Some decades ago, when HR function was known as ‘personnel management’, it was believed that the role of the HR professional was to create a ‘contended workforce’.
In many class discussions some of the legendary HR managers from public corporations who were well known for their semi-authoritarian yet highly benevolent style were frequently taken as role models.
All these made sense, as this was when the Sri Lankan economy was dominated by a large number of public corporations in industries such as textile, tyre and steel. In a closed economy these corporations made a reasonably good income but in general were a substantial burden on the Treasury.
Today many of these corporations are gone and business organizations are self-funded and face the full brunt of the global forces. Faced with competition, they are forced to come up with innovative competitive strategies to survive and grow. In this scenario, HR professionals are expected to go beyond creating a ‘contended workforce’ and actively contribute to the competitiveness of their firms. Most importantly, HR professionals as the custodians of the ‘most valuable asset of the firm’ - human resources, are expected to be highly innovative in attracting, developing, engaging and retaining human resources desired by the firm’s competitive strategy. As the competitive strategy experts explain, the competitive advantages built on a firm’s human resources cannot be easily copied by the firm’s closest competitors. Therefore, in comparison with other functional managers in the firm, HR professionals are placed in a unique and an advantageous position to make a notable contribution to the firm’s competitiveness.
Somewhat surprisingly, how HRM innovations can be undertaken and how such innovations contribute to a firm’s competitive advantage are not well understood. In this brief article we discuss some of our recent research findings that may provide valuable insights to HR professionals who pursue HRM innovations.
What is HRM innovation?
First of all, it is essential to arrive at a definition of HR innovation as the term ‘innovation’ is widely and loosely used in many professional circles. HRM innovation is a ‘new idea’ adopted in a firm’s HR management system, programmes and practices that has the potential to ‘add value’ to the adopting firm.
We find HR innovations can be effected in key HR practices, namely, recruitment and selection, training and development, performance management, compensation and reward, etc. What matters is whether the adoption of a particular idea is new to the firm and whether it creates value. For example, the balance score card has already been adopted by many organizations but a firm may introduce it to its performance management practices which will facilitate better management of individual performance.
HRM innovations differ in terms of the degree of newness, extent of change, number of employees affected and nature of its outcomes.
In terms of the degree of ‘newness’ and ‘value creation’, similar to product innovations, HRM innovations can be incremental -improving an existing HRM practice or radical - associated with completely replacing an existing HRM practice with a totally or substantially new one which will affect all or a major portion of employees in a firm. Our research shows that firms adopt both incremental and radical HR innovations.
In the simplest form, an incremental HRM innovation can be a firm shifting from paper-based recruitment to on-line or it can be radical, as when a firm introduces performance-based pay scheme replacing its flat pay rates. A radical innovation that affects a large number of employees is likely to meet with higher resistance, and therefore requires careful planning to win the support and confidence of parties that are likely to be affected.
What triggers HRM innovation?
HRM innovations will be prompted in three primary ways. First, HR professional on his/her own may initiate innovative changes. Many HR professionals bring in new ideas from their prior employment or through learning from external sources.
Second, an improvement may be initiated in response to a line managers’ feedback, service failure or a union representation of a problem affecting employees.
Third, and most important will be in responding to a new strategic initiative of the firm. For example, a bank deciding to expand into pawning market will require a new set of competencies and HR efficiencies.
HNB’s rural expansion thrust through its rural awakening program some years ago required its HR professionals to develop new job roles, career paths and training and development programmes. In a more radical form, one of the manufacturing firms we studied, with a view to improving productivity, introduced a complex work incentive scheme which was a total departure from its past reward practices.
The essential first step for HRM innovation process is to identify an opportunity for innovation. This will be followed by assessing potential risks associated with the innovation. Every HRM innovation may involve risks such as the risk of investment (e.g. cost of training staff), implementation failure and failure to deliver desired outcomes. The decision to undertake innovation therefore has to be made with a good understanding of associated risks and resources. Although the size of the firm may affect the resource availability to undertake HR innovation, we find that many manufacturing and service firms irrespective of their size undertake HRM innovation.
Where do new ideas come from?
Generating new ideas strongly relate to availability of new knowledge. We find that HR professionals acquire new knowledge from both external and internal sources. Knowledge from external sources may include, but not limited to, learning from competitive organizations, industry best practices, professional networks and previous work experience.
Internal knowledge often includes trial and error learning and learning from line managers and operational employees. For instance, the HR Director of an Australian financial service provider suitably adopted the competency framework she initiated in her previous workplace and implemented it only to one part of her current work-place on a trial-basis, before implementing it to the entire firm.
HR professionals must maintain an appropriate balance between external and internal learning efforts as any emphasis on one form of learning will hinder new knowledge acquisition. HR professionals must resist the temptation to adopt many new innovations occurring in other firms. The firm may not be ready for such innovations. Similarly, if the HR professional firm do not look for new knowledge outside the firm and keep using knowledge within the firm, they will lag behind. Most importantly, HR professional must have a sound understanding of the firm’s competitive strategy, which is their primary link to the outer competitive environment.
