LSC

London School of Commerce
MASTER OF BUSINESS ADMINISTRATION SESSION (2010/11)

Managing Human Capital
AUGUSTIN RONALD BISWAS
(L0404KOKO0610)
Submitted in partial fulfillment of the requirement for the Degree of MBA

Date of submission

23/08/2010

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TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................................................................2 List Of Figures...............................................................................................................................3
Chapter 1................................................................................................................ 5 What is Human Capital?.........................................................................................5 Understanding Human Resource Management.......................................................5 Chapter 2................................................................................................................ 7 Factors that influence Hiring People.......................................................................7 Economical Factors................................................................................................ 8 Technological Factors.............................................................................................9 Globalization Factors............................................................................................11 Political and Cultural Factors................................................................................12 Chapter 3.............................................................................................................. 15 What is Competitive Advantage?.........................................................................15 HR Practices that will help organisations gain sustainable ..................................16 2HR Planning......................................................................................................... 18 Continuous Training..............................................................................................19 Recruitment and Selection....................................................................................20 Performance Evaluation and Rewarding................................................................22 Active Internal Communication.............................................................................23 Drawbacks on implementation..............................................................................24 Conclusion............................................................................................................. 24 CHAPTER 4............................................................................................................27 What is Collective Bargaining?..............................................................................27 Why compensation packages negotiated through collective bargaining is important? ................................................................................................................. 28 4.3 4.4 4.5 Important Factors of Collective Bargaining ............Error: Reference source not found Agree or Dont’..................................................................................................28 The End Note...................................................................................................29

References............................................................................................................30

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List Of Figures
Figure 1: Classification of External Environmental Factors. Figure 2: HR Practices that will help organization gain sustainable competitive advantage.

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Part A
‘Critically evaluate the role Human Resource Managers need to take into consideration when there are changes in external environmental factors? Analyse what HR practices will help organisations gain sustainable competitive advantage. Critically discuss and debate using relevant examples’.

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Chapter 1
What is Human Capital?
There has been a massive change in recent generations in defining and understanding the meaning as to what Human Capital is in an organisation. The term Human Capital was introduced originally by Schultz (1961). He said the element of capital that is priceless and can be expanded through considerable investment can be called Human Capital According to Adam Smith (1776) human capital is the fourth type and the most important capital required to start a business. Human capital is a pool of knowledge, experience, talent, innovation, creativity and skills all brought together under the same roof. Behind every technology, creativity or a business strategy there is always a human brain. Hence, Human Capital is the most valuable asset of any organisation. As Donald Trump had mentioned in one of his interviews that he is Donald trump today because of the people who work from him. He is worth $8 billion today.

Understanding Human Resource Management
Though the term is self explanatory the concept of Human Resource Management has changed significantly over the past decade or two. It is evident that there has been a significant change in role and responsibility of every HR manager in every organisation. As Storey (1995) stated seeking competitive advantage through managing human capital and sustaining such competitive advantage has become the primary objective of all human resource managers. There are certain factors that all HR managers must consider while selecting the appropriate approach to employment management in order to seek a competitive advantage in the prevailing industry and the market at large. The factors that affect the strategies selected by the HR managers in every organisation are broadly categorised as Internal and External Factors.

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The internal factors depend from organisations to organisations and internally influenced. What the HR managers need to focus on more are the external environmental factors that influence HR management strategy. These factors are not controllable and the organisation should change its method of the approach or the activities involved in the approach to the strategy with change in the external environmental factors.

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Chapter 2
Factors that influence Hiring People
The factors that every HR Manager needs to consider at the time of carrying out his or her responsibilities can be broadly classified into two categories namely Internal Factors and External factors. Most of the scholars and the Gurus of management has sub classified both, the Internal Factors into ‘Strengths and Weaknesses’ and the External Factors into ‘Opportunities and Threats’ for a better understanding. This is also referred to as SWOT analysis in many management text books and management journals. Here in Part A of this report I shall talk about changes in External Environmental Factors that every HR Manager must consider when carrying out his or her role in the organization Figure 1 below classifies the different External Environmental Factors. External Environmental Factors

Economic Factors

Technological Factors

Globalisation Factors

Political and Cultural Factors

Source: Pinnington, A. and Edwards, T. (2000) ‘Introduction to Human Resource Management’ 5th edition Oxford University Press Incl. New York.

