1. Introduction
The
discussion between promoters of best practice and best fit approaches has
sparked widespread controversy in the human resource management (HRM) area. The
topic has gained much scholarly attention because it not only addresses a
theoretical controversy but also possesses a high degree of practical
managerial significance. The blog
has the aim to analyze best practice and best fit approaches in HRM of a
multinational enterprise. The reader receives insight into WNS Global services
through a case-study analysis of practical HR approaches serving as a basis for
developing practical managerial implications in the last part of the discussion.
2. Critical evaluation of “best practice” and “best fit” practices in HRM
2.1 Best practice approach
The best practice approach states that certain bundles
of HR activities occur which exclusively support companies in reaching a
competitive advantage irrespective of the organizational setting or industry
(Redman and Wilkinson 2009). Best
practice models involve a close connection between HR practices and
organizational performance and are habitually allied with high commitment
management (Paauwe & Boselie 2003). Empirical research in the best-practice
field shows similar groups of HR polices which are especially appropriate for exploiting
performance irrespective of market and product strategies (Peffer 1998; Guest 2001). Best practice combines
of activities are characterized as mutually compatible HR activities which counterfeit
high levels of workforce competence, encourage motivation and introduce a work design
enhancing employee commitment (Maloney and Morris 2005). Based on concepts from
expectancy theory (Vroom 1964 ; Lawler 1971) best practice HR will result in
higher levels of quality, productivity and low rates of absenteeism and wastage
(Guest D 2001).
The
best practice approach grieves from a series of restrictions. Firstly, when executing
best practice standards organizations run risk of introducing mutually exorbitant
combinations like team working and compensation based on individual performance
resulting in a weakening of employee collaboration through over-exaggerated
competition (Delery 1998 in Redman and Wilkinson 2009). Secondly, high
commitment management systems are generally a difficult undertaking requiring
large inputs of planning and top level management commitment. Thirdly, critics
like Milkovich and Newman (2002) argue that best practice HR deficiencies
direct associations with organizational strategies and is coined by the credence
that outstanding high performing human resources will encourage strategy. By
making HR policy lead corporate strategy an organization, risks advising
standardized sets of “one size fits all” best practice approaches which will not
upkeep the particular needs of employees and be unfavorable to overall
strategic objectives (Maloney and Morris 2005). Fourthly, discussions with
regard to the appropriate choice of best practice measures resulting from an inadequate
research methodology and theoretical definition exist (Marchington and Grugulis
2000 in Redman and Wilkinson 2009).
2.2 Best fit approach
The
best-fit model is measured as a variation from standard models of Harvard,
Michigan and York and is called “matching model” for HRM (Sparrow and Hiltrop
1994). It is based on emerging HRM policies according to business strategy.
Strategy involves planning future activities, performances objectives, and
policies towards reaching the corporate aims. HRM strategy should be designed
and applied to upkeep the given corporate strategy (Lawler 1995). The
“best-fit” approach enquiries the universality assumption of the best-practice
perspective. It emphasizes contingency fit between HR activities and the
organization’s stage of development, an organization’s internal structures and
its external environment like clients, suppliers, competition and labour
markets (Redman and Wilkinson 2009). HR policy should be minted by the
appropriate context of individual employees and therefore support the overall
competitive strategy. Aligning HRM practices to strategies can enable companies
to create potential competitive advantages (Schuler and Jackson 1987 in Redman
and Wilkinson 2009).
The
best fit approach is also subject to sever criticism. Firstly, Boxall and
Purcell (2003) criticizes that in a changing business environment companies and
their strategies are subject to multiple alternating contingences and that it
is merely possible to adjust entire HR systems to new challenges frequently.
Secondly, as companies move through their life-cycle HR practices have to be
aligned which leads to an alternating treatment of employees which can have a
demotivating effect and show inconsistency in corporate culture (Boxall and
Purcell 2003).
3. Analysis of WNS Global Service’s HRM approach
3.1 Evaluation: Best practice or
best fit approach in certain HR practices
3.1.1
Selection practices
For
the hiring of its SRI LANKA workforce, WNS is applying best fit methods as it pursues a selective
employment approach aiming at attracting skilled personnel that can connect to
the companies high performance ethic and live up to quality standards. New
hires have to pass a six-month probation period and prove their work dedication
in trainee programme (Björkman & Galunic 2003). For the established SRI
LANKA operations promoting experienced employees from within can be regarded as
an element of best fit approach of aligning HR goals with corporate quality
strategy (Lawler 1995). It is coherent with WNS’s strategy of binding the best employees
and rewarding them for their long-term achievements with responsibility thus
keeping its intellectual capital and ensuring a sustainable competitive
advantage in fields of performance, knowledge and quality. In the international
management WNS made the mistake of relying too much on inexperienced managers
from within and only after the disaster of the international subsidiaries
started to move from its unitary strategy towards a more responsive best fit
approach to external environmental by hiring more internationally experienced
external managers in China and Europe which fits the international expansion
strategy (Hastings 1999). In its Chinese recruitment it adapts to the Chinese
labor market by personally promoting and introducing prospective employees
through senior management to identify personalities who can live up to
performance, education and quality requirements applying a best fit approach
(Björkman & Galunic 2003). This is in line with common relationship and
social network oriented selection practices in China (Warner 2005). WNS follows a best fit approach in setting up
back office operation where labor fee is low, but can find competent employees.
