Strategic Human

Resource
Management: An
International
Perspective
© Gary Rees & Paul E. Smith
 Chapter 3
Strategic human resource
management: Concepts, practices
and trends
Introduction
• Aims
– Explore the origins of strategic HRM.
– Introduce the principle approaches to strategic HRM, and
their possibilities and limitations, both in theory and
practice.
– Evaluate the reasons behind the rise of strategic HRM in
the 1990s.
– Introduce the main different approaches to managing
people strategically.
– Link this to wider debates and controversies surrounding
the role of the organization in society.

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Learning outcomes
• At the end of the chapter, students should be able to:
– Understand what comprises strategic HRM.
– Introduce and critically discuss shareholder-orientated/harder
approaches to best practice HRM.
– Identify the main ways HR strategy can be conceived to
operate in practice.
– Introduce and critically discuss stakeholder orientated/ softer
approaches to best practice HRM.
– Introduce and critically discuss the broad contingency
approach.
– Identify and compare and contrast the different forms of
contingent HR strategy.

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There are many definitions of SHRM
• use of employees to gain or keep competitive advantage
(Mathis and Jackson, 2008: 36).
• the intentions of the corporation both explicit and covert,
toward the management of its employees, expressed
through philosophies, policies and practices (Torrington et
al. 2005: 28).
• the pattern of planned human resource deployments and
activities intended to enable the firm to achieve its goals
(Wright and McMahan 1992: 298).
• the development of a consistent aligned collection of
practices, programs and policies to facilitate the
achievement of the organization’s strategic objectives
(Mello, 2006: 152).
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Characteristics of SHRM as a complex system
• Vertical integration
– HR works together with line managers

• Horizontal integration
– Organizational building blocks coherent, mutually reinforce each
other

• Effectiveness
– HR adds value
– can be clearly shown (Metrics!)

• Partnership to achieve common goal

– Organizational members work closely together
– HR included
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Strategic models of competitive advantage
• outside-in models:
– These examine the external environment and concentrate
on external influences of the business
o Miles and Snow typology
o Porter’s generic strategies

• inside-out model:
– This looks for defining factors in strategy in the inside of the
firm
– The resource-based view of the firm

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outside-in model: Miles and Snow framework

• Four strategic approaches to competition:

– Defenders (build HR)

o Capture and keep a stable and small market niche

– Prospectors (acquire HR)

o Innovators - look for new products and opportunities

– Analysers (allocate HR)

o Imitators of both the above
o look for new products after they are proven to be viable

– Reactors
o Mixed and inconsistent strategy (best practices model)

8
Porter’s generic strategies
Outside-In Strategic approaches to competition

– Cost leadership
o Low cost and acceptable value to the customer

– Broad Differentiation
o Unique offering at a broad range of industry segments

– Focused Differentiation (Niche)

o Unique offering at a narrow industry segment

– Best Cost

– Stuck in the middle

o No specific strategy 9
Inside-out model: competitive advantage resides inside the firm

The resource-based view: Theory

• Basic assumptions
– Firms may own heterogeneous resources.
– These may not be completely mobile – so resource difference cannot be
equalized and may last long.
• Four categories of basic resources
– Financial
– Physical
– Human
– Organizational
• A resource represents competitive advantage if it is:
– Valuable
– Rare
– Imperfectly imitable
– No good substitutes VRIO
FRAMEWORK 10
The resource-based view: Practice

• Resources
– Must be unique to provide competitive advantage
– Must be organized to be exploitable

• Implications of the framework:

– Sustainable competitive advantage comes from:
o firm-specific rather than general skills.
o more from teams than individuals.
o more from HR systems than isolated HR practices.

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Principle approaches to SHRM – summary
• Best practice
– Shareholder dominant
– Stakeholder oriented
o Best process The Harvard model
o Pfeffer’s high commitment HR practices
– The AMO model
• Best fit
– The Michigan model
• Contingency
– Competitive advantage
– Life cycle models
• Configurational

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Best practice approaches to SHRM
• Common thread:
– If we implement a certain practice then we can expect higher
profitability and less turnover.
– Universalist.
– Prescriptive.
– Downplay the significance of context.
– Require to be present:
o Competence.
o Commitment.
o Motivation and effective job design.
• Two basic approaches:
– Shareholder dominant – maximizing returns to investorsd
– Stakeholder oriented – broader focus on all stakeholders

