- Strategic Human Resource Management’s Relationship To Business Strategy
- Components of Strategic Human Resource Management:
- Theoretical Review of Strategic Human Resource Management:
- Evolution of Strategic Human Resource Management:
- The Resource-Based Approach:
- Line and Staff Aspects of HRM:
- Line Manager’s HRM Responsibilities:
- Cooperative Line and Staff HR Management: An Example
- HR’s Strategic Role:
- HR’s Role as a Strategic Partner
- HR’s Role in Executing Strategy
Strategic human resource management is an approach to the practice of human resources that addresses business challenges and directly contributes to long-term objectives. The primary principle of strategic human resource management is to improve business performance and uphold a culture that inspires innovation and works unremittingly to gain a competitive advantage. It’s a step above traditional human resources and has a wider reach throughout the organization.
Strategic human resource management has no set definition or specific model practitioners follow. There are organizations, like the American College of Healthcare Executives (ACHE), that suggest best practices for their profession.
The framework that does apply universally to the discipline of strategic human resource management is the link between it and the overall business strategy.
Strategic Human Resource Management’s Relationship To Business Strategy
Reaching ultimate business goals requires leadership. Strategic human resource management encompasses the traditional human resources functions of recruiting, screening, interviewing, and hiring employees, but also works with the overall organizational strategy to achieve success.
Components of Strategic Human Resource Management:
Strategic Human Resource Management stresses the requirement for Human Resource plans and strategies to be devised within the framework of general organizational strategies and objectives, and to be approachable to the varying nature of the organization”s outside environment. It is a representation that requires interpretation and adjustment by specialists to make sure the most fit between human resources and business strategies and plans.
Thus, Strategic Human Resource Management is the incorporation of the adherence of all human resource functions to broad organizational goals, and awareness of the external environment.
Theoretical Review of Strategic Human Resource Management:
The field of human resource strategy differs from traditional HR management research in two significant ways. First, strategic human resource management focuses on organizational performance instead of individual performance. Secondly, it also stresses the role of human resource management systems in order to resolve business problems rather than individual human resource management practices in separation.
It is apparent that previous studies done for strategic human resource management are positively related to various conceptualizations of HRM and firm performance. The strategic dimension of human resource management got the attention of researchers at the end of the 1970s, with the confluence of basic changes in the literature.
There was a shift from the old personnel administration approach to the more modern concept of human resources and the reorientation of generic strategic models to internal aspects of the organization. Strategic Human Resource Management is the designed pattern of human resource deployment and activities intended to enable the organization to meet organizational goals and objectives.
According to Wright and McMahan, strategic human resource management is “the pattern of planned human resource deployments and activities intended to enable the firm to achieve its goals”.
Evolution of Strategic Human Resource Management:
The issue of strategic human resource management emerged at the beginning of the 1990s, at that time scholarly experts described it as The undertaking of all those activities affecting the behavior of individuals in their efforts to formulate and implement the strategic needs of businesses.
Strategic human resource management deals with extensive organizational issues relating to changes in structure and culture, organizational efficacy and performance, matching resources to future requirements, the development of distinguishing capabilities, knowledge management, and the management of change. It is concerned with both human capital requirements and the development of process capabilities.
In general, Strategic human resource management addresses any major people issues that are influenced by the strategic plans of the organization. In theoretical literature, strategic human resource management has been explained as “A distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce using an array of cultural, structural and personnel techniques”.
The simplest representation of the strategic human resource management model is an association between a firm’s HR architecture and firm performance. The HR architecture comprises the systems, practices, competencies, and employee performance behaviors that reveal the development and management of the firm’s strategic human capital.
Strategic human resource management mainly emphasizes actions that distinguish the firm from its competitors. Hendry and Pettigrew(1986) put forward that it has four meaning such as the use of planning; a coherent approach to the design and management of personnel systems based on an employment policy and workforce strategy and often underpinned by a ‘philosophy’; matching HRM activities and policies to some explicit business strategy; seeing the people of the organization as a ‘strategic resource’ for the achievement of ‘competitive advantage’.
