CHAPTER - 2

STRATEGIC HUMAN RESOURCE MANAGEMENT

2.1

Human Resource Management

The concept of human resource management (HRM) has attracted a lot of

attention from academics and practitioners alike since it first emerged in the
mid-1980s. The former often suspect both the practicality and morality of
HRM. The latter have often absorbed some if not all of the HRM philosophy
and attempted to put it into effect with varying degrees of success for various
good and bad reasons.

The overall purpose of HRM is to ensure that the organization is able to

achieve success through people. As Ulrich and Lake (1990)1 has remarked:
'HRM systems can be the source of organizational capabilities that allow firms
to learn and capitalize on new opportunities'.

Specifically, HRM aims to:

enable the organization to obtain and retain the skilled, committed and
well-motivated workforce it needs;

enhance and develop the inherent capacities of people - their contributions, potential and employability - by providing learning and continuous development opportunities;

develop high-performance work systems that include 'rigorous

recruitment

and

selection

procedures,

performance-contingent

incentive compensation systems, and management development and

training activities linked to the needs of the business' (Becker et al,
1997) 2;

develop high-commitment management practices that recognize that

employees are valued stakeholders in the organization and help to
develop a climate of cooperation and mutual trust;

create a climate in which productive and harmonious relationships can

be maintained through partnerships between management and
employees;

53

develop an environment in which teamwork and flexibility can flourish;

help the organization to balance and adapt to the needs of its stake
holders (owners, government bodies or trustees, management,
employees, customers, suppliers and the public at large);

ensure that people are valued and rewarded for what they do and
achieve;

manage a diverse workforce, taking into account individual and group

differences in employment needs, work style and aspirations;

ensure that equal opportunities are available to all;

adopt an ethical approach to managing employees that is based on

concern for people, fairness and transparency;

maintain and improve the physical and mental well-being of

employees.

These aims are ambitious and could be regarded as mere rhetoric. The
research conducted by Gratton et al (1999)3 found that there was generally a
wide gap between rhetoric and reality. Managements may start off with good
intentions to do some or all of these things but the realization of them - 'theory
in use' - is often very difficult. This arises because of contextual and process
problems: other business priorities, short-termism, lack of support from line
managers, an inadequate infrastructure of supporting processes, lack of
resources, resistance to change and a climate in which employees do not
trust management, whatever they say.

THE DEVELOPMENT OF THE HRM CONCEPT

Some aspects of the basic philosophy of 'soft HRM' can be traced back to the
writings of McGregor (1960)4 who, as mentioned by Truss (1999)5, even used
the terminology 'hard' and 'soft' to characterize forms of management control
McGregor's theory X essentially describes the 'control' model of management
as described by Walton (1985)6, while McGregor's theory Y emphasizes the
importance of integrating the needs of the organization and those of the
individual the principle of mutual commitment, again expressed by Walton.

54

The full concept of HRM emerged in the mid-1980s against the background of
the popularist writers on management who flourished in that decade. These
included Pascale and Athos (1981)7 and Peters and Waterman (1982)8 who
produced lists of the attributes that they claimed characterized successful
companies. These popular 'school of excellence' writers may have exerted
some influence on management thinking about the need for strong cultures
and commitment (two features of the HRM philosophy) but, as Guest (1993) 9
has commented, they were right enough to be dangerously wrong.

The concept of HRM has gone through three stages:

1.

The initial concepts developed by American writers in the 1980s.

2.

The take-up of these comments by British writers in the late 1980s and
earlier 1990s who were often sceptical about the reality beyond the
rhetoric and dubious about its morality.

3.

The assimilation of HRM into traditional personnel management.

The two initial concepts of HRM have been christened by Boxall (1992) as the
'matching model' and the 'Harvard framework'.

The matching model of HRM

One of the first explicit statements of the HRM concept was made by the
Michigan School (Fombrun et al. 1984)10. They held that HR systems and the
organization structure should be managed in a way that is congruent with
organizational strategy (hence the name 'matching model'). They further
explained that there is a human resource cycle (an adaptation of which is
illustrated in Figure 2.1) which consists of four generic processes or functions
that are performed in all organizations. These are:

1.

Selection - matching available human resources to jobs.

2.

Appraisal- (performance management).

3.

Rewards - 'the reward system is one of the most under-utilized and

mishandled managerial tools for driving organizational 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'.

55

4.

Development - developing high-quality employees.

Figure 2.1 The Human Resource Cycle (adapted from Fombrun et al,
1984)
Rewards

Selection

Performance

Performance

Management

Development

Fombrun et al suggest that the HR function should be linked to the line

organization by providing the business with good HR databases, by ensuring
that senior managers give HR issues as much attention as they give to other
functions, and by measuring the contribution of the HR function at the
strategic, managerial and operational levels.

The Harvard framework

The other founding fathers of HRM were the Harvard School of Beer et al
(1984)11 who developed what Boxall (1992)12 call the 'Harvard framework'.
This framework is based on the belief that the problems of historical personnel
management can only be solved when general managers develop a viewpoint
of how they wish to see employees involved in and developed by the
enterprise, and of what HRM policies and practices may achieve those goals.
Without either a central philosophy or a strategic vision - which can be
provided only by general managers - HRM is likely to remain a set of
independent activities, each guided by its own practice tradition.

56

Beer and his colleagues believed that 'Today, many pressures are demanding
a broader, more comprehensive and more strategic perspective with regard to
the organization's human resources'. These pressures have created a need
for 'a longer-term perspective in managing people and consideration of people
as potential assets rather than merely a variable cost'. They were the first to
underline the tenet that HRM belongs to line managers.

They also stated that: 'Human resource management involves all management decisions and action that affect the nature of the relationship between
the organization and its employees - its human resources'.

The Harvard school suggested that HRM had two characteristic features:
1)

Line managers accept more responsibility for ensuring the alignment of

competitive strategy and personnel policies; and

2)

The personnel function has the mission of setting policies that govern
how personnel activities are developed and implemented in ways that
make them more mutually reinforcing.

The Harvard framework as modeled by Beer et al is shown in Figure 2.2

According to Boxall (1992) the advantages of this model are that it:

incorporates recognition of a range of stakeholder interests;

recognizes the importance of 'trade-offs', either explicitly or implicitly,

between the interests of owners and those of employees, as well as
between various interest groups;

widens the context of HRM to include 'employee influence', the organization of work and the associated question of supervisory style;

acknowledges

broad

range

of

contextual

influences

on

management's choice of strategy, suggesting a meshing of both

product-market and socio -cultural logics;

emphasizes strategic choice it is not driven by situational or environ

mental determinism.

57

Figure 2.2 The Harvard Framework for Human Resource Management

Stakeholder Interests
Shareholders
Management
employees
government
unions

Situational factors
workforce
characteristics
business
strategy
and conditions
management
philosophy
labour market
unions
task technology
laws and social
values

HRM
Policy
choices
employee
influence
human
resource flow
reward
systems
work systems

HR outcomes
commitment
congruence
flow
cost
effectiveness

Long term
consequences :
individual
wellbeing
organizational
effectiveness
social
wellbeing

Source Beer et al, (1984) Managing human assets, New York: Free press
The Harvard model has exerted considerable influence over the theory and
practice of HRM, particularly in its emphasis on the fact that HRM is the
concern of management in general rather than the personnel function in
particular.
Walton (1985), also of Harvard, expanded the concept by emphasizing the
importance of commitment and mutuality:
The new HRM model is composed of policies that promote mutuality - mutual
goals, mutual influence, mutual respect, mutual rewards, and mutual
responsibility. The theory is that policies of mutuality will elicit commitment,
which in turn will yield both better economic performance and greater human
development.
The concept of strategic HRM is based on the important part of the HRM
philosophy that emphasizes the strategic nature of HRM and the need to
integrate HR strategy with the business strategy.

58

Definition of HRM
HRM can be defined as a strategic and coherent approach to the
management of an organization's most valued assets - the people working
there who individually and collectively contribute to the achievement of its
objectives. A distinction has been made by Storey (1989) 13 between the 'hard'
and 'soft' versions of HRM.
VERSIONS OF HRM
Hard HRM
The hard approach to HRM emphasizes the quantitative, calculative and
business-strategic aspects of managing the headcount resource in as
'rational' a way as for any other economic factor. It adopts a business-oriented
philosophy that emphasizes the need to manage people in ways that will
obtain added value from them and thus achieve competitive advantage. It
regards people as human capital from which a return can be obtained by
investing judicially in their development. Fombrun et al (1984) quite explicitly
presented workers as another key resource for managers to exploit. As Guest
(1999)14 comments:
The drive to adopt HRM is... based on the business case of a need to respond
to an external threat from increasing competition. It is a philosophy that
appeals to managements who are striving to increase competitive advantage
and appreciate that to do this they must invest in human resources as well as
new technology.
He also commented that HRM 'reflects a long-standing capitalist tradition in
which the worker is regarded as a commodity'.
The emphasis is therefore on:

the interests of management;

adopting a strategic approach that is closely integrated with business

strategy;

obtaining added value from people by the processes of human

resource development and performance management;

59

the need for a strong corporate culture expressed in mission and value
statements and reinforced by communications, training and performance management processes.

Soft HRM
The soft model of HRM traces its roots to the human relations school,
emphasizing communication, motivation and leadership. As described by
Storey (1989) it involves 'treating employees as valued assets, a source of
competitive advantage through their commitment, adaptability and high quality
(of skills, performance and so on)'. It therefore views employees, in the words
of Guest (1999), as means rather than objects. The soft approach to HRM
emphasizes the need to gain the commitment - the 'hearts and minds' - of
employees through involvement, communications and other methods of
developing a high commitment, high-trust organization. Attention is also
drawn to the key role of organizational culture.
The focus is on 'mutuality' - a belief that the interests of management and
employees can, indeed should, coincide. It is a therefore a unitarist approach.
In the words of Gennard and Judge (1997)15, organizations are assumed to
be 'harmonious and integrated, all employees sharing the organizational goals
and working as members of one team'.
It has, however, been observed by Truss (1999) that 'even if the rhetoric of
HRM is soft, the reality is often hard, with the interests of the organization
prevailing over those of the individual'. Research carried out by Gratton et al
(1999) found out that in the eight organizations they studied, there was a
mixture of hard and soft HRM approaches.
2.2

MULTIPLE

ROLE

MODEL

FOR

HUMAN

RESOURCES

MANAGEMENT
To create value and deliver results, HR professionals must begin not by
focusing on the activities or work of HR but by defining the deliverables of that
work. Deliverables guarantee outcomes of HR work. With deliverables
defined, the roles and activities of business partners may be stipulated.

60

The framework in Figure 2.3 describes - in terms of deliverables - four key

roles that HR professionals must fulfill to make their business partnership a
reality. Ulrich devised this framework over the course of his work with dozens
of companies and hundreds of HR professionals; many companies have since
used it as a way to describe the deliverables of their HR work. The two axes
represent the HR professional's focus and activities. Focus ranges from longterm /strategic to short-term/operational. HR professionals must learn to be
both strategic and operational, focusing on the long and short term. Activities
range from managing processes (HR tools and systems) to managing people.
These two axes delineate four principal HR roles: (1) management of strategic
human resources; (2) management of firm infrastructure; (3) management of
the employee contribution; and (4) management of transformation and
change. To understand each of these roles more fully, we must consider
these three issues: the deliverables that constitute the outcome of the role,
the characteristic metaphor or visual image that accompanies the role and the
activities the HR professional must perform to fulfill the role. Table 2.1
summarizes these issues for each of the roles identified in- Figure 2.3.
Figure: 2.3 HR Roles in building a Competitive Organization
FUTURE / STRATEGIC FOCUS
Management of Strategic
Human Resources
Process

.
Management of Firm
Infrastructure

Management of
Transformation and
Change

People

Management of Employee
Contribution

DAY TO DAY / OPERATIONAL FOCUS

Source: Ulrich, D. (1997), Human Resource Champions, Boston: Harvard Business

press pp.24

Management of Strategic Human Resources

The strategic HR role focuses on aligning HR strategies and practices with
business strategy. In playing this role, the HR professional works to be a
strategic partner, helping to ensure the success of business strategies. By
fulfilling this role, HR professionals increase the capacity of a business to
execute its strategies. Translating business strategies into HR practices helps
a business in three ways. First, the business can adapt- to change because

61

the time from the conception to the execution of a strategy is shortened.

Second, the business can better meet customer demands because its
customer service strategies have been translated into specific policies and
practices. Third, the business can achieve financial performance through its
more effective execution of strategy.
Table 2.1 Definition of HR Roles
Deliverable/

Role/Cell

Metaphor

Outcome

Management of
Strategic Human

Executing strategy

Strategic Partner

Resources
Management of
Firm Infrastructure
Management of
Employee
Contribution
Management of
Transformation
and Chang

Building an
efficient
infrastructure

commitment

Expert

Processes: "Shared services"

and Champion

capability

organization

"Organizational diagnosis"
Reengineering Organization

Employee

Creating a renewed

Aligning HR and business strategy:

Administrative-

Increasing
employee

Activity

Change Agent

Listening and responding to

Employees: "Providing resources to
employees
Managing

transformation

change: "Ensuring capacity or change

Source: ibid page 25

The deliverable from the management of strategic human resources is

strategy execution. HR practices help accomplish business objectives. There
are many examples. As Sears worked to reduce costs, HR managers
implemented compensation, job rotation, and downsizing practices that
reduced labor cost per store. As Whirlpool sought to gain more global market
share in appliances, HR strategies modified hiring practices and career paths
to ensure multinational competence. When Colgate-Palmolive wanted to increase its global revenue, the compensation system was changed to reward
sales growth. When Motorola wanted to gain access to Russian markets, it

62

and

offered training and development opportunities to Soviet customers. Each of

these HR practices helped execute business strategy. The HR executives
who designed these new practices were strategic partners: They mastered
the skill of organizational diagnosis and aligned HR practices with business
strategies.

The metaphor for this role is the "strategic partner." HR professionals become
strategic partners when they participate in the process of defining business
strategy, when they ask questions that move strategy to action, and when
they design HR practices that align with business strategy.

The primary actions of the strategic human resource manager translate

business strategies into HR priorities. In any business setting, whether corporate, functional, business unit, or product line, a strategy exists either
explicitly, in a formal process or document, or implicitly, through a shared
agenda on priorities. As strategic partners, HR professionals should be able to
identify the HR practices that make the strategy happen. The process of
identifying these HR priorities is called organizational diagnosis, a process
through which an organization is audited to determine its strengths and
weaknesses.

In the past decade, increasing attention has been paid to the importance of
moving HR professionals into the strategic role. But in answering the call to
become "more strategic" and "more involved in the business many - HR
professionals have inappropriately identified this as the only HR role. The
implications of this are discussed below under "Paradoxes Inherent in Multiple
HR Roles.

Management of Firm Infrastructure

Creating an organizational infrastructure has been a traditional HR role. It
requires that HR professionals design and deliver efficient HR processes for
staffing, training, appraising, rewarding, promoting, and otherwise managing
the flow of employees through the organization. As a caretaker of the
corporate infrastructure, HR professionals ensure that these organizational

63

processes are designed and delivered efficiently. While this role has been
down-played and even disclaimed with the shift to a strategic focus, its
successful accomplishment continues to add value to a business.

HR professionals create infrastructure by constantly examining and improving

the HR processes.

The deliverable from the infrastructure role is administrative efficiency. HR

professionals accomplish administrative efficiency in two ways. First, they
ensure efficiency in HR presses. For example, through reengineering HR
processes, one firm recently found twenty-four separate registration systems
for training; new efficiency and cost savings were achieved by streamlining
and automating them into a single system. Another firm, finding that it
required an average of six, months to staff key positions, improved the
process and cut the time needed to one month. A second way in which HR
executives can improve overall business efficiency is by hiring, training, and
rewarding managers who increase productivity and reduce waste.

By delivering administrative efficiency, HR managers highlight their role as

administrative experts, mastering and leading reengineering efforts that foster
HR and business processes. At a simplistic level, most HR functions today
(like most other business functions) are being asked to do more with less-and
accomplishing this feat should be the outcome of undertaking this role.

The metaphor for work on a firm's infrastructure is the "administrative expert."

As implied above, HR professionals acting as administrative experts ferret out
unnecessary costs, improve efficiency, and constantly find new ways to do
things better.

To be effective as administrative experts, HR professionals need to undertake

activities leading to continual reengineering of the work processes they
administer. In many firms, this reengineering of HR processes has led to a
new HR organizational form called shared services, through which HR
administrative

services

are

shared

64

across

company

divisions

while

maintaining service quality for their users (line managers, employees, and
executives).

Management of Employee Contribution

The employee contributions role for HR professionals encompasses their
involvement in the day-to-day problems, concerns, and needs of employees.
In companies in which intellectual capital becomes a critical source of the
firm's value, HR professionals should be active and aggressive in developing
this capital. HR professionals thus become the employees' champions by
linking employee contributions to the organization's success. With active
employee champions who understand employees' needs and ensure that
those needs are met, overall employee contribution goes up.

The deliverables from management of employee contribution are increased

employee commitment and competence. HR practices should help employees
to contribute through both their competence to do good work and their
commitment to work diligently. In an era when downsizing has eroded the
employer-employee psychological contract, HR executives can be business
partners by continuing to be employee champions who pay attention to
employee needs.

The metaphor for this HR role as implied above is "employee champion".

These champions personally spend time with employees and train and
encourage managers in other departments to do the same. With employee
champions who understand the needs of employees and ensure that those
needs are met, overall employee contribution goes up. Employee contribution
is essential to any business, not only for its own sake (the social desirability of
committed employees), but also because it affects a business's ability to
change, meet customer expectations, and increase financial performance.
When employees are competent and committed, employee intellectual capital
becomes a significant appreciable asset that is reflected in a firm's financial
results.

65

The main activities for the management of employee contribution are

listening, responding, and finding ways to provide employees with resources
that meet their changing demands. As higher and higher demand are placed
on employees, HR professionals and line managers who serve as employee
champions creatively seek and implement the means for employees to voice
opinions and feel ownership in the business; they help to maintain the
psychological contract between the employee and the firm; and they give
employees new tools which to meet ever higher expectations

Management of Transformation and Change

A fourth key role through which HR professionals can add value to a firm is to
manage transformation and change. Transformation entails fundamental
cultural change within the firm; HR professionals managing' transformation
become both cultural guardians and cultural catalysts. Change refers to the
ability of an organization to improve the design and implementation of
initiatives and to reduce cycle rime in all organizational activities; HR
professionals help to identify and implement processes for change. .

The deliverable from management of transformation and change is capacity

for change. As firms undergo transformation, HR executives serve as
business partners by helping employees let go of old and adapt to a new
culture. As change agents, HR executives help organizations identify a
process for managing change.

As implied, the metaphor for work in this role is "change agent." As change
agents, HR professionals face the paradox inherent in any organizational
change. Often, change must be grounded in the past. For the HR professional
serving as change agent, honoring the past means appreciating and
respecting the tradition and history of a business while acting for the future.
HR professionals may need to force or facilitate a dialogue about values as
they identify new behaviors that will help to keep a firm competitive over time.
Being change agents is clearly part of the value-added role of HR
professionals as business partners.

66

The action of change agents include identifying and framing problems,

building relationships of trust, solving problems, and creating-and fulfilling action plan. In research on the competencies of HR professionals, my
colleagues I have

found that the domain of competencies related to

managing change was the most important for success as an HR professional.

HR professionals who are change agents help make change happen; they
understand critical processes for change, build commitment to those processes, and ensure that change occurs as intended.

