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(2010) An Introduction to Human Resource Management, London: Sage Instructors Manual

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Chapter Three

Chapter Case Study Three: HRM and Competitive Strategy

You have been asked to advise the three companies outlined below - Grizzly Bear, Panda Bear and
Caribou - on an appropriate approach to HRM. You have been asked to put together a brief management
report on the approach that you would advocate for each company. In doing so, you should consider the
business strategy adopted in each company, the objectives of an appropriate HR strategy, the employee
behaviours and attitudes that should be encouraged or discouraged, the required skills and the necessary
supporting human resource practices (for example, recruitment, promotion, pay and benefits, training and
development, work organisation and job design).

Panda Bear Toys

Panda Bear is a family-run business which produces high-quality wooden toys such as train sets,
abacuses and developmental toys such as shape-sorters and puzzles. Panda Bear have recently
celebrated their fiftieth birthday and continue to produce many of the toys that the founder produced when
the business first began trading. The company seeks to produce toys that appeal not only to children but
also parents by evoking nostalgia for simpler toys and ones they might remember from their childhood.
Indeed, a central theme of Panda Bear s marketing is to remind parents that they would have played with
their toys as children and emphasise their durability and quality. Panda Bear products are however at the
more expensive end of the toy market and tend to be sold in up-market toy retailers and department
stores, but are increasingly stocked in high-volume toy superstores as the market for such products
grows. Despite recent sales growth and the need to produce higher volumes, management continues
stress the importance of maintaining consistent high-quality through the use of the best materials and an
explicit focus on minimising defects, supported by high-quality customer service. Given their nostalgic
focus and production of old-fashioned toys, Panda Bear do not focus greatly on developing new
products but recognise the need to continually improve on their existing ranges.

Caribou Toys

Caribou Toys is a small but growing workshop company producing high quality, exclusive toys
principally, rocking horses, stuffed teddy animals and doll houses and accessories often made-to-order
by a limited number of customers. As many of their orders are bespoke, most of their products are unique
or manufactured in small quantities. They are often either hand-made or hand-finished. Consumers order
directly from the company and are typically either toy enthusiasts or collectors or buying a present for a
special event (for example, a christening). As part of their service, Caribou offer a consultancy and
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design service to meet the exact requirements of their customers. Specialisation ranges from teddy bears
embroidered with special messages or markings to doll houses designed to the exact specification of a
customer s home or a cherished building. The high quality, custom-made nature of their products, the
length of the design and manufacture process and the high level of customer service provided, often
means that products are very expensive, often running into several thousand pounds. Whilst Caribous
products appear traditional, senior management are constantly looking for new avenues in which to take
their business and new products particularly those that are not being offered in the wider market - whilst
adhering to their central business model and philosophy. Similarly, whilst many of the techniques use to
produce their toys are based on traditional craft skills, Panda Bear often invest in new production
technology and the development of improved design and materials to meet the exacting standards of their
customers.

Grizzly Bear toys

Grizzly Bear Toys are a UK-based toy manufacturer producing a limited range of low-price toys, for
example, die-cast toy cars and cheap plastic toys such as hula-hoops, yo-yos and dolls. In order to
compete with low-cost suppliers from overseas and having so far resisted the pressure to move
production abroad, Grizzly Bear needs to sell their products as cheaply as possible and to maximise both
production and sales volumes. Marketing their toys explicitly as pocket money, Grizzly Bear seek to get
their products into as many specialist toy retailers and supermarkets as possible and to exploit the pester
power of young children. In order to maintain supply contracts, however, Grizzly Bear must meet basic
standards in respect of safety, quality and (limited) durability. Grizzly Bear s primary business imperative
in a highly-competitive market is to keep costs as low as possible and product design is kept as simple as
possible to minimise production costs. Given their relative success in winning and maintaining supply
contracts with a number of large retailers, Grizzly Bear expend very little effort on developing new or
improving existing products, rather seeking to lower production costs further and to refresh their lines by
altering minor details which do not require further investment.