As Boxall(1996) commented ‘The critical concerns of HRM, such as choice of executive leadership and formation of positive patterns of labor relations, are strategic in any firm’.
His underlying principle for strategic human resource management is the apparent advantage of having an agreed and understood basis for developing approaches to people management in the long term.
According to Legnick Hall(1990), it is the concept of accomplishing competitive advantage. The strategic human resource role focuses to align human resource strategies and practices with business strategy.
In this perspective, the HR expert works to be a strategic associate, helping to make certain the success of business strategies. By fulfilling this role, HR professionals increase the capacity of a business to implement its strategies. Converting business strategies into HR practices assists a business in three ways.
First, the business can adjust to change because the time from conception to the execution of a strategy is brief. Second, the business can fulfill purchase demands because its customer service strategies have been translated into specific policies and practices. Third, the business can accomplish financial performance through its more effective execution of strategy.
Strategic human resource management supplies a perception that critical issues or success factors related to people can be addressed and strategic decisions are taken that have a major and long-term impact on the behavior and triumph of the organization.
The basic objective of Strategic human resource management is to create the strategic capability to make certain that the organization has the skilled, committed, and well-motivated employees it needs to accomplish sustained competitive advantage.
Its purpose is to give a sense of direction in an often unstable environment so that the business needs of the organization and the individual and combined needs of its workers can be fulfilled by the development and execution of consistent and practical human resource strategies and programs.
Dyer and Holder(1988) commented that tactical human resource management should provide ‘unifying frameworks which are at once broad, contingency-based and integrative’.
Storey’s(1989) described that soft strategic HRM will place greater prominence on the human relations aspect of people management, stressing continuous development, communication, involvement, security of employment, the quality of working life, and work-life balance.
‘Hard strategic HRM’ will emphasize the yield to be obtained by investing in human resources in the interests of the business. Strategic human resource management tries to accomplish a proper balance between the hard and soft elements. All organizations exist to achieve a purpose and they must ensure that they have the resources required to do so and that they use them effectively.
But they should also take into account the human considerations contained in the notion of soft strategic HRM. It is a general belief in the business world that the human resources of an organization can be a basis of competitive advantage provided that the policies and practices for managing people are incorporated with planned goals and objectives. Strategic human resource management highlights the significance of establishing an equivalence between human resource policies and organizational strategic goals.
The Impact of Strategic Human Resource Management Implementation on Organizational Performance:
Numerous factors affect the strategic aspects of human resources. Internal factors include organizational structure, organizational culture, organizational competencies, organizational internal policies, and organizational processes. External factors include market scenarios, competitors, government policies, and technological advancements.
Approaches to Strategic Human Resouce Management
There are five approaches to Strategic human resource management. These include resource-based strategy, achieving a strategic fit, high-performance management, high commitment management, and high involvement management.
The Resource-Based Approach:
The resource-based view is an influential theoretical approach in the discussion of strategic human resource management. In the resource-based, the important is to attain sustainable competitive advantage through effective utilization of the resources of an organization. The main objective of a resource-based human resource strategy, as is to develop the strategic capability to achieve a strategic fit between resources and opportunities and obtain added value from the effective use of resources.
A resource-based approach deals with methods to enhance the firms’ strategic capability through the development of managers and other employees who can tactically plan and who understand the major strategic issues. The resource-based approach is developed on the principle that competitive advantage is obtained if a firm can achieve and develop human resources that allow it to learn quickly and apply its learning more successfully than its competitors.
Kamoche(1996) proposes that “In the resource-based view, the firm is seen as a bundle of tangible and intangible resources and capabilities required for product/market competition. “
According to human capital theory, resource-based theory stresses that investment in people adds to their value in the firm.
The strategic goal will enable firms to create firms that are more intelligent and flexible than their competitors by hiring and developing more capable employees and by extending their skills.
