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Sample Undergraduate 2:1 Business exam revision notes

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Define the term HRM and outline the debate on whether the strategic use of HRM practises can improve organisational performance

Introduction

  • Many business functions that can help to increase an organisations performance and create a competitive advantage, including: operations, marketing, sales and HRM (Yeo, 2003).
  • These revision notes will define the term human resource management, and provide a critical discussion on how it can be used as a strategic tool for improving an organisation performance.

Defining HRM

  • Human resource management can be defined as “all activities related to the management of employment relationships in the firm”, with strategic HRM being able to “provide firms with the internal capacity to adapt and adjust to their competitive environments by aligning HRM policies and practices” (Dabic, et al., 2011, p. 15).
  • Ahmad & Schroeder (2003, p. 19) defined HRM as “a set of distinct but interrelated activities, functions, and processes that are directed at attracting, developing, and maintaining (or disposing of) a firm’s human resources”.
  • The definitions underpin the core concepts and definition of HRM, defining it as the process for managing people within an organisation.
  • Human capital is referred to as the combined knowledge and skills of an organisations workforce, and is often considered one of the most important assets for a firm (Collins & Clark, 2003). This solidifies the importance for understanding the management of human resources, and how different activities can be enforced to retain human capital and build upon it within future operational processes.

Strategic Use of HRM

  • HRM can be strategically used to create a competitive advantage and improve an organisations performance through many ways. This is mainly through employee related metrics, such as motivation, satisfaction, development, talent retention, conflict management, benefit systems and job design (Collins & Clark, 2003).
  • Another way that HRM can also be used to improve organisational performance is through leadership, with many different leadership styles being found to have pragmatic benefits on the performance of employees and the organisation. Leadership development offers a way to nurture the employee-related variables, and ensure that the development of a competitive advantage can be sustained and improved upon (Islam & Arif, 2011).

Employee Motivation/Satisfaction

  • No matter which strategy the HRM function is pursuing, the underlying reason will usually be to improve employee motivation, satisfaction and/or engagement (Koys, 2001).
  • These are three key variables that will help bolster the individual performance of an employee, which will ultimately have drastic impacts on how the organisation performance.
  • HRM must effectively identify appropriate factors that will help improve the motivational and satisfaction levels of their employees, although this may be challenging to achieve to their subjective nature (Koys, 2001).

Performance & Talent Management

  • The HRM function should aim to improve employee performance and nurture incoming talent. This is one of the most significant responsibilities of HRM and can hold the largest impacts on the levels of human capital and organisational performance (Hitt, et al., 2001). Building human capital through performance development and talent management can rapidly improve innovation and individual performance, both of which will positively correlate with organisational performance (Judge, et al., 2001; Hitt, et al., 2001).
  • Performance management can be framed within many different models, such as the performance management cycle (OPM, 2017), coaching or mentoring (Parsloe, 2009), and performance review cycle (Lucas, et al., 2006). These methods provide a cyclical process for strategizing, monitoring and improving an individual’s performance, with these models being most effective when created individually for an employee (Atkinson & Shaw, 2006).

Conflict Management

  • HRM can also help to improve and sustain organisational performance is conflict management, which handles and resolves any disputes or disagreements between employees. This can be achieved through a plethora of different strategies, including: mediation, arbitration, litigation, or adjudication (Deutsch, et al., 2011).
  • Identifying the most appropriate strategy is the biggest challenge of conflict management, as it can be hard to deduce whether external involvement is necessary. Less severe conflicts can often be solved through internal meetings and mediation counselling, whereas more severe concerns may need to employ the aid of an external tribunal (Barki & Hartwick, 2001).
  • Conflict can be categorised as functional and dysfunctional. It is dysfunctional conflict that often requires attention by HRM systems, as functional conflict, may be viewed as a positive and can result in idea generation and innovation (Massey & Dawes, 2007). Identifying types of conflict is also imperative for the HRM function to identify whether they must intervene to sustain performance, or can allow functional conflict to occur with the intention of improving performance (Massey & Dawes, 2007).
  • Conflict can be categorised as functional and dysfunctional. It is dysfunctional conflict that often requires attention by HRM systems, as functional conflict, may be viewed as a positive and can result in idea generation and innovation (Massey & Dawes, 2007). Identifying types of conflict is also imperative for the HRM function to identify whether they must intervene to sustain performance, or can allow functional conflict to occur with the intention of improving performance (Massey & Dawes, 2007).

