The ‘bottom line’ refers to the organisations overallperformance based on profitability and increasing the shareholder value throughits people. Human Resource Management (HRM) practices contribute to achievingstrategic goals and this assignment will discuss how organisationalcapabilities, Strategic Human Resource Management (SHRM), High Performance WorkSystems (HPWS) and the Configuration Approach impact on the bottom line. Finally,it will discuss the methodological issues in measuring HRM practices. OrganisationalCapabilities are the core competences of the individual which can be developedin the workplace (Eikelenboom, 2007). SHRM focuses on how the organisation willimplement strategies to achieve its goals through their employees (Armstrong,2006).
HPWS refers to ‘A human resource system that provides increased training,employment security and pay incentives for non-managerial employee’s.’ (Appelbaum et al, 2000, p.8).
TheConfiguration Approach involves using several HRM practices at the same time toincrease organisational performance (Delery and Doty, 1996). HRM highlights how organisationalcapabilities influence profitability and competitive advantage. HRM does thisby: ‘enabling the work efforts to be co-ordinated, channelled towards achievingthe goals of the organisation and responsive to a changing environment.’ (Eikelenboom, 2007, p.
61). Thisapproach can be referred to as SHRM as it is crucial for HRM practices to beemployee-focussed and align with the organisational strategy. Trainingemployees develops skills and knowledge and allows them to apply this tocontribute to the efficiency of their work processes. Ulrich (2015) and Macduffie(1995) agree that training schemes develop a unique set of skills that areinimitable: Maintaining dynamicstrategic capabilities requires firms to leverage their human capital for notonly achieving maximum productivity but also contributing to core competence sothat they will become distinctive. (Wang et al, 2012, p.1129). Human Capital is a non-substitutable and valuable resource;therefore, it is important to enhance the value of human capital throughtraining and development which encourages staff commitment and retention.HRM practices need to be consistent to ensuresustained competitive advantage.
Purcell et al (2003) implemented alongitudinal study involving 12 companies and discovered that the successfulcompanies had a ‘Big Idea’. Their mission and culture were supported theirstrategy and therefore increased their competitive advantage even when therewere external pressures. SHRM influences the bottom line byconsidering how the organisational culture can inform strategic decisions.Human Resource (HR) executives should discuss how the organisation should bestructured to achieve this through aligning new initiatives to their strategicgoals and highlight this in their Action Plan. Behavioural agendas show the extent towhich all employees behave consistently with the desired culture; and processagendas institutionalise the culture through management practices. (Ulrich,2015, p.
11). The Action Plan will address and adaptpeople’s behaviours to align with the shared goals through incentive schemesand performance management appraisals. This can be done using rating scales BehaviourObservation Scales (BOS). It is crucial these HRM practices have managerialapproval as value-added activities because they will only contribute toorganisational performance if there is a shared consensus across the workforce. HRM has a great impact on the bottom linein reference to developing HPWS through recruitment and selection procedures,incentives and performance management meetings and providing relevant trainingto employees. Boxall and Purcell (2003) suggest that individual performance isbased on Ability, Motivation and Opportunity and the HR Department isresponsible in supporting these elements. To develop unique abilities, the HRDepartment must initiate a rigorous recruitment process so that theorganisation can select and hire the most highly qualified candidate. Once theyhave been selected, the HR Department can then expand these skills throughtraining opportunities.
Arthur (1994) studied 30 U.S steel mini mills and foundthat the organisations with higher productivity had given employees moretraining opportunities and encouraged problem-solving. Therefore, throughproviding training, employees will gain a sense of belonging within theorganisation and will continue to work hard which leads to increasedproductivity.Vroom (1964) emphasises the impact thatincentive schemes have on the bottom line. Extrinsic motivation, for examplethrough a bonus scheme, highlights the link between effort and reward.
Anemployee who can independently direct his or her behaviour to achieve a certainreward is engaging in intrinsic motivation. Motivation encourages employees tomeet productivity targets and therefore supports the organisations performance.HPWS depends on the successful integrationof HRM practices and the best-fit approach. The policies and practices adopteddepends on organisational structure, culture and strategy. However, thisapproach has been critiqued for ignoring the relationship between best fit andflexibility: ‘organisations should be less concerned with best fit and bestpractice, and much more sensitive to processes of organisational change.