Tutors Notes

In Brief, the three competitive strategies and commensurate HR strategies are summarised in the box
below:
Business Strategy
(Porter 1985)
Focus on Niche markets Differentiation through quality Cost leadership
HR Strategy Innovation Strategy Quality-enhancement Strategy Cost-reduction strategy
Associated behaviours
High degree of creative
behaviour
Relatively predictable behaviour Relatively predictable
behaviour
Longer-term focus More long-term or intermediate
focus
Rather short-term focus
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Relatively high levels of co-
operative interdependent
behaviour
Modest amount of co-operative
interdependent behaviour
Primarily autonomous activity
Moderate concern for quality High concern for quality Modest concern for quality
Moderate concern for quantity
of output
Modest concern for quantity of
output
High concern for quantity
Equal degree of concern for
process and results
High concern for process (how
goods or services are made or
delivered)
Primary concern for results
Greater degree of risk-taking Low risking-taking activity Low risk-taking activity
High tolerance of ambiguity
and unpredictability
Commitment to the goals of the
organisation
High degree of comfort for
stability
HR Strategies and needed role behaviours (Adapted from Schuler, RS and Jackson, SE (1987) Linking competitive strategies and human resource
management practices, Academy of Management Executive, 1:3, 207-219)

The following details may form part of the discussion over key strategic and HR characteristics associated
with each approach.

Grizzly Bear toys

Business Strategy stack them high, sell them cheap; cost leadership; high sales volumes and little
concern for quality or innovation and the development of new products
Appropriate HR strategy Cost-minimisation - Constant downward pressure on the costs of labour,
focus on quantitative outcomes, not process, primacy of production volume, replacement of labour with
either cheaper labour or mechanisation and minimisation of investment in labour (e.g. training)
Appropriate behaviours Short-term focus, stability and predictability, efficiency and productivity,
standardised/predictable behaviour (Taylorised processes and people management practices), job
intensification, tight control/supervision and low risk-taking.
Associated HR practices
Resourcing
o Flexibility, temporary or casualised labour, low skilled or de-skilled, reliance on
external labour market and hire and fire
Performance management
o Focused purely or mainly on quantitative outputs (no concern for qualitative
dimensions of performance), punitive re: failing to reach targets ?
Pay and benefits
o Low pay, performance-related pay tied to production output or sales volumes
Training and development
o High levels of investment
Job design
o Deskilling of jobs, Taylorist principles, standaridsation
Employee communication and involvement
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o No/low levels of involvement and participation, managerial prerogative
Panda Bear Toys

Business Strategy Differentiation through quality, continuous improvement (but not innovation), focus
on brand and reputation and desire to be market leader re: quality.
Appropriate HR strategy Quality enhancement, high commitment model, focus on qualitative nature of
performance (i.e. concern for detail and quality) and process, some focus on output (i.e. production
targets) but not at expense of standards, minimisation of mistakes/errors/faults and high investment in
staff.
Appropriate behaviours Intermediate or long-term focus, cooperative but standardised/predictable
behaviours with respect to innovation (do what we do, but do it well), low risk-taking, concern for process
(TQM-type approach) and continuous improvement, rather than continuous innovation
Associated HR practices
Resourcing
o Training, long-term retention of valuable and scarce skills, opportunities for
career development and advancement, strong internal labour market
Performance management
o Developmental - Mix of both qualitative and quantitative objectives, but mainly
qualitative (quality-focused targets number of customer complaints,
errors/mistake ), coaching, leading by example
Pay and benefits
o Relatively high pay, non-financial rewards (re: recognition), commitment to org,
individual or team PRP related to objectives as above, profit-sharing
Training and development
o High levels of investment in training to ensure retention and development of key
skills
Job design
o Flexible, retain emphasis on artisan nature of work, discretion
Employee communication and involvement
o Employee involvement (quality circles?) to elicit buy-in to company philosophy,
however, exercise of some managerial control necessary (e.g. through
process/technology)

Caribou Toys

Business Strategy Servicing niche markets, doing things differently and differentiation through
innovation
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Appropriate HR strategy Innovation and creativity, focus on qualitative nature of performance/process,
high commitment model (re: prized staff and tacit knowledge), focus on unlocking creative potential
through HR practices (i.e. knowledge management approach), high investment in staff and team-focused
Appropriate behaviours Long-term focus, cooperative behaviours, creativity, high risk-taking, concern
for process and outcome, continuous innovation and knowledge-sharing/collegiality
Associated HR practices
Resourcing
o Training, long-term retention of valuable and scarce skills, opportunities for
career development and advancement, strong internal labour market
Performance management
o Developmental - Mix of both qualitative and quantitative objectives, but mainly
qualitative (quality-focused targets number of customer complaints,
errors/mistake ), coaching, leading by example
Pay and benefits
o Relatively high pay, non-financial rewards (re: recognition), commitment to org,
individual or team PRP related to objectives as above, profit-sharing
Training and development
o High levels of investment in training to develop, share and exploit knowledge and
creativity
Job design
Humanist in nature, Hands-off approach to management, responsible autonomy, artisan
work
Communication and involvement
o Employee involvement (quality circles?) to elicit buy-in to company philosophy
and to encourage sense of shared purpose