Benefits & Rewards

  • Benefits and rewards are often linked with the psychological contract, which is the employee’s subjective opinions on the ‘contract’ of social exchanges that exists between themselves and the organisation (Aselage & Eisenberger, 2003). If an organisation violates this contract then it can have numerous negative impacts on an employee’s commitment and engagement with their working responsibilities, which can negatively impact organisational performance (Aselage & Eisenberger, 2003; Grant & Sumanth, 2009).
  • To avoid a breach of contract, or minimise an impact if a breach occurs, relevant tangible and intangible benefits should be offered to employees. This helps support a positive psychological contract within employees, which will in turn result in improvements in organisational performance.
  • Appropriate reward systems may also be subjective to the employee, but can be implemented through several different methods, including: pay, holidays, maternity/paternity leave, company car or expenses (O'Neill & Adya, 2007; Bal, et al., 2010).

Job Design

  • Job design is often overlooked for contributing to organisational performance, but can impact employee engagement and commitment (Foss, et al., 2009).
  • HRM should ensure that jobs are designed effectively to ensure that the organisation is employing the right individuals.
  • ‘Best fit’ is a common concept within HRM, and revolves around an organisations ability to hire the most optimum employees. Job design plays a significant role in this, and is also supported by effective recruitment and selection strategies (Paul & Anantharaman, 2003).

Leadership

  • Leaderships styles can help improve employee motivation, satisfaction, engagement, and performance. Task-orientated styles are considered traditional approaches, with there being four contemporary styles that can help develop and sustain employee related metrics. This includes:
    • Transformational: Lowe, et al., (1996, p. 385) defines transformational leadership for articulating “a vision of the future that can be shared with peers and subordinates, intellectually stimulates subordinates, and pays high attention to individual differences among people”. This helps develop employee relationships, understand intrinsic and extrinsic motivational factors, and further engage employees with their working responsibilities. The theory faces few criticisms, aside potential abuse of power from the leader, and can have drastic impacts on organisational performance (Hall, et al., 2002; Stones, et al., 2004).
    • Transactional: The transactional approach adopts a task-driven focus for effectively managing human capital. This is supported through the effective development of employee-manager exchanges, whereby the transactional leader will reward employees for meeting relevant goals (Barbuto, 2005). The main criticism is that it fails to understand the value for managing conflicts, improving motivation and nurturing talent (Barbuto, 2005; Amabile, 1998).
    • Distributive: Harris (2003, p. 313) defines the distributive leadership style as implying “a different power relationship within the organisation where the distinctions between followers and leaders tend to blur”. This adapts the traditional power constructs within an organisation, and attempts to place responsibility and leadership within all employees to help bolster creativity and innovation. This can result in employees becoming disengaged and complacent, and usually still needs some form of control and guidance by top management (Bolden, 2011).
    • Adaptive: The adaptive approach has become more common within turbulent and volatile industries, such as the technological industry (Heifetz, et al., 2009). It relies on a leader to adapt people operations and activities to industry change, and effectively mobilises employees to tackle tough challenges (Spence, 2009, p. 2). Although this may not directly improve organisational performance, it is a leadership style that can help sustain performance through turbulent and uncertain times. Furthermore, it is often cited that this approach should be combined with other styles, as it can be seen as only a facilitation role when utilised alone (Carroll, et al., 2008).
  • Each of these four leadership styles have their critiques, but can provide a unique approach to human resource management within several different industries. Understanding which style is most appropriate for the defined situation can be the most challenging aspect of leadership within HRM, as fast-paced technology industries may prefer an adaptive approach, whereas creative industry may support a distributive approach (Mehmood & Arif, 2011).

