Chapter 1 An Introduction to Strategic Human Resource Management

Pawan Budhwar and Samuel Aryee

The objectives of this chapter are to: Summarise the developments in the field of human resource management (HRM) Examine hat strateg! is Highlight the gro th and nature of strategic human resource management (SHRM) Examine the lin"ages bet een organisational strateg! and HRM strateg! Match HRM to organisational strateg! #iscuss the main perspectives on SHRM and organisational performance$

What is HRM?
#evelopments in the field of HRM are no ell documented in the management literature hen riters li"e (see e$g$ %oxall& '(()* +egge& '((,* Schuler and -ac"son& )../* Sisson and Store!& )...* Torrington et al$& )..,)$ The roots of HRM go bac" as far as the '(,.s& management of business integration (2rmstrong& '(3/)$ This #ruc"er and Mc0regor stressed the need for visionar! goal1directed leadership and as succeeded b! the 4behavioural science movement5 in the '(6.s& headed b! Maslo & 2rg!ris and Her7berg$ These scholars emphasised the 4value5 aspect of human resources (HR) in organisations and argued for a better 8ualit! of or"ing life for or"ers$ This formed the basis of the as an outcome of these 4organisational development movement5 initiated b! %ennis in the '(/.s$ The 4human resource accounting5 (HR2) theor! developed b! 9lamholt7 ('(/:) se8uential developments in the field of HRM and is considered to be the origin of HRM as a defined school of thought$ HR2 emphasised human resources as assets for an! organisation$ This 4asset5 vie began to gain support in the '(3.s (Hendr! and ;ettigre & '((.)$ The last itnessed rapid developments in the field of HRM& hich t ent!1five !ears or so have then b! -apanese firms)& slo

are an outcome of a number of factors such as gro ing competition (mainl! to <S=<> firms economic gro th in the ?estern developed nations& realisation about the prospects of HRM5s contribution to ards firms5 performance& creation of HRM chairs in universities and HRM1specific positions in the industr!& introduction of HRM into

'

M%2 curricula in the earl! '(3.s& and a continuous emphasis on the involvement of HRM strateg! in the business strateg!$ The debate relating to the nature of HRM continues toda! although the focus of the debate has changed over time$ @t started b! attempting to delineate the differences bet een 4;ersonnel Management5 and 4HRM5 (see e$g$ +egge& '(3(* 0uest& '((')& and moved on to attempts to incorporate @ndustrial Relations into HRM (Torrington et al$& )..,)& examining the relationship of HRM strategies& integration of HRM into business strategies and devolvement of HRM to line managers (+engnic"1Hall and +engnic"1Hall& '(3(* %re ster and +arson& '(()* %udh ar and Sparro & '((/) and then the extent to hich HRM can act as a "e! means to achieve competitive advantage in organisations (%arne!& '((')$ Most of these developments have ta"en place over the last couple of decades or so& and have precipitated changes in the nature of the HR function from being reactive& prescriptive and administrative to being proactive& descriptive and executive (%oxall& '((:* +egge& '((,)$ 2t present then& the contribution of HRM in improving a firm5s performance and in the overall success of an! organisation (alongside other factors) is being highlighted in the literature (see e$g$ 0uest& '((/* Schuler and -ac"son& )..,* )../)$ @n relation to the last debate& three perspectives emerge from the existing literature: universalistic& contingenc!& and configurational (>atou and %udh ar& )..6* )../)$ The 4universalistic5 perspective posits the 4best5 of HR practices& impl!ing that business strategies and HRM policies are mutuall! independent in determining business performance$ The 4contingenc!5 perspective emphasises the fit bet een business strateg! and HRM policies and strategies& impl!ing that business strategies are follo ed b! HRM policies in determining business performance$ The 4configurational5 perspective posits a simultaneous internal and external fit bet een a firm5s external environment& business strateg! and HR strateg!& impl!ing that business strategies and HRM policies interact& according to organisational context in determining business performance$

Activity %riefl! discuss

HRM$

ith !our colleagues: (') the main factors responsible for

developments in the field of HRM=SHRM* and ()) the main debates in the field of

Emergence of strategic human resource management (SHRM

The above developments in the field of HRM highlight the contribution it can ma"e to ards business success and an emphasis on HRM to become an integral part of business strateg! (+engnic"1Hall and +engnic"1Hall& '(33* %re ster and +arsen& '(()* %amberger and Meshoulam& )...* Schuler and -ac"son& )../)$ The emergence of the term 4strategic human resource management5 (SHRM) is an outcome of such efforts$ @t is largel! concerned organisation (0uest& '(3/* Schuler& '(())$ ith 4integration5 of HRM into the business strateg! and 4adaptation5 of HRM at all levels of the

What is strategy?
The origin of this concept can be traced in its militar! orientation& going bac" to the 0ree" ord 4strategos5& for a general of business it mainl! denotes ho ho organises& leads and directs his forces to the most top management is leading the organisation in a particular advantageous position (%rac"er& '(3.* +egge& '((,* +und! and Ao ling& '((6)$ @n the orld direction in order to achieve its specific goals& objectives& vision and overall purpose in the societ! in a given context = environment$ The main emphasis of strateg! is thus to enable an organisation to achieve competitive advantage ith its uni8ue capabilities b! focusing on ritten under the field of strategic present and future direction of the organisation (also see Miller& '(('* >a! '((B)$ Cver the past three decades or so a lot has been management about the nature& process& content and formation of organisational strateg! (see e$g$ Mint7berg& '(3/* '((:* Duinn et al$& '(33* 2nsoff& '((' ?hittington& '((B* )..')$ 2 4classical5 strategic management process consists of a series of steps& starting from establishing a mission statement and "e! objectives for the organisation* anal!sing the external environment (to identif! possible opportunities and threats)* conducting an internal organisational anal!sis (to examine its strengths and ea"nesses and the nature of current management s!stems& competencies and capabilities)* setting specific goals* examining possible strategic choices = alternatives to achieve organisational objectives and goals* adoption = implementation of chosen choices* and regular evaluation of all the above (see e$g$ Mello& )..6)$ The abovementioned first five steps form part of strategic planning and the last t o steps deal ith the implementation of an ideal strategic management process$ The! also deal ith both the 4content5 (revealed b! the objectives and goals) and 4process5 (for example& planning& structure and control) of an organisational strateg! (Aha"ravarth! and #o7& '(()* +und! and Ao ling& '((6)$

