The fact that the human resources management plays a major role in a firm's performance is a relatively recent development. "The question of how strategic is human resource management (HRM) and how strategic human resource management (SHRM) is linked to organizational performance has been subject to great interest to both practitioners and academicians" (Wright et al., 1999 cited in Cerdin & Som 2003). Human resource strategy basically concerns how human resources may be utilized in order to achieve the objectives of a firm. So, the link between corporate strategy and management of human resources has started to be considered as one of the parameters of business success. It is now commonly argued that strategy for human resources and corporate strategy should be interlinked for achieving organizational success, for responding to rapidly changing business circumstances so as to gain a competitive edge over competitor. Ulrich (2004) said "HR practices seem to matter; logic says it is so; survey findings confirm it". Strategic human resource management involves the linking of HRM with the strategic goals and objectives of the organisation in order to achieve a progressive business performance and achieve an organisational structure that promotes innovation and flexibility.
In this assignment firstly we do a thorough literature review of strategic human resource management literature in order to understand the various components of strategic human resource management and its linkage with organizational performance. We then try to understand how organizational performance is measured, how strategic human resource practices are evaluated.
Literature Review
Martell and Carroll (1995) said there has been a growing interest among academic press about the notion how strategic is human resource management. "It builds upon the idea that human capital is one of the most critical components of strategic success for many companies, managers are being encouraged to link specific HRM practices to strategic outcomes" (Schuler and Jackson 1987 cited in ).According to Ulrich et.al 1995 researchers have pointed out that by matching HRM with strategy, the critical human resource skills, attitudes, behaviours, and performances that are needed to successfully implement strategies can be acquired, developed, motivated and maintained. Agreeing to this logic Guest (2007) said "since strategic success is typically measured in financial terms, in order for HRM practices to be judged to be truly effective, they must contribute to the firm's bottom line. This approach to HRM, linking it to both strategy and organizational performance, represents what has evolved to be known as strategic human resource management".
Devanna, Fombrun and Tichy (1981 cited in Bratton and Gold 2007) defined strategic human resource management in three levels of management - strategic level, managerial level and operational level, where strategic-level activities look to the long term future, the managerial level speak about the medium term while the operational level is concerned about the short-term day-to-day management of the organization. "For example, long-term strategic level activities could ask what kinds of people will be needed in the future, whose implication can be traced back to the current practices of recruitment, selection and training practices. Medium-term development of new markets, compensation and rewards practices, promotion policies and its linkage to performance appraisal systems, professional development and training activities and mid-term career paths. Short-term operational level activities would focus on daily activities of staffing and monitoring, salary and wages, control systems and skills training" (Bratton and Gold 2007).
Schuler (1992 cited in Noe 2000) said: "there shouldn't be any mystery about the word strategic in the phrase strategic human resource management; Strategic Human Resource Management is largely about integration and adaptation. Its concern is to ensure that: (1) HR management is fully integrated with the strategy and the strategic needs of the firm; (2) HR policies cohere both across policy areas and across hierarchies; and (3) HR practices are adjusted, and used by line managers and employees as part of their everyday work."
Combining the above perspective of strategic human resource management, Martell and Carroll (1995) defined strategic human resource management as having a long-term focus, the expectation that effective HRM policies should produce organizational performance benefits, and having a linkage between HRM and strategy processes. There was a constant debate on the topic of how SHRM practices themselves should be measured and linked to firm performance. Schuler (2000) suggested a 5P (HR Philosophy, Policies, Programs, Practices and Processes) model of strategic human resource management encompassing the SHRM practices.
Armstrong (2000) suggested ten HRM practices in the areas of selection, appraisal, incentive compensation, job design, grievance procedures, information sharing, attitude assessment, and labour management participation. Becker et al. (1997) on the other hand included rigorous recruitment and selection, performance-contingent compensation systems, and management development and training activities linked to the needs of the business. Watson (2008) stretched the list to include intensity of recruiting efforts, average number of hours of training per employee per year, promotion criteria. Schuler and Jackson (2007) identified seven alternative 'strategic' HR practices of which their research found support on profit sharing, results-oriented appraisals and security that were related to overall organizational performance.
Strategic Management
Strategic Management is an approach to addressing the competitive challenges an organisation faces. It is a process for analyzing a company's competitive situation, developing the company's strategic goals, and devising a plan of action and allocation of resources (human, organisational, and physical) that will increase the likelihood of achieving those goals.
