Evaluating strategic HRM practices on sustainable competitive advantage: An empirical exploration

Project Report on

“Evaluating Strategic HRM Practices on Sustainable Competitive Advantage: An Empirical Exploration”

United International University

Supervised By-

Dr. Abu Zafar Md. Rashed Osman Associate Professor

School Of Business and Economics United International University

Submitted By-

Samia Mahmuda ID- 111 153 028

Submission Date: July 6, 2021

Letter of Transmittal

July 6, 2021

Dr. Abu Zafar Md. Rashed Osman Associate Professor

School of Business and Economics United International University Dhaka, Bangladesh.

Subject: Submission of project report.

Dear Sir,

It is my pleasure to submit a thesis paper, as part of the Bachelor of Business Administration Program provision, to you for your kind appraisal. This report is prepared on “Evaluating Strategic HRM Practices on sustainable Competitive Advantage: An Empirical Exploration”

I have tried my best to make this report as instructive and reliable as possible by using the knowledge I've gained during my undergraduate life and furthermore, in the midst of my thesis time. While preparing this study, I have learned a variety of valuable lessons and techniques that will provide assistance in my future efforts. I have tried all the possible steps to complete the report. I hope that this report will fulfill the expectations.

Without your guidance and recommendations, I would not have been able to prepare this report in accordance with the required guidance. I'm grateful to have you as my thesis supervisor. I am very grateful to you for your kind support.

Sincerely Yours,

Samia Mahmuda ID- 111 153 028

Table of contents

Serial No.

Contents

^Page

Number

1 Acknowledgement 1

2 Executive Summary 2

3 Abstract 3

4 Introduction 3-4

5 Hypothesis and Literature Review 4-5

6 Underpinning Theory 5

7 Conceptual Model 6

8 Research Method 6-7

9 Results and Discussions 7-9

10 Implications 9

11 Limitations 9

12 Conclusion 9

13 References 10-13

14 Appendix

Questionnaire

14

Acknowledgement

I would like to express my deepest gratitude to my supervisor Dr. Abu Zafar Md. Rashed Osman sir for his deep patience, motivation and inspiration during the thesis works. I would also like to show my gratitude to all the faculties who taught me during the whole Bachelor of Business administration Program so that I am able to write a thesis paper.

I would like to show gratitude to all the participant of my survey. They were very much friendly and they were ready to provide information in this crucial time. I would like to show my gratitude to my friends, who helped me a lot through sharing the knowledge on the thesis topic.

At last, I am to be held responsible for any errors.

Executive Summary

Strategic human resource management (SHRM) gives a firm the ability to influence its performance with the management of its human resources as well as enables the firm to combine with other activities to make it a system rather than a single entity at a strategic level.

Whereas, competitive advantage is a position that make a company able to control over a business competition arena where the firm possess advantages which are not easily imitated and therefore, it makes it easy for the firm to sustain market as leadership position. The pathway to success for a firm to attain competitive advantage is the combination of resources and capabilities.

In an organization human resource practices must be applied effectively in order to achieve sustainable competitive advantage as it is the pathway to success of a business which provides a business the ability to have greater focus, more sales, better profit margins, and higher customer and staff retention than the competitors in the market. Therefore, there is an undeniable relationship between strategic human resource management (SHRM) and sustainable competitive advantages (SCA).

Resource based view (RBV) theory supports that strategic human resource management practices are anticipated as internal organizational resources and test their impact on sustainable competitive advantage. Therefore, banking services may gain capabilities such as, reasonably low price, high quality services, flexibility, fast delivery and shorter time for developing new product to market. In RBV, Strategic HRM practices are conceptualized as valuable internal resources, and their effect on sustainable competitive advantage analyzed using the conceptual framework.

In order to test the relationship between strategic human resource management and sustainable competitive advantage in Bangladesh 100 samples were taken from different banks through the questionnaire method data collection and the executives of the bank responded to it. The significance of the relationship of the variables within a banking system suggests that strategic HRM practices play a significant role to the achievement of sustainable competitive within a banking environment.

Evaluating Strategic HRM Practices on Sustainable Competitive Advantage:

An Empirical Exploration

Abstract

The prime objective of this study is to evaluate the influence of strategic human resource management practices on sustainable competitive advantage. To attain this objective, the study accumulated 100 samples from different banks and the respondents were the executives of the banks. Data collection approach was random sampling. The study revealed that strategic HRM practices statistically influencing sustainable competitive advantage. This finding will contribute tremendously for sustainable competitive advantage in banking sector if they follow this evidence of the study. The significant of this study is that it is a rare kind of empirical study especially in Bangladesh perspective.

