Strategic HRM

(Evolution, Objectives, Approaches and Concept of HR

as an Investment)

Lecture 2
 Strategic Analysis - HRM
“To be competitive, organizations in many
industries must have highly skilled &
knowledgeable workers. They must also have a
relatively stable labour force since employee
turnover works directly against obtaining the
kind of co-ordination and organizational
learning that leads to fast response and high-
quality products and services”
- Edward Lawler
 What Is SHRM?
Strategic human resource
management has been defined as
‘the linking of human resources
with strategic goals and objectives
in order to improve business
performance and develop an
organizational culture that fosters
innovation and flexibility.
 Some Organisational Strategies

Company Strategic Principle

General “Be number one or number two in

Electric every industry in which we
compete or get out.”

Wal-Mart “Low prices, every day”

3M “Foster innovation”
 SOUTHWEST AIRLINES

l Southwest believes that their employees are

what makes them different. Their mission
statement reflects their team philosophy:
l The mission of Southwest
Airlines is dedication to the
highest quality of Customer
Service delivered with a sense of
warmth, friendliness, individual
pride, and Company Spirit.
 SOUTHWEST AIRLINES….2
l The company logically follows their mission statement with a
commitment to their employees:
l We are committed to provide our Employees
a stable work environment with equal
opportunity for learning and personal
growth. Creativity and innovation are
encouraged for improving the effectiveness
of Southwest Airlines. Above all, Employees
will be provided the same concern, respect,
and caring attitude within the organization
that they are expected to share externally
with every Southwest Customer.
 ABB
1. Improve Performance
ABB helps customers improve their operating performance, grid
reliability and productivity while saving energy and lowering
environmental impact.
2. Attract Talent
ABB is committed to attracting and retaining dedicated and skilled
people and offering employees an attractive, global work
environment.
3. Drive Innovation
Innovation and quality are key characteristics of our product,
systems and service offering.
4. Act Responsibly
Sustainability, lowering environmental impact and business ethics
are at the core of our market offering and our own Operations.
 Evolution of SHRM
l ‘HRM has emerged from Personnel Management’.
l HRM is simply the re-titling of Personnel
Management (PM) and Foley et al (1999) states
that HR practitioners needed to shred the
‘Cinderella Image’ in a quest for professional
recognition.
l Graham (1998) states, ‘PM is practical, utilitarian
and instrumental, and mostly concerned with the
administration and implementation of policies.
HRM, conversely, has strategic dimensions and
involves the total deployment of human resources
within a firm’.
 Evolution of SHRM….

According to Taylor (2007),

l “It’s a business objective, rather than an
individual one, geared towards one thing:
ensuring that an organisation is able to do
what it sets out to do in the present and in the
future plans, respectively.
l “And this assumes that capability is based on
an organisation’s sole source of value and
competitive advantage in a developed
economy: its people”.
SHRM : Objectives – Long-term
– Profitability
– Return On Investment
– Competitive Position
– Technological Leadership
– Productivity
– Employee Relations
– Public Responsibility
– Employee Development
 SHRM : Objectives – Short term
• Detailed work planning
• Emphasis on technical qualifications
and skills
• Emphasis on job-specific training
• Emphasis on job-based compensation
• Use of performance appraisal as a
control device
• Team-based training
l Strategic
HRM is about contributing
to the improvement of business
performance through people.

l The major concerns of strategic

HRM are to meet the business needs
of the organization and the
individual, as well as the collective
needs of the people.
 Importance of Strategic HRM
l Needs Investment –ROI
l Cost of investment
l Reduction in total Labour cost
l Efficiency in Operation
l Optimal use of Human Resources
l A Source of Competitive Advantage
l Technical Skills (pace of technological change)
l Knowledge and Capabilities
l Management of Critical and Difficult HR Areas
l Management of Change (Resistance to change)
l Trust Deficit
l Labour Attitudes and Ideologies
l Motivational Issues
l Management Team Cohesiveness
l Economic Turbulence
l Within the Country (turbulence)
l Globalisation
l Changing Demographics
l Differences in Workforce Values

HR integration with Strategy is important in managing uncertainties.

 Benefits of SHRM
1. Identifying and analysing external opportunities and
threats that may be crucial to the company's success.
2. Provides a clear business strategy and vision for the future.
3. To supply competitive intelligence that may be useful in the
strategic planning process.
4. To recruit, retain and motivate people.
5. To develop and retain of highly competent people.
6. To ensure that people development issues are addressed
systematically.
7. To supply information regarding the company's internal
strengths and weaknesses.
8. To meet the expectations of the customers effectively.
9. To ensure high productivity.
10. To ensure business surplus thorough competency
 Approaches to SHRM
l The Resource-based Approach - A resource-based
approach will address methods of increasing the firm’s
strategic capability by the development of RESOURCES
- managers and other staff who can think and plan
strategically, and who understand the key strategic
issues.
l Strategic fit -The HR strategy should be aligned to the
business strategy.
- HR strategy should be an integral part of the business
strategy, contributing to the business planning process as
it happens.
 High-Performance Management

l Aims to make an impact on the performance of the

firm through its people in such areas as productivity,
quality, levels of customer service, growth, profits
and, ultimately, the delivery of increased shareholder
value.

