Human Resources Management - Review

Human Resources Management - Review of Theories

Importance of Human Resources Management to organizations

Strategic Human Resources Management and firm performance

Human Resources Management (HRM) and the Strategic Management Process (SMP)

Challenges and benefits of global Human Resource Management

HRM and Technology

Resources are limited: Creativity is unlimited."

These are the words and, most important, the belief, that POSCO, the world's second largest steel producer shares with all its employees and visitors arriving to its Pohang plant, situated far into the sea separating Japan and Korea. And these words are written on a huge sign spanning on six lanes of traffic, proclaiming the company's philosophy both in Korean and English. (Milkovich and Boudreau, 1997)

But this is not only the belief of POSCO, is the belief that many companies have started to share, at a global level, in the recent decades.

Even if plant and equipment, as well as financial assets are and will continue to be important and required resources by almost any organization, the human resources - the people these organizations have - start gaining an ever increasing role within companies. The people will be the ones designing and actually producing the goods and services a company offers to its clients, they will be the ones controlling the quality of their work, marketing the products and distribute the financial resources, as well as setting the overall organization's strategies and objectives... meaning - the people will have the same role as the sanguine system has in the human body. Therefore, it can be easily understood that a company that will not benefit from the presence of effective employees, will be confronted with serious challenges in achieving its objectives.

This paper will firstly introduce the theories regarding aiming at better understanding the human resources management and will continue discussing how strategic human resources management combined with company's strategic management can bring higher benefits to organizations. A short overview over global human resources and the application of technology in human resources management will be equally offered.

Human Resources Management - Review of Theories

The Human Resources Management (HRM), being the system of integrated decisions that define the employment relationship, will directly affect people's life and in the same time, the ability of employers to compete on the market, thus making the HR specific decisions to be among the most crucial and most difficult decisions that company's managers must make. and, a very important point is that these decisions must never be made separately, in isolation; they always must take into consideration the political, economic and cultural forces in societies. (Milkovich and Boudreau, 1997)

As an important work on the subject, the Jackson and Schuler's "Understanding Human Resource Management in the context of organizations and their environments" offers an overview of the most important theoretical perspectives that can be studied in order to understand the HRM.

Firstly, for a better understanding of their perspectives, in their perception the HRM will comprise (a) the specific HR practices as for instance recruitment, selection, training, and appraisal; (b) formal HR policies, that direct and to some extent constrain the development of certain practices; and - overarching HR philosophies, that conclude in the policies and practices developed by a certain organization.

In an ideal situation, these items would actually develop into a system that will attract, develop, motivate and retain the employees who can guarantee the effective operation and survival of the company or organization as well as its members.

The context of the HRM has both internal and external factors, affecting the efficient work of the system. The internal factors can be constituted by technology, size and structure of organization, life cycle stage of organization, business strategy, etc. The external contextual factors considered by Jackson and Schuler are composed by: the legal, political and social environments, labor market conditions, unionization, industry specific characteristics, and national culture.

Finally, the two writers summarize the eight perspectives relevant to the understanding of HRM as follows:

General Systems Theory - this theory started with the view of seeing the unit of analysis as a composite of interdependent parts, obtaining its inputs from the environment, transforming them during throughput, in order to produce the outputs that were being exchanged in the environment. Applied to the HRM, the skills and abilities will perform the role of input from environment. The behaviors of the employees will be considered throughput, and finally, the satisfaction and performance of employees will constitute the outputs.

Role Behavior Perspective - defines the roles as interdependent components making up an organization system. This new perspective will change the focus from individuals, to the focus on social systems that are characterized by several roles, several role senders and several role evaluators, and having at its base Katz and Kahn definition of role behaviors as "the recurring action of an individual, appropriately interrelated with the repetitive activities of others so as to yield a predictable outcome. This approach actually stipulates that HR practices need to elicit the behaviors of employees consistent with the strategies of the organization.

Institutional Theory - applied to HRM, this theory would suggest that both adoption of new HRM approaches as well as their rejection are explained by the context and organization will be finding itself. Thus, a company might adopt a certain HRM simply because others have done it, and might reject it if HRM activities will already have deep historical roots within the organization, and would only be understood if the past of the organization would be studied.

Resource Dependence Theory - focuses on resource exchanges as being the central feature of the relationship between an organization and its constituencies, therefore, organizations will gain power one over the other when they control valued resources. In this theory, the HRM processes and activities reflect the allocation of power within a system.