Keywords: Strategic HRM and sustainable competitive advantage

1. Introduction

Competitive advantage is a position that enables a company to control over a business competition arena where the company possesses advantages which are not easily imitated by the competitors and thus it makes it easy for the company to sustain the market as leadership position. Corporate world has the opinion that when sustainable competitive advantage exists in the market, potential competitors will have difficulty duplicating it or the cost will substantially high to imitate (Dirisu et al., 2013). The key to competitive advantage is some competencies which are composition of resources and capabilities. Viewing the strategic outlook, these competencies can be functions, processes and routines in a corporation. Competence is a debatable issue and it is recognized using different perspectives. However, competence is central to the domains of both strategy and human resource management (Cardy & Salvarajan, 2006). In the dynamic and competitive business world, a sustainable competitive advantage is not limited to depend on the organization’s physical resources rather it mostly depends on the organization’s nonphysical human resources where the exchange of ideas is proficient. (Emeagwal &

Ogbonmwan, 2018; Ong & Ismail, 2008). O’Reily and Pfeffer (2000) addressed that knowledge

and intellectual capital (Saha & Gregar, 2012) is mandatory rather than physical capital in recent time. Thus, the study suggests that it is considered important now in the fast-moving business world for the people to be highly effective, dynamic and efficient in forming goods and services that are innovative.

2. Hypothesis and Literature Review

Strategic Human Resource Management and Sustainable Competitive Advantage

Strategic human resource management is connecting of human resources with strategic goals and objectives with the aim of refining business outcomes as well as creating organizational culture that promote organizational growth for instance; innovation, flexibility and competitive advantage. In organizational point of view, Strategic human resource management (SHRM) refers to the acceptance and involvement of the HR function as a strategic partner in the formulation and implementation of the company's strategies through HR activities; for instance, recruiting, selecting, training and rewarding personnel. (Rana Sinha, 2007).

Strategic human resource management makes enables an organization to influence its performance by carefully managing its human resources and with the combination of activities to make it a system instead of making it a single entity at a strategic level (Saha & Gregar, 2012).

Some authors strongly argue that evolving human resources in a smart way that empowers the company to apply their knowledge for earning an advantage over its competitors is essential to achieve long-term success and competitive advantage. (Srivastava et al., 2013).

The relationship between strategic human resource management (SHRM) and sustainable competitive advantages (SCA) is undeniable. A study by Emeagwal and Ogbonmwan(2018) suggests that strategic human resource management practices must be effectively applied in order to achieve sustainable competitive advantage. Sustainable competitive advantage is the key to success of a business which gives a business the ability to put greater focus, enjoy more sales, meet better profit margins, and increased customer and staff retention than their competitors (Covin and Lumpkin, 2011), along with the support by ( Pratono et al., 2019) claimed that in the fast moving world market, it is not believed for the competitive advantage to be sustainable,

rather, they believe that one can have a clear view on why some companies fail to attain and sustain a competitive advantage, while it is easier for other companies to achieve it easily through strategic human resource management practices.

In order to have an empirical exploration on a sustainable competitive advantage (SCA), various accumulations of strategic human resource management practices that comprise an organization’s human resource management system might not be sufficient. Besides, the structure of strategic human resource structure which is proposed, the actual and the perceived strategic human resource management practices are evident enough for explaining the effect of strategic human resource management practices outcomes (Nishii & Wright, 2007). Recently, a growing concern is seen in the influence of strategic human resource management practices and their connection on a sustainable competitive advantage.(Guzzo & Noonan, 1994) supported, with collective association of strategic human resource management practices that impact individual and in due course it affects outcomes of the organization by unlocking the “black box”, which clear up accumulating strategic human resource management practices escalates sustaining an organization’s competitive advantage. (Becker & Huselid, 2006). Thus, hypothesis can be drawn in this manner;

H1: There is a positive relationship between strategic human resource practices and sustainable competitive advantage.

3. Underpinning Theory

The current study is systematized on the basis of “resource-based view” (RBV) theory which was promoted by Edith Penrose in 1959. The RBV theory provides that the underlying sources and agents of competitive advantage and better and higher performance are fundamentally related with the strategic resources which are possessed and managed by the organization (Rose et al., 2010). Virtually, these resources must be valuable, rare, an inimitable and un-substitutable to have the aptitude to generate higher and superior performance (Saqib & Rashid, 2013).

Therefore, strategic human resource management (SHRM) practices are viewed as internal organizational resources and thus it helps evaluating their impact on sustainable competitive advantage (SCA). These resources make it easy for banking services to build capabilities, for

instance; reasonably low price, high quality services, flexibility, fast delivery and shorter time for developing new product to market.