3.1.2 Training practices
WNS
is applying a best fit strategy which aims at enhancing employees’ abilities,
technical and business knowledge through a significant investment in globally
recognized best practice training methods (Marchington & Grugulis 2000).
Examples are a sophisticated trainee program for sales and engineering
trainees, constant vocational trainings for experienced workers and regular
work certification programs (Björkman & Galunic 2003). These actions aim at
supporting and maintaining the superior efficiency objectives creating core
competences compared to industry rivals and a competitive advantage. WNS’s
approach to training employees resembles the immersion training conducted by
Toyota which also conducts extensive investment in worker’s qualifications to
achieve highest productivity and quality (Spear, 2004).
3.1.3 Reward system
The
reward system in WNS is at the core of the successful individual performance
working system. In the UK, WNS employs a highly compensated piece-work system
which is linked to individual employee performance based on a multitude of
work-related factors (Björkman & Galunic 2003). The reward system is able
to motivate employees for achieving commitment through a remuneration which is
at the top of its industry (Björkman & Galunic 2003). Payment system
possesses clear management commitment and is seen as the key for achieving
outstanding employee commitment leading to advantages in costs, productivity
and quality (Hastings 1999). Group collaboration within the company is created
through specific bonus pools which are allotted to work group performance. The
bonuses are then distributed to the members of that group according to their
quantified relative performance on the semi-annual merit rating based on
factors like idea generation, quality, reliability, dependability and output
(Milgram & Roberts 1995). Employees are closely bound to the organization
through a long-term stockpurchase plan as part of their remuneration making
them entrepreneurs at their workplace (Björkman & Galunic 2003).
Classification of the reward system in one of the HRM approaches is ambiguous.
WNS invented the individual performance-system as the major component towards
developing its employees for becoming its core strength through an unbeatable
motivation and quality-drive (Milgram & Roberts 1995). This is the
utilization of the best fit approach minting HR towards organizational
strategic objectives. The performance payment system has proven immensely
successful becoming an internal best practice. For its global operations WNS is
forced to abide by national restrictions in the legal environment (e.g.
prohibition of piecework in Philippines) and traditional working habits in the
socio-cultural environment to align its reward system to local standards
(Björkman & Galunic 2003). In Europe, it is forced to conduct a best fit
approach abiding by local regulations and adjust to differing standards of
motivation where workers value benefits like vacation over annual bonuses.
3.1.4 Employee participation
The
best fit approach is also utilized for the field of employee participation. The
company possesses an open-door policy where employees can contact management
directly. Flat hierarchies with minimal supervisory management lead to very low
communication barriers and wide-opportunities for taking responsibility
(Milgram & Roberts 1995). Due to participation is one of the evaluation
criteria for employee remuneration WNS has a very high workforce participation
rate concerning continuous improvement suggestions. That not only encourages
idea generation but also directly involves employees in major decisions like
the turnaround after the economic crises (Hastings 1999). Although workers are
not unionized a very lively participation with the management board takes place
through the Employee Advisory Board leading to a very high level of workforce
loyalty. The best fit participation approach supports the core competence and
sustainable competitive advantage of productivity and innovative quality as
major strategic objectives (Pfeffer 1995)
3.2 External and internal factors influencing WNS’s HR strategy
3.2.1
External factors
Firstly,
the legal environment both in WNS’s domestic market and international markets
significantly influences the HR strategy. Regulations regarding the legality of
piece-work systems, vacation requirements and working hour limitations force
WNS to adapt HR practices in all fields elucidated in chapter 3.1. In the SRI
LANKA more performance driven and entrepreneurial HR approaches are possible
whereas regulations in Europe force WNS to adhere to adapt local HR practices
(Björkman & Galunic 2003). Secondly, WNS is affected by the cultural
diversity of its operations again creating barriers for the introduction of
performance driven measures in markets like Western-Europe and China. Whereas
in the SRI LANKA traditionally hierarchy is low and employee idea generation is
common, Chinese culture is more subversive and critical idea generation
practices will fail (Zhu 2005). Similarly hiring and training practices are
different across cultures: The SRI LANKA and Europe allow for the application
of best practices in recruitment and training. In Asia WNS needs to align to
the environment of conducting rather relationship oriented hiring and in-depth
skill development (Warner 2005). Thirdly, different market maturity and
industry-life-cycles between developed and developing markets affect WNS’s HR
approaches with differences in hiring, training and workforce participation.
