Chapter 1
Human Resource Management
and Competitive Advantage
Chapter 1 Objectives
• Understand the nature of a firm’s human resource management
practices
• Understand the roles played by line managers and human resource
professionals in the human resource management process
• Understand what competitive advantage is and how companies can
achieve it
• Understand how a firm’s human resource management practices
can help it gain a competitive advantage
• Understand why competitive advantage gained from human
resource management practices is likely to be sustained over time
What is Human Resource Management?
Practices that help an organization deal effectively with its
people during various phases of the employment cycle:
Preselection
Selection
Postselection
HRM Preselection
Practices
•Human resource planning:
anticipate and meet changing
needs relating to the
acquisition, deployment, and
utilization of employees;
accomplished through strategic
planning and demand and
supply forecasting.
•Job analysis: systematic
procedure for gathering,
analyzing, and documenting
information about particular
jobs.
HRM Preselection
Practices (Cont.)
Determine job qualifications for recruitment
Choose appropriate selection techniques
Job Analysis is used
to plan and
coordinate HRM
practices
Develop training programs
Develop performance appraisal forms
Determine pay rates
Setting performance standards for
productivity improvement programs
HRM Selection
Practices
•Recruitment: locate and
attract job applicants for
particular positions quickly, cost
efficiently, and legally.
•Selection: assessing and
choosing job candidates
through a technically sound and
legal procedure.
HRM Postselection
Practices
•Training and development:
planned learning experiences
that teach workers how to
perform their current or future
jobs effectively.
•Performance appraisal:
measures and communicates
the adequacy of employees’ job
performances
•Compensation: pay and
benefits aims to establish and
maintain a competent and loyal
workforce at an affordable cost.
•Productivity improvement
programs: aim to motivate
employees to engage in
appropriate job behaviors.
HRM Practices Influenced by External Factors
•
•
•
•
•
Legal and Environmental Issues
Workplace Justice Laws
Union Influences
Safety and Health Concerns
International Influences
Who is Responsible for Developing and
Implementing HRM Practices?
• Human resource professionals
– Establish HRM procedures and methods.
– Monitor and evaluate HR practices.
– Advise and assist managers on
HRM-related matters.
• Line managers
– Direct employees’ day-to-day tasks.
– Implement HRM practices.
– Provide HR professionals with needed inputs for
developing effective practices.
Gaining a Competitive Advantage
• Firms gain competitive advantage by effectively
managing their human resources.
• Competitive advantage is a status achieved by a
company when gaining a superior marketplace
position relative to its competition.
• This is accomplished through cost leadership or
product differentiation.
Competitive Advantage
Through Cost
Leadership
•A firm provides the same
services or products as its
competitors, but produces
them at a lower cost.
•A firm can reduce its per
unit cost by increasing the
value of Number of units
produced/total cost of
production.
•Per unit cost can be
reduced by:
•Using new technology.
•Devising more efficient work
methods .
•Cutting overhead costs.
Competitive Advantage
Through Product
Differentiation
•Occurs when a firm produces a
product or service that is
preferred by buyers.
•A firm can accomplish this aim
by:
•Creating a better quality product or
service.
•Providing innovative products or
services.
•Choosing a superior location.
•Promoting and packaging its product to
create a perception of higher quality.
•Creates a competitive
advantage if the firm’s customers
are willing to pay enough to cover
extra production costs.
Competitive Advantage and HRM
Studies have indicated:
• A strong link between HRM effectiveness and
productivity.
• The impact of a broad range of HRM practices
on shareholder return; 15–30 percent of the total
value of a company could be attributed to the
quality of its HRM practices.
Evidence Linking HRM Practices to
Competitive Advantage
Jeffrey Pfeffer identified these 16 HRM practices as contributing to
competitive advantage:
Employment security
Training and skill development
Selectivity in recruiting
Cross-utilization and cross-training
High wages
Symbolic egalitarianism
Incentive pay
Wage compression
Employee ownership
Promotion from within
Information sharing
Long-term perspective
Participation and empowerment
Measurement of practices
Teams and job redesign
Overarching philosophy
Model Linking HRM Practices to Competitive
Advantage
Model Linking HRM Practices to Competitive
Advantage (Cont.)
Direct path: The way an HRM practice is carried
out can, by itself, have an immediate impact on
competitive advantage.
– Cost leadership can be achieved through the use of
effective HRM practices.
– Firms doing the best job of containing HRM-related
costs stand to gain a financial advantage over their
competitors.
Model Linking HRM Practices to Competitive
Advantage (Cont.)
Indirect path: An HRM practice can impact
competitive advantage by causing certain
outcomes, which, in turn, create competitive
advantage.
– HRM practices  Employee-centered outcomes
– Employee-centered outcomes  Organizationcentered outcomes
– Organization-centered outcomes  Competitive
advantage
Model Linking HRM Practices to Competitive
Advantage (Cont.)
HRM Practices  Employee-centered outcomes:
• Extent of knowledge, skills, and abilities possessed for the job
Competence
• Willingness to exert necessary effort to perform the job well.
Motivation
• Job satisfaction – Favorableness of employee attitudes toward their jobs.
• Organizational commitment – Psychological attachment to, identification with, and
involvement in the organization.
Work-Related
• Organizational citizenship – Willingness to engage in behaviors that help the
Attitudes
organization achieve its goals.
Model Linking HRM Practices to Competitive
Advantage (Cont.)
Employee-centered outcomes  Organizational-centered outcomes
• Quantity, quality, and innovativeness of the product or service offered by a firm due
Output
Employee
Retention
Legal
Compliance
Company
reputation/
image
to positive job attitude, motivation, and high productivity
.
• Amount of employee turnover reduced through job attitude, motivation, and high
productivity.
• Conformance to various employment laws resulting in reduction of HRM-related
lawsuits.
• Favorable view of the organization by potential applicants and customers enhances
the reputation of the company and helps the customers view the company
positively.
Model Linking HRM Practices to Competitive
Advantage (Cont.)
Organization-centered outcomes  Competitive advantage
Cost
Leadership
Product
Differentiation
• Achieved through using technology,
minimizing turnover rates, and avoiding
lawsuits resulting from noncompliance.
• Achieved through Individuals performing their
jobs well and treating employees in a manner
that helps retain long-term employees.
HRM Practices and Sustained Competitive
Advantage
Management of human resources is less
susceptible to imitation.
The competitive advantage achieved through
HRM practices is likely to be more sustainable.
– Competitors rarely have access to a firm’s HRM
practices; the practices are not very visible to
outsiders.
– Even when these practices are visible, their impact
may not be as favorable when used by competitors.