Human Capital Theory - assumes that all investments made to obtain productive behaviors from the employees (costs including motivation, training, retention, etc.) constitute in fact human capital investments that were made in anticipation of expected future returns.

Transaction Costs Theory - offers support in understanding how HRM activities are being used in order to attain a governance structure that will help the organization to manage the countless implicit and explicit agreements that exist between employers and employees.

Agency Theory - focuses on the existence of contracts between two parties: one (i.e. The principal) delegating work to another one (i.e. The agent) and the probable challenges that can appear in this relationship.

Resource-based Theory - combines both concepts of organizational economics and of strategic management. It leads to the idea that HRM significantly influences the organization's both human and organizational resources, which can help it in gaining and maintaining competitive advantage - the key to success for the organization. (Jackson and Schuler, 1995).

Importance of Human Resources Management to organizations

Today's competitive environment is characterized by fast-changing business and technological environments, dynamic strategies regarding finance, marketing, technology and information. These are all vital. Nevertheless, the right mix of HRM strategies will prove to be of more critical substance for a company in realizing the best business results.

HRM, as the process of reaching organizational objectives through the acquirement, development, retention and optimal use of the HR existent within the organization, has as it ultimate goal the development and full realization of every employee performance potential.

An ever increasing important determinant of one organization's effectiveness levels remains the planning for and managing of human resource, exactly as the business needs it. As organizations evolve, the more complex features of the environment within which they will operate automatically causes an increased level of dependency upon the people that constitute the organization. (Irudayam, 1996)

Every day more, highly differentiated and focussed skills are asked from the employees, as the technical, economical, political and socio-cultural environments are being characterised by more and more complex technologies.

Managers should therefore comprehend that significant factors that can emphasise the performance potential of every employee are based on well developed HR policies that, after assuring a customized selection process, will offer employees the possibility to learn, develop themselves, will manage retention and turnover, the compensation and benefits, and finally, will offer to the employees the critical tools to enable them to bring the competitive advantage to their company.

Strategic Human Resources Management and firm performance

As commented by Chang and Huang (2005), there have been various debates on whether a Strategic Human Resources Management (SHRM) is always positively related to firm performance or not. As part of this framework, the Universalistic perspective leads to the hypothesis that firms that will adopt SHRM practices will significantly outperform those that don't.

Authors that debated that SHRM actually has a positive influence on organization performance, assumed that SHRM could in fact help companies improve the cost benefits of their human resources, increase the level of innovation and revolution ability, promote efficiency of operating activities, increase organizational performance positive outcomes. (Chang and Huang, 2005)

As stated by the same authors, the most influential set of best practices is to one developed by Pfeffer (in his first book approaching this subject having defined 16 practices, and more recently, in 1998 having summarized these into seven practices). These practices include: selective hiring, employment security, self-managed team, extensive training, sharing information, diminution of status differences, and stipulation of high pay contingent on organizational performance.

Other authors analyzed by Chang and Huang sustain that SHRM benefits company both directly and indirectly as it modifies passivity into initiative by clearly communicating organizational goals and encouraging the participation of line-managers. In addition, by generating structural cohesion, defined as "an employee-generated synergy that propels a company forward, enabling the firm to respond to its environment while still moving forward" (Chang and Huang, 2005), the SHRM influences positively organizational performance.

Various other testimonials strengthen the idea that a good strategic orientation of human resources will mostly appear in high performance firms, as contrary to the cases of low performance firms, which tended to apply more conventional methods. (Jackson and Schuler, 1995)

Human Resources Management (HRM) and the Strategic Management Process (SMP)

In order to successfully promote organizational performance, the SMP has to contain a series of 5 components.

These are: the vision, that, once formulated will help in creating the mission of an organization. The mission will subsequently be converted into the objectives of performance, for which achievement needing to have developed a set of strategies. Once these strategies implemented, and evaluation process will analyze the obtained performance of the activities. (Thompson and Strickleand, 1996)

The way HRM works in an efficient organization is by submitting its policies and activities to the achievement of SMP objectives. (Jain, 2005)

The trend in today's business world is to see human resources as being "the available talents and energies of people who are available to an organization as potential contributors to the creation and realization of the organization's mission, vision, strategy and goals" (Jackson and Schuler, 2000, p. 37)

Hence, SHRM serves as the route a successful organization will take in order to efficiently work with each of the components of its SMP.

