Knowledge Center for Students

Work-Life balance

2012-04-06T00:18:00.001-07:00

Introduction
The changing nature of economic conditions and social demands throughout the world has changed the role of work and the workplace. Originally, work was a matter of necessity and survival but today, work is not only a necessity but also a source of personal satisfaction as well.
Lockwood (2003) identified some factors which contribute to the serious consideration of equilibrium between work and life as global competition, renewed interest in personal lives and family values and an ageing workforce. The challenge of work-life balance is rising to the top of many employees’ and employers’ consciousness.
Employees are placing more value on quality of work life and seeking for greater flexibility so that they can manage work commitments along personal life. Employers, on the other hand, need in today’s economic climate a workforce that is stable and committed but also more adaptable and flexible to meet business challenges.
However, according to Loghran (2002), finding the right balance between work responsibilities and the demands on personal lives is conclusively becoming a significant business issue.
Hence, at the core of HR strategy lays the need to consider work-life balance for employees.

Definition/ brief history of work-life balance
Work/life balance means different things to different groups, and the meaning often depends on the context of the conversation and the viewpoint of the speaker.
According to Alexandra, (2003), the term work/life balance is about individuals having a measure of control over when, where and how they work, leading them to be able to enjoy an optimal quality of life. While Fatma (2007) viewed work/life balance as establishing a successful balance between working obligations and personal commitments.
In its broadest sense, work/life balance is a satisfactory level of involvement or fit between the multiple roles in a person’s life. That is, it is associated with equilibrium, or maintaining an overall sense of harmony in life.
The issue of work/life balance can be traced back in the 1960s and 1970s, where employers considered work/life mainly an issue for working mothers who struggled with the demands of their jobs and raising children. During this period and mid-1980s, the U. S. government had the major impact in the field, as reflected in Pregnancy Discrimination Act, Presidential Conference on Families, and the Quality of Employment Survey.
In 1980s, pioneering organizations such as Merck, Deloitte & Touche, and IBM began to change their internal workplace policies, procedures, and benefits due to recognized value and needs of their women contributors. The changes included maternity leave; employee assistance programs (EAPs), flextime, home-based work, and childcare referral (Jim, 2006).
During this period men also started voicing work/life concerns, and by the end of the decade, work/life balance was seen as more than just a women’s issue, affecting men, families, organizations and cultures.
In 1990s, work/life balance was recognized and solidified as a vital issue for everyone women, men, parents and non-parents, singles, and couples. This increasing awareness of the importance of the issue resulted in major growth in attempted work/life solutions during this decade.
However, although companies were adopting family-friendly policies, employees and managers were not implementing them. As a result, many of the policies put into place in the 1980s failed to have a significant impact on most managers’ and employees’ real-world work/life balance.
Hence, HR and work/life professionals as well as executives at all levels take stock on the issue during the first years of the 21st century (Jim, 2006).
Furthermore, generation Y has deferring attitudes towards work, and it doesn’t mesh with the traditional, nor the “9 to 5” schedule. Generation Y does not place “much emphasis on how and when the work gets done, just that it gets done” (Rorhorn, 2007). “Some younger workers believe they work more effectively and efficiently from 9 p.m. to 3 a.m., which begs the question, ‘is it really about face time or getting the work done?’ said Brown from Rockwell Collins”(Rorhorn, 2007). The new generation grew up with technology and has an ingrained knowledge that things can be done faster. Hence, generation Y workforce is very demanding, more individualistic, and like flexible work. Thus, HR professionals try to meet these differing needs by introducing work/life balance programs in the workplace.

Work/life balance policies and practices
Policies and practices supporting employees’ work/life balance can be divided into two; public and organizations’ policies and practices.

Public policies and practices
A range of public policies supporting work/life balance has been developed in response to economic and cultural trends, many of which focus on women’s increased participation in paid employment.
Legislative reforms such as the International Labour Organization (ILO) Convention 156, Workers with Family Responsibilities 1981 (ILO, 1981), anti-discrimination and affirmative action legislation and industrial relations changes have also lifted the profile of issues related to work/life balance and blurred the boundaries between public and private spheres.
In Australia for instance, these reforms have resulted in mandatory reporting of policies by organizations with more than 100 employees. Also in both Australia and New Zealand, employees in public and private sectors are entitled to 12 months’ unpaid maternity leave. After this time, they are entitled to return to the position held before the leave, or to a position of comparable status and salary (Hudson, 2005).

Organizational policies
Organizations have increasingly been developing formal policies that attempt to facilitate the work/life link in addition to the development of public policies supporting responsibilities outside of paid employment. Work/life balance strategies enhance the autonomy of workers in coordinating and integrating the work and non-work aspects of employees.
Three broad types of work/life strategies have been created by organizations to help employees balance their work and non-work lives: flexible work options, specialized leave policies and dependent-care benefits. These include a range of policies and practices such as:
1. Compresses work week, 2. Flexitime, 3. Job sharing, 4. Home telecommuting, 5. Work-at-home programs, 6. Part-time work, 7. Shorter work days for parents, 8. Bereavement leave, 9. Paid maternity leave, 10. Paid leave to care for sick family members, 11. Paternity leave, 12. On site/near site company childcare, 13. Company referral system for childcare, 14. Program for emergency care of ill dependents, 15. Childcare programs during school vacation, 16. Re-entry scheme, 17. Phased retirement, 18. Sabbatical leave, 19. Professional counseling, 20. Life skill programs, 21. Subsidized exercise for fitness centre, 22. Relocation assistance, 23. Work and family resource kit or library (Bardoel, De Cieri & Shea, 2008).
Impact of work/life balance on the organization
A proactive approach to work/life balance will not normally affect productivity, competitiveness, the bottom line or return on equity in a direct manner. However, it creates the environment where intervening variables can line up behind the delivery of these basic measures of business performance. There is a great deal of support from credible observers for the notion that work/life balance and business performance are inextricably linked. These link can be observed in the following headings:

Recruitment and retention
Now high-performance companies are identifying which employees have the knowledge, skills and commitment to create and sustain competitive advantage; they are making them aware of their importance and how they can contribute; and making sure that they keep these people, through motivating and rewarding them. They are also doing all they can to attract more people of the same kind.
Because it is difficult to target benefits solely at these key employees, these companies by and large make policies that apply equally to all. Work/life balance appears to be one of the strongest policies and practices companies used in retaining and recruiting their employees.
For instance, a study by the London School of Economics in 2001 found that 80% of people in Generation X (i.e. born between 1963 and 1981) and 93% of people aged 18-25 would be more likely to stay in their jobs if they could take greater control over when and how they worked. Another study by the Women in Cable and Telecommunications Foundation found that companies which invested heavily in work/life balance and, significantly, demonstrated strong top management support for work/life balance, had much higher retention and lower labour turnover than the norm (David, 2003).
Employee motivation
2003 Best Companies to Work For Survey says companies that allow their staff to work flexibly reap handsome dividends. According to a study by the Families and Work Institute concluded that the combination of flexible working, dependent care and fringe benefits resulted in employees with more positive attitudes towards their work and employer.
A study focusing on work, well-being and stress found that 45% of men and 50% of women would turn down a promotion if the new position would leave them with less time for their personal or family life (Gottlieg, Kelloway & Barham, 1998).

Equal opportunities /diversity
A study by Women in Cable and Telecommunications Foundation found that companies which paid high attention to work/life balance issues also had the highest gender diversity. According to Falice Schartz an author of Harvard Business Review; opportunity, flexibility, and family support are the keys to retaining the best women and eliminating the extra cost of employing them (Bartolome & Evans, 2005).
For many organizations, the requirement to demonstrate good practice in diversity management goes beyond the legal. Customers in the public sector particularly expect the organizations they deal with to have an appropriate gender and racial mix. However, work/life balance policies tend to reinforce gender advancement more than racial minority advancement.

Conclusion
Work/life programs have the potential to significantly improve employee morale, reduce absenteeism, and retain organizational knowledge, particularly during difficult economic times. As companies aim to reduce costs in today’s global marketplace, it falls to the HR professional to understand the critical issues of work/life balance and champion work/life programs as it has been shown in this work that it offers a win-win situation for both employers and employees.

References
Alexandra, J. (2003). Work-life Balance. Journal of The Work Foundation
Bardoel, E. A., De Cieri, H. & Shea, T. L. (2008). Measuring the impact of work-life initiatives: the development of an organizational work-life performance scale. Journal of Australian Centre for Research in Employment and Work
Bartolome, F. & Evans, P. A. L. (2005). Must success cost so much? Harvard Business Review, Vol. 58, 2
David Clutterbuck (2003). Managing the work-life balance. London: CIPD Publishing
Fatma, T. (2007). Work-life balance: any improve for business? Munich, GRIN Publishing Gmbh
Gottlieg, B. H., Kelloway, E. K., & Barham, E. (1998). Flexible work arrangements: managing the work-life boundary. New York: Wiley & Sons
Hudson (2005). The case for work/life balance: Closing the gap between policy and practice. Australia: Hudson Global Resources Pty Ltd
International Labour Organization (ILO) (1981). Workers with Family Responsibilities: Equality of Opportunity and Treatment. Convention 156
Jim, B. (2006). Work-life balance: doing it right and avoiding the pitfalls. Journal of Employment Relations Today, Vol. 33, No. 3
Lockwood, N. R. (2003). Work/life balance: challenges and solutions. Journal of Society for Human Resource Management, Vol. 2, 1-4
Rorholm, J. (Sept 24, 2007). Generational gap changes roles for employees. Knight Ridder Tribune Business News. Washington D. C.

Contributions (Importance) of SHRM to Organizational Performance

2011-10-13T22:28:00.000-07:00

Introduction

In a global economy, business organizations are driven by market pressures and they need to include in their goals- improved quality and productivity, greater flexibility, continuous innovation and the ability to change to respond rapidly to market needs and demands. Thus, in today’s intensely competitive and global marketplace, maintaining a competitive advantage by becoming a low-cost leader or a differentiator entails having a highly committed and competent workforce. Competitive advantage lies not just in differentiating a product or service or in becoming the low-cost leader but in also being able to tap the organization’s special skills or core competencies and rapidly respond to customer’s needs and competitor’s moves. In other words, competitive advantage lies in management ability to consolidate corporate wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities.