Strategic Human resource Management can be thought of as "the pattern of a planned human resource deployments and activities intended to enable an organization to achieve its goals. For example many firms have integrated manufacturing systems such as advanced manufacturing technology, just-in-time inventory control, TQM in order to improve their competitive position. However, these systems must be run by people. SHRM in these cases entails assessing the employee skills required to run these systems and engaging in HRM practices, such as selection and training that develop these skills in employees.
For example, in the production of glass microwave shelves, the employees made a suggestion that was originally thought impractical, but when implemented it saved Camco $25,000 annually. Productivity improvement in just one year after the change was 25 percent, and absenteeism was reduced by 30 percent.
Fig 1 from chapter in saved
Fig2 from Hollenbeck.
Strategic management has two distinct interdependent phases' as shown in the fig strategy formulation and strategy implementation which will be discussed in detail later.
Linkage between HRM and the Strategic Management Process
The strategic choice is all about competition - that is how the firm will compete to achieve its missions and goals. These decisions consist of addressing the issues of where to compete, how to compete and with what to compete. Although these decisions are all important most often decision makers does not pay attention to "with what will we compete".
Pepsi Co in the 1980s acquired the fast food chains KFC, Taco Bell and Pizza Hutt in order to increase its customer base without fully understanding the differences between its existing workforce (mostly professionals) and that of the fast food industry (lower skilled people and high schoolers) and how to manage such a workforce. As a result they had to move out of the fast food market. The major reason was it decided to compete without fully understanding what resources it would take to compete in that market (Hollenbeck et al 2002).
Boeing illustrates how failing to address the "with what" issue resulted in problems in its "how to compete" decisions. When Aerospace firm's consumer products division entered into a price war with Airbus Industries it emphasized cost reduction strategy. The strategy was a success but Boeing had recently gone through a large workforce reduction (thus didn't had enough people to fill the orders) and thus didn't have the production technology to increase productivity. As a result they failed to meet delivery deadlines and had to pay penalties (Hollenbeck et al 2002)
Role of HRM in Strategy Formulation
"HRM executive gives strategic planners information about the company's human resource capabilities, and these capabilities are usually a direct function of the HRM practices. This information about human resource capabilities helps top managers to choose the best strategy because they can consider how well strategic alternative would be implemented. Once the strategic choice has been determined, the role of HRM changes to the development and alignment of HRM practices that will give the company employees having the necessary skills to implement the strategy"(Noe et al 2003 Pg 60). Four levels of integration seem to exist between the HRM function and the strategic management function:
Administrative linkage.
One-way linkage.
Two-way linkage.
Integrative Linkage.
Fig Hollenbeck pg 59
Strategy Formulation
"Five major components of the strategic management process are relevant to strategy formulation" (Noe et al 2003). The first component is the organisation's mission. The mission is a statement of the organisation's reason for being; it usually specifies the customers served, the needs satisfied, technology used and the value received by the customers. An organisations goal are what it hopes to achieve in the medium-to long term future; they mostly reflect on how the mission will be
operationalized.
Fig noe pg 61
External Analysis consists of examining the organisation's operating environment to identify the strategic opportunities and threats. Examples of opportunities are customer markets that are not being served, technological advances that can aid the company and untapped labour pools. Threats include potential labour shortages, new competitors entering the market and competitors technological innovations.
Internal analysis attempts to identify the organisations strengths and weaknesses. In this case the focus is on the quantity and quality of available to the organisation-financial, technological, capital and human resources. They need to assess carefully decide which resource is strength and which one is weakness.
External analysis and internal analysis combined constitute what has come to be called SWOT analysis. After going through the SWOT analysis the strategic planning team has all the information to generate a number of strategic alternatives. The strategic managers compare this alternative's ability to attain the organization's strategic goals, and then they make their strategic choice. Most of the opportunities and threats are people related. HRM's role is to keep close tabs on the external environment for human resource-related opportunities and threats, especially those directly related to the HRM function: potential labour shortages, competitor wages rate, government regulations affecting employment etc. For example
U.S. companies are finding that more and more high school graduates lack the basic skills needed to work which is one source of "human capital shortage". However not recognizing this environmental threat, many companies have encouraged the exit of older, more skilled workers while less skilled younger workers.