Ho ever& in real life& it is important to note that for a variet! of reasons and pressures (such as scarcit! of time& resources& or too much information)& top decision1ma"ers do not follo such a 4formal and rational approach5 (also called as 4deliberate approach5) hen formulating their organisational strateg!$ %ased on their experiences& instincts& intuition and the limited resources available to them (along ith factors such as need for flexibilit!)& managers adopt an 4informal and bounded rational approach5 (resulting in 4informal incremental process5) to strateg! formation (see Duinn& '(/3* Mint7berg& '(/3)$ Mint7berg ('(3/) sa!s that formal approach to strateg! ma"ing results in deliberation on the part of decision1ma"ers& hich results in thin"ing before action$ Cn the other hand& the incremental rite that deliberate strateg! approach allo s the strateg! to emerge in response to an evolving situation$ +und! and Ao ling ('((6: )B)& summarising Mint7berg5s thin"ing& precludes learning strategies combine deliberation and control prescriptive$ hile emergent strateg! fosters it but precludes control$ Effective ith flexibilit! and organisational learning$ 2 or" as over1

number of scholars (such as 2nsoff& '((') have criticised Mint7berg5s

Activity

@dentif! and anal!se the core issues (such as

h!&

hen and ho ) related to

both 4rational5 and 4bounded rational5 approaches to strateg! formulation The debate ith regard to the formation of organisational strateg! continues$ 9or

example& ?hittington ('((B) presents four generic approaches to strateg! formation along the t o dimensions of 4processes5 and 4outcomes of strateg!5 (see 9igure '$')$ The 4x5 axis deals !"ig# 1#1$ ith the extent to hich strateg! is formed in a rational& formal& planned and deliberate hich organisational strateg! focuses on profit1 manner & is a result of bounded rational approach or is emergent in nature$ The 4!5 axis relates to continua of outcomes& i$e$ the extent to maximising outcomes$ The top left1hand 8uadrant represents a mix of maximum profit1 maximisation and a formal planned and deliberate approach to strateg! formation$ ?hittington denotes this combination as 4classical5$ The combination in the top right1hand is that of profit1maximisation and an emergent "ind of strateg! formation called the 4evolutionar!5 approach$ The other t o combinations E the emergent approach to strateg! formation and pluralistic t!pes of outcome and deliberate process and pluralistic outcomesE are denoted as 4processual5 and 4s!stemic5 approaches respectivel!$

C<TACMES ;rofit1Maximising

Alassical

Evolutionar!

;RCAESSES #eliberate

Emergent

S!stemic

;rocessual

;luralistic

"igure% 1#1

Whittington&s (1''( generic perspective on strategy a clear& rational&

Crganisations adopting the classical approach (li"e the arm!) follo approach is most li"el! to be successful

planned and deliberate process of strateg! formation and aim for maximisation of profits$ This hen the organisation5s objectives and goals are clear& the external environment is relativel! stable& the information about both the external and internal environment is reliable and the decision1ma"ers are able to anal!se it thoroughl! and ma"e highl! calculated decisions in order to adopt the best possible choice$ Strateg! formulation is left to top managers and the implementation is carried out b! operational managers of different departments$ This scenario demonstrates the difference bet een 4first1 order5 strateg! or decisions and 4second1order5 strateg! or decisions& here the former represents the strateg! formation b! top managers and the latter is an implementation of the same b! lo er1level managers (for details see Miller& '((B* ;urcell '(3(* +egge& '((,)$ @t also represents the classic top1do n approach of Ahandler ('(6)) structure follo s the strateg!$ The evolutionar! approach represents the other side of the strateg! formation continua here o ing to a number of reasons (such as unpredictabilit! of the d!namic business environment) it is not possible to adopt a rational& planned and deliberate process& although , here organisation

profit1maximisation is still the focus$ @n such competitive and uncertain conditions being at the correct place at right time)$ The "e! to success thus largel! lies '((6)$ The processual approach is different on the profit1maximisation perspective managers are not clear about degree of confusion and complexit! exists both

here

managers do not feel the! are in command& onl! the best can survive (survival of the fittest or ith a good fit bet een organisational strateg! and business environment (also see +und! and Ao ling& here

hat the 4optimum5 level of output is or should be$ 2 high ithin the organisations and in the mar"ets*

the strateg! emerges in small steps (increments) and often at irregular intervals from a practical process of learning& negotiating and compromising instead of clear series of steps$ This is related to the inabilit! of senior managers to comprehend huge ban"s of information& a variet! of simultaneousl! occurring factors and a lac" of desire to optimise and rationalise decisions$ The outcome is then perhaps a set of 4satisficing5 behaviours& acceptable to the 4dominant coalitions5& hich is the realit! of strateg!1ma"ing (+egge& '((,: '..)$ 2s the name suggests& the s!stemic approach emphasises the significance of larger social s!stems& characterised b! factors such as national culture& national business s!stems& demographic composition of a given societ! and the dominant institutions of the societ! ithin hich a firm is operating$ The strateg! formation is strongl! influenced b! such ill not be sensible to suggest that organisations adopt factors& and faced b! these pressures the strategist ma! intentionall! deviate from rational planning and profit1maximisation$ @t onl! one of the four particular approaches to strateg! formation& but certainl! it has to be a mixture of possible combinations along the t o dimensions of processes and profit1 maximisation$

Activity

Highlight the main context(s)

ithin

hich each of ?hittington5s four

approaches to strateg! formation could be pursued b! managers$

What is strategic HRM (SHRM ?

