Conclusion - Best fit vs Best practice

Under the rapid modernization in the business world lately, firms and organizations tend to realize that employees are a crucial asset to the establishment. In order to integrate these assets, organizations focus on planning and implementing the ideal model or strategy that can improve the combination and connection of the human resource with regards to their success which they share their standards, visions and goals. According to Morris & Maloney (2005), there are two perspectives for the strategic pay literature.

Best Fit

Armstrong (2008), Argues that best fit is based on the premise that picking the most effective HR policies and practices depends on matching them appropriately to the organization’s environment. Main focus of the organizations with the best fit approach is to be cost conscious. Armstrong (2012), explained three models that included to the ‘best fit’ approach as,

·         Life Cycle

·         Competitive Strategy

·         Strategic configuration

Leading companies such as IKEA and Walmart use this practice in their Strategic Human Resource Management (Kats, 2014). The story behind the success of IKEA is, their high quality, well designed and functional products, in affordable prices and great variety. IKEA keep their cost to the minimum by, use of flat packaging and ready to assemble products, as well as the use of product communality reduces their transportation, inventory and manufacturing costs (IKEA USA, 2014).

Best Practice

Best Practice approach of SHRM can be described as a number of specific HR practices that are universal and have the potential to bring about enhanced performance for all organizations (Marchington and Wilkinson, 2006, p. 72).  Best practice is recognized to give superior outcomes, whatever the situation (Delery and Doty, 1996).

Pfeffer (1998), pointed out seven universally accepted practices which would help the organization to thrive among other competitive and increase the organization’s profit.

·         Providing security to employees.

·         Selective hiring: Hiring the right people

·         Self-managed and effective teams

·         Fair and performance-based compensation.

·         Training relevant skills.

·         Creating a flat and egalitarian organization.

·         Making information easily accessible to those who need it.

Michelle Reynolds pointed out that leading organizations such as Google, Apple and FedEx use this approach in their Strategic Human Resource Management to be competitive among other relative organizations.

Applying above approaches to the reward system.

The purpose of the reward system in most organizations is to attract, retain, and motivate qualified employees. The organization’s compensation structure must be equitable and consistent to ensure equality of treatment and compliance with the law (Gregg, 2018). Lawler (1995, p.14), argued, “indeed the ‘new pay’ is not a set of compensation practices at all, but rather a way of thinking about the role of reward systems in a complex organization, it argues against an assumption that certain best practices must be incorporated into a company’s approach to pay.” Furthermore, Schuster and Zingheim (1993, p.6) also follow a contingent approach but stated that “Merit pay and traditional performance appraisal make it impossible to view employees as key elements of organizational strategy and tactics.”

List of References,

·     Armstrong, M & Tayler, S 2012, A Handbook of Strategic Human Resource Management practice 13th edition.

·     Armstrong, M 2008, Armstrong’s Essential Human Resource Management practice London Philadelphia New Delhi.

·    Delery, JE and Doty, DH 1996, Modes of Theorizing in Strategic Human Resource Management: Tests of Universalistic, Contingency, and Configurational Performance Predictions.

·  IKEA, USA 2014, The IKEA Group – The Story of How We Work, viewed 9 November 2020, <https://youtu.be/1jn2_nZrivQ>.

·       Kats, C 2014, What Management Lessons IKEA’s HR Strategy can teach us

·     Lawler, E. 1995, ‘The New Pay: A Strategic Approach, Compensation and Benefits Review’, 27 (4), p.14-22.

·     Marchington, M and Wilkinson, A 2006, People Management and Development: Human Resource Management at Work.

·      Morris, D. & Maloney, M 2005; “Strategic Reward Systems: Understanding the Difference between ‘Best Fit’ & ‘Best Practice’.

·         Pfeffer, J 1998, Seven Practices of Successful Organizations.

·    Schuster, J. and Zingheim P. (1993) ‘New pay strategies that work,’ Journal of Compensation & Benefits, 8 (6), p. 5-9.

Best Practice at FedEx Corporation

 

FedEx Express invented express distribution and is the industry’s global leader, providing rapid, reliable, time-definite delivery to more than 220 countries and territories, connecting markets that comprise more than 90% of the world’s gross domestic product within one to three business days. Unmatched air route authorities and transportation infrastructure, combined with leading-edge information technologies, make FedEx Express the world’s largest express transportation company, providing fast and reliable services for more than 3.6 million shipments each business day (FedEx, 2020).

FedEx Corporation was featured in the Fortune magazine in 2003, as one of the 100 companies which are best companies to work for in the US. They were in this list for five years consecutively. The company had received a high rating in the areas like compensation, employee turnover, morale and work diversity (Prashanth, 2003).