Also globalization of business has increased the need to identify and analyze ways in which business organization can operate effectively now and in the future. Thus, for organizations looking for ways to gain a competitive advantage, the implication of human resources strategic choices for organizational performance is certainly the key factor.

Traditional human resource management cannot ensure it and hence, it is essential to study Strategic Human Resource Management, (Tapomoy, 2006).

Traditional View of HRM

Traditionally, human resource management is the term commonly used to describe all those organizational activities concerned with recruiting and selecting, designing work for, training and developing, appraising and rewarding, directing, motivating and controlling workers. In other words, HRM refers to the framework of philosophies, policies, procedures and practices for the management of the relationship that exists between an employer and worker, (Nick, 2010).

Literature Review of SHRM

Among HR practitioners, the term “strategic human resource management” is used broadly to signal the view that human resource management activities should contribute to business effectiveness. This linkage between HRM activities, the needs of the business, and organizational effectiveness is the core of the area called strategic human resource management.

Two guiding assumptions of strategic human resource management are that (1) effective human resource management requires an understanding of and integration with an organization’s strategic objectives, and (2) effective human resource management leads to improved organizational performance. When HR policies and practices are aligned with an organization’s strategic objectives, the system can be described as “vertically integrated”, (Randall & Jackson, 2007).

In another view, strategic human resource management (SHRM) is an approach to the development and implementation of HR strategies that are integrated with business strategies and enable the organization to achieve its goals.

In essence, strategic HRM is conceptual; it is a general notion of how integration or ‘fit’ between HR and business strategies is achieved, the benefits of taking a longer-term view of where HR should be going and how to get there, and how coherent and mutually supporting HR strategies should be developed and implemented. Importantly, it is also about how members of the HR function should adopt a strategic approach on a day-to-day basis. This means that they operate as part of the management team, ensure that HR activities support the achievement of business strategies on a continuous basis and are consciously concerned with seeing that their activities add value, (Armstrong, 2008).

Understanding the strategic objectives of an organization requires developing a deeper understanding of the entire context in which organizations must function. Furthermore, it provides a basis for conceptualizing an organization’s HR policies and practices as a system of many elements that are more or less well-aligned. The goal of developing HR policies and practices that are aligned to form a coherent system is often referred to as achieving “horizontal integration” among HRM activities. Achieving both vertical and horizontal integration requires that HR professionals work in partnerships with line managers and employees (and their representatives). In sum, strategic human resource management is about:

● Vertical integration- understanding the organization and its context;

● Horizontal integration- creating coherent HRM systems;

● Demonstrating effectiveness- showing how HRM systems affect organizational performance;

● Partnership- HR professionals working cooperatively with line managers as well as with non-management employees, (Randall & Jackson, 2007).

The overall purpose of human resource management is to ensure that the organization is able to achieve success through people. As Ulrich and lake (1990) remark: ‘HRM systems can be the source of organizational capabilities that allow firms to learn and capitalize on new opportunities (Armstrong, 2008).

Contributions (Importance) of SHRM to Organizational Performance

Modern developed economies are increasingly relying on human capital to gain their competitive advantage. In such a “knowledge economy”, it is the skills and knowledge of employees rather than just the abilities inherent in technology and machinery that are crucial. The capacity of an organization to manage its talent is what will set it apart from other competitors. In Honk Kong, the HKSAR government asserts that human resources are the key for successful economic development. Indeed, Tung Chee Hwa made the following statement in his policy address. “Our people are our most valuable resources and the key to the development of a knowledge-based economy. Only by developing our own local human resources and providing opportunities for continuing education for people of all walks of life can we prepare ourselves for the changes in the marketplace. This is of utmost importance to the well-being of our people and the long-term development of Honk Kong”.

However, talented people are scarce, as a result companies must pay closer attention to the issue of talent management, in terms of attracting, recruiting, and developing talent in an economy that is increasingly knowledge-based, (Anna, Tsui & Lai, 2009).

The importance of human resource management function to an organization’s strategy is underscored by reviewing the overall functions of strategic planning. These include periodic forward scanning, analysis based on longer time frame, communication about goals and resource allocation, framework for short-term plan evaluation and integration, institutionalizing longer term time horizons necessary for investments, and decisional criteria for short-term decision making. It is impossible to address these critical issues without bringing in the human resources factor at each element of the process.

In the early development of strategic management, there was little concern about the human resources function until the actual implementation began. Rarely was the human resource brought into the planning process. Now this is changing. Strategy and human resource planning are integrated early in the process. There are several benefits of integrating human resource planning with strategic planning, making it imperative for this integration to be regularly pursued. Some experts have suggested that the human resource manager be labeled Director of People Strategy.

Because of the importance of strategy in the success of firms and the critical ingredient of human resources in the strategic plan, human resource managers are finding themselves heavily involved in the strategic planning process. Because strategy is related to the organizational goals, the ultimate opportunity to show the contribution of human resources begins in the strategic planning arena, (Jack, 1996).

The strategic importance of human resources has been widely recognized. As a result, strategic human resource management (SHRM) has been argued to be positively related to organization performance. More especially, HRM has been linked to increased productivity, good customer service, improved efficiency, increased firm value, greater profitability or financial returns and overall organizational survival.

Snell, Youndt, and Wright (1996) characterized the strategic role of HRM as “organizational systems designed to achieve competitive advantage through people”. In turn, competitive advantage may be defined as a set of capabilities or resources giving an organization an advantage that leads to superior performance relative to that of competitors. In this respect, the main focus of SHRM is on integrated combinations of HRM practices, through which organizations should create competitive advantage rather than simply adapting to the existing context. A review of the literature reveals five interrelated approaches to the link between the competitive position of an organization and the creation of superior human assets.

First, the resource-based approach of competitive advantage focuses on the relationships between a firm’s internal resources, its profitability and the ability to stay competitive through its strategy formulation. According to this approach, a resource is considered as an internal strength only if it meets the five criteria for sustainable competitive advantage. Specifically, a resource must (1) be immobile; (2) be difficult to replicate; (3) have no close substitutes; (4) be rare: and (5) create value. The central idea of the resource-based theory is that a firm’s systems, among its other attributes, enable the organization to achieve success relative to competitors.

Another approach focuses on the way human resource systems support competitive advantage and organizational learning through people. This perspective implies that human resource management should focus on how the integration of organizational resources, practices and capabilities can lead to sustainable competitive advantage. To understand this integration researchers have used notions of internal or horizontal fit and external or vertical fit. Management must have a clear understanding of internal fit and the way such fit facilitates organizational learning and adaptation. Furthermore, practices with external fit create capabilities that maintain the organization’s overall strategy and support multiple strategic dimensions in order to lead to sustainable competitive advantage, (Rudiger, 2005).

Conclusion

It is obvious from the literature review and researches that in today’s global and knowledge-based business environment, the role or importance of Strategic Human Resources Management (SHRM) in every business organizations cannot be underscored or undermined in helping the organization realized its business objects (gaining a competitive advantage, profitability, increasing shareholders wealth, etc.). Therefore, for every organization to achieve its goals, it must place a premium to its strategic human resource management.

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References

Anna, P. Y., Tsui, K. and Lai. T. (2009). Professional practices of human resource management in Hong Kong. Hong Kong: Hong Kong University Press

Jack J. P. (1996). Accountability in human resource management. USA: Gulf Publishers

Tapomoy, D. (2006). Strategic Approach to Human Resource Management. USA: Atlantic Publishers & Dist

Nick, W. (2010). An Introduction to Human Resource Management. USA: Sage Publications Ltd

Randall, S., Schuler, S. and Jackson, E. (2007). Strategic human resource management (2th ed.). USA: Wiley-Blackwell

Armstrong, M. (2008). Strategic human resource management; a guide to action (4^th ed.). USA: Kogan Page

Rudiger K. (2005). Special issue: Human resource management and economic success. Journal of Management Revue, Vol. 16, ISS. 2

Restaurant industry analysis

2011-10-13T01:18:00.000-07:00

Competitive Analysis –A case study on Restaurants

Introduction

People enjoy eating out, and the pace of development of the modern lifestyle indicates that they will continue to eat out more in the future. Higher economic levels, more mobility and more women in the workforce will all lead to a continuing growth in the industry in the next decade (Douglas, 2003).

According to the National Restaurant Association’s 2011 Restaurant Industry Forecast, consumers today spend 49 percent of their food budget in the restaurant community, compared with only 25 percent in 1955. The economic downturn has created a substantial pent-up demand for restaurant services – more than two out of five consumers say they are not dining out or using takeout as often as they would like – which positions the restaurant industry for growth in 2011 ( National Restaurant Association, 2011 ).

Today, people eat out not just because they are hungry but also for entertainment, relaxation, to socialize, to avoid cooking at home, and sometimes to conduct business. It is convenient and fits well into our faster paced 21^st century lifestyles (Roy, 2007).

Industry overview

Dining out in restaurants is a ubiquitous, significant and growing international phenomenon. Everywhere one travels people from all ethnic backgrounds, nationalities, ages, socioeconomic groups and both genders can be observed eating and drinking out in independent, locally owned and operated establishments or in strongly branded multiunit chain outlets. The international restaurant market is benefiting from a number of trends, including rising personal disposable income and a leisure environment in which many consumers eat out more frequently. Further growth though is not guaranteed with uncertainties and threats omnipresent. Among these currently are those associated with international terrorism, reductions in international travel and the global economic slowdown? However, being optimists, in the longer term restaurant dining seems set to become increasingly popular with the corporately-owned restaurant chains expanding further, and at the expense of the independents that currently hold the predominant market share (Bob, 2003).

Types of Restaurants

Restaurants are not as easy to classify into distinct types since the food and beverage industry is constantly evolving. However, there are several classifications of food and beverage facilities that stand out. For the purpose of this work, restaurants will be classified by ownership; independent, chain, franchises, and multiunit restaurants (Bob, 2003).

