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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Dear Prashanth, Even the Best practices approach can be suffered on limitations at the launch stage at a organization.as per, Delery, Redman & Wilkinson stated " The best practice approach suffers from a series of limitations. Firstly, when implementing best practice standards organizations run risk of introducing mutually prohibitive combinations like team working and compensation based on individual performance resulting in a deterioration of employee collaboration through overexaggerated competition (Delery 1998 in Redman and Wilkinson 2009). Critics like Milkovich and Newman (2002) argue that best practice HR lacks direct linkages with organizational strategies and is minted by the belief that outstanding high performing human resources will influence strategy. Therefore Best practices and Best fit has to be analyzed before implementing according to the situation of the organization.
ReplyDeleteHi Hemendra. I agree with your statement. The Best-practice model claims that certain bundles of HR activities exist which universally support companies in reaching a competitive advantage regardless of the organizational setting or industry (Redman and Wilkinson 2009). Which means that it contemplate those bundles of HR practice that can be applied in most of the organizational context to increase performance that helps produce better outcome. It implies a strong connection between HR practices and organizational performance that requires high commitment management (Paauwe & Boselie 2003). The best-practice model are based on the idea of superiority of the organizational performance and Pfeffer’s model is a good example of the set. His model shows seven important HR practices which are employment security, selective hiring, self-managed teams, high compensation contingent on performance, training, reduction of status differentials and sharing information. (Armstrong 2006, p. 65)
DeleteHowever, this model is also subject to sever criticism. Firstly, it might result in a deterioration of employee collaboration. Since implementing this practice will introduce mutual prohibitive combinations like team working and compensation based on individual performance are running a huge risk (Delery 1998 in Redman and Wilkinson 2009). Moreover, it is also hard to have a universal best practice, since discussions with regard to the appropriate choice of best practice did not and will not come up to a conclusion due to insufficient methodology and theoretical definition. Even a practice have been successful for popular and successful organization, it does not necessarily work on the others.
To put everything under consideration, both models offer organizations powerful tools for shaping human resource management processes. There will not be any absolute judgments on which approach works best, but best-fit models works better in overall, as it has a huge appeal to the HR practitioners due to the fact that it positions them as the first-level strategic partners in the process of management decision-making.
Main three theories that address the relationship between employee performance and human resource management are universal, contingency and configuration theories. The best fit is a contingency approach and best practice is universal approach (Croonen et al., 2016). Best fit focus on achieving competitive advantage while best practice focus on motivation and employee commitment (Kimble, 2016). Moreover, this author state that both best fit and best practice has worked well in different times depending on organizational culture. Foluso (undated) recommend that best practice approach need to define to accommodate national differences and should align with organizational and workers interest to enhance employee commitment. Therefore, best practice and best fit strategies have to align with the situation to work best.
ReplyDeleteDear Chathurika, thank you for your valuable comment. In a sense, by promoting good rewards systems, the two concepts reinforce and define structure as well as the organisation culture. This because pay system is thought to have an influence in the way people behave in an organisation. Therefore, a good reward system consolidates and contributes to corporate culture. Armstrong (1999) argues,” the reward strategy provides an opportunity to reinforce the organisation’s values and beliefs in such areas as performance, quality, teamwork and innovation.” And Lawler (1996) before that suggested that pay system can help to change culture when it states “The behaviours they evoke become the dominant patterns of behaviour in the organisation and lead to perceptions about what it stands for, believes in and values.” Both Strategic HR theories see rewards as a way of reinforcing organisational culture and structure.
DeleteTo summarise, the concepts of ‘best fit’ and ‘best practice’ in strategic human resource management share some common points. In the most general sense, both approaches view HR as having an important role in supporting organisational strategy and objectives. Both approaches agree that reward practices should be consistent with other HR practices. There is a shared view that an externally competitive reward system has an important role in attracting appropriate candidates and retaining employees. Both see rewards as a way of reinforcing organisational culture and structure.
