an escape button that opened webpage about gift suggestions for co­workers.

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Companies can reach backward or forward to help shape the HRM practices of other

companies. For instance, Pepsico trains store managers in ‘merchandising techniques’ to help

increase store sales as well as sales of Pepsico. Unifi helps customers with their performance

appraisal systems, making their customers more competitive and thus better able to buy Unifi

products.

As organizations move forward into a boundaryless environment, the ability to attract,

engage, develop and retain talent will become increasingly important.

3. REWARDS

Building on the model of Rosenstiel (1975), reward and incentive systems are defined

broadly, including all monetary and non-monetary rewards and incentives the organization

provides. According to this framework, both formal incentives installed by the management

team (e.g., pay-for-performance systems) and incentives arising by chance (e.g., helpfulness

among employees) are part of a company’s total reward and incentive systems.

The basic principles of effective reward system are that the rewards should be quick, linked to

achievements (over & above standard salary) and significant. It should also be known,

understandable and attainable, performance related (even if individual is on salary maximum)

and compatible with measurement.

The payment method SAB drivers negotiated with FAWU had introduced a system which

rewards lucratively, but makes no distinction between exceptional or inferior performance.

Monetary rewards, if not accompanied by recognition, is of little value to the employees and

do not necessarily motivate the employees.

Morgan Stanley's  head of  world­wide  fixed  income,   foreign exchange and securities,  Zoe 

Cruz, earned $16.1 million dollars during 2003 due in large part to a $7.9 million bonus.  

Consequently,   her   total   compensation   exceeded   that   of   CEO  Philip   Purcell   by   about   $1 

million.   Cruz  was  paid   the  massive  bonus  because  her  division  was  a  major   reason   for 

Morgan Stanley's annual profit of $3.8 billion.  Although this is somewhat unusual, there is a 

trend toward a larger percentage of compensation being tied to achievement of performance 

goals. 

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Rewards   and   incentives   are   partly   responsible   for   employee   motivation,   including   the 

motivation to join the company, to stay with the company, and to perform for the company 

(March and Simon, (1966); Rosenstiel (1975); Weinert (1998)). 

Kieser (1992) argues that companies in the early start­up phase are typically faced with the 

problems of recruiting qualified employees, defining efficient and clear job functions, and 

interacting with new employees. Kober, Uhlenbruck, and Sarason (1996) argue that the phase 

of   the organizational   life­cycle also  affects  product   innovation and so start­ups  may offer 

individuals fewer financial incentives in exchange for the opportunity to learn and share in the 

excitement and commitment associated with an entrepreneurial venture. 

4. PARTICIPATIVE STRUCTURES   

The literature endorsing participative systems in management and regulation articulates well 

the benefits of involving workers more widely in organizational decision making, reducing 

costs of intense regulatory conflict, and easing destructive friction more generally (Lawler, 

1992; Gray, 1989; Bryson and Crosby 1992). 

With the increasing popularity of re­engineering, total quality management, cooperative labor­

management   relationships   and   other   forms   of   worker   participation,   more   and   more 

organizations are developing policies that define the scope and breadth of employee influence 

in managing the organization. Such policies specify the degree of authority and responsibility 

that   are   delegated   to   employees   and   employee   groups,   and   the   way   in   which   those 

relationships (e.g., quality circles vs. self­managed work groups/teams) may most effectively 

be institutionalized (Carrell, Elbert, & Hatfield, 2006)

Semco, a small business located in an old industrial district in Sao Paulo, Brazil, with 2000 

revenues  approaching  US$  100m,  has  been  projected   internationally   as   the  most  unusual 

workplace. It prides itself on being a democratic, transparent place with little controls as each 

individual is responsible for his or her own actions. The democracy that permeates Semco 

seems   to   work.   According   to   Semler,   who   owns   90%   of   Semco:   “Look   at   the   results. 9

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Productivity is up seven­fold, and profits are up five­fold. We took a moribund company and 

made it thrive, chiefly by refusing to squander our greatest asset: people.”

Reportedly   there   has   been   a   growing   movement   in   the   United   States   towards   more 

“participative”   methods   of   decision   making.   Academics   and   practitioners   have   endorsed 

participative   methods   in   areas   as   different   as   the   organization   of   work   and   government 

regulation (McCaffrey, Faerman, & Hart, 1995)

Consider,   for   example,   the   following   statements:   Today   there   is   an   unmistakable   and 

important change taking place in the way many major U.S companies are being managed. 

They   are   changing   their   management   practices   and   systems   to   encourage   employees   to 

become   more   involved   in   the   management   of   their   organizations.   Organization   after 

organization in the United States is concluding that, unless they utilize their people more fully, 

they cannot compete in world markets. Participative management is being recognized as a way 

to do this (Lawler, 1989, p.91)

5. CONCLUSION   

Researchers in the field of strategic human resource management (SHRM) have increasingly

relied on the resource-based view of the firm to explain the role of human resource practices

in firm performance (Wright, Dunford, & Snell, 2001). Indeed, theoretical research on SHRM

has suggested that systems of HR practices may lead to higher firm performance and be

sources of sustained competitive advantage because these systems of practices are often

unique, causally ambiguous, and difficult to imitate (Lado & Wilson, 1994). However, HR

practices can only be a source of sustained competitive advantage when they support

resources or competencies that provide value to a firm (Wright et al., 2001). Thus, Wright,

Snell, and their colleagues (e.g., Snell, Youndt, & Wright, 1996; Wright et al., 2001) have

argued that SHRM research should identify resources that are critical for advantage in a given

competitive context and the HR practices to build and support these resources.

High-technology firms are an important and interesting context in which to study the effects

of human resource practices and employee-based resources because such firms play an

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increasingly important economic role and exist in an environment characterized by rapid

change, ambiguity, and hyper competition (D'Aveni, 1994). These turbulent environmental

conditions place a premium on both the speed and the quality of top management team (TMT)

decision making and firm action (Eisenhardt, 1989). A key factor in a TMT's ability to

achieve both speed and quality is the use of real-time information (Eisenhardt, 1989). The

social networks of top managers, defined as the systems of relationships top managers have

with employees and other actors outside of their organization, are a chief source of timely and

relevant information on the state of both the external environment and the organization. Thus,

the distinct information capabilities created though different TMT networks-- both external

networks and internal networks--may provide a competitive advantage for high-tech firms

(Barney, 1991).

Lastly, the level of engagement determines whether people are productive and stay with the

organization – or move to the competition. Research highlights that the employee connection

to the organizational strategy and goals, acknowledgment for work well done, and a culture of

learning and development foster high levels of engagement. Ultimately, because the cost of

poor employee engagement will be detrimental to organizational success, it is vital for HR to

foster positive, effective people managers along with workplace policies and practices that

focus on employee well—being, health and work/life balance (Lockwood, 2006).

References

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Management, 17(1):990­120.

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German Entrepreneurial Firms. Schmalenbach Business Review, 59(2): 160­175.

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Blount,   Y.,   Castleman,   T.   &   Swatman,   P.   M.   C.   2005.   E­Commerce,   Human   Resource 

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