IMPLICATIONS OF MULTIPLE ROLES FOR HR PROFESSIONALS

HR professionals may add value to a business in four ways; they can help
execute strategy, build infrastructure, ensure employee contribution, and
manage transformation and change.

Assessing the Current Quality of the HR Function

The multiple-role model can help in assessing the overall quality of HR
services. The HR role-assessment survey offers one effective and flexible
means for undertaking this task. The survey operationalizes specific
descriptors of HR concepts, activities, and practices for each role, and
tabulating the results yields a profile of HR quality for each. This assessment,
which can be done 'at the corporate business unit, or plant level, will define
the roles as currently played within a business.

The scoring sheet, included with the survey provides two kinds of information.
First, the total score for all four roles (ranging from 40 to 200) constitutes a
general assessment of the overall quality of HR services within a business.
Total scores above 160 may be considered high, indicating a perception of
high quality in delivery of HR services. Total scores below 90 indicate HR
services perceived as being of low quality overall.

Second, the allocation of the points among the four roles indicates the current
perception of the quality of HR services for each, providing a picture of the HR
function that allows a business to evaluate it more effectively. Most
companies that have 'collected these data scored higher in the operational

67

quadrants and lower in the strategic quadrants, a result consistent with

traditional HR roles. The largest range of scores is found for employee
contribution, with some firms shown to be heavily invested in enhancing
employee commitment while others appear to have relegated employee
concerns to the back burner. In general, the management transformation and
change role receives the lowest scores.

Reviewing the Evolution of the HR Function

The HR role-assessment survey in the appendix provides not only a view of
current overall quality of HR services but also an assessment of the evolution
of a business's HR services. This can be done either by changing the
questions to request perceptions of "past versus present or future" quality for
each role or by repeating the survey over time.

Had a business collected this data several times over the past twenty years,
for example, the evolution of its HR roles would have been evident, showing,
most likely, movement from a focus on operational roles to a focus on
strategic roles. Focus on employee contribution has also decreased at most
businesses over the past two decades. In recent years most firms have
undertaken productivity initiatives, such as reengineering, downsizing, and
consolidation, which demand that HR professionals focus on infrastructure
and their roles as administrative experts. Over the same period, an emphasis
on strategic intent initiatives, such as globalization customer service, and
multi-generational product design, has encouraged HR focus on strategy
execution and fulfillment of the strategic partner role. Finally, culture change
initiatives,

such

as

process

improvements,

culture

change,

and

empowerment, have meant that the HR professional must increasingly

manage such culture change in the capacity of change agent. This shift in
emphasis has meant that HR professionals have done less and less in their
role as employee champion to manage employee contribution.

By using the HR role-assessment survey, businesses can identify areas in

which the HR function is growing stronger or weaker in each role.

68

Comparing HR and Line Manager Views of the HR Function

Another use for the HR role-assessment survey in the appendix is to solicit
responses from line managers as well as HR professionals and to compare
the results. Asking both HR professionals and line managers to rate the
current state of HR performance in each of the four roles yields an audit of the
extent to which the two perspectives align. Examination of the results can
contribute to improved understanding of the HR function and company
expectations in a number of ways.

Matched expectations
Matched expectations mean that HR professionals and line managers see the
HR function in the same way. Alignment of HR and line expectations may be
good news' since it indicates agreement on the roles and delivery of HR
services. Alignment may, however, be bad news. In one firm, for example, the
HR and line managers agreed that current delivery of HR services was in the
15 to 20 point range (Out of 40) for each of the four roles. But while this
alignment implied that HR was meeting line managers' expectations, these
expectations were uniformly low.' Meeting low expectations implies that
neither HR professionals nor line managers had a stretch vision for HR. The
multiple-role framework offered here presents a way to define stretch goals to
raise expectations, and to specify value-added targets for HR professionals.

Mismatched expectations
Mismatched expectations occur when the perceptions of line managers and of
HR professionals differ. The most common mismatch seen on surveys
collected thus far shows HR professionals rating themselves higher than do
their line managers. In these cases, HR professionals perceived their work to
be better than did the clients of that work. Such positive self-rating, isolated
from correction by client perceptions, may lead to self-deception and denial,
where HR professionals believe that their services are appropriate and add
value to a firm but the clients do not.

In a number of firms, client surveys include assessments of HR nor (only by

line managers but also by employees. In one case, such client surveys found

69

the HR function to be the lowest-rated function in the firm. The firm's HR

professionals felt they were designing and delivering excellent services, but
these services were either misunderstood by employees or failed to meet their
needs. The HR professionals had been judging their services by their own
good intentions, while their clients were judging them by the impact and
results of the services received.

The HR role-assessment survey thus constitutes a diagnostic tool for

identifying the expectations of line managers and other HR clients. The data
generated by comparing things made by HR professionals, line managers,
and others can lead to productive discussions in which expectations are set
and shared, and roles are clarified and communicated.

HR Function versus Individual HR Professionals

A business may find, in doing the above audits of HR roles, that individual HR
professionals do not have competence in all four roles, but at the same time, it
should find that the function-as an aggregate of individuals-does share a
unified vision and competency. In one company, for example, it was found
that the individuals fulfilling the components of the HR function were
committed and competent; the field HR professionals were strategic partners
with business leaders; HR functional leaders were administrative experts in
their domains; employee relations experts worked effectively to understand
and

meet

employee

need

and

organizational

effectiveness

experts

appropriately managed change. As a team, however, this group of talented

individuals was woeful. In one-on-one interviews, these HR professionals
acknowledged that they did not respect or even like one another.

A team of HR experts needs to forge individual talent into leveraged

competencies. At the above firm, the-individual HR experts began to share
their concerns, openly discuss differences, and focus on common goals and
objectives. With focus, time, and commitment, tensions and distrust were
overcome; resources and lessons were shared. They began to speak with
one voice about the purposes and value of the HR function. They began to

70

call on each other and leverage each other's strengths. In brief, they began to
work as a team.

Use of the survey as a diagnostic instrument may thus indicate that although
individuals in a business have unique talents in one of the four roles, the
overall HR function needs to unify these individual talents to gain strength and
efficacy.

Clarifying Responsibility for Each Role

Each time a business reviews the multiple roles of HR, this question arises:
What is the line managers' responsibility in each cell? This is a crucial
question and has a two-part answer.

First, HR professionals in a business have unique responsibility and

accountability for ensuring that the deliverables from each role are fulfilled. If,
for example, a rating of 10 represents the complete accomplishment of the
deliverables for each role, it is HR professionals who own the achievement of
a 10 rating.

Second, accomplishing the goals and designing the processes for achieving
the

goals

are

different

issues.

While

HR

professionals

own

the

accomplishment of each of the four roles, they may not have to do all the work
of the four roles. That is, HR professionals must guarantee that a 10 be
achieved for each role, but they don't have to do all the work to make that 10
happen. Depending on the process established for reaching the goal, the
work may be shared by line managers, outside consultants, employees,
technology, or other delivery mechanisms for doing HR work.

In many cases, responsibility for delivering the four roles is shared, as

indicated by an allocation of points. Figure 2.4 indicates one prevailing pattern
of allocation. The allocation of points clearly will vary by firm. The distinction,
however, between commitment to the outcome (10/10) and delivery of the
outcome (sharing responsibility or dividing the 10 points) remains a
consistently important point for discussion. HR professionals need to

71

guarantee the outcome and to help define the shared responsibility for
delivering it. As are the roles themselves, delivery processes and allocations
are subject to change and trends, some of which are discussed below"

Figure 2.4: HR Role in Building a Competitive Organization: Shared

Responsibility

Source: ibid. page 43

Management of employee contribution

The employee contribution HR role has experienced the greatest change in
the recent past. Traditionally, HR was allocated 8 out of every 10 points for
delivery of employee commitment. Today, many firms are dividing delivery: 2
points for HR, 6 points for line managers, and 2 points for employees. In other
words, in many firms, when employees have grievances or concerns, HR's job
is not to fix the problem but to ensure that managers have the skills needed to

72

respond effectively to employees and that employees themselves have the

skills to overcome challenges. Over time, many firms hope the employees in
high performing teams will have even more responsibility for their own
development.

Management of firm infrastructure

For efficient delivery, many firms today put 5 of the 10 points for infrastructure
HR services into corporate/shared service organizations. This shift is
counterintuitive but has its own logic. In a traditional setting, promotion to the
corporate level usually means doing more strategic work. In many modern
organizations, however, promotion to the corporate level means becoming
part of a shared service organization that performs administrative work in
order to remove the administrative burden from the field HR professionals.
The remaining 5 points are divided between outsourcing administrative
transactions (3 points) and information technology (2 points). Outsourcing HR
activities has been an experiment at many firms that are trying to find ways to
reduce HR costs while increasing the quality of services. Information
technology uses computers to do much of the administrative work of HR; over
time that use will probably increase.

Strategic HRM
The responsibility for strategy execution in most firms today is shared
between HR professionals and line managers (5 points each). As partners,
each brings to the strategy discussion unique skills and talents. Together,
they team up to accomplish business goals.

Management of transformation and change

In their responsibilities for culture change, HR professionals are asked to
deliver approximately 3 of the 10 points, while line -managers are allocated 4
points and outside consultants the remaining 3. The low allocation of 3 points
to HR professionals indicates that many of them are not fully comfortable or
competent in the role of change agent. Traditionally, HR professionals have
been distant from the change process. In fact, HR work was viewed as
antithetical to change, with HR systems providing impediments to, not impetus

73

for, change. The emerging responsibility for transformation currently rests with
external consultants, with many firms delegating responsibility for driving
change to external consulting firms. External consultants offer disciplined,
objective approaches to transformation, with the competence and confidence
to make the change happen.

PARADOXES INHERENT IN MULTIPLE HR ROLES

Strategic Partner versus Employee Champion

Success in the multiple-role framework requires that HR professionals
balance the tension inherent in being a strategic partner on the one hand and
an employee champion on the other. As strategic partners with managers, HR
professionals partner with managers and are seen as part of management.
Taken to an extreme, this may alienate employees from both HR and
management. Employees at one company that was moving its HR function
into strategic partnership saw the HR professionals, whom they felt provided
the only channel through which their concerns were voiced to management,
participating in more management meetings, becoming active in strategic
planning, and becoming synonymous with management. As a result, the
employees felt betrayed and rated the HR function as not meeting their
needs.

As employee champions in partnership with managers and employees, HR

professionals ensure that the concerns and needs of employees are voiced to
management. Taken to an extreme, this may alienate the HR function from
management, who may not want to work with HR people whom they see as
insensitive to business realities and advocates of employees.

Resolving this conflict requires that all parties-HR, management, and

employees recognize that HR professionals can both represent employee
needs and implement management agendas, be the voice of the employee
and the voice of management, act as partner to both employees and
managers. A classic example of a successful response to this paradox is
provided by Doug Fraiser, who joined the Chrysler board of directors in the

74

late 1970s as part of a plan for employee investment in the firm. When union
members challenged Fraiser's new "management" commitment, he retorted
with something like, "How can I better meet your needs than by sitting with
and influencing management?" To be a successful partner to both employees
and management requires that both sides trust the HR professional to achieve
a balance between the needs of these potentially competing stakeholders.

When HR professionals are not called on to represent employees' concerns to

management, uninformed decisions may be made. It is not uncommon, for
example, for merger and acquisition decisions to be made based solely on
financial and product/strategic analyses that demonstrate the value of the
venture; only after the decision is made is HR asked to weave the two
companies together. Sadly, more ventures fail because of cultural and human
differences than because of product and strategic differences. Where HR
professionals are asked to represent employee and organizational concerns
during pre-merger diagnosis, more informed decisions are made about all
costs of merger activities, including the merger of cultures and people.

Change Agents versus Administrative Experts

HR professionals must also balance the need for change, innovation, and
transformation with the need for continuity, discipline, and stability. This
tension between their roles as change agents and as administrative experts
yields a number of paradoxes that must be managed. Businesses must
balance stability and change. A business must have stability to ensure
continuity in products, services, and manufacturing. Businesses that change
constantly loses identify and chase mythical successes that never materialize.
On the other hand, businesses that fail to change in the end simply fail.

Businesses must balance the past and the future. A business must honor its
past but also move beyond it. It must recognize that past successes ensure
current survival but that only by letting go of the past will the future arrive. Old
cultures should ground new cultures, nor become impediments to change.

75

Businesses must balance the benefits of free agency and control. A business
needs to encourage free agency and autonomy in making decisions, sharing
information, and soliciting ideas. Conversely, a business requires discipline
among employees to make the value of the whole greater than that of the
parts, to forge individual efforts into team accomplishment, and to create
boundaries for freedom.

Businesses must balance efficiency and innovation. New ideas and programs
require risk capital, both economic and human. HR professionals need to
encourage risk and innovation while maintaining efficiency. Thus, risks need
to be bounded, nor haphazard.

To resolve these and other paradoxes, HR professionals dealing with cultural

change need to be both cultural guardians of the past and architects of the
new cultures. In practice, this means that in discussions with those who want
to move slowly, HR professionals need to drive for dramatic change. On the
other hand, in discussions with those who want to demolish history and
tradition, HR professionals need to be advocates of moderation and respect
for earned wisdom. It means that when working to create new cultures, HR
professionals should simultaneously consider the impact of the new culture on
administrative processes (for example, how to hire, train, and reward
employees in a manner consistent with the new culture) and recognize the
hold that the old culture retains over both employees and company practices.

This balancing act requires that new cultures lead to new administrative
practices and that administrative practices support culture change. Sometimes, advocates of dramatic culture change, not realizing the infrastructure
required to support the change, may make bold statement that stretch
credibility and exceed a business's capacity for implementation. Part of the
role of the HR professional as change agent is to moderate such statements.
The administrative infrastructure may be the last thing to change as companies forge ahead in new strategic directions.

76

2.3

Strategic Management

Over the past decade, HR researchers and practitioners have focused their
attention on other important questions. First, what determines whether an
organization adopts a strategic approach to HRM, and how is HR strategy
formulated? Of interest is which organizations are most likely to adopt a
strategic approach to HRM. Is there, for example, a positive association with a
given set of external and internal characteristics or contingencies and the
adoption of SHRM? Another area of interest concerns the policies and
practices making up different HR strategies. Is it possible to identify a cluster
or 'bundle' of HR practices with different strategic competitive models? Finally,
much research productivity in recent years has been devoted to examining
the relationship between different clusters of HR practices and organizational
performance. Does HR strategy really matter? For organizational practitioners
who are looking for ways to gain a competitive advantage, the implication of
HR strategic choices for company performance is certainly the key factor.

The word 'strategy', deriving from the Greek noun strategus, meaning
'commander in chief', was first used in the English language in 1656. The
development and usage of the word suggests that it is composed of stratos
(army) and agein (to lead). In a management context, the word 'strategy' has
now replaced the more traditional term - 'long-term planning' - to denote a
specific pattern of decisions and actions undertaken by the upper echelon of
the organization in order to accomplish performance goals. Wheelen and
Hunger (1995, p. 3)16 define strategic management. as 'that set of managerial
decisions and actions that determines the long-run performance of a
corporation'. Hill and Jones (2001, p. 4)17 take a similar view when they define
strategy as 'an action a company takes to attain superior performance'.
Strategic management is considered to be a continuous activity that requires
a constant adjustment of three major interdependent poles: the values of
senior management, the environment, and the resources available (Figure
2.5)

77

Figure 2.5: The three traditional poles of a strategic plan

Senior Management

Environment

Resource

Source: Adapted from Aktouf (1996) Traditional manager and beyond Paris:
Morin publication page 91.

Mode of Strategic Management

In the descriptive and prescriptive management texts, strategic management
appears as a cycle in which several activities follow and feed upon one
another. The strategic management process is typically broken down into five
steps:

1.

Mission and goals

2.

Environmental analysis

3.

Strategy formulation

4.

Strategy implementation

5.

Strategy evaluation.

78

Figure 2.6: The strategic management model

Step 1

Step 2

Step 3

Step 4

Step 5

Mission and goals

Management philosophy Values
Environmental analysis
Internal scan
External scan
Strategic formulation
Strategic choice
corporate
Business
Functional
Strategy implementation
Leadership
Structure
Control systems
Human resources
Strategy evaluation
Operating performance
Financial performance

Source: Daft, R. (2001), organization theory and design, Western college

publishing.

Figure 2.6 illustrates how the five steps interact. At the corporate level, the
strategic management process includes activities that range from appraising
the organization's current mission and goals to strategic evaluation.

The first step in the strategic management model begins with senior
managers evaluating their position in relation to the organization's current
mission and goals. The mission describes the organization's values and
aspirations; it is the organization's raison dtre and indicates the direction in
which senior management is going. Goals are the desired ends sought
through the actual operating procedures of the organization and typically
describe short-term measurable outcomes (Daft, 2001) 18.

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Environmental analysis looks at the internal organizational strengths and

weaknesses and the external environment for opportunities and threats. The
factors that are most important to the organization's future are referred to as
strategic factors and can be summarized by the acronym SWOT - Strengths,
Weaknesses, Opportunities and Threats.

Strategic formulation involves senior managers evaluating the interaction

between strategic factors and making strategic choices that guide managers
to meet the organization's goals. Some strategies are formulated at the
corporate, business and specific functional levels. The term 'strategic choice'
raises the question of who makes decisions and why they are made. The
notion of strategic choice also draws attention to strategic management as a
'political process' whereby decisions and actions on issues are taken by a
'power-dominant' group of managers within the organization. Child (1972)19,
affirms this interpretation of the decision-making process when he writes:

When incorporating strategic choice in a theory of organizations, one is

recognizing the operation of an essentially political process, in which
constraints and opportunities are functions of the power exercised by
decision-makers in the light of ideological values.

In a political model of strategic management, it is necessary to consider the

distribution of power within the organization. According to Purcell and
Ahlstrand (1994, p. 45)20, we must consider 'where power lies, how it comes
to be there, and how the outcome of competing power plays and coalitions
within senior management are linked to employee relations'. The strategic
choice perspective on organizational decision-making makes the discourse on
strategy 'more concrete' and provides important insights into how the
employment relationship is managed.

Strategy implementation is an area of activity that focuses on the techniques

used by managers to implement their strategies. In particular, it refers to
activities that deal with leadership style, the structure of the organization, the
information and control systems, and the management of human resources.

80

Influential management consultants and academics (for example Champy,

1996; Kotter, 1996)21 emphasize that leadership is the most important and
difficult part of the strategic implementation process

Strategy evaluation is an activity that determines to what extent the actual

change and performance match the desired change and performance.

The strategic management model depicts the five major activities as forming a
rational and linear process. It is, however, important to note that it is a
normative model, that is, it shows how strategic management should be done
rather than describing what is actually done by senior managers (Wheelen &
Hunger, 1995). As we have already noted, the notion that strategic decisionmaking is a political process implies a potential gap between the theoretical
model and reality.

Hierarchy of strategy:
Another aspect of strategic management in the multidivisional business
organization concerns the level to which strategic issues apply. Conventional
wisdom identifies different levels of strategy - a hierarchy of strategy.

1.

Corporate

2.

Business

3.

Functional.

Corporate level strategy

Corporate-level strategy describes a corporation's overall direction in terms of
its general philosophy towards the growth and the management of its various
business units. Such strategies determine the types of business a corporation
wants to be involved in and what business units should be acquired, modified
or sold. This strategy addresses the question, 'What business are we in'?'
Devising a strategy for a multidivisional company involves at least four types
of initiative:

81

establishing investment priorities and steering corporate resources into

the most attractive business units

initiating actions to improve the combined performance of those

business units with which the corporation first became involved

finding ways to improve the synergy between related business units in

order to increase performance

making decisions dealing with diversification.