A large electric utility, sensing society's increasing concern about air pollution, decided to reduce coal burning and shift to hydro power. This in turn necessitated replacement of its plant and equipment as well as major changes in its human resource strategy. Not only were new skills required, but the changeover from existing procedures and systems (e.g., compensation, appraisal, and training) also had to be smooth and cause as little disruption to the work as possible. A strategy based on considerable in-house and external training was drawn up and implemented. By the time the utility switched to hydro power, it had the necessary supply of skilled labour.
Allied Exteriors Incorporated: A new direction
Allied Exteriors Incorporated is a medium-sized corporation, which until five years ago had been a small family-owned business and grown large over the years. They specialises in the design and production of a variety of exterior cladding materials for buildings, largely residential. Allied Exteriors had been archaic as far as their management attitude is concerned towards employees and any potential problem brought about HRM manager were neglected and rejected. They had a strict McGregor's Theory X philosophy. This approach to human resource management had already resulted in Allied Exteriors becoming well known for its poor quality products, its inability to deliver on time and its poor customer service.
Air National's human resources strategy
The competitive and HR strategies pursued by AN mainline business in the wake of this restructuring process are congruent with an HR strategy that emphasizes employee empowerment and commitment. As their CEO Clive Warren stated in a television interview, 'In an industry like ours, where there are no assembly lines or robots, people are our most important assets and our long term survival depends on how they work as part of a team'.
An analysis of a company's internal strengths and weaknesses also requires input from the HRM function. Today companies are increasingly realising that their human resources are one of their most important assets. A company's failure to consider the strengths and weaknesses of its workforce may result in its choosing strategies it is not capable of pursuing. For example:
One company in U.S choose a strategy of cost reduction through technological improvements. It built a plant designed around a computer integrated manufacturing system with statistical process controls. Though it looks like a good strategy the company soon discovered that employees couldn't operate the new equipment because 25% of the workforce was functionally illiterate.
Thus with an integrative linkage, strategic planners consider all the people-related business issues before making a strategic choice. These issues are identified with regard to the mission, goals, opportunities, threats, strengths, and weaknesses, leading the strategic planning team to make a more intelligent strategic choice.
Recent research has backed the need to have HRM executives integrally involved in strategy in strategy formulation.
A study in U.S petrochemical refineries found that the level of HRM involvement was positively related to the refinery manager's evaluation of the effectiveness of the HRM function. A second study of manufacturing firms found that HRM involvement was highest when top managers viewed employees as a strategic asset and associated with reduced turnover. Both the studies found that HRM involvement was unrelated to operating unit financial performance.
Delta Air Lines and HRM's role in Strategy Formulation
Delta Air Lines had one source of sustainable competitive advantage its highly committed workforce, which delivered the highest level of customer service in the industry. The company had a financial turmoil as a result got rid some of its staff which later on seen it to become 4th to 7th airlines. Thus a human resource executive could have proposed an alternative strategy that would have reduced cost without sacrificing its workforce.
Influence of Strategic HRM in facilitating organisational culture towards innovation and flexibility
As cultural values change, human resource departments discover new challenges. While there are several cultural challenges three more important ones are discussed below: work-related attitudes, ethnic diversity, and attitudes toward government and those in power.
Work-Related Attitudes
The increasing entry of women and educated young person's into the labour force has resulted in some changes in employee expectations. The old cultural value that "men work and women stay home" has undergone a radical modification during the last two decades.
This shift carries implications for human resource managers. For example, child care facilities provided by the employer will become a more common demand confronting human resource departments. Sick days-paid days off for illness-have become "personal leave days" and "maternity leave" has been renamed "parental leave" to reflect the reality of working men leaving the workforce to take care of their young children.
Ethnic Diversity
The coexistence of anglophones and francophones with dozens of other national, racial, and
ethnic groups, each with its unique cultural and social background, makes U.K society a cultural mosaic .
According to the latest census results, for the first time in history, less than half of Canada's immigrants came from European countries. Currently, only 47 percent of immigrants originate from Britain or other European countries.
Attitudes towards Government
Basic assumptions on the role of government in business and society, including desirability of a welfare state with a key interventionist role for the government.
