High competition and changeable market environments have contributed to the increasing pressure faced by businesses to find new sources of competitive advantage in order to survive and stand out against rivals. One of the most important sources is the human resource management which can increase organizational performance and contribute to business's future success. However, this can happen only by effectively aligning business's goals with HRM strategy. (www.isma.info)
2. SHRM and business performance
2.1. SHRM
SHRM is the policy of making decisions and acts, as far as the management of personnel is concerned, at every layer in the company. It is also about controlling the strategies for creating and maintaining competitive advantage. (Tyson, 1997, p.279) SHRM links all HR functions with the goals and objectives of a business's strategy in order to achieve greater performance, innovation and flexibility. The main role of SHRM is to design and implement a number of internal HR practices so as human factor have a share in reaching the company's goals. (Chang et al: 2005, p.436)
2.2. SHRM practices
Research has shown that HR practices can have a great impact on firm performance if they are matched with one another to manage employees in such way that gives a competitive advantage to a company's strategic position. (Collins, 2003, p. 742), (Haberberg et al: 2008, p.285-6) Several HR approaches indicate the link between HR practices and organizational performance. The two main are the universalistic and the contingency approaches. (Apospori et al: 2008, p.1187) The universalistic scholars, support that SHRM positively affects firm performance (Chang et al: 2005, p. 437) and certain HR practices work better than others so firms should adopt them. (www.business.otago.ac) However, contingency scholars argue that HR strategy would have more positive effects when aligned with specific organizational and environmental factors. (Chang et al: 2005, p. 437)
Pfeffer, based on related literature, personal observation and experience, concluded on the following practices that can enhance businesses profitability through human resources. (Hassan et al: 2005, p.317)
Employment security
If a business shows clearly to the personnel that their jobs are secure then they will feel confident and try harder for the betterment of the company. Furthermore, they will be more concentrated than those who are in a constant fear of losing their job. Employment security positively affects firm's operational performance through organizational commitment. (Hassan et al: 2005, p.318)
Selective hiring
Organizations that are willing to gain profits through their personnel will try to hire the right staff from the beginning. This practice ensures that the right employees, with the appropriate skills, are in the right post, so as to match with the philosophy and the goals of the company. The employers have to be certain about which skills and characteristics of the applicants are considered to be valuable for the job offered. In this way, the employee productivity and the organizational performance are increased, and turnover is reduced. (Hassan et al: 2005, p.319)
Self-managed teams and decentralization
Teams have to work together, make common decisions and take the plunge to meet the objectives of their team and company. Self-managed teams and decentralization enhances employee's feeling of participation, and creates a sense of attachment, which indirectly affects firm's performance. (Hassan et al: 2005, p.319)
Comparatively high compensation contingent on organizational performance
Firms use performance-based compensation in various forms, like profit or gain sharing, pay for skill, stock ownership or other types of individual or team incentives to evaluate and appraise employees' work. By doing this, companies achieve getting high levels of performance from employees and make them feel like having an ownership interest in the firm. Obviously, performance-based compensation positively links employee and organizational performance. (Hassan et al: 2005, p.319-320)
Extensive training and development programs
Extensive training and development programs are crucial for firm performance for the following reasons: firstly, training programs improve the employee's skills and productivity and reduce their sense of disappointment that is accompanied with employee turnover. In addition, they show the company's intention for the growth of its personnel, which, consecutively, increases personnel devotion and productivity. (Hassan et al: 2005, p.320),(Kroumova et al: 2009, p.360)
Status differences
Companies can make their performance go up by overcoming status-related barriers between personnel which cause some to feel less valued. This can be achieved by the use of language, labels, reduction of wage inequality between levels, physical space, dress. (Hassan et al: 2005, p.320)
Sharing information
The staff cannot help to increase business's performance if there is not enough financial and operational information and instructions on how to use that information. Disclosure increases commitment, thus influences organizational performance. (Hassan et al: 2005, p.320)
Job analysis
