The strategic human resource management (SHRM) literature shows that people resources (a highly skilled and motivated workforce exhibiting productive behaviour) are a source of sustainable competitive advantage.
Resources that are rare, valuable, inimitable and non-substitutable can provide a sustainable competitive advantage.
Human resources are difficult for other organisations to imitate.
By effectively managing the human resources, firms nurture the type of employee behaviour that is essential to the success of their competitive strategy.
The human resource (HR) practices used by an organisation may differentiate the human resources from those at another firm.
This core competence is achieved through a combination of human capital elements such as staffing, development of skills, compensation, structures, systems, processes and supporting people management systems.
SHRM involves designing and implementing internally consistent HR policies and practices that enable the firm’s human resources to contribute to the achievement of its business goals.
The emphasis is on the importance of developing human capital and ensuring that the environment is conducive for employees to perform.
SHRM has put “people” on the strategy radar screen, thereby highlighting the importance of people to competitive advantage.
Effective HRM strategy systematically coordinates all individual HRM measures and implements them to achieve the desired employee attitudes and behaviour that will help the business achieve its goals.
Let us look at two main models of HRM, the “Harvard Model” and the “Michigan Model”:
The Harvard Model
The Harvard Model of HRM stresses the “human” aspect of HRM and is more concerned with the employer–employee relationship.
The Harvard interpretation sees employees as resources with their own needs and concerns along with other groups such as shareholders, management and customers.
The actual content of HRM, according to this model, is described in relation to four HR policy areas:
Human resource flows — recruitment, selection, assessment, orientation and socialisation, training, promotion, termination;
Reward systems — pay systems, motivation;
Employee influence — delegated levels of authority, responsibility, power, employee participation and involvement; and
Works systems — definition and design of work, alignment of people, evaluation by peers and supervisors, participative arrangements and so on.
These four HR policies are modelled to lead to commitment, competence, congruence and cost effectiveness — which subsequently gives rise to developing and sustaining mutual trust and improving individual and group performance at the minimum cost to achieve individual well-being and organisational effectiveness.
The Michigan Model
Also known as the “matching model” or “best-fit” approach to HRM, the Michigan Model comes from the Michigan and New York schools.
This model highlights the “resource” aspect of HRM and emphasises the “strategic fit” — where the efficient utilisation of human resources meets the overall strategies of the business.
They identify four common HR elements of selection:
Matching people to jobs;
Appraisal of performance;
Rewards (emphasising the real importance of pay and other forms of compensation in achieving results); and
Staff training and development.
There are many similarities with the Harvard Model but the Michigan Model has a less humanistic edge, holding that employees are resources in the same way as any other business resource.
That is, people have to be managed in a similar manner to equipment and raw materials.
They must be obtained as cheaply as possible and developed as much as possible.
The main objective of the matching model is to develop an appropriate “human resource system” which will characterise the HRM strategies that contribute to the most efficient implementation of business strategies.
HR issues are important in every organisational setting.
They are of paramount importance for service firms, as their service employees deliver service while interacting with customers in a shared environment.
When employees perceive their organisation as one that has sound HRM functions and activities such as proper recruitment and selection, training and development, a fair rewards system and performance appraisals, they are then enabled to do the firm’s main work of serving customers.
Thus, HR and marketing scholars have emphasised the importance of HRM for service quality.
How service employees experience their work environment is reflected in the perceptions customers have of the service quality they receive.
Research has shown that when employees describe the HRM practices in their work environment in positive terms, customers also report that they receive superior service quality.