The field of strategic HRM is still evolving and there is little agreement among scholars regarding an acceptable definition$ %roadl! spea"ing& SHRM is about s!stematicall! lin"ing people ith the organisation* more specificall!& it is about the integration of HRM strategies into corporate strategies$ HR strategies are essentiall! plans and programmes that address and solve fundamental strategic issues related to the management of human resources in an organisation (Schuler& '(())$ The! focus is on alignment of the organisation5s HR practices& 6

policies and programmes

ith corporate and strategic business unit plans (0reer& '((,)$

Strategic HRM thus lin"s corporate strateg! and HRM& and emphasises the integration of HR ith the business and its environment$ @t is believed that integration bet een HRM and business strateg! contributes to effective management of human resources& improvement in organisational performance and finall! the success of a particular business (see Holbeche& '(((* Schuler and -ac"son& '((()$ @t can also help organisations achieve competitive advantage b! creating uni8ue HRM s!stems that cannot be imitated b! others (%arne!& '(('* Huselid et al$& '((/)$ @n order for this to happen& HR departments should be for ard1thin"ing (future1oriented) and the HR strategies should operate consistentl! as an integral part of the overall business plan (Stroh and Aaligiuri& '((3)$ The HR1related future1orientation approach of organisations forces them to regularl! conduct anal!sis regarding the "ind of HR competencies needed in the future& and accordingl! core HR functions (of procurement& development and compensation) are activated to meet such needs (see Holbeche& '((()$ +engnic"1Hall and +engnic"1Hall ('(((: )(EB.) summarise the variet! of topics that have been the focus of strategic HRM riters over the past couple of decades$ These include HR accounting ( hich attempts to assign value to human resources in an effort to 8uantif! organisational capacit!)* HR planning* responses of HRM to strategic changes in the business environment* matching human resources to strategic or organisational conditions* and the broader scope of HR strategies$ 9or these riters& strategic HRM is a multidimensional process ith multiple effects$ Such riting also highlights the gro ing proactive nature of the HR function& its increased potential contribution to the success of organisations and the mutual relationships (integration) bet een business strateg! and HRM$ T o core aspects of SHRM are: the importance given to the integration of HRM into the business and corporate strateg!& and the devolvement of HRM to line managers instead of personnel specialists$ %re ster and +arsen ('((): :''E')) define integration as 4the degree to hich the HRM issues are considered as part of the formulation of the business strateg!5 and devolvement as 4the degree to hich HRM practices involve and give responsibilit! to line managers rather than personnel specialists5$ Research in the field (see +engnic"1Hall and +engnic"1Hall& '(33* ;urcell& '(3(* Schuler& '(()* Store!& '(()* %udh ar and Sparro & '((/* Truss et al$& '((/* %udh ar& )...a* )...b) highlights a number of benefits of integration of HRM into the corporate strateg!$ These include: providing a broader range of solutions for solving complex organisational problems* assuring the successful implementation of corporate strateg!* contributing a vital ingredient in achieving and maintaining effective organisational performance* ensuring that all human& technical and /

financial resources are given e8ual and due consideration in setting goals and assessing implementation capabilities* limiting the subordination and neglect of HR issues to strategic considerations* providing long1term focus to HRM* and helping a firm to achieve competitive advantage$ @n similar vein& researchers (%udh ar and Sparro '((/* )..)* Hope1Haile! et al$& '((/* Truss et al$& '((/* Sisson and Store!& )...) have highlighted the benefits of devolvement of HRM to line managers$ These include: highlighting certain issues that are too complex for top management to comprehend alone* developing more motivated emplo!ees and more effective control* local managers responding more 8uic"l! to local problems and conditions* resolving most routine problems at the 4grassroots level5* affording more time for personnel specialists to perform strategic functions* helping to s!stematicall! prescribe and monitor the st!les of line managers* improving organisational effectiveness* preparing future managers b! allo ing them to practise decision1ma"ing s"ills* and assisting in reducing costs b! redirecting traditionall! central bureaucratic personnel functions$ #espite the highlighted benefits of the devolution of HRM to the line management& it is still not idel! practised in organisations$ Cn the basis of earlier studies in the <> and their o n in1depth investigations into the topic& Mc0overn et al$ ('((/: ':) suggest that devolution of responsibilit! for HRM to line managers is constrained b! short1term pressures on businesses (such as minimising costs)& the lo educational and technical s"ill base of supervisors and a lac" of training and competence among line managers and supervisors$ 2n important issue for top decision1ma"ers is ho to evaluate the extent to hich both strategic integration and devolvement are practised in their organisations$ The level of integration of HRM into the corporate strateg! can be evaluated b! a number of criteria: these include representation of specialist people managers on the board* the presence of a ritten people management strateg! (in the form of mission statement& guideline or rolling plans& emphasising the importance and priorities of human resources in all parts of the business)* consultation ith people management specialists from the outset in the development of or" corporate strateg!* translation of the people management strateg! into a clear set of

programmes* the gro ing proactive nature of people management departments through the creation of rolling strategic plans (emphasising the importance of human resources in all parts of the business)* through mission statements* b! aligning HR policies committee meetings* and via HR audits$ ith business needs through business planning processes* b! use of participative management processes and