4. Conceptual Model

The RBV theory sets out a framework to evaluate and unravel the position of internal resources of a firm as the cause of competitive advantage. In RBV view, strategic HRM practices are conceptualized as valuable internal resources, and their effect on sustainable competitive advantage analyzed adopting the conceptual framework shown in figure 1 below. Highly effective HRM can add to the profitability, quality of its services, as well as organizational goals of the bank. To reach these goals, organization must accomplish several actions such as recruitment, compensation or giving rewards, training or career development, performance appraisal and health and safety developments.

Independent variable Dependent variable

Figure 1: Conceptual Model of Sustainable Competitive Advantage 5. Research Method

This study embraced a quantitative research approach. It is an approach that focuses evaluating theories or concepts through the variable metric measurements and performing data analysis procedure with statistical tools& techniques and aims to test the hypothesis to attain the objectives (Sugiyono, 2008). Through the questionnaire method data collection has been performed. Respondents were executives of different banks who have the adequate knowledge about the bank operations and performance of the banks. So, it was set to select executives who fit the criteria for the current study. The data collection instruments directly provided by researchers for reliable and quick data set. A total quantity of 100feedbacks were accumulated until the end of survey. Therefore, the ultimate sample size for the study was 100.

Strategic HRM Practices Sustainable

Competitive Advantage

The instrument adopted in this study embraced two components. The first component contains demographic information and the second component contains 9items related to strategic human resource practices (SHRM) adopted from Boselie (2010); Macky & Boxall (2007) and Kehoe &

Wright (2010). The 3 items connected to sustainable competitive advantage (SCA)adopted from Barney (1991), Porter (1985) and Prahalad and Hamel (1990). A 5-point Likert scale was used to evaluate the statements in the second component, in the Likert scale, 5 = strongly agree, 4 = Agree, 3 = neither agree nor disagree, 2 = disagree, 1 = strongly disagree. To determine the internal consistency of the instrument, the Cronbach’s alpha reliability analysis was performed.

The Cronbach’s alpha coefficient for the questionnaire was calculated and found an average value of 0.85. When Cronbach’s alpha coefficient value is 0.70 or greater suggested by Nunnally (1967) that is very good indication of reliability. But according to Hair et al. (2010), the lower range value of Cronbach’s alpha 0.60 is also suitable for exploratory research. Thus, the current study is ensured reliability according to Hair et al. (2010).

6. Results and Discussion Descriptive statistics

The analysis used simple descriptive techniques of frequency and percentage for exploring the demography of respondents. It engages 100 respondents, consisting of 62 (%) males and 38 (%) females. According to the Table 6.2, 63% positions are occupied by Officer and Senior Officer and only 7% are Senior Assistant Vice President and Vice President.

Table 6.1: Gender Frequencies

Valid

Frequency Percent Valid Percent Cumulative Percent

Male 62 62.0 62.0 62.0

Female 38 38.0 38.0 100.0

Total 100 100.0 100.0

Table 6.2: Positions Frequencies

Valid

Frequency Percent Valid Percent Cumulative Percent

Officer 36 36.0 36.0 36.0

Senior Officer 27 27.0 27.0 63.0

Principle Officer 12 12.0 12.0 75.0

AVP 18 18.0 18.0 93.0

Senior AVP 5 5.0 5.0 98.0

VP 2 2.0 2.0 100.0

Total 100 100.0 100.0

Regression Analysis

Table 6.3: Model Summary^b

Model R R Square Adjusted R² Standard Error of the estimate

1 0.639^a 0.409 0.403 0.46866

a. Predictors: (Constant), SHRM b. Dependent Variable: SCA

In respect of Table 6.3, the result indicates that coefficient of correlation R = 0.639 and implies that there is moderate and positive relationship between independent and dependent variables.

This table also demonstrated R²= 0.409 that means 40.9% variation is explained by independent variable (strategic HRM) in dependent variable (SCA).

Table 6.4: ANOVA^b

Model Sum of Squares Df Mean Square F Sig.

Regression 14.887 1 14.887 67.779 <0.001^b

Residual 21.525 98 0.220

Total 36.412 99

a. Dependent Variable: SCA b. Predictors: (Constant), SHRM

Table 6.5: Coefficients^a

Model Unstandardized Coefficient Standardized Coefficient

Sig

Collinearity Statistics

Β Std VIF

Error Beta T

1(constant

) 1.459 0.283 5.154 <0.001

SHRM 0.604 0.073 0.639 8.233 <0.001 1.000

a. Dependent Variable: SCA

As stated by the Table 6.4, the study recognized that strategic human resource management (SHRM) is rightly predicting strategic competitive advantage (SCA) because F value is 67.779 and significant at less than 0.001 level. This understanding is indicating that SHRM has a strong power to explain large variance in the dependent variable in this case SCA. According to the Table 6.5, the study found the standardized beta coefficient value 0.639 which is a very high value to specify that SHRM variable is highly responsible for explaining SCA. Thus, management may emphasis more on SHRM for developing SCA in banking services. The standardized beta value (0.639) indicates that if independent variable (SHRM) changes by one standard deviation, then dependent variable (SCA) will change by 0.639 standard deviation.