 FedEx pays particular attention on the role of “people”. Here people not only refer to their customers. FedEx also puts their employees on the very important position. With the people-oriented concept, FedEx implements P-S-P management. PSP is the circulation system among people-service-profit (Peng, 2013). The PSP system cycle reflects the principle of FedEx, “employees first”, at any time.  PSP represents a closely related relationship between these three. It also can be seen as a three-legged stool, and each is indispensable (Shi, 2015). It can be represented by the following figure:

Figure 01: Schematic Diagram of the PSP culture

Source: (Shi, 2015)

FedEx has taken a number of measures to realize the goal to “treat employees as their customers”. They think only when the company treats the employees well will they be willing to pay more efforts to provide customers with better service and then the company can make more profits, and every employee in the company can benefit from it (Birla, 2006).

Video 01: 7 Guiding principles at FedEx via Fred smith

Source: (Croitor, 2017)

According to Shi (2015), FedEx will use part of its profits to award those who make outstanding contributions to the company and when the company reaches a predetermined profit target, it will increase the distribution of red envelopes with money; sometimes such incentives can reach 10% of employees’ salary. FedEx also sets various bonus items. Reward involves many aspects and the content of awards is multifaceted, including: Bravo Zulu, Five Star Award, Humanitarian Award and Service Award. In order to encourage the social responsibility of employees, FedEx also sets the Samaritan Award and Public Welfare Interactive Award.

List of references;

·      Birla, M., 2006, FedEx—Innovation creates competitive advantages (Qi X. Y. & Zhang O. et al., Trans.). Beijing, China: Electronic Industry Press.

·   Croitor, D 2017, 7 Guiding Principles at FedEx Via Fred Smith, viewed 03 December 2020, < https://www.youtube.com/watch?v=JxUjZokXVeQ>.

·         FedEx, 1995-2020, Company Information

·         Peng, JF., 2013, FedEx—Owner of “fast” logistics. Beijing, China: Mechanical Industry Press.

·         Prashanth, K., 2003, Human Resource Management: Best Practices at FedEx Corporation.

·         Shi, C., 2015, The Implications of FedEx to Human Resource Management of Logistics Enterprises in Beijing.

‘Best fit’ and ‘best practice’ applied to reward systems

 

In strategic human resource management literature, the terms ‘best fit’ and ‘best practice’ are used in the specific policy area of reward systems. Each approach attempts to explain how it’s going to impact on the organization’s effectiveness (Morris, 2005). Lawler (1995, p. 14) states that all organizational systems must come up with a business strategy because “it specifies what the company wants to accomplish, how it wants to behave, and the kinds of performance and performance levels it must demonstrate to be effective.” Business strategy, driving individual and organizational behaviors, is the touchstone for the development of the reward strategy.

The contingent nature of the reward system is emphasized by Lawler (1995, p. 14) when he argued, “indeed the ‘new pay’ is not a set of compensation practices at all, but rather a way of thinking about the role of reward systems in a complex organization, it argues against an assumption that certain best practices must be incorporated into a company’s approach to pay.”

Schuster and Zingheim (1993, p. 6) also follow a contingent approach but stated that “Merit pay and traditional performance appraisal make it impossible to view employees as key elements of organizational strategy and tactics.” According to Conway (2003), research examining ‘high commitment management’ in HRM has its roots in both the configurational and the universal theoretical frameworks. Marchington and Wilkinson (2002, p. 177), claim that “most of the interest over the last two decades or so has been in models of ‘high commitment’ or ‘best practice HRM. Both approaches believe that HR practices should be complimentary. However, according to Purcell (1999, p. 27), ‘what is most notable about the best practice model is there is no discussion on company strategy at all.

Advocates suggest there are mutually compatible ‘bundles’ of HR policies that promote high levels of employee motivation and commitment that positively impact on organizational performance (Morris, 2005).

One of the main points of contradiction is in the area of pay linked to performance appraisal. Pfeffer (1998, pp. 203-204) criticizes merit pay on five grounds:

1. “Subjectivity and capriciousness that reward political skills, rather than performance.

2. An emphasis on the success of the individuals, consequently undermining teamwork.

3. An absence of concern for organizational performance.

4. Encouragement of short-term focus.

5. The tendency of such systems to produce fear in the work place.”

However, when discussing specific HR practices that are linked to the creation of firm-specific competitive advantage, Huselid (1995, p. 637) states, “Examples of firm efforts to direct and motivate employee behavior include, performance appraisals that assess individual or work group performance, linking these appraisals tightly with incentive compensation systems.”

The purpose of the reward system in most organizations is to attract, retain, and motivate qualified employees. The organization’s compensation structure must be equitable and consistent to ensure equality of treatment and compliance with the law (Gregg, 2018).