Dear Prashanth, Best practice and Best fit approach is a growing concept in 21st Century. People and people management are increasingly seen as key elements of competitive advantage (Allen and Wright, 2006; Pfeffer, 1994, Boxall and Purcell, 2003). Delery and Doty (1996) categorized the theories of strategic HRM and organizational performance in three modes: the universalistic, the contingency and the configurational.contingency theory is best fit and universalism is best practice.a set of 'best practices' will lead to improved organizational performance.This approach received strongest support in many studies (Pfeffer, 1994; Huselid, 1995; Delaney and Huselid, 1996).Human Resource plays a key role in helping organizations in tapping human capital, align it with business strategy and turn it into a competitive advantage(Kumar, 2016)
ReplyDeleteThank you for your valuable comment Shameer. Best fit is based on the premise that picking the most effective HR policies and practices depends on matching them appropriately to the organization’s environment. The contingent factors influencing HR strategy might include type of business strategy pursued, organization size, type of technology, geographic location and labor market, management skills and preferences, industry sector and economic conditions. According to Annette Cox (2007)Blackwell reference online http://www.blackwellreference.com, “Contingency approach refers to a method of decisionâ€making often applied in devising appropriate human resource (HR) strategies and termed the “best fit” approach in contrast to “best practice” approaches.” Best practice is referred as an universal approach because it documents the benefits of HRM across all context.
DeleteFor best fit, organisational strategy comes first and all organisation systems and practices follow. Whereas for best practice a prescriptive set of practices, precede strategy but provide the human resources needed to fulfil the organisation’s objectives, whatever they are. We can see that the two concepts differ in their method. Within the ‘Best practice’ model the HR manager starts by identifying best practice, then give HR a high profile, get top level commitment, sell it, do it, measure it, reward champions. However the process is different for the ‘best fit’ model, where the HR manager identifies first the external fit linked to the operation strategy, marketing strategy etc.. and tries to ‘fit’ them with the HR strategy. Schuler & Jackson (1987), “Linking competitive strategies with human resource management practices”, Academy of Management Executive, 1(3), 207-19.developed the connection between competitive advantage, employee behaviours and HR practices.
Adding more detail to the article the Best Practices the frequent mistake the organizations does is taking a common process or a tool which is used before without tailoring it to the new environment. Because companies are so different and its very rare that a practice developed to one organization can be applied to another .Ashkenas R(2010). The classic example was GE’s senior team visited Wal-Mart to learn about its “Quick market intelligence” and finally understood that that approach is not match with GE. Best practice proponents believe that human resources activities should be carried out following a set of HRM practice which is capable with improving any organizational performance irrespective of the location and size of the organization (Marchington & Grugulis 2011).
ReplyDeleteThe main criticism and difficulty is to find a universally acceptable model of ‘best HR practice’.
DeleteOne that is popular is Pfeffer’s model ("The Human Equation" by Jeffrey Pfeffer, ©1998 by the President and Fellows of Harvard College) which shows seven important HR practices which are employment security, selective hiring, self-managed teams, high compensation contingent on performance, training, reduction of status differentials and sharing information. (Armstrong 2006, p. 65).
In my opinion, the best fit model is overall more persuasive and easier to implement. HR best practices tend to ‘come and go’ and from a research-based angle, it is difficult to find long term studies with clear cut HR best practices that work best universally.
The best fit model gives better strategic advantage - it is easier to make changes progressively and in bite sizes and is also more dynamic to deal with contingencies - as the strategic intent changes, so to must HR policies and practices.
Firstly, when implementing best practice standards organizations run risk of introducing mutually prohibitive combinations like team working and compensation based on individual performance resulting in a deterioration of employee collaboration through over exaggerated competition (Delery 1998 in Redman and Wilkinson 2009). Best fit approach of aligning HR goals with corporate quality strategy. It is coherent with Lincoln’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. 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 is almost impossible because of regional differences in work-related practices, laws & culture and characteristics of motivation.
ReplyDeleteHi Jancy. The concepts of ‘best fit’ and ‘best practice’ are two well-known approaches to human resource management. The ‘best fit’ perspective claims that HR strategy become more and more efficient when it is linked to its environment of the business. It explores the close link between strategic management and HRM by assessing the extent to which there is a vertical integration between an organisation business strategy and its HRM policies and practices. ‘Best practice’ school claims that certain ‘best’ human resource practices would result in enhanced organisational performance, manifested in improved employee attitude, lower level of absenteeism and turnover, higher level of skills for higher productivity, enhanced quality and efficiency. That is why the ‘best practice’ model is also referred as high commitment models. These two concepts are generally described within the literature but it is sometimes difficult to stretch the specifications of each approach.