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Economical Factors
The economic conditions differ from country to country. Strength, expertise and efficiency of human capital will be different in under developed country as compared to a developed country. There are three types of economic conditions namely Planned or Command (Economy China, North Korea), Free Market Economy (UK was moving towards being a Free Market economy till Recession hit and the economy collapsed) and lastly Mixed Economy (USA, India, RSA). At the time of healthy economic condition the HR manager recruits and fires at time of economic downturn. Example 1 Organization providing Financial Services around the UK forced on redundancies to a number of their employees during the Global Financial Crisis that shook the Economy of Britain. Role of HR Manager Depending on the state of the economy, all HR managers must give considerable thought towards investing in employees. If there is a possibility of future expansion i.e. during healthy economic conditions and the concerned organisation is young in the market, significant investment on employees is required. This is because the organisation need not worry about who will be running the operations on behalf of the corporation and whether the corporation will be in safe hands. This investment could be done by transferring employees around the multinational offices and know every corner of the business. Motivation through rewards and general perks should be carried out throughout the company at all times. Regardless to the economy of the country in which the operations of a company exists every organisation has some responsibility on the society at large. Some organisation support the health sector raising funds and calling out health camps, some organisations raise funds for certain charities. Inmost of the organisations the HR manager looks after the involvement of the company in the society. The advantages and disadvantages changes in Economical Factors could bring to the organisation are:

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ADVANTAGES
 Positive approach makes the

DISADVANTAGES
 Poor economic conditions can

organisation look attractive to the quality work force.  Future expansion opportunities recognised.  HR Planning for such expansion.  Creates better working conditions and enhances efficiency.

disrupt growth.  Government Intervention.  Hiring labour could be expensive  Risk and Uncertainty

Technological Factors
In the current situation all Technological Changes has an impact in the organisations performance in the Competitive markets. There can be technological change in any of the departments in an organisation. Adoption of advanced technology by any organisation can give it a competitive edge over its competitors. Every technological change is easily imitated by any prevailing competitors of the concerned market. Training employees as per the change in technology of the organisation is important for the organisations future growth and prosperity.

Role of HR Manager In case of adoption of advanced technology upgrading ‘employee knowledge’ is the primary objective of all Human Resource Managers. Some organisations change the entire Recruitment, Evaluation Training and Rewarding methods and approaches. Evaluation of employee’s performance is possible when technological changes are matched with the competitors. Through such evaluation

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process ‘employees strengths and weaknesses’ are recognizable and hence promotion, pay hike, training and firing are put to practice. There will always be a class of employees who could be categorised as ‘Time-Wasters’ and training can never have a positive impact. All valuable contributors are promoted and pushed forward where as the less contributing employees or time-wasters are terminated. There is also an alternative of recruiting the highly valued individual in the concerned sector. In this phase recruiting and retaining the highly valuable individuals becomes a challenge and a battle with the concerned competitors. Example 2

Adoption of new and advanced technology can also bring in certain advantages and disadvantages in an organisation.

ADVANTAGES
 Reduces labour costs  Increases efficiency  Increases accuracy  Increases knowledge of employees  Strains-out the Time-Wasters 

DISADVANTAGES
Increases unemployment  Spoils corporate relationship  Certain Levels of Recruitment Could be Expensive (e.g.: The company might have to bargain to win the battle)  Political pressures  Adapting a new technology could be time-consuming

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Globalization Factors
According to Ulrich (1998) ‘Globalization requires organizations to move people, ideas, products and information around the world to meet local needs.’ Almost every multinational relocates their employees across national boundaries. Beer et al (2005) argues ‘that traditionally international HR management was about managing human capital globally where as these days it concerns managing all activities that concerns Human Capital in a Global scenario.’ Global Activities of HR will include from Hiring people to motivating and rewarding individuals for an extra-ordinary performance. Example 3 Financial Services companies like Morgan Stanley, RBS etc. in Mumbai send their employees from branches in Mumbai to branches in London for further training. This helps the employee understand the company in the international markets and trains the employee more about the services the organisation offers in a global scenario. Role of HR Manager All most all the Multinational companies have centralized their recruitment process. However this again depends on the level of management, designation or positions in companies and the concerned sector. The initial stages of selection like the screening the CV, GD’s etc could be done in the division that advertises for the vacancy however the Final Stages of the interviews conducted are mostly centralized in most of the multinational organization. Due to Globalization HR Managers are relocating the valued and efficient individuals who are highly valued human asset of the organizations to countries or divisions that are lacking experience or requires a chief to lead from the front. Again HR managers are using and exploiting globalization to meet the needs and requirements due to change in ‘Uncontrollable Factors’ like economic disruptions and unfavorable market conditions. According to Gerhart and Fang (2005), ‘today’s HR managers bridges the gaps prevailing in the centrality of markets, institutions, regulations, collective bargaining and labour - force characteristics with the help of Globalization’. There are certain advantages and disadvantages Globalization could bring to the organisation.