Business level strategy

Business-level strategy deals with decisions and actions pertaining to each
business unit, the main objective of a business-level strategy being to make
the unit more competitive in its marketplace. This level of strategy addresses
the question, 'How do we compete'?' Although business-level strategy is
guided by 'upstream', corporate-level strategy, business unit management
must craft a strategy that is appropriate for its own operating situation. In the
1980s, Porter (1980, 1985)22 made a significant contribution to our
understanding of business strategy by formulating a framework that described
three competitive strategies: cost leadership, differentiation and focus.

The low- cost strategy attempts to increase the organization's market share by
having the lowest unit cost and price compared with competitors. The simple
alternative to cost leadership is differentiation strategy. This assumes that
managers distinguish their services and products from those of their
competitors in the same industry by providing distinctive levels of service,
product or high quality such that the customer is prepared to pay a premium
price. With the focus strategy, managers focus on a specific buyer group or
regional market. A market strategy can be narrow or broad, as in the notion of
niche markets being very narrow or focused. This allows the firm to choose
from

four

generic

business-level

strategies

low-cost

leadership,

differentiation, focused differentiation and focused low-cost leadership in order

82

to establish and exploit a competitive advantage within a particular competitive scope (Figure 2.7)
Figure 2.7: Porters competitive strategies

Competitive Scope

Competitive Advantage
Low Cost

Uniqueness

Broad

Low Cost leadership

Differentiation

target

e.g. Wal- Mart

e.g. Tommy Hilfigers apparel

Narrow

Focused low cost leadership

Focused differentiation

target

e.g. Rent A Wreck cars

e.g. Mountain Equipment Co-operative

Source: Adapted from Porter (1985) competitive Advantage, New York: Free
press page 12
Miles and Snow (1984)23 have identified four modes of strategic orientation:
defenders, prospectors, analyzers and reactors. Defenders are companies
with a limited product line and a management focuses on improving the
efficiency of their existing operations. Commitment to this cost orientation
makes senior managers unlikely to explore new areas. Prospectors are
companies with fairly broad product lines that focus on product innovation and
market opportunities. These sales orientation makes senior managers
emphasize 'creativity over efficiency- Analyzers are companies that operate in
at least two different product market areas, one stable and one variable. In
this situation, senior managers emphasize efficiency in the stable areas and
innovation in the variable areas. Reactors are companies that lack a
consistent strategy-structure-culture relationship. In this reactive orientation,
senior management's responses to environmental changes and pressures
thus tend to be piecemeal strategic adjustments. Competing companies within
a single industry can choose anyone of these four types of strategy and adopt
a corresponding combination of structure, culture and processes consistent
with that strategy in response to the environment. The different competitive
strategies influence the 'downstream' functional strategies.

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Functional-level strategy
Functional-level strategy pertains to the major functional operations within the
business unit, including research and development, marketing, manufacturing,
finance and HR. This strategy level is typically primarily concerned with
maximizing resource productivity and addresses the question, 'How do we
support the business-level competitive strategy?' Consistent with this, at the
functional level, HRM policies and practices support the business strategy
goals.

These three levels of strategy - corporate, business and functional - form a

hierarchy of strategy within large multidivisional corporations. In different
corporations, the specific operation of the hierarchy of strategy might vary
between 'top-down' and 'bottom-up' strategic planning. The top-down
approach resembles a 'cascade' in which the 'downstream' strategic decisions
are dependent on higher 'upstream' strategic decisions (Wheelen & Hunger,
1995). The bottom-up approach to strategy making recognizes that individuals
'deep' within the organization might contribute to strategic planning. Mintzberg
(1978)24 has incorporated this idea into a model of 'emergent strategies',
which are unplanned responses to unforeseen circumstances by nonexecutive employees within the organization. Strategic management literature
emphasizes that the strategies at different levels must be fully integrated.
Thus strategies at different levels need to inter-relate. The strategy at
corporate level must build upon the strategies at the lower levels in the
hierarchy. However, at the same time, all parts of the business have to work
to accommodate the overriding corporate goals. (EA. Maljers, Chairman of the
Board of Unilever, quoted by Wheelen & Hunger, 1995, p. 20)

The need to integrate business strategy and HRM strategy has received much
attention from the HR academic community,

2.4

Strategic Human Resource Management

The SHRM literature is rooted in 'manpower' planning, but it was the work of
influential management gurus (for example Ouchi, 1981; Peters & Waterman,

84

1982)25, affirming the importance of the effective management of people as a

source of competitive advantage, that encouraged academics to develop
frameworks emphasizing the strategic role of the HR function (for example
Beer et al., 1985; Fombrun et al., 1984) and attaching the prefix 'strategic' to
the term 'human resource management'. Interest among academics and
practitioners in linking the strategy concept to HRM can be explained from
both the 'rational choice' and the 'constituency-based' perspective. There is a
managerial logic in focusing attention on people's skills and intellectual assets
to provide a major competitive advantage when technological superiority,
even once achieved, will quickly erode. From a 'constituency-based'
perspective, it is argued that HR academics and HR practitioners have
embraced SHRM as a means of securing greater respect for HRM as a field
of study and, in the case of HR managers, of appearing more 'strategic',
thereby enhancing their status within organizations.

Concept of models
In spite of the increasing volume of research and scholarship, the precise
meaning of strategic HRM and HR strategy remains problematic. It is unclear,
for example, which one of these two terms relates to an outcome or a process
(Bamberger &. Meshoulam, 2000)26. Strategic HRM is an outcome: 'as
organizational

systems

designed

to

achieve

sustainable

competitive

advantage through people'. For others, however, SHRM is viewed as a

process, 'the process of linking HR practices to business strategy' (Ulrich,
1997, p. 89)27. Similarly, Bamberger and Meshoulam (2000, p. 6) describe
SHRM as 'the process by which organizations seek to link the human, social,
and intellectual capital of their members to the strategic needs of the firm'.
According to Ulrich (1997, p.190) 'HR strategy' is the outcome: 'the mission,
vision and priorities of the HR function'. Consistent with this view, Bamberger
and Meshoulam (2000, p. 5) conceptualize HR strategy as an outcome: 'the
pattern of decisions regarding the policies and practices associated with the
HR system'. The authors go on to make a useful distinction between senior
management's 'espoused' HR strategy and their 'emergent' strategy. The
espoused HR strategy refers to the pattern of HR-related decisions made but
not necessarily implemented, whereas the emergent HR strategy refers to the

85

pattern of HR-related decisions that have been applied in the workplace.

Thus, 'espoused HR strategy is the road map and emergent HR strategy is
the road actually traveled' (Bamberger &. Meshoulam, 2000, p. 6).

A range of business HRM links has been classified in terms of a proactivereactive continuum (Kydd &. Oppenheim, 1990)28 and in terms of
environment-human resource strategy-business strategy linkages (Bamberger
&. Phillips 1991)29. In the 'proactive' orientation, the HR professional has a
seat at the strategic table and is actively engaged in strategy formulation.

At the other end of the continuum is the 'reactive' orientation, which sees the
HR function as being fully subservient to corporate and business-level
strategy, and organizational-level strategies as ultimately determining HR
policies and practices. Once the business strategy has been determined, an
HR strategy is implemented to support the chosen competitive strategy. This
type of reactive orientation would be depicted in Figure 2.8 below by a oneway downward at TOW from business- to functional-level strategy. In this
sense, a HR strategy is concerned with the challenge of matching the
philosophy, policies, programmes, practices and processes - the 'five Ps' - in a
way that will stimulate and reinforce the different employee role behaviours
appropriate for each competitive strategy (Schuler, 1989, 1992)29.

The importance of the environment as a determinant of HR strategy has been

incorporated into some models. Extending strategic management concepts,
Bamberger and Phillips' (1991) model depicts links between three poles: the
environment, human resource strategy and the business strategy (Figure 2.8).
In the hierarchy of the strategic decision-making model, the HR strategy is
influenced by contextual variables such as markets, technology, national
government policies, European Union policies and trade unions. Purcell and
Ahlstrand (1994) argue, however, that those models which incorporate
contextual influences as a mediating variable of HR policies and practices
tend to lack 'precision and detail in terms of the precise nature of the
environment linkages, and that 'much of the work on the linkages has been
developed at an abstract and highly generalized level' (p. 36).

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Figure 2.8 Environment as a mediating variable for human resource

management strategies

Human Resource Strategy

Environmental influences

Business Strategy

Source: Bamberger and Phillips (1991) Organizational Environment and

Business Strategy, Human Resource Management, Vol.30 (2)
In the late 1980s, Purcell made a significant contribution to research on
business-HRM strategy. Drawing on the literature on 'strategic choice' in
industrial relations (for example Kochan et al., 1986; Thurkey & Wood,
1983)30 and using the notion of a hierarchy of strategy, Purcell (1989) 31
identified what he called, 'upstream' and 'downstream' types of strategic
decision. The upstream or 'first-order' strategic decisions are concerned with
the long-term direction of the corporation. If a first order decision is made to
take over another enterprise, for example a French company acquiring a
water company in southern England, a second set of considerations applies
concerning the extent to which the new operation is to be integrated with or
separate from existing operations. These are classified as downstream or
'second order', strategic decisions. Different HR strategies are called 'thirdorder' strategic decisions because they establish the basic parameters for
managing people in the workplace. Purcell (1989, p. 71) wrote, '[in theory]
strategy in human resources management is determined in the context of firstorder, long-run decisions on the direction and scope of the firm's activities and
purpose ... and second-order decisions on the structure of the firm'.

87

In a major study of HRM in multidivisional companies, Purcell and Ahlstrand

(1994) argue that what actually determines HR strategy will be determined by
decisions at all three levels and by the ability and leadership style of local
managers to follow through goals in the context of specific environmental
conditions. Case study analysis has, however, highlighted the problematic
nature of strategic choice model building. The conception of strategic choice
might exaggerate the ability of managers to make decisions and take action
independent of the environmental contexts in which they do business (Colling,
1995)32.

Another part of the strategic HRM debate has focused on the integration or 'fit'
of business strategy with HR strategy. This shift in managerial thought, calling
for the HR function to be 'strategically integrated', is depicted in Beer et al.'s
(1984) model of HRM. The authors espoused the need to establish a close
two-way relationship or 'fit' between the external business strategy and the
elements of the internal HR strategy:

'An organization's HRM policies and practices must fit with its strategy in its
competitive environment and with the immediate business conditions that it
faces' (Beer et al., 1984, p. 25). The concept of integration has three aspects:

the linking of HR policies and practices with the strategic management

process of the organization

the internalization of the importance of HR on the part of line managers

the integration of the workforce into the organization to foster

commitment or an 'identity of interest' with the strategic goals.

Not surprisingly, this approach to SHRM has been referred to as the

'matching' model.

88

The matching model

Early interest in the 'matching' model was evident in Devanna et al.'s (1984) 33
work: 'HR systems and organizational structure should be managed in a way
that is congruent with organizational strategy' (p. 37). This is close to
Chandler's (1962)34 distinction between strategy and structure and his oftenquoted maxim that 'structure follows strategy'. In the Devanna et al. model,
HRM-strategy-structure follow and feed upon one another and are influenced
by environmental forces (Figure 2.9).
Figure 2.9 Devanna et al.s strategic human resource management
matching model
Political
forces

Economic

Cultural

Mission &

forces

forces

Strategy

Firm
Organizatio

Human

n structure

Resource
Manageme
nt

Source: Devanna et al. (1984) Strategic Human Resource Management New

York: John Wiley.

Similarly, the notion of 'fit' between an external competitive strategy and the
internal HR strategy is a central tenet of the HRM model advanced by Beer et
al. (1984,). The authors emphasize the analysis of the linkages between the

89

two strategies and how each strategy provides goals and constraints for the
other. There must be a 'fit between competitive strategy and internal HRM
strategy and a fit among the elements of the HRM strategy' (Beer et al., 1984,
p. 13). The relationship between business strategy and HR strategy is said to
be 'reactive' in the sense that HR strategy is subservient to 'product market
logic' and the corporate strategy. The latter is assumed to be the independent
variable (Boxall, 1992; Purcell & Ahlstrand, 1994). As Miller (1987, cited in
Boxall, 1992, p. 66) emphasizes, 'HRM cannot be conceptualized as a standalone corporate issue. Strategically speaking it must flow from and be
dependent upon the organization's (market oriented) corporate strategy'.
There is some theorization of the link between product markets and
organizational design, and approaches to people management. Thus, for
example, each Porterian competitive strategy involves a unique set of
responses from workers, or 'needed role behaviours', and a particular HR
strategy that might generate and reinforce a unique pattern of behaviour
(Cappelli & Singh, 1992)25. HRM is therefore seen to be 'strategic by virtue of
its alignment with business strategy and its internal consistency (Boxall,
1996).

Human Resource Strategy Models

We now examine the link between organization/business strategy and HR
strategy. 'Human resource strategies' are here taken to mean the patterns of
decisions regarding HR policies and practices used by management to design
work and select, train and develop, appraise, motivate and control workers.
Studying HR strategies in terms of typologies is appealing to academics
because conceptual frameworks or models give HR researchers the ability to
compare and contrast the different configurations or clusters of HR practices
and further develop and test theory (Bamberger & Meshoulam, 2000).

To appreciate the significance of 'typologies', it is useful to recall the work of

Max Weber. This sociologist built his theory through the use of abstractions
he called 'ideal types', such as 'bureaucracy'. 'Weber warned, however, that
these abstractions or ideal types never actually exists in the real world; they
are simply useful fictions to help us understand the more complex and messy

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realities found in work organizations. The same is true of HR typologies - they

are abstractions that do not necessarily exist in the workplace, but they help
the student of management to understand the nature of HR strategies.

Since the early 1990s, academics have proposed at least three models to
differentiate between 'ideal types' of HR strategies. The first model examined
here, the control-based model, is grounded in the way in which management
attempts to monitor and control employee role performance. The second
model, the resource based mode:, is grounded in the nature of the employeremployee exchange and, more specifically, in the set of employee attitudes, in
behaviours and in the quality of the manager-subordinate relationship. A third
approach creates an integrative model that combines resource-based and
control-based typologies.

The control - based model

The first approach to modelling different types of HR strategy is based on the
nature of workplace control and more specifically on managerial behaviour to
direct and monitor employee role performance. According to this perspective,
management structures and HR strategy are instruments and techniques to
control all aspects of work to secure a high level of labour productivity and a
corresponding level of profitability. This focus on monitoring and controlling
employee behaviour as a basis for distinguishing different HR strategies has
its roots in the study of 'labour process' by industrial sociologists.

The starting point for this framework is Marx's analysis of the capitalist labour
process and what he referred to as the 'transformation of labour power into
labour'. Put simply, when organizations hire people, they have only a potential
or capacity to work. To ensure that each worker exercises his or her full
capacity, managers must organize the tasks, space, movement and time
within which workers operate. But workers have divergent interests in terms of
pace of work, rewards and job security, and engage in formal (trade unions)
and informal (restrictions of output or sabotage) behaviours to counteract
management job controls. Workers' own counter management behaviour then
causes managers to control and discipline the interior of the organization. In

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an insightful review, Thompson and McHugh (2002, p. 1(4) 36 comment that,

'control is not an end in itself, but a means to transform the capacity to work
established by the wage relation into production'.

What alternative HR strategies have managers used to render employees and

their behaviour predictable and measurable'? Edwards identified successive
dominant modes of control that reflect changing competitive conditions and
worker resistance. An early system of individual control by employers
exercising direct authority was replaced by more complex structural forms of
control: bureaucratic control and technical control. Bureaucratic control
includes written rules and procedures covering work. Technical control
includes machinery or systems - assembly line, surveillance cameras - that
set the pace of work or monitor employees' behaviour in the workplace.
Edwards also argued that managers use a 'divide and rule' strategy, using
gender and race, to foster managerial control.
Friedman (1977)37 structured his typology of HR strategies - direct control and
responsible autonomy - around the notion of differing logics of control
depending upon the nature of the product and labour markets. Another
organizational theorist, Burawoy (1979)38, categorized the development of HR
strategies in terms of the transition from despotic to hegemonic regimes. The
former was dominated by coercive manager subordinate relations; the latter
provided an 'industrial citizenship' that regulated employment relations
through grievance and bargaining processes. The growth of employment in
new call centers has recently given rise to a renewed focus of interest on the
use of technical control systems: the electronic surveillance of the operator's
role performance (Callaghan & Thompson, 2001)39

The choice of HR strategy is governed by variations in organizational form (for

example size, structure and age), competitive pressures on management and
the stability of labour markets, mediated by the interplay of managersubordinate relations and worker resistance (Thompson & McHugh, 2002)40.
Moreover, the variations in HR strategy are not random but reflect two
management logics (Bamberger & Meshoulam, 2000).

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The first is the logic of direct, process-based control, in which the focus is on
efficiency and cost containment (managers needing within this domain to
monitor and control workers' performance carefully), whereas the second is
the logic of indirect outcomes-based control, in which the focus is on actual
results (within this domain, managers needing to engage workers' intellectual
capital, commitment and cooperation). Thus, when managing people at work,
control and cooperation coexist, and the extent to which there is any ebb and
flow in intensity and direction between types of control will depend upon the
'multiple constituents' of the management process.

Implicit in this approach to managerial control is that the logic underlying an

HR strategy will tend to be consistent with an organization's competitive
strategy. We are thus unlikely to find organizations adopting a Porterian costleadership strategy with an HR strategy grounded in an outcome-based logic.
Managers will tend to adopt process-based controls when means-ends
relations are certain (as is typically the case among firms adopting a cost leadership strategy), and outcomes-based controls when means-ends are
uncertain (for example differentiation strategy). These management logics
result in different organizational designs and variations in HR strategy, which
provide the source of inevitable structural tensions between management and
employees. It is posited, therefore, that HR strategies contain inherent
contradictions (Hyman, 1987; Storey, 1995; Thompson &: McHugh, 2002)41.

The resource-based mode

This second approach to developing typologies of HR strategy is grounded in
the nature of the reward-effort exchange and, more specifically, the degree to
which managers view their human resources as an asset as opposed to a
variable cost. Superior performance through workers is underscored when
advanced technology and other inanimate resources are readily available to
competing firms. The sum of people's knowledge and expertise, and social
relationships, has the potential to provide non-substitutable capabilities that
serve as a source of competitive advantage (Cappelli & Singh, 1992). The
various perspectives on resource-based HRM models raise questions about

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the inextricable connection between work related learning, the 'mobilization of

employee consent through learning strategies and competitive advantage.
Given the upsurge of interest in resource-based models & in particular the
new workplace learning discourse, we need to examine this model in some
detail.

The genesis of the resource-based model can be traced back to Selznick

(1957)42, who suggested that work organizations each possess 'distinctive
competence' that enables them to outperform their competitors, and to
Penrose (1959), who conceptualized the firm as a 'collection of productive
resources'. She distinguished between 'physical' and 'human resources', and
drew attention to issues of learning, including the knowledge and experience
of the management team. Moreover, Penrose emphasized what many
organizational theorists take for granted that organizations are heterogeneous
(Penrose, 1959)43. More recently, Barney (1991)44 has argued that 'sustained
competitive advantage' (emphasis added) is achieved not through an analysis
of a firm's external market position but through a careful analysis of its skills
and capabilities, characteristics that competitors find themselves unable to
imitate. Putting it in terms of a simple SWOT analysis, the resource-based
perspective emphasizes the strategic importance of exploiting internal
'strengths' and neutralizing internal 'weaknesses' (Barney, 1991).

