Traditional sources of competitive
advantages like financial resources, manufacturing capacity, and availability
of resources, even though considered necessary are today no longer adequate for
the success of an organization without proper management of Human Resources.
Strategic Human Resource Management (SHRM) is the unique methodology for
managing an organizational workforce that aims to achieve a competitive
advantage by strategically developing a highly skilled and capable workforce.
As such, SHRM is mainly focused on the management of the knowledge,
skills, and competencies, including synergies among employees. Human Resources
have become the most valuable asset for modern organizations, the new source of
wealth, and its management is key to gaining competitive advantage in
the highly competitive modern business environment. This paper aims to provide
a literature review on how effective management of Human Resources enables enterprises
to gain competitive advantage.
The performance of an organization is
determined by various factors that play different roles towards the
promotion of the firm’s core competencies. One of the factors that have
been shown to be crucial in promoting competency within an organization is
the adequate management of human resources. Several authors among
them Piketty (2017, p. 142) have noted that today, we are living in
an era in which knowledge and intellectual capital, instead of physical capital,
is gradually becoming more vital for the success of any organization. There is
a growing need for highly skilled and talented people, who can enable the
company to become more productive and come up with new innovative ideas,
Human Resource Management acts as the
sustenance system that provides supervision and direction for managing
employees in the work environment. HRM also plays an important task of
developing knowledge and skills among the workforce through training,
development, recruitment, and selection as well as planning (Omotayo, 2015, p.
12). In general, HRM in modern organizations, plays two interrelated
roles, 1) ensuring effective performance of the organization, and 2) acts as a
support for attaining competitive advantage through people (Galbraith, 2015, p.
226). As such, human capital is currently the only sustainable source of
competitive advantage. On a similar note, Schwab (2017) contends that HRM is
important as it determines the intensity and diversity of an organization’s
human resources which is in turn, is important in helping the organization
achieve success and competitive advantage.
In line with the ideas of various management
experts, there are various Human Resource strategies which include, 1) building
and guiding coalition, 2) providing vision, 3) identifying current gaps between
the business and corporate strategy of the organization, 4) developing policies
that act as guides for managing the workforce, and 5) creating networks that
are important in ensuring the company has the right workforce it needs
(Marshall and Broome, 2016, p. 37). In light of this, Galbraith (2015, p.
229) states that the philosophy of HRM is based on the belief that an
organization is able to gain a competitive advantage by efficiently and effectively
utilizing its workforce. Schein (2017) also notes that organizational learning
influences Human Resource management practices in ways that have a positive
impact on a firm’s knowledge creation process towards the attainment of
strategic goals of the organization.
Strategic Human Resource
Management as a Means of Ensuring Organizational Competency
The role of Human Resources in providing a
competitive advantage as a topic has received considerable attention in the
last few decades. Various studies have been conducted that
highlight the competencies and capabilities of organizations in regards to the
HRM practices and how it enables firms to create and implement competitive
strategies. According to Parmenter(2015), a firm can gain a competitive
advantage only when it selects and develops its Human Resources, as well as
implementing job structures and reward systems that motivate employees to work
harder which in turn contributes to organizational competence. This is
also in line with the views of Grant (2016) who argues that effective
Management of Human Resources can provide an organization with a sustainable
competitive advantage which in effect increases its overall performance and
Grant (2016) points out that
traditional techniques of differentiation such as financial resources
provide little in terms of what is required for an organization to achieve a
competitive advantage in the modern business environment. The author suggests
that companies that seek to achieve a competitive advantage should instead put
more emphasis on developing Strategic management of their Human Resources. To
be successful in achieving this goal, HR practices should be in relation to 1)
each other, 2) the overall HRM strategy, and 3) corporate strategy of the firm.
Kauffman (2015, p. 119), observed that there is a relationship
between the performance of an organization and its HRM practices. For instance,
he notes that organizations which adopt a cost reduction approach tend to
require their employees to work harder, while those that adopt quality
enhancements usually require their employees to work smarter. On the other
hand, organizations which adopt innovation strategy require their employees to
do their work differently compared to conventional practices.
A study conducted by Armstrong and Taylor
(2014) concluded that Human Resource Practices that are aligned with the
overall vision and strategy of the organization has positive effects regarding
organizational performance. This is in line with the ideas of Beer (2015, p.
419) who showed that the corporate strategy of a company plays an important
role in influencing its human resource management practices to achieve higher
performance as well as a competitive advantage. HRM aims to enable a company to
achieve success through people. Peter Drucker (2014) strongly noted
that a business or any other institution, has only one real resource, human
capital, and plays an important role in helping the firm find its competitive
advantage. Moreover, Bamberger, Biron, and Meshoulam, (2014) note
that HRM is increasingly becoming a critical source of sustainable competitive
advantage for any business or institution.
