human resource management

human resource management
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3 01 The essence of human resource management (HRM) Key Con Ce Pts and terms Added value Humanism Agency theory Institutional theory AMO theory Matching model of HRM Commitment Motivation Contextual model of HRM Organizational behaviour theory Contingency theory Organizational capability European model of HRM Resource-based theory 5-P model of HRM Resource dependence theory Hard HRM Soft HRM Harvard framework Strategic alignment HR philosophy Strategic human resource management Human capital theory (SHRM) Human relations Transaction costs theory Human resource management (HRM) Unitarist Learn Ing out Comes On completing this chapter you should be able to define these key concepts. You should also know about: ● The fundamental concept of HRM and ● The underpinning theories how it developed ● The reservations made about HRM ● The meaning of HRM ● Models of HRM ● The goals of HRM ● The position of HRM today ● The philosophy of HRM4 Part 1 The Practice of Human Resource Management that human factors are paramount in the study of Introduction – the HRM organi zational behaviour and that people should be treated as responsible and progressive beings. concept An early reference to human resources was made by Bakke (1966). Later, Armstrong (1977: 13) Human resource management (HRM) is concerned observed that in an enterprise ‘the key resource with all aspects of how people are employed and is people’. But HRM did not emerge in a fully managed in organizations. It covers the activities of fledged form until the 1980s through what might strategic HRM, human capital management, know- be called its founding fathers. These were the US ledge management, corporate social responsibility, academics Charles Fombrun and his colleagues organization development, resourcing (workforce in the ‘matching model’, and Michael Beer and his planning, recruitment and selection and talent manag-e colleagues in the ‘Harvard framework’ as described ment), learning and development, performance and on page 9. reward management, employee relations, employee In the UK they were followed by a number of com- well-being and the provision of employee services. mentators who developed, explained and frequently It also has an international dimension. As described criticized the concept of human resource manage- in Chapter 3, HRM is delivered through the HR ment. Legge (2005: 101) commented that: ‘The term architecture of systems and structures, the HR func- HRM was taken up by both UK managers (for tion and, importantly, line management. example, Armstrong, 1987; Fowler, 1987) and UK The practice of referring to people as resources academics’. Hendry and Pettigrew (1990: 18) stated as if they were any other factor of production is often that HRM was ‘heavily normative from the start: criticised. Osterby and Coster (1992: 31) argued that: it provided a diagnosis and proposed solutions’. ‘The term “human resources” reduces people to the They also mentioned that: ‘What HRM did at this same category of value as materials, money and tech - point was to provide a label to wrap around some nology – all resources, and resources are only valu- of the observable changes, while providing a focus able to the extent they can be exploited or leveraged for challenging deficiencies – in attitudes, scope, into economic value.’ People management is some- coherence, and direction – of existing personnel times preferred as an alternative, but in spite of its management’ (ibid: 20). Armstrong (1987: 31) argued connotations, HRM is most commonly used. that: HRM is regarded by some personnel managers as just a set of initials or old wine in new bottles. The development of the HRM It could indeed be no more and no less than concept another name for personnel management, but as usually perceived, at least it has the virtue of The term HRM has largely taken over that of emphasising the virtue of treating people as ‘personnel management’, which took over that a key resource, the management of which is the of ‘labour management’ in the 1940s, which took direct concern of top management as part of the over that of ‘welfare’ in the 1920s (the latter process strategic planning processes of the enterprise. emerged in the munitions factories of the First Although there is nothing new in the idea, World War). HRM largely replaced the human insufficient attention has been paid to it in relations approach to managing people founded many organizations. by Elton Mayo (1933) who based his beliefs on the outcome of the research project conducted in the However, commentators such as Guest (1987) and Storey (1995) regarded HRM as a substantially dif- 1920s known as the Hawthorne studies. Members of this school believed that productivity was directly ferent model built on unitarism (employees share the same interests as employers), individualism, high related to job satisfaction and that the output of people would be high if someone they respected commitment and strategic alignment (integrating HR strategy with the business strategy). It was also took an interest in them. HRM also shifted the emphasis away from