October '21
Strategic Human Resource Management and Employee Relationship Management: An Approach for Realizing Sustainable Competitive Advantage
Swati Hans*
Assistant Professor, Department of HR, IFHE Hyderabad (Under IFHE - A Deemed to be University u/s 3 of the UGC Act, 1956), Hyderabad, Telangana, India. E-mail: swati.hans@ibsindia.org
The paper presents a conceptual framework establishing the link between strategic human resource management and employee outcomes (such as motivation, satisfaction, and happiness), and sustainable competitive advantage at the firm level. The paper also explains that HR practices, if integrated with other functions at work and strategically aligned with the overall business strategy, would lead to superior benefits for an organization. This framework could be used as a reference framework by future researchers for similar kind of research on SHRM.
The business environment around the globe has changed dramatically over the last few decades, and today it is characterized by phenomena such as acceleration in information technology, intense competition, changing customer needs, and diverse workforce (Khajeheian et al., 2018; and Soloducho-Pelc and Sulich, 2020). To stay competitive in this dynamic environment, organizations are required to constantly evolve and adapt by innovating products, acquiring new technologies, improving process and service quality, and formulating powerful strategies (Augier and Marshall, 2017; and Miceli et al., 2021). An organization's physical capital no longer benefits in realizing the Sustainable Competitive Advantage (SCA) for an organization, rather what helps is, non-physical human resources and their intellectual capital (Delery and Roumpi, 2017; and Emeagwal and Ogbonmwan, 2018).
Since HR practices are instrumental in managing, developing, and influencing employees, it becomes paramount to appropriately integrate those practices with the overall strategy of the organization as a means of gaining competitive advantage (Gilmore and Williams, 2009; and Collins, 2021). The Strategic Human Resource Management (SHRM) views HR from the strategic perspective and considers employees as strategic assets. SHRM makes it evident that linking HR practices and policies with the strategic content of the organization is one of the critical success factors in attaining competitive advantage. Thus, organizations should emphasize on identifying those HR practices that help in creating a more productive and efficient workforce contributing to improved organizational effectiveness (Boxall and Purcell, 2000; and Iqbal, 2019). HR practices, specifically designed to enhance employee's capabilities, motivation, and satisfaction, to provide empowerment and development opportunities, act as great catalysts in improving short-term financial stability by improved employees' performance and also offering a long-run business sustainability in terms of employee retention and enhanced skill levels of employees (Allui and Sahni, 2016).
An extensive literature review suggests that employees and their tacit knowledge are the most valuable resources in the triumph of any organization and in attaining sustainable competitive advantage (Lubit, 2001). However, organizations cannot fully harness the skills and knowledge of their employees if employees are not happy and satisfied, and do not trust their organizations. Therefore, carving up harmonious relationship between employee and employer and employee and employee is imperative for employees' higher level of performance, motivation, happiness, and satisfaction (Strohmeier, 2013). Rogers (2008, p. 48) defined the term ERM as "strategy, programs, and technology to effectively manage how firms relate to prospective, current, and former employees". ERM is a strategic tool borrowed from the widely used concept Customer Relationship Management (CRM) that simply aims at an employers' attempt at building sturdy relationships with its employees and also among employees at the workplace (Jing, 2013; and Lagergren and Andersson, 2013). ERM is viewed as a pragmatic HRM approach that aligns the interests of both the employees and employers where major benefits for employees are advanced satisfaction and wellbeing by taking care of their individual needs, while the increased motivation, retention, engagement, commitment, and performance of employees are benefits promised to the employers (Schweitzer and Lyons, 2008; Wargborn, 2009; and Strohmeier, 2013).