DeleteThis comment has been removed by the author.
ReplyDeleteDear Prashanth i agree with this statement "best fit and best practice approaches offer companies powerful tools for shaping human resource management processes" in your blog. Meanwhile i would like to add that according to Pfeffer (1994) claims that although mass, referred to a large number of employees, do work for money, work also adds meaning to their lives. Therefore, organisations with income rates, whirl intellectually engaging work, a class friendly environment and the opportunity to work with fun, interesting people in increase to a competitive reward system. However, Wagner (1990) claims that the reward system plan is ought to be perfect to motivate the employees. On the other hand, Morgan (2001) believes that training will produce positive outputs if the organisation allows the skilled workers to apply the knowledge that they gain through training sessions.
ReplyDeleteThank you for your valuable comment Niroshini.
DeleteCharacteristics of best practice are employee development, career progression, a well-structured recruitment process and teamwork. Employee training and development creates a path for employee improvement; investing in human capital is a gain for the company. “HR occupies a key role in helping organizations in tapping human capital, align it with business strategy and turn it into a competitive advantage” (Kumar, 2016). Performance appraisals can be used as motivational tools an excellent way to increase communication across the organization; being evaluated does not necessarily constitute a pay increase. However, I agree with the best-fit approach that firm’s pay levels must be competitive. “A market reward alternative that pays these individuals at or above the market rate can prove to be a wise investment, especially if their replacement would be particularly expensive or disruptive. This approach ensures that the firm’s pay levels are at least competitive with the labor market” (Hsieh, 2011).
Best practice leads to high motivation and better employee commitment; the best fit strategy results in achieving competitive advantage. “To effectively manage human resources, firms should nurture the type of employee behavior that is essential to the success of their competitive strategy” (Hsieh, 2011). Best fit advocates the firm’s reward system should be aligned to organization strategy; best practice is a group of human resource policies which include a reward system. “Modern organizations must align their reward systems practices with their organizational strategy to achieve higher levels of performance at both the individual and organizational level” (Hsieh, 2011).
This comment has been removed by the author.
ReplyDeleteBoth approaches have confidence in that HR practices should be complimentary. However, according to Purcell (1999), the most prominent fact in best practice is that there is no discussion on company strategy. So this attract super human resources, talent and competencies. “These superior human resources will, in turn, influence the strategy the organization adopts and is the source of its competitive advantage” (Milkovich & Newman, 2002, p. 30). Therefore, for this approach, policy heads strategy.
ReplyDeleteBest fit focuses on high achievers of employees with high replacement
costs. These employees require to be satisfied that their reward package equals or
exceeds what they will earn in the external market.
Best practice, believes that there are a number of interrelated policies that appeal them to the
organization. All employees are wisely chosen and are a source of competitive
advantage. Employees stay with an organization because of the challenging environment,
meaningful work and competitive pay package (David and Maureen, 2018). Best fit and best practice approaches are powerful tools for determining human resource management processes. Therefore, it is important to analyze both the concepts before implementing it in an organization.
Thank you for your valuable comment Nipuni.
DeleteWhether ‘best fit’ or ‘best practice’, organisation needs of staff is acknowledged. Thus, both concepts need employees in order to achieve its goals. Therefore they both have staffing and hiring strategies and procedures. Recruiting, testing, selection and staffing are considered in the two systems. Advocates suggest there are mutually compatible ‘bundles’ of HR policies that promote high levels of employee motivation and commitment that positively impact on organisational performance. Although there is not unanimous agreement in identifying these practices, the list generally includes: selective hiring, extensive training, employment security, a structure that encourages employee participation and pay policies that lead in relation to industry competitors. (Pfeffer, 1998; Huselid, 1995). And reward for example is another important issue within the application of each approach. In the most general sense, both approaches view HR as having an important role in supporting organisational strategy and objectives.
Both approaches agree that externally competitive reward packages are important to attracting and retaining qualified employees. Thus, ‘Best fit’ advocates emphasise the importance of external competitiveness for attracting and retaining employees. To be effective, a reward system must distribute rewards in a way that will lead the organisation’s most valuable employees to feel satisfied when they compare their rewards with those received by individuals performing similar jobs in similar organisations. According to Schuster and Zingheim (1992), two advocates of the ‘best fit’ approach, “good performers tend to seek organisations where performance is recognised and rewarded.” The same idea is found in ‘best practice’ books.