Key success factors

Access to multi skilled and flexible workforce: Access to suitably skilled and trained staff on hourly rates is required to meet peak customer demand periods.

Ability to quickly adopt new technology: Adopt new employee training, kitchen and customer related technology to increase productivity and lower labor costs.

Attractive product presentation: Atmosphere and ambience of the restaurant is important to attract and retain guests.

Proximity to key markets: Be in a good location and understand customers’ needs from your restaurant.

Ability to control stock on hand: Controlling orders, stock and food wastage, which is a major cost area.

Ensuring pricing policy is appropriate: Ensure the menu item pricing/portion control process is undertaken thoroughly to maintain costs and profit margins on meals.

Fast adjustments made to changing regulations: Monitoring changes to government regulations, including in areas such as food safety and handling.

Adoption of a commercial focus: Understanding customers’ wants, needs and desires from restaurants and always meet these. Always maintain a very high level of hospitality to ensure good word of mouth recommendations and a high level of repeat custom.

Restaurants competitive analysis

This industry is currently in a low revenue growth phase and may have reached saturation point, or is very close to it, in the domestic market. The limits of population size within a city or town which can profitably support a franchised or other outlet is starting to be reached and competition for high profile operating sites in other areas is significant. Signs of this are clearly evident with many major operators continuing to rationalize their underperforming stores.

There have been market changes and some demand for healthy foods and choices, away from high fat, high salt and super-sizes meals, as the obesity epidemic continues to be raised and recognized.

Also, significant price-based competition is continuing to occur, as operators strive to capture an increasing market share in a slow growth domestic market.

Given the state of the domestic market, major franchised operators are currently receiving most of their sales growth from expansion of their overseas operations.

However, there is currently still a growing number of households with high disposable income of $50,000 or above in the key groups 35- to 55-year-olds and baby boomers (Roman, 2010). Many have only limited time to cook and so are searching for good value and quality meals, and convenience and service in a hospitable and friendly environment.

The implications for this stage are: a reduction in the number of opportunities for establishing competitive advantage; and a shift of these opportunities from differentiation-based factors to cost-based factors. Because of increasing buyer knowledge, product standardization, and less product innovation; and diffusion of process technology, meaning cost advantages based on superior processes or more advance capital equipment methods are difficult to obtain and sustain.

Therefore, the cost advantage strategies that would be suitable at this stage are: economies of scale, low-cost inputs, and low overhead.

The competitive environment

Restaurateurs operate in a very competitive environment. They are not only in competition with each other but are also in competition with other businesses offering convenient food including hotels, motels, pubs, convenience stores, roadside kiosks, and home meals.

In a research conducted by the National Restaurant Association (1999) in the USA and the Centre for Hospitality and Tourism Research (CHTR) at Victoria University in Australia, the issue of competition was identified as just one of the challenges which the restaurant sector will be facing between 2001 and 2010. The National Restaurant Association (1999) predicted that ‘the restaurant industry will experience intense competition’ from 2001 to 2010 and, for success, restaurant operations ‘will have to provide the highest levels of service and quality food’.

In Australia casual dining is increasing with restaurants and cafes serving a lighter style of food more suited to grazing and snacking. Simultaneously an increase in the number of new entrants to the sector has occurred leading to more intense competition. Much of the competition is price based and, together with rising costs, especially fixed overhead costs, the sector will be forced to emphasize non-price competition and seek ways of controlling costs while still achieving high standards of food and service quality.

The role of technology in restaurants has also been recognized in the USA, Australia, and elsewhere, providing opportunities for greater management efficiency and control of costs. More restaurants will have websites and consumers will increasingly use the internet for obtaining information about restaurants and making bookings. It is expected that as ‘Point of Sale’ technology becomes faster and more accurate, efficiency will be improved and costs cut (Bob, 2003).

Although there are indications of price based competition within this industry, restaurants also compete on the basis of location, food quality, style and presentation, food range and variety, ambience, hospitality and service in all other regards.

Restaurants are involved in marketing the “meal experience” and, therefore, it is important that the owner-operator understands the positioning of the restaurant in the marketplace, the clientele they are attracting, or wanting to attract, and the meal experience. Most importantly, the restaurant must consistently deliver on the customers’ product expectations. Cost advantage strategies such as; economies of scale, low-cost inputs, and low overhead would be important in competing and delivering customers’ product expectations.

Consumer trends

Consumer trends in the USA include the return of the focus on the home and family, with eating out providing a chance for break from business and the stresses of daily life and for family gatherings, eating out was seen as convenient and providing new experiences and leisure activity. Furthermore, in the USA restaurant consumers are seeking value for money and also are becoming increasingly knowledgeable and discerning about food (Bob, 2003).

In addition, the menu trends are changing; seven out of 10 consumers say they are trying to eat healthier when dining out now than they did two years ago. This trend is mirrored by restaurant operators, as two-thirds say their guests order more healthful items and pay more attention to the nutritional content of food than two years ago ( National Restaurant Association’s 2011).

Eating patterns change as people pass through the family life cycle. In households of young ‘singles’ and where women undertake paid work more convenience and ready-prepared foods are used. More food is eaten ‘on the move’ or ‘at the desk’ with popularity of hand-held foods increasing. As a result of irregular work patterns and busy lifestyles, eating at traditional meal times is declining as people eat more snacks at different times in the day. Furthermore, younger households spend more per week than older households on fast food and café meals, with children increasingly influencing family spending on food.

As consumers pattern of eating changes so also will the competition in the industry change. Meaning the competition in the industry may be shifting from price based to menu based healthy menu) or better still both, as consumers are increasingly paying more attention to what they eat.

This increasing consumer knowledge of their health will increase the intensity of competition in the industry as more consumers will prefer cooking at home (the return of home and family life) to control what they eat and maintain a healthy life style. Meaning, eating out will only be seen as a form of leisure (especially couples with kids); as a consequence, a drop in industry sales and profitability.

In the other hand, the increase of women in the work force, will mean an increase in restaurants patronage (especially single and young couples without kids), as they will prefer to rest during their free periods and also an increase in demand for healthy food as more women get educated.

This will change the industry competition as firms (restaurants) will be competing not just on price but also on healthy meals and services to sustain consumers continuous patronage. One of the ways of winning consumers continuous patronage is by including the ingredients for each meal in their menu list. In this way, consumers will have an insight of what they are eating and as a result consumers’ health safety and confidence will be assured, leading to increase in industry sales and profitability.

Supplier trends

Suppliers to the restaurant industry are also operating in a generally very competitive situation. Supplier bargaining power is often low owing to the existence of a wide range of alternative suppliers to which the restaurant operator is able to turn if dissatisfied. Since the suppliers are in such a competitive environment they will strive to keep costs, and hence prices, down (Alison, Mike,& Claire, 1999).

For instance, there are several principal ingredients in a US burger chain’s products- meat, buns (which contains wheat and sugar). Some of the industry’s suppliers are substantial firms in their own right. Golden State Foods started supplying McDonald’s in the 1950s. it is now the largest supplier of liquid food products and the third-largest beef supplier to McDonald’s. Another major supplier to the industry is Heinz, a giant multinational corporation in its own right, whose strenuous efforts to win a share of McDanold’s supplies has included frequent visits by one of its senior executives to the company’s restaurants to observe customer behavior. This is an indication that, although there are few substitutes for a burger chain’s inputs, there are many suppliers, and individual supplier power is low (Adrian & Alison, 2008).

However, environmental factors serve to moderate restaurant’s negotiating power. In 2004, wholesale prices of chickens, beef, and ‘virtually every major protein, vegetable and grain on which restaurateurs depend’ increased by up to 27 percent, “forcing restaurants to increase their own prices and loss sales. These were the result of a combination of circumstances: hurricanes in Florida, leading to the near extinction of cherry tomatoes, a long-standing drought in the West, discovery of the USA’s first case of BSE, a ban on Canadian beef imports, and high transport costs as a result of increasing oil prices.” And because of the criticality of maintaining quality, many of the restaurants put considerable effort into ensuring that they maintain good relationships with the best suppliers, for example those who can assure traceability of beef cattle (Adrian & Alison, 2008).

The trend in the supplier side of the industry shows an intense competition among suppliers giving restaurants operators’ advantage over suppliers. This intense competition among suppliers is as a result of the availability of raw materials (inputs) for food (in the absence of natural disaster).

Meaning, restaurant operators can meet up with the increasing demand of consumers on healthy and quality food by setting up quality standards on their suppliers, so that only those suppliers who meet these standards can supply. The competition among suppliers will also drive down restaurant variable cost to a measurable extend, as suppliers will be willing to give more incentives to restaurant operators to gain more suppliers.

Restaurant operators could also gain a reduction in variable costs through good inventory management and flexibility in operations, as they could be receiving supplies every day to reduce damages and spoilage, reduction in operating cost, and increase in quality of food as raw materials would be received freshly.

All these will make it easier for restaurants to compete on price and still maintain high quality and healthy food that will attract more consumer’s patronage and increase industry sales and profitability.

Substitution trends

Restaurant industry is facing threats from substitutes such as home meals, convenience stores, hotels, etc. the effect of these substitutes are a limit placed on price increases and hence profitability (David & Brian, 2001)

Supermarkets and convenience stores are recent competitors (substitute) for restaurants. These businesses offer customers food that is freshly prepared and ready to go. The primary concern of the customer who visits these establishments is convenience, so supermarkets and convenience stores offer serious competition as substitutes for restaurants that also compete on the basis of convenience and value.

Restaurants perform a task that consumers could otherwise handle themselves. Some consumers perceive dining out as something to do only on special occasions (Jacquelyn, 2009).

This implies that, the price consumers will be willing to pay per meal will not only depends on the price for the meal, but also on the price of close substitutes, the healthiness of the meal, the level of services offered, and the environment in which a restaurant is located.

Meaning, consumers can switch to substitutes in response to price increases per meal (because demand is elastic with respect to price), also lower level of service, and location could make consumers switch to close substitutes. Because these close substitutes are offering the same services, quality, convenience, and sometimes closer to consumers as well, consumers will not find it difficult to switch.