On the other hand, Strategic Human Resource Management (SHRM) is
mainly focused on the actions that differentiate an organization from its
competitors (Armstrong and Taylor, 2014, p. 43). Martin et al., 2016, p.
27) summarize that SHRM is the management of employment which aims to achieve
the strategic goals and visions of the company. In the modern business environment,
the concept of human capital has become one of the issues that many executives
encounter in their practice. This new concept of HRM considers people as the
most important resource in an organization because it gives the organization
its distinctive character (Beer, 2015, p. 419).
For an organization to remain competitive in
an increasingly knowledge-based competitive business environment, it needs
effective HR management practices. Grant (2016) noted that more than 80
percent of executives consider Human Resources as a vital aspect to almost
areas that determine a firm’s performance, especially in light of the growing
business challenges, increased competition, and the need to constantly
innovate. Bamberger, Biron, and Meshoulam(2014) have also argued that
intellectual capital is today, the most important and tangible resource that is
likely to provide most organizations with a sustainable competitive advantage.
In general, modern Human Resource Management
practices recognize employees as very important assets of the organization. The
employees, on the other hand, are required to possess a wide variety of skills
both technical and interpersonal, to remain resourceful towards achieving the
goals and objectives of the company. The talents, knowledge, and experience
that the workers possess are of economic value to the firm they work for,
because they enable the company to adapt to changing business environment while
remaining productive and competitive (Snell, Morris, and Bohlander, 2015,
p. 62). Organizations that effectively manage their Human Resources are able to
achieve higher levels of productivity, higher market value as well as increased
profitability and competitiveness. As such, top leaders in any
organization must always review their human resource management practices and
policies and make sure that they are in line with the firm’s corporate strategy
if they want to achieve or maintain a competitive advantage.
Ensuring that employees are well prepared
and motivated to perform their duties effectively requires that organizations
recruit the most qualified, capable, committed and flexible people.
This should be accompanied by a compensation and reward system that
will boost their commitment and performance in their respective roles. Miner
(2015) while discussing the theory of motivation notes that the motivation
levels of employees are directly proportional to the value of work or roles
they are expected to accomplish, including the presence of intrinsic
and extrinsic motivators in the workplace. In essence, motivating employees by
empowering them and enhancing their capabilities is the core task of HRM
and is extremely crucial in achieving a sustainable competitive advantage and
success (Armstrong and Taylor, 2014, p. 44).
The growing challenges and competition in
the modern business world have indeed caused management of Human Resources to
take a more strategic role in how companies conduct their operations
(Deresky, 2017, p. 74). Subsequently, the new positioning of Human
Resource Management (HRM) as Strategic HRM (SHRM) shows that there is a need
for integrating Human Resource practices with the corporate strategy (Armstrong
and Taylor, 2014). HRM not only influences the behavior of employees in a
company, but it also affects the development of human resources as a source of
competitive advantage (Snell, Morris, and Bohlander, 2015, p. 66). The
authors note that an increasing number of companies today have realized the
importance of SHRM as an important factor in achieving a competitive advantage
and therefore recognize the need to integrate HR management practices and
strategies into their corporate strategies.
Without a doubt, HRM has proven to be a key
factor in the improvement of productivity in the workplace, which means that it
not only turns workers into developmental resources but also makes them a
source of competitiveness. On the other hand, Eriksen (2014) suggest
that the competitive advantage theory does not only consider the endowment
factors such as physical resources, human resources, capital resources but also
focuses on how these factors are constantly being created and upgraded.
Armstrong and Taylor (2014) showed how
organizations benefit from effective HR management practices towards improving
productivity which they argued takes place in three phases. The author notes
that initial stage is mainly concerned with acquiring and developing human
capital, which includes adequate knowledge and skills and abilities. The second
phase entails the tasks and process design, the various business units and the
outputs. The third phase deals with differentiation in terms of the company’s
source of competitiveness and the corporate strategies. Therefore, based on the
empirical evidence, this study concludes that organizations should adopt and
integrate effective management of Human Resources in line with their corporate
strategies as a tool for enhancing their competitive advantage.
Different studies that have been
conducted in the past have shown that effective management of Human
Resources is one of the most important aspects of any business or institution
in terms of improving competitive advantage and overall performance the modern
society. Strengthening of an organization’s workforce and empowering them to
perform their duties to the fullest potential is today considered as
one of the most effective ways of ensuring elevated organizational performance
and sustainable competitive advantage.