As laid out in my earlier post, there is an academic conversation going on about what is the right thing to do best-practice or best-fit. I have argued that both have their places and their positives and negatives. But how to think about it in the HR function specifically?
There are functions that are prone for best-practices – and these are functions that are highly regulated or live in a very stable and not changing context across organisations and geographies. These functions can most of the time just adopt a best-practice and will be successful with it. However, it won’t provide them any strategic advantage as other companies are using it as well – and it seems to be imitable.
When you think about the HR function though, there are two key differences to what I have stated above:
- The HR function does not have a stable environment. On one hand regulations, labor laws and unions require different practices in different geographies. But in addition, not one workforce is like the other. You have big differences in the workforce mix like demographics, geographies, blue vs. white collar, research vs. production orientation, etc.
- If you take HR seriously and if you take the resource-based view of the firm seriously (and there is no believe that we should not), HR and its practices are the key drivers and influencers of the workforce and all its attributes – and this is the key differentiator, the key competitive advantage. So why would you even think about adopting best practices and make your workforce more similar to the one of a different company? You would loose your competitive advantage. – of course you can argue that a poorly performing workforce does not have a competitive advantage and copying a competition’s practices will bring you into the same spot like them – but what do you really win by that? You are still always a step behind and won’t perform in close range.
This statement clearly makes the case for best-fit. However, best-fit is expensive and also makes mistakes as you are constantly trying something new – and you can’t always win. So does HR need to be that expensive? And does that really add value? – it does not. You have to go one level deeper and have to differentiate. The fact is that your workforce is the competitive advantage – not your HR organization as a whole. But your HR organization is the key driver of that competitive advantage – so how does that work together?
When we dissect HR in its parts, then it is a combination of people, organization, technology, process, and policy. Let’s leave the people out at this point and focus on the other four. Where does the core competitive driver sit and how does it drive the competitive advantage?
Policy is at the heart and centre of the HR practice – the policy says what is done and how its done. It truly defines the HR work and the core of it – and therefore is the core driver of the competitive advantage. You should stay away from best-practices in all people influencing areas (administration vs. talent). Use proven policies in the areas of payroll or workforce administration. You do not drive workforce effectiveness through these but just efficiency. However, if efficiency is your key advantage, don’t copy here.
Process is to be seen very similar like policy. However, the influence on the competitive advantage is much lower. Still, how you operate key talent processes like talent acquisition, performance management, succession planning or learning drives your competitive advantage. And if you focus on efficiency mainly, don’t underestimate the administrative processes of payroll and workforce administration. But usually these don’t bring much return.
Organisation brings policies, processes and people together. Organisation is basically the key example where a 50:50 cooperation between best-practices and best-fit are the best. There are proven organisational concepts out there that work in general for most companies as they are sufficiently holistic. However, the detailed application to your firm, the detailed design and implementation needs to follow your very own company context.
Technology – last but not least. Technology is the oiling machinery that brings it all into execution. If you are not a high-tech company that needs to be differentiated in that field to show your abilities, there is no reason for being different, for not going with best practices. Differentiation through technology is very expensive, can easily go into a dead-end and does rarely pay off. The influence of technology (as long as we talk about current technology) to the workforce is minimal. It is a pure enabler and needs to enable the policies and processes.
This is now my guide to best-practice vs. best-fit. As you can see, it should be differentiated and both best-practice and best-fit have its place and reason for being in HR. Let me know your thoughts on twitter, Linkedin or Facebook.
Chief HR Officer 