Wilton, N. (2010) An Introduction to Human Resource Management, London: Sage Instructors Manual
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Online Case Study Three: Approaches to HRM in the hotel Sector

As outlined in Box 3.1, HRM in the hotel sector is strongly influenced by the variability of demand,
particularly in those establishments serving the seasonal tourism industry. The hotel sector is also
heavily dependant on the external labour market as staff turnover is typically high and, therefore, a ready
supply of both skilled and unskilled labour is often required to meet customer demand. This high turnover
often results in problems of skills shortages in key operational areas, such as waiting or kitchen staff.
However, while the hotel industry context often acts to constrain managers choice in HRM strategy,
policies and practices, evidence suggests a variety of approaches to the staffing and managing the
workforce. The following case studies contrasts the employment practices adopted in two similar hotels
operating in the same UK city.

The Mercury Hotel

The Mercury is a franchise establishment of a large US hotel chain. It is 4-star rated and mainly serves
the commercial market catering for business clients and hosting conferences and seminars. It has almost
300 guestrooms, is located in the centre of a large UK city and directly employs over 200 members of
staff. Two-thirds of employees are employed full-time on 39-hour contracts with working times varying
from week to week. Any hours worked beyond this are paid as overtime. The remaining third of
employees are part-time (up to 25 hours per week). This structure appears to provide a balance between
the need for flexibility in predictably busier periods throughout the year and as cover for short-term
increases in demand. Management also make extensive use of return staff, mainly students who live in
the area during term time or holiday periods, to provide a further element of labour flexibility. Such
employees are seen as a ready supply of trained labour but who have no claim to minimum hours, that
can be shed with limited notice and who are most willing to work unsociable hours. Further shortfalls in
labour are met either by other casual labour (e.g. recruited via temping agencies) or by increasing
permanent staff hours at short notice. Contracted casual employees are on-call so that managers can
demand that employees work as and when required, principally being used for functions such as
wedding receptions. Management seeks to minimise the potentially damaging effects on service quality
by minimising the use of temp casuals and ensuring that, whilst providing a degree of flexibility, most
employees are a known quantity and have received at least some training by the hotel. Moreover, rather
than relying solely on numerical forms of flexibility (altering staffing levels in line with demand), The
Mercury attempts to meet the challenge of variable demand by training members of staff across a range
of different areas; a rudimentary form of skills flexibility. The approach to staffing adopted at The Mercury
appears to reflect a compromise between the need for labour flexibility and employee stability with
management attempting not to overly manipulate employee hours simply to meet the direct needs of the
organisation.
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In terms of employee involvement and communication, formal departmental meetings are held weekly for
staff to discuss operational aspects of the hotel. Open staff meetings are held monthly, for both
permanent and casual employees, the purpose of which is twofold. Firstly, to pass on information on the
performance of the hotel and secondly, to act as a forum in which staff can ask questions directly of the
general manager. Most importantly, a consultative committee, known as the Employee Forum meets
monthly and is chaired by the hotel general manager or the personnel manager. This forum is comprised
of elected staff representatives from each department and allows staff to raise issues related to their
working environment. It is also where recognition is passed on to staff for good service and employee
representatives vote for an employee of the month.

Staff turnover is not considered a significant problem at The Mercury albeit within the context of the
industry. Management reported annual turnover rate of approximately 35% (the company target is
25%and turnover in many hotels can be considerably higher). However, the HR manager claimed to do a
significant amount of work to reduce this figure, particularly in the recruitment process. For example,
department managers received training in interviewing techniques and ensured that candidates are made
aware of the idiosyncrasies and demands of the industry. In addition, staff retention is targeted by
ensuring staff development is offered to capable employees and good performance is rewarded and
recognised. Turnover is mainly attributed to mistakes made in recruitment and candidates
misconceptions about the industry generally, specifically pay levels and working hours. This is reflected in
the fact that departing staff rarely left to work in other hotels, unless at a higher level, but tended to leave
the industry. Absenteeism at The Mercury is considered acceptable. The personnel manager at the hotel
suggested that an environment in which team-working has evolved at the hotel and a degree of peer
pressure discourages unnecessary absence.

Management at The Mercury considered skills shortages to be a huge problem in the industry,
compounded by the highly-competitive nature of the local labour market where it is felt that during most of
the year most employees would be able to leave employment at one hotel and gain employment five
minutes down the road in another. The HR manager claims however that the inherent local skills
shortages are not felt as keenly in this hotel as in others because their image as a good employer is
useful in attracting and retaining staff. The package of benefits available to staff are described by
management as exceptional and are claimed to be central in recruiting and retaining high-quality, skilled
employees.