Conclusion

  • There are vastly different ways in which HRM can be used to improve the performance of an organisation, which is why it is considered such a vital function within business operations. This is mainly accomplished through the development of employee related metrics with the support of effective leadership.
  • It is also important to understand that a failure to mention these different aspects can actually result in HRM having a negative impact on organisation performance. This is because discontent within the workforce will likely negatively impact individual performance, which will be detrimental to the overall performance and objectives of the organisation. Therefore, this underpins the importance for rigidly managing the HRM function, and ensuring that appropriate strategies are being implemented and maintained to improve individual and organisational performance.

References

Ahmad, S. & Schroeder, R. G., 2003. The impact of human resource management practices on operational performance: recognizing country and industry differences. Journal of Operations Management , 21(5), pp. 19-43.

Amabile, T. M., 1998. How to kill creativity. Harvard Business Review, 76(12), pp. 76-88.

Aselage, J. & Eisenberger, R., 2003. Perceived organizational support and psychological contracts: A theoretical integration. Journal of Organizational Behavior , 24(5), pp. 491-509.

Atkinson, C. & Shaw, S., 2006. Managing performance. In: Human Resource Management in an International Context. London: CIPD, pp. 173-198.

Bal, P. M., Chiaburu, D. S. & Jansen, P. G. W., 2010. Psychological contract breach and work performance: Is social exchange a buffer or an intensifier?. Journal of Managerial Psychology, 25(3), pp. 252-273.

Barbuto, J. E., 2005. Motivation and transactional, charismatic, and transformational leadership: A test of antecedents. Journal of Leadership & Organizational Studies , pp. 26-40.

Barki, H. & Hartwick, J., 2001. Interpersonal conflict and its management in information system development, s.l.: Mis Quarterly.

Bolden, R., 2011. Distributed Leadership in Organizations: A Review of Theory and Research. International Journal of Management Reviews, 13(4), pp. 251-269.

Carroll, B., Levy, L. & Richmond, D., 2008. Leadership as practice: Challenging the competency paradigm. Leadership, 4(4), pp. 363-379.

Collins, C. J. & Clark, K. D., 2003. Strategic human resource practices, top management team social networks, and firm performance: The role of human resource practices in creating organizational competitive advantage. Academy of management Journal, 46(6), pp. 740-751.

Dabic, M., Criado, M. O. & Romero-Martinez, A. M., 2011. Human resource management in entrepreneurial firms: a literature review. International Journal of Manpower, 32(1), pp. 14-33.

Deutsch, M., Coleman, P. T. & Marcus, E. C., 2011. The handbook of conflict resolution: Theory and practice. London: John Wiley and Sons.

Foss, N. J., Minbaeva, D. B., Pedersen, T. & Reinholt, M., 2009. Encouraging knowledge sharing among employees: How job design matters. Human resource management, 48(6), pp. 871-893.

Grant, A. M. & Sumanth, J. J., 2009. Mission possible? The performance of prosocially motivated employees depends on manager trustworthiness.. Journal of Applied Psychology , 04(4), pp. 927-944.

Hall, J., Johnson, S., Wyscoki, A. & Kepner, K., 2002. Transformational Leadership: The Transformation of Managers and Associates, Florida: EDIS.

Harris, A., 2003. Teacher Leadership as Distributed Leadership: Heresy, fantasy or possibility?. School Leadership and Management, 23(3), pp. 313-324.

Heifetz, R. A., Grashow, A. & Linksy, M., 2009. The practice of adaptive leadership: Tools and tactics for changing your organization and the world.. Cambridge: Harvard Business Press.

Hitt, M. A., Biermant, L., Shimizu, K. & Kochhar, R., 2001. Direct and moderating effects of human capital on strategy and performance in professional service firms: A resource-based perspective. Academy of Management journal, 44(1), pp. 13-28.

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Mehmood, Z. U. I. & Arif, M. I., 2011. Leadership and HRM: Evaluating new leadership styles for effective human resource management. International Journal of Business and Social Science, 2(15), pp. 15-23.

O'Neill, B. & Adya, M., 2007. Knowledge Sharing and the Psychological Contract: Managing Knowledge Workers across Different Stages of Employment. Journal of Managerial Psychology, 22(4), pp. 411-436.

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Spence, R., 2009. From Status Quo to Success, Cambridge: Harvard Business Press.

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