Ulrich(1988) observed that knowledge has become a direct competitive advantage for companies selling ideas and relationships. The challenge to organizations is to make sure that they have the potential to find, incorporate, balance, and maintain brilliant staff.
Grant(1991) presented a reasonable statement about to use of a resource-based strategy. When the external environment is in a state of instability, the firm’s resources and capabilities may be a much more stable basis on which to define its identity.
Therefore, a definition of a business in terms of what it is capable of doing may offer a more durable basis for strategy than a definition based on the needs (which the business seeks to satisfy). Talented employees such as their better performance, productivity, flexibility, innovation, and ability to deliver high levels of personal customer service, are ways in which employees can contribute to developing an organization’s competitive position.
Delivery and Shaw(2001) stated that the choice of the resource-based view offers numerous benefits to investigators and researchers in exploring strategic human resource management’s nature. Their theorists also gripped in criticisms of the approach, chiefly that the resource-based view does not meet the standards for a true theoretical viewpoint and contains several tautological elements.
Resource Based approach to strategic analysis:
The human resource strategy must be aligned with the business strategy(vertical fit). Vertical integration is essential for comparison between business and human resource strategy so that the latter supports the achievement of the former and, indeed, helps to define it. Horizontal integration with other aspects of the human resource strategy is required so that its different elements fit collectively.
The main intent is to accomplish a consistent approach to managing people in which the various practices are jointly helpful. Strategic fit suggests that if firms want to maximize it s competitive advantage, they must match their internal sources and skill with opportunities available in the external environment. Experts, categorized five types of fit such as best fit approach, fit as a contingency, best practice approach, fit gestalt and fit bundles.
The objective of High-performance management is to make an impact on the performance of the firm through its people in the arena of productivity, quality, levels of customer service, growth, profits, and finally the delivery of increased shareholder value. High-performance management practices include accurate recruitment and selection procedures, wide-ranging and appropriate training and management development activities, incentive pay systems, and performance management processes.
This practice involves treating workers as collaborators in the enterprise whose interests are valued and who can put their views on matters that concern them. It is concerned with communication and participation. The goal is to produce a climate in which a continuing conversation between managers and the members of their teams takes place in order to describe expectations and share information on the organization’s mission, values, and objectives. This establishes a common understanding of what is to be achieved and an agenda for managing and developing people to guarantee that it will be achieved.
The theory of strategic human resource management is based on the principle that the development of strategy is a logical and linear process. This designates that the overall HR strategy flows in front of the business strategy and creates specific HR strategies in major fields. The process happens by reference to systematic reviews of the internal and external environment of the organization, which recognize the business, organizational, and HR issues that need to be dealt with.
But strategic human resource management in a real scenario does not usually take the form of a formal, well-articulated, and linear process that flows logically from the business strategy as described by Mintzberg(1987).
Mello(2001) presented eight barriers to successful strategic human resource management.
- The first one is the short-term orientation of firms. As most HR interventions or practices have long-term implications, short-term-oriented actions can obstruct effective human resource management.
- The second barrier is the incapability of human resource managers to think tactically. Their inadequate general management training or inability to influence colleagues in other departments is visualized as a barricade to SHRM.
- The third hindrance of SHRM is the lack of admiration for HRM as a function.
- The fourth barrier is the lack of teamwork among the line managers and their untrustworthiness in handling HR functions in their respective departments.
- The fifth reason that hinders HR functioning is the increasing focus on quantifying results.
- The feeling of risk in investing heavily in human resources is a major and sixth reason that can obstruct the development of the workers for complementing organizational performance.
- The seventh barrier that can slow down strategic linkage is the incapacity of the HR practices to change according to the business requirements.
- The final cause would be the disincentives related to changes associated with strategic human resource management.
Implementation of strategic human resource management may involve radical changes in the work practices and other HR processes and hence may affect a majority of employees. Bringing about change is a complex process and people who have faced negative consequences of an unproductive effort to change may hamper the change processes in the future.
