Strategic human resource management (SHRM) is concerned with the contributions human resource strategies make to organizational effectiveness, and the ways in which these contributions are achieved.
There are three SHRM concepts- high performance management (high performance working), high commitment management and high involvement management.
Strategic management, in simple words, is the process of identifying and executing the company’s or organisation’s mission by matching properly its capabilities with the requirements or with the demands of its environment.
Strategic management implies the process of formulating, implementing and also evaluating various business strategies to achieve organisational objectives.
Obviously, human resource strategies are certain or specific actions an organisation pursues to achieve its goals or objectives through its HRM function.
According to Prof. Gary Dessler, “strategic human resource management means formulating and executing HR systems i.e. HR policies and activities that produce the employee competencies and behaviours the organisation needs so as to achieve its strategic aims”.
1. Introduction to Strategic Human Resource Management 2. Meaning and Nature of Strategic Human Resource Management 3. Evolution 4. Concept 5. Features 6. Objectives
7. Significance 8. Emerging Roles of HR Professionals 9. Models 10. Theories 11. Approaches 12. Application 13. Benefits 14. Barriers.
What is Strategic Human Resource Management? – Introduction, Evolution, Concept, Objectives, Models and Other Details
- Introduction to Strategic Human Resource Management
- Meaning and Nature of Strategic Human Resource Management
- Evolution of Strategic Human Resource Management
- Concept of Strategic Human Resource Management
- Features of Strategic Human Resource Management
- Objectives of Strategic Human Resource Management
- Significance of Strategic Human Resource Management
- Emerging Roles of HR Professionals in Strategic Human Resource Management
- Models of Strategic Human Resource Management
- Theories of Strategic Human Resource Management
- Approaches of Strategic Human Resource Management
- Application of Strategic Human Resource Management
- Benefits of Strategic Human Resource Management
- Barriers of Strategic Human Resource Management
What is Strategic Human Resource Management – Introduction
Strategic human resource management (SHRM) is concerned with the contributions human resource strategies make to organizational effectiveness, and the ways in which these contributions are achieved. There are three SHRM concepts- high performance management (high performance working), high commitment management and high involvement management.
SHRM scholars like Dyer & Shafer, 1999 had adopted a contingency perspective emphasizing on institutionalizing of the concept of domain of fit or alignment of the HR strategies with the business strategy of the organization. Here such fit is being achieved in two ways. One is vertical, or the degree of alignment between- (a) components of a firm’s human resource strategy and (b) core features of its business strategy.
The other is horizontal fit, or the degree of alignment among components of a firm’s business strategy (typically activities or programmes such as selection, training and compensation). Conceptually, the two notions of fit have been used to derive normative models to show how intuitively derived typologies of human resource strategy should be paired with similarly derived typologies of business strategy to maximize firm performance.
Strategic HRM is an approach to making decisions on the intentions and plans of the organisation concerning the employment relationship and its recruitment, training, development, performance management, record and employee relations strategies, policies and practices.
The key characteristics of strategic HRM are that it is integrated. HR strategies are generally integrated vertically with the business strategy and horizontally with one another. The HR strategies developed by a strategic HRM approach are essential components of the organisation’s business strategy.
The rationale for strategic HRM is the perceived advantage of having an agreed and understood basis for developing approaches to people management in the longer term. The rationale accepts the fact that the degree to which the concept of strategic HRM can be applied within organisations and its form and content will vary widely.
It is understood that organisations may be so pre-occupied with survival and managing the here-and-now that perhaps unwisely — they do not have an articulated corporate or business strategy.
Empirically, the contingency (or configurational) perspective has informed a series of empirical studies designed to determine whether business units that had achieved vertical and horizontal fit performed better than those that had not. In general, these studies have produced, at best, mixed opinions.
As a result some SHRM scholars have come to advocate a universalistic or “best practice” approach to human resource strategy; that is, to argue that a single high performance human resource strategy (HPHRS) enhances organizational effectiveness regardless of organizational goals, work systems, or context in which they are being implemented.
What is Strategic Human Resource Management – Meaning and Nature
With reference to a company or a corporation and its activities, ‘strategy’ means its long-term plan or activities for balancing its internal strengths and weaknesses with its external opportunities and threats to maintain a competitive advantage. For executing strategic plan, certain actions are required and they need to be managed systematically. There should be strategic management for achieving these objectives.
Strategic management, in simple words, is the process of identifying and executing the company’s or organisation’s mission by matching properly its capabilities with the requirements or with the demands of its environment. Strategic management implies the process of formulating, implementing and also evaluating various business strategies to achieve organisational objectives. Obviously, human resource strategies are certain or specific actions an organisation pursues to achieve its goals or objectives through its HRM function.
According to Prof. Gary Dessler, “strategic human resource management means formulating and executing HR systems i.e. HR policies and activities that produce the employee competencies and behaviours the organisation needs so as to achieve its strategic aims”.
This implies that various HR programmes, activities, policies etc. should be integrated within a larger framework for achieving the strategic goals of an organisation. This is what exactly is accomplished under strategic human resource management.
Some of the important aspects which make the nature of strategic human resource management clear are enumerated as follows:
(a) Strategic human resource management has an integrated approach and it takes into consideration short, medium and long period for overall development of human resources. From this point of view, it can be said that strategic human resource management is the process of formulating, developing, executing suitable HR programmes and activities, certain policies as well as practices, improving HR systems considering the organisational strategies and goals or objectives. The important goal or objective of the HR strategy is to build and to develop a committed, competent workforce.
(b) Strategic human resource management considers the implications of business strategy for all the HR systems within the organisation and translates the role that the HR system must play in achieving organisational goals and objectives. Specific approach, processes, actions, programmes etc. may not be the same in all organisations. But all HR systems, programmes, policies etc. are required to be integrated within a broader framework for attaining the objectives of an organisation. The ‘integration’ is important in the strategic human resource management.
(c) Organisational strategies are formulated by the core team and generally HR persons/managers work as the members of the team. Thus, they participate in deciding the organisational strategy. They also suggest the structure, systems, processes, and skills etc., required for carrying on HR activities successfully.
HR executives/managers assume more strategic planning responsibilities and hence, they have to acquire the new skills. They really need to have an in-depth understanding of the values, policy etc. of their organisations. No doubt, strategy formulation and execution role of HR managers/executives is very important.