Pfeffer (1998) says: “Although labour markets are far from perfectly efficient, it is nonetheless the case that some relationship exists between what a firm pays and the quality of the workforce it attracts.” There is therefore a shared view that an externally competitive reward system has an important role in attracting appropriate candidates and retaining employees.
Hi Prashanth,One of the key features of ‘best practice’ HRM is capable of being used in any organization, irrespective of product-market situation, industry, or workforce, and evidence is produced from a range of industries and studies which he claims demonstrates the case for ‘putting people Žfirst’ . He notes that the industries in which a ‘best practice’ approach has been shown to work ‘range from relatively low technology settings such as apparel manufacture to very high technology manufacturing processes. The results seem to hold for manufacturing and for service Žfirms. Nothing in the available evidence suggests that the results are country-speciŽc. The effects of high performance management practices are real, economically signiŽcant, and general . Support for this line of argument is provided by the results from several other studies. For example, Huselid states that ‘all else being equal, the use of High Performance Work Practices and good internal Ž fit should lead to positive outcomes for all types of Žfirms’ (1995:644).Mick and Irena (2000) identifies elements of best practice HRM as employment security,selective hiring,self-managed teams/teamworking,high compensation contingent on organizational performance,extensive training,reduction of status differences and sharing information.
ReplyDeleteThank you for your valuable comment Nadeesha.
DeleteBest fit is based on the premise that picking the most effective HR policies and practices depends on matching them appropriately to the organization’s environment. The contingent factors influencing HR strategy might include type of business strategy pursued, organization size, type of technology, geographic location and labor market, management skills and preferences, industry sector and economic conditions. According to Annette Cox (2007)Blackwell reference online http://www.blackwellreference.com, “Contingency approach refers to a method of decisionmaking often applied in devising appropriate human resource (HR) strategies and termed the “best fit” approach in contrast to “best practice” approaches.” Best practice is referred as a universal approach because it documents the benefits of HRM across all context.
For best fit, organisational strategy comes first and all organisation systems and practices follow. Whereas for best practice a prescriptive set of practices, precede strategy but provide the human resources needed to fulfil the organisation’s objectives, whatever they are. We can see that the two concepts differ in their method. Within the ‘Best practice’ model the HR manager starts by identifying best practice, then give HR a high profile, get top level commitment, sell it, do it, measure it, reward champions. However the process is different for the ‘best fit’ model, where the HR manager identifies first the external fit linked to the operation strategy, marketing strategy etc.. and tries to ‘fit’ them with the HR strategy. Schuler & Jackson (1987), “Linking competitive strategies with human resource management practices”, Academy of Management Executive, 1(3), 207-19.developed the connection between competitive advantage, employee behaviours and HR practices.
Hi, Some commentators believe that the development of the best fit model is derived from the Harvard, Michigan and New York models. Sparrow and Hiltrop (1994) claim that these models could be classified as ‘matching models’ because of their common aim is to match the human resources strategy with that of the corporation. Thorpe and Homan (2000), argue that previous developments in the design of pay systems did not directly relate to the real priorities and problems faced by organisations. Thus, the need to devise pay systems linked to business strategy arose. The underlying premise of best fit is that a close alignment between organisational strategy and other systems, including reward, can improve organisational effectiveness. Although the idea that pay should be linked strategy is not new, it received impetus in the 1990s with works by Schuster and Zingheim (1992, 1993) and Lawler (1995) discussing the merits of ‘new pay’. Lawler (1995, p. 14) states that all organisational systems must start with business strategy because “…it specifies what the company wants to accomplish, how it wants to behave, and the kinds of performance and performance levels it must demonstrate to be effective.” Business strategy, driving individual and organisational behaviours, is the touchstone for the development of the reward strategy. The contingent nature of the reward system is emphasised by Lawler (1995, p. 14) when he states, “indeed the ‘new pay’ is not a set of compensation practices at all, but rather a way of thinking about the role of reward systems in a complex organisation…it argues against an assumption that certain best practices must be incorporated into a company’s approach to pay.” Indeed, he contrasts the reward system for a traditional management style with one that fosters employee involvement. The correct fit for the former includes a reward system that is job-based with merit pay while for the latter it is skill-based with bonuses based on business success.