SHRM has received ever-increasing attention from the researchers and practitioners over the last few decades as it helps to strengthen employee motivation and satisfaction, build healthy relationships at workplace among employees, and deliver higher work performance by being more strategic about human resources (Bamberger and Meshoulam, 2000). Hence, the aim of this conceptual paper is threefold. First, to investigate the relationship between SHRM and ERM. Considering the strategic importance of SHRM approaches how different HR practices contribute to building and maintaining employees' relationship with the organization and other employees is the first important objective of this paper. Second, to explore the relationship between ERM and individual/organizational outcomes (such as employee happiness, satisfaction, employee motivation, and sustainable competitive advantage for the firm). Third, to examine the mediating effect of ERM on the relationship between SHRM and individual/organizational outcomes that has not been tested yet by the past researchers in any context.
Literature Review
SHRM
Strategic HRM has become a distinct area of study over the last 30 years, receiving special recognition from both the academicians and practitioners (Devanna et al., 1982). Early focus of HR was on personnel administration management, and this orientation can be explained considering the early employment issues in organizations (Mahoney and Deckop, 1986). However, this perspective started questioning the role of human resource department in the organizations as most of the human resource managers were unaware of the HR interface with other activities of the firm and how HR department contributes to the overall performance of the business. Gradually, the focus shifted from a micro (i.e., personnel management or individual effectiveness focus) approach to the more modern concepts of HR and later, to a macro (i.e., strategic role or organizational effectiveness focus) approach (Butler et al., 1991). The central premise of SHRM is linking the different HRM policies and practices to the needs of the business. SHRM mainly focuses on firm-level human resource phenomena where the effective use of HR practices have a direct impact on accelerating firm performance and achieving sustainable competitive advantage through improved employee outcomes such as higher level of motivation, commitment, happiness, performance, and reduced turnover. Integrating HR practices strategically with different functions of the business proffers more advantages than the mere existence of standalone HR practices. The implementation of well-formulated HR practices places an organization in a superior position over the competitors because strategies that are aligned with human resources are difficult to comprehend and imitate for the competitors (Kandula, 2008).
There are four dominant theoretical perspectives defined in the literature concerned with an attempt to link business strategy, HR practices and policies, and organizational performance. However, since HR practices may vary across different organizations, industries, and contexts, there is no ideal approach to manage people in any given organization. These four "modes of theorizing" SHRM act as a spectrum that encompasses all possible HR practices and approaches in different contexts.
The present paper concentrates on the universalistic approach of theorizing SHRM. Developing universalistic perspective in any organization, first, requires important strategic HR practices to be identified and then, the arguments related to HR practices and firm performance to be presented. This perspective focuses on developing a highly committed, satisfied, and competent workforce through the creation of strategic HR practices in order to attain higher performance and sustainable competitive advantage. These practices include (Arthur, 1994; McDuffie, 1995; Dube and Renagham, 1999; Pfeffer and Veiga, 1999; Enz and Siguaw, 2000a; and Haynes and Fryer, 2000):
According to Resource-Based View (RBV), "employees and their intellectual capital" is a resource that is valuable, rare, imperfectly imitable, and non-substitutable and helps in proffering a competitive advantage for an organization (Barney, 1999). SHRM scholars contend that HR practices can act as important levers in achieving competitive advantage by positively influencing workforce behaviors, motivation, level of competence, and also by offering developmental opportunities to leverage their intellectual capital (Boxall, 1998; and Azmi, 2011).
ERM
The notion of ERM has been openly derived from CRM and postulates the transfer of principles of relationship building from customer to employee domain. Relationship with employees is the first significant relationship that any firm builds before extending its relationships with other stakeholders, i.e., customers, suppliers, creditors, government, or society. Therefore, it must be strong and healthy. ERM is a recently introduced concept in the literature, however, it holds promising benefits and value-addition for the employer and the employees (Wargborn, 2009). A vast majority of literature supports the fact that happy employees produce better products, deliver quality service, and make customers happy (Taris and Schreurs, 2009; and Garlick, 2010). Thus, creating a work environment that focuses on strengthening employee's relationship with the employer and other employees is of utmost importance. Yet, the concept of ERM lacks appropriate attention and recognition from the academicians and practising managers.