(d) In strategic HRM, the function of managing and developing human resource is performed by the managers who interact with line managers. In traditional HRM approach, the function of managing, developing the human resources is carried on by the staff specialists in an organisation. This means in strategic HRM, line managers have a very significant role to play.
What is Strategic Human Resource Management – Evolution from Personnel Management to SHRM
The evolution of SHRM are summarised here:
Traditionally, it was the initial stage to perform the HR functions in the managerial set up in the form of personnel department. There were mainly the functions of staffing and maintaining the labour relations at every sphere of organisational set up. The personnel management was more centralise and bureaucratic with some old and traditional approaches. It was not viewed as involved in the competitive or strategical areas of business.
Before the year 1970, the emergence of HRM as replacement for personnel management was taken up. The main task of HRM is to ensure the achievements of organisational goals through the commitment of people and it is often believed in that HRM is just a more modern term as compared to the traditional personnel management.
2. From HRM to SHRM:
For the last four decades, it was the dynamic and competitive business environment resulting from globalisation has led top managerial cadres to bring a new focus on HR to be organises and managed. It was a basic perception that how the HRM managed and contributes to the effective role and performance of organisation. Now the HR function has to develop more dynamic and strategical viewpoints.
The late 1980th and early 2000s witnessed an integrated approach was developed between HRM and business strategy. More attention was given on the relationship of HRM with the strategic management of organisation. In the 21st century the HRM has the approaches of HR cognition, HR learning, knowledge of HR, network of HR and HR development within the purview of strategic managerial scenario.
It was the proactive role of HRM which have concerned with organisational effectiveness, strategical framework, behavioural aspects, resource utilisation, capacity development and change environment. Since the HR provide and contribute a lot of different competitive advantages to the organisation, it is needful to integrate HR practices with the emergence of new strategical viewpoints of corporate business areas.
With the emerging role of strategic planning of HR, integrated approach of HR systems, strategical business environment and new avenues of organisational effectiveness was emerged. There have been a dynamic shift from the concept of HRM to Strategic Human Resource Management.
The concept of strategic HRM seems to be need based according the global business environments and business conditions. Human resource management prepares its strategy to carry different HR functions so that it can contribute maximum in accomplishment of organisational objective as per the corporate strategy. The situation in the business compels that Strategic HRM policies and practices should have long-term impression on employees’ behaviour, their level of commitment to job and their performance.
The strategic HRM in the turbulent environment could manage procurement of employees, development, motivation and enhance the level of employees’ commitment, involvement in jobs, individual performance, organisational performance as a whole, effectiveness in business and reputation of business in the markets. The objective of corporate strategy has been achieved easily due to expected contribution given by proper utilization of human resource.
The importance of SHRM has been criticized by some experts. They argued that it is not effective in changing situations. They said that there is no such formal process that is integrated vertically to corporate strategy as opined by Mintzberg and others.
The research conducted by Gratton et. al., and reported that there was no case where well clearly developed strategy there relating to human practices regarding initiatives, commitment, involvement and performance. It is practically not feasible and it is only on paper. According to changing situation the decisions are taken. There is no such concept of strategy fit or matching of strategies at corporate HRM.
What is Strategic Human Resource Management – 8 Important Features: One Point Solution, Managerial Tool, Proactive in Nature and a Few Other Features
Strategic HRM is defined as the process of aligning and linking all HR systems, processes, procedures and initiatives with the strategic objectives of the organisation. It is an approach to achieve competitive advantage through strategic deployment of a highly committed and capable HR using array of cultural, structural and HR techniques.
Features of SHRM:
Feature # 1. One Point Solution:
When organisations reshuffle the management style and initiate changes in their business vision, goals and targets, require their staff to be fully accountable for the results, initiate change in their corporate culture to value top performers, propose to bring dramatic shift and change in their structure, SHRM is viewed as one point solution to transform every organisation into an HPO through programmes to win the hearts and minds of the employees.
Feature # 2. Managerial Tool:
SHRM is a tool that enhances the organisational effectiveness and competitive advantage. It transforms the way HR functions through creativity and innovation. E-HRM is one approach to SHRM. It takes the conventional HR organisation to next level of excellence. It integrates HR into a business context, defines new growth opportunities, brings in the cultural transformation and aligns the employee’s vision to that of the organisation.
Feature # 3. Proactive in Nature:
SHRM involves handling employees of an organisation in a proactive way. It includes all the HR processes and also involves working with employees in a collaborative manner with each other. It boosts employee retention, improves quality of work experience, maximises the mutual benefit of employment for both the employer and employee. SHRM teams work around the clock to make sure that everything is in order and everyone in the organisation is happy.
Feature # 4. Unlocks the Human Potential:
SHRM unlocks the human potential with a focus on balancing human resource strategy with business strategy, and managing talent to maximise performance. It recognises the strategic role and impact of human resources. SHRM assumes importance considering the challenges of managing talent globally and locally, best practices for implementing performance management, impact of social media, the changing meaning of work, the impact of Gen Y on the workplace and many other contemporary challenges.
Feature # 5. Wide Scope:
The scope of SHRM is much beyond HRM that primarily deals with every aspect of a business that affects employees, such as – manpower planning recruitment and selection, induction, training and development, performance management and appraisal, promotion or removal, employee retention, compensation management, safety management, grievance redressal, management of unions, negotiation and personnel administration.
Feature # 6. Proactive Approach:
SHRM shot into prominence because of its proactive approach to management of people by thinking well ahead, planning ways for a company to better meet the needs of its employees, and for the employees to better meet the needs of the company. This revolutionises every HR process. If HR processes constitute the bones of an enterprise, it is SHRM that offers life and blood for the HR to function effectively in line with the expectations of the stakeholders. Companies struggle to create a conducive work environment, cultivate a work atmosphere for achieving higher productivity. SHRM holds a key to meet these challenges.
Feature # 7. Automation:
E-HRM or HR technologies simplify the implementation of SHRM in every organisation irrespective of its nature and size. Improved interviewing techniques, strong training and mentoring program continual training programs, coaching, and regular assessments are a few areas of focus in SHRM. Investing in the development of its employees can allow a company to turn out more consistent results.
