Monday, March 30, 2009

Organizational Strategy and Human Resources

The development of specific business strategies must be based on the areas of strength that an organization has. Referred to as core competencies by Hamel and Prahalad, they are the foundation for creating the competitive advantage for an organization. A core competency is a unique capability in the organization that creates high value and that differentiates the organization from its competition.

Human Resources as a Core Competency

Certainly, many organizations have voiced the idea that their human resources differentiate them from their competitors. Organizations as widely diverse as Federal Express, Nordstrom’s Department Stores, and Gateway Computers have focused on human resources as having special strategic value for the organization. The significance of human resources as a core competency

was confirmed in a study of 293 U.S. firms. The study found that HR management effectiveness positively affected organizational productivity, financial performance, and stock market value. Some ways that human resources become a core competency are through attracting and retaining employees with unique professional and technical capabilities, investing in training and development of those employees, and compensating them in ways that keep them competitive with their counterparts in other organizations. The value of human resources was demonstrated several years ago, when United Parcel Service workers went on strike. In offices around the country, customers had concerns that the brown-shirted UPS drivers, whom customers often knew by their first names, were not working. Fortunately for UPS, its drivers, and their customers, the strike was settled relatively quickly. Another illustration is what happened in the banking industry with the many mergers and acquisitions. Smaller, community-oriented banks have picked up numerous small- and medium-sized commercial loan customers because they emphasize that “you can talk to the same person,” rather than having to call an automated service center in another state.Resource-Based Organizational Strategies

There has been growing recognition that human resources contribute to sustaining a competitive advantage for organizations. Jay Barney and others have focused on four factors that are important to organizational strategic accomplishments.4 Those factors, called the VRIO framework, are related to human resources as follows:
  • Value: Human resources that can create value are those that can respond to external threats and opportunities. Having this ability means that employees can make decisions and be innovative when faced with environmental changes.
  • Rareness: The special capabilities of people in the organization provide it significant advantages. Especially important is that the human resources in an organization be provided training and development to enhance their capabilities, so that they are continually seen as “the best” by customers and industry colleagues. This rareness also helps in attracting and retaining employees with scarce and unique knowledge, skills, and abilities. Reducing employee turnover is certainly important in preserving the rareness of human resources.
  • Imitability: Human resources have a special strategic value when they cannot be easily imitated by others. Southwest Airlines, Disney, and Marriott Corporation each have created images with customers and competitors that they are different and better at customer service. Any competitors trying to copy the HR management “culture” created in these organizations would have to significantly change many organizational and HR aspects.
  • Organization: The human resources must be organized in order for an entity to take advantage of the competitive advantages just noted. This means that the human resources must be able to work effectively together, and have HR policies and programs managed in ways that support the people working in the organization.
Using a VRIO framework as the foundation for HR management means that people are truly seen as assets, not as expenses. It also means that the culture of organizations must be considered when developing organizational and HR strategies.

Organizational Culture and HR Strategy

Organizational culture is a pattern of shared values and beliefs giving members of an organization meaning and providing them with rules for behavior. These values are inherent in the ways organizations and their members view themselves, define opportunities, and plan strategies. Much as personality shapes an individual, organizational culture shapes its members’ responses and defines what an organization can or is willing to do.

The culture of an organization is seen in the norms of expected behaviors, values, philosophies, rituals, and symbols used by its employees. Culture evolves over a period of time. Only if an organization has a history in which people have shared experiences for years does a culture stabilize. A relatively new firm, such as a business existing for less than two years, probably has not developed a stabilized culture.

Managers must consider the culture of the organization because otherwise excellent strategies can be negated by a culture that is incompatible with the strategies. Further, it is the culture of the organization, as viewed by the people in it, that affects the attraction and retention of competent employees.5 Numerous examples can be given of key technical, professional, and administrative employees leaving firms because of corporate cultures that seem to devalue people and create barriers to the use of individual capabilities. In contrast, by creating a culture that values people highly, some corporations have been very successful at attracting, training, and retaining former welfare recipients.

The culture of an organization also affects the way external forces are viewed. In one culture, external events are seen as threatening, whereas another culture views risks and changes as challenges requiring immediate responses. The latter type of culture can be a source of competitive advantage, especially if it is unique and hard to duplicate. This is especially true as an organization evolves through the life cycle in an industry.

Linking Organizational Strategies and HR Plans

Strategic planning must include planning for human resources to carry out the rest of the plan. Figure 2—3 shows the relationship among the variables that

ultimately determine the HR plans an organization will develop. Business strategy affects strategies and activities in the HR area. For example, several years ago, a large bank began planning to become one of the top financial institutions in the country. Two parts of its strategic plan were (1) to adopt a global focus and (2) to improve service. HR plans to support global goals included integrating compensation and benefits systems and hiring policies for international operations and domestic operations. Service improvement plans hinged on well trained, capable first-level employees. But an HR diagnosis turned up basic skills deficiencies in employees. As a result of HR planning, a series of programs designed to remedy basic skills problems in the workforce was developed. The coordination of company-wide strategic planning and strategic HR planning was successful in this case because HR plans supported corporate strategic plans.

The cost-leadership strategy requires an organization to “build” its own employees to fit its specialized needs. This approach requires a longer HR planning horizon. When specific skills are found to be needed for a new market or product, it may be more difficult to internally develop them quickly. However, with a differentiation strategy, responsiveness means that HR planning is likely to have a shorter time frame, and greater use of external sources will be used to staff the organization. The HR Perspective discusses a study that examined the involvement of HR executives when determining organizational strategies and core competencies.

source by Human Resource Management 9th Edition Robert L. Mathis John H

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