CRM can be understood as a comprehensive customer strategy aimed at building sustainable mutually beneficial relationship between a firm and its customer. This perspective goes beyond simply focusing on products and transactions alone to carefully considering the specific needs of the customers and maintaining a sturdy relationship with them. In a similar vein, ERM can also be conceptualized as a strategic HR endeavor helping in creating genuine employee value by not merely meeting their economic needs (e.g., compensation, security, benefits), but also carefully understanding and targeting their social (e.g., affiliation, recognition, trust) and psychological (e.g., achievement, self-esteem, self-actualization, morality, respect) needs (Schweitzer and Lyons, 2008). Addressing employees' individual needs creates a more loyal, satisfied and happy workforce that will, in turn, provide sustainable competitive advantage in the market through continuous motivation, commitment, and performance of employees.
Hypotheses Development
Employees are the central part of every organization and their level of satisfaction and happiness significantly impacts product and service quality, productivity, and total return to shareholders. It is found that employees do not stay motivated and perform to the best of their abilities if their individual needs are not met properly. Studies related to ERM have clearly demonstrated the importance of regulating and maintaining long-term healthy relationships of employees inside the organization amongst the employees and with the firm. Effective relationship management helps in increasing employee commitment, satisfaction, motivation, and subsequently organizational performance (Chaubey et al., 2017; Delery and Roumpi, 2017; and Rahman and Taniya, 2017) .
Theories that directly address employee-employer relationship and exchange are the Psychological contract theory, the Inducement contribution theory, and the Social exchange theory. ERM theories currently rest on implicit theoretical foundations rather than explicit assumptions. Psychological contract theory promises an appropriate framework in understanding the relationship process of mutual perceptions, assumptions, expectations, and informal obligations. This contract is distinct from the employment contract which is formally written and specifies roles and responsibilities in the generalized form. Psychological contract is an intangible agreement that develops over the period of time and may vary across different individuals. By carefully considering and addressing individual needs of employees, an organization expects the positive outcomes from employees in terms of improved retention, motivation, happiness, and performance (Rousseau, 1995; and Cullinane and Dundon, 2006). Inducement contribution theory can be another basic foundation to explain the process of ERM. This theory suggests that employees contribute in terms of their efforts and motivation in exchange of certain inducements offered by an organization. Those inducements should directly fit with employees' needs and preferences, particularly social and psychological needs and should be equal to or even exceed their contributions (Barnard, 1938; and March and Simon, 1958). Social exchange theory could be the third possible valuable theoretical foundation for ERM. According to this theory, employees' decisions and behaviors are based on cost-benefit analysis of a relationship, ultimately looking for maximizing the benefits. An employee weighs the cost of a social relationship (negative outcomes) versus the benefits that can be derived from the relationship (positive outcomes). Outcomes could be tangible (money, gifts) or intangible (respect, promotion, power, shame). When a relationship rewards more to an employee than it costs, the employee continues the relationship, or else quits (Homan, 1958; and Blau, 1964).
Extant research highlights the importance of strategic HRM practices in the achievement of business goals and advanced organizational effectiveness (Nigam et al., 2011; and Jha and Bhattacharyya, 2017). However, there is no ideal configuration or bundle of those HRM practices identified. The author in the present paper adopted the universalistic approach of SHRM, arguing that there are certain HRM practices such as selection, training, compensation, communication and coordinating mechanisms, employee empowerment programs, leadership styles, culture, contingency reward system; are superior to others and positively impact the performance of an organization (Gerhart and Milkovich, 1990; Borman, 1991; Terpstra and Rozell, 1993; Pfeffer and Veiga, 1999; and Iqbal, 2019). These HRM practices are strategically integrated with other activities of the organization and align employee behaviors with the overall goal of the organization. A majority of the researchers agree on the view that employee happiness contributes heavily in producing improved individual and organizational performance. Employees are more likely to be happy when they establish healthy and strong relationship with both their co-workers and organization (Sharifzadeh and Almaraz, 2014). HR practices strategically designed to meet employee's needs and expectations facilitate in maintaining and strengthening employee-employer relationship thereby resulting in increased motivation, satisfaction, and happiness of employees (Darwish, 2013). In the view of above discussion, the author hypothesized:
H1: SHRM practices positively influence individual outcomes, i.e., employee motivation, satisfaction, and happiness.
