the five fundamental competitive forces that determine the ability of firms in an industry to earn

above-normal returns are

• the entry of new competitors

• the threat of substitutes
• the bargaining power of buyers
• the bargaining power of suppliers
• the rivalry among existing competitors

Thirteen Practices for effective Management of People for producing sustainable competitive
advantage:-

1. Employment security- L o n g - s t a n d i n g co m m i tm e n t by t he o rg a n i z a t i o n to i t s
workforce. There is importance in trust between employees and the organization. Employment
security enhances employee involvement because employees are more willing to contribute to the
work process when they need not fear losing their own or their coworker’s jobs. It also contributes
to training since both parties have greater incentives to invest in training – sufficient duration to
earn a return on time.

2.Selectivity in recruiting- One must be careful to choose the right people in the right way. Some
companies use customers/those who come in contact with the front-line employees to hire, since
they probably know what makes a good employee, and others base their decision on desire to
succeed and the capacity of growth. A rigorous selection process feels like joining an elite
organizatio n, high expectations for performance are created and the message sent is that people
matter.

3.High wages- Paying more is helpful, although not absolutely necessary. High wages tend to
attract more applications, permitting the organization to be more selective in finding people, but
also sends a message that the organization values its people, especially when these wages
are higher than required. Some companies believe that lowering labor costs is essential for
competitive success, which is not the case since these are o nly a small fractio n o f the to tal
costs and it may be the case that it enhances service, skill and innovation more than
compensate by increasing overall profit.

4.Incentive pay- People are motivated by more than many – recognition, security, and fair
treatment. Nevertheless, if peo ple are responsible for enhanced levels of
performance and profitability, they will want to share in the benefitsreward performance
with some form of contingent compensation.

5.Employee ownership- This offers two advantages: employees who have ownership interests in
the organization for which they work have less conflict between capital a n d l a b o r ; a l i g n s t h e
i nte re sts o f e m p l oy ee s w i t h t ho s e o f s h are h o l d ers , a n d employee ownership puts
stock in the hands of people; employees who are more inclined to take a long-term of the
organization, its strategy, and its investments policies and less likely to support hostile
takeovers, leveraged buyouts, and other financial maneuvers.

6.Information sharing- If people are to be a source of competitive advantage, clearly they must
have the information necessary to do what is required to be successful. Typically, the only
people in the dark about a firm’s strategy and other information are the firm’s own employees.

7.Participation and empowerment- Sharing information is a necessary precondition to

e nco uragi ng t he de ce nt ra lizat io n o f de cisio n mak in g an d bro ade r wo rke r
participation and empowerment in controlling their own work process. Participation increases both
satisfaction and employee productivity. Autonomy is one of the most important dimensions of jobs –
enhances performance.

8.Self-managed teams- Organizations that have tapped the power of teams often
experienced excellent results. Teams of workers can be responsible for hiring,
purchasing, job assignments, and production, increasing profitability. Teams work because of
the peer monitoring and expectations of coworkers that are brought to bear to both
coordinate and monitor work. The team concept is a nice idea, but under pressure it becomes
an effective way to divide workers.

9.Training and skill development- Training will produce positive returns only if the trained
workers are then permitted to employ their skills. One mistake many organizations
make is to upgrade the skills of both managers and workers but not change the structure for
work in ways that permit people to do anything different. Training demonstrates a firm’s
commitment to its employees and ensures the staffing of the facility of highly qualified people.

10. Cross-utilization and cross-training- Having people do multiple jobs has a number of potential
benefits, making work more interesting – variety: permits change in pace, activity, people with
whom one comes in contact with, also making work life more challenging. Moreover, work
is more transparent and as simple as possible, since the tasks should be straightforward enough to
switch between. Also, there is a potential for newcomers to see things that can be improved that
experienced people do not see. Multiskilling is also useful to policies that promise employment
security – find tasks.

11. Symbolic egalitarianism- One important barrier to decentralizing decision making,

using self-managed teams, and eliciting employee commitment and cooperation is
the symbols that separate people from each other - ways of signaling to both insiders
and outsiders that there is comparative equality and it is not the case that some think
and others do. The reduction in the number of social categories tends to decrease the
salience of various subdivisions in the organization, diminished "us" versus "them "
thinking, and provides more of a sense of everyone working toward a common goal.

12. Wage compression- I t h a s a n u m b e r o f e f f i c i e n c y - e n h a n c i n g p r o p e r t i e s f o r

organizations. Incentive pay is different as it rewards people for their performance
and can either reduce or increase the wage dispersion that would otherwise exist.
Pay compression, by reducing interpersonal competition and enhancing cooperation,
can lead to efficiency gains.
A more compressed distribution of salaries can actually
produce higher overall performance, as there is less incentive for individuals to waste
their time on gaming the system. Being paid in a contingent fashion for what we do
can actually undermine our intrinsic interest in and satisfaction with that activity.
Thus, pay compression, by helping to de-emphasize pay, can enhance other bases of
satisfaction with work and build a culture that is less calculative in nature.

13. Promotion from within- It encourages training and skill development because the
availability of promotion opportunities within the firm binds workers to employers
and vice versa. It facilitates decentralization, participation, and delegation because it
helps promote trust across hierarchical levels: promotion from within means that
superv isors are respo nsible for coordinating the efforts of peo ple whom they
probably know quite well. It also offers an incentive for performing well, and although tied to
monetary rewards, promotion is a reward that also has a status -based, nonmonetary
component, providing a sense of fairness and justice in the workplace. When outsiders are being
brought in over them, there will be a sense of alienation. One other advantage is that it tends to
ensure that people in management positions actually know something about the business,
technology, and the operations.

Bad news about achieving some competitive advantage through the workforce is that it
inevitably takes time to accomplish. The good news is that once achieved, competitive
advantage obtained through employment practices is likely to be substantially more enduring
and more difficult to duplicate long-term perspective is needed. If a firm facing immediate
short-term pressure, competitive advantage through people is not chosen, and if the
organization is doing well, it may feel no need to worry about its competitive position.