Human resources

Human resources: Human resource and competitive advantage, using the VRIO (value – rarity – imitability – organization) approach.

Introduction:

VRIO analysis:
VRIO is a business analysis framework that forms part of a firm’s larger strategic scheme. The basic strategic process that any firm goes through begins with a vision statement, and continues on through objectives, internal & external analysis, strategic choices (both business-level and corporate-level), and strategic implementation. The firm will hope that this process results in a competitive advantage in the marketplace they operate in. [1]

VRIO falls into the internal analysis step of these procedures, but is used as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase of the strategic model it falls under.

VRIO is initials for the four question framework asked about a resource or capability to determine its competitive potential:

  • The question of Value,
  • The question of Rarity,
  • The question of Imitability (Ease/Difficulty to Imitate),
  • The question of Organization (ability to exploit the resource or capability).

Once the analyst has realized the value, rarity and imitability of the company’s resources and capabilities, the next step is to organize the company in a way to exploit these resources. If done successfully, the company can enjoy a period of sustained competitive advantage.[2]

The competitive advantage:

In general, a firm has a competitive advantage when it is able to create more economic value than rival firms. Economic value is simply the difference between the perceived benefits gained by
a customer that purchases a firm’s products or services and the full economic cost of these products or services.[3]

Human resource as a competitive advantage [4]

VALUE

HR executives must start their functions with a eye on the bottom-line and address a primary question “How can HR aid in either decreasing costs or increasing revenues?”.
In today’s time when everyone is talking numbers; the HR department has to prove its worth and show that it creates value for the organizations. HR can help a firm achieve sustainable competitive advantage by creating value.

Example: FedEx, which are the market leaders in the courier business, believe people are the primary link in the value chain, and thus, value is created by focusing on employees first. HR practices should be related to employee attitudes which would be consequently related to customer satisfaction.

 

 

RARENESS

Only value alone cannot help the HR department to achieve sustainable competitive advantage for organizations. HR executives must examine how to develop and exploit rare characteristics of the firm’s human resources to gain competitive advantage. If the same characteristic of human resources is found in many competing firms, then that characteristic cannot be a source of competitive advantage for any one of them. In order to drive the strategic decisions, HR executives should being the ‘rare’ factor in the talent they recruit.

Example: Nordstrom is one of the most reputed brands in the retail sector. The recruiting process, compensation practices and culture at Nordstrom’s have helped the organization to maintain the highest sales per square foot of any retailer in the nation.

IMITABILITY

If the competitors in the business can easily imitate what you offer, then you are at loss! The HR executives must attempt to develop and nurture characteristics of the firm’s human resources that cannot easily be imitated by competitors. This essentially means leveraging on organization’s unique history or culture that helps in gaining competitive advantage. In any organization, the culture is nurtured and developed via the HR Department. Hence, by restricting and developing unique culture, executives can help firms in gaining competitive advantage.

Example: Even after purchasing the safety training programs, DuPont’s competitors are simply unable to match DuPont’s safety record. DuPont’s superior safety performance stems at least partly from its unique history that competitors find impossible to imitate.

ORGANIZATION

In order for any characteristic of a firm’s human resources to provide a source of sustained competitive advantage, the firm must be organized to exploit the resource. Organization requires developing the systems and practices that allow human resources characteristics to bear the fruit of their potential advantages.

Example: Both General Motors and Ford recruit assembly line workers from the same basic labor market. But, Ford has been more successful at developing a cooperative, team-based culture than General Motors. Clearly the HR function, through either directly controlling or strongly influencing the characteristics of human resources in organizations plays an important role in developing and maintaining a firm’s competitive advantage.

The VRIO framework enables business people in HR to transform the HR function into a contributor to firm performance rather than a drain on firm resources. Today, HR is not merely a burden on the organization and HR executives should communicate the ‘economic reason’ which compels the organizations to invite HR Executives to the strategic planning “table”.[5]

[1] (Strategic Management Insight | SMI)

[2]Barney, Jay B and Hesterly, William S. Strategic Management and Competitive Advantage: Concepts. 2005 Pearson Education, Inc., Upper Saddle River, New Jersey, 07458  (Barney, 2005)

[3] (Barney, 2005)

[4] (Sharma, 2012)

[5] (Sharma, 2012)

Human resources

Human resource management: Definition and Challenges

Definition:

The process of defining HRM leads us to two different definitions:

The first definition of HRM:
The process of managing people in organizations in a structured and thorough manner
.
This covers the fields of staffing (hiring people), retention of people, pay and perks setting and management, performance management, change management and taking care of exits from the company to round off the activities. This is the traditional definition of HRM which leads some experts to define it as a modern version of the Personnel Management function that was used earlier.

