Human Resource Management &
Competitive Advantage
HR & Competitive Advantage
• Non-human resources—such as land,
capital and equipment
• Managing human resources is essential in
order for a business to thrive and survive.
• People determine the organization’s goals
and of course people run the organization
to ensure goals are met/exceeded
• People are the competitive advantage to
an organization’s success
• In HR we deal with issues such as pre-selection,
selection, and post-selection
• Pre-selection we plan—organizations decide
what types of jobs are going to exist and what
are the qualifications.
• During the selection phase, the organization
selects the employees:
– Recruiting applicants
– Assessing their qualifications
– Selecting those most qualified
• Post-selection phase the organization
develop sound HR practices for effectively
managing their key talent
• The firm provides them with training and
development opportunities to have the
necessary skills to perform at satisfactory
levels. (Mission, Vision, Strategic
Business Objectives)
• Chapter 3 we talk about HR Planning. Here
managers anticipate and meet changing needs
relating to acquisition, deployment, and
utilization of its employees
• The strategic planning process takes shape here
• Demand and supply forecasting we determine
the number and types of employees we need
(i.e. electrical engineers recruitment process)
• Chapter 4 we discuss job analysis a process for
gathering, analyzing and documenting
information about specific jobs
• Steps:
--Determining job qualifications for recruitment
--Choosing the most appropriate selection
--Developing training programs
• Steps:
--Developing performance appraisal rating
--Helping to determine pay rates
--Setting performance standards for
productivity improvement programs (i.e.
assessment testing for administrative
• Selection Practices we mean policies
and procedures used by organizations to
staff positions
• Chapter 5 Recruitment to locate and
attract applicants for specific positions
(local, regionally, or nationally)/ internally
• Our goal is to identify a suitable pool of
applicants quickly, cost efficiently, and
• Selection involves assessing and
choosing job candidates. Again this
process needs to be sound and legal
• HRM Post-Selection Practices—these
practices maintain or improve a company’s
worker’s job performance levels:
– Training & Development (Chapter 7)—
planned learning experiences that teach
workers to perform their current or future jobs
• Training focuses on one’s current job and
development focuses on possibly
preparing employees for future jobs.
• What is the organizational goal? The
improvement of organizational
performance to meet/exceed goals and
• HRM Post-Selection Practices:
--Performance Appraisal (Chapter 8)—
--where we measure an employee’s
performance and communicate on an
on-going basis (“how of performance”,
“what of performance” and development
--Decisions on promotions, demotions,
discharges, and pay raises
• Compensation (Chapter 9)—
--entails pay and benefits. Pay refers to
the wage or salary an employee earns
--Benefits are a form of compensation in
addition to pay, such as health insurance
or employee discounts
--Goal is to maintain a competent and
loyal workforce at an affordable cost
• Productivity Improvement Programs
(Chapter 10)
--Tie behavior to rewards. We can have
financial rewards (e.g., bonuses, pay
raises) or non-financial (i.e., improved job
--Goal of such programs is to motivate
employees to engage in appropriate
• HRM is also influenced by external factors
--Legal & Environmental Issues (Chapter 2)
--federal, state and local laws (rights to fair
and safe treatment)
--selection process must be conducted by
“the book” (what are the needed job
qualifications and choose selection
methods that accurately measure those
• Social, economic, and technological events that
influence HRM:
--cultural diversity of workforce
--work and family issues
--part-time temporary workers
--emphasis on quality and teamwork
--mergers and acquisitions
--downsizing and layoffs
--rapid advances in technology
--continuous quality improvement
--high rate of illiteracy in the workforce
• How do these events influence HRM?
--families-through maternity leave, child
care, flextime, and job sharing
--older workers through skill upgrading and
training handle new techniques
--educating employees on basic reading
and writing, and math skills keep up with
rapidly advancing technologies (Motorola)
• Workplace Justice Laws (Chapter 11)
– Addresses the issue of employee rights—treat
workers in a non-discriminatory manner
--workplace rules, disciplinary and discharge
• Union Influences (Chapter 12)
– Adherence to written contracts (i.e., discipline,
promotions, grievance procedures, and
overtime allocations
• Safety & Health Concerns (Chapter 13)
– Legal, social, and political pressures on
organizations to ensure the health and safety
of their employees
– Wellness and Employee Assistance Programs
• International Influences (Chapter 14)
– Globalization has required companies to enter
foreign markets in order to compete as part of
the globally interconnected set of business
– Managers need to be more globally oriented
(i.e., understanding foreign cultures and
languages and the dynamics of foreign
• Who is responsible for Developing &
Implementing HRM Practices?