Despite barriers, strategic human resource management is significant for an organization’s success as it is concerned with the following factors:
- Analyze the opportunities and threats existing in the external environment.
- Devise strategies that will match the organization’s (internal) strengths and weaknesses with environmental (external) threats and opportunities.
- Execute the strategies so formulated.
- Assess and control activities to ensure that organization’s objectives are duly achieved.
Strategic human resource management presents financial and non-financial advantages to firms that practice it. Organizations that adopt strategic human resource management can compete in tough business environments because it
- permits identification,
- prioritization and exploitation of opportunities,
- provides an objective view of management issues,
- reveals a structure for improved coordination and control of activities,
- reduces the effects of unfavorable conditions and changes,
- enables major decisions to better support established objectives,
- Allows more effectual allocation of time and resources to identified opportunities,
- facilitates fewer resources and lesser time to be devoted to correcting erroneous or Adhoc decisions,
- develops a framework for internal communication among personnel,
- assists to incorporate the behaviors of individuals into a total effort,
- gives a basis for the explanation of individual responsibilities,
- Gives support to forward-thinking,
- provides a cooperative, integrated and passionate approach to solving problems and opportunities,
- promote a positive attitude toward change and provides a degree of discipline and formality to the management of a business.
To summarize, strategic human resource management is a vital procedure to create human resource strategies, which are incorporated vertically with one another. It is an effective process of recognizing and executing an organization’s mission by harmonizing its abilities with the demands of its environment. It relates human resource management with strategic goals in order to improve business output and develop the culture to promote innovation and flexibility.
Line and Staff Aspects of HRM:
All managers are, in a sense, HR managers, since they all get involved in activities like recruiting, interviewing, selecting, and training. Yet most firms also have a human resource department with its own top manager. How do the duties of this HR manager and his or her staff relate to “line” managers’ human resource duties? Let’s answer this question, starting with a short definition of line versus staff authority.
Line Versus Staff Authority is the right to make decisions, direct the work of others, and give orders. In management, we usually distinguish between line authority and staff authority.
Line managers are authorized to direct the work of subordinates– they’re always someone’s boss. In addition, line managers are in charge of accomplishing the organization’s basic goals. (Hotel managers and the managers for production and sales are generally line managers, for example) Staff managers, on the other hand, are authorized to assist and advise line managers in accomplishing these basic goals. HR managers are generally
Staff managers. They are responsible for assisting and advising line managers in areas like recruiting, hiring, and compensation.
Line Manager’s HRM Responsibilities:
According to one expert, “The direct handling of people is, and always has been, an integral part of every line manager’s responsibility, from the president down to the lowest level supervisor.”
For example, one major company outlines its line supervisor’s responsibilities for effective human resource management under the following general headings:
- Placing the right person on the right job
- Starting new employees in the organization(orientation)
- Training employees for jobs that are new to them
- Improving the job performance of each person
- Gaining creative cooperation and developing smooth working relationships
- Interpreting the company’s policies and procedures
- Controlling labor costs
- Developing the abilities of each person
- Creating and maintaining department morale
- Protecting employees’ health and physical condition
In small organizations, line managers may carry out all these personnel duties unassisted. But as the organization grows, they need the assistance, specialized knowledge, and advice of a separate human resource staff. The human resource department provides this specialized assistance. In doing so, the HR manager carries out three distinct functions:
A Line Function:
The HR manager directs the activities of the people in his or her department and related service areas (like the plant cafeteria). In other words, he or she exerts line authority within the HR department. While they generally can’t wield line authority outside hR, they are likely to exert implied authority.
This is because line managers know HR has top management’s ear in areas like testing and affirmative action. As a result, HR managers’ “suggestions” are often seen as “orders from the top side.” And, as you might imagine, this carries even more weight with supervisors troubled by staffing problems.
A Coordinative Function:
HR managers also coordinate personnel activities, a duty often referred to as functional control. Here the HR manager and department act as the “right arm of the top executive” to ensure that line managers are implementing the firm’s HR objectives, policies, and procedures (for example, adhering to its sexual harassment policies.)