Feature # 8. Outcomes:
SHRM improves the employee retention rate and reduces the money spent on finding and training new employees. It focuses on providing specialised on-site training, and offers one-on-one assessment and coaching sessions, helps employees reach peak performance rates.
What is Strategic Human Resource Management – Foremost and Basic Objectives
The fundamental aim of strategic HRM is to generate strategic capability by ensuring that the organization has the skilled, committed and well-motivated employees so as to achieve sustained competitive advantage.
Its objective is to provide a sense of direction in the often turbulent business environment, so that the needs and goals of the organization, and the individual and collective needs of its employees, can be met by the development and implementation of coherent and practical HR policies and programmes. Strategic HRM should provide unifying frameworks which are at once broad, contingency based and integrative.
Within the present competitive era, the concepts and viewpoints about SHRM are very much needful to draw some basic objective.
The foremost and basic objectives of SHRM are given here:
1. To focus the HR policies, programmes and practices as the means through which the people can be deployed to gain better and competitive advantages;
2. To manage and maintain human capital resources, skill, knowledge, efficiency and intelligence of the employees;
3. To find out the ways and means for effective and efficient utilisation of human resources;
4. To emphasise that human resources treated as the primary source of competitive advantages of the organisation;
5. To integrate the HR strategies with the Business strategies for the betterment of organisation;
6. To make an appropriate direction for people, practices and performance towards the achievements of the goals of the organisation;
7. To develop stable employee relations by way of effective resource utilisation, optimizing remuneration, better productivity and better work culture; etc.
8. To recognise the needs and customised services of different market segments and try to fulfil them properly;
9. To make an appropriate ‘cost optimisation’ with increase the efficiency of resources; and
10. To make an appropriate and feasible plan for change environment.
What is Strategic Human Resource Management – Significance (With Implications)
Strategic human resource management adopting the Human resource functions to the formulation of the company’s strategies. It also used Human Resources for the implementation of the companies’ strategies through different processes viz. recruiting, selecting, training and rewarding personnel.
Human resource strategies refers to specific HR policies and practices which are undertaken towards clearly formulated aims. Such goals are expressed in quantifiable terms so that outcomes can be measured. However, objectives of strategic HR is to go beyond simplistic calculation and control of staff numbers.
Understanding of the political and economic “environment of constraints” as well as the internal sociological dynamics of the organisation, specifically the psychological underpinnings to human behaviour at work, are important in strategic human resource management.
Strategic Human Resource Management has the following significance:
i. Human resource management activities and policies are aspects of explicitly formulated business strategy.
ii. Design and management of personnel systems based on employment policy and manpower strategy underpinned by ‘philosophy’.
iii. The use of planning to maximize advantage from human resource management
Strategic thinking incorporates ethical and legal consideration, which have complex implication for the achievement of business objectives.
Such implications are discussed below:
It means employees should minimize complaints or negative publicity.
Commitment and motivation of employees should be secured as a priority issue. Employees are not committed to organisation, which are not committed to them.
(c) Working Conditions:
Working conditions of the organisation plays an important role in the implication of strategic human resource management. Physical and social working conditions determine work efficiency and need to be included in strategy. Safe, healthy and pleasant condition of a firm improve efficiency.
Consideration has also important in the implication of strategic human resource management, as the strategic decision affects the security, prospects and self-respect of employees. Therefore, there should be consideration of individual for their circumstances and aspirations while taking strategic decision in the firm.
What is Strategic Human Resource Management – Emerging Roles of HR Professionals
What is expected from HR Professionals?
1. HR professionals should be proficient in business management and deliver effective people strategies so that they could effectively contribute to achieve organizational objectives.
2. Maintaining and managing ethical standards at the workplace and ensuring a strategic framework so as to continuously support its corporate social responsibility related obligations/perspectives.
3. Adapting and managing techniques for people management and development so as to effectively fit the future needs of the organization and the employees.
4. Effectively managing and implementing change and acting as “internal consultants” for the organization.
5. Being committed and encouraging other people (employees) to learning and inculcating the spirit of professional development.
6. Act as auditors/inspectors so as to ensure compliance checks and record maintenance.
7. To lead and effectively involve people into public relations activities
8. To be the spearheads of the internal marketing initiatives of the organizations by emphasizing “people” of the organizations as “internal customers”.
9. Promulgating the best in class workplace facilities and environment and lead the organization towards “organizational excellence” model.
What is Strategic Human Resource Management – 2 Important Models: Harvard Model and Devanna Model
There are a good number of models that have been postulated by various scholars to describe the HRM concept.
However, these various models either fall under the soft or the hard approach of HRM.
The Harvard Model was postulated by Beer et al (1984) at Harvard University. The authors of the model also coined it the map of HRM territory.
The Harvard model acknowledges the existence of multiple stakeholders within the organisation. These multiple stakeholders include shareholders of various groups of employees, government and the community at large.
The recognition of the legitimacy of these multiple stakeholders renders this model a neo-pluralist model.
This model emphasises more on the human/soft side of HRM.
Basically this is because this model emphasizes more on the fact that employees like any other shareholder are equally important in influencing organisational outcomes.
In fact the interest of the various groups must be fused and factored in the creation of HRM strategies and ultimately the creation of business strategies.
A critical analysis of the model shows that it is deeply rooted in the human relations tradition. Employee influence is recognised through people motivation and the development of an organisation culture based on mutual trust and team work. The factors must be factored into the HR strategy which is premised on employee influences, HR flows, reward system etc. The outcomes from such a set up are soft in nature as they include high congruence, commitment, competencies etc.
The achievement of the crucial HR outcomes has got an impact on long term consequences, increased productivity, organisational effectiveness which will in turn influence shareholder interests and situational factors hence making it a cycle. It is thus important to note that the Harvard model is premised on the belief that it is the organisation’s human resources that give competitive advantage through treating them as assets and not costs.
The Michigan model was propounded by Fombrun Tichy and Devanna (1984) at the Michigan Business School. They also named this model a matching model of HRM. Precisely, the matching aspect of this model demonstrates that the model is inclined towards the harder side of HRM. This is because the matching model emphasises more on “tight fit” between the HR strategy and the business strategy. It demands that available human resources must be matched with jobs in the organisation.