The level of devolvement of HRM to line managers in an organisation can be evaluated on the basis of measures such as: the extent to hich primar! responsibilit! for decision1ma"ing regarding HRM (regarding pa! and benefits& recruitment and selection& training and development& industrial relations& health and safet!& and or"force expansion and reduction) lies ith line managers* the change in the responsibilit! of line managers for HRM functions* the percentage of line managers trained in people management in an organisation* the feedbac" given to managers=line managers regarding HR related strategies* through consultations and discussions* the extent to hich line managers are involved in decision1 ma"ing* b! giving the line managers o nership of HRM* and b! ensuring that the! have realised = accepted it b! getting their ac"no ledgement (for more details see %udh ar and Sparro & '((/* )..)* %udh ar& )...a)$

Activity

Recap the meaning& benefits& measures and concerns devolvement of HRM to line managers$

ith the practice of

both strategic integration of HRM into the business strateg! and

Stages of the evo)ution of strategy and HRM integration

0reer ('((,) tal"s about four possible t!pes of lin"ages bet een business strateg! and the HRM function = department of an organisation: 4Administrative linkage represents the scenario here there is no HR department and some other figurehead (such as the 9inance or 2ccounts executive) loo"s after the HR function of the firm$ The HR unit is relegated here to a paper1processing role$ @n such conditions there is no real lin"age bet een business strateg! and HRM$ Fext is the 4one-way linkage5 here HRM comes into pla! onl! at the implementation stage of the strateg!$ 4Two-way linkage5 is more of a reciprocal situation here HRM is not onl! involved at the implementation stage but also at the corporate strateg! formation stage$ The last "ind of association is that of 4integrative linkage5& here HRM has e8ual

involvement ith other organisational functional areas for business development$ ;urcell ('(3() presents a t o1level integration of HRM into the business strateg! E 4 upstream or first-order decisions and 4downstream or second-order decisions: 9irst1order decisions& as the name suggests& mainl! address issues at the organisational mission level and vision statement* these emphasise here the business

is going&

hat sort of actions are needed to guide a future course& and broad HR1 ith scenario planning at both strategic and divisional

oriented issues that ill have an impact in the long term$ Second1order decisions deal

levels for the next BE, !ears$ These are also related to hardcore HR policies lin"ed to each core HR function (such as recruitment& selection& development& communication)$ 0uest ('(3/) proposes integration at three levels: 9irst he emphasises a 4fit5 bet een HR policies and business strateg!$ Second& he tal"s about the principle of 4 complementary5 (mutualit!) of emplo!ment practices aimed at generating emplo!ee commitment& flexibilit!& improved 8ualit! and internal coherence bet een HR functions$ Third& he propagates 4internalisation5 of the importance of integration of HRM and business strategies b! the line managers (also see +egge& '((,)$

*in+ing

organisationa)

strategy

and

HRM

strategy%

,heoretica)

deve)opments
The literature contains man! theoretical models that highlight the nature of lin"age bet een HRM strategies and organisational strategies$ ,he strategic fit or the hard variant of HRM 9ombrun et al$5s ('(3:) 4matching model5 highlights the 4resource5 aspect of HRM and emphasises the efficient utilisation of human resources to meet organisational objectives$ This means that& li"e other resources of organisation& human resources have to be obtained cheapl!& used sparingl! and developed and exploited as full! as possible$ The matching model is mainl! based on Ahandler5s ('(6)) argument that an organisation5s structure is an outcome of its strateg!$ 9ombrun et al$ ('(3:) expanded this premise in their model of strategic HRM& hich emphasises a 4tight fit5 bet een organisational strateg!& organisational structure and HRM s!stem$ The organisational strateg! is pre1eminent* both organisation structure and HRM are dependent on the organisation strateg!$ The main aim of the matching model is therefore to develop an appropriate 4human resource s!stem5 that ill characterise those HRM strategies that contribute to the most efficient implementation of business strategies$ The matching model of HRM has been criticised for a number of reasons$ @t is thought to be too prescriptive b! nature& mainl! because its assumptions are strongl! unitarist (%udh ar and #ebrah& )..')$ 2s the model emphasises a 4tight fit5 bet een organisational '.

strateg! and HR strategies& it completel! ignores the interest of emplo!ees& and hence considers HRM as a passive& reactive and implementationist function$ Ho ever& the opposite trend is also highlighted b! research (Store!& '(())$ @t is asserted that this model fails to perceive the potential for a reciprocal relationship bet een HR strateg! and organisational strateg! (+engnic"1Hall and +engnic"1Hall& '(33)$ @ndeed& for some& the ver! idea of 4tight fit5 ma"es the organisation inflexible& incapable of adapting to re8uired changes and hence 4misfitted5 to toda!5s d!namic business environment$ The matching model also misses the 4human5 aspect of human resources and has been called a 4hard5 model of HRM (0uest& '(3/* Store!& '(()* +egge& '((,)$ The idea of considering and using human resources li"e an! other resource of an organisation seems unpragmatic in the present orld$ #espite the man! criticisms& ho ever& the matching model deserves credit for providing an initial frame or" for subse8uent theor! development in the field of strategic HRM$ Researchers need to adopt a comprehensive methodolog! in order to stud! the d!namic concept of human resource strateg!$ #o elements of the matching model exist in different settingsG This can be discovered b! examining the presence of some of the core issues of the model$ The main propositions emerging from the matching models that can be adopted b! managers to evaluate scenario of strategic HRM in their organisations are: #o organisations sho a 4tight fit5 bet een their HRM and organisation strateg!

