Human Resource Management: Business Economics Ba2
Introduction to HRM management
1. Introduction to human resources
Human resources management: refers to the constellation of decisions and actions associated with managing individuals throughout the
employee life cycle to maximize employee and organisational effectiveness in attaining goals. This includes function like: analysing and designing
jobs, recruiting individuals to apply for jobs, selecting individuals to join organizations, training and developing people, helping to manage their
performance, rewarding and compensating employee performance, protecting and improving employees well-being.
HRM is about making decisions about people: Where will we find the best employees? How should we motivate and reward employees to be
effective, innovate and loyal? What training do our employees need? How can we decide which employees deserve to be promoted? How can be
design jobs so that employees remain engaged? Why are employees leaving and what can we learn from their exists.
Human resources are one of the primary means of creating ‘sustained competitive advantage’ for the organisation -> companies can achieve
this by adopting HR practices that are aligned with business strategy, it takes into account the context in which the company operates => these
aligned practices will ensure a flow of skilled and motivated personnel.
A job interview is a method that is almost always part of the recruitment/selection process, but there are better methods to recruit people
because a candidate will be prepared to the basic job interview questions.
HR main objective is not only serving the interest of the employees, it contains so much more such as accomplishing the organizational goals,
training and development, recruitment, wellbeing of employees.
Team building is important to build better relationships that will lead to better performance.
Increased wages lead to an increased productivity, but there needs to be a large increase for the employees to put in extra efforts.
HR can help to find suitable candidates for the vacancy, to choose the best candidate, provide feedback to employees during performance review
process, decide which training to offer and how much to pay, increase the well-being, reduce personnel turnover, ensure that employees are fully
committed to the goals of the organization.
Important that employees know what is expected from them, how they can meet the organizational goals -> aligning HR with the company’s
structure.
Most of the human resources (motivation, personality, abilities, skills, knowledge) are very important but almost always the other resources
are more important (financial, physical, technology).
Effective discretionary effort -> a level of effort an employee is capable of giving, but one that exceeds the bare minimum that's required of
them.
,Chapter 1: The balancing act of managing human resources
1. HR roles and competencies
What HR managers actually do and what it takes to be a successful HR manager
Duties of an HR manager -> Targeting recruiting and selection of employees, settle disputes & conflicts, make sure that employees develop and
get training, motivate employees, administration (most important thing of HR manager is to make sure everything runs smoothly), implementing
systems for managing staff benefits.
How have the duties changed over time -> they spend more time focusing on improving employee engagement, building an stronger company
culture. E.g. Working at home from corona crisis -> you cannot control or monitor them by checking their performance/observe them -> you need
different ways -> e.g. looking at the result of their performance.
What problems do HR managers face today -> working from home, finding talent, personnel turnover.
2. HR business partner model
HR as an administrative expert: HR should become an expert in the way work is organized
and executed, delivering administrative efficiency to ensure that costs are reduced while
quality is maintained. Examples of activities: work analysis, recruitment and selection,
compensation systems, performance appraisal and management, training and
development.
HR as Employee champion: HR should become a champion for employees. Representing
employees’ concerns to senior management and at the same time increasing employees’
commitment to the organisation and their ability to deliver results. Examples of activities:
relationship with unions, employee involvement and participation, communication and
trust, psychological contract, Managing work engagement;
HR as Change agent: HR should become an agent of continuous transformation, shaping
processes and a culture that together improve an organizations capacity for change. HR
professionals do not execute change themselves but they make sure it is carried out.
Examples of activities: preparing people to change, organizational culture, conflict/problem
resolution, action plans, monitoring process and making change last.
HR as Strategic partner: HR should become a partner with senior and line managers in strategy execution. Strategy remains responsibility of
company’s executive team, of which HR is a member. HR managers need to have a good understanding of the ‘organisational architecture’.
Examples of activities: translating corporate strategy into specific supportive HR-activities, aligning HR-processes, implementing HR information
systems.