Video 01: Reward Systems in Organizations

Source: (Gregg, 2020)

In conclusion, there is striking lack of consistency in reward systems reported by companies using high performance work practices (Huselid, 1995). Although Pfeffer and Velga (1999) clearly states that a firm pay high wages in relation to it industry competitors, their list of ‘contingent compensation’ used by organizations runs the gamut from gain sharing to individual incentives.

List of references,

·      Conway, E. 2003, Relating Career Stage to Attitudes Towards HR Practices and Commitment: Evidence of Interaction Effects? Paper presented to the European Congress on Work and Organisational Psychology. Lisboa: May14-18.

·      Gregg Learning, 2020, Reward Systems, viewed 02 December 2020. <https://www.youtube.com/watch?v=6F56s8diTrk>.

·    Huselid, M. (1995) The Impact of Human Resource Management Practices on Turnover, Productivity and Corporate Financial Performance. Academy of Management Journal, 38 (3), p. 635-72.

·    Lawler, E. 1995, ‘The New Pay: A Strategic Approach, Compensation and Benefits Review’, 27 (4), p.14-22.

·    Marchington, M. & Wilkinson, A. 2002, People Management and Development. London: Chartered Institute of Personnel and Development.

·     Morris, D and Maloney, M., 2005, Strategic Reward Systems: Understanding the Difference between ‘Best Fit’ and ‘Best Practice’.

·    Pfeffer, J. 1998, The Human Equation: Building Profits by Putting People First. Boston: Harvard Business School Press.

·         Pfeffer, J. and Velga, J. 1999, Putting people first for organizational success, Academy of Management Executive, 13 (2), p. 37-48.

·    Purcell, J. 1999, Best practice and best fit: chimera or cul-de-sac? Human Resource Management Journal, 9 (3), p. 26-41.

·    Schuster, J. and Zingheim P. (1993) ‘New pay strategies that work,’ Journal of Compensation & Benefits, 8 (6), p. 5-9.

Best Practice Approach at Google

 

Google is a company which is well known for its unique culture and Human Resource policies and is acknowledged as an innovator and best employer (Nightingale (2008:1). Fortune magazine (2013), has named Google as one of the best 100 companies to work for. Google’s ability to leverage itself from competitors by offering attractive packages, which serves as a pull factor for Google. “Some of its benefits include: flexible working hours, allowing employees to wear casual dress every day, permitting employees to bring their dogs to work every day, on-site physician visits, on site dental care, health benefits, free massage and yoga, employee stock options, free drinks and snacks inside the campus, free meals including breakfast, lunch and dinner (Thomas & Karodia, 2014).

During their first year of employment, Google provides its employees with a three weeks’ vacation which includes free recreation including video gaming, football, volleyball and pool tables, valet parking for its employee’s and onsite carwashes. Apart from their innovative benefits, Google has implemented more activities concerning the employee ‘s health, family and environment which is totally different from other related companies (Nightingale (2008:6).

Google employees are allowed to use 20% of their work time to think innovatively, and it serves as an attractive tool to remain employees in the organization (Thomas & Karodia, 2014). “It is obvious that the human resources activities and policies are actually driving Google’s corporate business success. Because of its unique innovation work culture, in 2010, the employee turnover in Google was only 5 %” (Wauters, 2010:15). Google has also introduced an employee referrals bonus programme which favored employees and their referrals. The company encourages the employees to recommend candidates and awards the employee $2000 bonus if the referral accepts and remains employed for at least 60 days. This encourages and motivates employees and helps expansion (Thomas & Karodia, 2014).

Liane Hormsey (in Sullivan, 2007), human resources director at Google stated that “whilst Google had busied itself in employee work, in respect to life balance, it is becoming extremely difficult to maintain Google’s entrepreneurial spirit and employee strength amidst Google’s growth curve”.

Video 01: Best Practice HR Tips from Liane Hornsey, Google VP Operations

Source: (Meet the boss, 2012)

According to Thomas & Karodia (2014), within an organization which practices the best practice approach and framework, should contain the following attributes in order to be successful in the organization’s internal growth strategy.

• Companies must constantly hire, transfer and promote individuals;
• Expansion into new markets requires changes in skills or prospective employees;
• Combination of behavior based and results-based appraisals;
• Compensation structured as an incentive for achieving growth goals;
• Training needs on how the company decides to grow internally.

In conclusion, Google’s human resource policies and practices are contradictive to efficiency and productivity which could affect business effectiveness growth and expansion, however whilst this is so and, however, much zany it may be, it has worked in Google’s favor.

List of references,

·       Meet the boss, 2012, Best Practice HR Tips from Liane Hornsey, Google VP Operations, Viewed 01 December 2020, <https://www.youtube.com/watch?v=FRsJbpppvEU&t=454s>.