here the former is dependent on the latterG #o specialist people managers believe the! should develop HRM s!stems onl! for the effective implementation of their organisation5s strategiesG #o organisations consider their human resources as a cost and use them sparingl!G Cr do the! devote resources to the training of their HRs to ma"e the best use of themG #o HRM strategies var! across different levels of emplo!eesG

,he soft variant of HRM The 4Harvard model5 of strategic HRM is another anal!tical frame or"& hich is premised on the vie that if general managers develop a vie point of 4 how they wish to see employees as first articulated b! %eer et al$ involved in and developed by the enterprise 5 then some of the criticisms of historical personnel management can be overcome$ The model ('(3:)$ Aompared to the matching model& this model is termed 4soft5 HRM (Store!& '(()* +egge& '((,* Truss et al$& '((/)$ @t stresses the 4human5 aspect of HRM and is more concerned ith the emplo!erEemplo!ee relationship$ The model highlights the interests of

''

different sta"eholders in the organisation (such as shareholders& management& emplo!ee groups& government& communit! and unions) and ho their interests are related to the objectives of management$ This aspect of the model provides some a areness of the European context and other business s!stems that emphasise 4co1determination5$ @t also recognises the influence of situational factors (such as the labour mar"et) on HRM polic! choices$ The actual content of HRM& according to this model& is described in relation to four polic! areas& namel!& human resource flo s& re ard s!stems& emplo!ee influence& and s!stems$ Each of the four polic! areas is characterised b! a series of tas"s to or"s hich managers

must attend$ The outcomes that these four HR policies need to achieve are commitment& competence& congruence& and cost effectiveness$ The aim of these outcomes is therefore to develop and sustain mutual trust and improve individual = group performance at the minimum cost so as to achieve individual ell1being& organisational effectiveness and societal ell1 being$ The model allo s for anal!sis of these outcomes at both the organisational and societal level$ 2s this model ac"no ledges the role of societal outcomes& it can provide a useful basis for comparative anal!sis of HRM$ Ho ever& this model has been criticised for not explaining the complex relationship bet een strategic management and HRM (0uest& '((')$ The matching model and the Harvard anal!tical frame or" represent t o ver! different emphases& the former being closer to the strategic management literature& the latter to the human relations tradition$ %ased on the above anal!sis& the main propositions emerging from this model that can be used for examining its applicabilit! and for determining the nature of SHRM in different contexts are: ?hat is the influence of different sta"eholders and situational and contingent variables on HRM policiesG To hat extent is communication ith emplo!ees used to maximise commitmentG ?hat level of emphasis is given to emplo!ee development through involvement& empo erment and devolutionG

,he conte-tua) emphasis

%ased on the human resource polic! frame or" provided b! the Harvard model& researchers at the Aentre for Aorporate Strateg! and Ahange at ?ar ic" %usiness School have developed an understanding of strateg!1ma"ing in complex organisations and have related this to the abilit! to transform HRM practices$ The! investigated empiricall! based data (collected

')

through in1depth case studies on over t ent! leading %ritish organisations) to examine the lin" bet een strategic change and transformations& and the a! in hich people are managed a number of (Hendr! et al$& '(33* Hendr! and ;ettigre & '(())$ Hendr! and associates argue that HRM should not be labelled as a single form of activit!$ Crganisations ma! follo different path a!s in order to achieve the same results$ This is mainl! a function of the existence of lin"ages bet een the outer environmental context (socio1economic& technological& politico1legal and competitive) and inner organisational context (culture& structure& leadership& tas"1technolog! and business output)$ These lin"ages directl! contribute to forming the content of an organisation5s HRM$ To anal!se this& past information related to the organisation5s development and management of change is essential (%udh ar and #ebrah& )..')$ The main propositions emerging from this model are: ?hat is the influence of economic (competitive conditions& o nership and control& organisation si7e and structure& organisational gro th path or stage in the life c!cle and the structure of the industr!)& technological (t!pe of production s!stems) and socio1 political (national education and training set1up) factors on HRM strategiesG ?hat are the lin"ages bet een organisational contingencies (such as si7e& nature& positioning of HR and HR strategies) and HRM strategiesG

,he issue of strategic integration

#ebates in the earl! '((.s suggested the need to explore the relationship bet een strategic management and HRM more extensivel! (0uest& '((') and the emerging trend in hich HRM is becoming an integral part of business strateg! (+engnic"1Hall and +engnic"1Hall& '(33* %re ster and +arsen& '(()* Schuler& '(()* Store!& '(()* %udh ar and Sparro & '((/* )..))$ The emergence of SHRM is an outcome of such efforts$ 2s mentioned above& it is largel! concerned full! integrated ith 4integration5 and 4adaptation5$ @ts purpose is to ensure that HRM is ith the strateg! and strategic needs of the firm* HR policies are coherent

both across polic! areas and across hierarchies* and HR practices are adjusted& accepted and used b! line managers and emplo!ees as part of their ever!da! or" (Schuler& '((): '3)$ SHRM therefore has man! different components& including HR policies& culture& values and practices$ Schuler ('(()) developed a 4,1; model5 of SHRM that melds five HR activities (philosophies& policies& programs& practices and processes) ith strategic business needs& and reflects management5s overall plan for survival& gro th& adaptabilit! and profitabilit!$ The strategic HR activities form the main components of HR strateg!$ This