3.2.2 Internal factors
The
first major internal factor affecting WNS’s HRM is the life-cycle of the
respective subsidiary. SRI LANKA and Canadian operations have a historical
presence with high levels of employee loyalty, trust, identification with the
individual performance culture and a well attuned work organization and low
hierarchies (Björkman & Galunic 2003). Due to recent acquisitions and
Greenfield investments in Europe and Asia loyalty and identification with the
overall corporate objectives and working ethics is unincisive (Hastings 1999).
WNS is challenged developing HR-approaches to create employee involvement and
implement the performance driven internal values. Especially, immense
discrepancies between the subsidiaries’ international managers and the SRI
LANKA headquarters’ management are major obstacles for the development of
globally coherent HRM strategies which can enforce the overall company’s
performance (e.g. objections against incentive system, language barriers,
management philosophies) (Hastings 1999). WNS’s executives do not possess the
required international management skills and are very much minted by idealized
SRI LANKA practices.
3.3 Practical managerial lessons and broad implications for HRM practices
Practical
managerial HRM implications which can be drawn from the WNS case are the
following. WNS’s HRM strategy is based on a best fit approach designed to
achieve an optimal vertical fit with the overall corporate strategy with a
strong alignment towards the competitive strategic objectives of employee
productivity and product quality on the company’s domestic market (Basset
1999). WNS is immensely successful on the SRI LANKA market because it matches
HR approaches to corporate, competitive and functional level strategy to
achieve a sustainable competitive advantage.
Internationally,
WNS is not able to transfer the SRI LANKA model of best fit to its
subsidiaries. Environmental factors like legal requirements and cultural
differences make it impossible to use a system which is based on individual
performance (Björkman & Galunic 2003). WNS is limited in fitting its HR
approach to what would be best for reinforcing its efficiency and quality
driven competitive advantage.
The
WNS case illustrates that in a global context companies are influenced by a
multitude of contingences. A universalist HRM approach within a MNC applying a
certain bundle of HRM best practices will not render an optimal outcome for the
entire organization (Sims 2007). According to Dowling et al (2008)
International managers need to take a more detailed approach by identifying
individual circumstances of national subsidiaries and fitting HRM strategies to
achieve a mutual enforcement between local requirements and corporate strategy.
For some a best practice approach might be a superior solution while for other
subsidiaries only certain best practice elements (e.g. hiring, training, rewards
etc.) might prove to be effective: In Europe WNS fails to develop any sort of
HRM strategy which can satisfy the environmental requirements and reinforce its
competitive differentiation strategy at the same time. Due to a lack of
international knowledge WNS’s managers rely on the status quo (Hastings 1999).
In Europe an introduction of best practice methods with a HPWS would have
immediately allowed ensuring better control and performance in the newly
acquired international subsidiaries through standardized practices (Maloney and
Morris 2005). The best fit approach in WNS’s Chinese subsidiary incorporates
lessons learned from the European failure: WNS is able to adapt HR strategy to
environmental requirements of culture, legal requirements and the market and at
the same time introduce best fit approaches in hiring and employee development
to support its competitive strategy.
The
broader implication is that there is no single best way to approach HRM.
Companies should design their approach according to elements of best practice
and best fit to achieve the best possible outcomes. Studies conducted by
Mendonca & Kanungo (1994) and Cyert & March (1963) show that the
adaption of HRM approaches to local international environments is essential for
companies leading to and adaption of processes and practices to fit with the
local workforce. Successful MNCs like Unilever, Royal Dutch Shell and Nestlé
are those that conduct HRM strategies based on localized requirements
incorporating elements from best fit and also standardized best practices
(Briscoe & Schuler 2004). In this context a localized resource-based HRM
approach can be a good possibility to create synergies between internal
competences with strategy and performance.
4. Conclusion
To
put everything under consideration, one can see that best fit and best practice
approaches offer companies powerful tools for shaping human resource management
processes. The case study has illustrated that an application of one bundle of
best practice strategies across all geographies of MNCs, as proposed by Pfeffer
(1998), is almost impossible because of regional differences in work-related
practices, laws & culture and characteristics of motivation. Similarly,
sticking to a best fit strategy which is only aligned to the contingency of
strategy and a neglect of environmental forces and internal capabilities can
lead to a failure of HR in international markets. The case has shown that the
concepts of best practice and best fit have to be analyzed and adapted to suit
the localized needs of international subsidiaries in order to pave the way to
overall global competitive advantages through HR.
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