High Commitment HRM organizations - a case study

Table of Contents

Introduction

Components of “high performance” HR practices
Employment Security and Internal Labour Markets
Selective hiring and sophisticated selection
Extensive training, learning and development
Employee involvement, information sharing, worker
invoice and open communication channels
Self-managed teams / team-working
High compensation contingent on performance
Reduction of status differences / harmonisation

Finding the best combination of HR Practices – a HR practice Bundle

The Impact of High-commitment HR practices on performance

Conclusion

Introduction

A rapidly changing economic environment, characterized by such phenomena as the globalization and deregulation of markets, changing customer and investor demands, and an increasing product-market competition, has become the norm for most organizations. To compete in this new environment, a continual performance improvement through reducing costs, innovating products and processes, and improving quality, productivity and speed to market is essential.¹

Concerning these required quality improvements, in recent years, a new approach to management, particularly coming from the Anglophone countries like the United States, in which organizations compete on quality rather than cost, and rely on human resource development to do so, could be detected.

This new approach focuses on the involvement of employees in the decision making process and on using a certain combination or bundle of progressive management practices, which raise welfare to workers (for example training, appraisal, profit-sharing and high compensation systems).² This approach has been conceptualised variously as “best practice” human resource management (HRM), “high performance work systems”, “high commitment” HRM or “high involvement” management. Whatever the terminology, the idea is that a particular set of HR practices has the potential to bring out improved organizational performance.³

To put a finer point on that, I will now list up the three goals, according to Baron, J.N. and Kreps D. M. (1999), of this particular HR system:

- Employees should work for the best interest of the organization, based on a deep understanding of those interests
- Employees should be flexible, they should be willing to take on assignments different from their normal work, if this is in the interest of the organization
- Employees should work with their brains as well as with their hands. They should use their own (considerable) judgement to determine and anticipate what needs to be done, and they should help the organization to improve, by contributing ideas and information needed to achieve improvement⁴

In this context, a range of authors published studies exploring the links between HRM and performance. Although there are notable differences across the studies as to what constitutes a “best” practice (see Table 1 for a summary of best human resource practices), several themes emerge across all of them. At their root, most of the studies focus on enhancing the skills of employees through HR activities such as selective staffing, training, and broad development efforts like job rotation and cross training. Additionally, the studies tend to promote empowerment, participative problem solving, team-working and group-based incentives.¹

Table 1

Summary of Best Practices in Human Resources 1

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In the following, I will explain more in detail the list of high commitment HR practices outlined by Pfeffer (1998) and at the same time apply those practices on a real world situation. In order to provide a more realistic illustration of this new approach, I had the possibility to obtain information from and co-operate with the HR department of Oracle Austria, the Austrian subsidy of the American database software corporation, which pursues the strategy of adding value through appreciation (“Wertschöpfung durch Wertschätzung”) and thus, represents a typical example of what the theory calls a “high performance work system”.

Additionally, I will theoretically explain the connection between this new approach and the desired outcome, the improvement of the organization’s overall performance.

-racle Corporation is one of the major companies developing database management systems, tools for database development, middle-tier software, enterprise resource planning software, customer relationship management software and supply chain management software. Oracle was founded in 1977 by its CEO Larry Ellison and its headquarter is situated in Silicon Valley, California. The publicly owned company has offices in more than 145 countries around the world. In 2006 it employed more than 56,000 people worldwide and accounted for a turnover of 11.799 billion USD.¹

In the following, when talking about Oracle, I will refer to Oracle Austria GmbH, the Austrian subsidiary, which is ranked as second in the list "Austria's Best Companies to Work For 2007".

Reverting to Oracle Austria, I was provided with the following HR key figures:

Key Figures 2005²

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Components of “high performance” HR practices

Employment Security and Internal Labour Markets

According to Holman et al (2003) employment guarantees represent the base for an open and trusting relationship between employee and employer. If the employee feels secure and is having good prospects of career possibilities inside the firm, he is more likely to offer ideas, hard work and commitment. However, that does not mean that the employment is guaranteed in all cases and that the employees can stay in the same job for life. Employment security just implies that job reductions will be avoided, wherever possible, and that employees in general can expect to maintain their employment with the organization. Furthermore it means that workers are not treated as a variable exchangeable cost but as a critical asset in the long-term viability and success of the organization.^[1]

In the case of Oracle it can be stated, that they cherish their employees, and even more the promising and bright ones. Therefore the HR department, in the event of job reduction, screens the whole internal employment situation and detects eventual shortages or restructures internal employment in order to ensure that the employee can stay with the organization. According to the HR management, acting in a forward-looking and well-devised manner is crucial for the successful restructuring. In this context, it has to be mentioned that taking into the organization’s financial situation and budget available for that restructuring process remains indispensable.

Selective hiring and sophisticated selection

An effective hiring and recruiting process is the first step in achieving competitive advantage concerning efficient employment. Vance Kearney, Vice President of Oracle HR EMEA states the following: “Product can be copied, but the people can’t. The key to success is having fabulous people in a business.”

Employers always want to recruit the best people available and therefore use sophisticated selection techniques in the recruitment process, such as psychometric tests, structured interviews and work sampling, which all are methods that are likely to increase the validity and quality of selection decisions.¹ Typical recruiting at Oracle consist of a well-devised selection process involving various steps such as online application, first hearing, in-depth interview, assessment centres (X-lob hearings) and the resolving of business cases.

Concerning the criteria influencing the recruitment decision, HR managers might consider social, interpersonal and team-working skills more important than the possession of specific knowledge.² Furthermore, the selection process can be influenced by the possession of certain competencies such as trainability, flexibility, commitment, drive and persistence, and initiative. 1

The HR Management of Oracle Austria, states that the crucial point in the selection process is the overall picture of the applicant, consisting in so-called “soft-skills” (such as social and interpersonal skills, personality) and specific skills, which especially play a crucial role in a technical environment.

These required skills can be explained through the immediate complementary between recruiting and training, which we will discuss in the following section. As high-performance HR firms invest heavily in the training of their employees, one can deduce that a certain level of potential is required. This procedure thus confirms that most high-performance HRM employers feel they can provide technical training for people so long as they have the “right” social skills, attitudes and commitment. 1 Another criteria connected to the investment process of employment represents prospective longevity of the potential employee.2 According to the Oracle HR manager, a life career full of employment changes in short periods casts a poor light on the applicant, as they prefer employing people with a certain consistency.

[...]

¹ Becker B. and Gerhart B.

² Scholarios D, Ramsay H. and Harley B. (1999)

³ Marchington M. and Wilkinson A. (2005), p. 72

⁴ Baron, J.N. and Kreps D. M. (1999), p. 189

¹ Youndt M. A., Snell S. A., Dean J.W.Jr. and Lepak D.P. (1996)

¹ http://en.wikipedia.org/wiki/Oracle_Corporation

² article in „trend – Das österreichische Wirtschaftsmagazin”, 3/2007

^[1] Marchington M. and Wilkinson A. (2005), p.73

¹ Marchington M. and Wilkinson A. (2005), p.75

² Baron, J.N. and Kreps D. M. (1999), p.192