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The Luna Hotel

The Luna is located approximately 1 mile from The Mercury and is part of a large UK hotel chain. It has
201 rooms, is also 4-star rated and employs 128 members of staff. It serves both the commercial
marketplace albeit without conference facilities and the typically short-stay tourism market. The hotel
was subject to a takeover six months ago and is in a period of transition, not least in the way in which
HRM is conducted. Again, two-thirds of the workforce is full-time, but the current management are
seeking to significantly reduce this figure and claimed they are overstaffed with permanent employees.
They plan not to replace leavers in certain departments or replace them by offering workers flexible
contracts and express a willingness to rely heavily on casuals and agency staff to plug gaps in the
workforce. Even permanent employees are now employed on significantly less favourable terms than
prior to the takeover. Management claimed that this provided working-time flexibility for both employer
and employee. The number of hours and shift patterns are adjusted and planned on a weekly basis
according to business levels with both parties able to request more or less hours in a given period. No
attempt had been made to train employees across a range of tasks to provide greater skills flexibility nor
is there any intention to do so given the stated desire to kept training costs to a minimum.

Employee communication at The Luna is predominantly one-way. General manager briefings are held for
all staff every quarter to inform them about organisational and establishment strategy and managerial
decisions. Managerial meetings and communication between heads of department and employees is
limited to one-to-one meetings as and when required, instigated by either party, usually to deal with
grievance or disciplinary issues. There is no dedicated structure or schedule to these intra-departmental
meetings although some departments imposed some formality by holding five-minute chats between
departmental heads and staff every month. Other departmental managers preferred employees to
approach heads of department to raise issues. These one-to-one meetings appeared to be the only
means of upward communication. There is no other provision for employee consultation, suggestion or
participation in decision-making. It appeared that even the general manager s briefing is merely a
communicative device with little provision for employee feedback.

The hotel had experienced high levels of labour turnover since the takeover, some of which is likely to be
as a result of the upheaval caused. Regardless, labour turnover is reported to be both problematic and
beneficial at The Luna depending on the staff involved. On the one hand, employee turnover is
considered undesirable because of the costs involved in recruiting new members of staff, especially
skilled workers such as chefs and maintenance workers. On the other hand, however, employee turnover
is considered a source of employment flexibility and natural wastage of staff viewed as positive
especially where poor performing staff are concerned. The general manager claimed that the large labour
market in which the hotel operated meant that staff are readily available, albeit often lacking required
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skills. Management coped with this apparent skills shortage by minimising a reliance on particular skills or
providing rudimentary training. The high level of staff turnover often required management to adopt
expedient approaches to filling vacancies, even in important frontline operational (for example, waiting
and front-of-house) or skilled areas of work. As the HR and training manager suggested, When
someone leaves just like that youre in a hole and you have to get someone in, then you cant afford to
wait a week of so for references to come through, when youve got a job to fill. You take a chance.

Tutors Notes

The purpose of this case study is to highlight the interplay between organisational context, business
strategy, HR strategy and HR policies and practices. It seeks to highlight the points raised in Box 3.1
regarding the extent to which managers in the notoriously unpredictable hotel marketplace have choice
in their strategic decisions and whether they are forced to manage in particular ways. By contrasting two
large hotels that operate in the same location and are similarly-rated but which serve slightly different
product markets, the case highlights how hotels might either act as a slave to their environment whilst
others demonstrate freewill in confronting contextual challenges.

1. In what ways does the environmental context of the two hotels constrain or present
opportunities for strategic choice? How do contextual factors account for the differences in
approach to HRM?

There are two principle environmental factors that students should consider here: labour market context
and product market context. Both hotels operate in the same labour market context, but serve slightly
different product markets. The product markets can be characterised as follows:

Mercury Hotel Predominantly commercial trade, not seasonal, block bookings for organisational
conferences and events indicating relative stability of trade all year round.
Luna hotel Some commercial trade but without conference facilities it can be assumed that
business customers are short-stay and demand unpredictable; tourist trade is likely to be both
unpredictable and seasonal with increase in trade during the summer months.

These characteristics present different challenges for management and underpin the different approaches
at the two hotels. The relative stability of trade at Mercury Hotel allows a degree of forward planning in
staffing and encourages staff training and retention. Alternatively, the Luna Hotel has to cope with more
unpredictable demand necessitating more flexible staffing arrangements in order to match staffing levels
with fluctuations in demand and leading to a more expedient approach to resourcing. These product
market characteristics are, therefore, reflected in the approach to workforce flexibility; the former adopting
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a degree of functional or skills flexibility alongside necessary temporal flexibility, the latter, numerical and
temporal flexibility.

