Competitive Advantage through Human Resource ( a section of my book-HRM)

Organizations are operating in a dynamic and competitive environment. They need to create and sustain competitive advantage if they want to survive and grow. A traditional source of competitive advantage has been eroded. Now it is believed that productivity is through people. People provide an organization with the source of competitive advantage. Various studies have concluded that that an organization’s human resources can be a significant source of competitive advantage (Wright and McMahan, 1992; Lado and Wilson, 1994; Gordon, 1986; Pfeffer, J, 2005). Human factor is the only organizational  resource which is able to develop competitive advantage.  Porter (1990) argues that people are becoming a great differentiating factor. Managers should select those people who are smarter, better trained, more motivated, and more committed.  Jeffry Pfeffer (1994) in his famous book “Human equation" argues that source of competitive advantage has shifted over time. Successful companies of USA for their sustained advantage tend to rely not on technology, patents or strategic position, but on the way they manage their workforce. Achieving competitive success through people requires a basic change in how managers think about their employees and how they view the work relationship. For gaining competitive advantage through people, Professor Pfeffer of Harvard University suggested few HRM guidelines and these are listed below:

Employment Security

Employment security is a critical element of high performance work arrangement.   Security of employment signals a longstanding commitment by the organization to its workforces. Feeling of stable employment may generate loyalty, commitment or willingness to expend extra efforts for the organization’s benefits.  Employment security enhances employee involvement because employees are more willing to contribute to the work process when they need not fear losing their own or co-workers' jobs. Security of employment contributes to training as both employer and employee have greater incentives to invest in training because there is some assurance that the employment relationship will be of sufficient duration to earn a return on the time and resources expended in skill development.   The employee will come up with new ideas when their jobs are secured because they know that introduction of the new system will not affect their employment stability. They will welcome to change.

Selective recruiting

Organizations serious about making profit through people will expend the efforts needed to ensure that they recruit the right people in the first place. Organizations need to have a large applicant pool from which to select the right person. For example, Public Service Commission of Bangladesh receives almost three lakhs job applicants, interview only 5% and hires only 0.02% (Wikipedia, 2013). Security in employment and reliance on the workforce for competitive success mean that one must be careful to choose the right people in the right way. Firms serious about selection put applicants through several rounds of interviews and a rigorous selection procedure.  Japanese companies have a reputation for their extensive screening of employees. Screening is done carefully to find people, who could work better in the new work environment, learn and develop quickly and needed less supervision. Organizations need to be clear about what are the most critical skills and attributes needed in its application pool.  Care must be taken while selecting employees. If we select less qualified employee, he or she will be a burden for the organization for a long time.

High and lucrative wages

An organization can attract and retain qualified candidates if it pay high and lucrative pay package. Higher wages tend to attract more outstanding applicants, permitting the organization to be more selective in finding people who will be committed to the organization. Higher wages send a message that the organization values its people. Low labor cost cannot ensure competitive success for a long time.

                                        

Incentive pay

Pay system should be based on performance or productivity of employees. Employee will contribute more if they earn more.  Contingent incentive can take many forms such as gain sharing, profit sharing, stock ownership, pay for skills, or various forms of individual or team incentives. Microsoft, for example, encourages sharing ownership (Pfeffer, 2006). When employees are owners, they act and think like owners. Moreover, the conflict between capital and labor can be reduced by linking them through employee ownership. Profit sharing causes employees to focus on costs and profits because they receive a percentage of those profits.  Paying for skills acquisition encourages people to learn different jobs and thereby to become more flexible. There is a tendency to overuse money to solve organizational problems. But this is not always a true solution. Many people prefer recognition, security, appreciation and fair treatment and these things matter a lot (Huselid, 1995).

Employee ownership

Make employee a mini-employer. This can be done by stock ownership plan. This may increase their sense of ownership. Employee ownership reduces conflict between labor and capital.  Employee ownership puts stock in the hands of people, employees who are more inclined to take a long term view of the organization, its investment policies and strategies and less likely to support hostile takeovers and acquisitions. It has a positive effect on firm's performance, if managed properly. Stock ownership plan makes the employee a mini-employer. This may increase their sense of belongingness and ownership.