3. A brief history of Human resource Management
Term was first used by John R. Commons in his 1919 publication ‘industrial Goodwill’ -> the idea that employees are valuable organisational
resources and laid out a strategic choice framework regarding to alternative bundles of HRM practices.
Pre-industrial revolution -> tasks that are part of modern HRM were performed by guilds.
Industrial revolution -> demise of the guilds -> altered the way people earned a living causing a sift from agriculture to industrial or manufacturing
society. Machines because of technology.
Industrial welfare -> welfare work is one of the most important antecedents of what later became personnel management.
Scientific management -> Taylor’s philosophy of management: scientific approach to managerial decision making. Taylors techniques: time and
motion study: break down work tasks into its constituent elements so the work could be done in ‘one’ best way. Standardized tools and
procedures to minimize fatigue and maximize production. The task: each worker should be assigned a specific amount of work.
Human relations movement -> conflict was caused by poor management and work systems -> Hawthorne studies: how the presence of
researchers produces a bias and influences the outcome of the experiment.
Industrial psychology -> significant contribution to human resource management. Paid particular attention to worker himself and the individual
differences between workers.
WW1 and WW2 -> application of psychological principles to business problems took off during the war.
Personnel management after WW2 -> a separate personnel department was standard in large companies during 1945-1970.
Strategic HR management -> Since the 1970, HR has evolved from a function aimed at preserving the status que, social peace and good labour
relations to one of the most important and critical functions for efficient and innovative management.
The future of HRM -> based on recent trend, we can make tentative statements about what the future of HRM might look like. There are
indications that HR decisions will be based on evidence and that the collection and combination of personnel data will become increasingly
important.
Evidence based HRM -> Managers should make decisions based on the best available evidence. All evidence based HRM start from the premise
that good-quality decisions should be based on a combination of critical thinking and the best available evidence.
Big- Data and e-HRM -> HR information system are IT-based applications that allow HRM to systematically collect, store and display data,
databases and employee knowledge. Its called big data because the range of data that can be recorded is virtually unlimited.
Sustainable HRM -> Measuring the added strategic value of HRM activities has become increasingly important over the last decade. Sustainable
HRM is used to argue that people should be put back at the centre, it wants to develop a people policy with an emphasis on the positive aspects at
work instead of focusing on the negative aspects.
,Chapter 2: Strategy-driven HRM
Strategy = Long term planning to denote an organisation’s goals, including different performance indicators (e.g. Market share, sales competitive
positioning, profit, return on investment) and the means the achieve those goals (e.g. finance, technology, human resources).
Distinction between corporate strategy (deals with overarching strategy in large organisations, which are composed of various business units
operating in different markets, each with their own business strategy. Corporate strategy decisions: investments in diversification, vertical
integration, acquisitions) and business strategy (most important for achieving competitive advantage as this focuses on a specific market, which
requires different goals and resources to achieve competitive positioning).
Strategic HRM refers to HR that is coordinated and consistent with the overall business objectives to improve business performance. It focuses on
actions that differentiate them from its competitors. Human resources are a source of sustained competitive advantage (investing in their
workforce).
Process of aligning HR policies and practices with the objective of the organisation. Linking HR with company strategy = vertical fit and aligning HR
practices = horizontal fit. Aligning HRM system with the external environment = environmental alignment.
If you want to have an impact (as a HR manager) you need to understand the business, speak business language. People are the most important
asset of the business
Humans are a source of competitive advantage (but are they really?)
HR is internally and externally aligned
1. Competitive advantage: when are humans a source of sustained competitive advantage?
The resource-based view of the firm focuses on the link between strategy and internal resources of the firm and argues that organisations should
look inside the company to find the sources of competitive advantage to outcompete competitors.
Resources must add positive value to the firm.
Resources must be unique or rare among current and potential competitors.
Resources must be imperfectly imitable.
The resource cannot be substituted with another resource by competing firms.
Traditional strategy models -> Porter’s five forces of competition model -> focuses on environmental determinants of firms performance and says
little about determinants over which the manager has influence. According to resource-based view -> more feasible to exploit external
opportunities using existing (internal) resources in a new way rather than trying to acquire new skills for each different opportunity.