As it is said by most authors, job analysis is an important feature of nearly all HR activities, as all of which are designed according to the needs and requirements of jobs. It clearly states the roles and responsibilities of each post and desirable performance levels. So, job analysis concludes to improved company's climate and productivity, concerning sales and profit growth. (Siddique, 2004, p.220)
Upward communication
Upward communication can have an impact on organizational performance only if it can make personnel feel like having a psychological ownership. This will happen through fairness and providing voice to employees like the use of comment boxes and employee involvement programs. (Kroumova et al: 2009, p. 359)
Leadership
A strong leader will define the company's culture and vision and his ambition will affect organizational commitment to a specific strategic direction. So, leadership will determine the route of the strategy of an organization and the achievement of the desirable outcome. (Haberberg et al: 2008, p.743) Furthermore, the combination of strategic human resource practices and a committed personnel following a strong leadership will contribute to the attainment of business's strategic goals. Thus, through a good and strong leadership a business can be successful. (Chew et al: 2001, p.1044)
The aforementioned SHRM practices show how companies should consider their personnel as of great value. If businesses treat them by this way, they will boost their labor productivity, operational and financial performance and will decrease employee turnover. (Hassan et al: 2005, p.318)
SHRM and long-term success
The type of strategy a company is going to follow depends on its objectives. However, the following characteristics must be applied on every kind of strategy for the survival and long-term success of a company. ( Haberberg et al: 2008, p.62)
Fit
There must be a "fit" with the environment in which a company operates. Each environment has different characteristics, so a business must follow them in order to survive. Secondly, a company's strategy must be internally consistent, to wit, the business's architecture must be compatible with its strategy. (Haberberg et al: 2008, p.62)
Business - HRM strategy fit
There must be an internal fit among HR practices and external fit among HR practices and the business strategy to ensure that personnel is involved to the achievement of business's goals. (Chang et al: 2005, p.466) SHR practices are designed in such a way to achieve the organization's objectives. (Christiansen et al: 2008, p.16) Firms that include formulation and implementation of business's and HR strategy, will gain greater performance over the long-term than firms that treat them independently. (Christiansen et al: 2008, p.18)
Distinctiveness
The business must ensure that offers something different from its rivals. A distinctive position in the market makes customers notice the business and its products. With the word distinctiveness we mean the competitive stance of a business, the attributes of its strategy that will make it distinct. (Haberberg et al: 2008, p.63)
Sustainability
By building a strong reputation and being innovative an organization can enjoy long-term advantages. Innovation is the ability to create something new at regular intervals so as a business is little bid ahead of its rivals. And strong reputation comes from the ability of an organization to use its knowledge and right routines in order to provide constantly great products or services. (Haberberg et al: 2008, p.63-64)
Porter's generic strategies
Michael Porter said that companies can enjoy benefits only if they are lower cost producers than their competitors or if their products are effectively differentiated. He identified the following three strategies for competitive advantage: (http://www.quickmba.com)
Differentiation strategy
A firm offers a unique product or service to a wide range of customers who are willing to pay more. The high price of the product must more than outweigh the total costs of providing it. Firms adopting the specific strategy usually have powerful product development and sales teams. (http://www.quickmba.com)
Cost leadership strategy
This strategy is targeting a wide range of customers too. Here, a firm tries to be the lowest cost producer in the market by selling its products on a price either at the average price of the market and gain profit by reducing cost, or below the average to increase market share. (http://www.quickmba.com)
Focus strategy
Focus strategy is targeting a narrow range of customers to gain a cost advantage or differentiation, by focusing entirely on it to provide better products. Firms that focus on various narrow markets can provide lower cost products and consecutively increase their market share. By doing so, competitors are discouraged to enter this narrow industry because of the high degree of customer loyalty. (http://www.quickmba.com)
Conclusions
As a conclusion, SHRM leads to maximizing performance through carefully designed practices accompanied with strong leadership and committed personnel. Business's strategic goals must be aligned with HR strategy, be innovative and distinctive, in order to achieve long-term success.