These will affect to a greater extent, the way restaurants operate and compete as well, causing a reduction in industry sales and profitability.

Restaurants must stress how eating out can save customers the time and trouble of cooking and how customers can relax while they eat and not worry about cleaning-up afterwards.

Threat of new entrants

A threat appears when entry and exit costs to an industry are low and the technology needed to start and maintain a business is commonly available. In the restaurant industry, competition is fierce because entry costs are low. For instance, a small restaurant is threatened by new competitors. Owners of small restaurants do not require millions of dollars to start the business, food costs do not decline substantially for large volumes, and food processing and preparation equipment is easily available. When the threat of new entrants is high, the desire to seek and maintain competitive advantage to dissuade new entrants is also usually high. Therefore, a small restaurant that enters the market can be a threat to existing restaurants (Ralph, George, & George, 2009).

Restaurant industry’s barriers are low, given that an operator can lease premises and equipment, furniture and fittings, which lowers the initial capital costs, outlays and borrowings.

Operators can also enter the industry via a franchise agreement, which includes fit out and equipment, as well as training and systems being in place. Given the usual high owner/operator revenue in this industry, it may also be possible to enter through purchase of an existing business or a closed restaurant operation. Meaning an increase intensity of competition and a drop in profit. Non-price product differentiators like quality and healthy food, excellent customer service, brand name, location, etc. Will be very important strategy focus for firms competitive advantage.

Concluion

The restaurant sector is currently facing a number of significant challenges. The greatest of these is the intensity of competition. While small businesses dominate, they do not attract a proportionate amount of the restaurant sector’s total revenue. Multiunit operations, whether chains or franchises, are becoming increasingly significant. Rising costs for the sector are leading to greater emphasis on increasing efficiency and on the design of effective operational systems. Economies of scale provide significant advantages for larger operations, although smaller operations can still benefit from advances in technology by the introduction of computerized management systems and use of modern multipurpose equipment.

The growth of casual dining has led to a decline in the number of fine dining restaurants and an increase in quick-service and midscale restaurants. This has been mainly because of the increased pace of life, more women in the paid workforce and people working longer hours. The result is that, over the past two decades, the restaurant sector has changed to accommodate the grazing and snacking consumer who leaves a busy life style and is short of time. However, despite this, the consumer is becoming more discerning and, though looking for value for money, expect to receive a quality product. These trends are expected to continue with little change in the intensity of competition. If there is further slowdown in the economies of the world, the consumer’s discretionary spending is likely to decrease and this will have an adverse effect on growth of the restaurant sector.

References

Alison, J. M., Rimmington, M. and Williams, C. (1999). Entrepreneurship in the hospitality, tourism and leisure industries. UK: Butterworth-Heinemann

Brotherton, B. (2003). The international hospitality industry: structure, characteristics and issues. UK: Butterworth-Heinemann

Christine M. Piotrowski, Elizabeth A. Rogers (2007). Designing commercial interiors. USA: Wiley

David, A.andWolfe, B. (2001). New economy-new competition: the rise of the consumer? USA: Palgrave Macmillan

Douglas, R. B. (2003). The restaurant manager’s handbook: how to set up, operate, and manage a financially successful food service operation, (3^rd ed.). USA: Atlantic Publishing Company

Haberberg, A. and Rieple, A. (2008). Strategic Management: Theory and Application. UK: Oxford University Press

Jacquelyn, L. (2009). Start your own restaurant business and more: pizzeria, coffeehouse deli, bakery, catering business. USA: Entrepreneur Press

National Restaurant Association’s 2011. http ://www .restaurant .org /research /forecast / accessed on 27/4/2011

Ralph, M. S., Reynolds, G., and George, W. R. (2009). Principles of information systems (10^th ed.). USA: Cengage Learning

Roy S. A. (2007). The upstart guide to owning and managing a restaurant, (2^nd ed.). USA: Kaplan Publishing

Roman, Z. (2010). Kitchen too crowded: Players consolidate or close as consumers spend less in restaurant. IBISWorld Industry Report 72211

Corporate governance theories and issues

2011-10-13T00:40:00.000-07:00

Introduction 

The term ‘Corporate Governance’ was at one time a term used to indicate a slightly touchy-feely set of considerations which were often regarded as optional: being indicative of such loose ideas as ‘best practice’, and other phrases open to multiple interpretations. Since those days, the term has evolved to become much more embedded in corporate consciousness (Catherine, 2009). 

Corporate governance as a term has no universally accepted meaning, different corporations and scholars defined it in their own views and according to its usage. However, OECD (1999) describes it “as a range of issues relating to the ways in which organizations or companies may be directed and controlled”. Ensuring proper accountability, probity and openness as a core business of corporate governance in an organizations’ business conduct has variety of differing systems and processes of realization. 

The beginning of the 21st century witnessed a series of corporate demise arising from managerial fraud, misconduct, and negligence caused a massive loss of shareholder wealth and confidence, as a result, the issue of corporate governance became clearly important. According to Kent & Ronald (2010) “in the 21st century, corporate governance has become critical for all medium and large organizations, those without a governance strategy face significant risks; those with one perform measurably better”.

 The growth of modern ideas of

corporate governance from the USA

The seeds of modern ideas of corporate governance were probably sworn by the Watergate scandal during the Nixon presidency in the US. Subsequent investigations on the scandal revealed that the regulators and legislative bodies failed to control and stop several major corporations from making illegal political contributions and bribing government officials. As a consequence, the Foreign and Corrupt Practices Act of USA 1977 was enacted which made provision for the maintenance and review of systems of internal control in corporations.

A mandatory financial reporting of corporations was also introduced by Securities and Exchange Commission in the same year. The collapse of high profile business such as Savings and loan, and others rock the US in 1985. The government appointed the Treadway Commission to identify the main causes of misrepresentation in financial reports and also to recommend better ways of reducing such occurrences. In 1987 the Commission identified the need for a proper environmental control, independent audit committees and an objective Internal Audit System.  The Commission highlighted the need for effective internal organization control by publishing their reports and also advised the sponsoring organizations to develop an integrated set of internal control criteria to enable corporations improve their control mechanisms. As a result, the Committee of Sponsoring Organizations (COSO) was established, and in 1992 COSO specified a control framework for the functioning of corporations properly.

Corporate governance in England

In the late 1980s and early 1990s, the UK experienced series of corporate scams and collapses of business organizations which worried banks and investors about their investments and led the UK government to realize the ineffectiveness of their existing legislation and self-regulation. Famous corporations which witnessed spectacular growth during boom time became disastrous failures later due to poor management and lack of effective control. Such firms are; Polly Peck, Bank of Credit and Commerce International (BCCI), British & Commonwealth and Robert Maxwell’s Mirror Group International collapsed like a pack of cards. 

 The Cadbury Committee

When it was realized in England that the existing rules and regulations were not adequate to curb unlawful and unfair practices of corporate so as to protect the unwary investors, it was thought necessary to look at the issues involved afresh and look for remedial measures. It was with this view a committee under the chairmanship of Sir Adrian Cadbury was appointed by the London Stock Exchange in 1991.

The Cadbury Committee was assigned the duty of drafting a code of practices to help corporations in England defining and applying internal controls to minimize their exposure to financial losses in which ever ways it came. The Committee consisted of representatives drawn from the high levels of authority of British industry.

The main aim of the committee was “ to assist in raising the standards of corporate governance and the level of confidence in financial reporting and auditing by setting out clearly respective responsibilities of those involved and what it is believe is expected of them”. The Committee in their pioneering recommendation effort investigated extensively the accountability of the board of directors to shareholders and to the society. In 1992 December, the Committee submitted their report along with the “Code of Best Practices”. The report was globally well received and the committee explained the methods of governance needed to achieve a balance between the essential powers of the board of directors and their proper accountability. The recommendations were not mandatory in character though, but listed companies on the London Stock Exchange were charged to state clearly in their accounts, whether or not the code has been followed by them, and if not complied with, were advised to give their reasons for non-compliance. “The Cadbury Code of Best Practices had recommendations which were in the nature of guidelines relating to the board of directors, non-executive directors and those on reporting and control” (Fernando, 2009).

The aftermath of Cadbury Report

The recommendations of the Cadbury Committee’s Report contained in the Code of Best Practices surprised the corporate world in Britain and elsewhere. ”Its most revolutionary recommendations reverberated several transformational changes that were to be incorporated in the corporate sector everywhere and its ramifications vibrated not only in the advanced countries of the West, but also could be heard in emerging and transition economies like those of Russia, India and those in South East Asia” (Fernando, 2009).

The Cadbury’s recommendations most controversial issue was the requirement that ‘directors should report on the effectiveness of a company’s system of internal control”. This was the extension of control beyond the financial matters that caused the controversy.

Five years later of the Cadbury Report, investors’ confidence in England was again threatened by further scandals in corporations. As a consequence, a “Committee on Corporate Governance” was constituted chaired by Ron Hampel with a view to keep up the momentum by assessing the impact of Cadbury Report and developing further guidelines. In 1998 Hampel Committee submitted a report that contained some important and progressive guidelines, more especially the extension of directors’ responsibilities to “all relevant control objectives including business risk assessment and minimizing the risk of fraud”. Earlier in 1995, another Committee chaired by Greenbury submitted its Report which addressed the issue of directors’ remuneration. A mixture of all these codes known as the Combined Code was subsequently derived. This Combined Code is added to the listing rules of the London Stock Exchange and its compliance is mandatory for all listed companies in the UK.

Revival of corporate governance

issues in the new millennium 

In early 200, the US stock market began to experience a decline, and a number of highly rated companies in the US started to collapse. Of them all was the dramatic collapse of Enron. Serious problems were also reported at WorldCom, Adelphia, Global Crossing, Dynegy, Sunbeam, and Tyco. This resulted to anguished complaints of corruption, fraud, deception, insider trading and self-dealing at famous corporations, which few months ago looked invincible and also infallible. Between the period 2000 and 2002, fraud in corporations in the US were of high magnitude and inflicted such damages on investors’ the company reputations were irreparably destroyed and investors’ confidence dipped to a new low. Severe and widespread impacts of declining stock prices and erosion of billions of dollars of investors were witnessed. As a consequence, Congress, the Securities and Exchange Commission (SEC), and the State Attorney General in New York started investigations. All these enquiries and the conclusions put their teeth in a comprehensive Act. The Sarbanes-Oxley Act (SOA) was enacted into law on 30 July 2002 (A.C. Fernando 2009).