2. Are human resources valuable?
For human resources to exist as a sustained competitive advantage, they must provide value to the firm -> this requires that there is
heterogenous demand for labour (= firms have jobs that require different types of skills) and supply (= individuals differ in their skills and level of
skills). If there are no differences among the individuals, their jobs and their skills -> homogenous supply & demand.
Numerous studies examine the relationship between the presence human resources practices (use of valid selection tests, number of hours of
training of new employees) and the company’s financial performance -> Marc Huselid study: companies employing high-quality HR practices had
less employee turnover, higher productivity and better financial results than in companies employing low-quality HR practices.
The study is cross-sectional (measure all variables in the study simultaneously, you don’t know what comes
first) -> we can conclude that the 2 factors (HR practices and financial performance) are related to each
other but one does not influence another. There also isn’t an unknown factor that influences both variables
3. Are human resources rare?
For a resources to be a source of competitive advantage, it must be rare.
Human resources = commodity where unemployment exists, there is an excess of workers -> related to the issue of homogeneity of labour
supply (all current and potential employees have the same skill levels). Much of scientific management -> designing simplified jobs which require
no (or few) specific skills. Jobs are also designed In a way that skills become relatively irrelevant, human resources can be characterized as a
commodity rather than a rate resource.
Human resources = rarity Jobs require skills which allow for variance in individual contributions (job-relevant skills are no longer commodity) ->
those skills are normally distributed in the population -> under these conditions, high quality human resources are rare -> e.g. cognitive ability
(=intelligence) is related to individual job performance -> normally distribution in population so human resources with high cognitive ability are
rare. Firms with high average levels of cognitive ability relative to their competitors possess more valuable human capital resources than those of
competitors
4. Are human resources inimitable?
The resource must be inimitable -> if competitive advantage gained from having high quality, human resources are easily imitated, then its not
possible for human resources to constitute a source of sustain competitive advantage.
For a resource to be imitated -> competitors must be able to identity exactly the source of competitive advantage and competitors must be able to
duplicate exactly both the relevant components of the human capital resource pool and the circumstances under which these resources function.
The firm’s unique historical conditions, causal ambiguity and social complexity make it impossible to imitate the resources.
It’s Unlikely because resources are developed within companies
Path dependency: unique historical conditions determine a firm’s place in time and space -> even tiny trivial differences in the path we
have taken may have enormous consequences for where we are and can go.
Causal ambiguity: exist when the link between a firm’s resources and a competitive advantage is imperfectly understood. If other firms
cannot identify the way in which a firm resource acts as a competitive advantage, its impossible for them to imitate the resources -> e.g
its almost impossible to trace back the process by which a team product came about and to identify the individual contributions of each
team member. Because of rareness of HR, a competing firm can’t create a team with the exact same resources and so creates
competitive advantage.
Social complexity: the fact that many social phenomena are so complex as to make it impossible to manage or influence them
systematically. It may arise from transaction-specific relationships, competitive advantage may be due to transaction specific human
, capital -> e.g. It is possible for relationship between employees to develop over time and become part of a network that includes a larger
group of personnel -> a complex social situations develops and constitutes a competitive advantage.
Ployhart and Moliterno developed theoretical model to explain how individual-level KSAOs are transformed into firm-level human capital. The
complexity of task environment or degree to which the tasks require interdependence and coordination among members, facilitates the emerge
of firm-level human capital.
A potential problem -> human resources are highly mobile, a competing firm can’t just hire employees away but they are not perfectly mobile
because of several reasons: transaction costs in moving are high (the worker must weight the advantages and disadvantages of moving).
Like machines, we can’t move teams of individuals -> Not likely because of practical constraints: individual factors (social relationship, reluctance
to move or travel, loyalty to organization) and legal constraints. The change of context doesn’t guarantee same level of performance: ‘talent” is
partly context specific, acquiring an employee, team or company does not guarantee the same level of performance as before the acquisition.