The resource-based approach exploits the distinctive competencies of a work

organization: its resources and capabilities. An organization's resources can
be divided into tangible (financial, technological. physical and human) and
intangible (brand-name, reputation and know-how) resources. To give rise to
a distinctive competency, an organization's resources must be both unique
and valuable. By capabilities, we mean the collective skills possessed by the
organization to coordinate effectively the resources. According to strategic
management theorists, the distinction between resources and capabilities is
critical to understanding what generates a distinctive competency (see, for
example, Hill & Jones, 2001). It is important to recognize that a firm may not
need a uniquely endowed workforce to establish a distinctive competency as
long as it has managerial capabilities that no competitor possesses. This

94

observation may explain why an organization adopts one of the control-based

HR strategies.

Barney argues that four characteristics of resources and capabilities - value,

rarity, inimitability and non-substitutability - are important in sustaining
competitive advantage. From this perspective, collective learning in the
workplace on the part of managers and non-managers, especially on how to
coordinate workers' diverse knowledge and skills and integrate diverse
information technology, is a strategic asset that rivals find difficult to replicate.
In other words, leadership capabilities are critical to harnessing the firm's
human assets. Amit and Shoemaker (1993, p. 37)45 make a similar point
when they emphasize the strategic importance of managers identifying, ex
ante, and marshalling 'a set of complementary and specialized resources and
capabilities which are scarce, durable, not easily traded, and difficult to
imitate' in order to enable the company to earn 'economic rent' (profits). Figure
2.10 summarizes the relationship between resources and capabilities,
strategies, and sustained competitive advantage.

Figure 2.10 The relationship between resource endowments, strategies

and sustained competitive advantage
Shape

Firms

resources

and

Sustained

capabilities

Value

Rarity

Inimitability

Non substitutability

Strategies

competitive
advantage

Develop
Source: Hill, C Jones G (2001), Strategic Management: An integrated
approach, Boston: Houghton Mifflin

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The integrative model

Bamberger and Meshoulam (2000) integrate the two main models of HR
strategy, one focusing on the strategy's underlying logic of managerial control,
the other focusing on the reward-effort exchange. Arguing that neither of the
two dichotomous approaches (control- and resource-based models) provides
a framework able to encompass the ebb and flow of the intensity and direction
of HR strategy, they build a model that characterizes the two main dimensions
of HR strategy as involving 'acquisition and development' and the 'locus of
control'.

Acquisition and development are concerned with the extent to which the HR
strategy develops internal human capital as opposed to the external
recruitment of human capital. In other words, organizations can lean more
towards 'making' their workers (high investment in training) or more towards
'buying' their workers from the external labour market (Rousseau, 1995) 46.
Bamberger and Meshoulam (2000) call this the 'make-or-buy' aspect of HR
strategy.

Locus of control is concerned with the degree to which HR strategy focuses

on monitoring employees' compliance with process-based standards as
opposed to developing a psychological contract that nurtures social
relationships, encourages mutual trust and respect, and controls the focus on
the outcomes (ends) themselves. This strand of thinking in HR strategy can
be traced back to the ideas of Walton (1987), who made a distinction between
commitment and control strategies (Hutchinson et al., 2000)47. As Figure 2.10
shows, these two main dimensions of HR strategy yield four different 'ideal
types' of dominant HR strategy:

Commitment

Collaborative

Paternalistic

Traditional.

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Figure 2.11 Categorizing human resource management strategies

Outcomes
Locus of
Workplace
control

Commitment

Collaborative

HR Strategy

HR Strategy

Paternalistic

Traditional

HR Strategy

HR Strategy

Process
Internal

Acquisition of employees

External

Source: Bamberger and Meshoulam (2000) Human Resource Strategy,

Thousand Oak: sage

The commitment HR strategy is characterized as focusing on the internal

development of employees' competencies and outcome control. In contrast,
the traditional HR strategy, which parallels Bamberger and Meshoulam's
'secondary' HR strategy, is viewed as focusing on the external recruitment of
competencies and behavioural or process-based controls. The collaborative
HR strategy, which parallels Bamberger and Meshoulam's 'free agent' HR
strategy,

involves

the

organization

subcontracting

work

to

external

independent experts (for example consultants or contractors), giving

extensive autonomy and evaluating their performance primarily in terms of the
end results. The patemalistic HR strategy offers learning opportunities and
internal promotion to employees for their compliance with process-based
control mechanisms. Each HR strategy represents a distinctive HR paradigm,
or set of beliefs, values and assumptions, that guide managers. Similar fourcell grids have been developed by Lepak and Snell (1999)48. Based upon
emprical evidence, Bamberger and Meshoulam suggest that the HR
strategies in the diagonal quandrants 'commitment' and 'traditional' are likely
to be the most prevalent in (North American) work organizations.

It is argued that an organization's HR strategy is strongly related to its

competitive strategy. So, for example, the traditional HR strategy (bottom right
quantrant) is most likely to be adopted by management when there is
certainty over how inputs are transformed into outcomes and/or when

97

employee performance can be closely monitored or appraised. This dominant

HR strategy is more prevalent in firms with a highly routinized transformation
process, low-cost priority and stable competitive environment. Under such
conditions, managers use technology to control the uncertainty inherent in the
labour process and insist only that workers enact the specified core standards
of behaviour required to facilitate undisrupted production. Managerial
behaviour in such organizations can be summed up by the managerial edict
'You are here to work, not to think!' Implied by this approach is a focus on
process-based control in which 'close monitoring by supervisors and efficiency
wages ensure adequate work effort' (MacDuffie, 1995, quoted by Bamberger
& Meshoulam, 2002, p. 60). The use of the word 'traditional' to classify this HR
strategy and the use of a technological 'fix' to control workers should not be
viewed as a strategy only of 'industrial' worksites. Case study research on call
centres, workplaces that some organizational theorists label 'post-industrial',
reveal systems of technical and bureaucratic control that closely monitor and
evaluate their operators (Sewell, 1998; Thompson & McHugh, 2002).

The other dominant HR strategy, the commitment HR strategy (top left

quantrant), is most likely to be found in workplaces in which management
lacks a full knowledge of all aspects of the labour process and/or the ability to
monitor closely or evaluate the efficacy of the worker behaviours required for
executing the work (for example single batch, high quality production,
research and development, and health care professionals). This typically
refers to 'knowledge work'. In such workplaces, managers must rely on
employees to cope with the uncertainties inherent in the labour process and
can thus only monitor and evaluate the outcomes of work. This HR strategy is
associated with a set of HR practices that aim to develop highly committed
and flexible people, internal markets that reward commitment with promotion
and a degree of job security, and a 'participative' leadership style that forges a
commonality of interest and mobilizes consent to the organization's goals
(Hutchinson et al. 2000). In addition, as others have noted, workers under
such conditions do not always need to be overtly controlled because they may
effectively 'control themselves' (Thompson, 1989; Thompson &: McHugh,
2002). To develop cooperation and common interests an effort-reward

98

exchange based upon investment in learning, internal promotion and internal

equity is typically used (Bamberger & Meshoulam, 2000). In addition, such
workplaces 'mobilize' employee consent through culture strategies, including
the popular notion of the 'learning organization'. (Bratton, 2001, p. 341) 49:

Evaluating strategic human resources management and models of

human resources strategy
A number of limitations to current research on SHRM and HR strategy have
been identified: the focus on strategic decision-making, the absence of
internal strategies and the conceptualization of managerial control

Existing conceptualizations of SHRM are predicated upon the traditional

rational perspective to managerial decision-making - definable acts of linear
planning, choice and action - but critical organizational theorists have
challenged these assumptions, arguing that strategic decisions are not
necessarily based on the output of rational calculation. The assumption that a
firm's business-level strategy and HR system have a logical, linear
relationship is questionable given the evidence that strategy formulation is
informal, politically charged and subject to complex contingency factors. As
such, the notion of consciously aligning business strategy and HR strategy
applies only to the 'classical' approach to strategy. Those who question the
classical approach to strategic management argue that the image of the
manager as a reflective planner and strategist is a myth. Managerial
behaviour is more likely to be uncoordinated, frenetic, ad hoc and fragmented.

The political perspectives on strategic decision-making make the case that

managerial rationality is limited by lack of information, time and 'cognitive
capacity' as well as that strategic management is a highly competitive process
in which managers fiercely compete for resources, status and power. Within
such a management milieu, strategies can signal changes in power
relationships among managers. Rather than viewing strategic choices as the
outcome of rational decision making, Johnson (1987, cited in Purcell, 1989, p.
72), among others, argues that 'Strategic decisions are characterized by the
political hurly-burly of organizational life with a high incidence of bargaining...

99

all within a notable lack of clarity in terms of environmental influences and

objectives.'

Alternatively, strategic decision-making may be conceptualized as a

'discourse' or body of language-based communication that operates at
different levels in the organization. Thus, Hendry (2000)50 persuasively argues
that a strategic decision takes its meaning from the discourse and social
practice within which it is located, so a decision must be not only effectively
communicated, but also 'recommunicated' until it becomes embodied in
action. This perspective reaffirms the importance of conceptualizing
management in terms of functions, contingencies and skills and the leadership competence of managers. Whatever insights the different perspectives
afford on the strategic management process critical organizational theorists
have suggested that 'strategic' is no longer fashionable in management
thought and discourse, having gone from 'buzzword to boo-word' (Thompson
& McHugh, 2002, p. 110).

A second limitation of SHRM and HR strategy theory is the focus on the

connection between external market strategies and HR function. It is argued
that contingency analysis relies exclusively on external marketing strategies
(how the firm competes) and disregards the internal operational strategies
(how the firm is managed) that influence HR practices and performance
(Purcell, 1999). In an industry in which a flexible, customized product range
and high quality are the key to profitability, a firm can adopt a manufacturing
strategy that allows, via new technology and self-managed work teams, for far
fewer people but ones who are functionally flexible, within a commitment HR
strategy

regime.

This

was

the

strategy

at

Flowpak

Engineering.

Microelectronics and the use of plastic changed the firm's manufacturing

strategy from their being a manufacturer of packaging machinery to an
assembler. The technology and manufacturing strategy in this case became
the key intervening variable between overall business strategy and HRM.

The major limitation of a simple SHRM model is that it privileges only one step
in the full circuit of industrial capital. To put it another way, the SHRM

100

approach looks only at the realization of surplus value within product markets
rather than at complex contingent variables that constitute the full
transformation process. As Purcell (1999, p. 37) argues, 'we need to be much
more sensitive to processes of organizational change and avoid being trapped
in the logic of rational choice'.

Another limitation of most current studies examining SHRM is the

conceptualization of managerial control. The basic premise of the typologies
of HR strategy approach is that a dominant HR strategy is strongly related to
a specific competitive strategy. Thus, the commitment HR strategy is most
likely to be adopted when management seek to compete in the marketplace
by using a generic differentiation strategy. This might be true, but the notion
that a commitment HR strategy follows from a real or perceived 'added-value'
competitive strategy is more problematic in practice. Moreover, it is
misleading to assume that managerial behaviour is not influenced by the
indeterminacy of the employment contract and by how to close the' gap'
between an employee's potential and actual performance level. Reflecting on
this problem, Colling (1995, p. 29) correctly emphasizes that "'added-value"
[differentiation] strategies do not preclude or prevent the use of managerial
control over employees few companies are able to operationalize added-value
programmes without cost-constraints and even fewer can do so for very long'.
Others have gone beyond the 'organizational democracy' rhetoric and
acknowledge that 'It is utopian to think that control can be completely
surrendered' in the 'post modern' work organization (Cloke & Goldsmith, 2002,
p. 162)51.

Consistent with our earlier definition of strategy - as a specific pattern of

decisions and actions - managers do act strategically, and strategic patterns
do emerge over a period of time (Thompson & McHugh, 2002; Watson, 1999).
One strategic decision and action might, however, undermine another
strategic goal. In a market downturn or recession, for example, there is a
tendency for corporate management to improve profitability by downsizing
and applying more demanding performance outcomes at the unit level. This
pattern of action constitutes a strategy even though manifesting a disjunction

101

between organizational design and employer-employee relations. As Purcell

(1989, 1995) points out, an organization pursuing a strategy of acquisition
and downsizing might 'logically' adopt an HR strategy that includes the
compulsory layoff of non-core employees and, for the identifiable core of
employees

with

rare

attributes,

compensation

system

based

on

performance results. In practice, the resource-based approach predicts a

sharp

differentiation

within

organizations

'between

those

with

key

competencies, knowledge and valued organizational memory, and those more

easily replaced or disposed of (Purcell, 1999, p. 36). In such a case, the
business strategy and HR strategy might 'fit', but, as point out, these HR
policies and practices 'although consistent with such a business strategy, are
unlikely to generate employee commitment'. Thus, achieving the goal of 'close
fit' of business and HR strategy can contradict the goal of employee
commitment and cooperation.

It is important to emphasize that however committed a group of managers

might be to a particular HR strategy (for example the commitment HR
strategy), there are external conditions and internal 'structural contradictions'
at work that will constrain management action. The kind of analysis explored
here is nicely summed up by Hyman's pessimistic pronouncement that 'there
is no "one best way" of managing these contradictions, only different routes to
partial failure' (1987, quoted in Thompson & McHugh, 2002, p. 108).

Dimensions of strategic human resource management

In addition to focusing on the validity of the matching SHRM model and
typologies of HR strategy, researchers have identified a number of important
themes associated with the notion of SHRM.

Human Resource Management Practices and performance

Although most HRM models provide no clear focus for any test of the HRM
performance link, the models tend to assume that an alignment between
business strategy and HR strategy will improve organizational performance
and competitiveness. During the past decade, demonstrating that there is
indeed positive link between particular sets or 'bundles' of HR practices and

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business performance has become 'the dominant research issue' (Guest,

1997, p. 264)52. The dominant empirical questions on this topic ask 'What
types of performance data are available to measure the HRM-performance
link?' and 'Do "high-commitment-type" HRM systems produce above-average
results compared with "control-type" systems?' A number of studies have
found that, in spite of the methodological challenges, bundles of HRM
practices are positively associated with superior organization performance.

Re-engineering and Strategic human resource management

All normative models of HRM emphasize the importance of organizational
design. As previously discussed, the 'soft' HRM model is concerned with job
designs that encourage the vertical and horizontal compression of tasks and
greater worker autonomy. The redesign of work organizations has been
variously labeled 'high performing work systems' (HPWS), 'business process
re-engineering'

and

'high

commitment

management'.

The

literature

emphasizes core features of this approach to organizational design and

management, including a 'flattened' hierarchy, decentralized decision-making
to line managers or work teams, 'enabling' information technology, 'strong'
leadership and a set of HR practices that make workers' behaviour more
congruent with the organization's culture and goals.

Leadership and strategic human resource management

The concept of managerial leadership permeates and structures the theory
and practice of work organizations and hence how we understand SHRM.
Most definitions of managerial leadership reflect the assumption that it
involves a process whereby an individual exerts influence upon others in an
organizational context. Within the literature, there is a continuing debate over
the alleged differences between a manager and a leader: managers develop
plans whereas leaders create a vision (Kotter, 1996). Much of the leadership
research and literature tends to be androcentric in nature and rarely
acknowledges the limited representation of ethnic groups and women in
senior leadership positions (Townley, 1994)53. The current interest in
alternative

leadership

paradigms

103

variously

labelled

'transformational

leadership' and 'charismatic leadership' may be explained by understanding

the prerequisites of the resource-based SHRM model. Managers are looking
for a style of leadership that will develop the firm's human endowment and,
moreover, cultivate commitment, flexibility, innovation and change.
A number of writers (for example Agashae & Bratton, 2001 54; make explicit
links between learning, leadership and organizational change. It would seem
that a key constraint on the development of a resource-based SHRM model is
leadership competencies. Apparently, 'most re-engineering failures stem from
breakdowns in leadership' (Hamme & Champy, 1993, p. 107) 55 and the
'engine' that drives organizational change is 'leadership, leadership, and still
more leadership' (Kotter, 1996, p. 32). In essence, popular leadership models
extol to followers the need for working beyond the economic contract for the
'common' good. In contemporary parlance, the 'transformational' leader is
empowering workers. To go beyond the rhetoric, however, such popular
leadership models shift the focus away from managerial control processes
and innate power relationships towards the psychological contract and the
individualization of the employment relationship.

Workplace learning and strategic human resource management

Within most formulations of SHRM, formal and informal work-related learning
has come to represent a key lever that can help managers to achieve the
substantive HRM goals of commitment, flexibility and quality (Beer et al.,
1984; Keep, 1989). As such, this growing field of research occupies centre
stage in the 'soft' resource-based SHRM model. From a managerial
perspective, formal and informal learning can, it is argued, strengthen an
organization's 'core competencies' and thus act as a lever to sustainable
competitive advantage - having the ability to learn faster than one's
competitors is of the essence here. There is a growing body of work that has
taken a more critical look at workplace learning. Some of these writers, for
example, emphasize how workplace learning can strengthen 'cultural control'
(Legge, 1995), strengthen the power of those at the 'apex of the organization'
and be a source of conflict when linked to productivity or flexibility bargaining
and job control (Bratton, 2001).

104

Trade union and Strategic human resource management

The notion of worker commitment embedded in the HRM model has led
writers from both ends of the political spectrum to argue that there is a
contradiction between the normative HRM model and trade unions. In the
prescriptive management literature, the argument is that the collectivist
culture, with its 'them and us' attitude, sits uncomfortably with the HRM goal of
high employee commitment and the individualization of the employment
relationship. The critical perspective also presents the HRM model as being
inconsistent with traditional industrial relations, albeit for very different
reasons. Critics argue that 'high-commitment' HR strategies are designed to
provide workers with a false sense of job security and to obscure underlying
sources of conflict inherent in capitalist employment relations. Other scholars,
taking an 'orthodox pluralist' perspective, have argued that trade unions and
the 'high-performance-high-commitment' HRM model cannot only coexist but
are indeed necessary if an HPWS is to succeed. What is apparent is that this
part of the SHRM debate has been strongly influenced by economic, political
and legal developments in the USA and UK over the past two decades

International and comparative strategic human resource management

The assumption that SHRM is a strategically driven management process
points to its international potentialities. The employment relationship is shaped
by national systems of employment legislation and the cultural contexts in
which it operates. Thus, as the world of business is becoming more
globalized, variations in national regulatory systems, labour markets and
institutional and natural contexts are likely to constrain or shape any tendency
towards 'convergence' or a 'universal' model of best HRM practice. This
section addresses aspects of the international scene to help us place the
discourse on the SHRM model into a wider global context. In doing so, we
make a distinction between international HRM and comparative HRM. The
subject matter of the former revolves around the issues and problems
associated with the globalization of capitalism. Comparative HRM, on the
other hand, focuses on providing insights into the nature of, and reasons for,
differences in HR practices across national boundaries.

105

International Human Resource Management

The majority of international HRM research has focused on issues associated
with the cross-national transfer of people such as how to select and manage
expatriate managers in international job assignments. A decade ago, it was
suggested that much of this work tended to be descriptive and lacked
analytical rigour but research and scholarship have made considerable
progress over the past 10 years. Recent studies have recognized the
importance of linking international HRM with the strategic evolution of the firm,
and theoretical models of international HRM have been developed.
International HRM has been defined as 'HRM issues, functions and policies
and practices that result from the strategic activities of multinational
enterprises and that impact the international concerns and goals of those
enterprises' (Scullion, 1995, p. 356)56. International HRM tends to emphasize
the subordination of national culture and national employment practices to
corporate culture and HRM practices (Boxall, 1995).

