Best-Fit Approach in Practice - IKEA.

Human resources management (HRM) has evolved over the decades to become a strategic, integrated and coherent approach to the employment, development and well-being off the people working in an organization. Duncan (2001) argued that the evolution of HRM impacts on the management of intellectual capital with organizations making them a source of competitive advantage. The existing literature also highlights the importance strategic human resource management (SHRM), to create organizational potential by ensuring that the organization has all its needs to attain sustained advantage. However, it becomes a value adding function leading to integration and adaptation (Rodrigo, 2012).

“Maintaining a strong IKEA culture is one of the most crucial factors in the continued success of the concept” – Ingvar Kamprad, Founder of IKEA

IKEA’s vision of “creating a better everyday life for the many people” is reflected by their high quality, well designed and functional products, in affordable prices and great variety. This philosophy of doing things in a cost conscious and environment friendly way is embedded in all of their activities. The 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). However, their cost-conscious approach is not just limited to that aspect; employees and managers are encouraged to be economical as well. It all begins from the top management; founder Ingvar Kamprad who believes in leading by example, stays in inexpensive hotels and flies in economic class. This mindset diffuses through the organization’s pyramid to all employees. “We do our part, you do your part” on the one hand, incorporates IKEA’s strategy of reducing costs while adding value to their supply chain through innovation and creativity, while on the other hand it encourages customers to get involved and be part of the IKEA family (Kats, 2014).

The IKEA Group - The Story of How We Work 

(Source: The IKEA USA, 2014)

IKEA Vision was to create a comfortable place for its co-workers; in Spiers-Lopez statement “IKEA values the individual. We make people comfortable here and enable people to grow”. Motivation is the force that causes people to do things as a result of individual needs being met.  Steers and Porter (1991) defined Motivation as set of forces that cause people to behave in certain ways, however Mitchell (1982) states that motivation is the degree to which an individual wants and chooses to engage in certain specified behaviors. It should be noted that the key role played by SHRM has been in attracting, keeping and motivating high performers in the contemporary business environment (Kats, 2014).

Kahn (1990), defined engaged employees as being fully physically, cognitively and emotionally connected with their work roles.  However, Macey & Schneider (2008) argued, employee engagement as a term used to depict the degree to which employees are concerned with, dedicated to, enthusiastic, and passionate about their work. Gubman stated that, where the person works and what the person does is a major component of engagement. William Kahn acknowledge that individual differences might influence the kinds of roles employees’ find engaging or disengaging as well as personal experiences of meaningfulness, safety and availability of resources. For any organization to be successful, it must have engaged employees. According Towers Perrin’s researches, organizations with higher levels of engagement outperform their competitors in terms of performance and profitability. In 2002 Watson Wyatt found that the high commitment organizations outperformed those with low commitment by 47%. Furthermore, Thomas & Seeman (1972) confirmed that restoration of meaning at work can help enhance employee’s motivation and attachment to work.

Motivational techniques used by the IKEA has ranged between Maslow’s hierarchy of needs. Maslow’s hierarchy of needs evidently identifies the responsibility of employers to present a workplace environment that encourages and enables employees to discharge their own distinctive potential. The establishment of such needs will promote individual employee engagement and retention and the organization in achieving its strategic aims (Rodrigo, 2012).

Figure 01: Maslow’s Hierarchy of Needs

Source: Rodrigo, (2012)

However, In IKEA it is important to note that the need of an employee varies in psychological makeup, position, experience etc. Therefore, it is important to integrate non-financial rewards with financial rewards to achieve greater employee engagement and retention (Rodrigo, 2012).

Figure 02: Application of Maslow’s Hierarchy of Needs in Workplace

Source: Rodrigo, (2012)

Mentoring is one of the key techniques used by IKEA in deciding training and development requirements of each individual. Spiers-Lopez stated, mentoring made employees feel supported, and helped them grow within the company. Gibb (1994) has defined mentoring as “a relationship in which an individual takes a personal interest in another’s career and guides or sponsors that person” (p. 47). Drawing upon David (2004), mentoring can be linked with career advancements and mobility, especially for the minorities and women. Therefore, it should be highlighted that the method is being successfully used within IKEA to wholly motivate workforce to stay with the company. The ongoing training also helped employees to stay in touch with the latest within the industry and also to benchmark their performance against best practices across different industries (Rodrigo, 2012).

A strong leadership along with a shared value vision is important to create an entrepreneurial and innovative work place where people would love to work, and develop their potential, and ultimately grow with the organization (Kats, 2014).

