MBA

2007 Full-Time
MANAGING ORGANISATIONS AND HUMAN RESOURCES

FINAL EXAMINATION

STUDENT EXAM NUMBER – FT 822

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“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. 
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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

Appelbaum, E. & Batt, R, 1994, The New American Workplace, Ithaca, New York: ILR Press.

Barney,   J.   1991.   Firm   Resources   and   Sustained   Competitive   Advantage.  Journal   of  

Management, 17(1):990­120.

Bau,   F.   &   Dowling,   M.   2007.   An   Empirical   Study   of   Reward   and   Incentive   Systems   in 

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 

Strategies, and Competitive Advantage: Two Australian banking Case Studies.  International  

Journal of Electronic Commerce, 9(3): 73­89.

Boxall,   P.   2003.   HR   Strategy   and   Competitive   Advantage   in   the   Service   Sector.  Human  

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Bryson, John & Crosby. B, 1992,  Leadership for the Common Good,  San Francisco: CA. 

Jossey­Bass

Costello,   M.   2004.   Morgan   Stanley’s   Fixed­Income   Head   paid   more   than   Purcell. 

eFinancialNews, March 5, 2004, access through LexisNexis on December 21, 2004.

Collins, R.J., & Clark, K.D. 1993. Strategic Human Resource Practices, Top management 

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Hariharan, K. 2006. The Strategic Role. Career, 40-41, Aug.

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Kober, C.S., Uhlenbruck, N. & Sarason, Y. 1996. Facilitators of Organizational Innovation: 

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Lado, A. A., & Wilson, M. C. 1994. Human Resource Systems and Sustained Competitive 

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