H2: SHRM practices positively influence sustainable competitive advantage of an organization.
H3: SHRM practices positively impact ERM.
H4: ERM positively influences individual outcomes, i.e., employee motivation, satisfaction, and happiness.
H5: ERM positively influences sustainable competitive advantage of an organization.
H6: ERM mediates the relationship between SHRM and individual outcomes, i.e., employee motivation, satisfaction.
H7: ERM mediates the relationship between SHRM and sustainable competitive advantage of the organization.
Discussion
It is explicitly evident from the above discussion that integrating human resource functions with other activities of the business and with the overall strategy of the business holds promising positive consequences at both employee and firm level. The current paper highlights four different modes of theorizing SHRM, i.e., universalistic, contingency, configurational, and contextual. The fundamental commonality among all the four perspectives is that strategically implementing HR practices and systems helps in leveraging the human capital resources of the organization and thus leads to superior employee outcomes (increased motivation, satisfaction, happiness, and performance) and higher organizational performance (Marler, 2012). Thus, strategic HRM practices and systems can be considered a crucial source of sustainable competitive advantage. The rationale behind adopting the universalistic approach of SHRM to develop the hypotheses is based on the assumption that certain HRM practices are universal and consistent across organizations, regardless of the industry, context, size, and other factors, and those practices when strategically aligned with the business of organization can result in beneficial outcomes. This is a simple approach as this demands no efforts from managers to customize and adapt the HRM practices according to a specific business context. An organization can generate favorable outcomes by carefully and strategically deploying the universal set of HRM practices (Hughes, 2002).
The study also provides a theoretical underpinning on how SHRM facilitates maintaining and strengthening employee-employer relationship and employee-employee relationship (ERM). Harmonious relationships at work bring in higher level of trust, a sense of affiliation, and improves coordination among employees, thereby, making employees happier, loyal, and more satisfied. SHRM does not simply concentrate on satisfying physiological needs of the employees, but goes beyond that in satisfying higher-order needs (affiliation, achievement, power, and self-actualization) of employees as well. Employees reciprocate these feelings of satisfaction and happiness with higher productivity, loyalty, motivation, and retention (Delery and Roumpi, 2017). The theoretical framework for the current study is presented in Figure 1.
Conclusion
Strategic HRM has advanced the role of HR professionals from traditional activities to strategic decision making by integrating HR activities, practices, and policies with other functions of the business and aligning them with the overall strategy of the business. This transition has proved beneficial for both, the organizations and the employees. HR as a strategic partner develops employee-friendly policies and programs, thereby making employees more satisfied, happy, and motivated. There is a plethora of research highlighting that happy and satisfied employees produce better products, deliver quicker/faster services, and make customers more satisfied, which, in turn, help organizations grow and sustain.
Implications and Future Research:
The study has implications for both the academicians and practitioners. It extends the extant literature on the link between SHRM and organizational performance and sustainable competitive advantage by introducing ERM as a process variable. The theoretical framework offers an internal and integrated analysis of HR practices and systems by extracting the universal bundle of practices and aligning them with the needs of employees and with the firm strategy. This conceptual framework could be treated as a reference framework to conduct the similar kind of research in the field of SHRM and would encourage human resource and line managers to identify more such process variables to strengthen the role of HR function in facilitating advanced employee and firm-related benefits.
The study offers a strong theoretical argument on the relationship between SHRM and sustainable competitive advantage via positively influencing employees relationship at work. However, empirical studies concerning these relationships in different contexts need to be carried out in the future. The current paper examines the role of ERM as a mediating variable between SHRM and sustainable competitive advantage. Future studies can focus on identifying other such factors in the organizations that would help managers and practitioners to better understand the process of SHRM, leading to superior employee/organizational performance. Since the outcome variables of the study include both individual- and organizational-level measures, therefore, future researchers should adopt an appropriate research methodology to conduct the data analysis. One such data analysis technique could be cross-level regression.
References