l High-performance management practices include

rigorous recruitment and selection procedures,
extensive and relevant training and management
development activities, incentive pay systems and
performance management processes.
(Performance-focus, Goals and Measurement)
 High-Commitment Management

Emphasises the importance of enhancing mutual

commitment. ‘A form of management which is
aimed at eliciting a commitment so that
behaviour is primarily self-regulated rather than
controlled by sanctions and pressures external to
the individual, and relations within the
organization are based on high levels of trust.’
(Trust, Bonding, Loyalty, Relationship-based)
 High-Involvement Management

The aim is to create a climate in which a

continuing dialogue between managers
and the members of their teams takes
place in order to define expectations
and share information on the
organization’s mission, values and
objectives.
(Team/Co-ordination/Collaboration/Work Planning)
 Human Resource Activity Typology
High l Performance Enhancement
l Consulting
l Workforce Planning
l Employee Relations
l Futuristic Anchors for l Labour Negotiations
Compensation l Executive Compensation
l Retirement Planning l Employee Development
l Management Development
l Compliance & Sustainability
l Recruitment Interviewing
Strategic Value
of Activity < IMPORTANT TO EMPLOYEES >

l Payroll
l Benefits administration l Recruitment information
l Retirement administration Processing
l Employee records l Employee Assistance programs
l Relocation administration
l Employee Engagement
l Recruitment information processing
Low l Skill Enhancement
< IMPORTANT TO EMPLOYEES >

Transactional Type of HR Activity Relationship

Back
Concept of SHRM Investment
 NORDSTROM-Case
lA strategic competitive advantage for Nordstrom
includes a successful human resource (HR)
approach, involving heavy investment in their
sales force of associates.
l Nordstrom consistently produces above-
industry-average profits and has continued to be
profitable when its competitors have declined or
fallen flat.
l L&T’s competitive advantage is also its
knowledge-based approach and employee
training, high retention and continuous training.
 Adopting An Investment Perspective

– Characterizing employees as human assets implies

the strategic management of human resources
should include considering HR from an Investment
Perspective.
– Cost/Benefit based analysis may be used to evaluate
HR programs, such as training and development.
– Investment Perspective toward human assets
facilitates their becoming a competitive advantage
as most other resources/assets can be cloned, copied
or imitated by competitors.
1. First, Management may or may not have an
appreciation of the value of its human assets
relative to other capital assets, such as brand
names, distribution channels, real estate, facilities
and equipment and information systems.

2. Second, Investments in human assets are generally

far riskier for an organisation than investments in
physical assets: Unlike physical assets, human
assets are not owned by the organisation. An
organisation with risk-averse management
philosophies is far less likely to make significant
investments in people.
l The third factor is the nature of the skills needed
by employees. Certain organisations require
employees to develop and utilize very specialized
skills that might not be applicable in another
organisation; another employer might want
employees to utilize and develop skills that are
highly marketable.

l As a result, an organisation that decides to provide

its employees with specialized training in skills
that can be utilized by others in the marketplace
has a much stronger need to develop a strong
retention strategy than an organisation that
teaches employee skills that are less marketable.
l The fourth factor affecting an investment orientation is the
“utilitarian” mentality of the organisation. Organisations
that take a utilitarian, or “bottom line”, perspective
evaluate investments by using utility analysis also known as
‘cost-benefit analysis’. Here, the costs of any investment are
weighted against its benefits and whether it achieves the
target rate of return for its investments. A highly utilitarian
approach attempts to quantify all costs and benefits.

l The distinct problem many utilitarian organisations run

into regarding investments in people involves the fact that
many benefits of HR programs and policies are extremely
difficult to quantify. If these programs and policies can be
assessed quantitatively, subjectivity as to the actual value of
the benefit may make consensus on the overall value, quite
difficult.
l The final factor impacting an organisation’s
willingness to invest in its people is the availability of
cost-effective outsourcing. An investment – oriented
approach to managing an organisation will attempt to
determine whether its investments produce a
sustainable competitive advantage over time.

l When specialists who may perform certain functions

much more efficiently exist outside an organisation,
any internal programs will be challenged and have to
be evaluated relative to such a standard.

l This is true for virtually any organizational function.

l As an example, employers in the fast food industry, such
as at McDonald’s invest little in their people, they require
minimal experience, provide little training, pay low wages,
and expect high turnover because the supply of workers is
excessive relative to demand. Organisation in this industry
tend to invest much more in new product development,
physical expansion and marketing through competitive
advertising.

l HR Professionals can be strong catalysts in influencing the

extent to which an organisation leaders truly understand
the inherent value of its people. It has been argued that
those in the HR profession have an ethical obligation and
bear responsibility for leadership in this regard.
Thank You