In the past, the Canadian national character was called a "conservative syndrome,"56 reflecting Canadians' tendency to be guided by tradition and focus on maintenance of order and predictability. Canadians were said to be a hybrid product of several nationalities and ethnic groups "not quite as American as the Americans, not quite as British as the British … and not quite as French as the French."57 However, more recently, Canada's national self-image has changed somewhat (symbolized in the Charter of Rights and Freedoms, aggressive entry into foreign markets, and reduced dependence on governmental programs).
Although a review of previous studies reveals that SHRM has gained popularity, specifically, with respect to the debate on HRM and performance, the focus has mainly been limited to the linkage between HR practices and organizational performance. The implication is that SHRM accepts HR function as an important strategic partner in the formulation of the company's strategies as well as in the implementation of those strategies through HR practices. Majority of work in SHRM (Paauwe and Boselie, 2002; Barney, 1991; Delery, 1998) has adopted the resource-based view (RBV) perspective, which emphasizes the gaining of competitive advantage by means of utilization of the resources of the organization through the employees. The RBV theory caused a change in strategic management thinking from an outside-in approach to an inside-out approach (Wright et al 2001). It is specifically applied to the field of human resource management because it is people that encompass the properties assumptions of value, rareness, inimitability, and no substitution, which are the necessary conditions for organizational success (Barney, 1991). However, research using RBV theory tends to neglect the importance of contextual factors, including the organizational setting, an issue that is crucial from HRM point of view. Fields et al (2000) and Nyambegera et al (2000) argue that contextual variables, particularly national culture, have an influence on choice of HRM strategies.
For example, two similar electronic manufacturers might have different missions. One might define theirs as "to become a successful organization in the entertainment business," the other may define theirs as "to occupy a technological leadership position in the industry." The associated strategies are likely to show significant differences also. Apart from manufacturing electronic goods used for home entertainment, the firm might acquire video and film production firms and get into the music industry (e.g., produce compact discs); while the focus of the second firm Mr. might be more committed to developing innovative electronic products through research and development.
Dell
A culture change at Dell has allowed it to strengthen its position in the marketplace, according to an HR vice-president at the computer company. It has moved from a focus on growth and US-centricity to one on leadership, talent management and a global outlook. The 'New Dell' is characterised by leadership and talent management, and 50 percent of Dell's business is outside the U.S. Eighty percent of our senior executives have come from within the company. In the Old Dell, 75% percent came from outside.
Jack Stack 'open book' and APA industries
Jack Stack one of the American management 'gurus' runs an engine- rebuilding firm called Springfield Manufacturing Company in Illinois. His firm practises 'open-book' management which involves a full sharing of all information about the company's performance among employees. The approach
has been remarkably successful with phenomenal increases in the firm's share values , the generation of a significant amount of income from seminars ,speaking engagements and books, and the growth of a network of similar firms throughout the United States.
Coopers and Lybrand
Coopers and Lybrand, one of six worldwide professional service firms, is dedicated to client service. The company leaders believe that their advantage in the marketplace is their ability to anticipate and meet client needs more effectively than their competitors. At the same time, they know that their intellectual capital, represented by their employee's competence and vice chairman of learning, education and human resources, the company developed a strategy called Nexus to integrate the employee commitment and client-service initiatives.
Our people are our customer's most important asset.
We want to be the employer of choice of employees our customers would choose.
Stimulating Innovation
Creativity is the ability to combine ideas in a unique way or to make unusual associations between ideas whereas innovation is the process of transforming creative ideas into a useful product, service, or method of operation.
Inputs Transformation Output
Creative
individuals,groups
organizations
Creative process
Creative organization
Creative product(s)
Stimulating and Nurturing Innovation must focus on inputs -creative people and groups within the organization and requires appropriate environment to facilitate such practice. The fig below shows the factors that stimulate innovation:
Flexibility
Strategic HRM has been called to serve other functions that create competitive advantage and ensure organizational success. Among these new roles are the following:
1. HRM as Human Capital Steward
As a Human Capital Steward, HR contributes to strategic capabilities by developing, leveraging, renewing, and nurturing a firm's stock of knowledge, skills, abilities, interests, and talents. HR is there to help ensure that every individual is able to make value added contributions by identifying and cultivating individual competencies and capabilities. HR contributes to organizational success by initiating training and development activities and by creating a culture of continuous learning. HR shapes the values and provides the contextual backdrop that enables people to take initiative and use their judgment in a flexible and fluid business setting.