The HR strategy must be highly calculative in terms of the quantity of the human resources required to achieve the objectives enshrined in the business strategy. Business strategy takes the central stage in this model hence human resources are taken like any other resource which must be fully utilised together with the other resources to achieve organisational objectives.
The point of departure in the Michigan Model is the pre-eminence and pre-dominance of a business strategy, which must strictly be achieved by the available resources regardless of whether, they are able to do so or not.
In fact the business strategy must be achieved through minimum labour costs enhanced by structural re-organisation, Performance Related Pay and staff reduction.
The model held that the HR systems and the organisation structure should be managed in a way that is congruent with the organisational strategy. They further explained that there is a human resource cycle which consists of four generic processes or functions that are performed in all organisations.
i. Selection – Matching available human resources to jobs
ii. Appraisal – Performance management
iii. Rewards – The reward system if one of the most under-utilised and mishandled managerial tools for driving organisational performance; it must reward short as well as long-term achievements, bearing in mind that business must perform in the present to succeed in the future.
iv. Development – Developing high quality employees.
Fombrun et al.’s (1984) ‘matching model’ highlights the ‘resource’ aspect of HRM and emphasises the efficient utilisation of human resources to meet organisational objectives. This means that, like other resources of organisation, human resources have to be obtained cheaply, used sparingly and developed and exploited as fully as possible. The matching model is mainly based on Chandler’s (1962) argument that an organisation’s structure is an outcome of its strategy.
Fombrun et al. expanded this premise in their model of strategic HRM, which emphasises a ‘tight fit’ between organisational strategy, organisational structure and HRM system. The organisational strategy is pre-eminent; both organisation structure and HRM are dependent on the organisation strategy. The main aim of the matching model is therefore to develop an appropriate ‘human resource system’ that will 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. It is thought to be too prescriptive by nature, mainly because its assumptions are strongly unitarist. As the model emphasises a ‘tight fit’ between organisational strategy and HR strategies, it completely ignores the interest of employees, and hence considers HRM as a passive, reactive and implementationist function. However, the opposite trend is also highlighted by research.
It is asserted that this model fails to perceive the potential for a reciprocal relationship between HR strategy and organisational strategy. Indeed, for some, the very idea of ‘tight fit’ makes the organisation inflexible, incapable of adapting to required changes and hence ‘misfitted’ to today’s dynamic business environment. The matching model also misses the ‘human’ aspect of human resources and has been called a ‘hard’ model of HRM. The idea of considering and using human resources like any other resource of an organisation seems unpragmatic in the present world.
Despite the many criticisms, however, the matching model deserves credit for providing an initial framework for subsequent theory development in the field of strategic HRM. Researchers need to adopt a comprehensive methodology in order to study the dynamic concept of human resource strategy. Do elements of the matching model exist in different settings? This can be discovered by examining the presence of some of the core issues of the model.
The main propositions emerging from the matching models that can be adopted by managers to evaluate scenario of strategic HRM in their organisations are:
i. Do organisations show a ‘tight fit’ between their HRM and organisation strategy where the former is dependent on the latter? Do specialist people managers believe they should develop HRM systems only for the effective implementation of their organisation’s strategies?
ii. Do organisations consider their human resources as a cost and use them sparingly? Or do they devote resources to the training of their HRs to make the best use of them?
iii. Do HRM strategies vary across different levels of employees?
What is Strategic Human Resource Management – Top 2 Theories: Resource-Based View Theory and Behavioural Perspective Theory
The important theories are:
i. Resource-Based View Theory:
The most recent entry into the theoretical discussions of strategic human resource management comes from the organisational economics and strategic management literature and has been coined the resource-based view of the organisation. Since the birth of strategy as a recognized area in the field of management, industrial organisation strategists have relied primarily on a single framework (Strengths, Weaknesses, Opportunities and Threats) to structure their research. Major contributions to the strategy literature have centered around the externally focused portions of this competitive advantage model.
The resource-based view of the organisation focuses primarily on the relationships among strategy, HR practices, and the HR capital pool. The behavioural approach is primarily concerned with how strategy, HR practices and HR behaviours are interrelated. Transaction cost models attempt to examine the relationships among strategy, HR practices, and both the HR capital pool and HR behaviours. Finally, resource dependence and institutional theories examine the effects of political and institutional factors on HR practices.
Given the proposed definition of SHRM, it is possible to examine some theoretical models that are relevant to the field. Discussions of strategic human resource management come from the organisational economics and strategic management literature and have been coined as the resource-based view of the organisation.
Since the birth of strategy as a recognized area in the field of management, industrial organisation strategists have relied primarily on a single framework (strengths, weaknesses, opportunities and threats) to structure their research. Major contributions to the strategy literature have centered on the externally focused portions of this competitive advantage model.
Ulrich (1991) partially relied on the resource-based theoretical perspective in describing human resources as a competitive advantage. He expanded Porter’s (1985) model of competitive advantage to include organisational culture, distinctive competence, and strategic unity as “mediators” in the strategy-competitive advantage link. He then discussed how human resource practices can be used by organisations to develop strategies that will lead to a sustained competitive advantage, stating that there must be a focus on the relationship between human resources, strategies and competitive advantage.
Both Schuler and MacMillan (1984) and Ulrich (1991) provide practice-oriented perspectives, demonstrating the ways in which they believe that HRM can serve as a sustained competitive advantage. However, neither of these analyses were grounded in the resource-based view of the organisation. Thus, they assumed that human resources could be considered as a sustained competitive advantage rather than providing any justification for their positions within the context of the theory.
Given the fact that Barney (1991) seems to imply that true sustained competitive advantages are more likely to be discovered than developed, it is first necessary to examine the conditions under which human resources can be a source of sustained competitive advantage in the context of the resource-based view of the organisation. This issue has been addressed by Wright, McMahan, and McWilliams (1992).
Relying on the assumptions of individual ability being normally distributed, Wright et al. (1992) considered the four criteria for a sustained competitive advantage and attempted to evaluate the conditions under which human resources meet these criteria. First, in order for human resources to exist as a sustained competitive advantage, they must provide value to the organisation. This condition requires that there is a heterogeneous demand for labour (i.e., that organisations have jobs that require different types of skills) and a heterogeneous supply of labour (i.e., individuals differ in their skills and level of skills).