5. Are human resources non-substitutable?
A resources must not have substitutes if it is to be the source of a sustained competitive advantage. This raises the question of whether other
firms resources, such as technology, have the potential for offsetting any competitive advantage attributable to human resources.
But up to 20 million manufacturing jobs could be replaced by robots by 2030, the more repetitive a job is, the more likely it is done by robots.
However, robots can also be used for more complex task e.g. there is a robot that can replace part of a lawyer’s job -> the cost is less than one
tenth of hiring a real lawyer, lawyers make mistakes and robots don’t. drones for food delivery, surgical robots, robot vacuum cleaner.
Human resources are one of the few firms resources which have the potential to: not become obsolete (because of continuous training) and to be
transferable across a variety of technologies, products and markets. To the extend that the resource (e.g. technology) offsetting the advantage of
human resources is not rare, inimitable, or non-substitutable, then it will be imitated and human resources will once again constitute a
competitive advantage.
6. When are humans a source of sustained competitive advantage?
We can conclude that very often human resource provide a source of sustained competitive advantage but we cannot conclude that HR always
and everywhere contribute to achieving sustainable competitive advantage -> human resources add value (not interchangeable), they are rare
unless there is a surplus of workers or no special skills to do the job. For the competitors its very difficult to imitate the conditions that lead to
success, unless they can buy talented employees/team (but it does not guarantee that they will still be successful).
Job can and will be replaced by technology but some human characteristics cannot be copied by robots ( ethical decision making, feeling empathy)
Importance of HR is context dependent e.g. positive relationship between HR practices and labour productivity is stronger in knowledge-intesive
industry with low levels of capital intensity -> knowledge intensive firm need complex and skilled human resources for functioning and capital
intensive firm need nonhuman resources (machines), geographical context also matters e.g. the use of sweatshop labour is especially prevalent in
emerging market economies in developing countries such as Pakistan, Bangladesh, Mexico.
7. Different types of alignment
Alignment is a crucial concept of HRM and performance. HRM should be aligned firstly with the business strategy. Vertical alignment is insufficient
in itself: the HRM practices and policies should also be aligned with one another, with organisational systems and work systems, and with the
external environment.
Strategic HRM (SHRM) = the process of aligning HR policies and practices with:
The business strategy vertical/strategic alignment
Each other (different HR practices) horizontal/internal alignment
Other relevant aspects of the organisation, e.g., organisational structure organisational alignment
The institutional environment environmental alignment
8. Vertical alignment
Business strategy (how to compete in a specific market?) -> important for
achieving competitive advantage, focused on a specific market with different
goals and resources to achieve competitive positioning .
Corporate strategy (What market should we be in?) -> deals with overarching
strategy in large organisations, which are composed of various business units operating in different market each with their own business strategy -
> decisions include investments in diversifications, vertical integration, acquisitions and new ventures, allocation of resources between different
business of firm.
Low-cost barrier: e.g. Ryanair -> Charges less and offers more limited service, standardized training for pilots/crew members, lower maintenance
costs -> Everything Ryanair does in its major activity system is to provide lower costs to customers or IKEA does not sell luxury goods -> they stick
to one strategy.
9. Vertical alignment: types of strategy
Miles and Snow’s strategy typology -> By studying companies in four different industries, they found that organisations tended to demonstrate
one of the four different strategic approaches.
Defenders: companies that start from a narrow and stable market and seek to improve the efficiency of their operations. Since the
market Is not constantly changing, they focus on price reduction or quality improvement for existing products. The aim is to maintain a
position within existing market and provide a full range of services to customer. Growth comes from expanding existing products.
Prospectors: flexible and dynamic environment and defines their market broadly. For growth they regulate innovation, expand product
lines, develop new products and look for new market segments. They differentiate through innovation and bring their products to the
market before the competitor cans.
Analysers: Try to combine strength of defenders & prospectors. They have a mix of stable products and evolving products, looking for
growth in the depth of market penetration and product development.
Reactors: It lacks a set of consistent response mechanism that it can put into action when faced with a changing environment