2. HRM as Relationship Builder
The role of Relationship Builder focuses on creating programs and practices that enable employees to encourage, facilitate, nourish, and sustain relationships among fellow employees, customers, suppliers, firms in complementary arenas, and at times, even rivals. HR can deliver people strategy by contributing to a firm's ability to leverage its resources and develop strategic capabilities and core competencies by helping individuals build a strong web of relationships. It facilitates inter-unit resource exchange and product innovation. Social capital facilitates the creation of intellectual capital since people are more likely to share tacit information and take intellectual risks in a supportive social environment.
3. HRM as Knowledge Management Facilitator
It is not enough simply to hire employees and put them to work. Strategic capability requires a firm to be able to create and disseminate knowledge among its employees. HR can play a vital role in facilitating organization learning and knowledge sharing between employees, among departments, throughout the organization, and with external co-producers.
Strategy Implementation
After an organisation has chosen its strategy it has to execute that strategy and make it part of the day-to-day activities. This is where an organisation needs HR. In order for a company to have a good strategy foundation certain tasks must be accomplished in pursuit of the company's goals, individuals must possess certain skills and these individuals must be motivated to perform their skills effectively.
Five important variables determine success in strategy implementation: organisational structure, task design, the selection, training and development of people, reward system and types of information and information systems. HRM has primary responsibility for three of these five implementation variables: task, people and reward systems. For the strategy to be implemented successfully the role of HRM is to 1. Ensuring that the company has the proper number of employees with the levels and types of skills required by the strategic plan. 2. Developing "control" systems that ensure that those employees are acting in ways that promote the achievement of the goals specified in the strategic plan.
Fig below explains how HRM function do this?
Hollenbeck pg 66 fig
As shown in the fig it is through administering HRM practices: job analysis/design, recruitment, selection, training and development programs, performance management systems, reward systems and labour relations programs. A general overview of the HRM practices and their role in strategy implementation are described below.
Job Analysis and Design
Companies produce a given product or service (or set of products or services), and the manufacture of these products requires that a number of tasks be performed. These tasks are grouped together to form jobs. Job analysis is the process of getting detailed information about jobs. Job design addresses what tasks should be grouped into a particular job. The way that jobs are designed should have an important tie to the strategy of an organization because the strategy requires either new and different tasks or different ways of performing the same tasks. In addition, because many strategies entail the introduction of new technologies, this impacts the way that work is performed.
In general, jobs can vary from having a narrow range of tasks (most of which are simplified and require a limited range of shills) to having a broad array of complex tasks requiring multiple skills. In the past, the narrow design of jobs has been associated with efforts to increase efficiency, while the broad design of jobs has been associated with efforts to increase innovation. However, with the advent of total quality management methods and a variety of employee involvement programs such as quality circles, many jobs are moving toward the broader end of the spectrum.
Employee Recruitment and Selection
Recruitment is the process through which the organization seeks applicants for potential employment. Selection refers to the process by which it attempts to identify applicants with the necessary knowledge, skills, abilities, and other characteristics that will help the company achieve its goals. Companies' engaging in different strategies needs different types and numbers of employees. Thus the strategy a company is pursuing will have a direct impact on the types of employees that it seeks to recruit and select.
Employee Training and Development
A number of skills are instilled in employees through training and development. Training refers to a planned effort to facilitate the learning of job-related knowledge, skills, and behaviour by employees/ Development involves acquiring knowledge, skills, and behaviour that improve employees' ability to meet the challenges of a variety of existing jobs or jobs that do not yet exist. Changes i strategies often require changes in the types, levels, and mixes of skills. Thus the acquisition of strategy-related skills is an essential element of the implementation of strategy. For example, many companies have recently emphasized quality in their products, engaging in total quality management programs. These programs require extensive training of all employees in the TQM philosophy, methods, and often other skills that ensure quality. Through recruitment, selection, training and development, companies can obtain a pool of human resources capable of implementing a give strategy.
Performance Management
Performance management is used to ensure that employee's activities and outcomes are congruent with the organization's objectives. It entails specifying those activities and outcomes that will result in the form's successfully implementing the strategy. For example, companies that are "steady state" (not diversified) tend to have evaluation systems that call for subjective performance assessments of mangers. This stems from the fact that those above the first-level managers in the hierarchy have extensive knowledge about how the work should be performed
Pay Structure, Incentives, and Benefits
The pay system has an important role in implementing strategies. First, a high level of pay and/or benefits relative to that of competitors can ensure that the company attracts and retains high-quality employees, but this might have a negative impact on the company's overall labour costs. Second, by tying pay to performance, the company can elicit specific activities and levels of performance from employees.