Under these circumstances, human resources can add value to an organisation, and the utility formulas provided by Schmidt, Hunter, and Pearlman (1979) and later elaborated with regard to financial decision making by Boudreau (1983) provide examples of ways of estimating this value. In fact, Boudreau and Berger’s (1985) formula explicitly considers the sales value of human resources (people) in monetary values.
Second, a resource must be rare if it is to be a sustained competitive advantage. Wright et al. (1992) noted that due to the normal distribution of ability, human resources with high ability levels are, by definition, rare. The goal of virtually all selection programmes is to ensure that the organisation is hiring only the highest ability individuals.
The issues then are the validity of the selection system and whether or not the organisation is able to attract and retain those applicants deemed to be of the highest ability. Thus, an organisation could theoretically obtain employees of superior ability through a combination of valid selection programmes and attractive reward systems.
Third, in order for a resource to be considered a sustained competitive advantage, human resources must be inimitable. In this discussion, Wright et al. (1992) use the concepts of unique historical conditions, causal ambiguity, and social complexity to demonstrate the inimitability of competitive advantages stemming from human resources. Unique historical conditions refer to the particular historical events that have shaped as organisation’s practices, policies, and culture.
Causal ambiguity describes a situation where the causal source of the competitive advantage is not easily identified. Social complexity recognizes that in many situations (e.g., team production) competitive advantage stems from unique social relationships that cannot be duplicated. Thus, Wright et al. argue that due to the fact that many competitive advantages that might be based in an organisation’s human resources are characterized by unique historical conditions, causal ambiguity, and social complexity, it is highly unlikely that well developed human resources could be easily imitated.
Finally, a resource must not have substitutes if it is to be considered a sustained competitive advantage. According to Wright et al. (1992), one could easily picture an organisation that had the highest ability individuals who constituted a competitive advantage. However, what happens if a competitor develops a new technology that provides vast productivity increases greater than the productivity differences in organisations due to ability?
If the technology is imitable (which it likely is because an organisation could simply purchase the technology in the marketplace), then once the focal organisation purchased the new technology, the human resources would once again exist as a competitive advantage.
Resource-based theory is currently receiving a significant amount of attention in the strategic management literature. Great potential exists for the use of the resource-based theory in SHRM research. The theory’s focus on an internal analysis of the organisation provides an extremely important avenue for SHRM researchers to examine the ways that organisations attempt to develop human resources as a competitive advantage.
Thus, similar to utility analyses of employee value and McKinley’s (1983) view of the organisation’s distinctive competence being made up of the skills of the members of the organisation, this theory provides a framework for viewing human resources as a pool of skills that can provide a resource to serve as a sustained competitive advantage.
In addition, the need to integrate human resource practices in the formulation stages of an organisation’s strategy seems paramount for the continuing study of SHRM. The resource-based approach provides a framework for examining the pool of human resources that may be either able or unable to carry out a given strategy during the formulation phase of strategic management. Thus, the resource-based view may demonstrate the fact that strategies are not universally implementable, but are contingent on having the human resource base necessary to implement them.
One of the original and more popular theoretical models used in the SHRM literature is the “Behavioural Perspective”. This behavioural perspective has its roots in contingency theory. The theory focuses on employee behaviour as the mediator between strategy and organisation performance. It assumes that the purpose of various employment practices is to elicit and control employee attitudes and behaviours.
The specific attitudes and behaviours that will be most effective for organisations differ, depending upon various characteristics of organisations, including the organisational strategy. Thus, in the context of SHRM, these differences in role behaviours required by the organisation’s strategy require different HRM practices to elicit and reinforce those behaviours.
The best example of the behavioural perspective is Schuler and Jackson’s (1987) model for linking HRM practices with competitive strategies. They adapted Porter’s (1980) competitive strategies by discussing innovation, quality enhancement, and cost reduction strategies. They stated that “there must be a rationale” for the linkage of competitive strategies with HRM practices in order to predict, study, refine, and modify both strategy and practices in certain circumstances.
The rationale they used was that employee role behaviours are instrumental in the implementation of the competitive strategies. These role behaviours can vary along a number of dimensions, such as repetitive versus innovative behaviour, low versus high risk taking, and inflexible versus flexible to change.
These authors proposed that innovation strategies require among other things a high degree of innovative behaviour, a long-term focus, a high level of cooperative behaviour, a moderate degree of concern for quality, a moderate concern for quantity, and a greater degree of risk taking. This can be contrasted with a cost reduction strategy that requires such things as repetitive behaviours, a short-term focus, autonomous activity, high concern for quantity, moderate concern for quality, and low risk taking.
An additional aspect of the Schuler and Jackson (1987) model was to stress the need for congruence across the many HRM practices. These authors note that HRM practices can be considered as a menu of options for HR executives, from which they can choose the practices that – (a) promote the most effective role behaviours consistent with the organisational strategy, and (b) are aligned such that each HR practice is congruent with the others.
Schuler builds upon the behavioural perspective by differentiating the HR philosophy, HR policies, HR programmes, HR practices, and HR processes. Although the HR philosophy, policies and programmes express the culture, values and goals of the HR function, he proposed that it is the specific HR practices that motivate employees to exhibit the needed role behaviours associated with various strategies. Once again, Schuler stresses that all of the HRM activities must be consistent with each other, and in turn, linked to the strategic needs of the business.
It is important to note that these models do not focus on the knowledge, skills, and abilities of employees, focusing instead only on role behaviours. Schuler and Jackson (1987) stated “the rationale developed is based on what is needed from employees apart from the specific technical skills, knowledge’s and abilities (SKA’s) required to perform a specific task”.
Although not ignoring the relationship with the organisation’s external environment, the behavioural perspective focuses predominantly on the throughput transformation process. This is evidenced by the assumption that employee role behaviour, in a generic sense, is the main mediator between strategy and the effective achievement of the strategy.
The research implications of this theoretical perspective rest primarily in three areas.
First, this theory is quite specific regarding the hypothesized role behaviours required by different strategies; thus, the validity of these propositions can be tested.
Second, it well focuses on the types of HR practices which are effective in eliciting these role behaviours. For example, if we assume that we can specify the most effective role behaviours, and then research could focus on examining which particular HR practices are being used, and the effectiveness of these techniques for eliciting those behaviours. For example, Jackson, Schuler, and Rivero (1989) found that different organisational characteristics (including strategy) affect some HRM practices.