References,

Duncan, C (2001), The impact of two decades of reform of British Public Sector industrial relations, Public Money and Management, Jan – March, pp. 27-33

IKEA USA (2014), The IKEA Group – The Story of How We Work; https://youtu.be/1jn2_nZrivQ

Kahn, WA (1990), Psychological Conditions of Personal Engagement and Disengagement at Work

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

Macey, WH and Schneider, B (2008) The Meaning of Employee Engagement. Industrial and Organizational Psychology, 1, 3-30.

Mitchell, TR (1982), Motivation: New Directions for Theory, Research, and Practice

Rodrigo (2012), How has Human resources management (HRM) evolved to become a strategic, integrated and coherent approach to employment.

Steers, RM & Porter, LW (Eds.) (1991). Motivation and Work Behavior (5th ed.). New York: McGraw-Hill.

Thomas, M & Seeman, J (1972). Personality integration and cognitive processes. Journal of Personality and Social Psychology, 24(2), 154 161. https://doi.org/10.1037/h0033396

Wyatt, W (2002), Human Capital Index and Company Performance: A definite impact on shareholder wealth

BEST-FIT APPROACH IN A THEORETICAL VIEW

Both approaches agree that externally competitive reward packages are important to attracting and retaining qualified employees (Anku-Tsede & Kutin, 2013). Thus, ‘Best fit’ advocates emphasize the importance of external competitiveness for attracting and retaining employees (UKEssays, 2018). To be effective, a reward system must distribute rewards in a way that will lead the organization’s most valuable employees to feel satisfied when they compare their rewards with those received by individuals performing similar jobs in similar organizations. According to Schuster and Zingheim (1992), “good performers tend to seek organizations where performance is recognized and rewarded.”

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. The contingent factors influencing HR strategy might include type of business strategy pursued, organization size, type of technology, geographic location and labor market, management skills and preferences, industry sector and economic conditions. Best fit approach shows a high margin of confidence regarding pay as a motivator and it follows the expectancy theory that believe that people will perform better if they believe their effort will be rewarded. Due these circumstances, the best fit approach focuses on the financial aspect and uses it as a driver for corporate human resource (UKEssays, 2018).

Armstrong (2012) explained three models that included to the ‘best fit’ approach as,

·         Life cycle – Explains four stages of development steps as

§  Startup

§  Growth

§  Maturity

§  Decline

·         Competitive Strategy – Porter (1985) explains three areas as advantages of ‘best fit’     as

§  Innovation or niche

§  Quality of the out put

§  Cost leadership

·          Strategic Configuration – Explains the advantages when the ‘best fit’ matched     with    the strategic alignment

Best fit advocates continue to argue that an organization’s structure is contingent on situational variables and a reward system can have a significant impact on reinforcing and defining the organization’s structure. Lawler (1996, p. 532) states that the “…key issues here seem to be the degree to which the reward system is hierarchical and the degree to which it allocates rewards on the basis of movements up the hierarchy.” Milkovich and Newman (1999, p. 65) explain the difference between egalitarian and hierarchical structures when they observe, “Egalitarian structures have few level and smaller differential between adjacent levels and between the highest and lowest paid workers.”

Scholars argue that, either structure can be pointed as fair depending on reward system administration or employee values (Morris & Maloney 2005). However, each is thought to promote different types of behavior. Hierarchical organizations tend to concentrate on individual performance rather than group performance and there are opportunities for promotion that attract higher wages. Top management makes important decisions on pay and other organizational issues. Status differences are reinforced through large pay differentials and perquisites (Morris & Maloney 2005).

IKEA is one of the leading companies which absorbed the best fit approach for the growth of the organization.

IKEA – Why They’re So Successful

(Source: Company Man 2018)

List of References,

·    Anku-Tsede, O & Kutin, E (2013) Total Reward Concept: A Key Motivational Tool for Corporate Ghana, Business and Economic Research, ISSN 2162-4860, Vol. 3, No. 2

·      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

·         Camaleen, A (2019) Specific Approaches to Develop HR Strategies in Modern Business Environment

·         Company Man (2018), https://www.youtube.com/watch?v=QgbtoL65X04

·      Lawler, E (1996) The Design of Effective Reward Systems. In Motivation and Leadership at Work, sixth edition, eds. R. Steers, L. Porter and G.Bigley, p. 527-550. New York: McGraw Hill International Press.

·    Milkovich, G and Newman, J (1999) Compensation, 6th ed. Homewood, IL. McGraw-Hill Higher Education.

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

·      Porter, M (1985) Competitive Advantage: Creating and Sustaining Superior Performance

·     Schuster, JR & Zingheim, PK (1992), Building Pay Environments to Facilitate High-Performance Teams

·   UKEssays. November 2018. Best Fit And Best Practice Perspectives For Hr Management Essay. [online]. Available from: https://www.ukessays.com/essays/management/best-fit-and-best-practice-perspectives-for-hr-management-essay.php?vref=1 [Accessed 6 November 2020].

