The other approach to strategic human resource management is the contingency approach which is based on two critical forms of fit; the external fit also known as vertical integration in which the Human resource strategy aligns itself with the business strategy. The internal fit or better known as the horizontal integration is all about trying to get the Human resource activities and policies to be in sync with each other so to make a coherent whole to be applied consistently (Derek Torrington, 2008). The notion in this approach is to for a human resource strategy to be developed in terms of generating specific employee behaviours, so to fit and meet the business strategy requirements. The drawbacks of this approach as argued by Ogbonna and Whipp (1999) that it is quite theoretical in nature and can rarely be applied or achieved in reality. As companies have to respond to environmental factors which may require radical changes, disturbing the fit between the HR strategies and the business strategies This can prove to be a serious issue as companies would then require to build up new HR strategies to fit with the business strategies as soon as there is a need for change, exhausting resources such as capital, time and man power. Boxall (1996) critically states that most successful companies are good all rounder’s using various different strategies for the different sections of the workforce.
The resource based approach is based on having a linkage between the internal resources, strategy and the company’s performance. The approach according to Torrington (2008) focuses on the development of the human resources and capital rather than the alignment of the strategic business goals. The approach puts focus on aspects such as skills, knowledge and intellectual capital. According to Agarwala (2007) the purpose of the approach is to bring about a system of developing HR practices that would contribute to the strategic objectives of the business, while using a ‘bundle’ of HR practices. Research done by MacDuffie (1995) on the manufacturing plants in USA shows that companies that bundle up HR practices show an improvement in performance as a range of avenues are tackled by the approach. However, problems can arise when using performance related pay as it can be difficult to determine which bundle is linked to the measurement of the performance and pay scale (Agarwala, 2007). The resource based perspective is believed to be overstated by Storey (2007) as it pays too much emphasis on the roles played by knowledge, resources and organisational capabilities while playing down the broader influences of strategic choice, change and innovation.
In order for a firm to survive in today’s competitive environment it has to link its HR practices to the business strategy in one way or the other and any company is as good as its workforce, which needs to be kept satisfied through a range of incentives. These incentives according to the ‘old pay’ methods use to be limited to monetary terms coupled with planned career progression, which was better suited argued by some to Taylor’s hierarchical structure in the times of predicated changes. The ‘new pay’ system which is argued is better suited for today’s turbulent world, where organisational changes are of the norm. The new pay is based on the ‘best fit’ or better known as the contingency approach, as it focuses to be aligned with the business strategy. According to Lawler business strategies require to achieve certain employee behaviour and attitudes which can easily be attained through reinforcing certain pay policies. These pay policies are known as strategic pay (Heery, 1996). The new pay system consists of various themes such as variable pay, bonuses, flexible pays and etc (Heery, 1996). The new pay system aims to attract, retain and motivate employees in order to produce results that support the overall business strategy (Agarwala, 2007).
Ian Smith (1992) criticises the approach of ‘new pay’ for being anything but new. It is argued that the pay by performance is based on the same principles used in the old pay system for shop-floor workers. It is furthered argued that the new pay was not developed as a strategic development but rather introduced as a measure of coping with cost cutting pressures and retention problems (Smith, 1992). However, Lawler as cited by Thorpe (2000) definition of new pay clears out such ambiguity presented by Ian Smith (1992). It states that the new pay is not there to replace traditional pay strategy but instead should be viewed as a way of meeting the organisation’s strategic needs and requirements. This can be seen in today’s organisations where the basic pay still stands but is coupled with performance pays especially for those employees involved in a sales or call centre role where performance can be measured in quantitative terms.
While most theorists suggest that pay policies should be aligned with the business strategy but they also propose using models of good practice. The theorists argue that in order for the corporations to cope with the changing business environment, new strategies need to be constructed for the firms including approaches to pay for those strategies. As a process of linking pay to strategy, past strategies from not only one’s organisation but other organisations are also viewed in order to have that competitive edge. Such adaptation of ‘best practice’ approach is trickled down to other firms as well (Heery, 1996).
Stephen Taylor (2000) implies that there is anecdotal evidence that suggests that high levels of rewards are accompanied by poor HR practices as ‘ A corporation can intensify work, offer little job security and sustain a fairly brutal management style, while maintaining acceptable levels of commitment and employee retention provided it pays above market rates’ (Taylor, 2000. pp.17). This approach is popularly used in newspaper agencies as well as other corporations where high control HR practices and policies are justified by high rewards.
It is then left to argue that the reward system in only for the benefit for the corporations and not for the employees, as a heavy emphasis is placed on performance measured pay which is decided or set by the managers. This is allowing too much power in the hands of the manager, which can lead to other issues such as discrimination (Heery, 1996). This is however ignored by Zingheim (1992) who view the new pay in a positive light, as it is to align the employee’s interest by providing them a stake in the business, hence making them work harder. The new pay is also to be used as a way of breaking the boundaries of the hierarchical structure by enhancing the sense of team work and effort, personnel training and increased sense of decision making.
Even though the reward system along with its new pay management is an American developed idea with the American corporations in mind as the recipients. There has been some evidence of it being used in British organisations as well through its implications at the work place (Heery, 1996).
This essay hopes to have shown the use of strategic human resource management practices and approaches in the light of the UK and global perspective. It critically evaluated the various approaches of ‘best practice’, ‘best fit’ and ‘the resource bases view’ used in strategic HR practices. It looked at the various drawbacks of each of the strategic approaches. It further on aimed to critically evaluate the system of rewards as part of the strategic HR practices and policies. It critically looked at rewards being used by organisations as of exploiting their employees. It is further criticised for not being a complete innovative or new approach to the reward system. The ‘best-fit’ and ‘ the best practice’ models are also used in context to the reward system, with a critical analysis conducted on which approach is the most appropriate one to be used, coming to the conclusion that the new pay system is an effective way of a strategic reward system which needs to be used in the light of both a universalist approach as well as a contingency approach.
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