Finally, the assumption of the behavioural perspective is that strategies lead to HRM practices that elicit employee role behaviours that lead to a number of outcomes that provide benefits to the organisation. Although organisation performance seems to be the most obvious outcome of good HR practices, Walker and Bechet (1991) noted a number of additional outcomes of SHRM such as employee attitudes, accident rates, productivity, and labour costs.
Once again, though this model seems to have some intuitive appeal, there is no empirical data demonstrating that employee role behaviours do lead to positive organisational outcomes. Thus, the entire model could be tested to demonstrate – (a) different strategies are associated with different levels of organisation performance, and (b) the relationship between strategies and organisation performance is either mediated or moderated by HRM practices and employee role behaviours.
Open systems models are based on the general systems models, and hold that organisations can be described as input, throughput, output systems involved in transactions with the surrounding environment. According to Katz and Kahn (1978), organisations consist of the patterned activities of individuals aimed at some common output or outcome.
These activities can be characterized as consisting of the energy input into the system (i.e., inputs of people, money, technology, etc., the transformation of energies within the system (i.e., putting the inputs to work together) and the resulting product or energy output (i.e., the product that results from the patterned activities of the input and throughput phases). Central to open systems models is the idea of a negative feedback loop that informs the system that it is not functioning effectively, thereby allowing for changes to reduce any discrepancies.
Mowday (1983) was one of the first HRM researchers to apply the systems model to HRM practices. He discussed strategies for reducing turnover by relying on Thompson’s (1967) input-throughput-output model of how organisations structure and control behaviour. He used this model to generate various alternative programmes that would manage the turnover process in organisations.
Similarly, Wright and Snell (1991) used an open systems model of the human resource system for generating HRM strategies. They proposed that the inputs in the HR system are competencies (i.e., skills and abilities) of the individuals in the organisation that the organisation must import from its external environment.
The throughput process can be characterized by the behaviours of those individuals in the organisational system. Finally, the outputs consist of both performance (e.g., productivity) and affective outcomes (e.g., job satisfaction). Using this model, they argued that SHRM consists of two general responsibilities – competence management and behaviour management.
Competence management, according to Wright and Snell (1991) deals with those things that the organisation does to ensure that the individuals in the organisation have the skills required to execute a given organisational strategy. This recognizes the negotiations with the external labour environment in order to attract, select, retain, and use employees with the necessary knowledge, skills, and abilities for executing the strategic business plan. They proposed four competence management strategies.
Competence Acquisition refers to the activities such as training and selection that seek to ensure that the individuals in the organisation have the required competencies. Competence Utilization deals with activities that seek to utilize latent skills or skills that had been deemed unnecessary under a previous strategy. Competence Retention is a strategy aimed at retaining various competencies in the organisation through reduction of turnover and constant training. Finally, Competence Displacement consists of activities aimed at eliminating competencies that are no longer necessary for the organisational strategy.
Behaviour management is concerned with ensuring that once individuals with the required skills are in the organisation, they act in ways that support the organisational strategy Similar to the approach of the behavioural perspective, Wright and Snell (1991) discussed two behaviour management strategies.
First, Behavioural Control consists of activities such as performance appraisal and pay systems that seek to control employee behaviour to be in line with organisational goals. Second, Behavioural Coordination strategies of appraisal and organisational development activities that seek to coordinate behaviour across individuals to support the organisational strategy.
The major focus of the Wright and Snell model was on the coordination of various HR practices across sub functions (i.e., selection, appraisal, compensation, training, etc.). These authors noted that an open systems view of SHRM requires organisations aligning all of the various HR practices toward some strategic end, rather than simply focusing on how one set of practices (e.g., compensation) supports an organisation strategy. Thus, the research implications of this theory would focus on examining exactly how organisations develop and align HR practices across traditional functional lines.
Similarly, Snell has developed a hybrid model of SHRM, combining cybernetic systems and behavioural perspectives into what he termed a “control theory” view of SHRM.
He noted that the behavioural perspective has not beer thorough in explaining how various HRM practices work in combination and that it assumes that managers have a clear understanding of the organisational context, knowledge of required behaviours from all levels of employees and knowledge of the HRM practices that will elicit the behaviours to achieve the organisation’s strategic goals. He proposed that administrative information mediates the relationship between strategy and HRM control.
Snell’s control theory model is based on cybernetic systems and proposes that the control process includes – (a) superior intentions, (b) influence mechanisms, and (c) evaluation and feedback. In this model, the various HRM practices can be combined into three types of control systems – (a) behaviour control, (b) output control, and (c) input control.
He examined the use of executive controls in organisations, proposing that organisations seek to control inputs through selection and training), behaviours (through behaviour-based appraisal and reward systems), and outputs (through outcome-based appraisal and reward systems). He relied on Thompson’s (1967) mediating mechanisms of knowledge of cause-effect relations and ambiguity of performance standards for determining HRM control strategies.
This model also emphasizes the need for coordination across various HRM practices However, it goes beyond most other models by explicitly recognizing the imperfect nature of decision making in SHRM due to bounded rationality and/or uncertainty.
Most models tend to implicitly assume that environmental and strategic contingencies, the exact competencies and role behaviours necessary to achieve the strategy and the proper HRM practices to elicit these competencies and behaviours are perfectly known, can be put in place on a timely basis, and can be quickly revised as needed. A fruitful avenue for future research is the contextual factors that affect SHRM decision makers to develop and/or use certain HRM strategies.
In addition, although not explicitly explored by Snell (in press), control theory (and open systems theory in general) in the cybernetic sense, is a dynamic model of constant environmental monitoring and internal adjustment. Most SHRM researchers have tended to focus on cross sectional studies that only give a glimpse of the relationships among practices at a particular point in time.
However, practitioners are often more concerned with the constant monitoring of the outcomes of HRM practices and the corresponding adjustment of those practices whenever the outcomes tend to deviate from those desired. In order for these cybernetic models to describe true open systems, they must be expanded to consider the relational feedback from the environment and to discuss the internal HRM adjustments in response to this feedback. Thus, this theory has impressive potential for examining how SHRM practices change or need to change over time.