‘ (Armstrong,2006, p.112). Armstrong suggests that organisations need to focus on adaptingto the changing markets. Delery and Doty (1996) suggest that theConfigurational Approach enhances HRM practices through bundling: Internal alignment among practices shouldresult in performance advantages for firms, because the different sets of HRMpractices will elicit, reward and control the appropriate employee behaviours. (Bowenand Ostroff, 2004, p.211). Bundling involves developinginter-connected and inter-dependent HR practices focused on employee motivationand ability. Ichniowski et al (1997) identified a relationship between bundlingeighteen HR practices and organisational performance when they studied steelfinishing lines in 21 U.
S steel companies. They found that bundling influencedthe organisation’s strategy which impacted upon their performance. HRM activities influence the bottom linewhen employees have the required capabilities and through discretionary effortare encouraged to utilise them.
Organisational Capabilities can be acquiredthrough bundling for example job rotation and problem-solving groupexercises. It is crucial for employees and managersinterests to synergise towards the organisation’s shared goal to develop a ‘psychological contract of reciprocalcommitment’ (Macduffie, 1995, p.201). This involves removing the statusbarrier between the two groups.
Blau (1964) highlights this relationship in theSocial Exchange Theory. Employees should be treated as important assets becausethey will develop job satisfaction and extra-mile behaviours. They should begiven autonomy in work-related decision making and there should be regularcommunications between departments and hierarchies. Therefore, employees needto feel valued and appreciated in the organisation and their individual goalsshould align with the organisations because this shared consensus will impactorganisational performance.However, the validity of the ConfigurationApproach and its impact on the bottom line has been questioned. Torrington etal (2005) believe the most valuable HRM practices are used by the mostprofitable firms because they can afford to pay for them so they are alreadyprofitable. Additionally, the inter-dependence between the practices may placethe organisation at a disadvantage as Becker and Gerhart (1996) suggest thatbecause the bundles are so complex, the organisation might find it difficult toadapt to changes in the environment. However, research studies by Ichniowski etal (1997) have claimed that this is not the case.
Furthermore, Macduffie’s (1995) two-wayrelationship between manager and employee has been critiqued by Legge (1998)who believes that employees are exploited by managers for their own personalgain, therefore HRM practices do not encourage shared values. This suggeststhat HRM has been defined by managers based on their pre-requisite ideas tosuit their ideological goals. It is important to consider how HR’simpact can be measured and what issues need to be overcome.
Colakoglu et al(2006) suggest that since all organisations are managed differently, themeasurement techniques will differ also. They suggest therefore, that thechoice of measurement tools to assess the impact of HR on performance isdependent on the choice of HR policy and how it is valued and implemented. Wintermantel and Mattimore (1997) highlightthe importance of isolating the impact of HR from other areas of theorganisation. They suggest that HR policies and practices can be separated bycreating independent policies and practices which are aligned with theorganisation objectives and are agreed and understood across the wholeorganisation. The impact of these policies can then be measured based on theachievement of the objectives.
It is important therefore for the HR department tocarefully select the criteria and make the data meaningful and appropriate. Forexample, using rating scales will provide quantitative individual performancedata which can then be used to develop desired work behaviours and commitment. Baruch (1997) suggests that there are arange of tools for evaluating HRM including employee engagement surveys. HRMpractices should be incorporated into the survey which can then be benchmarkedagainst the levels of employee engagement. Once they have been completed, thesurveys as well as BOS can be analysed by the HR department based on the degreeto which employees are engaged in their work. They can then implementstrategies to improve the processes and procedures.
This assignment has applied successfulcase studies to the literature and it can be concluded that, SHRM can bringabout organisational returns through the provision of valuable training coursesto develop unique skills. As a result, employees will develop a shared visionwith the organisation, thus impacting on the bottom line. Furthermore, throughmonitoring individual performance regularly, the organisation can developattitudes and behaviours which are crucial to sustain the organisation andmaintaining competitive advantage.However, it is important to highlight thatdifferent HR practices will be more beneficial to different organisations andit relies on the HRM department to find the ‘best fit’ of policies andpractices.
This involves measuring the impact the policies have on the bottomline and how the data can be interpreted to produce new strategies, whilstconsidering methodological issues.Therefore, this assignment has proven thatHR contributes to the value adding process of the company and therefore, thesoftware firm should not cut the HRM budget. Through constructing policies andpractices applicable to the organisation, HRM can develop the skills andattributes needed to compete in the expanding market.