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ADVANTAGES
 Brings in Diversity in the organisation  Bridges gaps created by uncontrollable factors (e.g. Global Recession)  Less control of Unions over the organisation   Global Flexibility Invasion into new markets, segments or sectors through new ventures

DISADVANTAGES
 ultural Differences could arise  old-War could break-out between employees  Government Intervention through Immigration Policies  ‘Convergence and Divergence issues’ (Perkins and Shortland 2006) C C

Political and Cultural Factors
Operation of organisations also depends on the country’s Political and Cultural factors in which it has its operation or market share. The political scenario in the West is very different from that of the rest of the world. The ruling governments in countries set a required ‘compliance standard’ for every company operating in the concerned country. For example, any multinational that has its HQ outside India wanting to start operations in India has to start a joint venture with a major market player in India. Example 4

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TESCOs have opened out new stores in India in a joint venture with the TATA Group operations in India. The stores in India are called ‘Star Bazaar’. Charles et al (1985) points out that government of different countries also impose ‘Employment, Compensation, Health and Safety, Tax, Pricing and Energy Usage’ ceilings on the Organisations wanting to progress its operations. Most of the government interventions on organisations end up as an excessive cost to the organisation. Example 5 With the new coalition Government, a new bill has been passed in which big banks operating in the UK has to pay an extra portion of tax to the government. This tax in levied by the government on to the banks in order to help GB overcome its debts that it is indebted to. It is also used as a tool for reducing their inflation that has been rising since the recession. Culture of countries gives birth to the work culture of a country there after to managing human resources in the organisation. Hofstede (1980, 1991) expressed organizations as ‘Cultural – bond’. Hofstede (1980, 1991) also categorized the cultural elements as ‘uncertainty avoidance, masculinity/femininity, power distance and individualism / collectivism individualism / collectivism’. Through his work Hofstede (1980, 1991) concluded that cultural morals between countries differ widely as compared to between different states within the same concerned country.

For example the political scenarios of the United Kingdom and the United States of America differ significantly from political scenarios in India and China.

Role of HR Manager The HR manager needs to respond to the requirements set by the concerned government. This may arise in case of ‘Equal Employment Opportunities’ requirements, revised ‘Trading Policies’ etc. It is because these changed requirements or standards affect both directly and indirectly the employees of the company, the concerned person managing the human force is directly liable to enforce the changes in the organisation. This requires HR Planning and also concerns the flexibility of the HR plans and policies. As Beer et al (2002) explains another significant issue needs to be considered are 13

the ‘Convergence and Divergence’ effects of cultural and local situation. Flexibility of HR plans and polices is always favoured for companies that are operating globally and are recognised as multinational.

ADVANTAGES
  Diversity Different cultures could bring in different approaches  Remedies recognised quickly

DISADVANTAGES
 Strict government policies  Government Intervention  Political Unions  Corruption Influence on

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Chapter 3
What is Competitive Advantage?
According to Michael E. Porter (1985) a sound strategic position leads to competitive advantage. Porter (1985) said that a sound strategic position could be attained by ‘performing different activities from rivals or performing similar activities in different ways’. Activities involve every aspect of running an organisation, namely Marketing, HR, Finance Manufacturing etc. Performing activities in these aspects of business, lowering cost and increasing efficiency makes the difference. At times the simplest of the activities performed could make a difference in the business. The activities that we think make less contribution and are avoidable could be the root cause of all the disruption. Human Capital being the most important input for a business shares the same concept. To maintain a competitive edge over the competitors the HR manager needs to manage the heads in an efficient manner and have a strategy that looks into long-term objectives and goals set by the organisation. There is a significant difference between ‘Competitive Advantage’ and ‘Sustaining the Competitive Advantage’ attained over the competitors. Most of the learned scholars belive that if a competitive edge over the prevailing competitors is sustained for more than one financial year it could be called a sustainable competitive advantage. However change should always be considered in order to sustain it for a longer period. Now we shall see what HR practices help an organization gain sustainable competitive advantage over its competitors.