Additionally, the linkage of HR activities with organizational strategies and the synchronization of the various HR activities are better described by the same authors when defining SHRM as being "the pattern of planned human resource developments and activities intended to enable an organization to achieve its goals."

As commented by Massey, the human resources reaches a strategic level, when it establishes the overall objectives and directions for key areas of HRM, with the purpose of ensuring that they will not only be consistent with the business goals, but they will also be a great support in their achievement. (Massey, 1994)

Thus, depending on the direction a certain organization wants to take, will adapt its approach to the strategic management of its human resources, as SHRM represents in fact an organization's general plan to achieve its goals through the people it has.

Therefore, SHRM can be seen as the complex process of dealing with long-term HR issues as components of organizational strategic management. Consequently, wide-ranging concerns regarding structures, quality, culture, values, commitment, development of HR and their performance, as being the inputs leading to the desired output: the accomplishment of organizational goals. (Jain, 2005)

SHRM has two important perspectives:

HRM as an integral part of the organizational strategy "which is chiefly about ensuring that the organization has the skilled, committed and well-motivated workforce it needs to achieve its business objectives. It can be achieved by linking HR strategies to basic competitive strategies" (Armstrong, 2000).

HRM as a strategy in itself, traducing in its preoccupation in developing employees in order to be able to face the challenges of this rapidly changing environment. (Jain, 2005).

To a high degree, the strategic framework of an organization can be simplified and applied to the field of HRM. The strategy of HRM can be developed depending on industry specificity, allowing HRM specialists to identify the specific training needs, and then create and implement customized training courses and programs. It can in fact be a must to develop the HRM development strategy based on the strategic framework of the organization, as it will place the HR within a specific strategy context, ensuring in this way a fully integrated role inside the organization, being able more easily to identify skill gaps and consequently provide the needed training and development programs and opportunities, that will enable staff to undertake adequately the formulation and implementation of organizational strategy. (Trim, 2003)

Challenges and benefits of global Human Resource Management

In the world we are living today, national differences are factors that complicate the process of transference of HRM practices across country boundaries, practice that has become lately a key strategy in the case of multinational companies in order to help them achieve competitive advantages in the global markets.

The most analyzed approach has been the one of the multinational companies from developed countries, consisting in the diffusion of HRM best practices. Nevertheless, it seems that multinationals from the countries registering rapid development, such as India and China, seem to have adopted another approach: the maintenance of host country's management practices, as a manner of acquiring the advanced skills that will enable the multinational to more efficiently compete on the international markets where it is present. (Human Resources Management, 2004)

This has been the case of Chinese multinationals operating in the United Kingdom. These subsidiaries have been adopting UK HR management practices to an extensive level. In this way, they were not only adapting to United Kingdom's cultural environment and regulatory constraints, but they were also using this experience as a way of transferring and disseminating British management expertise and best practices back to China and in the other international subsidiaries. Nevertheless, the ties with the mother company continued always to be strong, and therefore, some Chinese practices of management and especially in decision-making processes and softer areas of HRM, like remuneration and recruitment, continuing to be applied (Zhang, 2003)

Companies operating in developing countries can also obtain financial benefits through the strategic alignment their HR policies and practices. As defined by Singh, "strategic HR orientation is defined as the alignment of HR planning, selection, performance evaluation, compensation, development and staffing practices with the business strategies of the organization."

In his paper, offering a study over 19 Indian companies in manufacturing and services branches, Singh showed that strategically HR oriented companies tended to significantly outperform companies that proved a lower emphasis, as they were making a better use of the sustainable low-cost advantage.

Another series of advantages that can be obtained from globalization of HR practices, is expressed by cost savings, consistency, as well as a more efficient administrative service. As sustained by Horan and Vernon, these benefits can be achieved by implementing shared service operation at multi-country level.

These positive results appear as they assure the free up or HR resources for other type of activities that have the possibility to maximize the actual returns on human capital investment, which is one success factor of critical importance. These type of shared service centers tend to be useful especially in large organizations, geographically dispersed, that present various lines of business. Some of the factors and challenges that can affect the efficient implementation of shared service centers can be: cultural differences, language differences, demographic issues, infrastructure, labor costs, investments, programs and processes consistency, availability of expertise, as well as the regulatory framework. (Horan and Vernon, 2003)