The issue of transplanting Western HR practices and values into culturally

diverse environments needs to be critically researched. Early 21st century
capitalism, when developing international business strategy, faces the
perennial difficulty of organizing the employment relationship to reduce the
indeterminacy resulting from the unspecified nature of the employment
contract (Townley, 1994). If we adopt Townley's approach to international
HRM, the role of knowledge to render people in the workplace 'governable' is
further complicated in culturally diverse environments. For example, it
behoves researchers to examine whether managers and workers in Mexico,
Chile, India, Pakistan, South Africa and elsewhere will accept the underlying
ideology and embrace the HRM paradigm. In addition, although there is an
awareness of the importance of international HRM, further research is needed
into the barriers facing women seeking international assignment - the 'glass
border'

106

Comparative Human Resource Management

As with international HRM the growth of interest in comparative HRM is linked
to the globalization of business. Of considerable interest to HR academics
and practitioners is the question of the extent to which an HR strategy that
works effectively in one country and culture can be transplanted to others.
Recent comparative research suggests that there are significant differences
between Asian, European and North American companies with regard to HR
strategies (Brewster, 2001; Kidd et al., 2001; Scullion, 2001). Drawing upon
Bean's (1985)57 work on comparative industrial relations, comparative HRM is
defined here as a systematic method of investigation relating to two or more
countries that has analytical rather than descriptive implications. On this
basis, comparative HRM should involve activities that seek to explain the
patterns and variations encountered in cross-national HRM rather than being
simply a description of HRM institutions and HR practices in selected
countries. Simple description, what can be called the 'tourist approach', in
which 'the reader is presented with a diverse selection of exotic ports of call
and left to draw his own conclusion about their relevance to each other and to
the traveller himself [sic]' (Shalev, 1981, quoted by Bean, 1985, p. ii), lacks
academic rigour. The case for the study of comparative HRM has been made
by a number of HR scholars. In terms of critical research, comparative HRM is
relatively underdeveloped.
There is, of course, an intellectual challenge and intrinsic interest in
comparative studies. They may lead to a greater understanding of the
contingencies and processes that determine different, approaches to
managing people at work. The common assumption found in many
undergraduate textbooks is that 'best' HR practice has 'universal' application,
but an assumption is untenable since HRM phenomena reflect different
cultural milieu (Boxall, 1995). Comparative HRM studies can provide the basis
for reforms in a country's domestic public policy by offering 'lessons' from
offshore experience. Furthermore, they can promote a wider understanding
of, and foster new insights into, HRM, either by reducing what might appear to
be specific and distinctive national characteristics by providing evidence of

107

their occurrence elsewhere or, equally well, by demonstrating what is unique

about any set of national HR arrangements. The potential benefits of studying
comparative and international HRM have been recognized by both academics
and HR practitioners and thus 'can no longer be considered a marginal area
of interest'.
Using comparative analysis, Brewster has examined the HRM paradigm from
a European perspective. Drawing upon the data from a 3-year survey of 14
European countries, Brewster puts forward the notion of a new 'European
HRM model' that recognizes State and trade union involvement in the
regulation of the employment relationship. According to Brewster, the
European HRM model has a greater potential for 'partnership' between labour
and management because, in most European Union states, 'the unions are
not seen, and do not see themselves, as "adversaries". Adopting a 'systemic
view' of European national work systems, Clark and Pugh (2000)58 have
argued that, despite economic and political pressures towards convergence,
differences in cultural and institutional contexts continue to produce divergent
employment relationships. Thus, the Dutch 'feminine' culture encourages the
antipathy of Dutch workers towards 'hard' HRM whereas 'Sweden's strong
collectivist culture counters the development of an individualistic orientation to
the employment relationship' (Clark & Pugh, 2000, p. 96).
Inherent in controversies surrounding the notion of a European model, Asian
model or North American model are questions of the limitations and value of
cross national generalizations in HRM. Despite the economic and political
pressures from globalization, as it is loosely called, the national diversity of
HRM systems remains and is particularly sharp between the developed and
the developing world. We have also to recognize that those factors which
maintain differences in approaches to managing the employment relationship
will continue, albeit with decreasing power (Clark & Pugh, 2000)

2.5

FORMULATING AND IMPLEMENTING HR STRATEGY

The primary role of strategic HRM may be to promote a fit with the demands
of a dynamic and competitive environment, but it is not easy. A strategic

108

process of human-resource management may be desirable but there are no

obvious ways of doing it successfully.

However, although there are many difficulties, a strategic approach is

desirable in order to give a sense of direction and purpose and as a basis for
the development of relevant and coherent HR policies and practices. As Dyer
and Holder (1988)59 remark, strategic HRM should provide 'unifying
frameworks which are at once broad, contingency based and integrative'.

The formulation and implementation of HRM strategies is discussed under the

following headings:

fundamental process considerations - approaches to the development

of HR strategies;

strategic frameworks - the overriding strategic thrusts that will influence

particular strategies;

models for the development of HR strategies;

approaches to addressing key business issues concerning fit, flexibility

and the achievement of coherence;

implementing HR strategies.

FUNDAMENTAL PROCESS CONSIDERATIONS

When considering approaches to the formulation of HR strategy it is
necessary to underline the interactive (not unilinear) relationship between
business strategy and HRM, as have Hendry and Pettigrew (1990) 60. They
emphasize the limits of excessively rationalistic models of strategic and HR
planning. The point that HR strategies are not necessarily developed formally
and systematically but may instead evolve and emerge has been made by
Tyson (1997)61:

The process by which strategies come to be realized is not only through

formal HR policies or written directions: strategy realization can also come
from actions by managers and others. Since actions provoke reactions

109

(acceptance, confrontation, negotiation, etc) these reactions are also part of

the strategy process.

Strategy formulation propositions

Boxall (1993) has drawn up the following propositions about the formulation of
HR strategy from the literature:

there is typically no single HR strategy in a firm, although research

conducted by Armstrong and Long (1994)62 showed that a number of
the firms contacted did have an overall strategic approach within which
there were specific HR strategies;

business strategy may be an important influence on HR strategy but it

is only one of several factors and the relationship is not unilinear;

implicit (if not explicit) in the mix of factors that influence the shape of
HR strategies is a set of historical compromises and trade-offs from
stakeholders;

management may seek to shift the historical pattern of HR strategy

significantly in response to major contextual change, but not all
managements will respond in the same way or equally effectively;

the strategy formation process is complex, and excessively rationalistic

models that advocate formalistic linkages between strategic planning
and HR planning are not particularly helpful to our understanding of it;

descriptions of the dimensions that underpin HR strategies are critical

to the development of useful typologies but remain controversial, as no
one set of constructs has established an intellectual superiority over
the others.

It is also necessary to stress that coherent and integrated HR strategies are

only likely to be developed if the top team understand and act upon the
strategic imperatives associated with the employment, development and
motivation of people. This will be achieved more effectively if there is an HR
director who is playing an active and respected role as a business partner. A
further consideration is that the effective implementation of HR strategies

110

depends on the involvement, commitment and cooperation of line managers

and staff generally. Finally, there is too often a wide gap between the rhetoric
of strategic HRM and the reality of its impact, as Gratton et al (1999)
emphasize. Good intentions can too easily be subverted by the harsh realities
of organizational life. For example, strategic objectives such as increasing
commitment by providing more security and offering training to increase
employability may have to be abandoned or at least modified because of the
short-term demands made on the business to increase shareholder value.

Many different routes may be followed when formulating HR strategies there

is no one right way. On the basis of their research in 30 well-known
companies, Tyson and Witcher (1994) commented that: 'The different'
approaches to strategy formation reflect different ways to manage change and
different ways to bring the people part of the business into line with business
goals' .

In strategic HRM, process may be as important as content. Tyson and

Witcher (1994) also noted from their research that:

The process of formulating HR strategy was often as important as the content

of the strategy ultimately agreed. It was argued that by working through
strategic issues and highlighting points of tension, new ideas emerged and a
consensus over goals was found.

Levels of strategic decision-making

Ideally, the formulation of HR strategies is conceived as a process that is
closely aligned to the formulation of business strategies. HR strategy can
influence as well as be influenced by business strategy. In reality, however,
HR strategies are more likely to flow from business strategies that will be
dominated by product / market and financial considerations. But there is still
room for HR to make a useful, even essential contribution at the stage when
business strategies are conceived, for example, by focusing on resource
issues. This contribution may be more significant if strategy formulation is an
emergent or evolutionary process - HR strategic issues will then be dealt with

111

as they arise during the course of formulating and implementing the corporate
strategy.

A distinction is made by Purcell (1989) and Purcell and Ahlstrand (1994)

between:

'upstream' first-order decisions which are concerned with the long-term

direction of the enterprise or the scope of its activities;

'downstream' second-order decisions which are concerned with internal

operating procedures and how the firm is organized to achieve its
goals;

'downstream' third-order decisions which are concerned with choices

on human resource structures and approaches and are strategic in the
sense that they establish the basic parameters of employee relations
management in the firm.

It can indeed be argued that HR strategies, like other functional strategies

such as product development, manufacturing and the introduction of new
technology, will be developed within the context of the overall business
strategy, but this need not imply that HR strategies come third in the pecking
order. Observations made by Armstrong and Long (1994) during research into
the strategy formulation processes of 10 large UK organizations suggested
that there were only two levels of strategy formulation. First, there is the
corporate strategy relating to the vision and mission of the organization but
often expressed in terms of marketing and financial objectives. Second, there
are specific strategies within the corporate strategy concerning productmarket development, acquisitions and divestments, human resources,
finance, new technology, organization, and such overall aspects of
management as quality, flexibility, productivity, innovation and cost reduction.

112

The development process

The process of developing HR strategies involves generating strategic HRM
options and then making appropriate strategic choices. These choices should,
so far as possible:

relate to but also anticipate the needs of the business;

be congruent with the present or desired culture of the organization;

have the capacity to change the character and direction of the

business;

equip the organization to deal effectively with the external pressures

and demands affecting it

focus on areas of critical need;

answer fundamental questions such as: 'What is constraining us?',

'What is stopping us from delivering business results?';'

be founded on detailed analysis and study, not just wishful thinking;

incorporate the experienced and collective judgment of top management;

take account of the needs of line managers and employees generally

as well as those of the organization and its other stakeholders;

anticipate the problems of implementation that may arise if line

managers are not committed to the strategy and/or lack the skills and
time to play their part;

anticipate any problems that may arise because of the hostility or indifference of employees or trade unions;

ensure that the organization has the resources required to implement

the strategy;

provide for the acquisition and development of people with the skills
needed to manage and sustain the organization in the future to meet
organizational objectives;

consist of components that fit with and support each other;

be capable of being turned into actionable programmes.

113

STRATEGIC FRAMEWORKS
The formulation of coherent HR strategies is more likely if the overall
approaches the organization intends to adopt to managing its human
resources are understood. These can then serve as the framework within
which specific strategies can evolve. The most common approaches are:

the development of resource capability;

high-commitment management;

high-performance management;

best practice.

Resource capability
The resource capability approach regards the firm as a bundle of tangible and
intangible resources and capabilities required for product/market competition
(Kamoche, 1996)63. Human resources are seen as a major source of
competitive advantage.

As expressed by Kamoche, the basis of this approach to HR strategy is the

acknowledgement of the 'stock of know-how' in the firm. The capability-based
framework is concerned with the actions, processes and related behavioural
efforts required to attain a competitive position.

Within this framework, firms attempt to gain competitive advantage using

human resources through developing distinctive capabilities (competencies)
that arise from the nature of the firm's relationships with its suppliers,
customers and employees.

Kamoche describes the resource capability view of the firm as one that 'builds
on and provides a unifying framework for the field of strategic human resource
management'.

A resource capability approach is concerned with the acquisition, development and retention of human or intellectual capital. It will focus on how added

114

value can be obtained by treating people as strategic assets in the sense that
they perform activities that create advantage in particular markets. This is in
accord with the fundamental principle of economics that wealth is created
when assets are moved from lower-value to higher-value uses.

The high-commitment management approach

The high-commitment management as originally described by Walton (1985)
is based on the assumption that higher levels of performance from people,
and a belief that the organization is worth working for, are more likely when
employees are not tightly controlled. Instead, they should be given broader
responsibilities, encouraged to contribute and helped to achieve satisfaction in
their work.

This approach involves treating employees as partners in the enterprise,

whose interests are respected, who have a voice on matters that concern
them and whose opinions are sought and listened to. It is concerned with
communication and involvement. It creates a climate in which a continuing
dialogue between managers and the members of their teams takes place to
define expectations and share information on the organization's mission,
values and objectives. This establishes mutual understanding of what is to be
achieved and a framework for managing and developing people to ensure that
it will be achieved.

The high-performance management approach

The high-performance management aims to raise the performance of the
organization through its people. High-performance management practices
involve the development of resourcing, employee development, performance
management and reward processes that focus on the delivery of added value.

The best practice approach

This approach is based on the questionable assumption that there is a set of
best HRM practices and that adopting them will inevitably lead to superior
organizational performance. Most commentators agree that best fit is more
important than best practice, but when formulating HR strategies, many

115

people continue to seek the 'holy grail' of a range of ideal approaches to

HRM. But views will always differ on what constitutes best practice, as is illustrated in Table 2.2

Table 2.2 Views on HR best practices

Storey

Pfeffer

Wood

Huselid

(1992a)

(1994)

(1995)

(1995)

Sophisticated selection

Flexibility / team working

Internal promotion

Employment security

Best practice

Employee involvement

Employee voice
Commitment to learning
Performance-related
reward
Harmonization

*
*

Employee ownership

Source: Armstrong, M. (2003), A hand book of strategic human resource

Management New Delhi, Crest publishing house pp.80

MODELS FOR DEVELOPING HR STRATEGIES

Essentially, the formulation of HR strategy requires answers to just three
questions:

1.

Where are we now?

2.

Where do we want to be in one, two or three years' time?

3.

How are we going to get there?

But it is more complicated than that and the process could be modeled as
shown in Figure 2.12.

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Figure 2.12 A sequential strategic HRM model

Mission

Business
Strategy
Internal

Internal environment

environment scan

scan
HR Strategy

HR Programmes

Source: ibid pp.80

A systematic approach
There is much to be said for adopting a systematic approach to formulating
HR strategies that considers all the relevant business and environmental
issues, and a methodology for this purpose was developed by Dyer and
Holder (1988) as follows:

1.

Assess feasibility - from an HR point of view, feasibility depends on

whether the numbers and types of key people required to make the
proposal succeed can be obtained on a timely basis and at a
reasonable cost, and whether the behavioural expectations assumed
by the strategy are realistic (e.g. retention rates and productivity
levels).

2.

Determine desirability - examine the implications of strategy in terms

of sacrosanct HR policies (e.g. a strategy of rapid retrenchment would
have to be called into question by a company with a full employment
policy).

117

3.

Determine goals - these indicate the main issues to be worked on and

they derive primarily from the content of the business strategy. For
example, a strategy to become a lower-cost producer would require the
reduction of labour costs. This in turn translates into two types of HR
goals: higher performance standards (contribution) and reduced head
counts (composition).

4.

Decide means of achieving goals - the general rule is that the closer
the external and internal fit, the better the strategy, consistent with the
need to adapt flexibly to change. External fit refers to the degree of
consistency between HR goals on the one hand and the exigencies of
the underlying business strategy and relevant environmental conditions
on the other. Internal fit measures the extent to which HR means follow
from the HR goals and other relevant environmental conditions, as well
as the degree of coherency or synergy among the various HR means.

In addition, the HR strategist should take pains to understand the levels at

which business strategies are formed and the style adopted by the company
in creating strategies and monitoring their implementation. It will then be
easier to focus on those corporate or business unit issues that are likely to
have HR implications.

The sequence of the HR strategy is as shown in figure 2.13

118

Figure 2.13 The sequence of HR strategy formulation

Analyse;

what's happening?

what's good and not so good about It?

what are the issues?

what are the problems?

what's the business need?

Diagnose

why do these Issues exist?

what are the causes of the problems?

what factors are influencing the situation (competition, environmental

political, etc)?
Conclusions and recommendations

What are our conclusions from the analysis / diagnosis

what alternative strategies are available?

which alternative is recommended and why?

Action planning:

what actions do we need to take to implement the proposals?

what problems may we meet and how will we overcome them?

who takes the action and when?

Resource planning:

what resources will we need (money, people time)?

how will we obtain these resources:

how do we convince management that these resources are required?

Benefits:

what are the benefits to the organization of Implementing these

proposals?

how do they benefit Individual employees?

how do they satisfy business needs?

119

The sequence of strategy formulation

A sequence of questions for formulating strategy is illustrated in Figure 2.12.
In reality, of course, the process of developing HR strategies does not follow
this sequence so neatly. The analysis may be incomplete or out-of-date as
soon as it is made. The diagnosis may be superficial in the face of rapidly
evolving factors that are difficult to pin down. The alternatives may not be
easy to evaluate and iteration is required to optimize the solution. Action plans
may look good on paper but are hard to put into practice, and it may be
difficult to estimate costs and the need for other resources. But an attempt is
worth making and this framework is useful when putting a strategy proposal
together.

General issues affecting the formulation of HR strategies

Although systematic approaches such as those described above are
desirable, it should be remembered that strategic HRM is more of an attitude
of mind than a step-by-step process that takes you inexorably from a mission
statement to implementation.

Strategic HR planning is usually a much less orderly affair than the models
suggest. This is entirely understandable if it is borne in mind that strategic
HRM is as much about the management of change in conditions of
uncertainty as about the rigorous development and implementation of a
logical plan.

Perhaps the best way to look at the reality of strategic HRM is to remember
the statement made by Mintzberg et al (1988) that strategy formulation is
about 'preferences, choices, and matches' rather than an exercise 'in applied
logic'. It is also desirable to follow Mintzberg's analysis and treat HR strategy
as a perspective rather than a rigorous procedure for mapping the future.
Moore (1992)64 has suggested that Mintzberg has looked inside the
organization, indeed inside the heads of the collective strategists, and come
to the conclusion that, relative to the organization, strategy is analogous to the
personality of an individual. As Mintzberg sees them, all strategies exist in the
minds of those people they make an impact upon. What is important is that

120

people in the organization share the same perspective 'through their

intentions and/ or by their actions'. This is what Mintzberg calls the 'collective
mind', and reading that mind is essential if we are 'to understand how
intentions... become shared and how action comes to be exercised on a
collective yet consistent basis'.

No one else has made this point so well as Mintzberg and what the research
conducted by Armstrong and Long (1994) revealed is that strategic HRM is
being practiced in the Mintzbergian sense in the organizations they visited. In
other words intentions are shared amongst the top team and this leads to
actions being exercised on a collective yet consistent basis. In each case the
shared intentions emerged as a result of strong leadership from the chief
executive, with the other members of the top team acting jointly in pursuit of
well-defined goals. These goals indicated quite clearly the critical success
factors of competence, commitment, performance, contribution and quality
that drive the HR strategy.

Against this background the specific issues that have to be addressed

comprise:
1)

The business issues facing the organization,

2)

Achieving integration vertical fit,

3)

Approaches to achieving horizontal integration or fit - ie coherence

through 'bundling', and

4)

Achieving flexibility.

KEY BUSINESS ISSUES

The Key business issues that may impact on HR strategies include:

intentions concerning growth or retrenchment, acquisitions, mergers,

divestments, diversification, product/market development;

proposals on increasing competitive advantage through innovation

leading to product / service differentiation, productivity gains, improved
quality / customer service, cost reduction (downsizing);

the felt need to develop a more positive, performance-oriented culture;

121

any other culture management imperatives associated with changes in

the philosophies of the organization in such areas as gaining commitment, mutuality, communications, involvement, devolution and team
working.