– Most companies have an HRM department but there
is a shared partnership with the line organization
(Reviews HR Models)
– Effective managers attempt to solve HR problems
--providing input into the selection decisions
--trying to supervise people in a way that creates a
team feeling
– Effective managers attempt to solve HR
problems by:
--providing training and coaching
--providing opportunities for employee
--providing flexible scheduling for students
and other part time workers
• HR consults to the line organization
• Managers carry out many procedures and
methods devised by HR professionals:
--Interview job applicants
--Provide orientation, coaching, and onthe-job training
--Provide and communicate job
performance ratings
--Recommend salary increases
• Managers carry out many procedures and
methods devised by HR professionals:
--Carry out disciplinary procedures
--Investigate accidents
--Settle grievance issues
• Gaining a competitive advantage:
--Cost leadership strategy—firm provides the
same services or products as its competitors,
but produces them at a lower cost (Class
• Gaining a competitive advantage:
– Product differentiation—occurs when a firm produces
a product or service that is preferred by buyers:
--creating a better quality product or service than it’s
--providing innovative products or services that are
not offered by its competitors
--choosing a superior location—one more accessible
to customers
--promoting and packaging its product to create the
perception of higher quality
HRM As A Competitive Advantage
• 1994 study examined the HRM practices
and productivity levels of 968 firms across
35 industries
– Effectiveness of each company’s set of HRM
practices was rated based on the presence of
such things as:
Incentive plans
Employee grievance systems
Formal performance appraisal systems
Workers participation in decision making
HRM: Competitive Advantage
• Strong link between HR competitiveness
and productivity
--one standard deviation in HRM ratings
translated to a productivity difference of
5%. Means that a company with a high
HRM effectiveness ratings (e.g., 86th
percentile) out-produced the “average”
company by 5%
HRM: Competitive Advantage
• Another study conducted by Chris Ryan and
Associates evaluated the impact of a broad
range of HRM practices on shareholder return.
Found that 15-30% of the total value of a
company could be attributed to the quality of
HRM practices
• Where is the greatest impact?
– Providing employees with effective orientation training
– Letting employees know what is expected of them
– Discharging employees that are chronically poor
HRM: Competitive Advantage
• Discuss Model on Linking HRM Practices
to Competitive Advantage
• Direct Path—the way HRM practice is
carried out can have an immediate impact
on competitive advantage
• Indirect Path—an HRM practice can
impact competitive advantage by causing
certain outcomes, which, in turn, create
competitive advantage
HRM: Competitive Advantage
• Firms can achieve cost leadership through
the use of effective HRM practices
– HRM costs through recruitment, selection,
training and compensation—all big expenses
for a firm
– Service industries 70% of their budget is
made up of payroll
HRM: Competitive Advantage
• Indirect Impact of HRM practices:
– HRM practices------Employment centered
– Employment-centered outcomes--Organization-centered outcomes
– Organization-centered outcomes—
Competitive advantage
HRM: Competitive Advantage
• Employee-centered outcomes:
– Competence—knowledge, skills, and abilities
an employee has that the job requires
– Motivation—is the employee willing to exert
the necessary effort to perform the job well
– Work-related attitudes—is the employee
satisfied with their job, committed to the
organization, and act as a good corporate
HRM: Competitive Advantage
• Employee-centered outcomes--organization-centered outcomes
– Organization centered outcomes consist of
output, employee retention, legal compliance,
and company reputation or image.
• Output refers to the quantity, quality, and
innovativeness of the product or service offered by
the firm
• Retention rates reflect the amount of employee
turnover a firm experiences
HRM: Competitive Advantage
Organization centered outcomes:
• Retention rates reflect the amount of employee
turnover a firm experiences
• Legal compliance concerns the issue of whether
the firm’s HRM practices conform to the
requirements imposed by the various employment
• Company reputation concerns how favorably
“outsiders”—potential applicants and customers—
view the organization
HRM: Competitive Advantage
• What drives employee retention?:
– Career growth and learning opportunities
– Fair pay
– Company pride/organizational commitment
– Employee empowerment
– High involvement HR systems—let
employees use skills as they see fit or provide
financial incentives
HRM: Competitive Advantage
• Organization-Centered Outcomes--Competitive Advantage
– Most common ways to cut HRM costs is to
employ technology to replace some of the
more expensive HR professional-delivered
services (i.e., e-learning vs. in class training)
– Low turnover of employees you will have
better customer retention (recruiting,
selection, and training costs of a new
HRM: Competitive Advantage
• Management of HR is less susceptible to
imitation therefore competitive advantage
achieved through HRM practices is likely to be
more sustainable:
– Competitors rarely have access to a firm’s HRM
– Even when practices are visible, their impact may not
be as favorable by competitors due to interrelated
system (i.e., incentive pay system may only work
when used in conjunction with selection practices that
favor hiring risk takers. (Marriott Case Revisited)

Human Resource Management & Competitive Advantage