Theories of corporate governance

There are different theoretical frameworks developed to explain and analyze corporate governance. Different terminology has been used by each of these frameworks in approaching corporate governance in a slightly different ways, and view corporate governance from a different perspective, arising from different disciplines (e.g. the agency theory paradigm arises from the fields of finance and economics, whereas transaction cost theory arises from economics and organizational theory). While frameworks like stakeholder theory, arises from a more social-orientated perspective on corporate governance. Although there are marked differences between the various theoretical frameworks, as they each attempt to analyze the same problems but from different perspectives, they do share significant commonalities. Furthermore, the frameworks overlap theoretically. This work will focus on two of these theoretical frameworks.

Agency theory

The occasional controversy between the separation of ownership and control and the managerial revolution remain subjects of interest, not much of the steam left the debate with the long period of post Second World War expansion of the Western economies, the sustained increase in international trade and the unchecked growth of the multinational corporations. The neoclassical economics neglected the economic analysis of the productive sphere of the economy in their attempt to develop a theory of resource allocation based on market exchange. A number of later schools of economic thought broke further from the economic ideal of neoclassical economics than the market imperfections approach, and attempted explanations for economic governance based on a new understanding of economic activity and resource allocation. In the last decade of the 20th century, agency theory became the dominant force amongst the new economic theory of the firm in the theoretical understanding of corporate governance. Agency theory emerged from the seminal papers of Alchian and Demsetz (1972) and Jensen and Meckling (1976) explaining the firm as a nexus of contracts among individual factors of production (Thomas Clarke, 2004).

Agency costs are the fundamental theoretical basis of corporate governance. Shareholders are owners of any joint stock, limited liability Company, and are the principals of the same. The principals define the objectives of a company by virtue of their ownership. Agents are the management directly or indirectly selected by shareholders to pursue their corporate objectives. While the principals generally assumes that the agents would invariably carry out their objectives, it is often not so. In many instances, the objectives of managers are at variance from those of the shareholders. For example, a CEO may use the company’s funds to finance an unrelated diversification to increase his managerial empire and personal stature which could reduce long term shareholder value. The shareholders and other stakeholders of the company may not be able to counteract this because of inadequate disclosure about such a decision and because the principals may be too scattered or even not motivated enough to effectively block such a move. Such mismatch of objectives is called the agency problem; the cost inflicted by such dissonance is the agency cost. The core of corporate governance is designing and putting in place disclosures, monitoring, “oversight” and corrective systems that can align the objectives of the two sets of players as closely as possible and, hence, minimize agency costs.

Agency theory main thrust runs like this. In the modern corporation, in which share ownership is widely held, managerial actions depart from those required to maximize shareholder returns. In agency theory terms, the owners are principals and the managers are agents and there is an agency loss which is the extent to which returns to the residual claimants, the owners, and fall below what they would be if the principals, the owners themselves, exercised direct control of the corporation. Agency theory specifies mechanisms which reduces agency loss. These include incentive schemes for managers which reward them financially for maximizing shareholder’s interests. Such schemes typically include plans whereby senior executives obtain shares, perhaps at a reduced price, thus aligning financial interests of executives with those of shareholders. Other similar schemes tie executive compensation and levels of benefits to shareholders, returns and have part of executive compensation deferred to the future to reward long-run value maximization of the corporation and deter short-run executive action which harms corporate value. 

Problems with the Agency Theory

Total control of management is neither feasible nor required under this theory.

The underlying assumption in the trade-off that shareholders make on employing agents is that they must accept a certain level of self-interested behaviors in delegating responsibility to others. The objective of agency theory is to check the abuse in this trade-off, but its limited success raises the question of its utility as a theoretical model to promote corporate governance. Besides, in agency theory the assumption is with the complexities of invest-board relationship in large organizations, shareholders should correct and adequate information to wield effective control.

Equity investors rarely get these and besides they rarely make clear their exact target returns, and yet delegate authority to meet the target. It is also to be understood that in terms of controls, equity investor hardly have sanctions over boards. Instead, they have to rely on self-regulation to ensure that an orderly house is maintained.

There are two broad mechanisms that help reduce agency costs and hence, improve corporate performance through better governance (Fernando, 2009). These are:

1.       Fair and accurate financial disclosures: financial and non-financial disclosures, which relate to the role of the independent, statutory auditor\s appoint by shareholders to audit a company’s account and present a “true and fair” view of the financial health of the corporation. Indeed, the quality and independence of statutory auditors are fundamental to achieve the purpose. While it is the job of the management to prepare the accounts, it is the responsibility of the statutory auditors to scrutinize such accounts, raise queries and objections (if the need arises), arrive at a true and fair view of the financial position of the company, and report their independent findings to the board of directors and through them, to the shareholders and investors of the company.

A company that discloses nothing can do anything. Improving the quality of financial and non-financial disclosures not only ensures corporate transparency among a wide group of investors, analysts and the informed intelligentsia, but also persuades companies to minimize value destroying deviant behavior. This is precisely why law insists that companies prepare their audited annual accounts, and these being provided to all shareholders and is deposited with the Registrar of companies. This is also why a good deal of effort in global corporate governance reform has been directed to improving the quality and frequency of disclosures (Fernando, 2009).

2. Efficient and independent board of directors: a joint-stock company is owned by the shareholders, who appoint directors to supervise management and ensure that it does all that is necessary by legal and ethical means to make the business grow and maximize long-term corporate value. Directors are fiduciaries of the shareholders, not of the management. They are accountable only to the shareholders. “Independence” has of late become a critical issue in determining the composition of any board (Fernando, 2009).

 Stakeholder theory

Since 1970s the stakeholder theory has developed gradually. One of the first expositions of stakeholder theory, couched in the management discipline, was presented by Freeman (1984), who proposed a general theory of the firm, incorporating accountability to a broad range of stakeholders. There has been an abundance of writing based on stakeholder theory since then, across a wide array of disciplines. Increasing attention has been received on the role of companies in society over time, with their impact on employees, the environment, local communities, as well as their shareholders, becoming the focus of debate.  Social and environmental lobby groups have gathered information on business activities and have targeted companies that have treated their stakeholders in an unethical manner. 

According to Wheeler et al. (2002) in Jill, (2007) Stakeholder theory may be viewed as a conceptual cocktail, concocted from a variety of disciplines and producing a blend of appealing sociological and organizational flavors. Indeed, stakeholder ‘theory’ is less of a formal unified theory and more of a broad research tradition, incorporating philosophy, ethics, political theory, economics, law and organizational social science. Stakeholder theory basis is that companies are so large and have a pervasive impact on society; as a result they should discharge accountability to many more sectors of society other than their shareholders. Stakeholder theory and stakeholders can be defined in many ways, depending on the perspective user’s discipline. According to Hill and Jones, (1992), ‘one commonality characterizing all definitions of stakeholders is to acknowledge their involvement in an ‘exchange’ relationship. Stakeholders are affected by companies and also companies are affected by stakeholders in some way. Stakeholders include shareholders, customers, suppliers, employees, communities, creditors and the general public. The most proponents of stakeholder theory suggest that the environment, animal species and future generations should be included as stakeholders. March and Simon, (1958), in Jill, (2007) described “the stakeholder relationship as one of exchange where the stakeholder groups supply companies with ‘contributions’ and expect their own interests to be satisfied via ‘inducement’”. The general public may be viewed as corporate stakeholders using this framework because they are taxpayers, thereby providing companies with a national infrastructure in which to operate. As a result, they expect companies as ‘corporate citizens’ to enhance, not degrade their quality of life in exchange. Every stakeholder indeed, represents part of the nexus of implicit and explicit contracts that constitutes a company. However, many writers refer to stakeholders’ simply as those who have a legitimate stake in the company, in the broadest sense.

The idea of corporate social responsibility is linked to stakeholder theory. In the current political and social climate, this is becoming a major issue for companies. Environmental lobby and social groups are actively encouraging companies to improve their attitudes toward stakeholders and act in a socially responsible manner. According to Jill, (2007) one motivation for encouraging corporate social responsibility derives from a belief that companies have a purely moral responsibility to act in an ethical manner. This pure ethics view assumes that companies should behave in a socially responsible way, satisfying the interests of all stakeholders, because this is ‘good’.

Similarities between agency and stakeholder theories

●      Both theories are derived from perspectives on organizational phenomena.

●      Both theories tends to increase or maximize shareholder value (i.e. shareholder is also a stakeholder).

●      The principal-agent relationships are a subset of the more general class of stakeholder-agent relationships.

●      Company managers are both agents and stakeholders

●      Both theories influence each other.

●      Both theories cannot differentiated practically

 Differences between agency and

stakeholder theories

●      Agency theory paradigm arises from the fields of finance and economics, whereas stakeholder theory arises from a more social-orientated perspective on corporate governance.

●      Agency theory views the organization from the shareholder perspective whereas stakeholder theory views the organization from a more general and broad public or society perspective.

●      The moral discourse of agency theory is based on self-interest whereas stakeholder theory is based duty and social responsibility.

●      Agency theory definition is simplistic whereas stakeholder theory definition is infinite as is difficult to identify who are stakeholders.

Why is good corporate governance important

The growing importance of corporate governance has been proven to produce direct economic benefits to organizations. In December 2004, a study conducted at Georgia State University found that public companies with independent boards of directors have higher returns on equity, higher profit margins, larger dividend yields, and larger stock repurchases. This study was consistent with another study of 250 companies by the MIT Sloan School of Management which concluded that, on average, businesses with superior information technology (IT) governance practices generate 25 percent greater profits than firms with poor governance, given the same strategic objectives.