Staff (service) Functions:
Assisting and advising line managers is the “bread and butter” of the HR managers’ job. For example, HR assists in the hiring, training, evaluating, rewarding, counseling, promoting, and firing of employees. It also administers various benefits programs (health and accident insurance, retirement, vacation, and so on). It helps line managers comply with equal employment and occupational safety laws, and plays an important role in handling grievances and labor relations.
It carries out an innovative role, by providing “up-to-date information on current trends and new methods of solving problems”, such as today’s interest in instituting six-sigma quality programs and creating “learning organizations.”
And it plays an employee advocacy role: It helps define how management should be treating employees, makes sure employees can contest unfair practices, and represents the employees’ interests within the framework of its main obligation to senior management. In most firms today. HR also plays a strategic role, by helping eh CEO craft and implement the firm’s strategy. We’ll return to this in a moment.
The figure shows the traditional HR positions you might find in a large organization. They include a compensation manager, recruitment and placement supervisor, training specialist, employee relations manager, and safety supervisor. Examples of HR job duties include
- Recruiters. Search for qualified job applicants.
- Equal employment opportunity (EEO) coordinators. Investigate and resolve EEO grievances, examine organizational practices for potential violations, and compile and submit EEO reports.
- Job analysts. Collect and examine information about jobs to prepare job descriptions.
- Compensation managers. Develop compensation plans and handle the employee benefits program.
- Training specialists. Planned, organized, and directed training activities.
- Labor relations specialists. Advise management on all aspects of union-management relations.
Cooperative Line and Staff HR Management: An Example
Exactly which HR management activities are carried out by line managers and by staff managers? There’s no single division of responsibilities we could apply across the board in all organizations, but we can make some generalizations.
For example, in recruiting and hiring, it’s generally the line manager’s responsibility to specify the qualifications employees need to fill specific positions. Then the HR staff takes over. They develop sources of qualified applicants and conduct initial screening interviews. They administer the appropriate tests. Then they refer the best applicants to the supervisor (line manager), who interviews and selects the ones he or she wants.
Some activities tend to be HR alone. For example, 83% of firms assign responsibility for pre-employment testing exclusively to HR, 75% assign college recruiting to HR, 86% to insurance benefits administration, 84% to exit interviewers and 88% to personnel/HR recordkeeping. But employers split most activities, such as employment interviews, performance appraisals, skills training, job descriptions, and disciplinary procedures, between HR and line departments.
In summary, you should see that HR management is an integral part of every manager’s job. Whether you’re a first-line supervisor, middle manager, or president; or whether you’re a production manager, sales manager, office manager, hospital administrator, or county manager, getting results through committed people is the name of the game.
HR’s Strategic Role:
Firms today are instituting HR practices aimed at gaining a competitive advantage from their employees. For example, GE’s former Chairman Jack Welch has said, “The only way I see to get more productivity is by getting people involved and excited about their jobs. You can’t afford to have anyone walk through a gate of a factory or into an office who is not giving 120%.”
A survey of 377 CEOs from the world’s 2,000 largest companies shows that GE’s emphasis isn’t unique. About half the CEOs said they spend a great deal of time reshaping corporate culture and employee behavior, and even more time than they spend monitoring corporate financial information.
Another study found that 70% of companies with above-average financial performance considered employee training and development a critical factor in corporate success. These companies help build a competitive advantage by developing their human capital in HR’s evolving role.
Today, it’s the firm’s workforce, its knowledge, commitment, skills, and training that provides the competitive advantage for world-class companies like Microsoft, Sony, AOL, and GE and it’s HR’s job to build that competitive advantage.
That means upgrading HR’s traditional role. In the early 1900s. Personnel people first took over hiring and firing from supervisors, ran the payroll department, and administered benefit plans. The job consisted largely of ensuring that procedures were followed. As new technology in areas like testing and interviewing began to emerge, the personnel department began to play an expanded role in employee selection, training, and promotion.