13
 Shareholder dominant approaches to SHRM
• Shareholder revolution in the 80s
– Maximizing shareholder value

– Consequences in HR
o Linking senior management’s pay to share price.
o Rising pay inequality within firms
o Downsizing – pressure of the workforce to upgrade skills on
their own.
o Implies: if the firm is profitable the employee will benefit
o Reality: likelihood of decreasing wages because of cost
competition and demoralized staff because of downsizing

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Stakeholder oriented models

• The Harvard model

• Pfeffer’s high commitment HR practices

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 The Harvard model

Stakeholders Context
• Shareholders • Workforce
• Management characteristics
• Employees Outcomes 4 Cs • Business strategy
• Government • Commitment • Economic climate
• Community • Competence • Management
• Trade unions • Congruence philosophy
• Cost-effectiveness • Labour market
conditions
• Trade union policy
• Technology
• Legislation
Policy choices • Social values
• Employee influence
• Human resource flow
• Reward systems
• Work systems 16
Pfeffer’s high-commitment HR practices
• Employment security

• Selective hiring of new personnel

• Self-managed teams and

• Decentralization of decision-making as basic principles of organizational design

• Comparatively high compensation contingent on organizational performance

• Extensive training

• Reduced status distinctions and barriers

– dress, language, office arrangements and wage differences across levels

• Extensive sharing of financial and performance information throughout

organization (Pfeffer 1998).

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Best process –
The AMO people and performance model

• Looking for mediating processes via the best practices

work:
– Ability
– Motivation
– Opportunity

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Best fit approaches: The Michigan model
• based on rational strategy formulation; firm strategy and HRM
strategy should be closely aligned.
• The internal ‘fit’ or horizontal integration can reinforce,
emphasize, and create high performance.
• People are resources and should be treated the same way
any other resource would be
• It is the ‘hard approach’ towards HRM.
• Key practices:
– Selection
– Performance
– Appraisal
– Rewards
– Training
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Contingency approaches

• Competitive advantage model

– A ‘menu’ of practices based on Porter’s generic strategies

• Life cycle models

– Fit HRM strategy to the stage where the organization or
the product life cycle rests
– Different HRM policies and practices will be effective at
different life cycle stages.

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Configurational approaches
• Outcomes optimized through a close fit between internal HR
policies and practices and the wider external dimension

• Horizontal integration achieved by using consistent set of

HRM practices

• These are fitted to the strategy of the business vertically.

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 Configurational fits
ENVIRONMENT ENVIRONMENT

Firm
Fit
Firm Firm HR strategy
strategy Fit
Fit
Motivation
and total
rewards Fit
Onboarding,
training and
development

Recruitment and
selection

Fit
Fit
Firm
strategy Fit
Firm Fit
strategy

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Conclusions

• Which set of practices leads to better organizational

performance?
• HRM is necessarily strategic – or at least firms will have to
act this way.
• Many firms manage by ‘muddling through’ adapting when
necessary and using traditional tried and tested policies.

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References
• Aoki, M. (2010) Corporations in Evolving Diversity: Cognition,
Governance and Institutions. Oxford: Oxford University Press.
• Barney, J.B. (1991) ‘Firm resources and sustained competitive
advantage’, Journal of Management, 17 (1): 99–120.
• Barney, J.B. and Hesterly, W. (2006) ‘Organizational economics:
understanding the relationship between organizations and economic
analysis’, in S.R. Clegg, C. Hardy, T.B. Lawrence and W.R. Nord (eds),
The SAGE Handbook of Organization Studies, 2nd edn. London: Sage,
pp. 111–49.
• Barney, J.B. and Wright, P.M. (1997) On Becoming a Strategic Partner:
The Role of Human Resources in Gaining Competitive Advantage,
CAHRS Working Paper Series. Paper 150. Ithaca, NY: Cornell
University, School of Industrial and Labor Relations, Center for
Advanced Human Resource Studies, available at:
http://digitalcommons.ilr.cornell.edu/ cahrswp/150 (accessed 25
November 2012).
24
References

• Brewster, C., Goergen, M., Wood, G. and Wilkinson, A.