'B

model to a great extent explains the significance of these five SHRM activities in achieving the organisation5s strategic needs& and sho s the interrelatedness of activities that are often treated separatel! in the literature$ This is helpful in understanding the complex interaction bet een organisational strateg! and SHRM activities$ This model further sho s the influence of internal characteristics ( hich mainl! consists of factors such as organisational culture and the nature of the business) and external characteristics ( hich consist of the nature and state of econom! in hich the organisation is existing and critical success factors& i$e$ the opportunities and threats provided b! the industr!) on the strategic business needs of an organisation$ This model initiall! attracted criticism for being over1prescriptive and too h!pothetical in nature$ @t needs a lot of time to gain an understanding of the of business needs a! strategic business needs are actuall! defined$ The melding ith HR activities is also ver! challenging& mainl! because lin"ages

bet een human resource activities and business needs tend to be the exception& even during non1turbulent times (Schuler& '((): ).)$ @n essence& the model raises t o important propositions that are core to the strategic HRM debate$ These are: ?hat is the level of integration of HRM into the business strateg!G ?hat level of responsibilit! for HRM is devolved to line managersG

Activity

2nal!se the "e! messages for HRM managers emerging from the above presentation on the main models of SHRM$ @dentif! and develop "e! measures that HR managers can use to evaluate the nature of their SHRM function based on the above1raised propositions$

Matching .usiness strategy and HRM

The above discussion summarises the theoretical developments in strategic HRM and its lin"ages ith organisational strategies$ 2 number of clear messages emerge from the anal!sis$ 9or example& strategic HRM models primaril! emphasise implementation over strateg! formulation$ The! also tend to focus on matching HR strateg! to organisational strateg!& not the other a!$ The! also tend to emphasise fit or congruence and do not hen organisations have multiple or conflicting goals (also see ac"no ledge the need for lac" of such fit bet een HR strategies and business strategies during transitional times and +engnic"1Hall and +engnic"1Hall& '((()$ This section further highlights the matching of HRM policies and practices to some of the established models of business strategies$

':

/orter&s generic .usiness strategies and HRM Michael ;orter ('(3.* '(3,) identified three possible generic strategies for competitive advantage in business: cost leadership ( hen the organisation cuts its prices b! producing a product or service at less expense than its competitors)* innovation ( hen the organisation is able to be a uni8ue producer)* and quality ( hen the organisation is delivering high18ualit! goods and services to customers)$ Aonsidering the emphasis on 4external1fit5 (i$e$ organisational strateg! leading individual HR practices that interact ith organisational strateg! in order to improve organisational performance)& a number of HRM combinations can be adopted b! firms to support ;orter5s model of business strategies$ @n this regard& Schuler ('(3() proposes corresponding HRM philosophies of 4accumulation5 (careful selection of good candidates based on personalit! rather technical fit)& 4utili7ation5 (selection of individuals on the basis of technical fit)& and 4facilitation5 (the abilit! of emplo!ees to or" together in collaborative situations)$ Thus& firms follo ing a 8ualit! strateg! and retain core competencies* firms pursuing a cost1reduction strateg! ill re8uire a ill re8uire a combination of accumulation and facilitation HRM philosophies in order to ac8uire& maintain utilisation HRM philosoph! and ill emphasise short1run relationships& minimise training and development and highlight external pa! comparabilit!* and firms follo ing an innovation strateg! ill re8uire a facilitation HRM philosoph! so as to bring out the best out of existing staff (also see Schuler and -ac"son& '(3/)$ @n summar!& according to the 4external1fit5 philosoph!& the effectiveness of individual HR practices is contingent on firm strateg!$ The performance of an organisation that adopts HR practices appropriate for its strateg! be higher$ 0usiness )ife cyc)es and HRM There is no an established literature in the field of HRM that highlights ho possible contingent variables determine the HRM s!stems of an organisation (for a detailed revie see %udh ar and #ebrah& )..'* %udh ar and Sparro & )..))$ Cne among the long list of such variables is the 4life c!cle stage5 of an organisation: introduction (start1up)* gro th (development)* maturit!* decline* and turnaround$ Research findings reveal a clear association bet een a given life c!cle stage and specific HRM policies and practices$ 9or example& it is logical for firms in their introductor! and gro th life c!cle stages to emphasise a rationalised approach to recruitment in order to ac8uired best1fit human resources& compensate emplo!ees at the going mar"et rate& and activel! pursue emplo!ee development strategies$ Similarl!& ', ill then