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HR Practices that will help organisations gain sustainable .
As Brewster et al. (2005); Sparrow et al. (2004) found that there are ‘number of HR managers in companies in Europe, and elsewhere are facing increasing pressures to ensure efficiency and effectiveness in their HR practices’. For a company to have a competitive edge over its competitor’s adoption of HR strategy that has a strong relationship with the Business strategy adopted is required. Choosing the right strategy that fits the organization goals and objectives and then the right activities that fit the strategy is indeed very important. Wright and McMahan (1992) claims that there is a direct linkage between the HR practices and the strategic management processes being followed by the organization. There are various practices that have been introduced by various scholars namely Guest (1999), Delery and Doty (1996), Wood and Albanese (1995), Appelbaum et al (2000), Sung and Ashton (2005) etc. Out of the practices that are introduced by scholars over the years the practice of Pfeffer (1998) is claimed to best for every situation. (Armstrong 2009) Considering the various proposed practices suggested by the above mentioned learned scholars following practicties that every HR manager must consider in order to gain a sustainable competitive advantage have been put together in the following figure.

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Figure 2 shows the how the sound HR practices can help a company gain a sustainable competitive advantage over its competitors. HR Strategy being one of the strategies is a sub-set of the organisations strategies. Figure 2 HRM practices that will help the organisation gain a Sustainable Competitive Advantage

Continuous Training HR Planning Recruitment and Selection

Performance Evaluation and Rewarding

Active Internal
Communication

HRM Strategy

ORGANISATION

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SUSTAINABLE COMPETITIVE ADVANTAGE

2HR Planning
Though one can expect the maximum from a young individual as compared to and elderly person, organisations hire people of age groups. This is a part of HR planning. So that all skill full employees do not retire at the same time and that there are people who have become skilled over the period of time and can now transfer the skills they have acquired over the time period. Bulla and Scott (1994) defines HR planning as the ‘process for ensuring that the human resource requirements of an organisation are identified and plans are made for satisfying those requirements’. HR planning has to be done keeping in the goals and objectives of the organisation. If the goals and objectives of the organisation is avoided there could be massive disruption with the progress of the organisation. In certain situations organisations also train individuals for the purpose of future expansion when they sense that there is a scarcity of people having certain skills. Boxall and Purcell (2003) claims that there is scarcity of ‘skilled and motivated’ labour and this scarcity will be getting worse as days pass by. Example 6 During the 1980s there was a significant shortage of literate labours, this is when ‘Texas Instruments and New York Telephones’ companies got involved in providing both primary and secondary education to public in order to increase the rate of literate labours.
(Schuler

and MacMillan 1984)

HR managers also offer eye-catching packages for early retirement in order to keep flexibility and skills in the employees. A lot of employees get gripped with the traditional methods used and with rapid change in technology and global economic these employees fail to cope with these changes. Even in the past a lot of companies have used this form of packages in order to revise and refresh the staff register. Example 7

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AT&T, Bank America Corporation, Sun Company, and Eastman Kodak are among the companies who have utilized attractive early retirement packages. (Schuler and MacMillan 1984) Hussey (1982) thinks that planning HR management is to complex to plan about. He also claims that every employee should be treated like an human being before an employee and he warns the HR managers not to forget that every people are differ while planning out the HR strategy in accordance to the objectives that are to be achieved by the organization. Bell (1989) suggests there planning be an annual activity and that the plan prepared should be carried out right through the year and that each plan should be connect the next. Manzini (1984) thinks that a plan is better than having no plan at all and that planning the HR can take an organization closer to its set goals if the perfect.