humanism – the belief held by claimed that HRM was more holistic than tradi- tional personnel management and that, importantly, writers such as Likert (1961) and McGregor (1960) Chapter 1 The Essence of HRM 5 it emphasized the notion that people should be original concept can lead us to believe. This is regarded as assets rather than variable costs. illustrated by the various models summarized in this section which provide further insights into the nature of HRM. The chapter ends with an assess- ment of where the concept of HRM has got to The conceptual framework of HRM now. Following this analysis the next two chapters HRM as conceived in the 1980s had a conceptual explain how in general terms HRM is planned framework consisting of a philosophy underpinned through the processes of strategic HRM and deliv- by a number of theories drawn from the behavioural ered through the HR architecture and system, the sciences and from the fields of strategic manage- HR function and its members, and, importantly, ment, human capital and industrial relations. The line managers. HRM philosophy has been heavily criticized by academics as being managerialist and manipulative but this criticism has subsided, perhaps because it became increasingly evident that the term HRM HRM defined had been adopted as a synonym for what used to be called personnel management. As noted by Storey Human resource management can be defined as (2007: 6): ‘In its generic broad and popular sense a strategic, integrated and coherent approach to it HRM simply refers to any system of people the employment, development and well-being of the management.’ people working in organizations. It was defined by Boxall and Purcell (2003: 1) as ‘all those activities associated with the management of employment HRM practice today relationships in the firm’. A later comprehensive definition was offered by Watson (2010: 919): HRM practice is no longer governed by the original philosophy – if it ever was. It is simply what HR HRM is the managerial utilisation of the efforts, people and line managers do. Few references are knowledge, capabilities and committed behaviours which people contribute to an authoritatively made to the HRM conceptual framework. This is co-ordinated human enterprise as part of an a pity – an appreciation of the goals, philosophy employment exchange (or more temporary and underpinning theories of HRM and the various contractual arrangement) to carry out work tasks HRM models provides a sound basis for under - in a way which enables the enterprise to continue standing and developing HR practice. But account into the future. needs to be taken of the limitations of that philo- sophy as expressed by the critics of HRM set out later in this chapter. The goals of HRM The goals of HRM are to: Aim of this chapter ● support the organization in achieving its The aim of this chapter is to remedy this situation. objectives by developing and implementing It starts with a selection of definitions (there have human resource (HR) strategies that are been many) and elaborates on these by examining integrated with the business strategy HRM goals. Because the original concept of HRM (strategic HRM); is best understood in terms of its philosophy and ● contribute to the development of underpinning theories these are dealt with in the a high-performance culture; next two sections. Reference is then made to the ● ensure that the organization has the talented, reservations made about HRM but it is noted that skilled and engaged people it needs; while these need to be understood, much of what HRM originally set out to do is still valid. However, ● create a positive employment relationship between management and employees and as explained in the next section of the chapter, HRM is more diverse than interpretations of the a climate of mutual trust;6 Part 1 The Practice of Human Resource Management ● encourage the application of an ethical therefore HR policies should be integrated into the approach to people management. business strategy. An earlier list of HR goals was made by Dyer and Holder (1988: 22–28) who analysed them under the headings of contribution (what kind of em- underpinning theories of ployee behaviour is expected?), composition (what headcount, staffing ratio and skill mix?), com- HRM petence (what general level of ability is desired?) and commitment (what level of employee attachment The original notion of HRM had a strong theore- and identification?). Guest (1987) suggested that tical base. Guest (1987: 505) commented that: the four goals of HRM were strategic integration, ‘Human resource management appears to lean high commitment, high quality and flexibility. heavily on theories of commitment and motivation And Boxall (2007: 63) proposed that ‘the mission of and other ideas derived from the field of organ- HRM is to support the viability of the firm through izational behaviour.’ A number of other theories, stabilizing a cost-effective and socially legitimate especially the resource-based view, have contributed system of labour management’. to the understanding of purpose and meaning of HRM. These theories are summarized below. The philosophy of human Commitment The significance in HRM theory of organizational resource management commitment (the strength of an individual’s identi- c fi ation with, and involvement in, a particular organ- Doubts were expressed by Noon (1992) as to ization) was highlighted in a seminalH arvard Business whether HRM was a map, a model or a theory . Review article by Richard Walton (1985). But it is evident that the original concept could be interpreted as a philosophy for managing people in that it contained a number of general principles and beliefs as to how that should be done. The Source review following explanation of HRM philosophy was made by Legge (1989: 25) whose analysis of a From control to commitment – number of HRM models identified the following common themes: Walton (1985: 77) That human resource policies should be Workers respond best – and most creatively – not integrated with strategic business planning when they are tightly controlled by management, and used to reinforce an appropriate (or change placed in narrowly defined jobs and treated as an inappropriate) organizational culture, that an unwelcome necessity, but, instead, when they human resources are valuable and a source of are given broader responsibilities, encouraged to competitive advantage, that they may be tapped contribute and helped to take satisfaction in their most effectively by mutually consistent policies work. It should come as no surprise that eliciting that promote commitment and which, as a commitment – and providing the environment in consequence, foster a willingness in employees which it can flourish – pays tangible dividends for to act flexibly in the interests of the ‘adaptive organization’s’ pursuit of excellence. the individual and for the company. Storey (2001: 7) noted that the beliefs of HRM included the assumptions that it is the human resource that gives competitive edge, that the aim The traditional concept of organizational commit- should be to enhance employee commitment, that ment resembles the more recent notion of organiza- HR decisions are of strategic importance and that tional engagement (see Chapter 15).Chapter 1 The Essence of HRM 7 Motivation Institutional theory Motivation theory explains the factors that affect Organizations conform to internal and external goal-directed behaviour and therefore influences environmental pressures in order to gain legitimacy the approaches used in HRM to enhance engage- and acceptance. ment (the situation in which people are committed to their work and the organization and are moti- vated to achieve high levels of performance). Human capital theory Human capital theory is concerned with how people in an organization contribute their knowledge, skills The resource-based view and abilities to enhancing organizational capability Resource-based theory expressed as ‘the resource- and the significance of that contribution. based view’ states that competitive advantage is achieved if a firm’s resources are valuable, rare and costly to imitate. It is claimed that HRM can play Resource dependence theory a major part in ensuring that the firm’s human Resource dependence theory states that groups resources meet these criteria. and organizations gain power over each other by controlling valued resources. HRM activities are assumed to reflect the distribution of power in the Organizational behaviour theory system. Organizational behaviour theory describes how people within their organizations act individually or in groups and how organizations function in AMO theory terms of their structure, processes and culture. It The ‘AMO’ formula as set out by Boxall and Purcell therefore influences HRM approaches to organiza- (2003) states that performance is a function of tion design and development and enhancing organ- Ability + Motivation + Opportunity to Participate. izational capability (the capacity of an organization HRM practices therefore impact on individual to function effectively in order to achieve desired performance if they encourage discretionary effort, results). develop skills and provide people with the oppor - tunity to perform. The formula provides the basis for developing HR systems that attend to employees’ Contingency theory interests, namely their skill requirements, motiva- Contingency theory states that HRM practices are tions and the quality of their job. dependent on the organization’s environment and circumstances. This means that, as Paauwe (2004: 36) explained: ‘The relationship between the rele- Social exchange theory vant independent variables (eg HRM policies and Employees will reciprocate their contribution to practices) and the dependent variable (perform- the organization if they perceive that the organ- ance) will vary according to the influences such as ization has treated them well. company size, age and technology, capital intensity, degree of unionization, industry/sector ownership and location.’ Transaction costs theory Contingency theory is associated with the notion of fit – the need to achieve congruence between an Transaction costs economics assumes that businesses organization’s HR strategies, policies and practices develop organizational structures and systems that and its business strategies within the context of its economize the costs of the transactions (interrelated external and internal environment. This is a key exchange activities) that take place during the course concept in strategic HRM. of their operations.8 Part 1 The Practice of Human Resource Management together) is questionable. Fowler (1987: 3) Agency theory commented that: ‘At the heart of the concept Agency theory states that the role of the managers is the complete identification of employees of a business is to act on behalf of the owners of the with the aims and values of the business – business as their agents. But there is a separation employee involvement but on the company’s between the owners (the principals) and the agents terms. Power in the HRM system remains (the managers) and the principals may not have very firmly in the hands of the employer. Is it complete control over their agents. The latter may really possible to claim full mutuality when therefore act in ways that are against the interests of at the end of the day the employer can decide those principals. Agency theory indicates that it is unilaterally to close the company or sell it to desirable to operate a system of incentives for someone else?’ Later, Ramsey et al (2000: agents, ie directors or managers, to motivate and 521) questioned the unitarist assumption reward acceptable behaviour. underlying much mainstream management theory that claims that everyone benefits from managerial innovation. ● HRM is ‘macho-management dressed up as Reservations about the benevolent paternalism’ Legge (1998: 42). original concept of HRM ● HRM is manipulative. Willmott (1993: 534) asserted that: ‘any (corporate) practice/value On the face of it, the original concept of HRM as is as good as any other so long as it secures described above had much to offer, at least to man- the compliance of employees’. HRM was agement. But for some time, HRM was a controver- dubbed by the Labour Research Department sial topic, especially in academic circles. The main (1989: 8) as ‘human resource manipulation’. reservations as set out below have been that HRM John Storey (2007: 4) referred to ‘the promises more than it delivers and that its morality potential manipulative nature of seeking is suspect: to shape human behaviour at work’. ● HRM is managerialist. ‘The analysis of ● Guest (1991: 149) referred to the ‘optimistic employment management has become but ambiguous label of human resource increasingly myopic and progressively more management’. irrelevant to the daily experience of being ● HRM ‘remains an uncertain and imprecise employed. While the reasons for this notion’ Noon (1992: 16). development are immensely complex... it is ● ‘The HRM rhetoric presents it as an all or primarily a consequence of the adoption of nothing process which is ideal for any the managerialist conception of the discourse organization, despite the evidence that different of HRM’ (Delbridge and Keenoy, 2010: 813). business environments require different ● HRM overemphasizes business needs. approaches’. (Armstrong, 2000: 577) Keegan and Francis (2010) have rightly ● HRM is simplistic – as Fowler (1987: 3) wrote: criticized the increasing focus on the business ‘The HRM message to top management tends partnership role of HR at the expense of its to be beguilingly simple. Don’t bother too function as an employee champion. An much about the content or techniques of illustration of this is provided by the personnel management, it says. Just manage Professional Map produced by the British the context. Get out from behind your desk, Chartered Institute of Personnel and bypass the hierarchy, and go and talk to Development (CIPD), which as stated by the people. That way you will unlock an enormous CIPD (2013: 2): ‘Sets out standards for HR potential for improved performance.’ professionals around the world: the activities, knowledge and behaviours needed ● The unitarist approach to industrial relations implicit in HRM (the belief that management for success.’ The map refers to ‘business’ 82 times but to ‘ethics’ only once and ‘ethical’ and employees share the same concerns and it is therefore in both their interests to work only twice.Chapter 1 The Essence of HRM 9 These concerns merit attention, but the more im- proposition that: ‘Human resource management portant messages conveyed by the original notion (HRM) involves all management decisions and of HRM such as the need for strategic integration, actions that affect the nature of the relationship be- the treatment of employees as assets rather than tween the organization and employees – its human costs, the desirability of gaining commitment, the resources’ (ibid: 1). They believed that: ‘Today... many virtues of partnership and participation and the key pressures are demanding a broader, more compre- role of line managers are still valid and are now hensive and more strategic perspective with regard generally accepted, and the underpinning theories to the organization’s human resources’ (ibid: 4). They are as relevant today as they ever were. also stressed that it was necessary to adopt ‘a longer- And it should be remembered that these objec- term perspective in managing people and consider - tions, with the