Business strategies in these areas may be influenced by HR factors

although not excessively so HR strategies are, after all, about making
business strategies work. But the business strategy must take into
account key HR opportunities constraints.

Business strategy sets the agenda for HR strategy in the following areas:

HR mission;

values, culture and style;

organizational philosophy and approach to the management of people;

top management as a corporate resource;

resourcing;

skills acquisition and development;

high-commitment management;

high-performance management.

Achieving vertical integration and fit

Vertical integration comes in two forms: 1) integration with the culture of the
organization, and 2) fit with the business strategy.

Culture integration
HR strategies need to be congruent with the existing culture of the organization or designed to produce cultural change in specified directions. This will be
a necessary factor in the formulation stage but could be a vital factor when it
comes to implementation. In effect, if what is proposed is in line with 'the way
we do things around here' then it will be more readily accepted. However, in
the more likely event that it changes 'the way we do things around here', then
careful attention has to be given to the real problems that may occur in the
process of trying to embed the new initiative in the organization.

122

It is therefore necessary to analyse the existing culture to provide information

on how HR strategies will need to be shaped. The analysis may cover the
following 12 points listed by Cooke and Lafferty (1989)65 in their organizational
culture inventory:

1.

Humanistic-helpful - organizations managed in a participative and

person-centred way.

2.

Affiliative - organizations that place a high priority on constructive

relationships.

3.

Approval - organizations in which conflicts are avoided and interpersonal relationships are pleasant, at least superficially.

4.

Conventional - conservative, traditional and bureaucratically controlled

organizations.

5.

Dependent

hierarchically

controlled

and

non-participative

organizations.
6.

Avoidance - organizations that fail to reward success but punish

mistakes.

7.

Oppositional - organizations in which confrontation prevails and

negativism is rewarded.

8.

Power - organizations structured on the basis of the authority inherent

in members' positions.

9.

Competitive - a culture in which winning is valued and members are

rewarded for out-performing one another.

10.

Competence / perfectionist - organizations in which perfectionism,

persistence and hard work are valued.

11.

Achievement - organizations that do things well and value members

who set and accomplish challenging but realistic goals.

12.

Self-actualization - organizations that value creativity, quality over

quantity, and both task accomplishment and individual growth.

Achieving vertical fit - integrating business and HR strategies

When considering how to integrate business and HR strategies it should be
remembered that business and HR issues influence each other and in turn

123

influence corporate and business unit strategies. It is also necessary to note

that in establishing these links, account must be taken of the fact that
strategies for change have also to be integrated with changes in the external
and internal environments. Fit may exist at a point in time but circumstances
will change and fit no longer exists. An excessive pursuit of 'fit' with the status
quo will inhibit the flexibility of approach that is essential in turbulent
conditions. This is the 'temporal' factor in achieving fit identified by Gratton et
al (1999). An additional factor that will make the achievement of good vertical
fit difficult is that the business strategy may not be clearly defined - it could be
in an emergent or evolutionary state. This would mean that there could be
nothing with which to fit the HR strategy.

Making the link

However, an attempt can be made to understand the direction in which the
organization is going, even if this is not expressed in a formal strategic plan.
All businesses have strategies in the form of intentions although these may be
ill formed and subject to change. The ideal of achieving a link in rigorous
terms may be difficult to attain. Cooke and Armstrong (1990) suggested that
one approach might be to find a means of quantifying the additional resources
required by HR overall and at the level of each element of HR strategy, and
measuring and comparing the marginal return on investing in each element.
But it is highly unlikely that this approach would be practicable.

The link must therefore be judgmental, but it could still be fairly rigorous.
Conceptually, the approach would be to develop a matrix as illustrated in
Table 2.3, which for each of the key elements of business strategy identifies
the associated key elements of HR strategy.

124

Table 2.3 A conceptual approach to linking business and HR strategies

Market

Product

New technology

Acquisitions/

development

development

mergers

divestments

Organization
Resourcing
HRD
Performance
management
Reward
Employee
relations

Source: Armstrong M (200) A hand book of strategic HRM, New Delhi, Crest
publishing house pp.87.

Even if the approach cannot be as rigorous as this, the principle of considering each key area of business strategy and, reciprocally, the HR
implications, provides a possible basis for integration.

An alternative framework for linking business and HR strategies is the

competitive strategy approach. This identifies the different HR strategies that
can relate to the firm's competitive strategies, including those listed by Porter
(1985)66. An illustration of how this might be expressed is given in Table 2.4.

knowledge of the skills and behaviour necessary to implement the

strategy;

knowledge of the HRM practices necessary to elicit those skills and

behaviours;

the ability to quickly implement the desired system of HRM practices.

The link between HR and competitive strategy is as shown in Table 2.4

125

Table 2.4 Linking HR and competitive strategies

HR Strategy

Competitive
Strategy

HR
Development
Develop
strategic

Resourcing

Achieve

Recruit and retain

competitive

high-quality people with capability

advantage

innovative skills and a encouragement

through

good

innovation

innovation

track

Use

record

and

in facilities

Reward

provide Provide

financial

and incentives and rewards for

for

enhancing successful innovations

innovative skills
sophisticated Encourage

the

Achieve

selection procedures to development of a learning

competitive

recruit people who are organization and support

advantage

likely to deliver quality and total quality and customer

through quality

high levels of customer care

service

initiatives

with

focused training

Link rewards to quality

performance

and

the

achievement

of

high

standards

of

customer

all

reward

service

Provide training designed

Develop core / periphery to improve productivity;
Achieve

employment

competitive

recruit people who are training that is closely practices to ensure that

advantage

likely to add value; if linked

through

cost- unavoidable,

leadership

manage

structures; inaugurate

plan

just-in-time Review

to

immediate they provide value for

and business needs and can money and do not lead to

downsizing generate

humanely

measurable unnecessary expenditure

improvements

in

cost-

effectiveness
Achieve

Use

competitive
advantage

by

employing
people who are
better than those
employed
competitors

by

sophisticated

recruitment and selection

procedures based on a
rigorous analysis of the
special
required
organization

capabilities
by

the

Develop

organizational Develop

learning

processes; management

performance
processes

encourage self-managed that enable both financial

learning through the use and non- financial rewards
of personal development to
plans

as

part

of

be

related

to

a competence and skills;

performance management ensure that pay levels are

process

Source: ibid pp.88

126

competitive

Achieving horizontal fit and coherence

Horizontal fit is achieved when the various HR strategies cohere and are
mutually supporting. This can be attained by the process of 'bundling', ie the
use of complementary HR practices, also known as 'configuration'.

Bundling implies the adoption of an holistic approach to the development of

HR strategies and practices. No single aspect of HR strategy should be
considered in isolation. The links between one area and other complementary
areas need to be established so that the ways in which they can provide
mutual support to the achievement of the overall strategy can be ascertained.
The synergy that can result from this process means that the impact of the
whole bundle on organizational effectiveness can be greater than the sum of
its parts. Thus, a job family pay structure can be associated with competence
frameworks and profiles and the definition of career paths as a basis for
identifying and meeting development needs. The message provided by the
pay structure that rewards follow from career progression is much more
powerful if is linked to processes that enable people to develop their capabilities and potential.

How to bundle
The process of bundling is driven by the needs of the business. It involves six
steps:

1.

An analysis of what the needs of the business are.

2.

An assessment of how HR strategy can help to meet them.

3.

The identification of the capabilities and behaviours required of employees if they are to make a full contribution to the achievement of
strategic goals.

4.

A review of appropriate HR practices, followed by the grouping

together (bundling) of them in ways that are likely to ensure that people
with the required capabilities are attracted to and developed by the
organization and which will encourage appropriate behaviours.

5.

An analysis of how the items in the bundle can be linked together so

that they become mutually reinforcing and therefore coherent. This

127

may mean identifying integrating practices such as the use of

competence based processes and performance management.
6.

The formulation of programmes for the development of these practices,

paying particular attention to the links between them.

Approaches to selecting the right bundle, the use of integrative processes and
the development of complementary practices are discussed below.

Selecting the right bundle

There have been a number of attempts at producing universally applicable
lists of best practices which, it is assumed, will be effective in improving
performance. A good example is the list of seven practices of successful
organizations produced by Pfeffer (1994)67: employment security, selective
hiring, self managed teams, high performance-contingent pay, training,
reduction of status differentials and sharing information.

However, there is no evidence that a particular bundle is superior to any other

bundle in all circumstances. Delaney and Huselid (1996) 68 failed to find any
positive impact for specific combinations of practices as opposed to the total
number of HR practices. As noted by Guest (1997), a number of researchers
have shown that the more high-performance HRM practices that are used, the
better the performance as indicated by productivity, labour turnover or
financial indicators. These high-performance practices as defined by the US
Department of Labor (1993) include:

careful and extensive systems for recruitment, selection and training;

formal systems for sharing information with the individuals who work in
the organization;

clear job design;

high-level participation processes;

monitoring of attitudes;

performance appraisals;

properly functioning grievance procedures;

128

promotion and compensation schemes that provide for the recognition

and reward of high-performing members of the workforce.

The choice of what is the best bundle for an organization from this shopping
list and the others that have been published (see Table 2.2) will depend upon
its business needs and strategy and its culture. In other words, a contingency
(best fit) approach rather than a best practice approach is likely to be most
appropriate. And whatever combination of practices is adopted it is still
necessary to consider how to achieve coherence and mutual support by the
use of integrative processes and by linking different practices together.

The use of integrative processes

The two main integrative processes are performance management and the
use of competencies. The ways in which they can provide the 'glue' between
different HR practices are illustrated in Figures 2.14 and 2.15

Figures 2.14 Performance management as an integrating force

Source: ibid, pp 91

129

Figures 2.15 Use of competencies as an integrating force

Source: ibid, pp 91

Linking HR practices
Bundling is not just a pick-and-mix process. The aim should be first to
establish overriding areas of HR practice that need to be applied generally
and second, to examine particular practices to establish links or common
ground between them so that they provide mutual support.

The overriding areas of HR practice will be concerned with organization

development, the management of change, creating a positive employment
relationship, developing mutual commitment policies, communicating with
employees, and giving employees a voice (involvement and participation).
These should be taken into account generally and their relevance should be
considered when introducing any practices concerned with resourcing, human
resource development and reward management. It is necessary to take
specific steps in the latter areas to achieve coherence.

Achieving coherence
To achieve coherence the following approaches are necessary:

never consider any innovation in isolation;

130

seek synergy - look for ways in which one practice can support another
practice;

identify common requirements that can be met by initiatives in different

areas of HR practice, as long as they are deliberately linked - examples
of how this may happen are given in Table 2.5.

Achieving flexibility
Strategic flexibility is about the ability of the firm to respond and adapt to
changes in its competitive environment. Fit is concerned with aligning business and HR strategy. it has been argued that these concepts of flexibility and
fit are incompatible: 'fit' implies a fixed relationship between the HR strategy
and business strategy, but the latter has got to be flexible.

Table 2.5 Common elements in HR strategy areas

Overall HR
Strategy
Improve
performance

Extend skills
base

Resourcing
Competence-based
recruiting;

HR Strategy
HR
Development
Competence-based

assessment training;

centres

development Competence related pay

centres

Identify skills development

needs

Skills analysis; focused

training

in

identified

needs; accreditation of

of recruits.

performance

management
personal
Provide
competence

Skills-based pay

skills
Use

Develop

Reward

and
development

competency plans as basis for defining

for frameworks and profiles; and

and identify competence levels
potential

meeting

learning

needs; establish broad

career

and

through career development bands

development

performance management

for

processes

development

mapping

lateral
paths;

identify career ladders in

job families defined in
competence terms

131

Develop broad-banded or
job

family

defined

in

structures
competence

terms and which clearly

indicate

'aiming

points'

(competence requirements
in different roles within or
outside job family; institute
systems

of

career

development pay for lateral

progression through bands

Overall HR
Strategy

HR Strategy
HR
Development

Resourcing
Develop

positive

psychological

contract

based on an undertaking
Provide for
employability

to identify and develop

transferable skills; provide
scope for job enlargement/
enrichment

and

opportunities to move into

Reward

Identify skills development

Develop broad- banded/job

needs through personal

family

development planning;

identify competence levels

structures

that

institute programmes for for roles or job families and

developing

transferable provide

skills

basis

for

identifying learning needs

new roles
Analyse characteristics

On the basis of the

of committed employees; analysis.of

use

the

sophisticated characteristics

selection

methods

to committed

of
employees, Reinforce

identify candidates who provide

Increase
commitment

are likely to be understanding

committed

to

of are being upheld

organization; define and

organizational core values

communicate

and

organizational core values

driven behaviour

encourage

value-

Analyses characteristics of
learning

and structure selection opportunities that reinforce

Increase
motivation

interviews

to

obtain characteristics

rewards that are based on

and evidence that core values

the acceptance

well-motivated employees Provide

of

well-

evidence of how well- motivated employees and

motivated candidates are offer non-financial rewards
likely to be

Use

performance

management processes as
a basis for providing nonfinancial rewards related to
opportunities
development and growth

The main components of the flexibility strategy could be to:

develop HR systems that can be adapted flexibly;

develop a human capital pool with a broad range of skills;

select people who have the ability to train and adapt;

promote behavioural flexibility by, for example, training to extend

132

driven

learning behaviour by providing

have these characteristics experiences that enhance

and

value-

for

behavioural repertoire';

use performance management and reward systems that encourage

flexible behaviour;

bundle these with participative work systems that give employees

opportunities to contribute their discretionary behaviours;

consider other ways to extend organizational and role flexibility,

IMPLEMENTING HR STRATEGIES
As strategies tend to be expressed as abstractions, they must be translated
into programmes with clearly stated objectives and deliverables. But getting
strategies into action is not easy. The term 'strategic HRM' has been devalued
in some quarters, sometimes to mean no more than a few generalized ideas
about HR policies, at other times to describe a short-term plan, for example,
to increase the retention rate of graduates. It must be emphasized that HR
strategies are not just programmes, policies, or plans concerning HR issues
that the HR department happens to feel are important. Piecemeal initiatives
do not constitute strategy.

The problem with strategic HRM as noted by Gratton et al (1999) is that too
often there is a gap between the rhetoric of the strategy and the reality of what
happens to it. As they put it:

One principal strand that has run through this entire book is the disjunction
between rhetoric and reality in the area of human resource management,
between HRM theory and HRM practice, between what the HR function says
it is doing and how that practice is perceived by employees, and between
what senior management believes to be the role of the HR function, and the
role it actually plays.

The factors identified by Gratton et al which contribute to creating this gap

included:

the tendency of employees in diverse organizations only to accept

initiatives they perceive to be relevant to their own areas;

133

the tendency of long-serving employees to cling to the status quo;

complex or ambiguous initiatives may not be understood by employees

or will be perceived differently by them, especially in large, diverse
organizations;

it is more difficult to gain acceptance of non-routine initiatives;

employees will be hostile to initiatives if they are believed to be in

conflict with the organization's identity, e.g. downsizing in a culture of
'job-for-life' ;

the initiative is seen as a threat;

inconsistencies between corporate strategies and values;

the extent to which senior management is trusted;

the perceived fairness of the initiative;

the extent to which existing processes could help to embed the

initiative;

a bureaucratic culture that leads to inertia.

Barriers to the implementation of HR strategies

Each of the factors listed by Gratton et al can create barriers to the successful
implementation of HR strategies. Other major barriers that can be met by HR
strategists when attempting to implement strategic initiatives are:

failure to understand the strategic needs of the business with the result
that HR strategic initiatives are seen as irrelevant, even counterproductive;

inadequate assessment of the environmental and cultural factors that

affect the content of the strategies;

the development of ill-conceived and irrelevant initiatives, possibly

because they are current fads or because there has been an illdigested analysis of best practice that does not fit the organization's
requirements;

the selection of one initiative in isolation without considering its implications on other areas of HR practice or trying to ensure that a coherent,
holistic approach is adopted;

134

failure to appreciate the practical problems of getting the initiative

accepted by all concerned and of embedding it as part of the normal
routines of the organization;

inability to persuade top management actively to support the initiative;

inability to achieve ownership among line managers;

inability to gain the understanding and acceptance of employees;

failure to take into account the need to have established supporting

processes for the initiative (e.g. performance management to support
performance pay);

failure to recognize that the initiative will make new demands on the
commitment and skills of the line managers who may have to play a
major part in implementing it (for example, skills in setting objectives,
providing feedback and helping to prepare and implement personal
development plans in performance management processes);

failure to ensure that the resources (finance, people and time) required
to implement the initiative will be available; these include the HR
resources needed to provide support to line managers, conduct training
programmes and communicate with and involve employees;

failure to monitor and evaluate the implementation of the strategy and

to take swift remedial action if things are not going according to plan.

Overcoming the barriers

To overcome these barriers it is necessary to carry out the following steps:

1.

Conduct analysis - the initial analysis should cover business needs,

corporate culture and internal and external environmental factors. The
framework could be a SWOT analysis of strengths, weaknesses,
opportunities and threats facing the organization, or a PESTLE
analysis (the political, economic, social, technological, legal and
environmental contexts within which the organization operates). The
checklist at the end of this chapter sets out a number of questions that
should be answered at the analysis stage.

135

2.

Formulate strategy - the formulation should set out the rationale for
the strategy and spell out its aims, cost and benefits.

3.

Gain support - particular care needs to be taken to obtain the support

of top managers (for whom a business case must be prepared), line
managers, employees generally and trade unions. This means
communication of intentions and their rationale and the involvement of
interested parties in the formulation of strategic plans.

4.

Assess barriers - an assessment is required of potential barriers to

implementation, especially those relating to indifference, hostility
(resistance to change) and lack of resources. Unless and until a
confident declaration can be made that the initiative will receive a
reasonable degree of support (it could be too much to expect universal
acclamation) and that the resources in terms of money, people, time
and supporting processes will be available, it is better not to plunge too
quickly into implementation.

5.

Prepare action plans - these should spell out what is to be done, who
does it and when it should be completed. A project plan is desirable,
indicating the stages of the implementation programme, the resources
required at each stage, and the stage and final completion dates. The
action plan should indicate the consultation, involvement, communication and training programmes that will be required. It should also state
how progress will be monitored and the criteria for measuring success
against objectives.

6.

Project-manage implementation - this should be conducted by

reference to the action or project plan and involves monitoring progress
and dealing with problems as they arise.

7.

Follow up and evaluate - nothing can be taken for granted. It is

essential to follow up and evaluate the results of the initiative. Followup can take place through interviews, focus groups and, desirably,

136

attitude surveys. The evaluation should point the way to action in the
form of amendments to the original proposals, the provision of
supporting processes, additional support to line managers, intensified
communication and training, or getting more resources. .

Setting out the strategy

The following are the headings under which a strategy and the plans for
implementing it could be set out:

1.

Basis

business needs in terms of the key elements of the business

strategy;

environmental factors and analysis (SWOT/PESTLE);

cultural factors - possible helps or hindrances to implementation.

2.

Content - details of the proposed HR strategy.

3.

Rationale - the business case for the strategy against the background
of business needs and environmental/ cultural factors.

4.

Implementation plan

action programme;

responsibility for each stage;

resources required;

proposed

arrangements

for

communication,

consultation,

involvement and training;

5.

project-management arrangements.

Costs and benefits analysis - an assessment of the resource

implications of the plan (costs, people and facilities) and the benefits
that will accrue, for the organization as a whole, for line managers and
for individual employees. (So far as possible these benefits should be
quantified in terms of value added.)

137

However, there is no standard model; it all depends on the

circumstances of the organization. Here is how a large voluntary
organization set out its approach to developing HR strategies.

