In today’s rapidly changing globalised business environment, human capital has become one of the keys to competitive advantage. Consequently, any good business strategy must fully utilise the inimitable assets of people through their knowledge, skills and abilities. This highlights the need for strategic human resource management (SHRM). The key assumption of SHRM is that organisational performance is affected by employees through a set of human resource (HR) practices (Pan et al 2006).
A review of the literature linking HR practices to business strategy shows two conflicting perspectives in SHRM. The universalistic perspective suggests that there is a universal set of best practices that any business can adopt to improve organisational performance. Conversely, the contingency perspective suggests that business performance will improve when there is consistency or fit between business strategy and HR policies. This essay will discuss the theory and models behind each perspective and provide a critique on each of the opposing views.
This approach maintains that all firms will see performance gains by identifying and implementing best practice irrespective of the product market situation, industry or location of the firm. Performance gains include improvements in employee behaviours and attitudes, reduced staff turnover, increased productivity, quality and customer service and of course increased profitability. This requires support from top-level managers to adopt these key HR practices, research the latest trends of best practice and reward correct implementation of these practices.
Redman (2006) suggests that making changes to individual practices will have a very limited effect whereas making changes together will have a more powerful effect. This leads onto the concept of looking for a ‘bundle’ of practices which need to be combined together (Huselid 1995). Although many researchers agree with the concept of bundling practices together, there has been little agreement about which HRM practices should be included. Consequently, some models have only a few key practices while others have a dozen or more. The most influential work to date is that of Jeffrey Pfeffer. Pfeffer originally devised a list of 16 practices in 1994 but subsequently narrowed them down to the following 7 in 1998:
1. Employment Security
2. Selective Hiring
3. Self-managed teams or team working
4. High pay contingent on company performance
5. Extensive training
6. Reduction of status differences
7. Sharing information
The HR practices in this bundle, and indeed any bundle should be consistent across workplaces and function together, otherwise known as internal fit. For example, it would be wrong to encourage team work but support individual performance related pay. Any perceived (and actual) inconsistencies between practices will reduce the effectiveness of the bundle and can lead to dissent and dissatisfaction. (Marchington et al...