How Will Competition Change Human Resource Management in Retail Banking? A Strategic Perspective

Abstract

The proposition that the way firms manage their labor forces should be consistent with their organization strategy might seem both obvious and noncontroversial. What this means in practice in a turbulent industry such as consumer financial service, however, is by no means obvious. Human resource management practices in banks are changing under pressures from an increasingly intense competitive environment. The nature of these changes remains unclear, and questions center around what forms the changes will take and around the effects of those changes. This paper draws on early interviews in a multi-year project on productivity in financial services firms. While the data are not sufficient to answer the question, the author believes they provide clear indications of directions to take in conceptualizing and further investigating the issues. The paper describes the issues involved with strategy, human resources and performance in retail banking. It then describes the challenges associated with applying a model relating strategy to human resource decisions and suggests some considerations for the emergent field of strategic human resource management drawing on a capabilities-based approach. It concludes with suggestions regarding further research in the study of strategic human resources in financial services. The author suggests that in retail banking, uncertainty lies both in understanding the potential value of particular business strategies and in seeing what sort of outcomes different human resource management (HRM) systems will produce. The author notes that few of the aspects of the set of human resource performance practices that are referred to in the literature as high performance workplace practices (HPW) have been embraced by retail banks. What is not known is whether HPW practices cannot deliver on valuable outcomes, or whether banks have simply failed to realize their potential. The author suggests that corporate strategic issues may influence the ability of the retail bank to meet its strategic goals, and they may influence the time horizon available to retail banks. The author suggests that in a less turbulent climate, there might be more investment in human resources. Current pressure to contain costs in the immediate short run, leaves retail banks in a difficult position. HRM must also be considered in relationship not only to corporate and business strategy, but also to technology and the design of process. In short, do certain kinds of HRM suit different technologies? The author points out that HRM practices do not function solely to serve strategic goals. Choices of particular HRM practices may reflect organization power and politics and institutionalized norms of best practices as much as they reflect strategic goals or performance imperatives. While the U.S. retail banking sector has not been organized into unions, the author suggests that the industry may see more workers beginning to push for at least some of the high performance workplace practices regardless of strategic concerns of banks, should the current period of relative labor surplus prove to be transient.