Explain why human resource management is important to organizational success.
Various studies have concluded that an organization’s human resources can be a significant source of competitive advantage. And that’s true for organizations around the world, not just U.S. firms.
The Human Capital Index, a comprehensive study of over 2,000 firms in North America, Europe, and the Asia–Pacific region conducted by consulting firm Watson Wyatt Worldwide concluded that people-oriented HR gives an organization an edge by creating superior shareholder value.
Achieving competitive success through people requires a fundamental change in how managers think about their employees and how they view the work relationship. It involves working with and through people and seeing them as partners, not just as costs to be minimized or avoided. That’s what people-oriented organizations do.
In addition to being an important part of organizational strategy and contributing to competitive advantage, an organization’s HRM practices have been found to have a significant impact on organizational performance.
For instance, one study reported that significantly improving an organization’s HRM practices could increase its market value by as much as 30 percent. Another study that tracked average annual shareholder returns of the publicly traded companies on Fortune’s list of 100 best companies to work for found that these companies significantly beat the S&P 500 over 10-year, 5 year, 3-year, and 1-year periods. High-performance work practices lead to both high individual and high organizational performance.
The common thread in these practices seems to be a commitment to improving the knowledge, skills, and abilities of an organization’s employees, increasing their motivation, reducing loafing on the job, and enhancing the retention of quality employees while encouraging low performers to leave.
Even if an organization chooses not to implement high-performance work practices, there are certain HRM activities that must be completed in order to ensure that the organization has qualified people to perform the work that needs to be done—activities that comprise the human resource management process.
Source: Management, 11e (Robbins/Coulter)