In another study carried out by Mckinsey and Company (2000) found that global investors were willing to pay a significant premium for companies which are well-governed. This was a salient finding as it indicates that the institutional investment community attaches a value to corporate governance and that corporate governance factors are therefore decision-useful. Furthermore, a study conducted by Harvard found that the best governed S&P 500 companies outperformed the worst governed by 8.5% per annum between 1990 and 1999. Further, research by Deutsche Bank Securities found that investment in the FTSE 100’s best governed companies would have produced 35% than investment in the worst governed over a three year period (Jill, 2007). 

Organizations with good corporate governance are in a better position to prevent corporate scandals, fraud, and potential civil and criminal liability of the organization. It is also good business. Image of good corporate governance increases the general opinion of the organization and makes it more interesting to investors, suppliers, customers, and, contributors in the case of nonprofit organizations.

Yes all companies should be treated

the same when it comes to good corporate governance 

Although the Sarbanes-Oxley Act of 2002 applies almost exclusively to publicly held companies, the corporate scandals that gave rise to that legislation have increased pressure on all organizations (including family-owned businesses and not-for-profit organizations) to have better corporate governance. Private and not-for-profit organizations may feel pressure from lenders, insurance underwriters, regulators, venture capitalists, vendors, customers, and contributors to be Sarbanes-Oxley compliant. In addition, some courts and state legislatures may by analogy apply the enhanced corporate governance practices developed under Sarbanes-Oxley to private and not-for-profit organizations. Finally, a few provisions of Sarbanes-Oxley do affect private and not-for-profit organizations, such as the provisions relating to criminal liability for document destruction and for retaliation against whistleblowers.

Nonprofit organizations are not immune from scandal. Even before there was an Enron, there was the scandalous bankruptcy of AHERF (the Allegheny Health, Education and Research Foundation), a nonprofit organization. The scandals involving The Nature Conservancy, the United Way of the National Capital Area, and PipeVine, Inc., attest to the need for not-for-profit organizations to have at least the perception of good corporate governance. On August 16, 2005, it was reported in The Wall Street Journal that Cornell University Medical School agreed to pay $4.4 million in connection with fraudulent U.S. Government claims that allegedly occurred as a result of Cornell's failure to pay attention to a whistleblower who was a member of the Cornell faculty.

Private companies that intend to seek capital from financial institutions and institutional investors should also be sensitive to their corporate governance image, since this image is an important factor in the ultimate decision to provide capital to the organization. Family-owned private companies benefit from good corporate governance by avoiding the devastating effects of sibling rivalry and expensive litigation between family members who have different views concerning the business (Frederick & Keith, 2006).

 Regulations compelling companies to adopt good governance

practices

Government regulations are specifically intended to prevent shareholders losses (investors) and the general economy, by requiring corporations to modify their practices and comply with good practices. In order to compel businesses to comply with regulatory requirements, governments or regulatory bodies tend to impose penalties for non-compliance (i.e. fines and other sanctions). To have their intended effect (i.e. compelling businesses to adopt modifications in their practices or good corporate governance), those penalties tend to exceed both the compensation potentially due and owing in the future by business on the basis of the harmful business practice; and the cost of making the required modification (Brian, 2006).

However, in most developing and transition economies, corporate governance practices are not consistently and evenly enforced by law and regulatory bodies. In reality, however, such practices as self-dealing and insider trading are widespread. Such offenses mostly go unpunished, even if stiff penalties apply in theory (Organization for Economic Co-operation and Development (OECD), 2006). 

Other options

 Investor Activism 

Institutional shareholder organizations have also emerged to provide guidance and give a voice to shareholders concerns.

 One such organization is the Pensions & Investment Research Consultants Ltd. (PIRC), which was set up by public sector pension funds in the mid-1980s. The PIRC examines a corporation’s compliance with its own set of governance principles, and then invites management to discuss its conclusions. After completing this diligence process, the PIRC publishes a recommendation to shareholders with respect to the company as an investment. The inﬂuence of the PIRC is demonstrated by the fact that many companies have “quietly modiﬁed” their plans after a discussion with PIRC, rather than risk a negative recommendation. No matter what approach an investor organization takes, it is clear that groups of investors, once organized, will have a greater voice in inﬂuencing critical governance issues. Their capital and inﬂuence make investor organizations another institution capable of enforcing investor rights (Ira et al., 2005). 

The Media

 Finally, the impact of the media cannot be underestimated. Consider the power of public scrutiny – who would want to invest in a company which makes headlines because its majority shareholders sacriﬁce the interests of the minority shareholders for their own private gain? By bringing these stories to light, the ﬁnancial media in developing countries can play an important role in facilitating the enforcement and recognition of investor rights (Ira et al., 2005). 

Conclusion

Corporate governance has become a major issue in our increasingly global economy. To remain competitive in countries, attract capital, ensure sustainability, and combat corruption, companies need to put in place good governance institutions. As James Wolfensohn, former president of the World Bank, noted, “The governance of the corporation is now as important to the world economy as the government of countries.” At its most basic level, corporate governance sets up “rules of the game” to deal with issues related to separation of ownership and control.  Boards of directors, which reconcile the interests of owners, managers, and others stakeholders, are considered to be the key to the effective functioning of companies within a corporate governance framework.  In family owned firms, small and medium-sized enterprises or state-owned enterprises, these principles still apply, and should be adopted to enhance efficiency, minimize conflict, and ensure the transition of ownership from parent to heir. On a country level, corporate governance plays a more fundamental role in fostering good democratic governance and transparent business-state relations.

References 

Brian, L. N. (2006). Law and ethics in global business: how to integrate law and ethics into corporate

governance around the world. USA: McGraw Hill Professional

Catherine, T. (2009). Corporate governance: A practical guide for accountants. UK: Butherworth-Heinemann

Calder, A. (2008). Corporate governance: A practical guide to the legal frameworks and international codes of practice. UK: Kogan Page Publishers

Clarke, T. (2004). Theories of corporate governance: the philosophical foundations of corporate governance.

USA: Routledge.

Fernando, A. C (2009. Corporate Governance: Principles, Policies and Practices. India: Pearson Education India

Frederick, L. and Keith, L. (2006). Praise for Corporate Governance Best Practices. USA: John Wiley and Sons

Kent, H. B, and Anderson, R. (2010). Corporate governance: A synthesis of theory, research, and practice. USA: John Wiley and Sons

Organization for Economic Co-operation and Development (2004). Corporate Governance: A Survey of OECD Countries. France: OECD Publishing

Millstein, I. R., Bajpai, S. G., Berglöf, N. E. and Claessen, S. (2005). Enforcement and Corporate Governance: Three Views. USA: The World Bank

Solomon, J. (2007). Corporate governance and accountability (2nd ed.). UK: John Wiley and Sons

How each of the 4ps of marketing can add value to a product

2011-10-12T22:59:00.000-07:00

Introduction

Marketing according to kotler (2008) simply refers to managing profitable customer relationship. Marketing also refers to what an organisation must do to create and exchange value with customers (Silk 2006). While authors such as Horner and Swarbrooke (2005) sees marketing as the relationship between buyer and seller and the transactions involved in bringing this to a satisfactory level. Kotler (2003) also defined marketing as a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and values with others.

kotler (2008) said, many factors contributes to making a great strategy, dedicated employees, good information system, excellent implementation but however the success of an organisation despite having all the factors above, every successful organisation has one thing in common customer focused and commitment to marketing.

How each of the 4ps can add value to a product

Value- This is the difference between the perceived benefits a customer places on a product, and the actual cost of obtaining that product. Value is arguably the most important factor in today’s business world and as such every organisation craves to achieve it. The success of an organization depends on how much value it creates for its customers.

Customer value- this is the difference between the benefit the customer gains from owing and using a product and the cost of obtaining the product. For example, most of the students have chosen a ballarat degree because there is this perception that Australian degrees are better than the local ones and as such students are willing to pay more in other to get a more valued certificate.

Product description

This work is focusing on LG mobile in Malaysia, particularly LG Optimus 2x which was released on February 2011 as the first “Dual Core” mobile phone in the world. LG is a global company established in 1958 and since then, it has been known for its innovations in its industry.

LG 21^st century vision is to become a true global leader that can make customers happy throughout the world by means of its innovative digital products and services. It aimed at achieving a position as one of the top three electronics, information, and telecommunication firms in the world by 2010. As such, LG adopted the philosophy of “Great Company, Great People,” where only great people can create a great company, and pursuing two growth strategies involving “fast innovation” and “fast growth”. Likewise, LG seek to secure three core capabilities: product leadership, market leadership, and people-centered leadership. All these have guided LG to where they are presently in the world in its industry.

The researcher is a user of this LG mobile phone. Hence, the rationale behind this research is to broaden non-users knowledge of this mobile technology and point out values they could derive from using it.

Product:

Normally, when the word ‘product’ is mentioned, people quickly think of it as tangible products i.e. goods, which is referred to as physical, tangible products that can be owned, traded, and distributed to different places at different times without having to change their identity.

However, according to William and Ferrell (2010) defined a product “as a good, service, or an idea received in an exchange. That is, it can be tangible or intangible and includes functional, social, and psychological utilities or benefits”.

The product under consideration in this work is “LG Optimus 2x or LGp990 star or LGp990 Optimus speed” which is the first “Dual Core” mobile phone in the world.

How the product deliver value

The following are ways which this product (LG Optimus 2X) deliver value to customers;

1. This product provides value to customers through its “Dual Core” mobile technology feature. This feature provide value to customers as it makes Web page load time faster, lower consumption and higher performance per watt as task are shared among the two Core, higher quality game play experience for advanced console-style mobile games, highly responsive and smoother user interferences, and faster multitasking as a result of sharing load of work (applications) among the two processors.

2. This product provides value to customers through its HDMI Mirroring feature. Meaning, users can watch recorded or downloaded videos or movies in their mobile phone on a compatible TV (e.g. LCD TVs) by connecting their mobile phone to any LCD TV through their phone USB cord.