While the strategy making is the prerogative of the top management, functional managers such as HR will be guided by such directions. Specifically, what competitive strategy thrusts are adopted? Competing on cost efficiencies or differentiating the product offerings with a new service focus? Shifting from the larger market focus to a niche focus? All these have HR implications.
Once the new knowledge is acquired HR professionals must share such knowledge among HR team members. Our findings suggest that firms undertaking HRM innovations have a wide array of formal (e.g. weekly/monthly meetings, memos, suggestion schemes) and informal (e.g. chats over coffee/lunch or brownbag lunches) channels to share acquired knowledge among others within the HR function. The questions guiding this process will be ‘what does this new knowledge add to what we already know?’ and ‘how can we utilize this new knowledge?’.
Top management – A critical ingredient
Importantly, the effective design and implementation of HRM innovation requires top management support which will take two forms. First, the recognition of HR function in general, which includes HR representation in top management, autonomy for HR professionals in strategically important HR related decision making and confidence of the top management in the capabilities of HR professionals.
Second, strategic importance of the proposed HRM innovation. This will have substantial implications on resource allocations and implementation support. We find both these are critically important in implementing radical HRM innovations in particular.
Top management support as a prerequisite for HRM innovation poses a substantial challenge, somewhat unique to HR professionals. First of all, HR professionals should acquire the required professional competence and external recognition. Acquiring professional qualifications and working with competent seniors will be some of the many options to reach there.
Second, HR professionals must be able to provide top management with actionable information that would help making decisions about investments, marketing strategies and new products. HR metric is one such tool used for quantifying the cost and impact of HRM programs and processes. HR metric enables a company to track year-to year-trends and changes in these critical variables.
Third, HR professionals should develop their reputation for efficiency and reliability among other functional managers, employees and unions. Overall, in the absence of professional recognition, HR function will be viewed by other line managers and top managers as a function that can be done by any one. This was evident during public corporation days where many working directors were engaged in tasks usually carried out by HR managers.
HRM innovation and firm competitive advantage
HRM innovations can bring in both ‘proximal outcomes’ - improvements in attraction, commitment, engagement, and retention of employees and ‘distal outcomes’ - improvements in productivity, market performance, and financial gains.
Interestingly, we found that both radical and incremental HRM innovation would result in competitive gains. For instance, a mining services provider in our Australian study could improve its ability to attract and retain employees in a competitive market by simply improving its internal communication practices and offering compensation and benefits on par with industry average.
We found that multiple incremental HRM innovations together, or continuous incremental HRM innovations over a period of time, can create substantial improvements in innovation outcomes. Interestingly, such incremental innovations involved relatively lower levels of resource requirement and stakeholder resistance compared to its radical counterpart.
HRM innovation advantage does not accrue to the firm by the HRM innovation itself, but also from the process involved in its design and development. For instance, if the aforementioned advantage was gained by merely changing compensation practices, it could easily be imitated by competitors.
The inability of competitors to grasp the key pillars on which competitive advantages are built is suggested to be the foundations of sustained competitive gains. To provide an analogy, the world class music created by the leading Vienna Philharmonic Orchestra can be attributed to many factors; the individual skills of its members, their rigorous training, their remuneration, the way it is managed and the manager’s leadership etc. This excellence cannot be attributed only to individual players of the orchestra. On that logic a rival orchestra cannot build competitive advantage by simply pinching a couple of violinists or the conductor.
Overall, in this article we intended to shed light into how firms can adopt HRM innovation to gain competitive advantage. We suggest that all firms can undertake HRM innovation, albeit to varying degrees. HR professionals perusing innovation must acquire and integrate internal and external knowledge and obtain support from both the line and top management. Their platform will be HR practices system and will be strongly guided by the competitive strategy thrust of the organization. Our findings have implications to both senior and middle-level HR professionals. Our findings must not be interpreted as that HRM innovations are predominantly undertaken by senior HR professionals.
Middle-level HR professionals can initiate many incremental yet value-creating HRM improvements. They should also drive the implementation phase of many high-impact HRM innovations. Middle-level HRM professionals must actively engage in building their professional competence and gaining recognition from the firm’s internal stakeholders. Senior HR professionals should move out from their comfort zones and actively pursue value adding HRM innovations.
In retrospect, at a time when many Sri Lankan firms pursue new ways of outperforming their closest competitors where innovative products alone will not assure long term competitive advantage, HR innovations will be non-traditional sources of competitive advantage. Within the limits of this article, we believe that our findings provide useful insights to HR professionals as well as top managers in their efforts to improve firm competitiveness.
(Dr. Upamali Amarakoon, is a Lecturer, University of Kelaniya. Email: firstname.lastname@example.org and Prof. Jay Weerawardena, University of Queensland, Australia. Email: email@example.com)