ReplyDeleteThank you for your valuable comment Ricky.
DeleteAt a more specific level, regarding reward for example, both approaches have different point of view regarding the influence of pay in people performance.
Best fit system shows a high margin of confidence regarding pay as a motivator. It follows the expectancy theory that believe that people will perform more and more better if they believe their effort will be rewarded. So, the best fit method focuses on the financial aspect and uses it as a driver for corporate human resource. David Morris (2007) says: “Best fit proponents see rewards as the stick and the carrot. Since pay varies with performance, poor performers ‘vote with their feet’. Excellent performers are attracted to the large pay differentials that reward their performance.”
However, in relation to pay, best practice advocates usually use the term “… first. Do not harm.” Pfeffer (1998). Thus, they do not really believe in the great influence of pay that best practice advocates want to show. They see pay more as a factor helping to ” prevent dissatisfaction and provide symbolic recognition that employees are valued.” David Morris (2007). Rewards, for best practice advocates, can even destroy the relationship and trust that are the basis of organisational commitment. This leads them to promote a reward system that does not differentiate with compressed pay bands, equal pay for all team members and collective incentives.
Due to all these difference, the question we ask ourselves is obviously: which one of the two systems is better? We will ask the Chartered Institute of Personnel management (CIPD), the main body of HRM in UK, to help us answer this question.
The CIPD (2010), talking about strategic human resource management, writes: “There is no single HRM strategy that will deliver success in all situations. Organisations need to define a strategy which is unique to their own situation in terms of context, goals, and the demands of organisational stakeholders. CIPD members will find our tool on HR strategy will be useful in carrying out such an activity.” Therefore, It is useful for all organisations to management their people within a planned and coherent framework which reflect the business strategy.
Prashantha, the positive impact of human resource management on organizational performance is based on application of proven best practices in human resource management that help to achieve expected organizations results through achieving desired employees abilities, motivation, results and behavior (Martin, 2015). Furthermore researchers in theoretical stream assume that firms need to select ‘best fit’ HR practices that fit with the context in which they operate in order to be maximally effective (Croonen et al, 2016). In addition, some researchers contend that best practices vary from firm to firm, evolving over time and with changes to the marketplace (Murray et al., 2002). Therefore there is no “one best way” to achieve high performance but rather different routes to the same goal.
ReplyDeleteThank you for your valuable comment Rochana.
DeleteWhether ‘best fit’ or ‘best practice’, organisation needs of staff is acknowledged. Thus, both concepts need employees in order to achieve its goals. Therefore they both have staffing and hiring strategies and procedures. Recruiting, testing, selection and staffing are considered in the two systems. Advocates suggest there are mutually compatible ‘bundles’ of HR policies that promote high levels of employee motivation and commitment that positively impact on organisational performance. Although there is not unanimous agreement in identifying these practices, the list generally includes: selective hiring, extensive training, employment security, a structure that encourages employee participation and pay policies that lead in relation to industry competitors. (Pfeffer, 1998; Huselid, 1995). And reward for example is another important issue within the application of each approach. In the most general sense, both approaches view HR as having an important role in supporting organisational strategy and objectives.
Dear Prashanth The current ongoing debate discusses the added value of HRM in relation to best practice versus best-fit. Best practice suggests the universal success of certain HR practices, while best-fit acknowledges the relevant impact of contextual factors. The exploration for the effect of types of HRM on organizational performance has
ReplyDeletefocused on a universally applicable best practice model of high commitment management. There are fundamental problems with this approach in the theory on the lack of a link with the organizational strategies. Recently authors have demonstrated that good practice in HRM has an affect on the bottom line. The Sheffield study
Patterson et al, (1998) suggests that “if managers wish to influence performance of their companies, the most important area they should emphasize is the management of people.
For HR to succeed it must take on a proactive role within the organization. Strategic HR creates value by providing opportunities for organic learning, development of intellectual capital and enhances core competencies. This value is crucial to the organization's future success (Treen,2000). Employers are increasing extorting
the best possible performance from employees. Best practice will increase the skills of the current workforce, and with recruiting it will reinforce the culture of a highly skilled work force (Mullins, L. 2005). Strategic HRM has gained both credibility and popularity over the past decade, specifically with respect to its impact on organizational performance (Paauwe and Boselie,2003).
