With reference to reliable academic sources and key authors, compare and contrast:
a) ‘Best Practice’ HRM (the universalist approach)
b) ‘Best Fit’ HRM (the contingency approach).
You must ensure that your answer specifically addresses Human Resource Management, rather than generic best practices in accounting, marketing, operations etc or the management of non-human resources.
Your answer should discuss, with examples from reliable academic sources the types of organizations or industries which are more likely to adopt Best Fit, and those which are more likely to adopt Best Practice
a) With reference to key academic sources throughout your answer, explain how HR practitioners seek to build ‘unique bundles’ of HR practices as a source of sustainable competitive advantage for their organisation.
Give specific examples of different types of ‘bundles’ of HRM practice to illustrate your answer.
b) Then, using relevant academic and examples from case studies in academic journals, compare and contrast two different types of organisation which have successfully adopted High Performance Working Practices and explain why these are considered to have a more positive impact on business performance.
Best practice and best fit are two famous approaches of HRM. These approaches are stated to have a significant impact on the working of an organisation.
a) Best Practice HRM (the universalist approach)
The best practice approach states that there are certain bundles which exist and which can help any organisation gain a competitive advantage despite the situation the business is in or the type of industry or level of organisation of the company. It is based on the notion of a close relationship between the HR practices that are implemented in the organisation and the organisational performance. Best practices state the best of HR policies irrespective of the situation in order to focus on and deliver high-level performance (Paauwe and Boon, 2018). These practices may include motivating the employees or designing the work in order to increase the commitment of the employees, among others. The best practice approach results in better productivity and quality of work leading to less wastage of resources in the organisation. There are certain HR bundles which can help in improving the competitive advantage of a company despite the differences that might be present in the overall organisation. The ideas of best practices are related to employment security. It is suggested to make use of the best HR bundle, which can help in enhancing employee motivation and commitment generating the best outcome for the organisation. It is suggested that improving the human resource practices in the business can offer a positive influence on the productivity level, which can improve the quality of offerings of the organisation leading to positive outcomes (Armstrong and Taylor, 2020). The different best practice approaches can be extensive training, offering high pay based on company performance, and selective hiring, among others.
There are certain criticisms associated with the best practice approach of HRM. It states that different organisations adopting the same HR strategies or policies cannot be fruitful. A company having large funds can offer compensation schemes to employees for better team performance or to improve employee productivity. But the same cannot be possible for a small organisation or a business with limited funds. Also, having conflicting HR policies and strategies can create confusion and chaos affecting employee morale and individual performance. This can hamper organisational performance. Another issue with the best practice approach is that it requires a lot of commitment from different levels and departments in the organisation. This may not always be possible for different companies at different times. There are also issues as HR strategy is not aligned with the corporate strategy making it difficult for employees and organisations to follow them both or create a right balance between the two.
b) Best Fit HRM (the contingency approach)
The best fit approach is the one which stands for developing HR strategies based on the situation of the organisation. It is called the matching of practice. The strategies are designed based on future objectives along with following the right policies, which would be helpful in doing so. It is very different from the best practice approach, where all the organisations are expected to follow the same or similar HR policies despite being at different business levels of the journey. The best Fit approach assesses the stage of the organisation’s development and the internal and external environment of the business, which might have a huge impact on the working of the organisation (ŠIKÝŘ et al., 2018). The HR policy should be such that it is in association with the HR employees of the organisation and offers competitive strength to the business.
There are different criticisms associated with the best fit approach, such as the business environment is constantly changing in the dynamic world. The strategies designed can be highly affected because of the different contingencies. It might make things difficult in terms of changing or designing the strategies based on the HR system and practices in order to match up with the changing business environment. It is also criticised that business keeps on evolving in the business world. Since the organisation moves from one level to the other, there would be a need to change the HR policies and approaches undertaken to align with the changing business environment. This can adversely impact the work environment and the employees’ motivation, which can hamper the growth plans and act as a hurdle for the company’s business objectives.