Continuous Training
Training the employees of the organization is significant in creating a competitive edge over its competitors. The employee acquires all the skills required through continuous training and development. It is because of massive technological changes happening everyday, every new technology introduced needs to have a proper training session for all employees handling such new technology. Exclusive training to do activities differently can help company gain sustainable competitive advantage. Example 8 Delco-Remy gained competitive advantage over its competitors like Honda by giving its employees training for ‘Participative Management’, this set apart Delco-Remy for all its other competitors.
(Schuler

and MacMillan 1984)

It is important for the manager to identify the needs of training and then plan according to the needs, set up the location and implement training. After every training evaluation of the training conducted is important this points out the employees who need further training separating them from the ones that do not need any further training. Evaluation also tells us how important training was to the organization.

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Example 9 ‘Hamburger University’ is the training location where all McDonald’s franchisee holders and distributors are required to go to get trained in order to run the restaurant efficiently. The distributors and the franchisee holders are also taught how to gain competitive advantage through cost reduction and increasing efficiency. The training also speaks about how one can maintain the required quality standards at all times. After such training conducted in ‘Hamburger University’ the pupils graduate, this is the process of evaluating the training process. (Human Resource Management, Fall 1984) Reynolds (2004) thinks ‘the transfer of expertise by outside experts is risky since their design is often removed from the context in which work is created’. People might find it difficult to implement what they learn from the internal training that runs throughout the organization. They could be in a totally different situation that has nothing to do with the training they went through. Armstrong (2009) claims that is irrelevancy most occurs in case of ‘management and supervisory training’.

Recruitment and Selection
There are number of ways of screening and selecting applicants namely, CV’s, performance evaluation, recommendations etc. Selecting a short listed group and then recruiting the correct individuals is one of the most important tasks that are to be carried out by the HR managers. Some organizations do not recruit individuals from out side but promotes the current workforce through performance evaluation i.e. internal recruitment (e.g. TESCO Plc) where as certain organizations recruit most of the managers externally (e.g. Data General) Example 10 TESCO Plc recruits all it Line Managers of various departments internally. Prior to recruitment the selected candidates go through an internal training program, what TESCO calls it is OPTIONS. As the CEO of TESCO Plc Sir Terry Leah said “regardless to what ones back ground is anyone can make it to the top in TESCOs” (www.thetimes.co.uk)

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Example 12 Data General was successful in gaining competitive advantage over its competitors by replacing all its’ internally recruited managers with managers who has plenty of experience. What Data General recognized was that the organization needs more professional managers than just technical experts. (Human Resource Management, Fall 1984) The strategy selected for recruiting the correct person for the vacancy advertised is crucial. Some organizations conduct a number of interviewing rounds and stages till they get the individual they have been waiting for. Example 13 Nicolas Sarkis, now the founder of AlphaOne Partners, a privately owned investment firm, who once worked at Goldman Sachs, claimed that he had to clear 52 rounds of interview to before being offered the job in 1992. (www.news.hereisthecity.com) The question that arises after the previous example did Goldman Sachs has a recruitment plan or was this there strategy itself in order to get the cream from the market? Checking the CVs and the Referees has become a major issue in today’s recruitment procedures. Some organizations ask the applicant to jot down more than the application asks for. Example 14 The Sunday Times on the 18th of January 2009 found out that Fake CVs are on the rise. The Sunday Times team claimed that the HR managers need better scrutiny and deter applicants who fake about the experience they have gained including the fake qualification. (www.business.timesonline.co.uk) Certain organizations follow ‘socialization’ as being a part of the recruiting and selecting procedures. The applicants here are asked to perform certain tasks within the company prior to the selection and are reminded about the work culture the concerned organization follows over and over again. Example 15

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Peer1 based in South Hampton, will ask its applicants to play a game of GOLF as the final round of interview before the deserving candidate is handed over the Job Offer letter. Peer1 has also installed an indoor golf course. (www.hrmagazine.co.uk) There is no ideal Selection and Recruitment Strategy for organization. Selection and recruitment strategy will differ from organization to organization depending on the objectives and goals and the strategy that fits best.

Performance Evaluation and Rewarding
Periodical performance evaluation in the organization is necessary to gain a competitive edge over its competitors. Performance evaluation of both ‘Operational Effectiveness’ and activities that surround the strategy are significantly important. Along with evaluation of the activities and the operational effectiveness, evaluation of performance of every employee is the key to increasing the possibility of achieving the set goals and objectives. Through performance evaluation it is possible to tell which employees need more training and also points out the main brains. According to Weiss and Hartle (1997) ‘A process for establishing a shared understanding about what is to be achieved and an approach to managing people that increases the probability of achieving success’.

