Best-practice theory

The 'best-practice' theory is based on the assumption that HR practices observed in high-performing firms can be transformed to other companies with the same results.10 Pfeffer's list of seven HR practices for competitive advantage through people is one of the best known set of best-practices.11

1. Employment security

2. Selective hiring

3. Self-managed teams or team working

4. High pay contingent on company performance

5. Extensive training

6. Reduction of status differences

7. Sharing information

In essence, recruiting and retaining talented, team-oriented, highly motivated people is seen to lay a basis for superior business performance or competitive advantage. But this theory, like several other universal models, has been criticised for a variety of reasons:

• Disconnection from company's goals and context

• Disregard of national differences such as management practices and culture12

• Inconsistency between the RBV's emphasis on in-imitability and best-practice universalism13

Although best-practices are too general, some researchers have found empirical evidence showing a correlation between the application of best-practice theories and company's performance. The reason can be seen in the validity of the underpinning "AMO" (ability, motivation, opportunity) framework.

Best-fit theory

The contingency or "best-fit" approach questions the universality assumption of the best-practice perspective. Instead it emphasises the fit between HR activities and the organisation's stage of development ("external-fit"). According to the "best-fit" theory, a firm that follows a cost-leadership strategy designs narrow jobs and provides little job-security, whereas a company pursuing a differentiation strategy emphasises training and development. This approach is a counterpart to the "one strategy fits all" seen in Pfeffer's seven best practices. The 'best-fit' school, therefore, argues that all SHRM activities must be consistent with each other (horizontal fit) and linked to the strategic needs of the business (vertical fit).15 However, 'best-fit' approach has been criticised for the following reasons:16

• Lack of alignment with employee interests, compliance with prevailing social norms and legal requirements

• Too simplistic view of business strategy (the reality is more complex than only innovation, cost-reduction and quality-enhancement strategy in the Schuler and Jackson model)

• Too much focus on existing competitive strategy (reactive) rather than ongoing environmental changes (proactive)

Best-practice theory

The 'best-practice' theory is based on the assumption that HR practices observed in high-performing firms can be transformed to other companies with the same results.10 Pfeffer's list of seven HR practices for competitive advantage through people is one of the best known set of best-practices.11

1.

Employment security

2.

Selective hiring

3.

Self-managed teams or team working

4.

High pay contingent on company performance

5.

Extensive training

6.

Reduction of status differences

7.

Sharing information

In essence, recruiting and retaining talented, team-oriented, highly motivated people is seen to lay a basis for superior business performance or competitive advantage. But this theory, like several other universal models, has been criticised for a variety of reasons:

•

Disconnection from company's goals and context

•

Disregard of national differences such as management practices and culture12

•

Inconsistency between the RBV's emphasis on in-imitability and best-practice universalism13

Although best-practices are too general, some researchers have found empirical evidence showing a correlation between the application of best-practice theories and company's performance. The reason can be seen in the validity of the underpinning "AMO" (ability, motivation, opportunity) framework.

Best-fit theory

The contingency or "best-fit" approach questions the universality assumption of the best-practice perspective. Instead it emphasises the fit between HR activities and the organisation's stage of development ("external-fit"). According to the "best-fit" theory, a firm that follows a cost-leadership strategy designs narrow jobs and provides little job-security, whereas a company pursuing a differentiation strategy emphasises training and development. This approach is a counterpart to the "one strategy fits all" seen in Pfeffer's seven best practices. The 'best-fit' school, therefore, argues that all SHRM activities must be consistent with each other (horizontal fit) and linked to the strategic needs of the business (vertical fit).15 However, 'best-fit' approach has been criticised for the following reasons:16

•

Lack of alignment with employee interests, compliance with prevailing social norms and legal requirements

•

Too simplistic view of business strategy (the reality is more complex than only innovation, cost-reduction and quality-enhancement strategy in the Schuler and Jackson model)

•

Too much focus on existing competitive strategy (reactive) rather than ongoing environmental changes (proactive)