Comparing best fit and best practice approaches
When comparing the best fit and best practice approach, it can be identified that both of these HRM focus on improving organisational performance (Farnham, 2015). Both of these approaches are based on matching models as they try to match the strategy of the organisation with the HR function of the company. These concentrate on the achievement of the set objectives by the employees. Both of these approaches consider elements related to the hiring and selection of employees in the organisation. Both of these approaches focus on motivating and rewarding the employees for their hard work, which is crucial for attracting and retaining skilled and talented personnel in the organisation. Best fit pays emphasis on external environment, and hence suitable reward system needs to be implemented in order to attract talent. In terms of best practice HRM, a competitive reward system can be a great tool to attract and retain talent. Both of the practices understand the importance of good pay and reward system, which helps in creating a positive influence on the corporate culture as well. Both of these approaches hold key importance for organisational strategy and objectives.
The difference between best fit and best practice approaches
There are many points in which best fit approach and best practice approach might fit into similar brackets, but these two are also very different from each other on many grounds. The best fit is a contingency approach and hence is applied based on the external and internal environment and the factors affecting the same (Iqbal, 2019). Best practice, on the other hand, is a universal approach, which states the same or similar organisational policies for all organisations and employees. In the case of best fit practice, the external environment is assessed, and the HR strategy is then designed by linking the other strategies and policies to them. But in best practice HRM, the HR manager identifies the best practice and then involves people to conduct the tasks and the same is rewarded.
For best fit approach, organisational strategy is given more importance, and on the basis of that, organisational systems and practices are undertaken. But the best practice approach includes a set of different practices that the human resource of the organisation needs to follow in order to achieve the goals. The best fit approach starts with assessing the external environment and strategy is followed after that. But in best practice HRM, the first step is identifying the best practice and rest of the process is followed after that (Malik, 2022). Both approaches understand the importance of the reward system, but different take is used. The best fit approach offers huge importance to the reward system as a motivator. But in the case of best practice, reward systems can create differences as there are chances that equal pay or a collective incentive system might be followed, which might not be feasible for all employees.
The best fit approach is suitable for organisations such as IKEA and IBM, which values their employees and undertakes different key measures in order to retain them in the organisation. The industry and businesses are highly affected by the external environment and need to make HR strategies align with the resources. Unilever and Nestle are MNCs that have followed this method and achieved success over the years. The organisations or sectors where the employees want to work, and people tend to enjoy their job are the ones that make use of best practices in their work. This helps in enhancing the reputation of the company leading to attracting and retaining talented staff in the organisation (Ren et al., 2023). Companies like FedEx Corporation, AMX and the Integer Group are some of the popular companies where best practice approaches have been followed for years, and the businesses have witnessed successful results. The performance and satisfaction of the employees are tracked and assessed, and suitable rewards are offered to them. This helps in developing employee loyalty along with developing growth of the employee, which helps in enhancing their performance resulting in better customer service.
2. a) ‘Unique bundles’ of HR practices
Bundling of HR practices is defined as the strategy which is undertaken by the organisation, including different policies and practices which play a crucial role in the overall organisational strategy (Veth et al.; 2019). The bundle of HR practices helps in assessing the situation and identifying the practices and policies that one needs to get the desired result. Bundling of HR practices states joint practices, which are considered to be more effective in nature as compared to individual practices. Different unique bundles of HR practices include job security, training, fair compensation and effective team, among others. The performance of an employee is affected by a wide variety of factors. Thus, it is essential for organisations to assess them and identify the right and best way to implement them in order to attain the business objectives in a successful way.
The implementation of unique HR practices can be really effective for businesses in order to gain a competitive advantage. It is because it will help in undertaking different unique approaches which would help in enhancing the performance of the employees. The unique bundles of HR practices involve different practices which are otherwise implemented or offered as individual practices by the company. The organisation, with the use of career planning along with on-the-job training, can help in maintaining the current level of skill or knowledge of an employee along with making improvement in them in order to prepare them for future situations. This would help in making the employees better at their job, which would make them a better asset to the company leading to a competitive advantage (Sanders et al., 2022).
The HR practitioner evaluates the need of the employees to design HR bundles in association with each other. These are different internally related HRM practices with the aim to offer productivity and quality in the working of the organisation. HR focuses on the elements that are available internally to the company rather than relying on external forces, which can vary. For example, if HR wants to improve the competence of the employees in the company, then the HR bundle would involve skill-enhancing practices such as extensive training and development and recruitment and training based on the need of the situation. This would help in hiring the best of the talent in the organisation, which would help in conducting the activities in an efficient and effective manner. This would help in enhancing the work creating better value as compared to that of competitors leading to sustainable competitive advantage (Gould-Williams, 2016).