Thank you for your valuable comment Shanaka.
DeleteBoxall and Purcell (2003) argue that the 'best practices' have become ends in themselves, apparently disconnected from the company's goals in its specific context. In that context, Becker and Gerhart (1996) point out that the concept of best practices can be accepted for identifying the principles underlying the choice of practices, however human resource practices should be embedded in organizations in a way that they fit organization's needs. Purcell et al. (2003) in their research of people and performance link show that there is no universal 'best practice'. On the contrary, they argue that all successful companies have broad and integrated clusters of practices that are tailored to the needs of the organization.
The 'best fit' advocates that HR strategy will be more effective if appropriately integrated in its organizational and environmental context. This approach covers a range of models focusing either on linking HR strategy to the competitive strategy ('vertical' or 'external fit'), or on 'bundles' or 'clusters' or HR practices that are designed to fit and support each other ('horizontal' or 'internal fit'). The basic assumption underpinning the contingency theory is that companies that have matched the HR strategy with the company's competitive strategy will report superior performance. The most well-known model of external fit was developed by Schuler and Jackson (1987), who offered a theoretical framework of the connections between competitive strategies, desired employee behaviors and particular HR strategies. Namely, they argue that HR practices should be designed to reinforce certain employee behaviors required by Porter's generic strategies.
Dear Prashanth,
ReplyDeleteAs you correctly stated, The concepts of ‘best fit’ and ‘best practice’ are two well known approaches to human resource management. The ‘best fit’ approach to strategic human resource management (HRM) discovers the close relationship between strategic management and HRM by considering the effect and nature of vertical combination. Vertical combination, where influence is increased through the close link of HR policies and practices to the business context and therefore the external context of the organisation, is considered to be key theme of strategic HRM. “The rigidity of ‘tight fit’ models in a dynamic, varying environment was assessed, and consideration was given to achieve both fit and flexibility through balancing SHR systems.” Julie Beardwell and Tim Claydon (2007).
On the other hand, ‘best practice’ highlights the relationship between ‘sets’ of good HR practices and organisational performance, in terms of employee obligation and satisfaction. These sets of best practice can take many forms; some have supported a worldwide set of practices that would improve the performance of all organisation they were applied to. Pfeffer ( 1998) Pfeffer, J. (1998). Seven Practices of Successful Organizations. California Management Review , 40 (2), pp. 96-124. , listed seven HR practice for competitive advantage, ” Employment security, selective hiring, self managed teams, high pay contingent on company performance, extensive training, reduction of statute difference and sharing information”. Tim Claydon (2007), argues that: ” A key element of best-practice is horizontal integration and congruence between policies.”
Thank you for your valuable comment Nishan.
ReplyDeleteThe 'best practice' model advocates universalism, i.e. it is based on the belief that adopting and implementing a set of 'best practices' will lead to improved organizational performance. This approach received strongest support in many studies (Pfeffer, 1994; Huselid, 1995; Delaney and Huselid, 1996). These studies, across industries or within a specific sector, show that the organizational performance, measured by productivity, labor turnover, growth, market share or financial indicator, is better when more of the high-performance practices are used. Pfeffer (1994), as one of the strongest supporter of the 'best practice' approach, identifies 16 'best practices' in companies that lead to higher productivity and profit across all types of organizations, some of them being employment security, selectivity in recruitment, incentive pay, information sharing, participation and empowerment, teamwork, training and development, promotion from within, and so forth. Other researchers (Guest, 1999; Patterson et al., 1997) have determined sophisticated systems for recruitment and selection, intensive and ongoing training, job design which ensures flexibility, frequent and comprehensive communication, grievance procedures, promotion, employee share ownership, as best practices. However, Becker et al (1997) stress that high-performance work systems must be tailored carefully to a firm's individual situation to achieve optimum results. In addition, Guest (1997) argues that in all studies (Huselid, 1995; Delaney and Huselid, 1996; Arthur, 1994; Ichniowski, Shaw and Prennushi, 1994; MacDuffie, 1995) where different types of fit were compared, the 'best practice' was invariably the one that received the strongest support. In this regard, Pfeffer (1994) underlines that the empirical support for contingencies is weak and thus the 'best practice' approach should be preferred.