H R Strategic Review
A major strategic review has taken place and a new Chief Executive and other
members of the senior management team have been appointed within the last
two years. In essence, the review led to a business strategy which:

redefined the purpose of the organization;

emphasized that the core purpose will continue to be given absolute

priority;

set out the need to secure the future of activities outside its core
purpose and importantly,

made proposals designed to shape and secure the financial future.

HR issues emerging from the strategic review

The key HR issues emerging from the strategic review are that:

Effectively, it declares an intention to transform the organization.

This involves major cultural changes, for example:

o

some change in the focus to activities other than the core

activity;

a move away from a paternalistic, command-and-control

organization;

introducing processes that enable the organization to operate

more flexibly;

clarifying expectations, but simultaneously gaining commitment

to managing and carrying out activities on the basis of increased
self regulation and decision-making at operational level rather
than pressures or instructions from above;

more emphasis on managerial as distinct from technical skills for

managers;

138

greater concentration on the financial requirement to balance

income and expenditure while continuing to develop and
improve service delivery.

A significant change in the regional organization and the roles of the

management team and regional controllers/managers is taking place;
this means that new skills will have to be used, which some existing
managers may not possess.

From a human resource planning viewpoint, decisions will have to be

made on the capabilities required in the future at managerial and other
levels, and these may involve establishing policies for recruiting new
managerial talent from outside the organization rather than relying on
promotion from within.

Difficult decisions may have to be made on retaining some existing

managers in their posts who have not been successful in applying for
new regional posts or who lack the required skills, and there may be a
requirement to reduce staff numbers in the future.

More positively, management development and career planning activities will need to be introduced, which reflect the changing culture and
structure of the organization and the different roles managers and
others will be expected to play.

The provision of the core HR services such as recruitment and training is not
an issue.

Steps to address the issues

Steps have already been taken to address these issues, for example:

major communication initiatives introduced by the Chief Executive;

a review of the pay system, which will no doubt bear in mind the unsatisfactory experience of the organization in applying performance
management/pay procedures a few years ago;

decisions on the shape of the regional organization;

an analysis and diagnosis has taken place on cultural issues, i.e. what
the

139

present culture is and what it should become.

Future strategy
Against this background, it is necessary to build on the steps already taken
by:

adopting a systematic approach to the achievement of culture change,

bearing in mind that this can be a long haul because it involves
changing behaviour and attitudes at all levels and is difficult if not
impossible to attain simply by managerial dictation;

developing an HR strategy which, as a declaration of intent, will provide

a framework for the development of HR processes and procedures that
address the issues referred to above; this involves:
o

strategic integration, matching HR policies and practices to the

business strategy,

a coherent approach to the development of these processes so

that HR activities are interrelated and mutually reinforcing,

a planned approach, but one that is not bureaucratic,

an emphasis on the needs to achieve flexibility, quality and costeffectiveness in the delivery of HR services;

focusing on the activities that will not only deal with the HR issues but
will also help to achieve culture change, namely:

resourcing: deciding what sort of people are required and ensuring that
they are available,

human resource development: identifying the skills required, auditing

the skills available, taking' steps to match skills to present and future
business

requirements

and

initiating

processes

for

enhancing

organizational and individual learning related to business needs,

reward: using reward processes to ensure that people are valued

according to their contribution and to convey messages about the
behaviour, capabilities and results expected of them,

140

employee relations: building on the steps already taken to communicate to employees and to involve them in decision-making processes
on matters that concern them.

The HR strategy will have to establish priorities. Because the thrust of the
strategic review initially makes most impact on managers, the priority may
well be given to people at this level but without neglecting the needs of the
rest of the staff.

HR strategic review model

A model for the strategic review is set out in Figure 2.16

Figure 2.16 A model for the strategic review

STRATEGIC REVIEW

CULTURE CHANGE

ORGANIZATIONAL DEVELOPMENT

Resourcing

Development

Reward

Communication

Source: ibid, pp 91

STRATEGIC HRM CHECKLIST

The questions to which answers are required when formulating HR strategies
are:
1.

What are the key components of the business strategy?

2.

How can HR strategies support the achievement of the business

strategy?

141

3.

What are the strengths and weaknesses of the organization and the
opportunities and threats it faces?

4.

What are the implications of the political, economic, social, technological, legal and environmental contexts in which the organization
operates? '

5.

To what extent is the organization in a stable or dynamic (turbulent)

environment and how will this affect our strategies?

6.

What is the nature of the corporate culture? Does it help or hinder the
achievement of the organization's goals?

7.

What needs to be done to define or redefine our values in such areas

as quality, customer service, innovation, team working and the
responsibility of the organization for its employees?

8.

What do we need to do to increase commitment? How do we

communicate our intentions and achievements to employees and what
steps do we take to give them a voice - obtaining feedback from them
and involving them in the affairs of the organization?

9.

To what extent do we need to pursue a strategy of high-performance or

high-commitment management, and what would be the main features
of such a strategy?

10.

How in general can we increase the resource capability of the

organization?

11.

To what extent do existing HR practices meet future business needs?

What needs to be done about any gaps or inadequacies?

12.

In the light of this gap analysis, what specific aspects of HRM

(processes and practices) do we need to focus on when formulating
strategy?

13.

How can we best 'bundle' together the various HR practices?

14.

How can we achieve coherence in developing the different HR practices?

15.

How can we achieve the flexibility required to cope with change?

16.

What kind of skills and behaviours do we need now and in the future?

17.

Are performance levels high enough to meet demands for increased

profitability, higher productivity, better quality and improved customer
service?

142

18.

Will the organization's structure and systems be able to cope with

future challenges in their present form?

19.

Are we making the best use of the skills and capabilities of our
employees?

20.

Are we investing enough in developing those skills and capabilities?

21.

Are there any potential constraints in the form of skills shortages or

employee relations problems?

22.

Are our employment costs too high?

23.

Is there likely to be any need for de-layering or downsizing?

The answers to these and similar questions define the areas in which HR
strategies need to be developed. The important thing is to give an overall
sense of purpose to HR activities by linking them explicitly to the needs of the
business and its employees.

2.6

HR'S STRATEGIC ROLES

When it comes to how involved HR managers should be in strategic planning,

there is often a disconnect between what CEOs say and do. One writer says
HR professionals' input is crucial: They identify problems that are critical to
their companies' business strategy, and forecast potential obstacles to
success. When Rick Wagner took over as CEO of General Motors, he
organized a senior executive committee (the "Automotive Strategies Board").
It included GM's chief financial officer, chief information officer, and vice
president of global human resources. As Wagner says, "I seek [the HR vice
president's] counsel and perspective constantly. She has demonstrated a
tremendous capacity to think and act strategically, which is essential to our
HR function and what we want to achieve in making GM a globally
competitive business."

A study from the University of Michigan concluded that high-performing

companies' HR professionals should be part of the firm's strategic planning
executive team. These professionals identify the human issues that are vital
to business strategy and help establish and execute strategy. They provide
alternative insights and are involved in creating responsive and market-driven

143

organizations. They conceptualize and execute organizational change.

Another study by Mercer Consulting concluded that 39% of CEOs surveyed
see HR as more of a partner than a cost center: Yet another study, of 447
senior HR executives, focused on the extent to which HR had been involved
in executing mergers for their companies. Mergers in which top management
asked HR to apply its expertise consistently outperformed those in which HR
was less involved.

Yet one recent survey of 1,310 HR professionals found that, in practice, only
about half said senior HR managers are involved in developing their
companies' business plans. A survey by the University of Southern California
found that about one-fourth of large U.S. businesses appointed managers
with no HR experience as top HR executives. Reasons given include the fact
that they may find it easier to give the firms HR efforts a strategic emphasis.
They may also sometimes be better equipped to integrate the firm's HR efforts
with the rest of the business. So in practice, HR managers don't appear to be
as involved in strategizing as perhaps they should be.

As HR managers do assume more strategic planning responsibilities, they will

have to acquire new HR skills. This does not just mean technical skills relating
to activities like selection and training. HR managers will need "an in-depth
understanding of the value creating proposition of the firm." How does the
company make money? What activities and processes are most critical for
wealth creation as defined by customers and capital markets? Who in the firm
executes these activities successfully?

HR's Strategy Execution Role

Today's HR managers fulfill two basic strategic planning roles: strategy
execution and strategy formulation. Strategy execution is traditionally the
heart of the HR manager's strategic planning job. Top management
formulates the company's corporate and competitive strategies. Then, it
formulates broad functional strategies and policies. Like the riverbanks for a
boat steaming up a waterway, the firm's functional strategies and policies set
the broad limits that determine what the functional manager can and cannot

144

do, and provide a set of signposts that the (HR or other) functional managers
can use to decide the precise form the department's specific policies and
activities should take. The company's HR (or other functional) strategies
should thus derive directly from its company wide and competitive strategies.

Here, the basic rule is this: The HR department's strategies, policies, and
activities must make sense in terms of the company's corporate and
competitive strategies, and they must support those strategies. Dell's human
resource strategies-the Web-based help desk, its centralized intranet HR
service bureau-help the firm better execute Dell's low-cost strategy. FedEx's
HR strategies-supporting communication and employee development, for
instance--help FedEx differentiate itself from its competitors by offering
superior customer service.

HR management supports strategic implementation in other ways. For

example, HR guides the execution of most firms' downsizing and restructuring
strategies, throughout placing employees, instituting pay-for-performance
plans, reducing health care costs, and retraining employees. When Wells
Fargo acquired First Interstate Bancorp a few years ago, HR played a
strategic role in implementing the merger-in merging two "wildly divergent"
cultures and in dealing with the uncertainty and initial shock that rippled
through the organizations when the merger was announced.

HR's Strategy Formulation Role

While execution is important, HR increasingly plays an expanded strategic
planning role today. In recent years, HR's traditional role in executing strategy
has expanded to include working with top management to formulate the
company's strategic plans. (HR has "a seat at the strategy planning table" is
how some HR writers put this.) This expanded strategy formulation role
reflects the reality most firms face today', Globalization means more
competition, more competition means more performance, and most firms are
gaining that improved performance in whole or part by boosting the
competence and commitment levels of their employees. That makes HR's
input crucial.

145

HR helps top management formulate strategy in a variety of ways. For

example, formulating a company's strategic plan requires identifying,
analyzing, and balancing the company's external opportunities and threats, on
the one hand, and its internal strengths and weaknesses, on the other.
Hopefully, the resulting strategic plans capitalize on the firm's strengths and
opportunities, and minimize or neutralize its threats and weaknesses.
Externally, HR management is in a unique position to supply competitive intelligence that may be useful in the strategic planning process. Details regarding
competitors' incentive plans, opinion survey data from employees that elicit
information about customer complaints and information about pending
legislation such as labor laws and mandatory health insurance are some
examples.

As another example, HR participates in the strategy formulation process by

supplying information regarding the company's internal human strengths and
weaknesses. For example, IBM's decision in the 1990s to buy Lotus Software
was prompted in part by the conclusion that its own human resources were
insufficient to enable the firm to reposition itself as an industry leader in
networking systems, or at least to do so fast enough. Some firms, thanks to
HR's input, build new strategies around human resource strengths. For
example, in the process of automating its factories, farm equipment
manufacturer John Deere developed a workforce that was exceptionally
talented and expert in factory automation. This in turn prompted the firms
establish a new-technology division to offer automation services to other
companies.

But, for a growing number of employers, HR is even more extensively

involved in the strategy formulation process. By working closely with top
management, HR is able to build a persuasive case that shows how-in
specific and measurable terms-the firm's HR activities can and do contribute
to creating value for the company, for instance in terms of higher profits and
market value. A big part building that case is to create a strategy - oriented
HR system.

146

CREATING A STRATEGY-ORIENTED HR SYSTEM

We can think of an HR process as consisting of three basic components.
There are the HR professionals who have the strategic and other skills
required to build a strategy-oriented HR system. There are the HR policies
and activities (such as how the company recruits, selects, and trains and
rewards employees) that comprise the HR system itself and there are the
employee behaviors and competencies that the company's strategy requires,
and that hopefully emerge from the actions and policies of the firm's strategysupporting HR system. Some HR experts refer to these three elements (the
HR professionals, the HR system, and the resulting employee behaviors) as a
company's basic HR architecture (see Figure 2.17)

Figure 2.17 : The Basic Architecture of HR

The HR function

The HR system

Employee behaviours

HR

professionals

High performance work system

Employee

with

strategic

(HPWS)

values,

consisting

of

aligned

HR

management

strategically

competencies

policies, practices and activities

competencies,
motivation

and

behavior required by the

companys strategic plan

Source: Brian Becker et al, (2001), The HR scorecard, Boston: Harvard Business School press pp.12

Ideally, the HR professionals should design the HR system in such a way that
it helps to produce the employee competencies and behaviors the company
needs to achieve its strategic goals. It obviously does little good to design,
say, training practices that produce a workforce incapable of using the
company's new computerized machines.

Creating a strategy-oriented HR system requires new skills on the part of HR

professionals. They must have the competencies required to create HR
systems that produce strategically relevant employee behaviors. They need to
understand the strategy formulation process. They must be adept at
identifying the workforce implications and requirements of the new strategy

147

and at crafting HR policies and practices that produce those workforce

requirements. They must have a sufficiently wide breadth of business
knowledge to be able to understand how the company creates value, and to
see how the firm's HR system can contribute to that value-creation process.
The HR professional has to understand how businesses operate. Just
understanding the nitty-gritty of recruiting, selecting, and training is no longer
sufficient.

The High-Performance Work system

In todays competitive environment, the manager can't leave the nature of the
HR system the actual HR policies and practices-to chance. Managers usually
try to create high-performance work systems (HPWS). The HPWS is a set of
HR policies and practices that maximize the competencies, commitment, and
abilities of the firm's employees. In practice, this means that each HPWS HR
activity produces measurable superior results. For example, review Table 2.6
Note how much more extensively the high-performing companies structure
their recruiting activities so as to produce qualified recruits. And, how much
more extensively high-performing firms hire employees based on selection
tests, and provides training to new employees. The bottom line is that
management can't leave their HR systems unmanaged. Based on an ongoing
research program with over 2,800 corporations, firms that use HPWS policies
and practices do perform at a significantly higher level than those that do not.
The evidence suggests that "high performance HR practices, [particularly]
combined with new techno produce better productivity, quality, sales, and
financial performance."

148

Table 2.6 Comparison of HR Practices in High-Performance and LowPerformance Companies.

Low-Performance

High-Performance

Company HR System

Company HR System

Bottom 10% (42 firms)

Top 10% (43 firms)

Sample HR System HR Practices

Number of qualified applicants per position
(Recruiting)
Percentage hired based on a validated selection
test
Percentage of jobs filled from within
Percentage in a formal HR plan including
recruitment, development and succession
Number of hours of training for new employees
(less than 1 year)
Number of hours of training for experienced
employees
Percentage of employees receiving a regular
performance appraisal
Percentage of workforce whose merit increase or
incentive pay is tied to performance
Percentage

of

workforce

who

received

performance feedback from multiple sources (360)

Target percentile for total compensation
(market rate = 50%)
Percentage of the workforce eligible for incentive
pay
Percentage of difference in incentive pay between
a low-performing and high-performing employee
Percentage of the workforce routinely working in a
self-managed, cross-functional, or project team
Percentage of HR budget spent on outsourced
activities (e.g., recruiting, benefits. payroll)
Number of employees per HR professional

149

8.24

36.55

4.26

29.67

34.90

61.46

4.79

46.72

35.02

116.87

13.40

72.00

41.31

95.17

23.36

87.27

3.90

51.67

43.03

58.67

27.83

83.56

3.62

6.2\

10.64

42.28

13.46

26.24

253.88

139.51

Low-Performance

High-Performance

Company HR System

Company HR System

Bottom 10% (42 firms)

Top 10% (43 firms)

30.00

8.98

Employee turnover

34.09

20.87

Sales per employee

$158,101

$617,576

3.64

11.06

Percentage of the eligible workforce covered by a

union contract
Firm Performance

Market value to book value

*Each of the variables in the "HR Out Comes" section is scaled from 1 to 6,
Where 1 = "not at all" and 6 = "to a very great extent."
Source: ibid pp16-17

Table 2.6 also helps to illustrate another aspect of high-performance work

systems, namely that they have a definite bias toward helping and
encouraging workers to manage themselves. The high-performing firms
generally emphasize placing employees in self-managing, cross-functional
teams. In fact, the whole thrust of the HPWS's superior recruiting, screening,
training, and other HR practices is to build the sort of highly trained,
empowered, self-governing, and flexible workforce that companies today need
as a competitive advantage.

The need for HPWS became apparent as global competition intensified in the
1990s. Companies needed a way to better utilize their human resources as
they strove to improve quality, productivity, and responsiveness. In the early
1990s, the U.S. Department of Labor identified several characteristics of highperformance work organizations: multiskilled work teams; empowered frontline workers; more training; labor management cooperation; commitment to
quality; and customer satisfaction.30 HR practices like those in Table 2.6
foster these characteristics.

150

Translating Strategy into HR Policy and practice

The HR manager needs a way to translate the firm's new strategy into
specific, actionable HR policies and practices. The basic process, as outlined
in Figure 2.20, is simple and logical. Management formulates a strategic plan.
That strategic plan implies certain workforce requirements, in terms of the
employee skills, attributes, and behaviors that HR must deliver to enable the
business to achieve its strategic goals. (For example, must our employees
dramatically improve the level of customer service? Do we need more
computer-literate employees to run our new machines?) Given these
workforce requirements, HR management formulates HR strategies, policies,
and practices aimed at achieving the desired workforce skills, attributes, and
behaviors. (These may take the form of new selection, training, and
compensation policies and practices, for instance.) Ideally, HR management
then identifies "Scorecard" metrics it can use to measure the extent to which
its new HR initiatives are supporting management's strategic goals.

Figure 2.18 Basic Model of how to align HR strategy and actions with
business strategies
Formulate Business Strategy
"What are the strategic goals of the business?
Identify Workforce Requirements
"What employee competemcies and behaviors must HR deliver
to enable the business to reach its goals?
Formulate HR Strategic Policies and Activities
"Which HR strategies and practices will enable HR to produce
these employee companies and behaviours?
Develop Detailed HR Scorecard Measures
"How can HR measure whether it is executing well for the
business in terms of producing the required workforce
competencies and behavior

Source: Garrett Walker et.al (2001). Designing and implementing and HR

Score card, Human Resources Management Vol. (40)4, pp.370

151

Given this, Einstein Medicals HR managers could ask, "What specific HR policies and practices would help Einstein create a dedicated, accountable,
generative, and resilient workforce, and thereby help it to achieve its strategic
goals?" The answer was to implement several new HR programs and
practices. One was training and communications programs aimed at assuring
that employees clearly understood the company's new vision and what it
would require of all employees. Enriching work was another key HR initiative,
and involved providing employees with more challenge and responsibility
through flexible assignments and team-based work. Through new training and
benefits programs, the company promoted personal growth, which meant
helping employees take personal responsibility for their own improvement and
personal development. Providing commensurate returns was another key HR
strategy initiative; it involved tying employees' rewards to organization wide
results and providing non monetary rewards (such as more challenging jobs).
Finally, improved selection, orientation, and dismissal procedures also helped
Einstein build a more dedicated, resilient, accountable, and generative
workforce.