HR practitioner assesses the different elements and features that employees look out for or are crucial for attracting them to the organisation. The HR people make use of recruitment, performance appraisal and empowering the skills of employees, considering them related to each other rather than disjoint from each other. Following a rigorous selection process and following practices related to pay and incentives can be great motivator for the employees. These would be effective in developing suitable HR practices and policies which would help the business overcome any issue or loss faced helping in retaining the older or better positions for the organisation. The unique bundles of HR practices can be practices related to career development and improving employee participation in the decision-making of the company (Bello‐Pintado, 2015). This would help in developing the qualities and elements in the organisation which cannot be or would be difficult to be copied by competitors. Career development with employee participation in the working of the organisation would offer direction to innovation and engage employees, which would be beneficial for enhancing employee engagement in the company. High employee engagement is a great method to retain employees along with increasing productivity in the organisation, which is the base for competitive advantage for the organisation.
The unique bundle of HR practices helps in aligning with the strategy in terms of undertaking or implementing those practices which would be effective for achieving set objectives. This is significant for the performance of the employees, who are the base for the success of any company. The major focus is resource based, which the HR practitioner modifies and changes based on the situation and the need of the organisation, offering them a competitive advantage in the business market.
b) High Performance Working Practices
High performance working practices (HPWPs) are the practices which enhance the capacity of an organisation to attract, hire and retain high-performance people in the organisation. There are different types of high performance work practices that can be undertaken by organisations to organise the work and increase the participation of employees in the company (Marchington et al., 2021). These can be pay related to profit or gain sharing with the employees. This shows that the organisation is interested in investing in its people acting as a source of competitive advantage for the company.
There are different companies that have undertaken different high performance work practices to create a better work culture in the organisation. Two such organisations are Lincoln Electric and Tesla. Both of these companies have undertaken different high performance work practices, which are similar yet different to each other on different grounds. Lincoln Electric is a US organisation that offers guaranteed employment to employees if they are working for the company for three years. Job security and welfare act as a motivation for the people who are recruited with careful consideration based on their performance. Tesla as a multinational organisation, focuses on employee engagement which helps in the development of the human capital of the company. The organisation focuses on training and learning with the aim of the overall development of the employees (Alatailat et al., 2019). It helps in making them feel productive along with improving their skills which has a positive effect on the performance of the employees.
The difference between the high performance work practices of Tesla and Lincoln Electric is that the latter focuses majorly on selective hiring and selection process along with offering employment security by making the employees work for three years before offering them a job. Tesla, on the other hand, hires people without such conditions, but the hiring process is more difficult because of the vast number of applications received and the open position available with the company. Tesla focuses on innovation, making high performance working of the employee a must. As employee engagement is the core attention of the company, recruitment and selection play a key role. Tesla follows a proper structure with roles and responsibilities highlighted. Lincoln Electric follows open office management practices where employees can communicate with each other at any time, influencing employee engagement in a positive way (Discover Hubpages, 2014).
There are different areas where high performance work practices of both Tesla and Lincoln Electric are quite similar. Both of them follows proper recruitment and selection method and reward system to value and motivate the employees for their contribution towards the working of the organisation. Tesla makes use of a strategic reward system with pay higher than that of other companies in the industry. This helps in recruiting and retaining talented employees. Lincoln Electric offers bonus and extra work for extra hour. This act as a motivator making the employees work harder and enhance themselves leading to better growth (Caldwell and Floyd, 2014).
The implementation of high performance working practices in both of these companies is considered to have a positive impact on the performance of the organisations. It is because these practices help in enhancing the knowledge and skills of the employees. They are developed and utilised in ways making them more valuable for the company. This acts as a motivator for the employees, encouraging them to do better, which generates better outcomes for the organisation. These practices have helped in decentralising the decision-making process, making things easier and faster. It has helped employees to understand things in a better way which helps them offer better suggestions for key decision-making (Loria, 2018). This saves a lot of time and resources of the company, increasing their profitability and yielding higher results depicting the importance of high performance work practices for better business performance.
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