Stop chasing best practices: focus on fit for your HR function.[ILLUSTRATION OMITTED]
Many individuals have studied human resource "best practices" in large, successful organizations (Becker & Huselid, 1999). However, we believe that an approach focused on "fit" between the business strategy and the HR function' is more likely to result in a sustainable competitive advantage for organizations (Becker & Huselid, 2006).
Fit is the extent to which human resource and other management practices are congruent with the overall business strategy and the wider environment. It also refers to the alignment among the various HR functions/units and their policies and programs. Just as the business must be selective in which opportunities to pursue, so must the HR function. Today's HR leader can't afford to build an organization that chases best practices in an effort to deliver all services at an equally high level. Rather, he or she must select which practices will have a disproportionate impact on the business and invest in and emphasize their development.
HR professionals face two key challenges that drive the need for a closer examination of the fit perspective. First, although the HR field has experienced a significant amount of evolution over the past decades including an increased shift in focus toward strategic human resource management, many HR departments are still organized around functions such as training, recruitment and compensation, with limited integration. This has largely resulted in the functions evolving in silos and in isolation from one another (Wright & McMahan, 1992). A focus on fit highlights the symbiotic relationships that exist in organizations and can propel HR strategy toward a more integrated approach to solution development and delivery.
The second key challenge is HR's continued position as a cost center in many organizations (Becker & Huselid, 2006), which devalues the strategic side of the function. A focus on fit asks: How well do our priorities align with the concerns of the enterprise, the business leaders and our employees? When these priorities align, HR becomes a valued investment for the company, rather than merely necessary overhead.
Assessing HRM Fit
In assessing fit, it is first important that HR understands and analyzes the organizational business strategy. Porter's (1985) framework focusing on differentiation and low-cost still provides a useful way to asses markets, resource availability and competitors and set the HRM strategy in an understanding of the broader environment. Second, HRM's strategy must align with the business; address any contradictions with the overall organizational strategy. Vertical integration of business and HRM strategy ensures that HR investments reflect business decisions. The literature suggests that an organization that achieves fit between its HR system and its business strategy can result in higher firm financial performance through its influence on employee productivity, efficiency and customer alignment (Youndt et al., 1996). Finally, there must be horizontal integration; that is, HRM sub-functions, such as incentive systems and performance appraisal, must align to support desired organizational outcomes (DeNisi & Pritchard, 2006; Ducharme, Singh & Podolsky, 2005).
The focus on fit is considerably different from an approach that advocates the adoption of best practices; instead, it emphasizes a much more idiosyncratic perspective. If fit can be achieved at these multiple levels (within HRM system, with business strategy, within broader context) then organizations will become much more likely to gain a sustainable competitive advantage through the use of their people and strategy.
Therefore, a unique practice, not necessarily someone else's best practice, may be the most appropriate response to a given business environment. For example, Wegmans Food Market Inc., a family-owned supermarket chain, operates in a very competitive, low margin industry. Instead of mimicking the practices of others in the industry, however, it has responded to its environment in a unique manner: a focus on its employees and a high degree of social responsibility (Ezzedeen, Hyde & Laurin, 2006). Essentially, it recognized a need in the industry for exemplary customer service through employee satisfaction and commitment, and a need to be a responsible organizational citizen through work in its communities. Wegmans' strategic HRM practices resulted in the supermarket earning the coveted top spot in Fortune's "100 Best Companies to Work For" in 2005.
A review of the literature and our own research on organizational outcomes associated with fit (Samnani & Singh, 2010; Hubbard & Singh, 2009; Nadim & Singh, 2008; Singh, 2002) suggests that:
1. A lack of fit can have adverse consequences for performance and employee retention. For instance, recruitment and selection practices that signal to employees that the organization is very selective in its hiring but then focus very little on training and do not reward performance, send mixed signals to employees. Employees often cite the latter practices as reasons for their desire to leave the organization or for their reduced performance. On the other hand, organizations that demonstrate some degree of fit between the hiring promise and the delivery on that promise, such as Southwest Airlines and SAS Institute, report better outcomes such as increased employee commitment, less turnover and increased productivity (Singh, 2002; Nadim & Singh, 2008).
2. Identifying an organization's business strategy is of critical importance. In performing an assessment of fit, analyze the human resource strategy for congruence with the business strategy and with each HR function individually. Following this analysis, the HR functions should align with one another and also with broader contextual factors. In one of our studies (Samnani & Singh, 2010), a firm's business strategy focused on differentiating its services from competitors. This approach required complex employee skill sets; however, the HR functions did not support the business strategy. The firm offered minimal training, and the lack of congruence between the requirements of the strategy and the work with HR practices could be linked to employees' increased propensity to quit.
3. The context should be accounted for when assessing HRM fit within an organization. As the Wegmans' case and others demonstrate (see for instance, Huselid and Becker (1999) for a discussion of five relevant cases--Herman Miller, Lucent, Praxair, Quantum and Sears), an organization's context is important as it helps to focus strategy on the unique competencies it requires and potential sources of competitive advantage. It is important to note, however, that despite differences in context, the process in assessing fit remains the same. Essentially, HR professionals need to figure out what strategies work best/fit within the circumstances.
While most HR leaders might agree with this approach, their HR departments often lack a role or process to determine how well the portfolio of HR practices match the context and strategy and how well the functional units are delivering on integrated solutions. We suggest that an "HR Analyst" role can bring focus to these questions. The role might include ensuring that it constantly assesses and maintains the fit between each of the functions, develops and tracks measures of performance following program and policy changes, and helps to demonstrate and communicate to senior managers the direct link between HR actions and business outcomes.
A candidate who brings strong program evaluation and analytic skills should fill this role. It is not an administrative position but rather one that drives change in the HR agenda. Someone successful in this role would ensure that the HR leadership team makes data-driven decisions and challenge tendencies toward adoption of fashionable, yet unproductive practices.
The fit-based approach allows us to move beyond a best practices approach; the latter does not differentiate an organization from its competitors because best practices are easy to develop and imitate. Furthermore, a best practice approach may contribute to the sense that the HR function is too expensive if it is costly and senior business leadership does not value it. Hence, an iterative approach based on constant comparisons among the business strategy, HR strategy, HR functions and the broader context will help an HR professional determine whether certain practices will add sufficient value. Overall, an idiosyncratic approach based on achieving fit that is unique to the relevant organization is more likely result in a sustainable competitive advantage.
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Nadim, A., & Singh, P. (2008). Do all institutions benefit from leadership training? A systems inquiry. Journal of Leadership Studies. 1(4), 74-83.
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Sanmani, A., & Singh, P. (2010). Practicing a coherent HRM strategy through fit: A case study. School of Human Resource Management Working Paper Series, Toronto: York University.
Singh, P. (2002). Strategic Reward Systems at Southwest Airlines. Compensation and Benefits Review, March/ April, 28-33.
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Youndt, M. A., Snell, S. A., Dean, J. W., & Lepak, D. R (1996). Human resource management, manufacturing strategy, and firm performance. Academy of Management Journal, 39, 836-866.
By Al-Karim Samnani and Parbudyal Singh, School of Human Resource Management. York University
Al-Karim Samnani is a Ph.D. candidate in the School of Human Resource Management at York University. His primary research interests include workplace bullying, strategic human resources management and immigration.
Dr. Parbudyal Singh is an associate professor of human resource management at York University, Toronto. His research covers emerging issues in human resources management, leadership and labor relations. He has published more than 70 articles, many in top-refereed journals. He has served as an advisor/consultant to many leading Canadian and global firms.