Employee empowerment and participation

Empowerment indicates many things  to many experts. It refers to mutual influence, creative distribution of power and shared responsibility. It is a  democratic, and long-lasting process. Empowering enables people to use their talents and capabilities, fosters accomplishment, invests in learning, finds the spirit in an organization and builds effective relationships, informs, leads, coaches, serves, creates, and liberates. Participation increases both satisfaction and employee productivity. Managers should encourage decentralization of decision making. Autonomy is one important dimension of the job and was the focus of the many job redesign related efforts undertaken by many companies in the early 1980s as a part of movement of quality of working life. The basic change involves moving from a system of hierarchical control and coordination of activity to one in which lower-level employees are permitted to do things to increase performance.  In Germany, for example, employee empowerment in the board of directors occurs through the system of co-determination. It is also known as industrial democracy.

Information sharing

If people are to be a source of competitive advantage, they must have the   information necessary to do what is required to be successful. Information sharing is an essential element of high performance work systems. The sharing of information on issues like budget, strategy and financial performance conveys the people of an organization that they are trusted.  Even motivated and trained people cannot contribute to increased organizational performance if they do not have information on important dimensions of performance. Stack (1993) articulates the importance of sharing information. He argues, “Do not use the information to control or manipulate people. Use it to teach people how to work together to achieve common goals and thereby gain control over their lives. Provide people with information that allow them to make the right decisions”.

Training and development of skills

Training is an essential component of high performance work systems because these systems rely on front line employee’s skill and initiate to identify and resolve problems, to initiate change in work methods, and to take responsibility for quality. All of this requires a skilled and motivated workforce that has the knowledge and capability to perform the requisite tasks. As time goes on employee`s skill may become obsolete. They need to be retrained to upgrade and acquire new skills. Training also changes and modifies employee attitudes and behaviors. Trained people must be placed in jobs in which they can apply their acquired skills.

Treat people with respect and dignity

Dignity is a term used in moral, ethical, legal, and political discussions to signify that human being  has  an innate right to be valued and receive ethical treatment.  At the heart of human right, it is the belief that everybody should be treated equally and with dignity – no matter what their circumstances. This means that nobody should be tortured or treated in and inhuman or degrading way. It also means that nobody has the right to ‘own’ another person or to force them to work under threat of punishment. And it means that everybody should have access to public services and the right to be treated fairly by those services. This applies to all public services, including the criminal justice system. For example, if you are arrested and charged, you should not be treated with prejudice and your trial should be fair.  Dignity of Labor indicates that all types of jobs are respected equally, and no occupation is considered superior. Though, one's occupation for his or her livelihood involves physical work or mental labor, it is held that the job carries dignity compared to the jobs that involve more intelligence than body. No work is superior or inferior in itself. Work is work. It is absolutely wrong to consider any work as high or low. The work itself is a dignity. Every work has some dignity attached to it. It is improper for anybody to think that a certain kind of work is undignified or below his status. No work is meant high or low. Social reformers like Mahatma Gandhi, Martin Luther King, and Ram Mohan Roy were prominent advocates of the Dignity of Labor.

Wage compression

Pay differential among the levels of management should be lower. Wage compression between senior managers and other employees will reduce status differences and develop a sense of common fate.   A huge pay gap may damage the cooperative spirit between managers and workers. High pay gap causes employees to feel less valued.  The pay gap is the lowest in Japan and highest in the USA. Wage compression is the situation that occurs when there is only a small difference in pay between employees regardless of their skills or experience. It is also referred to as salary compression. Pay compression is the result of the market-rate for a given job outpacing the increases historically given by the organization to higher tenure employees. Therefore, newcomers can only be recruited by offering them as much or more than senior professionals. Pay inequities exist in all public and private sector organizations and may be caused by: overtime, talent acquisition, reorganizations, demotions, reassignments & transfers, demand for technical expertise and seniority. Some organizations conduct compression studies to achieve certain levels of internal equity, so that people in relatively similar jobs in the organization receive equal pay.

Promotion from within

It is of vital importance to encourage employee promotion from within the organization. This practice may boost employee morale. It encourages training and skill development because of availability of promotion opportunities within the firm bind workers to employers and vice versa. It facilitates decentralization, participation and delegation because it helps promote trust across hierarchical levels. Promotion is a reward that is  status-based. It provides a sense of fairness and justice in the workplace. Another advantage of promotion from within is that it tends to ensure that people in management positions actually know something about the business, the technology and the operation they are managing.