organisations in the maturit! stage are "no n to recruit enough people to allo

for labour

turnover= la!1offs and to create ne opportunities in order to remain creative to maintain their mar"et position$ Such organisations emphasise flexibilit! via their training and development programmes and pa! emplo!ees as per the mar"et leaders in a controlled a!$ 2ccordingl! firms in the decline stage ill be li"el! to minimise costs b! reducing overheads and aspire to maintain harmonious emplo!ee relations (for more details see >ochan and %arocci& '(3,* %aird and Meshoulam '(33* Hendr! and ;ettigre and ;urcell& )..B)$ ,ypo)ogy of .usiness strategies and HRM Miles and Sno ('(/3* '(3:) classif! organisations as 4prospectors5 ( ho are doing ell and are regularl! loo"ing for more products and mar"et opportunities)& 4 defenders5 ( ho have a limited and stable product domain)& 4analyzers5 ( ho have some degree of stabilit! but are on the loo"out for possible opportunities) and 4reactors5 ( ho mainl! respond to mar"et conditions)$ These generic strategies dictate organisations5 HRM policies and practices$ 9or example& defenders are less concerned about recruiting ne emplo!ees externall! and are more concerned about developing current emplo!ees$ @n contrast& prospectors are gro ing& so the! are concerned about recruiting and using performance appraisal results for evaluation rather than for longer1term development (for details see -ac"son and Schuler '((,* Mac#uffie '((,)$ 1eneric HR strategies @dentif!ing the need to highlight the prevalence of generic HR strategies pursued b! organisations in different contexts& %udh ar and Sparro These are: 4talent acquisition HR strateg! (emphasises attracting the best human talent from external sources)* effective resource allocation HR strateg! (maximises the use of existing human resources b! al a!s having the right person in the right place at the right time)* talent improvement HR strateg! (maximes the talents of existing emplo!ees b! continuousl! training them and guiding them in their jobs and career)* and cost reduction HR strateg! (reduces personnel costs to the lo est possible level)$ ()..)) propose four HR strategies$ '(()* -ac"son and Schuler '((,* %oxall

'6

%udh ar and >hatri ()..') examined the impact of these HR strategies on recruitment& compensation& training and development and emplo!ee communication practices in matched @ndian and %ritish firms$ The impact of these four HR strategies varied significantl! in the t o samples& confirming the context specific nature of HRM$ Cn the same pattern& there is a need to identif! and examine the impact of other HR strategies such as high commitment& paternalism& etc$ Such HR issues& hich have a significant impact on a firm5s performance& are further examined in different chapters in this boo"$

/erspectives on SHRM and organisationa) performance

The concept of 4fitH has emerged as central to man! attempts to theorise about strategic HRM (Richardson and Thomson& '((()$ 4!nternal fit5 is the case hen the organisation is developing a range of interconnected and mutuall! reinforcing HRM policies and practices$ This implies that there exists a set of 4 best "# practices5 that fit together sufficientl! so that one practice reinforces the performance of the other practices$ 4Synergy5 is the "e! idea behind internal fit$ S!nerg! can be achieved if the combined performance of a set of HRM policies and practices is greater than the sum of their individual performances$ @n this regard& the importance of the different HRM policies and practices being mutuall! reinforcing is emphasised (see >atou and %udh ar& )..6* )../)$ 4$%ternal fit5 is the case hen the organisation is developing a range of HRM policies and practices that fit the business5s strategies outside the area of HRM$ This implies that performance ill be improved hen the right fit& or 4 match& bet een business strateg! and HRM policies and practices is achieved$ 2s discussed above& specific HRM policies and practices are needed to support generic business strategies& for example ;orter5s cost leadership& innovation or 8ualit! enhancement (also see 9ombrum et al$& '(3:* Schuler and -ac"son& '(3/)$ Similarl!& Miles and Sno ('(3:) relate HRM policies and practices ith competitive product strategies (defenders& prospectors& anal!sers& reactors)$ Cver the last decade or so the concept of fit has been further investigated b! man! scholars (see #eler! and #ot!& '((6* Ioundt et al$& '((6* 0uest& '((/* >atou and %udh ar& )..6* )../)$ 2n anal!sis of such or" highlights that there are generall! three modes of fit& or approaches to fit: 4universalistic5& 4contingenc!5& and 4configurational5$ The core features of these modes constitute the structure of the so1called strategic HRM = business performance models$

'/

The 2universalistic perspective or HRM as an ideal set of practices suggests that a specified set of HR practices (the so1called 4best practices5) results ill al a!s produce superior hatever the accompan!ing circumstances$ ;roponents of the universalistic model

(e$g$& ;feffer '((:* '((3* Huselid '((,* #elane! and Huselid& '((6* Alaus& )..B) emphasise that 4internal fit5 or 4hori7ontal fit5 or 4alignment of HR practices5 helps to significantl! improve an organisation5s performance$ Higgs et al$ ()...) explain ho HR practices that no to belong in a s!stem (bundle) of aligned HR practices$ Aonsidering that internal fit is central to universalistic models& the main 8uestion = problem is ho to determine an HR s!stem& that is& as a coherent set of s!nergistic HR hen the HR practices that blend better in producing higher business performance$ The methods used in developing such HR s!stems depend on the 4additive relationship5 (i$e$ the case practices involved have independent and non1overlapping effects on outcome)& and on the 4interactive relationship5 (i$e$ the case hen the effect of one HR practice depends on the level of the other HR practices involved) (#eler!& '((3)$ Ho ever& in our opinion universalistic models do not explicitl! consider the internal integration of HR practices& and consider them merel! from an additive point of vie effect5& that is& ho (also see ;feffer '((:* %ec"er and 0erhart& '((6)$ Emerging research evidence (see #eler! and #ot! '((6) reveals the so1called 4portfolio HR practices support and improve one another$ Ho ever& it is important ill result in identical hich identical to remember that there can be countless combinations of practices that a large number of ere previousl! considered to be distinct activities can all be considered

business outcomes$ This contributes to the concept of 4 equifinality5& in outcomes can be achieved b! a number of different s!stems of HR practices$

