Strategic Human Resource Management: A General Managerial Approach (2nd Edition)
An Investment Perspective and Human Resources The conceptual framework for this text begins with an investment perspective for guiding managerial strategic decisions regarding human resources. Human resource management practitioners and management scholars have long advocated that human resources should be viewed from an investment perspective. Current practices in many organizations indicate that employees are viewed as valuable investments. However, some still view their employees as variable costs of production, while physical assets are treated as investments. When employees are viewed as variable costs, there is little recognition of the firm’s contribution to their training or the costs of recruiting and training their replacements. Likewise, there is less incentive to provide training or make other investments in them. A respected human resource scholar described the existing state of affairs as follows:
I am constantly amazed at the contrast between the concern that strategists show for potential capital costs and the casual indifference they tend to display toward potential human resource costs (until, of course, the latter have gotten completely out of hand).1
A focus solely on investment in physical resources, as opposed to human resources, is short-sighted. Strategists have found that having superior production facilities or a superior product are usually not enough to sustain an advantage over competitors. Physical facilities can be duplicated, cloned, or reverse-engineered and no longer provide a sustainable advantage.2 Strategists James Quinn, Thomas Doorley, and Penny Paquette have argued that “maintainable advantage usually derives from outstanding depth in selected human skills, logistics capabilities, knowledge bases, or other service strengths that competitors cannot reproduce . . .”.3 Thus, with their perspective, there is recognition of the importance of having superior human resources. There is little doubt that organizations will need to invest heavily in their human resources in order to be competitive during the twenty-first century. Management scholar Edward Lawler has described these investment requirements as follows:
To be competitive, organizations in many industries must have highly skilled, knowledgeable workers. They must also have a
relatively stable labor force since employee turnover works directly against obtaining the kind of coordination and organizational learning that leads to fast response and high-quality products and services.4
According to Lawler, these investments will become increasingly important due to forecasts of shifts in skill needs from manual to cerebral.
Contemporary management practices indicate that many leading companies have recognized the strategic importance of human resources and have adopted an investment perspective toward these resources. Further, there is greater awareness of the costs of treating employees as variable costs, which is beginning to change views of human resource practices.5 There is also a growing recognition of the relationship between companies’ overall strategies and their human resource practices. For example, companies pursuing strategies of innovation have the potential to be severely damaged by turnover because of reliance on individual expertise and unrecorded knowledge that has been quickly acquired. Accordingly, such companies tend to provide greater job security for some employees.6 A final reason for beginning this text with an investment perspective is to reinforce the idea that for human resource management to play a meaningful role in the strategic management of organizations, it must be viewed as contributing to the bottom line. An investment perspective provides a valuable guide for strategic management.
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