Rewarding is one of the integral part of ‘Talent Management’. Rewarding is mostly aimed at the minor talent group of individuals. These individuals are important to the organization and motivation and appreciation of their hard-work and loyalty towards the organization is important. Rewards leads to recognition which leads to motivation. Motivation is important for improving the performances of employees this leads to efficiency and a competitive edge over its competitors. Example 16 Project leaders of Hewlett-Packard are rewarded with ‘Banquets’, ‘Stock Options’ and ‘Personal Computers’. Hewlett-Packard improves its innovation and entrepreneurial abilities promising such rewards to its employees. (Human Resource Management, Fall 1984) Example 17 22

Supermarket Sainsbury evaluates the performance of the management by picking up staff on a random basis and asks certain questions. The main aim of this programme is to find out whether there are any changes required in the approach to the business. The HR manager does claim that this is a time consuming process however it is effective. (www.hr.magazine.co.uk)

Active Internal Communication
Internal communication is essential because of three important reasons. Firstly, to convey messages regarding ‘change management’, whether the organization is adopting new technology or there is any change in policies and procedure. Secondly, it gives belongingness to employees. This will improve the dedication and loyalty of the employee to their work and the organization at large. Thirdly, it brings in accountability and transparency. It is because every employee has equal rights, through effective internal communication exploiters can be exposed and abusers of trust and authority could be checked. (Armstrong 2009) There are number of ways that the organization can reach its employees, namely Face-to-face conversation, Notice Boards, Monthly News letters, etc. (Armstrong 2009) Communication between employees and the management is the only possible way to finding solutions to problems. Problems could arise because of various reasons. It is important to get to the root of the problem rather than just trying to mend the braches that the root has given birth too. This is not only applicable in personal life but has equal importance in professional life as well. Effective communication in an around the organization could be come an ingredient to gaining competitive advantage over the competitors. Example 18 Sony Pictures in California had its most profitable year in 2008 where as a lot of organizations faced enormous problems because of the global recession. Certain experiments were conducted and this had a positive effect on the employee’s attitude that enhanced the performance of the companies. One of the subjects of the experiments conducted were effective communication throughout the organization. Employees of Sony Entertainment were asked to communicate banishing all barriers, for example saying what’s in their mind without pretending and avoiding conflicts by gossips. (www.hbr.org)

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Drawbacks on implementation
The HR practices that can help a company gain competitive advantage also come with certain disadvantages on implementation. If an organization follows the strategy of offering attractive retirement packages there are chances that theses attractive retirement packages will draw the best brains of the organization. The highly qualified and highly skilled employees are always the wanted employees in the market. The high net worth employees might make use of these attractive retirement packages and claim early retirement as they know that getting another job will not be difficult. The worst case scenario is the employees accept the offer of the competitors and decide to work for the competitors. It will be like committing suicide for the organization. At times competitors get into all sort of unethical means of drawing the best brains from the organization that holds a competitive edge over the rest. Example 19 The Court decided to restrict James Gorman from Merrill Lynch from hiring any staff (from Merrill) after he joined Morgan Stanley as the head of ‘Brokerage Operations’. Merrill Lynch appealed in the court after it found employees named ‘Jerry Miller, Richard Skae and Andrew Saperstein’ has been hired by Morgan Stanley. (www. news.hereisthecity.com) A sudden change of HR strategy in the organization might bring in negative thoughts in the mind of employees. In the real world, there are a handful of organizations that bears no conflict between the management and the employees. Hence any significant noticeable move that will bring in changes in policies and procedures might give a negative thought in the employees mind. This might demoralize the employees which will result to poor performance of the organization. Employees of the organization could also find it difficult to cope with the changes made. The standards might highly differ.

