Best Fit and Best Practice

Approaches in Strategic HRM

The concepts of ‘best fit’ and ‘best practice’ are two well-known
approaches to human resource management. The ‘best fit’ perspective
claims that HR strategy become more and more efficient when it is
linked to its environment of the business. It explores the close link
between strategic management and HRM by assessing the extend to
which there is a vertical integration between an organizations business
strategy and its HRM policies and practices. ‘Best practice’ approach
claims that certain ‘best’ human resource practices would result in
enhanced organizational performance, manifested in improved
employee attitude, lower level of absenteeism and turnover, higher
level of skills for higher productivity, enhanced quality and
efficiency. That is why the ‘best practice’ model is also referred as
high commitment models.

Best Fit Approach

The best-fit model is considered as a variant from precedent models
of Harvard, Michigan and York and is called “matching model” for
HRM. It is based on developing HRM policies according to business
strategy. Strategy involves planning future activities, performances
objectives, and policies towards reaching the corporate aims. HRM
strategy should be designed and applied to support the given
corporate strategy. The “best-fit” approach questions the universality
assumption of the best-practice perspective. It emphasizes
contingency fit between HR activities and the organization’s stage of
development, an organization’s internal structures and its external
environment like clients, suppliers, competition and labor markets.
HR policy should be minted by the appropriate context of individual
employees and therefore support the overall competitive strategy.
Aligning HRM practices to strategies can enable companies to create
potential competitive advantages.

The best fit approach is also subject to sever criticism. Firstly, in a

changing business environment, companies and their strategies are
subject to multiple alternating contingencies and that it is merely
possible to adjust entire HR systems to new challenges frequently.
Secondly, as companies move through their life-cycle HR practices
have to be aligned which leads to an alternating treatment of
employees which can have a demotivating effect and show
inconsistency in corporate culture.
Best Practice Approach
The best practice approach claims that certain bundles of HR
activities exist which universally support companies in reaching a
competitive advantage regardless of the organizational setting or
industry. Best practice models imply a close connection between HR
practices and organizational performance and are often associated
with high commitment management. Studies in the best-practice field
shows similar groups of HR polices which are especially suitable for
maximizing performance irrespective of market and product
strategies. Best practice bundles of activities are characterized as
mutually compatible HR activities which forge high levels of
workforce competence, encourage motivation and introduce a work-
design boosting employee commitment. Based on concepts from
expectancy theory best practice HR will result in higher levels of
quality, productivity and low rates of absenteeism and wastage.

The best practice approach suffers from a series of limitations. Firstly,

when implementing best practice standards organizations run risk of
introducing mutually prohibitive combinations like team working and
compensation based on individual performance resulting in a
deterioration of employee collaboration through over-exaggerated
competition. Secondly, high commitment management systems are
generally a complex undertaking requiring large inputs of planning
and top level management commitment. Thirdly, best practice HR
lacks direct linkages with organizational strategies and is minted by
the belief that outstanding high performing human resources will
influence strategy. By making HR policy precede corporate strategy
an organization risks prescribing standardized sets of “one size fits
all” best practice approaches which will not support the particular
needs of employees and be detrimental to overall strategic objectives.

Similarities of Best Fit and Best Practice Approaches

Having defined the two systems, let’s now look at the agreements
points between ‘best fit’ and ‘best practice’.
Both approaches aim to achieve high performance in organisations.
These models could be classified as ‘matching models’ because of
their common aim is to match the human resources strategy with that
of the corporation.

The ‘best fit’ school of SHRM focuses on the fact that close
alignment between organisational strategy and other systems is
respected. All organisational systems must start with business strategy
because it specifies what the company wants to accomplish, how it
wants to behave, and the kinds of performance and performance
levels it must demonstrate to be effective. The ‘Best practice’ theory
acknowledges also that importance of business strategy on
performances. Both approaches believe that HR practices should be
complimentary.

