This paper examines four human resource strategic planning approaches: internal cost, external cost, internal differentiation, and external differentiation strategies. It compares each strategy's goals, workforce management philosophy, employee treatment, compensation practices, and organizational culture. The internal cost strategy prioritizes efficiency and employee retention, while the external cost strategy relies on expendable, high-turnover labor. The internal differentiation strategy cultivates specialized experts from within, whereas the external differentiation strategy recruits outside "free agents" with pre-existing expertise. Together, these four frameworks illustrate how organizations align HR practices with broader competitive and operational objectives.
The internal cost strategy for human resources aims at reducing the cost of certain processes within an organization so that, in an ideal situation, the amount of funding necessary to provide either a service or a product to a customer is significantly decreased. This strategy attempts to make efficient use of virtually all internal resources, which revolves primarily around the deployment and productivity of employees already present within a business. To that end, there is little need or desire for hiring external personnel, while at the same time, few attempts are made to bring in resources not already contained within the organization.
Management focuses on the efficient use of current laborers and the various contributions they can make to a company in order to maximize productivity while keeping associated costs as low as possible. The employer does all it can to satisfy the particular needs of its employees in an attempt to foster employee loyalty and keep the organization as autonomous and self-contained as possible.
There is a great deal of similarity between an external cost strategy and an internal cost strategy. The ultimate goal of both is synonymous: to greatly lower the costs associated with producing a product or providing a service. The primary difference between these strategies, however, lies in the methodology employed to achieve that goal. While the internal strategy focuses on offering an employee-sensitive environment to maximize worker productivity, the external strategy aims to frequently bring in an influx of employees who are essentially expendable — hired to perform relatively menial tasks that require little, if any, training.
Cost is effectively lowered by reducing wages and benefits for employees who are relatively easy to replace, resulting in what can be characterized as a high employee turnover rate. Such employees are considered bargain laborers due to the low costs associated with employing them and the organization's lack of effort to retain them.
"Developing specialized experts within the organization"
"Hiring outside specialists for finite engagements"
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