In study of how compensation practices are tied to strategies, researches examine 33 high-tech and 72 traditional companies. They classified them by whether they were in a growth stage (greater than 20 percent inflation-adjusted increases in annual sales) or a maturity stage. They found that high-tech companies in the growth stage used compensation systems that were highly geared toward incentive pay. With a lower percentage of total pay devoted to salary and benefits/. On the other hand, compensation system among mature companies (both high-tech and traditional) devoted a lower percentage of total pay to incentives and a high percentage to benefits.
Air Canada unveiled its long awaited discount carrier in order to cut costs and regain market share. The discount carrier called Zip will have costs 20% lower than those at Air Canada's comparable mainline flights. Wages for the staffs will be reduced to a B-scale wages competitive with its low -cost market competitor and there will be snacks instead of meals, no entertainment, less room between seats and no business class seats. Workers union decided to take legal action. They said 'Air Canada gives zip by zapping its employees. They are hurting the very people who have worked so hard for them and for so long'.
Labour and Employee Relations
Whether companies are unionized or not, the general approach to relations with employees can strongly affect their potential for gaining competitive advantages. In the late 1970s Chrysler Corporation was faced with bankruptcy. Lee Iacocca, the new president of Chrysler, asked the union for wage and work-rule concessions in an effort to turn the company around. The union agreed to the concessions, in return receiving profit sharing and a representative on the board. Within only a few years, the relationship with and support from the union allowed Chrysler to pull itself out of bankruptcy to record profitability.
Companies can choose to treat employees as an asset that requires investment of resources or as an expense to be minimized. They have to make choices about how much employees can and should participate in decision making, what rights employees have, and what the company's responsibility is to them. The approach a company takes in making these decisions can result in it either successfully achieving its short-and long -term goals or ceasing to exist.
Recent research had begun to examine how companies develop sets of HRM practices that maximize performance and productivity. For example, one study of auto-mobile assembly plants around the world found the plants that exhibited both high productivity and high quality used "HRM best practices," such as heavy emphasis on recruitment and hiring, compensation tied to performance, low levels of status differentiation, high levels of training for both new and experiences employees, and employee participation through structures such as work teams and problem-solving.
HRM needs in strategic types
According to Michael Porter competitive advantage stems from a company's being able to create value in its production process. Value can be created in one of two ways. The "overall cost leadership" strategy focuses on becoming the lowest-cost producer in an industry. Secondly value can also be created by "differentiating strategy", according to Porter, attempts to create the impression that the company's product or service is different from that of others in an industry.
IBM-clone computer manufacturers like Dell and Compaq have captured an increased share of the personal computer market by offering personal computers at lower cost than IBM and Apple.
Apple has consistently emphasized its brand image and its reputation for superior service while charging a higher price for its computers.
Each of these strategies requires employees with specific skills and also requires these employees to exhibit "role behaviours". Role behaviours are the behaviours required of an individual in his or her role as a job seeker in a social work environment. Thus companies that follow cost strategy because of the focuses on efficient production, tend to specifically define the skills they require and invest in training employees in these skill areas. On the other hand companies that use differentiating strategies will seek to generate more creativity through broadly defined jobs with general job descriptions. They may recruit from outside, engage in limited socialization of newcomers. Training and development activities focus on cooperation.
A study of HRM on steel minimills in the United States found that mills pursuing different strategies used different systems of HRM. Mills seeking cost leadership tended to use control-oriented HRM systems that were characterized by high centralization, low participation, low training, low wages and high contingent pay whereas differentiator mills used commitment HRM systems characterized as the opposite on each of those dimensions. The study revealed that mills with the commitment systems had higher productivity, lower scrap rates and lower employee turnover than those with the control systems.
Directional Strategies
Strategic typologies are useful the way different organisations seek to compete within an industry. It is also important to understand how increasing size (growth) or decreasing it (downsizing) affects the HRM function. In this situation HRM function aid in evaluating the feasibility of the various alternatives and to develop programs that support strategic choice.