Support for the universalistic approach to strategic HRM is mixed as there are notable differences across studies as to on three mechanisms b! hat constitutes a 4best HR practice5$ Most studies (e$g$ %amberger and Meshoulam& )...* Ahristensen Hughes )..)* %oxall and ;urcell )..B) focus hich universal HR practices impact on business performance: (') the 4human capital base5 or collection of human resources (s"ills& "no ledge& and potential)& that the organisation has to or" ith E the organisation5s recruitment& selection& training and development processes directl! affect the 8ualit! of this base* ()) 4motivation5& affected b! a variet! of HR processes including recognition& re ard& and (B) 4opportunit! to contribute5& hich is or" s!stems* and

hich is affected b! job design& and involvement= hich focuses on the role internal

empo erment strategies$ @n addition& the best practices approach generall! refers to the resource1based theor! of firm and competitive advantage& resources such as emplo!ees pla! in developing and maintaining a firm5s competitive '3

capabilities (?right et al$& '((:* Ioundt et al$& '((6)$ 9or a resource to be a source of competitive advantage it must be rare& valuable& inimitable and non1substitutable$ Therefore& HR practices of the organisation can lead to competitive advantage through developing a uni8ue and valuable human pool$ The 4contingency5 or 4HRM as strategic integration5 model argues that an organisation5s set of HRM policies and practices organisational strategies$ 4External fit5 is then ill be effective if it is consistent ith other hat matters (9ombrum et al$& '(3:* 0olden

and Ramanujam& '(3,* Schuler and -ac"son& '(3/* +engnic"1Hall and +engnic"1Hall& '(33* 0uest& '((/)$ 2s discussed above& in this regard specific HRM policies and practices lin" ith various t!pes of generic business strategies$ 9or example& the or" of Schuler and -ac"son ('(3/)& mentioned above& suggests that the range of HRM policies and practices an organisation should adopt depend on the competitive product strategies it is follo ing$ Aonsidering that external fit is the "e! concept of contingenc! models& the contingenc! approach refers firstl! to the theor! of the organisational strateg! and then to the individual HR practices that interact ith organisational strateg! in order to result in higher here the effectiveness of individual HR organisational performance$ The adoption of a contingenc! HRM strateg! is then associated ith optimised organisational performance& practices appropriate for its strateg! )../)$ The 4configurational5 or 4HRM as bundles5 model argues that to claim a strateg!5s success turns on combining internal and external fit$ This approach ma"es use of the so1called 4bundles5 of HR practices& the "e! is to determine hich implies the existence of specific combinations or here configurations of HR practices depending on corresponding organisational contexts& practices is contingent on firm strateg!$ The performance of an organisation that adopts HR ill be higher (for more details see >atou and %udh ar&

hich are the most effective in terms of leading to higher business

performance (see 0uest and Ho8ue& '((:* Mac#uffie& '((,* #eler! and #ot!& '((6* Huselid and %ec"er& '((6* >atou and %udh ar& )..6)$ Aonsidering that both the internal and external fits are the "e! concepts of configurational models& the configurational approach refers firstl! to the theor! of the organisational strateg! and then to the s!stems of HR practices that are consistent ith organisational strateg! in order to result in higher organisational performance$ 2s indicated above& there are a number of strategies an organisation ma! choose to follo & such as Miles and Sno 5s ('(3:) strategic t!polog! that identifies the four ideal strategic t!pes of prospector& anal!ser& defender and reactor$ '(

?ith respect to the configurations of HR practices& scholars (such as >err and Slocum& '(3/* Csterman& '(3/* Sonnenfeld and ;eiperl& '(33* #eler! and #ot!& '((6) have developed theoreticall! driven 4employment systems5$ Specificall!& #eler! and #ot! ('((6) propose the follo ing t o 4ideal type5 emplo!ment s!stems: the 4market type system5& is characterised b! hiring from outside an organisation& and the 4 internal system5& hich hich is

characterised b! the existence of an internal mar"et$ %ecause organisations adopting a defending strateg! concentrate on efficienc! in current products and mar"ets& the internal s!stem is more appropriate for this t!pe of strateg!$ Cn the other hand& organisations pursuing a prospector5s strateg! are constantl! changing& and the mar"et s!stem is more appropriate for this t!pe of strateg!$ 2 possible third t!pe of configurational strateg! can be the anal!ser& at the midpoint bet een the prospector and the defender$ @n summar!& according to this approach& if consistenc! ithin the configuration of HR practices and bet een the HR practices and strateg! is achieved& then the organisation ill achieve better performance$ ?ith respect to these three models& there is no clear picture of hich of these three "e! broad areas is the predominant one$ @t is orth repeating the ords of ?ood ('(((: :.(): @f one5s arm ere t isted to ma"e an 4overall5 conclusion on the balance of the ould be just as justified as ould be premature

evidence so far& one in favour of contingenc! h!pothesis

the universal h!pothesis$ This is because an! such conclusion still in its infanc! (also see >atou and %udh ar& )..6* )../)$

because of conflicting research results but& more importantl!& because the debate is

Activity

2nal!se the main aspects and highlight the core issues related to each of the above discussed perspectives on SHRM$

3ey points for this chapter are:

<nderstand the developments in the field of SHRM$ Examine lin"ages bet een business strateg! and HRM$ 2nal!se matching of HRM and organisational strateg!$ <nderstand the different perspectives on SHRM and organisational performance$

4uestions to 5or+ through

).

'$ #iscuss the main factors that have contributed to the gro th of the field of strategic HRM$ )$ ?hat do !ou understand b! the concept of 4fit5 in the strategic HRM literatureG 2nal!se the significance of fit(s) bet een business strateg! and HRM$ ;rovide both research evidence and examples to support !our discussion$ B$ Ariticall! anal!se the main models of strategic HRM$ 2lso& highlight the main aspects of SHRM emerging from these models$ :$ @n !our opinion& hich of the three perspectives on strategic HRM are more applicable in different contextsG <se research findings to support !our response$

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