7. Implications

The theoretical implication of the study is explicitly the exploration of the impact of strategic human resource management (SHRM) practices on sustainable competitive advantage (SCA)rooted on “resource-based view” and implementing it to banking services. Our results demonstrated the relevance of the relationship of the variables within a banking system; provide a deeper awareness on how strategic human resource management (SHRM) practices can contribute substantially to the attainment of sustainable competitive advantage within a banking environment.

8. Limitations

There are several limitations in this study. Firstly, a cross-sectional study was adopted to analyze data were collected from executives of the banks at a particular point in time. Moreover, the responses were collected from executives of the banks of a certain geographical area. Therefore, the findings of this study did not entail the insights of different employees from different geo- graphical regions. Furthermore, only 100 sample size was taken and analyzed for hypothesis testing which is not logical to generalize the results.

9. Conclusion

The study tries to examine the influence of strategic human resource management (SHRM) practices toward sustainable competitive advantage (SCA) by enhancing the previous literature

studies. From the statistical analysis, it can be concluded that SHRM practices positively influence sustainable competitive advantage. It signifies that the better the SHRM practices, the better the sustainable competitive advantage will be. Moreover, a few items of SHRM practices are highly correlated with sustainable competitive advantage. Leaders of banking sector must take care of these items continuously to invigorate the sustainable competitive advantage in future.

9. References

Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.

Becker, B. E., & Huselid, M. A. (2006). Strategic human resources management: Where do we go from here?. Journal of Management, 32 (6), 898-925.

Boselie, P. (2010). High performance work practices in the health care sector: A Dutch case study. International Journal of Manpower, 31(1), 42-58.

Cardy, R. &Salvarajan, T. (2006). Competencies: Alternative framework for competitive advantage. Business Horizons, 49(3), 235-245.

Covin, J. G., & Lumpkin, G. T. (2011). Entrepreneurial orientation theory and research:

Reflections on a needed construct. Entrepreneurship theory and practice, 35 (5), 855- 872.

Dirisu, I., Joy, I. O., &Ibidunni, S. O. (2013). Product differentiation: A tool of competitive advantage and optimal organizational performance (a study of Unilever Nigeria plc).

European Scientific Journal, 9(34), 258-281.

Emeagwal, L., & Ogbonmwan, K. O. (2018). Mapping the perceived role of strategic

humanresource management practices in sustainable competitive advantage. Academy of StrategicManagement Journal, 17 (2), 1-19.

Guzzo, R. A., & Noonan, K. A. (1994). Human resource practices as communications and the psychological contract. Human Resource Management, 33 (3), 447-62.

Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate Data Analysis: A global perspective (7th ed.). Upper Saddle River: Pearson Education.

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Appendix

1.1. Questionnaire

Please answer the following questions by applying (√) tick mark on a given Likert Scale of 1 to 5 where 1 is the least value and 5 is the highest value. Please fill-up the questionnaire honestly based on your own perceptions about your organization. Your invaluable information will be used only for research initiative. Only bank employees are encouraged to fill-up. It would be highly appreciated if you cooperate enthusiastically and honestly. We, the researchers, are thankful to you for your kind cooperation.

Your gender: □ Male □ Female

Please mention your position in the organization:

□ Officer □ Senior Officer □ Principal Officer □ AVP □ Senior AVP □ VP □ Senior VP Please mention type of your organization:

□ Public Bank □ Private Bank

Variables

^Strongly

Agree

Agree Neutral Disagree Strongly Disagree Strategic Human Resources Management

SHRM1: Employee selection is taken very seriously by this organization.

5 4 3 2 1

SHRM2: Employee selection places priority on the candidate’s potential to learn.

5 4 3 2 1

SHRM3: Employee selection emphasizes capacity to perform well right away.

5 4 3 2 1

SHRM4: Employee in this organization have clear career paths. 5 4 3 2 1 SHRM5: The training programs emphasize on the job

experiences.

5 4 3 2 1

SHRM6: Performance appraisals emphasize development of abilities/skills.

5 4 3 2 1

SHRM7: The position I am occupying, the job freedom is high. ^{5 4 3 2 1}

SHRM8: Enjoying the homely work environment. 5 4 3 2 1

SHRM9: Financial benefits are competitive compare with others involved in this service.

5 4 3 2 1

Sustainable Competitive Advantage

SCA1: Our employees are highly creative and innovative. 5 4 3 2 1 SCA2: Our employees are highly involved and flexible to

change.

5 4 3 2 1

SCA3: Our employees are very concern for quality and result. 5 4 3 2 1