Introduction to Best-Fit and Best-Practice

Under the rapid alteration in the business world lately, more and more firms and companies realize that their employees are considered as an asset which is a crucial resource of the establishment. In order to integrate these assets, a lot of establishments start to 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. Wheelen and Hunger (1995, p.3) defines strategic human resources management as 'that set of managerial decisions and actions that determines the long-run performance of a corporation'. 

Morris & Maloney (2005) argues, there are two perspectives for strategic pay literature. The terms “Best-Fit and Best Practice” are commonly used in Strategic Human Resource’s Management literature under the specific policy area of reward systems. Morris & Maloney (2005, p.2) defines Best-Fit as ‘the firm’s reward system which is aligned to support the organization’s business strategies in order to attain competitive rewards’. Meanwhile, Best-Practice as a ‘bundle of Human Resource policies including the reward system that lead to highly motivated and committed employees who are the key to an organization’s competitive advantage’.      

Thorpe and Homan (2000), Argues that previous improvements in the design of pay system did not directly relate to the real problems faced by organizations. Thus, the need to devise pay system linked to business strategy arose.

The original proposition that people resource planning and strategic planning should be linked, came from Walker (1978). This was followed by Tichy et al (1982: 47) who, dealing specifically with SHRM, proposed that: ‘The fundamental strategic management problem is to keep the strategy, structure and human resource dimensions of the organization in direct alignment.’ As noted by Wright et al (2001: 701), Walker’s call signified the conception of the field of SHRM, but its birth came in the early 1980s with Tichy et al’s article devoted to extensively exploring the link between business strategy and HR.  

Fombrun and his colleagues introduced the ‘Michigan model’ of HRM (sometimes called the ‘matching model’), which proposed that HRM systems and the organization structure should be managed in a way that is congruent with organizational strategy. This key-point was made in their classic statement that: ‘The critical management task is to align the formal structure and human resource systems so that they drive the strategic objectives of the organization’ (ibid: 37). This is essentially the concept of vertical fit. In their ‘Harvard model’, Beer and his colleagues argued that ‘HRM policies need to fit with business strategy’ (p178). They also advocated a multi-stakeholder approach which means being concerned about all the organization’s stakeholders – employees as well as shareholders.

Armstrong & Brown (2019), Argues that emergence of the notions of vertical and horizontal fit sparked a debate at about this time on the relative merits of what became known as ‘best fit’ (the belief based on contingency theory that HR strategies should be related to the context and circumstances of the organization) and ‘best practice’ (the view that there is a set of HRM practices that are universal in the sense that they are best in any situation and that adopting them will lead to superior organizational performance). A number of attempts have been made to list best practices but the following one (Figure 1.0) by Pfeffer (1994) became one of the best known:

Figure 1.0: Best Practices

(Source: Armstrong & Brown, 2019, p.13)

Various studies have pointed out that the adoption of single practices won’t deliver the same improvement of results (Huselid, 1995). Katz, Kochan and Keefe (1987) found that plants adopting team-based working without implementing other changes performed worse than those which had not. Ichniowski and Shaw (1995) also showed that the adoption of single practices did not improve productivity.

List of References,

·    Armstrong, M & Brown, D (2019) “Strategic Human Resource Management: Back to the future”, A literature review, Institute of Employment Studies, Report 517  

·    Fombrun, CJ, Tichy, NM and Devanna, MA (1984), Strategic Human Resource
Management, New York, Wiley

·   Huselid, MA (1995) "The impact of human resource management practices on turnover, productivity and corporate financial performance", Academy of Management Journal, 38, pp.635-70

·   Ichniowski, C., Shaw, K And Prennushi, G (1994) "The Effects of human resource management practices on productivity", Working paper, Columbia University

·    Katz, HC., Kochan, TA and Keefe, JH (1987) “Industrial Relations and Productivity in the U.S. Automobile Industry”

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

·    Pfeffer, J. (1994) Competitive Advantage Through People: Unleashing the Power of
the Workforce. Boston, MA: Stanford Graduate School of Business, Harvard Business
School Press.

·   Thorpe, R & Homan, G. (2000) Strategic Reward Systems. London: Pearson Education
Limited.

·   Tichy, N, Fombrun, C and Devanna, M (1982), ‘Strategic human resource management: the evolution of the field’, Sloan Management Review, 23 (2), pp 47-61

·    Walker, J (1978), ‘Linking human resource planning with strategic planning’, Human Resource Planning, 1, pp 1-18

·    Wright, P Dunford, B and Snell, S (2001), ‘Human resources and the resource-based view of the firm’, Journal of Management, 27 (6), pp 701–21