·        Nightingale, F. (2008) Google’s HR Practices: A Strategic Edge.

·        Sullivan, J. (2007) A look inside the Google talent machine.

·       Thomas, S. and Karodia, AM., 2014, Human Resources Practices at Google in Terms of Some Management Perspectives: Exploring the Entrepreneurial Spirit. Nigerian Chapter of Arabian Journal of Business and Management Review.

·       Wauters.R. 2010, Google China Employees given holiday leave networks to be scrutinized, Google’s HR Practices: A Strategic Edge.

Glimpse of Best Practice

When it comes to ‘best practice’, it is one of the popular piece of jargon in the English-speaking world. Yet it was apparently not until the 20^th century that the idea began to be systematically studied and enunciated (Osburn et al. 2011). Originally F.W. Taylor was the management consultant who came up with the “one best way” of improving efficiency of production in industrial settings in the US (Kanigel,1997). Bedrock management principals of nowadays, initially controverted and resisted from his efforts which led to time and motion studies, to designs of factories, layouts of specific work area and work processes, development of specialized machinery, tools, and other manufacturing equipment, and establishment of production quotas (Osburn et al. 2011).

Even though the best practice concept was systematically applied in the industrial and manufacturing interest in early 1900s, the term “best practice” in the reference to this applied concept was not coined until 1960s, in the business and financial management fields (Campfield, 1960) and from the 1970s in the manufacturing (Gregory & James, 1973).

Despite the elusive origins, once the term “best practice” was out in the world, it was quickly widespread. This is probably because “best practice” is an elegantly simple and appealing phrase that seems to have generic application to all human endeavors (Osburn et al. 2011, p .4).

“Best practices can be inclusive of both evidence-based and value-based practices. Best practices are empirically based practices that have impacted recovery outcome variables and that have been tested in a variety of geographical settings with a diversity of populations. Best practices are also value-based practices that have recovery values underlying the practice; the values should be able to be described and measured” (Farkas & Anthony, 2006).

According to handson’s short video clip, it elaborates what is a best practice. 

Video 01: What is a Best Practice

Source: (Handson,2014)

In 1998, “Best-Practice” was academically explored by Jeffery Pfeffer (Leatherbarrow, 2010, p. 59). This model of SHRM can be described as a number of specific HR practices that are universal and have the potential to bring about enhanced performance for all organizations (Marchington and Wilkinson, 2006, p. 72).  Best practice is recognized to give superior outcomes, whatever the situation (Delery and Doty, 1996). 

According to Pfeffer (1998), there are seven universally accepted practices which would help the organization to thrive among other competitive and increase the organization’s profit.

·         Providing security to employees.

·         Selective hiring: Hiring the right people

·         Self-managed and effective teams

·         Fair and performance-based compensation.

·         Training relevant skills.

·         Creating a flat and egalitarian organization.

·         Making information easily accessible to those who need it.

Michelle Reynolds points out that following organization use the best practice approach in the modern society.

• FedEx Corporation - An American multinational delivery services company  
• Sage Products, Inc. - A healthcare and medical sales and distribution company
• The Integer Group - Focus on advertising and marketing·    
•  Eileen Fisher - Clothing retailer which relies on the high-end customer service provided by its employees·        
• AMX - Is in the highly competitive and fluctuating field of electronics.
•  Hilcorp Energy Company - Manufactures, produces and distributes energy

List of references,

·         Campfield, W. (1960). An approach to formulation of professional standards for internal auditors. Accounting Review. 35(3), 444 – 448.

·         Delery, JE and Doty, DH 1996, Modes of Theorizing in Strategic Human Resource Management: Tests of Universalistic, Contingency, and Configurational Performance Predictions.

·         Farkas, M., & Anthony. W. (2006). System transformation through best practices. Psychiatric Rehabilitation Journal, 30(2), 87-88.

·         Gregory, R. G., & James, D. W. (1973). Do new factories embody best practice technology? The Economic Journal, 83(332). 1133-1155.

·         HandsonERP, 2014, What is a Best Practice, viewed 30 November 2020, <https://www.youtube.com/watch?v=hFXLOqsQAKg&t=2s>.

·         Kanigel, R. (1997). The one best way: Frederick Winslow Taylor and the enigma of efficiency. New York: Penguin Books.

·         Leatherbarrow, C., 2010, Introduction to Human Resource Management: A Guide to HR in Practice.

·         Marchington, M and Wilkinson A (2006), People Management and Development: Human Resource Management at Work.

·         Osburn, J., Caruso, G. and Wolfensberger, W., 2011, “The Concept of Best Practice”, Best Practice Usage and Shortcomings.

·         Pfeffer, J 1998, Seven Practices of Successful Organizations.

·         Reynolds, M., Companies with HR Best Practices, viewed 01 December 2020.