Companies have used five possible categories of directional strategies to meet objectives. They are:
Concentration Strategies- strategies emphasizing market share or operating costs are considered "concentration "strategies. With this type of strategy a company attempts to focus on what it does best within its established markets and can be thought of as "sticking to its knitting".
Internal Growth Strategies- Strategies focusing on market development, product development, innovation, or joint ventures make up the 'internal growth strategies'. Training needs differ depending on the way the company attempts to grow for example if the organisation wants to expand its market training will focus on knowledge of each market. On the other hand, when the company is seeking innovation or product development training will be more of a technical nature as well as focusing on interpersonal skills such as team building.
Mergers and Acquisitions- Those attempting to increase vertically or horizontally or to diversify are exhibiting an "external growth" usually through mergers or acquisitions. This strategy attempts to expand a company's resources or to strengthen its market position through acquiring or creating new businesses. HRM has a role in the actual implementation of a merger or acquisition. When companies engage in external growth strategy it basically acquires or develops new businesses and these businesses are of distinctive cultures. HRM plays` the crucial role of selecting people suitable for the role and train them in order to avoid clash of cultures.
Some companies now heavily weigh firm cultures before embarking on a merger or acquisition. For example, prior to acquiring ValueRx, executives at Express Scripts, Inc., interviewed senior executives and middle managers at the potential target firm in order to get a sense of its culture. In spite of this, less than one-third of the HRM executives surveyed said that they had a major influence in how mergers are planned yet 80% said people issues have a significant impact after deals are finalised.
Finding and keeping the best employee CISCO systems
Cisco Systems recognizes that when it acquires a new company, in large part, it is acquiring the human assets of that company. If the key people in the acquired company leave, then the acquisition was a tremendous failure. Thus Cisco first aims to screen potential acquisitions to ensure that the vision of the leader in that company and the company's direction are similar to Cisco's.
Downsizing- Downsizing presents a number of challenges and opportunities for HRM. In terms of challenges, the HRM function must "surgically" reduce the workforce by cutting only the workers who are less valuable in their performance.
The result of a survey conducted by the American Management Association indicating that only about one-thirds of the companies that downsize repeat the effort a year later. Also research by consulting firm Mitchell &Company found that companies that downsized during the 1980s lagged the industry average stock price in 1991. Thus it is important to understand the best ways of managing downsizings, particularly from the standpoint of HRM.
In 1992 General Motors and United Auto Workers agreed to an early retirement program for individuals between the ages of 51 and 65 who have been employed for 10 or more years. The program provided those who agreed to retire their full pension benefits, even if they obtained employment elsewhere, and as much as $13, 000 toward the purchase of a GM car. `
The Role of Human Resources in Providing Strategic Competitive Advantage
Human resources can provide a strategic competitive advantage in two additional ways: through emergent strategies and through enhancing competitiveness.
Emergent Strategies
Before describing emergent strategies it is important to know about intended strategies. In tended strategies is the result of the rational decision-making process used by top managers as they develop a strategic plan. Emergent strategies, on the other hand, consist of the strategies that evolve from the grass roots of the organizations actually do, as opposed to what they intend to do.
The new focus on strategic HRM has tended to focus primarily on intended strategies. Thus HRM has been seen as identifying for top management the people-related business issues relevant to strategy formulation and then developing HRM systems that aid in the implementation of the strategic plan.
Emergent strategies are identified by those lower in the organisational hierarchy. HRM plays an important role in facilitating communication throughout the organisation, and it is this communication that allows for effective emergent strategies to make their way to top management.
Enhancing Firm Competitiveness
A related way in which human resources can be a source of competitive advantage is through developing a human capital pool that gives the company the unique ability to adapt to an ever-changing environment. Managers are recently focusing on the idea of "learning organization". This requires the company to be in a constant state of learning through monitoring the environment, assimilating information, making decisions, and flexibility restructuring to compete in that environment. Companies that develop such learning capability have a competitive advantage. HRM provides the raw material for the learning culture. Thus the role of HRM in competitive advantage should continue to increase because of the fast-paced change characterizing today's business environment.
HR professionals in future will need four basic competencies to become partners in the strategic management process. First they will need "business competence"- knowing the company's business and understanding its economic financial capabilities.