The second definition of HRM:
Encompasses the management of people in organizations from a macro perspective.
i.e. managing people in the form of a collective relationship between management and employees. This approach focuses on the objectives and outcomes of the HRM function. What this means is that the HR function in contemporary organizations is concerned with the notions of people enabling, people development and a focus on making the “employment relationship” fulfilling for both the management and employees.[1]

Other definitions:

Human Resource Management (HRM): The policies, practices, and systems that influence employees’ behavior, attitudes, and performance.[2]

humna resource management practices.png

Figure 1: Human resources management practices

Figure 1, emphasizes that there are several important HRM practices that should support the organization’s business strategy: analyzing work and
designing jobs, determining how many employees with specific knowledge and skills
are needed (human resource planning), attracting potential employees (recruiting),
choosing employees (selection), teaching employees how to perform their jobs and
preparing them for the future (training and development), evaluating their performance (performance management), rewarding employees (compensation), and creating a positive work environment (employee relations).
An organization performs best when all of these practices are managed well.
At companies with effective HRM, employees and customers tend to be more satisfied, and the companies tend to be more innovative, have greater productivity, and develop a more favorable reputation in the community[3]

Human resource management: It is designed to maximize employee performance in service of an employer’s strategic objectives[4]

Human Resource Management (HRM) is the function within an organization that focuses on the recruitment of, management of, and providing direction for the people who work in an organization.[5]

HMR is the process of hiring and developing employees so that they become more valuable to the organization.

Human Resource Management
includes conducting job analyses, planning personnel needs, recruiting the right people for the job, orienting and training, managing wages and salaries, providing benefits and incentives, evaluating performance, resolving disputes, and communicating with all employees at all levels. Examples of core qualities of HR management are extensive knowledge of the industry, leadership, and effective negotiation skills, formerly called personnel management.[6]

Challenges:

Key HR Challenges for HR Managers.png

Figure 2: Key HR Challenges for HR Managers

  • Environmental challenge: are the forces external to the firm. They influence organizational performance but are largely beyond management’s control.
  • Organization challenges: Concerns or problems internal to a firm; often a by-product of environmental forces.
  • Individual challenges: Human resource issues that address the decisions most pertinent to individual employees.

 

Environmental challenges

  • Rapid change: Many organizations face a volatile environment in which change is nearly constant.

Human resources are almost always at the heart of an effective response system.[7]
Here are a few examples of how HR policies can help or hinder a firm grappling with external change:

  • New company town: As firms experience high pressure to become more productive and deal with very short product life cycles (often measured in months), Labor force are working longer, harder, and faster, as studies prove American do.
  • Dealing with stress: Rapid change and work overload can put employees under a great deal of stress. The Bureau of Labor Statistics reported that 50 percent of the 19.8 million Americans who say they work at home at least once a week aren’t compensated for it. In other words, millions of employees must work at home just in order to catch up.
  • Rise of the internet: almost all firms use the Internet as part of their normal business practices. The Internet is having a pervasive impact on how organizations manage their human resources, as the following examples show:
    • Necessitating greater written communication skills
    • Dealing with information overflow
    • Breaking down labor market barriers
    • Using online learning
    • Enabling HR to focus on management
  • Workforce diversity: Managers across the United States are confronted daily with the increasing diversity of the workforce. In 2012, approximately 34 percent of the U.S. workforce was from a minority group, including African Americans (12%), Asian Americans (4.7%), Latinos (15%), and other minorities (2%).[8]
    These trends are likely to accelerate in the future. The U.S. population is expected to increase by 50 percent by 2050, with minority groups comprising nearly half of the population. Nonwhite immigrants, mostly Hispanics, will account for 60 percent of this population growth. Despite fears that immigrants are not assimilating, children of immigrants actually do better than children of natives in the same socioeconomic class.
    All these trends present both a significant challenge and a real opportunity for managers.[9]
  • Legalization: Much of the growth in the HR function over the past four decades may be attributed to its crucial role in keeping the company out of trouble with the law.
  • Evolving work and family roles: The proportion of dual-career families, in which both wife and husband (or both members of a couple) work, is increasing every year.
    More companies are introducing “family-friendly” programs that give them a competitive advantage in the labor market.[10]
  • Skill shortages and the rise of the service sector: S. manufacturing has dropped dramatically in terms of the percentage of employees who work in that sector.
    Most employment growth has taken place in the service industry. The categories with the fastest growth are expected to be professional specialties (27 percent) and technical occupations (22 percent). The fastest-growing occupations demand at least two years of college training.
  • Natural disasters: Employers had to suddenly deal with HR issues that they had given little thought to before. These included deciding whether to keep paying employees who were unreachable and unable to report to work: paying for a variety of living expenses for displaced staffers in temporary living quarters, providing telecommuting equipment for employees working from hotels, awarding hazardous duty pay, hiring temporary employees (many of whom were undocumented workers) to fill the labor void, and preventing the loss of key talent to competitors outside the disaster area.[11]
  • Globalization: One of the most dramatic challenges facing U.S. firms as they enter the second decade of the twenty-first century is how to compete against foreign firms, both domestically and abroad. The Internet is fueling globalization, and most large firms are actively involved in manufacturing overseas, international joint ventures, or collaboration with foreign firms on specific projects. Currently the companies on the S&P 500 generate 46 percent of their profits outside the United States, and for many of the biggest U.S. names, the proportion is much higher. The implications of a global economy for human resource management are many. Here are a few examples:
    • Worldwide company culture: Some firms try to develop a global company identity to smooth over cultural differences between domestic employees and those in international operations. Minimizing these differences increases cooperation and can have a strong impact on the bottom line. For instance, the head of human resources at the European division of Colgate Palmolive notes, “We try to build a common corporate culture. We want them all to be “Colgaters.”
    • Worldwide recruiting: Some firms recruit workers globally, particularly in the high technology area, where specialized knowledge and expertise are not limited by national boundaries.

Global recruitment, however, is no panacea because good employees everywhere are in high demand, and there may not be as much information available to make the appropriate selection decision.

  • Industrial metamorphosis: The proportion of the American labor force in manufacturing has dropped to less than 10 percent, down from 25 percent about 30 years ago. Similar drops have been experienced in several European countries, including England, Germany, and France. According to the Economist, “It has happened because rich-world companies have replaced workers with new technology to boost productivity and shifted production from labor-intensive products such as textiles to higher-tech, higher value-added, sectors such as pharmaceuticals. Within firms, low-skilled jobs have moved offshore.”
  • Global alliances: International alliances with foreign firms require a highly trained and devoted staff. For instance, Philips (a Dutch lighting and electronics firm) became the largest lighting manufacturer in the world by establishing a joint venture with AT&T and making several key acquisitions, including Magnavox, parts of GE Sylvania, and the largest lighting company in France.
  • A virtual workforce: S. firms are tapping skilled foreign labor but not moving those workers to the United States. The Internet is making this possible with little additional expense.
  • The global enterprise: companies today spread over many countries, Example: Coca-Cola spreads over 206 countries and 80 % of the sales revenue comes from outside the U.S.  
  • Wage competition: American workers were considered a middle class, until the mechanization and the immigration which lead to steep cuts in the wages.

Organization challenges

  • Competitive position: cost, quality, distinctive capabilities
    • Controlling costs: A compensation system based on reward strategies can reduce labor costs, training employees to make them more efficient and productive, managing health and safety.
    • Improving quality: Many companies have implemented total quality management (TQM) initiatives, designed to improve the quality of all the processes that lead to a final product or service.
    • Creating distinctive capabilities: use people with distinctive capabilities to create unsurpassed competence in a particular area.
  • Decentralization: Transferring responsibility and decision-making authority from a central office to people and locations closer to the situation that demands attention.
  • Downsizing: Periodic reductions in a company’s workforce to improve its bottom line—often called downsizing—are becoming standard business practice, even among firms that were once legendary for their “no layoff” policies, such as IBM, Kodak, and Xerox.[12]
  • Organizational restricting: over the past 20 years, reduction of the middle management, lead to a flatter organizational hierarchy in order to become more effective.
  • Self-managed work teams
  • The growth of small businesses: small businesses face higher risk of failure, 40% in the first year and 60% in the third year, which make effective human resource management a crucial element of success.
  • Technology: the rise of robotic industries, the use of data ethically, the rise of telecommunication (telecommuters), electronic monitoring, the increase in egalitarianism.
  • Internal security: security background checks for employees.
  • Data security: keeping the employees data and privacy secured.
  • Outsourcing: Subcontracting work to an outside company that specializes in and is more efficient at doing that kind of work.
  • Product integrity: effectively monitor the integrity of products or subcomponents that are made in foreign countries.
  • Organizational culture: The basic assumptions and beliefs shared by members of an organization. These beliefs operate unconsciously and define in a basic taken-for-granted fashion an organization’s view of itself and its environment.
    The key elements of organizational culture are:

    • Observed behavioral regularities when people interact, such as the language used and the rituals surrounding deference and demeanor.
    • The norms that evolve in working groups, such as the norm of a fair day’s work for a fair day’s pay.
    • The dominant values espoused by an organization, such as product quality or low prices.
    • The philosophy that guides an organization’s policy toward employees and customers.
    • The rules of the game for getting along in the organization—“the ropes” that a newcomer must learn to become an accepted members.
    • The feeling or climate that is conveyed in an organization by the physical layout and the way in which members of the organization interact with one another, customers and outsiders.

Individual challenges

Individual Challenges: human resource issues that address the decisions that affect individuals.

  • Matching people and organization: Research suggests that HR strategies contribute to firm performance most when the firm uses these strategies to attract and retain the type of employee who best fits the firm’s culture and overall business objectives.[13]
  • Ethical dilemmas and social responsibilities: in a world when business scandals are regular news, whether it is Enron, WorldCom or other company, employees’ fears that their employers will behave unethically are increasing, so much so that many firms and professional organizations have created codes of ethics outlining principles and standards of personal conduct for their members.
    Unfortunately, these codes often do not meet employees’ expectations of ethical employer behavior.
  • Productivity: is a measure of how much value individual employees add to the goods or services that the organization produces. The greater the output per individual, the higher the organization’s productivity.
    In a “knowledge-based economy” driven by technology, the success of organizations will depend more and more on the value of intangible human capital.
  • Empowerment: Providing workers with the skills and authority to make decisions that would traditionally be made by managers.
    Empowerment can encourage employees to be creative and to take risks, which are key components that can give a firm a competitive edge in a fast-changing environment.
  • Brain drain: The loss of high-talent key personnel to competitors or start-up ventures.
    This loss of intellectual property results when competitors lure away key employees. Important industries such as semiconductors and electronics also suffer from high employee turnover when key employees leave to start their own businesses.
    This brain drain can negatively affect innovation and cause major delays in the introduction of new products.
    Brain drain can be a genuine risk not only on an organizational level, but also, on a counter level, leading the overall weakness of the society.
  • Job insecurity: Companies argue that regardless of how well the firm is doing, layoffs have become essential in an age of cutthroat competition. For employees, however, chronic job insecurity is a major source of stress and can lead to lower performance and productivity.

Bibliography

http://managementstudyguide.com. (2017). Human Resource Management (HRM) – Definition and Concept. Retrieved 2 28, 2017, from MSG management study guide: http://managementstudyguide.com/human-resource-management.htm

Judge, S. P. (2015). Essentials of Organizational Behavior Edition 13 Global. New York: Pearson.

Mejia, C. |. (2012). Managing human resources 7th edition. New York: Pearson.

Raymond Noe, J. H. (2014). Fundamentals of Human Resource Management, sixth edition. New York: Mc Graw Hill Education.

The Balance. (2016, 10 2). Beyond Hiring and Firing: What is HR Management? Retrieved 2 28, 2017, from The Balance: https://www.thebalance.com/what-is-human-resource-management-1918143

Wood, D. G. (2009). Human resource management: A critical approach. London: Routledge.

Zeuch, M. (2016). Handbook of Human resource management. Murten, Switzerland: Springer.

[1] (http://managementstudyguide.com, 2017)

[2] (Raymond Noe, 2014)

[3] (Raymond Noe, 2014)

[4] (Wood, 2009)

[5] (The Balance, 2016)

[6] human resource management (HRM). BusinessDictionary.com. Retrieved February 25, 2017, from BusinessDictionary.com website: http://www.businessdictionary.com/definition/human-resource-management-HRM.html

[7] (Mejia, 2012)

[8] Bureau of Labor Statistics. (2011). Labor force characteristics. http://www.bls.gov .

[9] (Mejia, 2012)

[10] (Mejia, 2012)

[11] Newsline. (2005, October 12). Many employees displaced by Katrina to take on payrolls indefinitely. http://www.worldatwork.com .

[12] (Mejia, 2012)

[13] (Judge, 2015)