Conclusion
In the first part of this section we see what the different external factors are and how these factors affect the HR management of the company. Both the internal and the external factors the HR manager must respond to. Changes in these factors do have a significant effect on the HR of the company. Internal Factors are often referred to as Strengths and Weaknesses where as the external factors are referred to as Opportunities and Threats. 24

Internal Factors are controllable where as the External Factors are uncontrollable. It is because the external environmental factors are uncontrollable; the best outcome alternative available to an HR manager is to react to these changes and changing the strategy to make the strategy fit in accordance to the changes that happens. There are various HR practices by which a company can gain a sustainable competitive advantage. Considering the factors pointed out by different scholars, certain important ones have been pointed out. There are certain ‘drawbacks’ to implementation of the practices as well. To gain a sustainable competitive advantage firstly, the HR strategy must be prepared. Once the HR strategy is in place, HR practices will be chosen that best suits and fits with the organization. It is very important to keep in mind that the HR practices chosen fit the HR strategy selected by the organization.

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Part B
Do you think compensation packages negotiated through collective bargaining agreements are a major cause of our inability to compete in many sectors of the international market? Do you agree or disagree with this statement? Explain using relevant organisational examples.

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CHAPTER 4

What is Collective Bargaining?
According to the Oxford Dictionary of Human Resource Management the contract agreements of the collective bargaining between the union and the concerned organization is mentioned in the employment contract of every employee. These days collective bargaining can be divided into two sections:

1. Collective bargaining between employee unions and the management of the concerned
organization. Here the employee union goes into an agreement with the management of the organization concerning various matters, like wages, staff facilities etc on behalf of the employees. The agreements are then put down on the contracts of every employee that gets one. This is also referred to as the subject of Industrial Relations. Example 20 TESCO has gone in agreement with USDAW since 1998. The agreement between USDAW and TESCO stated that more flexibility towards communication between USDAW and TESCO is required initially. The agreement also states that there should be a forum meeting within the concerned stores on regular intervals. There will be representatives from different departments raising issues for a healthier and a happier work environment, along with the union rep and the concerned managers. (www.bis.gov.uk)

2. The second type of bargaining that has become quite a common scenario, negotiable
bargaining between a highly skilled employee and an organization. The highly skilled and highly qualified labour market has become a ‘Battlefield’. To get the best brains organizations 27

battle over compensation and the perquisites. These companies match up with the compensation paid by their competitors and at times are also willing to pay higher and offer more perks. Organizations also offer a higher pay and more perks to attract employees from competitors or to the current employees in order to retain the highly skilled and qualified employees from joining the competitors. Example 21 UBS increases the basic salary of the directors of the corporation by 50% in the month of May 2009. Through this increase the companies has planned to retain talent that will enhance the company’s performance and face competition during this difficult time. It was also reported that there the basic pay of the junior analyst will also increase.

Why compensation packages negotiated through collective bargaining is important?
In organisations that employ mostly workers who need not have the minimum qualification and for the jobs that involves a lot of physical activities there must be an agreement between the unions representing the employees and the management. The main reason behind having such negotiations through collective bargaining is to posses some control rather than handing over all of it to the employer. In the history of industrialization the lower class labourers have always been exploited by various means. There have been loads of circumstances where the employees have been terminated without notice or a valid reason or reasons that bear less or relationship to the termination of the employees. There are certain advantages of having an agreement between the unions and the employer concerning various rights of the employees. The important ones are listed below.       Improves the compensation received. An agreement on the terms and conditions offered to the employees. The agreement also informs the employees about the holiday’s entitlement. The involvement of personal life of every employee with professional life. Informs the employees about their rights in and around the organization. Job Security

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4.3 Important Factors of collective bargaining
The important factors the Unions and the rest needs to consider in the would be whether the collective bargaining fits what the agreement is looking to? What has been or should be collectively bargained. The above statement varies from country to country, mostly the concerning the employees and the society they are living in. On the matters to this it has been collectively bargained it is important to recognise on who the cost burden has been put upon. Collective bargains’, itself it’s pretty much self explanatory. Once bargained, the subject on whom the cost has been imposed on and how costly is the burned and the collective bargaining. Collective bargaining does not work for every issue; hence it is important to recognize whether the collective bargaining enforced is recognizable and works out efficiently.

4.4

Agree or Don’t?