(2012) ‘Varieties of capitalism and investments in human
capital’, Industrial Relations, 51 (s1): 501–27.
• Dore, R. (2000) Stock Market Capitalism: Welfare
Capitalism. Cambridge: Cambridge University Press.
• Dore, R. (2009) ‘Financialization of the global economy’,
Industrial and Corporate Change, 17 (6): 1097–112.
• Hall, P. and Soskice, D. (2001) ‘An introduction to the
varieties of capitalism’, in P. Hall and D. Soskice (eds),
Varieties of Capitalism: The Institutional Basis of
Competitive Advantage. Oxford: Oxford University Press,
pp. 1–70.
25
References
• Hancke, B., Rhodes, M. and Thatcher, M. (2007)
‘Introduction: beyond varieties of capitalism’, in B. Hancke,
M. Rhodes and M. Thatcher (eds), Beyond Varieties of
Capitalism. Oxford: Oxford University Press, pp. 3–38.
• Huselid, M.A. (2009) The HR Scorecard, available at:
http://www.markhuselid.com/hr.html (accessed 4 January
2013).
• Ichniowski, C. and Shaw, K. (1999) ‘The effects of human
resource management systems on economic performance:
an international comparison of U.S. and Japanese plants’,
Management Science, 45 (5): 704–72.
• Kramer, R. and Syed, J. (2012) Human Resource
Management in Global Context. London: Palgrave.
26
References
• La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.
(2002) ‘Investor protection and corporate valuation’, The
Journal of Finance, 57 (3): 1147–70.
• McDuffie, J.P. (1995) ‘Human resource bundles and
manufacturing performance: organizational logic and flexible
production systems in the world auto industry’, Industrial and
Labor Relations Review, 48 (2): 197–221.
• Mello, J.A. (2006) Strategic Management of Human Resources,
3rd edn. Cincinnati, OH: South Western Cengage Learning.
• Miles, R.E. and Snow, C.C. (1984) ‘Designing strategic human
resources systems’, Organizational Dynamics, 13 (1): 36–52.
• Miles, R.E., Snow, C.C., Meyer, A.D. and Coleman, Jr. H.J.
(1978) ‘Organizational strategy, structure and process’, The
Academy of Management Review, 3 (3): 546–62.
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References
• Porter, M.E. (1998) Competitive Advantage, Creating and
Sustaining Superior Performance. New York: The Free
Press.
• Purcell, J. (2001) ‘The meaning of strategy in human
resource management’, in J. Storey (ed.), Human Resource
Management: A Critical Text, 2nd edn. Thomson Learning,
p. 59.
• Purcell, J. (2003) Understanding the People and
Performance Link, Unlocking the Black Box. London:
Chartered Institute of Personnel and Development.
• Redman, T. and Wilkinson, A. (2001) Contemporary Human
Resource Management Text and Cases. London: Financial
Times/Prentice Hall.
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References
• Storey, J. (2007) Human Resource Management A Critical
Text, 3rd edition. London: Thomson.
• Truss, C., Gratton, L., Hope-Hailey, W., McGovern, P. and
Stiles, P. (1997) ‘Soft and hard models of HRM – a
reappraisal’, Journal of Management Studies, 34 (1): 53–73.
• Way, S.A. (2002) ‘High performance work systems and
intermediate indicators of firm performance within the US
small business sector’, Journal of Management, 28 (6):
765–85.
• Wood, G. and Lane, C. (2012) ‘Institutions, change and
diversity’, in C. Lane and G. Wood (eds), Capitalist Diversity
and Diversity within Capitalism. London: Routledge, pp. 1–
31.
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Further reading

• Key readings on the relationship between setting and specific

HR strategies include:
– Dore, R. (2000) Stock Market Capitalism: Welfare
Capitalism. Cambridge: Cambridge University Press.
– Hall, P. and Soskice, D. (eds) (2001) Varieties of
Capitalism: The Institutional Basis of Competitive
Advantage. Oxford: Oxford University Press.
– There is a very extensive literature on agency theory. A
good place to start will be the works of Michael Jensen:
– Jensen, M. (1993) ‘The modern Industrial Revolution, exit,
and the failure of internal control systems’, Journal of
Finance, 48: 831–80.
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Further reading

• In looking at existing research on both HR strategies in theory

and practice, a good place to start is the Emerald stable of
journals. These are available online at many universities and
they have an excellent keyword search facility.
• In looking at examples of HR strategies in practice, a good
place to start will be quality newspapers (e.g. The Guardian at
www.guardian.co.uk, The Independent at
www.independent.co.uk and the Financial Times at
www.ft.com). Their archives are easily searchable online, and
one can gain good evidence on the HR practices of major firms
(e.g. Walmart, McDonalds, Apple). More detailed articles can be
found in practitioner-orientated journals such as Management
Today and through the CIPD website.
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