The labour market is characterised by a large, available (transient) labour supply, but a shortage of skills
in key areas. The two hotels have responded to these conditions in different ways. Mercury Hotel has
sought to address the skills shortage by seeking to create a strong internal labour market with an
emphasis of effective recruitment ( realistic job preview), employee retention, employee involvement and
investment in learning and development. This is consistent with their over-arching business strategy.
Luna Hotel addresses the same constraints by taking advantage of the large available labour supply by
relying on the external labour market both for bodies and skills at short notice, coupled with a focus on
expedient hiring and disregard for excessive labour turnover. The skills shortage problem is addressed
through reducing a reliance on scarce skills. Students should highlight the potential problems created by
such an approach in a relatively high-quality hotel and to consider under what conditions such an
approach might be more acceptable.

These two approaches can be linked to the distinction between make and buy strategies: Mercury Hotel
appears to have adopted elements of the former (or at least a preference for such an approach), whilst
Luna the latter (albeit alongside attempts to reduce the cost of buying in required labour by deskilling and
job redesign).

2. From a best fit perspective, which of these hotels would appear to have best tailored its HR
policies and practices to its competitive strategy?

To a degree, both hotels have appropriately tailored their approach to HRM to their predominant business
strategy. In the case of Mercury Hotel, the emphasis is on service and product quality and, therefore, HR
practices seek to promote employee engagement and commitment, employee contribution to decision-
making, (relatively) high skill, strong internal labour market, selective hiring and retention. Whilst Luna
Hotel has clearly not merely adopted a cost-minimisation strategy (it is, after all, a four-star hotel) a
concern for quality is underpinned by a clear desire to reduce cost. This manifests itself in expedient
management of labour, weak internal labour market (as represented by a lack of concern of labour
turnover and a concerted effort to reduce its full-time, permanent workforce), reliance on
causal/temporary labour, minimisation of training costs and job design to minimise reliance on scarce
skills. This conforms to the apparent Taylorism of much work in the hospitality industry.

3. What elements of best practice HRM has the Mercury Hotel adopted and why might it have
done so?

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Students can draw on any number of best practice or high commitment models of HRM in order to
discuss this question. Chapter Three outlined the seven points in Pfeffer s model and the table below
outlines how the Mercury Hotel conforms (or otherwise) to this ideal:
Employment security Efforts to reduce labour turnover and ensure retention of good
performers
Skills flexibility as source of required labour flexibility
Selective hiring Focus on rigorous selection process to ensure effective
recruitment
Self-managed teams or teamworking Evidence of the (informal) evolution of teamworking in the hotel
and social control as a means of reducing absenteeism and
source of motivation
High pay contingent on company performance Exceptional (for the industry) reward package
No evidence of contingent pay
Extensive training Focus on skills flexibility implies investment in training
Reduction of status differences No clear effort to remove status differences, but Employee forum
might imply an attempt by managers to share in decision-making
with employee representatives and recast the employment
relationship as cooperative
Sharing information Extensive channels for individual and collective communication
Bilateral communication

4. Drawing on the resource-based view, what elements of people resources could be exploited
to create competitive advantage in the hotel industry?

To address this question it might be useful to broaden its focus and ask students to consider what makes
a good hotel (i.e. what are the attributes that hotels should seek to develop and exploit for commercial
gain). Responses might include the staff, product quality (accommodation, catering, shared facilities ),
location and brand. Students should then consider what characteristics in all of these areas might satisfy
the VRIO classification. The question of what characteristics of a hotel s workforce can represent a source
of competitive advantage is a difficult one. Students might be asked to consider what might make a
hotel s workforce valuable, rare and inimitable and what constitutes their effective organisation. Students
are likely to come up with a range of potentially contradictory suggestions (e.g. waiting staff should be
attentive and friendly yet invisible) which indicates the importance of tailoring the workforce behaviour to
type and quality of hotel. They might also consider whether the ideas of a resource-focused approach to
strategy might focus attention on particular aspects of organisational activity. For example, a hotel s chef
might represent its most valuable and inimitable resource and, therefore, the organisation element would
be concerned with ensuring the appropriate staffing and physical infrastructure required to exploit this
resource. Importantly, students should make the connection between people and processes within a
hospitality environment and what behaviours and characteristics need to be developed in a workforce in
order to meet the specific service requirements of guests at a particular hotel. The issue of organisation
might raise the question of both job design and management style which can highlight alternative ways in
which organisations can get the best out of their employees.