Compensation packages negotiated through collective bargaining is NOT a major cause of the organisations inability to perform on the international markets. Once an organization operates in more than one country and has been enforced into collective bargaining into certain markets, its performance will not be affected. This is because there are more alternatives available to the organisation in terms of carrying out its operations. Over the past decade, outsourcing has in fact become major a threat in the western countries as more and more companies are moving its crucial operations to the eastern part of Europe. Organizations sign on collective agreements in countries that support unionisation as per the Union laws provided in those countries. History claims that for certain companies’ have gained from signing in collective bargaining with the unions in the countries these companies have operated. Example 22 ‘International Metal-workers Federation (IMF)’ revealed that one of the main reasons of ‘General Electric (GEs)’ success was the continuous and open communication across the unions formed in different countries. It was noted that GE made a profit of $30,000 per head count. (www.icem.org) Example 23 Another suitable example would be the ‘Rolls Royce’ corporation. The organization has been operating with two strong and highly respected unions. The management and the unions has 29

periodical meeting to discuss the issues regarding ‘training and learning’ to upheld the performance of the organization. (www.bis.gov.uk) Compared to the past collective bargaining in the UK has reduced by a significant portion. The organizations have made every effort to reduce the influence of unions in the organization. Compared to the past two decade bargaining collectively was pushed down by 30%, in certain sectors it has been completely wiped-out from the organization. As seen above through the examples that collective bargaining has a very minor influence on the performance in the international markets because trade is open in the alternative market all the time. In case the organizations that operate in multiple cities across international boundaries, these companies always have an alternative of ‘Out -Sourcing’ the tasks. On Outsourcing, the employees hired in the country in which the job has been outsourced are relatively paid lower wages or salaries through collective bargaining through agreements on which the specific bargains are mentioned. Again bargains might fit from organizations to organizations and the particular bargain fit will depend on the organisation and sector in which this particular organization. For example certain organizations have gained through collective bargaining in Union dominated countries like Bangladesh and India and make an immense cost saving by paying employees lower wages. Example 24 Retail companies like PRIMARK, TESCOs etc in the UK outsource certain activities to the southAsian countries because of cheap labour and less law enforcements over the operations. These companies are making massive labour cost saving without too many law enforcements to follow. (www.fibre2fashion.com)

The End Note
Regardless to the sector in which the organization falls, ‘ETHICS’ is where every issues and controversies begin. For example if an organization allows the employees to set up a union in the 30

organization, using this privilege is the responsibility of all employees of the organisation and these employees should restrain from abusing what is privilege for a lot of other organizations. Same goes for the people sitting in the offices, i.e. the managers, if the managers follow the correct path and perform all tasks responsibly and ethically nothing can go wrong. Doing what is correct every time in fact has always been and is the path to success and this requires no strategy or supporting theory. The Six Letter word is what matters end of the da

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31

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10. Ulrich, D (1998) ‘A new mandate for human resources’, Harvard Business Review, Jan– Feb, pp 124–34 11. Gerhart, B and Fang, M (2005) ‘National culture and human resource management: assumptions and evidence’, The International Journal of Human Resource Management, 16 (6), pp 971–86 12. Delery, J E and Doty, H D (1996) ‘Modes of theorizing in strategic human resource management: tests of universality, contingency and configurational performance predictions’, Academy of Management Journal, 39 (4), pp 802–35 13. 14. Wood, S and Albanese, M (1995) ‘Can we speak of a high commitment management on the shop floor?’ Journal of Management Studies, 32 (2), pp 215–47 Bulla, D N and Scott, P M (1994) ‘Manpower requirements forecasting: a case example, in (eds) D Ward, T P Bechet and R Tripp, Human Resource Forecasting and Modelling’, The Human Resource Planning Society, New York 15. 16. 17. Press 18. Bell, D. (1989), ‘Why Manpower planning is back in vogue’, Personnel Management, July 19. Manzini, A.O. (1984), ‘Human resource planning: observations on the state of the art and the state of practice’, Human Resource Planning, vol. 7 PT 2, pp 105 - 110 20. Torrington, D and Hall, L (1995), ‘Personnel Management: HRM in Action’, 3rd edition, Prentice Hall International UK 21. Weiss, T B and Hartle, F (1997) Re-engineering Performance Management, breakthroughs in achieving strategy through people, St Lucie Press, Boca Raton, Florida. Hofstede (1980) CITED in Armstrong, M. (2009), ‘Armstrong’s Handbook of Human Resource Management’, 11th Edition, Kogan Page Limited, UK pp 152 – 154 Hussey, D. (1982), ‘Corporate Planning: Theory and Practice’, (2nd edn), Oxford Pergamon

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37

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38

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