Chapter 1 Human Resource Management and Competitive Advantage

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Chapter 1Human Resource Management

and Competitive Advantage


Chapter Outline

• 1-1 Human Resource Management

• 1-2 Who Is Responsible for Developing and Implementing HRM Practices?

• 1-3 Gaining a Competitive Advantage

• 1-4 Competitive Advantage and HRM


1-1 Human Resource Management

• Human resource management: Consists of practices that help the organization deal effectively with its people during the various phases of the employment cycle.

• Three phases of the employment cycle: Pre-selection – Planning practices. Selection – Recruiting applicants and selecting the

most qualified. Post-selection – Practices designed to maximize the

performance and satisfaction levels of employees.


1-1a HRM Preselection Practices

• Human resource planning: Anticipate and meet changing needs relating to the acquisition, deployment, and utilization of employees; accomplished through strategic planning and demand and supply forecasting.

• Job analysis: A systematic procedure for gathering, analyzing, and documenting information about particular jobs.


Figure 4-1 Job Analysis


1-1b HRM Selection Practices

• Recruitment: Locate and attract job applicants for particular positions quickly, cost efficiently, and legally.

• Selection: Assessing and choosing job candidates through a technically sound and legal procedure.


1-1c HRM Postselection Practices

• Training and development: Planned learning experiences that teach workers how to perform their current or future jobs effectively.

• Performance appraisal: Measures the adequacy of employees’ job performances and communicates these evaluations to them.


1-1c HRM Postselection Practices (cont.)

• Compensation: Entails pay and benefits, and aims to establish and maintain a competent and loyal workforce at an affordable cost.

• Productivity improvement programs: Tie job behavior to rewards, and aim to motivate employees to engage in appropriate job behaviors.


1-1d HRM Practices Influenced by External Factors

• Legal and environmental issues: Federal, state, and local laws are designed to

guarantee employees’ rights to fair and safe treatment. Social, economic, and technological events also

strongly influence HRM practices.

• Workplace justice laws: Addresses the issue of employee rights.

• Union influences: Regulate many HRM practices such as discipline, promotion, grievance procedures, and overtime allocations.


1-1d HRM Practices Influenced by External Factors (cont.)

• Safety and health concerns: Institution of accident prevention programs, wellness programs, and employee assistance programs to ensure the health and mental well-being of employees.

• International influences: Development of globally oriented managers who understand foreign languages and cultures, as well as the dynamics of foreign marketplaces.


1-2 Who Is Responsible for Developing and Implementing HRM Practices?

• Human resource professionals Establish HRM procedures and methods. Monitor and evaluate HR practices. Advise and assist managers on HRM-related matters.

• Line managers Direct employees’ day-to-day tasks. Implement HRM practices. Provide HR professionals with needed inputs for

developing effective practices.


1-3 Gaining a Competitive Advantage & 1-3a Competitive Advantage Defined

• Firms gain competitive advantage by effectively managing their human resources.

• Competitive advantage is a status achieved by a company when gaining a superior marketplace position relative to its competition.

• This is accomplished through cost leadership and product differentiation.


1-3b Cost Leadership

• Cost leadership strategy: A firm provides the same services or products as its competitors, but produces them at a lower cost.

• A firm can reduce its per unit cost by increasing the value of Number of units produced/total cost of production.

• Per unit cost can be reduced by: Using new technology. Devising more efficient work methods . Cutting overhead costs.


1-3c Product Differentiation

• Occurs when a firm produces a product or service that is preferred by buyers.

• A firm can accomplish this aim by: Creating a better quality product or service. Providing innovative products or services. Choosing a superior location. Promoting and packaging its product to create a

perception of higher quality.

• Creates a competitive advantage if the firm’s customers are willing to pay enough to cover extra production costs.


1-4 Competitive Advantage and HRM

• Studies have indicated: A strong link between HRM effectiveness and

productivity. The impact of a broad range of HRM practices on

shareholder return; 15–30 percent of the total value of a company could be attributed to the quality of its HRM practices.


1-4a Evidence Linking HRM Practices to Competitive Advantage

• Jeffrey Pfeffer identified 16 HRM practices: Employment security Selectivity in recruiting High wages Incentive pay Employee ownership Information sharing Participation and empowerment Teams and job redesign


1-4a Evidence Linking HRM Practices to Competitive Advantage (cont.)

• Jeffrey Pfeffer identified 16 HRM practices (cont.): Training and skill development Cross-utilization and cross-training Symbolic egalitarianism Wage compression Promotion from within Long-term perspective Measurement of practices Overarching philosophy


Figure 1-4 A Model Linking HRM Practices to Competitive Advantage


1-4b A Model Linking HRM Practices to Competitive Advantage

• Direct path: The way an HRM practice is carried out can, by itself, have an immediate impact on competitive advantage. Cost leadership can be achieved through the use of

effective HRM practices. Firms doing the best job of containing HRM-related

costs stand to gain a financial advantage over their competitors.


1-4b A Model Linking HRM Practices to Competitive Advantage (cont.)

• Indirect path: An HRM practice can impact competitive advantage by causing certain outcomes, which, in turn, create competitive advantage. HRM practices Employee-centered outcomes Employee-centered outcomes Organization-

centered outcomes Organization-centered outcomes Competitive

advantage



• HRM Practices Employee-centered outcomes Competence – Extent of knowledge, skills, and

abilities possessed for the job. Motivation – Willingness to exert necessary effort to

perform the job well.



• HRM Practices Employee-centered outcomes Work-related attitudes – Extent of

- Job satisfaction – Favorableness of employee attitudes toward their jobs.

- Organizational commitment – Psychological attachment to, identification with, and involvement in the organization.

- Organizational citizenship – Willingness to engage in behaviors that help the organization achieve its goals.



• Employee-centered outcomes Organizational-centered outcomes Output – Quantity, quality, and innovativeness of the

product or service offered by a firm. Employee retention – Amount of employee turnover. Legal compliance – Conformance to various

employment laws. Company reputation/Image – Favorable view of the

organization by potential applicants and customers.



• Achievement of employee-centered outcomes leads to favorable organization-centered outcomes. Positive job attitude, motivation, and high productivity. Reduction of HRM-related lawsuits. Enhances the reputation of the company. Helps the customers view the company positively.



• Organization-centered outcomes Competitive advantage Cost leadership – Achieved through using technology,

minimizing turnover rates, and avoiding lawsuits resulting from noncompliance.

Product differentiation – Achieved through: - Individuals performing their jobs well. - Treating employees in a manner that helps retain long-

term employees.


1-4c HRM Practices and Sustained Competitive Advantage

• Management of human resources is less susceptible to imitation.

• The competitive advantage achieved through HRM practices is likely to be more sustainable. Competitors rarely have access to a firm’s HRM

practices; the practices are not very visible to outsiders.

Even when these practices are visible, their impact may not be as favorable when used by competitors.

Chapter 1 Human Resource Management and Competitive Advantage

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