THE HR SCORECARD APPROACH

Management ultimately judges the HR function based on whether it creates
value for the company, where "value creation" means contributing in a
measurable way to achieving the company's strategic goals. HR creates value
by engaging in activities that produce the employee behaviors the company
needs to achieve these strategic goals. Managers often use an HR Scorecard
to measure the HR function's effectiveness and efficiency in producing these
employee behaviors and thus in achieving the company's strategic goals. The
HR Scorecard is a concise measurement system. It shows the quantitative
standards or "metrics" the firm uses to measure HR activities, and to measure
the employee behaviors resulting from these activities, and to measure the
strategically relevant organizational outcomes of those employee behaviors.
In so doing, it highlights, in a concise but comprehensive way, the causal link
between the HR activities, and the emergent employee behaviors. and the
resulting firm wide strategic outcomes and performance.

152

Becker, Huselid, and Ulrich explain the need for such a measurement system
this way:
In our view, the most potent action HR managers can take to ensure their
strategic contribution is to develop a measurement system that convincingly
showcases HR's impact on business performance. To design such a
measurement system, HR managers must adopt a dramatically different
perspective, one that focuses on how human resources can play a central role
in implementing the firm's strategy. With a properly developed strategic HR
architecture, managers throughout the firm can understand exactly how
people create value and how to measure the value creation process.
Information for Creating an HR Scorecard
To create an HR Scorecard, the manager needs three types information. First,
he or she must know what the company's strategy is, because the strategy
will determine what the important employee behaviors and strategically important organizational outcomes are, and how the firm will measure
organizational performance. Second, the manager must understand the
causal links between the HR activities, the employee behaviors, the
organizational outcomes, and the organization's performance. Figure 2.19
summarizes the basic relationships involved. Third, the manager must have
metrics he or she can use to measure all the activities and results involved,
specifically the HR activities, the emergent employee behaviors, the
strategically relevant organizational outcomes, and the organizational
performance.
Figure 2.19 The basic HR Scorecard Relationship
HR

Emergent

Strategically Relevant

Activities

Employee

Organizational

Behaviors

Outcome

Organizational
Performance

Achieve
Strategic
Goals

Source: Garry Dessler. (2007), Human Resource Management, Singapore.

Pearson education, pp.88

153

Using the HR Scorecard Approach

There are seven steps in using HR Scorecard approach to create a strategic
results oriented HR system. The seven steps are as follows:
Step 1:

Define the Business Strategy: Creating a strategy-oriented HR

system starts by defining what the company's strategic plans are
(such as, for Einstein Medical, expanding services and becoming a
comprehensive health care network). Ideally, senior HR leaders'
insights regarding the human resources in their own company and
in those of the competition provide valuable planning input.
Similarly, their insights regarding how HR practices and deliverable
can improve the firm's performance can help top management
develop a superior strategic plan. Toward the end of this stage,
management translates its broad strategic plans into specific,
actionable strategic goals.

Figure 2.20 : The Seven Steps in the HR Scorecard Approach to

Formulating HR Policies, Activities, and Strategies
Formulate Business Strategies

1 Define the business strategy

2. Outline the company's value chain activities
3. Identify the strategically required organizational outcome

Identify Work force

4. Identify the required workforce behaviors

Requirements
Formulate HR Policies and
Practices
Develop Detailed 'Scorecard'

5. Identify the strategically relevant HR system policies and

activities such as new training and grievances system
6. Design the HR Scorecard measurement system

Measures
7. Periodically reevaluate the measurement system

Source: ibid pp.88

154

Step 2:

Outline the Company's Value Chain: To achieve its strategic

goals, any business must engage in certain strategically required
activities. For example, Einstein Medical must devise and introduce
new medical services. Microsoft must write new computer
programs. Each such activity requires certain employee behaviors.
Einstein Medical needs employees who have the expertise to help
it devise new medical services, for instance. The point is this: any
manager who wants to understand what employee behaviors are
essential for his or her firm's success must first understand what
the firm's required activities are.

For this, value chain analysis can be useful. The company's value
chain "identifies the primary activities that create value for
customers and the related support activities." We can think of any
business as consisting of a chain of crucial activities. Each activity
is part of the process of designing, producing, marketing, and
delivering the company's product or service. These activities might
include bringing supplies and materials into the company's
warehouse; bringing these materials to the shop floor and
designing the product to customers' specifications; and the various
marketing, sales, and distribution activities that attract customers
and get the company's product to them. Outlining the company's
value chain shows the chain of essential activities. This can help
managers better understand the activities that drive performance in
their company. In other words, it is a tool for identifying, isolating,
visualizing, and analyzing the firm's most important activities and
strategic costs.

Value chain analysis is more than just a tool for identifying the
ways things are done now. It prompts questions such as: "How do
our costs for this activity compare with our competitors?" "Is there
some way we can gain a competitive advantage with this activity?"
"Is there a more efficient way for us to deliver these services?"
And, "Do we have to perform these services in-house?" Outlining

155

and analyzing the company's value chain can also help the HR
manager create an HR system that makes sense in terms of the
firms strategy. For example, it can help him or her identify the
organizational outcomes the company absolutely must achieve if it
is to achieve its strategic goals. (For example, at Einstein Medical,
delivering new services was so critical to what they had to
accomplish, it was obvious it had to be a core value chain activity.)
This in turn can help the HR manager better understand what
employee behaviors and competencies are required, and what HR
policies and activities (HR system) would produce these behaviors
and competencies.

Consider another example. At Dell Computer, "phone technicians

competently and courteously assisting Dell customers with
problems" is a crucial (or "core") value chain activity; indeed, it is a
big part of what Dell has built its reputation on. The critical nature
of this activity would be apparent from any outlining of Dell's value
chain. Given this, Dell HR might well decide that, one way HR
could add value is by improving phone technicians' performance
through the use of special computerized job aids that show
technicians what series of questions to ask when customers call in
with problems.

Step 3:

Identify the Strategically Required Organizational Outcomes:

Every company must produce critical, strategically relevant
outcomes if it is to achieve its strategic goals. At Einstein Medical,
a new service delivered was one such required organizational
outcome. At Dell, receiving quick, competent, and courteous
technical advice by phone is one such outcome. Based on his or
her understanding of how the company operates, and perhaps an
analysis of the firm's value chain, the manager, in this step, now
identifies and specifies the strategically relevant organizational
outcomes.

156

Step 4:

Identify

the

Required

Workforce

Competencies

and

Behaviors: The question here is, "What employee competencies

and behaviors must our employees exhibit if our company is to
produce the strategically relevant organizational outcomes, and
thereby achieve its strategic goals?" At Einstein Medical,
employees had to take personal accountability for their results, and
be willing to work pro actively (be "generative") to find new and
novel solutions.

Some strategic HR experts, notably Becher, Huselid, and Ulrich,

refer to required workforce competencies and behaviors like these
as HR deliverables (because the HR system's training and other
activities can help to produce or "deliver" them). Competencies and
behaviors such as personal accountability, working pro actively,
motivation, courteous behavior, and com TIitment produce
strategically relevant organizational outcomes, and thereby drive
organizational performance.

Step 5:

Identify the Strategically Relevant HR System Policies and

Activities: Once the HR manager knows what the required
employee competencies and behaviors are, he or she can turn to
the task of identifying the HR activities and policies that will help to
produce these employee competencies and behaviors. At Einstein
Medical, a new service delivered was one strategically relevant
organizational outcome. To produce this outcome, Einstein's
employees had to be willing to work proactively to find new and
novel solutions, so this was one strategically relevant workforce
competency / behavior. The question in step five is, What HR
system policies and activities will enable us to produce those
workforce competencies and behaviors?" For Einstein Medical, the
answer included special training programs and changing the
compensation plan.

157

In this step, the important thing is to be specific. It is not enough to

say, "We need new training programs, or disciplinary processes."
Instead, the manager must now ask, "exactly what sorts of new
training program to do we need, to produce the sorts of employee
competencies and behaviors that we seek?" How and to what end
should we change the disciplinary process? In this step, the HR
manager must therefore become precise about the actual form and
design of the firm's HR system. For example, all high-performing
companies tend to use incentive pay. However, what precise form
should the incentive plan take in this company? What specific
behaviors do we want to encourage? Who will decide if the person
gets the incentive pay? What percent of total pay should we base
on incentives? In other words, to achieve improved organizational
performance, HR management needs to align the HR system-the
firm's HR policies and practices with the company's specific
strategic needs.

Step 6:

Design the HR Scorecard Measurement System: After choosing

strategically required organizational outcomes, and employee
competencies and behaviors, and specific HR system policies and
activities, the question is, how shall we measure them all? For
example, if we decide to "improve the disciplinary system," how
precisely will the company measure such improvement? Perhaps
in terms of number of grievances. If "higher morale" is one
employee competency / behavior we want to improve, how will we
measure higher morale? Perhaps with surveys that measure
attitudes regarding satisfaction with supervision, and with pay.

Deciding on the proper measures or metrics requires considerable

thought.

In one recent study, 86% of HR professionals who responded said

they expected measurement of the HR function to increase over
the next two years, 62% said they already used metrics to assess

158

HR performance and 72% said they benchmark HR activities

(particularly compensation and rewards, and equipment and
retention, and performance appraisal) by comparing their results to
other firms'.

The HR Scorecard is crucial in this measurement process. As

noted earlier, it is a visual and/or computerized model that shows
the quantitative standards, or "metrics" the firm uses to measure
HR activities, and to measure the employee behaviors resulting
from these activities, and to measure the strategically relevant
organizational

outcomes

of

those

employee

behaviors.

It

highlights, in a concise but comprehensive way, the causal links

between the HR activities, and the emergent employee behaviors,
and the resulting firm wide strategic outcomes and performance.
The HR Scorecard thus helps the HR manager demonstrate how
HR contributes to the company's strategic and financial success.
Several consulting firms provide Web-based services that make it
easier to create HR Scorecards, based on metrics from bestpractice, world-class firms.

Step 7:

Periodically Evaluate the Measurement System : The HR

manager cannot assume that the HR Scorecard's various
measures (metrics) and links will always stay the same. Perhaps
reducing grievances is not having the assumed effect on raising
morale. Perhaps the company must drop some firm wide employee
measures (such as front-desk customer service) and add new
ones. Perhaps the measures the HR manager chose (such as
number of grievances) are proving too hard to quantify. In any
case, the HR manager should periodically evaluate measures and
links, to make sure they are still valid.

159

2.7

HR's Role in Creating Value

The value created by the HR function is frequently questioned by line

managers. This reflects how many human resources functions are perceived
to be out of step with the needs of business

Research suggests, time and again, that organizational change fails as often
as it succeeds. Even where change projects do succeed, delivery of value is
rarely as easy as it appeared, at the outset. Why? Too often, emphasizing the
business and economic rationale of a project obscures the fact that value, in
all of its forms, is actually created by the application of human talent.

But, amidst unprecedented uncertainty, deriving value from human talent is

harder than ever. This has placed an increasing responsibility on HR
function's to source the scarce human talent which can create the highest
value for organizations. HR functions are also required to identify and sustain
diverse talent pools which will maximize value creation in rapidly changing
market environments.

So how are human resources professionals able to enhance the value

creation process? experience suggests that:

there is no single best way - a 'silver bullet' - of doing things as far as

organizational success and productivity is concerned;

the HR organization, processes and technology need to be integrated

and aligned with business strategy to maximize their impact as value
creating opportunities;

engaged employees create more value for the organization; and

there are many legitimate HR metrics which can measure the

contribution that HR makes to value creation in a business.

There is no one single 'best way'

In recent years, there have been numerous new initiatives focused on
creating more value out of a business - total quality, total customer
satisfaction, customer chains, business process improvement, partnership

160

etc. These various initiatives have often been accompanied by a hunt for new
organizational forms - flatter hierarchies, project-based and virtual structures,
network teams, 'no boundary' systems and so on. Organizations are
continuously in search of an answer, a solution that will magically solve all the
problems.

There is no one single 'best way' of doing things as far as organizational

success and productivity is concerned. What works well for one organization
could lead to spectacular failure for another. The key to maximizing value
from HR is aligning HR strategy and programmes to an organizations
business strategy.

Integrating and aligning HR processes with business strategy

Business strategies and drivers should be analysed for their effect on HR and
people practices. Different business drivers will suggest different approaches
to HR strategy and organizational design. At the micro level, most companies
have a business strategy with elements that are completely unique to their
own circumstances. When studying business strategies, however, most
observers agree that these thousands of discrete strategies can be classified
into three or four categories. In his landmark book 'Competitive strategy",
Michael Porter used the term 'generic strategies' to refer to alternative
strategic positions in an industry. He suggested that companies could
compete in one of three ways:

Cost leadership - being the low-cost producer;

Differentiation - having a unique product or service; or

Focus - concentrating special services or products on a specific

market niche.

Porter contends that competitive advantage comes from setting up valuecreating activities to deliver on a company's particular kind of strategy. This
allows the company to erect barriers to entry.

161

In their best-selling book, The discipline of market leaders. Michael Treacy

and Fred Wiersema studied successful companies in different sectors and
came to similar conclusions as Porter. They suggest that customers look for
one of three sources of value or strategic styles from a company:

operational excellence - low-cost, reliable and easy to use products or

services;

product leadership - leading edge products; or

customer intimacy - highly customized solutions and services.

Applying Treacy and Wiersema's concepts of strategic styles to an

organizations people requirements we can see how these different strategic
styles demand different competencies from employees and thus, different
strategies from HR. In 'The talent solution Ed Gubman characterized these
implications for HR. as shown in Table 2.7

Table 2.7 Implications of strategic style for HR management

Strategic style

Work environment

Employee

Lead HR systems

competencies
operational

Stable, measurable cost - Process

excellence

conscious,

team-based teamwork

continuous improvement.

control, Strategic

sourcing,

analysis, process

HR

improvement,

financial / operational compensation based on

understanding

and highly measurable results.

attention to detail.
Product leadership

Experimental

learning Lifelong learning, infor- Fluid

focused technical, informal, mation-sharing.

organization,

emphasis on training and

fast-paced, resource rich, creativity, breakthrough development,

speed to market.
Customer intimacy

Values-driven,

thinking.

oriental.

undifferentiated rewards.

dynamic, Relationship-building,

informal, collegial. service- listening,

relatively

Selection for fit with values,

initiative, consistent

collaboration,
problem solving.

leadership,

rapid balanced

between short -term and

long term rewards

Source: Gubmal E. L. (1998), The Talent solution New York: McGraw Hill.

162

emphasis

Engage employee to create value

Measuring the connection between employee behaviours and business
performance is often difficult. Traditional measures of employee satisfaction
and commitment fail to link strongly with developments in business results
and often leave the HR professional as a poor cousin when business metrics
are used to monitor business performance.

One powerful HR measure which does enable the HR professional to link

employee behaviours with business performance is a metric called employee
engagement. Using a specialist employee survey tool it is possible to measure the employee behaviours which impact on business performance and
identify the key drivers of business performance improvement within a
business. Employee engagement:

differs by company;

is impacted by at least 16 different drivers in six broad categories;

not every driver applies to every person;

does impact financial results; and

can be measured and managed effectively.

Figure 2.21 highlights the employee engagement model the six broad
categories and main areas which can impact engagement.

163

Figure 2.21 Employee Engagement Model

Source: Halikowa, M. Osgood, p (2003), "Do Human Resource really add

value to a business", Management Quarterly ,May 03 pp.24

To address the significance of the value created through employee

engagement. US research showed that engaged employees':

produce $3.600 more profit per annum;

create $18.600 more market value; and

deliver $27.000 more sales per annum.

Measuring degrees of employee engagement provides data which enables

actions to be taken at the point of business performance. So for example what
employee engagement measures might do is help an HR professional to look
at all the elements that make up the employment experience and identify
which of those elements within the experience motivate employees to stay
and which motivate employees to go above and beyond the simple
requirements of their job.

Employee engagement measures can also help HR professionals to look at

which areas of activity have a greater influence on retention.

164

Engagement measures can also help explain the difference between top
performing units and units which perform less well and thus determine how
value can be improved across the business.

Measuring degrees of engagement in staff can help line managers to focus on

the areas which will produce the greatest improvement in business
performance. If engaged employees and non-engaged employees are
compared there are clear differences. Research has shown that engaged
sales employees tend to stay longer with organizations, for instance, and tend
to be responsible for larger amounts of sales, thus increasing profits per
employee and revenues across a business.

Using HR metrics to measure value

A lack of early or sufficient consideration of measures such as employee
engagement in business restructuring, denies access to a crucial insights
which impact on value. A due diligence or risk assessment process for
example that only has a financial orientation or where HR questions are asked
only about contracts of employment, misses out a whole range of human
capital measures.

So, determining the real business drivers for an organization is often the first
and crucial link in defining the HR people and practices which have the
greatest impact on value. In the last decade, on the back of increased use of
IT solutions, more and more HR teams now have their own process controls
and performance metrics. A recent research study found that more than 80%
of the companies contacted used some kind of HR measurement system. Of
those with measures in place, 44% used balanced scorecards as their
organizing framework.

In their book 'The balanced scorecard' Robert Kaplan and David Norton
contend that customary financial measures are lagging indicators and can
lead to short-term thinking designed to "get the numbers up". Instead, they
suggest companies use a balanced portfolio of measures to measure their

165

progress. Since its publication in the mid-1990s. Many companies have

adapted this approach. In their work with HR departments they have found
that the balanced scorecard approach is well suited to HR departments that
are keen to take the first step in showing the value they add to a business.
The balanced approach to HR measurement answers how HR is adding value
from four different perspectives:

what is our return on our investment in people?

is our service delivery effective and efficient?

are our human assets aligned with future needs? and

are we serving the needs of our customers?

Among those companies in our study that are already using HR

measurement, their primary purposes in doing so are to:

build a common language among HR professionals for communicating

HR strategy and results;

be proactive in identifying workforce trends and offering solutions; and

strengthen relationships with the lines of business.

The combination of a robust HR measurement system and HRMS framework

allows today's HR leaders to make decisions that are grounded in fact and to
evaluate the outcome of business investment. It also offers a means to
translate ideas about business strategy into behaviours and actions that
support the company's future direction by creating culture and implementing
talent management practices.

Research conducted by Fulmer, Gehart and Scottargues that companies

which adopt HR measures of value realise substantial financial performance
advantages over companies with less employee-focused employment
strategies. They go on to suggest that companies considering adoption of the
types of HRM strategies and measurement processes used by the firms they
studied may not have much downside risk, and if their competitors are using
these practices, they may even find themselves at a disadvantage.

166

The search for value creation by HR functions has always been legitimate but
in the past has tended to incorporate suspicious elements of self-fulfilling
prophecy when compared to the value assures presented by many other
disciplines within businesses. In our view, the HR function has often tried in
vain to convince others of the value inherent in delivering HR support by
reference to esoteric HR centric models. We believe that it is now possible to
unlock the value of the 'people quotient' with clear and unambiguous value
drivers and measures which connect directly with broader business metrics.

The HR function has a key role to play in helping organizations to understand

their sources of value (strategic style) and in blending the work environment,
employee competencies and the lead HR systems which support the
organization. The analysis and professional skills required to identify and
develop value in this area are very much a part of the development of the role
of HR as strategic Partner to a business.

Measures such as employee engagement deliver a much closer picture of the

link between the people in a business and the overall business performance.
An HR function which is able to prioritise its investments in financial human
and infrastructure resources and link these investments to improved business
performance is placing itself at the heart of value creation.

HR performance metrics are measuring value creation within businesses.

More sophisticated HR functions are using these metrics inside and outside of
the function to broaden the scope of business management so HR leaders
are now using robust data to measure the impact of investments.

For HR professionals the challenge is not so much how quickly they can
embrace and deploy these value drivers but more whether they can retain
ownership of them before other disciplines claim them for their own. The
Human Resource Management in the Information Technology industry is
discussed in the next chapter.

167

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