This paper examines how organizations can achieve sustained competitive advantage through strategic human resource management (HRM) practices. Drawing on foundational models such as the Harvard Approach, resource-based theory, and Porter's generic strategies, the paper analyzes how aligning HRM functions with organizational goals enhances performance. Key practices discussed include pay for performance, employee training and development, selective hiring, and high-commitment work environments. The paper reviews contributions from leading scholars including Beer et al., Legge, Guest, Pfeffer, and Schuler and Jackson, evaluating both best-practices and best-fit approaches to HRM. It concludes that integrating HRM into corporate decision-making is essential for building and sustaining competitive advantage.
The internal and external environments of an organization profoundly influence the business strategies it can adopt. They also shape how the HR department handles its activities, since HR functions need to be linked to environmental analysis. The human resources of an organization play a key role in overall performance, making it vital for organizations to employ the most favorable HRM practices for competitive advantage. These practices include pay for performance, employee training and development, and creating a high-performance work environment.
Competitive advantage in business refers to the strategic position a firm establishes over its competitors in order to strengthen its standing in the business environment and generate greater value — in terms of sales, revenues, and profits — for all its stakeholders. Sustainability of that competitive advantage is extremely important: when competitive advantage is sustainable, it becomes harder for competitors to neutralize it. There are two main types of competitive advantage. The first is comparative advantage (also called cost advantage), which refers to the ability of an organization to sell its goods or services at a lower rate than its competitors or to generate a larger sales margin. The second is differential advantage, or product differentiation, which arises when a company's products differ from those of competitors and are perceived as superior.
Strategic human resource management (HRM) refers to the design of organizations to best meet their human resource needs while simultaneously advancing company goals. It is a proactive approach to managing human resources, requiring HR managers to think ahead and plan ways in which the company will continue to meet employee needs — and ensure employees meet the needs of the company. Strategic HRM substantially affects how business is conducted, improving everything from hiring practices to employee training and development programs. It also focuses on recruiting and interviewing prospective employees in ways that refine the techniques used to identify relevant applicants who will be a strong fit for the organization.
Strategic HRM can be applied in both large and small companies. It centrally involves conducting an environmental analysis that examines the internal strengths and weaknesses of the organization as well as external sources of opportunities and potential threats. Beer, Spector, Lawrence, Mills, and Walton (1984) created the Harvard Approach, a model that heavily influenced the approach developed by Paauwe (2004) (Boselie, 2010).
The Harvard model has six components: the interests of stakeholders, situational factors, HRM policy choices, HR outcomes, and long-term consequences. This model was later extended by Baron and Kreps (1999) and Paauwe (2004). According to the model, all components must be aligned within the strategic HRM practice in order for the organization to gain competitive advantage. Proper alignment creates the best social, economic, and legal environment for the organization, which plays a monumental role in building organizational capabilities (Boselie, 2010).
Sustained competitive advantage is a significant challenge for many organizations, particularly for HR managers. Scholars have attempted to apply resource-based theory (RBT) to connect sustained competitive advantage with strategic HRM. They argue that any channel through which an organization can gain competitive advantage is essential, and RBT is one such channel (Wright, Dunford, & Snell, 2001). RBT involves the organization acquiring the necessary human resources that enable it to expand its portfolio by building on other existing resources (Barney, Ketchen, & Wright, 2011).
Past research also suggests that employees can be a prime source of sustained competitive advantage and can determine whether an organization succeeds or fails. The human resources of the organization are therefore extremely important, and strategic HRM should be designed to consider the roles played by various employees in order to manage their competencies and capabilities in the achievement of the organization's primary goals (Becker & Gerhart, 1996; Stroh & Caligiuri, 1998).
Strategic HRM involves factoring in the future needs of the organization and designing all HRM activities in a manner consistent with the organization's overall plan. It also involves progressive HR practices, which include assessing the knowledge, skills, and abilities required for the organization's future. Progressive HR encompasses staffing, incentivizing and compensation, appraisal, evaluation, and training and development to meet the organization's human resource needs (Stroh & Caligiuri, 1998).
Ideally, strategic HRM ensures that HR functions fit together in order to achieve the overarching goal of supporting, managing, and maintaining a high-performance work environment and high levels of employee commitment. High performance and high commitment can be fostered by encouraging participative work environments and programs that promote strong employee involvement. There is also a need to focus on high achievement, mutual commitment and trust, and to develop a management approach that creates an organizational culture in which employees feel valued — enabling them to be adaptive, successful, and competitive. This, in turn, creates sustained competitive advantage for the organization (Stroh & Caligiuri, 1998).
Regardless of whether an organization adopts a best-practices or a best-fit/contingency approach to HR, strategic HRM should be applied to gain competitive advantage. Advocates of the best-practices approach hold a strong belief that certain distinct practices must be implemented universally. By contrast, those who favor the best-fit or contingency approach believe that HR practices need to be reactive — designed to respond to the environmental factors revealed through analysis of the internal and external environment (Belanger, Edwards, & Wright, 1999).
Kochan, McKersie, and Cappelli (1984) identify important changes that can be made to an organization's managerial strategies to shift its competitive advantage in a positive direction. These changes coincide with the HR functions of organizations and can be associated with the avoidance of unions and the rearrangement of HR functions. Introducing status-quo relationships in the negotiations between HR managers and employees is important, as it promotes worker involvement and participation and encourages active local union cooperation — both of which are important for organizational success.
An important concept advanced by Legge (2001) is that of high-commitment management or the high-performance relationship. Legge (2001) asserts that there is a strong relationship between HRM and performance, and identifies three questions that arise from this relationship: how HRM is conceptualized, how performance is conceptualized, and how the relationship between the two is conceptualized. These are the questions Legge addressed to illuminate the HRM–performance relationship. Legge references the Beer et al. model described above and posits that there are two different assumptions about the interrelationship between HRM and performance, which can be divided into dependent and independent variables.
Legge argues that HRM influences performance by specifying various approaches that tie pay to performance — such as stock options, bonuses, merit pay, commissions, and profit-related pay. Remuneration can also be linked to other performance criteria such as profits, revenue growth, share price growth, new product development, and reductions in the cost of production.
Guest (2011) acknowledges that there have been critical developments in the field of HRM and performance, and that it has been a rapidly evolving field that has gone through various overlapping phases of development. Guest asserts that the basic role of HRM is to bring the worker to center stage. By creating an integral relationship between workers' perceptions and the roles they play, he argues, it becomes easier to develop an understanding of HRM and performance. The voice of workers must be considered in order to bring about employee satisfaction, which is important for organizational development and performance.
Guest (2011) also identifies certain challenges for theorizing about HRM and performance. The first is providing essential insights that resolve the apparent contradiction between logic and evidence — specifically, whether there is one high-commitment form of HRM that is universally associated with higher performance. The second is whether all positive impacts of HRM on performance are simply the result of good management more broadly. There is therefore a need for research to include controls that differentiate the effects of good management from those of specific HRM activities (Paauwe & Boselie, 2003).
"Porter's strategies linked to HR role behaviors"
"Pfeffer's seven practices and EU geographic evidence"
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Porter, M. (1980). Competitive strategy. New York: Free Press.
Schuler, R. S., & Jackson, S. E. (1987). Linking competitive strategies with human resource management practices. The Academy of Management Executive, 1(3), 207–219.
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Wright, P., Dunford, B., & Snell, S. (2001). Human resources and the resource-based view of the firm. Journal of Management, 6, 701–721.
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