3. This product provides value to customers through its storage memory. With the phone internal memory of 8GB and supporting external memory up to 32GB, it means, users won’t bother themselves carrying pen-drive or external hard disk to store information in their offices, business meetings, school as students, etc. as the phone can comfortably store all their information.

4. This product provides value to customers through its camera and video features. With the phone 8MP camera and 1.3MP video, it means, users won’t have to inconvenience themselves carrying cameras, camcorders to their exhibitions, occasions, tours, etc. as they are sure this feature will provide them with the quality and quantity of pictures and videos they would need at anytime.

5. Also this product provides value to customers through its battery durability. With this phone battery meant to last up to 400h as stand-by, and 7h50min of talk time when fully charged. It means, users do not have to disturbed themselves carrying their battery charger to their offices or school as students as they would be sure the fully charged phone battery will serve them for the day.

Price

Price is the amount a buyer must give in exchange for a product or service. According to Richard (2008) “a product’s price helps position the product offering, communicate its tangible and intangible values, determine how and where it will be distributed, and even define its target markets. Price planning is invariably done in conjunction with product, place, and promotion planning”. Price suggests that a product is commonplace or that it is prestigious. It represents the product’s exchange value, i.e. its worth to the customer in terms of the money the customer is willing to pay for it.

The price of this product (LG Optimus 2X) in Malaysia defies with location.

How the price deliver value

The price provide value to customers because it is relatively cheap at a maximum price of RM1800 with its art of the world technology as outlined above, more especially when compared to other latest smart phones like iPhone, blackberry, Samsong Galaxy S2 etc. which cost higher.

At this price, both high and medium income earners, and even students can afford it and enjoy art of the world technological features of this phone.

In addition, the price of this product provide value to customers because consumers are becoming more informed, knowledgeable, and seeking superior value for their money. They are most interested in quality products at a lower price. A product of this quality with a low price as mentioned above will exceed customer’s expectations, as such; customers will be happy and willing to buy this product.

Place

This is concerned with making products or services available or accessible when and where customers want them. It is creating the means by which a product flows from producer to the customer. That is, deciding how many stores, specific wholesalers, retailers, and exact location in a particular geographic area where products will be displayed for customer easy accessibility.

Perry (2006) said “place in marketing means getting the right products into the right places at the right time”. The success of every product or service is highly determined by its strategic location.

This product (LG Optimus 2X) is strategically placed at every digital shopping malls within major cities of Malaysia. For example, it can be found in places like Sunway Pyramid, Mid-valley, Loyat, the Cove, KL sentral, KLCC.

How the place deliver value

Value is provided via place because prospective users can easily walk into any major shopping mall within the cities to buy the phone. The availability of this phone at various shopping malls means, prospective users don’t need to walk or travel miles before buying it, as a result saves them stress and time.

It also provides value to existing users because they can easily get parts of the phone and contact service people if the need arises at the nearest shopping mall.

The strategic locations of this product as mentioned above also provide value to customers because customer sometimes associates location to quality and as such, expect a lower price.

For example, selling this phone at the Malaysian night market (pasa-malam) will often be seen as low quality phone even if it has the same quality as the ones sold in the chopping malls. This is because consumers have this perceived belief that goods sold at places like (pasa-malam) are of low quality, as such expect them to be cheaper.

Promotion

Promotion is the process of informing, persuading, influencing, and reminding the customer’s purchase decision. The objective of promotion in marketing is to support, enhance, and supplement the other marketing mix.

According to Gitman and Mcdaniel (2008), the goal of promotion is to create awareness, get consumers to try new product or non-users to try existing product, providing information, keeping loyal customers, increasing the amount and frequency of use and identifying target customers.

How promotion delivers value

The sales promotion of Celcom Malaysia, provide value to customers because prospective users would want to use this golden opportunity to buy the latest mobile phone with art of the world technology at a price as low as mentioned above. That is, prospective users can buy this phone at a lower price contract via Celcom Malaysia.

Also, the advert above provides value because mobile phone users sometimes get tired of waiting for their mobile webpage to load. Mobile users seeing an advert of a mobile phone without a lag switching applications will be happy to own one, more especially at a promotional price as stated above.

Furthermore, personal promotion provide value to customers because some customers who want to buy a smart-phone without having a specific brand in mind could be made to buy LG optimus 2X by sales person(s) meeting them one-on-one. Customers hearing sales person(s) tell them of the phone and seeing a sample of it, will easily convinced them to like and buy the phone.

In addition, promoting this phone online in strategic websites like social network, youtube and email will provide value to customers because customers will get more information on the phone, as a result, buy it.

CONCLUSION

In today’s business world, marketing plays a very essential role towards the success of every company. It educates the organisation on the latest market trends, helps boost a company’s sales and profit, and develops company reputation. Therefore marketers must be creative and wise enough to promote their products with the proper marketing tactics.

Creating and maintaining a successful organization now faces many challenges, and as such it is very important for an organization to carefully choose its marketing strategies and properly implement them. In doing this the organisation must understand the most important aspect of marketing which is creating value for customers.

References

Armstrong, G., Kotler, P. (2008). Marketing: An introduction (9^th ed.). Australia: Pearson prentice Hall

Gitman, L. J., McDaniel, C. (2008). The Future of Business: The Essentials (4^th ed.). USA: Cengage Learning

Horner, S., Swarbrooke, J. (2005). Leisure marketing: a global perspective. UK: Elsevier Butterworth-Heinemann

Madura, J. (2006). Introduction to business (4^th ed.). USA: Cengage Learning

Perry, B. (2006). CIMA Study Systems: Organizational Management and Information Systems. USA: Butterworth-Heinemann

Sandhusen, R. L. (2008). Marketing (4^th ed.). USA: Barron's Educational Series

Silk, A. J. (2006), what is marketing? U.S.A: Harvard business press.

William, M. P., Ferrell, O. C (2010). Foundations of Marketing. USA: Cengage Learning

http://www.mobile88.com.my/cellphone/LG/LG-Optimus-2X/price.asp. Retrieved on 01/08/2011

http://www.techgravy.net/2011/04/celcom-malaysia-sell-lg-optimus-2x-with-rm878-300-customers-only.html. Retrieved on 01/08/2011

http://www.netmba.com/marketing/mix/. Retrieved on 03/08/2011

http://www.talkandroid.com/28482-lg-optimus-2x-gets-reviewed-with-hands-on/lg-optimus-2x-2/. Retrieved 01/08/2011

http://www.gsmarena.com/lg_optimus_2x-3598.php. Retrieved on 04/08/2011

http://www.youtube.com/watch?v=YwLoHxeqNUk. Retrieved on 07/08/2011

Industrial relations theoretical perspectives

2011-10-12T22:46:00.000-07:00

Introduction

The employment relationship is a key aspect of managing human resources because it brings together the rights, power, legitimacy and obligations that both employers and employees seek from each other. The traditional view of industrial relations was to associate it with the rules and procedures relating to employment. Under this period, trade unions were seen as protecting the interests of their members, whom they negotiated through collective bargaining to gain improved pay and conditions from employers.

This rather narrow and somewhat outdated view of the employment relationship fails to take account of the informal social relations that are now acknowledged as influencing the effectiveness of how people work within the organizations.

Moreover, it fails to account for the role of the individual in employment relation. For this reason, the term employee relations is now more commonly used, and it takes account of the motives, ideologies and perspectives of both the organization and its employees. Therefore, the effective management of employee relations is the prerequisite of positive psychological contracts and ensuring that employees feel involved in decision-making processes.

Unitarism perspective

The Unitarian perspective sees the business organization as a team integrated by shared values and interest, with senior management as the main basis of authority and center of loyalty. According to Nick (2010), unitarism represents the viewpoint that organizations are families or teams where management and workers share common objectives and in which conflict or dissent is deviant behavior. While Farnham and Pimlott (1995), view unitarism as that of workplace harmony arising from the fact that employees and employers are united in the achievement of common goals.

Organizations are seen as the natural unit of consideration within which objectives are aligned. Hence, organizations can be related to a family where, regardless of the different branches and functions that might exist, the family is of central and paramount concern for all members. According to Kelly (1998), conflict is something that signals a major breakdown in the normal and desirable state of affairs. This perspective therefore, suggests that conflict should be avoided if possible and eliminated if it arises.

This perspective according to John & Fellenz (2010), views conflict as emanating from members classed as deviant which should be dealt with severely as they endanger the overall harmony of the group. Because everyone supposedly has the same interests, managers with a unitary view expect employees to trust them to make correct decision, therefore, conflict should not arise between what is best for the company and what is best for employees.

Because of this integrative view of the workplace, management’s right to manage and make decisions is seen as rational, legitimate and acceptable to all (Salamon, 1987). Management decides the way work is organized and employees are expected to carry out the work as directed.

Weakness of unitarism

(1) This theory does not realize that there are power inequalities between employers and employees which will create different kinds of conflicts (Kessler & Purcell, 2003).

(2) Conflict is not seen as a force that reflects inequalities and which can be used as opportunities to regain work harmony rather conflict is negatively treated (Dzimbiri, 2008).

(3) Unitarism is normative and lacks description of how common interests can be identified and shared across organizations (Ackers & payne, 1998).

(4) It emerges in the context of the pre-industrial society and fails to comprehend the impact of technological, organizational and other changes characteristic of contemporary society (Teicher, Holland & Gough, 2006).

Pluralism perspective.

Pluralism has its philosophical origins in the Hobbesian view of man as a selfish being who will utilize any opportunity to dominate his fellows (Bendix, 2001).

It views the organization as being made up of powerful and divergent sub-groups - management and trade unions. Thus, it accepts conflict as inevitable and uncontainable through various institutional arrangements.

This theory believes that, since society comprises of a variety of individuals and social groups with each having their own social values and pursuing their own self-interests and objective, it is necessary that those controlling and managing workplace, similarly have to accommodate the differing values and competing interests within them. It is only by doing this that organizations can function effectively (Singh & Kumar, 2010).

It believed that none of these stakeholders (employers and employees) is dominant; as such there will be a point in time where balance between competing interests will be reach. This legitimates the right of any stakeholder to challenge management’s right to manage within a controlled structure that regulates these divergent views and interests. Therefore, Management’s role is to take account of these competing views and interests and attempt to settle them.