Whether ‘best fit’ or ‘best practice’, organisation needs of staff is

acknowledged. Thus, both concepts need employees in order to
achieve its goals. Therefore they both have staffing and hiring
strategies and procedures. Recruiting, testing, selection and staffing
are considered in the two systems. Advocates suggest there are
mutually compatible ‘bundles’ of HR policies that promote high
levels of employee motivation and commitment that positively impact
on organisational performance. Although there is not unanimous
agreement in identifying these practices, the list generally includes:
selective hiring, extensive training, employment security, a structure
that encourages employee participation and pay policies that lead in
relation to industry competitors. And reward for example is another
important issue within the application of each approach. In the most
general sense, both approaches view HR as having an important role
in supporting organisational strategy and objectives.
Both approaches agree that externally competitive reward packages
are important to attracting and retaining qualified employees. Thus,
‘Best fit’ advocates emphasize the importance of external
competitiveness for attracting and retaining employees. To be
effective, a reward system must distribute rewards in a way that will
lead the organisation’s most valuable employees to feel satisfied when
they compare their rewards with those received by individuals
performing similar jobs in similar organisations. Good performers
tend to seek organisations where performance is recognized and
rewarded. The same idea is found in ‘best practice’ books. Although
labour markets are far from perfectly efficient, it is nonetheless the
case that some relationship exists between what a firm pays and the
quality of the workforce it attracts. There is therefore a shared view
that an externally competitive reward system has an important role in
attracting appropriate candidates and retaining employees.

In a sense, by promoting good rewards systems, the two concepts

reinforce and define structure as well as the organisation culture. This
because pay system is thought to have an influence in the way people
behave in an organisation. Therefore, a good reward system
consolidates and contributes to corporate culture. The reward strategy
provides an opportunity to reinforce the organisation’s values and
beliefs in such areas as performance, quality, teamwork and
innovation. Pay system can help to change culture when the behaviors
they evoke become the dominant patterns of behavior in the
organisation and lead to perceptions about what it stands for, believes
in and values. Both Strategic HR theories see rewards as a way of
reinforcing organizational culture and structure.

To summarize, the concepts of ‘best fit’ and ‘best practice’ in

strategic human resource management share some common points. In
the most general sense, both approaches view HR as having an
important role in supporting organisational strategy and objectives.
Both approaches agree that reward practices should be consistent with
other HR practices. There is a shared view that an externally
competitive reward system has an important role in attracting
appropriate candidates and retaining employees. Both see rewards as a
way of reinforcing organisational culture and structure.

Differences between Best Fit and Best Practice Approaches

Indeed, the systems in SHRM have different approaches and therefore
we can highlight many important differences between those systems.

At the most general level, best fit is a contingency approach while

best practice is a universal approach. Best fit is based on the premise
that picking the most effective HR policies and practices depends on
matching them appropriately to the organization’s environment. The
contingent factors influencing HR strategy might include type of
business strategy pursued, organization size, type of technology,
geographic location and labor market, management skills and
preferences, industry sector and economic conditions. Contingency
approach refers to a method of decision making often applied in
devising appropriate human resource (HR) strategies and termed the
“best fit” approach in contrast to “best practice” approaches. Best
practice is referred as an universal approach because it documents the
benefits of HRM across all context.

For best fit, organisational strategy comes first and all organisation
systems and practices follow. Whereas for best practice a prescriptive
set of practices, precede strategy but provide the human resources
needed to fulfill the organisation’s objectives, whatever they are. We
can see that the two concepts differ in their method. Within the ‘Best
practice’ model the HR manager starts by identifying best practice,
then give HR a high profile, get top level commitment, sell it, do it,
measure it, reward champions. However the process is different for
the ‘best fit’ model, where the HR manager identifies first the external
fit linked to the operation strategy, marketing strategy etc.. and tries to
‘fit’ them with the HR strategy.

At a more specific level, regarding reward for example, both

approaches have different point of view regarding the influence of pay
in people performance. Best fit system shows a high margin of
confidence regarding pay as a motivator. It follows the expectancy
theory that believe that people will perform more and more better if
they believe their effort will be rewarded. So, the best fit method
focuses on the financial aspect and uses it as a driver for corporate
human resource. Best fit proponents see rewards as the stick and the
carrot. Since pay varies with performance, poor performers ‘vote with
their feet’. Excellent performers are attracted to the large pay
differentials that reward their performance. However, in relation to
pay, best practice advocates usually use the term “… first. Do not
harm.” Thus, they do not really believe in the great influence of pay
that best practice advocates want to show. They see pay more as a
factor helping to prevent dissatisfaction and provide symbolic
recognition that employees are valued. Rewards, for best practice
advocates, can even destroy the relationship and trust that are the
basis of organizational commitment. This leads them to promote a
reward system that does not differentiate with compressed pay bands,
equal pay for all team members and collective incentives.

Due to all these difference, the question we ask ourselves is

obviously: which one of the two systems is better? The CIPD (2010),
talking about strategic human resource management, writes: “There is
no single HRM strategy that will deliver success in all situations.
Organisations need to define a strategy which is unique to their own
situation in terms of context, goals, and the demands of organisational
stakeholders.” Therefore, It is useful for all organisations to
management their people within a planned and coherent framework
which reflect the business strategy.