Transaction cost theory is a popular theoretical model in the strategic management literature that has recently been applied to the HRM function, dealing with Exploration of transactions as means of controlling employee behaviour. An agency/transaction cost theory approach to examining the problems of human exchange are based in the fields of finance and economics.
The approach seeks to identify the environmental factors that together with a set of related human factors explain why organisations seek to internalize transactions (as opposed to transacting in the market place) as a means of reducing the costs associated with these transactions. The approach identifies bounded rationality and opportunism as the two human factors that serve as major obstacles to human exchange. Bounded rationality is the term used to refer to the fact that people are subject to information processing limits.
Opportunism refers to the fact that people will act with self-interest and guile in pursuing their own goals. These factors in and of themselves are not problems, however, when combined with environmental characteristics of uncertainty and small numbers exchange relationships, they result in incurring transaction and agency costs. The pairing of uncertainty with bounded rationality results in a situation where it is very costly or impossible to identify all future contingencies and specify, ex ante, all of the appropriate responses to each contingency.
Opportunism is relatively harmless so long as competitive (large numbers) exchange relationships exist. However, when paired with small numbers exchange relationships, opportunism must be held in check by costly and risky short-term contracting.
Transaction costs are the costs associated with negotiating, monitoring, evaluating and enforcing exchanges between parties, and they are incurred in order to make exchanges more efficient. As transaction costs increase, there is a tendency to internalize the transaction through organisation. The agency problem exists when one party requires services from another in a situation where uncertainty exists and both parties will behave self-interestedly.
Agency costs are the costs associated with establishing efficient contracts between parties. Agency/transaction cost theory has been very popular in the strategic management literature for studying diversification, internalization and restructuring. In addition, although not explicitly explored by Snell (1992), control theory (and open systems theory in general) in the cybernetic sense, is a dynamic model of constant environmental monitoring and internal adjustment.
Most SHRM researchers have tended to focus on cross sectional studies that only give a glimpse of the relationships among practices at a particular point in time. However, practitioners are often more concerned with the constant monitoring of the outcomes of HRM practices and the corresponding adjustment of those practices whenever the outcomes tend to deviate from those desired.
In order for these cybernetic models to describe true open systems, they must be expanded to consider the relational feedback from the environment and to discuss the internal HRM adjustments in response to this feedback. Thus, this theory has impressive potential for examining how SHRM practices change or need to change over time.
An excellent example of this is a study by Eisenhart (1988). She relied on agency theory as one explanation for the determinants of compensation systems, examining how agency theory variables such as job programmability, span of control, and outcome uncertainty were related to whether or not retail stores used commission pay systems. In support of this theory, she found that job programmability was positively related to the use of salaries. Span of control and outcome uncertainty were related to the use of salaries such that salaries were more common when there was a low span of control and high outcome uncertainty.
Given the fact that the agency/transaction costs model has also been demonstrated as useful in the strategic management literature, it seems possible that it could also be applied as a theoretical framework for linking strategy to SHRM. It seems intuitive that an organisation’s strategy can have an effect on the nature of work.
To the extent that the nature of work changes to be either more or less uncertain, or more or less observable, the types of HRM systems necessary to monitor inputs, behaviours, and outcomes should also change. This framework may provide the theoretical foundation for examining why different strategic decisions result in differing HRM practices.
What is Strategic Human Resource Management – 5 Main Approaches: Resource-Based Approach, Strategic Fit, Universalistic Approach and a Few Others
Some of important approaches of strategic HRM are:
1. Resource-Based Approach:
The resource based view believes that a strategic fit between the firm’s resources and opportunities must be achieved so as to deploy and use the resources in a manner to provide competitive advantage to the organization. Employees are treated as resource and using the resource-based view it is believed that managing them strategically will help the organization do better and outperform the rivals.
2. Strategic Fit:
The concept of strategic fit believes in vertical and horizontal integration. Vertical integration aligns the HR strategy with the business strategy and also makes the former an integral part of the latter. Vertical integration helps in building a rationale for every HR action or policy, since directly or indirectly the same helps in the furtherance of the business strategy.
It is also called External fit. Horizontal integration implies that various HR strategies are aligned so that there is congruence and they have a cumulative positive effect on business. This is also called Internal Fit.
3. Universalistic Approach:
Universalistic approach aims to transform the traditional human resource practices into a limited set of “correct” HR procedures and policies, like decentralization of decision-making, selective hiring, job security, better pay etc.
4. Configurational Approach:
This approach believes that firm’s performance and effectiveness of the strategic human resource management practices are linked and synced. HR practices strategized and executed will have a direct impact on the performance of the company. The approach is based on the understanding that a single good HR practice will not have made difference to the company as much as a bundle of HR practices will do.
5. Contingency Approach:
Contingency theories have suggested that the interaction of the independent variable and dependent variable is different for different levels of critical contingency variable. Strategy of the organization is considered as the primary contingency variable. Hence the impact of the HR strategy on the performance of the organization will depend upon the interaction of the former with selected theory of a firm’s strategy.
What is Strategic Human Resource Management – Application of SHRM
Strategic human resource management is applied to all organisation whether it is private or public organisation. Irrespective of their form, hierarchic on networked fluid, strategic human resource management has its relevant to all organisations. As human resource management is architectonic activity it may not be targeted.
Human resource management is not specific enough to achieve its desired levels of economy in policy-making and implementation. Therefore, there is a need for strategic human resource management for cost effectiveness of HR programmes.
Strategic human resource management is applied in all organisations, but its form and content vary in organisation. In the long-term business strategy, it is practiced better than the short-term business strategy. Mintzberg argues that strategies, which are actually carried through in practice show unintended features, which he terms “emergent strategies”.
This is a result of poor implementation, poor strategic thinking or even a sound state of realism. It reflects the view that strategic management should not be confined at the top in an organisation. Emergent strategy rarely comes from the top. It came from bright ideas, from local levels, which are found to work in practice and then adopted.
But in modern organisation, Human research strategy is supported by information technology in the form of human resource management information system and workforce management system.