Motorola's strategy uses all its resources
When Motorola embarks on a project, the organization employs every resource it has to plan and implement its strategy in a high-technology field in which products, customer's needs, markets, and technology are constantly changing. Motorola and companies like it need to rely on internal and external growth strategies, as well as intended and emergent strategies. To compete these strategies they must , they must rely on people -their technical skill, motivation, and innovative ways of thinking.
Conclusion
A strategic approach to human resource management seeks to proactively provide a competitive advantage through the company's most important asset: its human resources. The HRM function needs to be integrally involved in the formation of study to identify people related business issues the company faces. Once the strategy has been determined, HRM has a profound impact on the implementation of the plan by developing and aligning HRM practices that ensure that the company has motivated employees with the necessary skills. It is also the HRM's responsibility to create an organisational culture that facilitates innovation and give flexibility to employees which in turn enhances the firm's performance and enables them to gain competitive advantage over their competitors.
Finally, the emerging strategic role of the HRM function requires that HR professionals in the future develop business, professional-technical, change
management, and integration competencies. Only through these competencies can the HR professional take a strategic approach to human resource management.
Reference
Journal Articles
Becker, B., & Gerhart, B. 1996. The impact of human resource management on organizational performance: progress and prospects. Academy of Management Journal, 39 (4): 779-802.
Beer, M., Spector, B., Lawrence, P., Mills, D.Q. & Walton, R.E. 1984. Managing Human Assets.New York: Free Press.
Delery, J.E. 1998. Issues of fit in strategic human resource management: Implications for research. Human Resource Management Review, 8(3): 289-310.
Delery, J.E. & Doty, D.H. 1996. Modes of theorizing in strategic human resource management: tests of universalistic, contingency and configurational performance predictions. Academy of Management Journal, 39 (4): 802-836.
Devanna, M.A., Fombrun, C. & Tichy, N. 1981. Human resource management: A strategic perspective. Organizational Dynamics, 9 (3): 51-68.
Kesler, C.J. 1995. A model and process for redesigning the HRM role, competencies, and work in a major multi-national corporation. Human Resource Management, 34 (2): 229-252.
Lawson, T.E. & Limbrick, V. 1996. Critical competencies and developmental exercises for top HR executives. Human Resource Management, 35(1): 67-86.
Miles, R.E. & Snow, C.C. 1984. Designing strategic human resource management systems.Organizational Dynamics, 28 (3): 62-74.
Mirvis, P.H. 1985. Formulating and implementing human resource strategy: A model of how to do it, two examples of how it is done. Human Resource Management, 24 (4): 385-412.
Schuler, R.S. 1992. Strategic human resource management: Linking the people with the strategic needs of the business. Organizational Dynamics, 21 (1): 18-33.
Schuler, R. S. & Jackson, S. E. 1987a. Linking competitive strategies with human resources management practices. Academy of Management Executive, 1 (3): 207-219. Ulrich, D. 1998. A new mandate for human resources. Harvard Business Review, 76 (1): 124-135.
Wright, P.M. & McMahan, G.C. 1992. Theoretical perspectives for strategic human resource management. Journal of Management, 18 (2): 295-320.
Books
Armstrong M (2000) 'Strategic Human Resource Management' 2nd edition, Kogan Page Ltd, London, UK.
Boxall P & Purcell J (2003) 'Strategy and Human Resource Management' Palgrave Macmillan, New York, USA.
Bratton J &Gold J (2007) 'Human Resource Management: Theory and practice'4th edition, Palgrave Macmillan, New York, USA. (J, 2007).
Desssler (2008) 'Human Resource Management' Prentice Hall, Australia.
Hollenbeck J, Noe R, Gerhart B, Wright P (2003) 'HRM gaining a competitive Advantage' 4th edition McGraw Hill, New York, USA.
Mathis R and Jackson J (2008) 'Human Resource Management' 12th edition, Thomson South-Western, USA.
Noe R (2006) 'Human Resource Management: Gaining a competitive advantage', 5th edition, McGraw Hill, USA.
Schuler R and Jackson S (2007) 'Strategic Human Resource Management' 2nd edition, Blackwell Publishing, Malden, USA.
Salaman G, Storey J, and Billsberry J (2005) 'Strategic Human Resource Management: Theory and Practice' 2nd edition, SAGE publications Ltd, London, USA.
Torrington D, Hall L and Taylor S (2005) 'Human Resource Management' 6th edition, Prentice Hall, Essex, England.