The emergence of union legislation in the 1930s led to a new HR emphasis on protecting the firm in its interaction with unions. The discrimination legislation of the 1960s and 1970s meant the potential for more lawsuits, and effective personnel practices became even more important. However, the emphasis was still on what HR could do to protect the organization rather than the positive contribution it made to the firms’ effectiveness.
Today, HR’s role is shifting from protector and screener to strategic partner and change agent. The metamorphosis of personnel into human resource management reflects that. In today’s flattened, downsized, and high-performing organizations, trained and committed employees, not machines, are the firm’s competitive key.
If a firm’s competitiveness depends on its employees, then the business function responsible for acquiring, training, appraising, and compensating those employees has to play a bigger role in the firm’s success. The notion of employees’ competitive advantage has therefore led to a new field of study known as strategic human resource management. “The linking HRM with strategic goals and objectives in order to improve business performance and develop organizational cultures that foster innovation and flexibility.”
Ideally, HR and top management together craft the company’s business strategy. That strategy then provides the framework that guides the design of specific HR activities such as recruiting and training(including coaching managers to give effective feedback). This should produce the employee competencies and behaviors that in turn should help the business implement its business strategy and realize its goals.
HR strategies are the courses of action HR uses to help the company achieve its strategic aims. One of FedEx’s strategic aims is to achieve superior levels of customer service and high profitability through committed employees. Its basic HR objective is thus to build a committed workforce, preferably in a non-union environment.
FedEx pursues specific HR strategies to accomplish that strategic aim. It uses mechanisms (such as special grievance procedures) to build healthy two-way communication; it screens out potential managers whose values are not people oriented; it provides highly competitive salaries and pay-for-performance incentives; it provides fair treatment and employee security for all employees; it uses promotion from within and developmental activities to give employees every opportunity to use their skills and gifts at work. Let’s take a closer look at HR’s strategic partner role.
HR’s Role as a Strategic Partner
Unfortunately, HR’s long history as a staff or advisory function has left it with a somewhat impoverished reputation, some still tend to view it as less than it is. For example, one view is that HR is strictly operational and that HR activities are not strategic at all. According to this line of reasoning, HR activities “involve putting out small fires, ensuring that people are paid on the right day; the job advertisement meets the newspaper deadline, and a suitable supervisor is recruited for the night shift by the time it goes ahead.”
A second, more expansive, view is that HR’s role is to fit or adapt to the company’s strategy. Here Hr’s strategic role is to adapt individual HR practices (recruiting, rewarding, and so on) to fit specific corporate and competitive strategies. Top management crafts a corporate strategy, such as AOL’s decision to merge with Time Warner, and then HR creates the HR programs required to execute that corporate strategy.
As two strategic planning experts have argued, “the human resources management system must be tailored to the demands of business strategy.” The idea here is that “for any particular organizational strategy, there is purportedly a matching human resource strategy.
HR’s Role in Executing Strategy
Execution has traditionally been the heart of HR’s strategic role, and that makes sense. A firm’s functional strategies should support its competitive strategies. For example, FedEx’s competitive strategy is to differentiate itself from its competitors by offering superior customer service and guaranteed on-time deliveries. This requires highly committed employees, ones who’ll “go the extra mile” to do their best.
Since the same basic technologies are available to UPS, DHL, and FedEx’s other competitors, it is FedEx’s workforce, its human resource, that provides FedEx with its competitive advantage. This means FedEx, as discussed earlier, must design its HR processes to create a committed, competent, and customer-oriented workforce. A different firm with a different competitive strategy might well have a very different approach to HR.
HR supports strategy implementation in other ways. For example, HR handles the execution of most firms’ downsizing and restructuring strategies, by outplacing employees, instituting pay-for-performance plans, reducing healthcare costs, and retraining employees. When Wells Fargo acquired First Interstate Bancorp, HR played a strategic role in merging two “wildly divergent” cultures. It helped deal with the uncertainty and initial shock that rippled through both organizations when management announced the merger.