What is Strategic Human Resource Management – Top 10 Benefits
The benefits of strategic human resource management are:
1. Identifying and analysing external opportunities and threats that may be crucial to the company’s success.
2. Provides a clear business strategy and vision for the future.
3. To supply competitive intelligence that may be useful in the strategic planning process.
4. To recruit, retain and motivate people.
5. To develop and retain highly competent people.
6. To ensure that people development issues are addressed systematically.
7. To supply information regarding the company’s internal strengths and weaknesses.
8. To meet the expectations of the customers effectively.
9. To ensure high productivity.
10. To ensure business surplus thorough competency.
What is Strategic Human Resource Management – 3 Critical Barriers (With Some Other Barriers)
The people in the organizations interact with the customers to generate revenue. They introduce the small and significant innovations that move the company forward. They set the strategic direction for the organizations and then put those strategies into operation. Human Capital is thus the most valuable asset. It is unfortunately undervalued in most organizations today.
Helping the organization recognize human capital as a valuable asset and as competitive differentiator is the strategic role of human resources. Human Resources must generate maximum ROI from human capital investments. Human Resources guide the alignment of employee roles, job functions, talent, and individual performance with business results and goals. It finds, engages, assesses, develops, and retains the talent that drives the business. It manages administrative requirements such as payroll, benefits, the recruitment process, policy standards, and holiday and sick leave tracking.
Three critical barriers prevent human resources fulfilling its strategic role and hamper it typically:
Barrier 1 – Lack of Information in Defining and Selling the Role and Business Value of Human Resources:
Senior management expects every business unit to generate reports and data that measure performance against plan. Human resource management works on the same lines. Experts opine that better human capital practices lead to higher financial returns and have & direct impact on share price. Investors, for example- scrutinize headcount and salary or wages ratios. Historically, however, human resources has focused more on managing administrative requirements than on communicating—and selling—the business value of human capital management.
While managing administrative requirements is essential, there are certain other critical strategic aspects of managing human capital too. To achieve the same it is necessary that human resources understand the strategic objectives of the business, translate these into job skill requirements and individual capabilities, and designs an appropriate performance tracking process.
Human Resources should first assign a value to each human capital asset, and by communicating this value, underline the importance of managing its performance:
Base Salary expense + Recruiting expenses +
Transfer expenses + Training expenses +
Bonus / incentive expenses +
Stock options grant value (Estimate) / Human Capital asset investment
It is possible to better manage human capital assets by asking the following questions. What is the quality and value of the employee/ employer relationship? What are the training and development needs of the employees? How should we provide incentives and motivation for employees? Answers may come from reports on staff turnover, manning tables, high performer retention rates, head-count growth, role definitions, job productivity and individual performance monitoring.
Assessing comparative productivity ratios such as revenue to head- count also helps manage resource requirements; both short term and long -term. This information spots and demonstrates the asset’s strategic business value to the organization. Lack of such information or failure to communicate this information properly impairs human resources ability to fulfill its strategic role.
The credibility and business value of Human Resources is often compromised by a lack of consistency in decisions and by insufficient information. This allows an informal network to bias the selection and promotion of employees.
As a strategic partner in the business, human resources should understand and define the factors defining success for employees. Does the business depend on customer services, or on innovation, or on low cost? Based on this understanding, human resources can initiate practices that guide employees toward consistent and measurable milestones, creating a structured process.
Implementing visible and consistent practices requires quality information. It is not possible to achieve the consistency needed if policy documents, performance reviews, career objectives, and compensation assessments are not combined and positioned within a larger structure. Consistency requires a well-defined and structured process shared across the organization.
Clarity of well-defined processes for collecting Human Resource Information is needed. Other such information needed is how should this data be stored and retrieved? Can this mostly qualitative information be analyzed usefully, and synthesized into a metric framework etc.? With such a synthesis, Human Resources gain the ability to compare and contrast different performance drivers.
Identifying, managing and retaining talented individuals is a key competitive requirement. The consistent information and management practices allow the company to achieve this.
Both Human Resources and IT strive to position themselves within an organization as driving business value instead of expense. They can be seen as two sides of the same coin.
Human Resources is responsible for job design and ensuring that the right skills and competencies are developed or acquired to fill these jobs. In turn, performance in these jobs is defined and measured against goals and objectives. In this sense, Human Resources’ information needs to mirror the performance to be monitored, analyzed and planned for in a given jobs.
Both Human Resources and IT must understand how software tools and skills drive greater productivity. As performance management information becomes more consistent and reliable, it will also enhance the performance and compensation process for which Human Resources is responsible.
For a variety of reasons, many organisations have not adopted SHRM.
The main reasons for not adopting SHRM are:
1. Focusing on short-term performance – Most organisations determine compensation on the basis of current performance. They do not consider a long- term view of the investment in people.
2. Lack of technical knowledge – Most HR manager do not understand the whole organisational process and are unable to link HR strategies to organisational strategies. Because of insufficient knowledge about other functional areas of the firm — marketing, finance, operations – they are unable to frame strategies that consider the needs of these areas.
3. Lack of strategic perspective – HR is usually not viewed from a strategic perspective. Most managers still regard the HR department’s role to be purely administrative.
4. Difficulty in quantifying – Most HR managers find it difficult to quantify the costs and benefits of HR. Activities such as teamwork and other soft skills are difficult to quantify.
5. Apprehensions towards training people – Most organisations are reluctant to train people because they feel that after getting trained, the employees would look for better alternatives.
6. Resistance of employees – Most employees resist changes in technology and do not co-operate with their leaders. This is because the changing work environment makes employees feel threatened and insecure. Organisations should train and develop so that they do not feel insecure.
Some other barriers are summarised as follows:
1. Inducing the vision and mission of the change effort.
2. High resistance due to lack of cooperation from the bottom.
3. Inter-departmental conflict.
4. The commitment of the entire senior management team.
5. Plans that integrate internal resources with external requirements.
6. Limited time, money and the resources.
7. The status quo approach of employees.
8. Fear of incompetency of senior level managers to take strategic steps.
9. Diverse work-force with competitive skill sets.
10. Fear of victimisation in the wake of failures.
11. Improper strategic assignments and leadership conflict over authority.
12. Ramifications for power relations.
13. Vulnerability to legislative changes.
14. Resistance that comes through the legitimate labour institutions.
15. Presence of an active labour union.
16. Rapid structural changes.
17. Economic and market pressures influenced the adoption of strategic HRM.
18. More diverse, outward looking approach.