Weakness of pluralism

(1) Pluralism is inextricably linked to democracy but in reality, it is not democracy because there are no elections, opposition, and the government holds office permanently.

(2) It relies on negotiations and bargaining processes to overcome fundamental differences between management and labor, and when they cannot resolve it resort to the use of law.

(3) Its focus is upon a continuous description of the govern institutions of modern capitalist society, and thereby ignores the inbuilt biases and inequalities of power and control in modern structures (Teicher, Holland & Gough, 2006).

(4) It does not realize that the state also represents commercial interests and not just public interests (Kitay & Marchington, 1996).

(5) It dwells on the rules and procedures and disregards the processes that also contribute to the resolution of conflicts (Gennard & Judge, 2002).

Summarized differences between Unitary and Pluralist perspectives

	Unitary perspective	Pluralist perspective
General philosophy	Argues that despite differences and conflicts, interests of capital and labor are supposed to be harmonious and ordered.	Argues that organization is composed of individuals with a variety of differing and sometimes competing interest. Therefore, unions based on interests, objectives and leadership are allowed
Power dispersion	Concentration of power with management is seen as logical and rational	No concentration of power in one group. Therefore, consensus is negotiated
View of conflict	Conflicts are irrational and should not happened	Conflict is rational and inevitable due to differing interests from various groups
Attitude towards unions	Unions should be avoided or marginalized	Unions are legitimate representatives of employees

Neo-institutionalism perspective

The neo-institutionalists used the term institution in synonymous with firm or organization and argued that the tools of the neoclassical economist could be used to interpret the behavior of individuals in such institutions. They argue that institutional arrangements traditionally considered as alternatives to market are really complementary to the market and serve to make it more efficient (Hills,1995).

They believed that apparent non-market behavior may really be quite rational and complement the efficiency objectives of a system of market prices. In the view of this perspective, for instance, it may appear that the rationale behind employees unions is for the non-market function of raising wages above the prevailing market rate. But in actual fact, unions may also serve the interests of their members for certain types of services. The union may help to evaluate complex wage and benefit packages for its membership. The union may also serve as a means of communicating to management the complex needs and preferences of its members. In situations of this kind, the union acts as an agent whose services both management and labor may value. They argued that, the union is not so much a means for establishing reasonable value outside the marketplace as it is a market agent to be valued by its members because of the services it provides to employees and to management.

Furthermore, they argued that, unions can also serves the efficiency objectives of a market system if a lack of information obscures the range of rational choices of individuals and if market encourage opportunism. Protection against opportunism can be obtained through contracts, which is defined as transaction costs.

According to this perspective, structure of governance comes about through individual and rational market behavior. As such, individuals agree to a quite limited form of participation in the decisions of the firm in exchange for protection of the skills that they acquire over the long term. Employees feel that they are an important part of the production process, hence, act as good agents for the employer by efficiently performing the firm’s profit-making activities. As a result, these employees gain long-term job security.

In this case, employees have not gained their job security collectively, but rather, the employer has granted these benefits because the production process/ service that are provided require it. Therefore, the employer has voluntarily created a limited governance structure that helps employees feel involved. The structure of governance could be seen as a subtle form of control created by the employer to solve the agency problem.

Human Resource Management (HRM)

Human resource management (HRM) has two main forms of existence. One is the form of academic discourse and activity. This finds expression in conferences, journals, books, courses in business schools and so on. While the other is in the form of practice in organizations that employ people and hence have employment relationships. These two modes of existence at times intersect and trade-off on another. At other times they exist alternatively independently each fuelled by their own interests, priorities, prejudices and logics.

However, Armstrong (2008) defined HRM as a strategic and coherent approach to the management of an organization’s most valued assets, the people working there, who individually and collectively contribute to the achievement of its objectives. In another way, Boxall (2007) view HRM as the management of work and people towards desired ends. Meanwhile, Storey (2007) says that HRM can be regarded as a set of interrelated policies with an ideological and philosophical underpinning.

Storey (2007) went further to identify four aspects that constitute the meaningful version of HRM;

1. A particular beliefs and assumptions

2. A strategic thrust informing decisions about people management

3. The central involvement of line managers

4. Reliance upon a set of levers’ to shape the employment relationship.

HRM consists of two basic frameworks or models; the Matching model and the Harvard framework.

The Matching model school of thought believes that HR systems and the organizational structure should be managed in a way that is congruent with organizational strategy. While the Harvard framework school of thought believes that the problems of rhetorical personnel management can only be solved: “when general managers develop a viewpoint of how they wish to see employees involved in and developed by the enterprise and of what HRM policies and practices may achieve those goals. Without either a central philosophy or a strategic vision which can be provided only by general managers, HRM is likely to remain a set of independent activities, each guided by its own practice tradition.

Generally and characteristically, HRM is divided into two major parts; the Hard and Soft HRM.

Hard version of HRM

The Hard version of HRM emphasizes that people are important resources through which organizations achieve competitive advantage. Thus, these resources have to be acquired, developed and deployed in ways that will benefit the organization. The main focus is on the quantitative, calculative and business strategic aspects of managing human resources in as rational a way as for any economic factors.

According to this approach, the drive to adopt HRM is based on the business case of a need to respond to an external threat from increasing competition. It is a philosophy that appeals managements who are striving to increase competitive advantage and appreciate that to do this; they must invest in human resources as well as new technology.

Soft version of HRM

The soft version of HRM emphasizes communication, motivation and leadership, as such, it involves treating employees as valued assets, a source of competitive advantage through their commitment, adaptability and high quality (of skills, performance and so on). Hence, it sees employees as means rather than objects (Guest, 1999). The soft approach stresses the need to gain the commitment, the hearts and minds of employees through involvement, communications and other methods of developing a high commitment, high trust organization.

Summarized differences between Hard and Soft HRM

	Hard	Soft
Model	Utilitarian instrumentalism	Developmental humanism
Fit	External	Internal
View of HR	Factor of product and variable cost that needs to be measured and monitored to gain competitive advantage	Valued asset that must be retained and developed to gain competitive advantage
Management focus	Enhancement of competitive advantage via integration of HR policies, systems and activities with short term business strategy	Enhancement of competitive advantage via the treatment of employees as valued asset and through employee commitment, adaptability and quality
ER context	Increase efficiency and reduce labour costs, thus emphasis on cost reductions, monitoring, ourtsourcing and downsizing	Build employee commitment to organizational goals thus emphasis on commitment, development and trust

HRM view from either perspectives (unitarist and pluralist)

HRM has its foundation in two US based models as mentioned above. The Harvard model also defined as hard HRM and the Michigan model also defined as soft HRM.

The hard HRM has a unitary perspective that incorporated the concept of mutuality including mutual goals, influence, respect, rewards and responsibility which leads to employee commitment, resulting in better outcomes for employees and the organization. Therefore, discourages the formation of unions.

While the soft HRM has a pluralist perspective of employee relations that argues that organization and employees interests are opposed and what advantages the organization will disadvantage employees and vice versa. Hence, encourages the formation of unions.

However, HRM is often considered unitarist and associated with strong managerial prerogative. In view of this, Keenoy (1990) describes HRM as a wolf in sheep’s clothing. While Fowler (1987) further argues that employee involvement under HRM is actually involvement on the company’s terms, and is actually a subtle form of employee manipulation disguised as mutuality. Meaning the ineffectiveness of unions in organizations where HRM exist actively.

Conclusion

It is clear from the above work that HRM as a discipline does not just emerge as a discipline or a term on its own. But has its roots from other earlier approaches to the workplace. Though, the approaches of HRM and earlier approaches maybe slightly different but all has the same goals of making the workplace (i.e. employer and employee) achieve its primary objectives, irrespective of the employee relations perspective HRM is viewed from.

References

Ackers, P., Payne, J. (1998). British trade unions and social partnership: rhetoric, reality and strategy. International Journal of Human Resource Management 9, (3) 529-550

Armstrong, M. (2008). Strategic human resource management: A guide to action (4^th ed.). UK: Kogan Page Publishers.

Boxall, P., Purcell, J., and Write, P. (2007). Human resource management: scope, analysis and significance. Oxford: Oxford University Press.

Dzimbiri, L. B. (2008). Industrial relations in a developing society: the case of colonial, independent one-party and multiparty Malawi. Germany: Cuvillier Verlag

Farnham, D., Pimlott, J. (1995). Understanding industrial relations (5^th ed.). USA: Casell

Fowler, A. (1987). When chief executives discover HRM. Jounal of Personnel Management, Vol. 4, Iss: 2, pp. 3.

Gennard, J., Judge, G. (2002). Employee relations (3^rd ed.) UK; Institute of Personnel and Development

Guest, D. (1999). Human Resource Management: The Workers’ Verdict. Human Resource Management Journal, 9/3: 5-25

Hills, S. M. (1995). Employment relations and the social sciences. USA: University of Carolina Press

John, M., Fellenz, M. (2010). Organizational Behaviour & Management (4^th ed.). USA: Cengage Learning EMEA

Keenoy, T. (1990). HRM: A Case of the Wolf in Sheep’s Clothing?. Personnel Review, Vol. 19, Iss: 2, pp.3 - 9

Kelly, E. J. (1998). Rethinking industrial relations: mobilization, collectivism, and long waves. USA: Routledge

Kessler, I., Purcell, J. (2003). Individualism and collectivism in industrial relations: theory and practice. Oxford: Blackwell Publishing

Kitay, J., Marchington, M. (1996). A review and critique of workplace industrial relations typologies. Journal of Human Relations 49, (10) 1263-1290

Nick, W. (2010). An Introduction to Human Resource Management. USA: SAGE Publications Ltd.

Salamon, M. (1987). Industrial relations: theory and practice. USA: Prentice Hall International

Storey, J. (2007). Human resource management: a critical text (3th ed.). UK: Cengage Learning EMEA

Teicher, J., Holland, P., Gough, R. (2006). Employee relations management: Australia in a global context (2th ed.). Australia: Pearson Education