exception of the last one, mainly ation of people as a potential asset rather than merely apply to the original concept of HRM. But today, as a variable cost’ (ibid: 6). Beer and his colleagues were explained in the final section of this chapter, HRM the first to underline the HRM tenet that it belongs in action does not necessarily conform to this con- to line managers. They suggested that HRM had cept as a whole. The practice of HRM is diverse. two characteristic features: 1) line managers accept Dyer and Holder (1988) pointed out that HRM more responsibility for ensuring the alignment of goals vary according to competitive choices, tech- competitive strategy and HR policies; 2) HR has nologies, characteristics of employees (eg could be the mission of setting policies that govern how HR different for managers) and the state of the labour activities are developed and implemented in ways market. Boxall (2007: 48) referred to ‘the profound that make them more mutually reinforcing. diversity’ of HRM and observed that: ‘Human re- source management covers a vast array of activities and shows a huge range of variations across occu- Contextual model of HRM pations, organizational levels, business units, firms, The contextual model of HRM emphasizes the industries and societies.’ There are in fact a number importance of environmental factors by including of different models of HRM as described below. variables such as the influence of social, institu- tional and political forces that have been under - estimated in other models. The latter, at best, Models of HRM consider the context as a contingency variable. The contextual approach is broader, integrating The most familiar models defining what HRM is the human resource management system in the and how it operates are as follows. environment in which it is developed. According to Martin-Alcázar et al (2005: 638): ‘Context both conditions and is conditioned by the HRM strat- The matching model of HRM egy.’ A broader set of stakeholders is involved in the formulation and implementation of human Fombrun et al (1984) proposed the ‘matching resource strategies that is referred to by Schuler model’, which indicated that HR systems and the and Jackson (2000: 229) as a ‘multiple stakeholder organization structure should be managed in a way framework’. These stakeholders may be external that is congruent with organizational strategy. This point was made in their classic statement that: ‘The as well as internal and both influence and are influ- enced by strategic decisions critical management task is to align the formal structure and human resource systems so that they drive the strategic objectives of the organization’ (ibid: 37). Thus they took the first steps towards the The 5-P model of HRM concept of strategic HRM. As formulated by Schuler (1992) the 5-P model of HRM describes how HRM operates under the five headings of: The Harvard model of HRM Beer et al (1984) produced what has become known 1 HR philosophy – a statement of how the as the ‘Harvard framework’. They started with the organization regards its human resources, 10 Part 1 The Practice of Human Resource Management the role they play in the overall success of ● multicultural organizations; the business, and how they should be treated ● participation in decision-making; and managed. ● continuous learning. 2 HR policies – these provide guidelines for action on people-related business issues and for the development of HR programmes and The hard and soft HRM models practices based on strategic needs. Storey (1989: 8) distinguished between the ‘hard’ 3 HR programmes – these are shaped by HR and ‘soft’ versions of HRM. He wrote that: ‘The policies and consist of coordinated HR hard one emphasises the quantitative, calculative efforts intended to initiate and manage and business-strategic aspects of managing human organizational change efforts prompted by resources in as “rational” a way as for any other strategic business needs. economic factor. By contrast, the soft version traces 4 HR practices – these are the activities its roots to the human-relations school; it empha- carried out in implementing HR policies sizes communication, motivation and leadership.’ and programmes. They include resourcing, However, it was pointed out by Keenoy (1997: learning and development, performance and 838) that ‘hard and soft HRM are complementary reward management, employee relations and rather than mutually exclusive practices’. Research administration. in eight UK organizations by Truss et al (1997) indi- cated that the distinction between hard and soft 5 HR processes – these are the formal HRM was not as precise as some commentators procedures and methods used to put HR have implied. Their conclusions were as follows. strategic plans and policies into effect. European model of HRM Brewster (1993) described a European model of Source review HRM as follows: ● environment – established legal framework; Conclusions on hard and soft models of ● objectives – organizational objectives and HRM – Truss et al (1997: 70) social concern – people as a key resource; Even if the rhetoric of HRM is ‘soft’, the reality is ● focus – cost/benefits analysis, also almost always ‘hard’, with the interests of the environment; organization prevailing over those of the individual. ● relationship with employees – union and In all the organizations, we found a mixture of both non-union; hard and soft approaches. The precise ingredients ● relationship with line managers – specialist/ of this mixture were unique to each organization, line liaison; which implies that factors such as the external and ● role of HR specialist – specialist managers – internal environment of the organization, its ambiguity, tolerance, flexibility. strategy, culture and structure all have a vital role to play in the way in which HRM operates. The main distinction between this model and what Brewster referred to as ‘the prescribed model’ was that the latter involves deregulation (no legal frame- work), no trade unions and a focus on organizational objectives but not on social concern. As set out by Mabey et al (1998: 107) the char- HRM today acteristics of the European model are: ● dialogue between social partners; As a description of people management activities ● emphasis on social responsibility; in organizations the term HRM is here to stay, Chapter 1 The Essence of HRM 11 even if it is applied diversely or only used as a label to describe traditional personnel management Source review practices. Emphasis is now placed on the need for HR to be strategic and businesslike and to add The meaning of HRM – Boxall et al value, ie to generate extra value (benefit to the busi- (2007: 1) ness) by the expenditure of effort, time and money on HRM activities. There have been plenty of new Human resource management (HRM), the interests, concepts and developments, including management of work and people towards desired human capital management, engagement, talent ends, is a fundamental activity in any organization management, competency-based HRM, e-HRM, in which human beings are employed. It is not high performance work systems, and performance something whose existence needs to be radically and reward management. But these have not been justified: HRM is an inevitable consequence of introduced under the banner of the HRM concept starting and growing an organization. While there as originally defined. are a myriad of variations in the ideologies, styles, HRM has largely become something that organ- and managerial resources engaged, HRM happens izations do rather than an aspiration or a philoso- in some form or other. It is one thing to question the phy and the term is generally in use as a way of relative performance of particular models of HRM describing the process of managing people. A con- in particular contexts... It is quite another thing to vincing summary of what HRM means today, which focuses on what HRM is rather than on its philoso- question the necessity of the HRM process itself, phy, was provided by Peter Boxall, John Purcell and as if organizations cannot survive or grow without Patrick Wright (2007), representing the new genera- making a reasonable attempt at organizing work tion of commentators. and managing people. Key learning points: The essence of human resource management management and employees and a climate of HRM defined mutual trust; Human resource management (HRM) is concerned ● encourage the application of an ethical approach with all aspects of how people are employed and to people management. managed in organizations. Philosophy of HRM Goals of HRM The beliefs of HRM included the assumptions that The goals of HRM are to: it is the human resource that gives competitive ● support the organization in achieving its edge, that the aim should be to enhance employee objectives by developing and implementing commitment, that HR decisions are of strategic human resource (HR) strategies that are importance and that therefore HR policies should be integrated with the business strategy integrated into the business strategy (Storey, 2001: 7). (strategic HRM); ● contribute to the development of a high- Underpinning theories performance culture; ‘Human resource management appears to lean ● ensure that the organization has the talented, heavily on theories of commitment and motivation skilled and engaged people it needs; create and other ideas derived from the field of a positive employment relationship between organizational behaviour’ (Guest, 1987: 505).12 Part 1 The Practice of Human Resource Management been expressed about it. There may be something in The diversity of HRM these criticisms, but the fact remains that as a Many HRM models exist, and practices within different description of people management activities in organizations are diverse, often only corresponding organizations HRM is here to stay, even if it is applied to the conceptual version of HRM in a few respects. diversely or only used as a label to describe traditional personnel management practices. Reservations about HRM On the face of it, the concept of HRM has much to offer, at least to management. But reservations have Questions 1 What is HRM? 6 What is the essence of the philosophy of HRM? 2 What was the main message of the Harvard framework? 7 What is resource-based theory? 8 What is the significance of contingency theory? 3 What was the main message of the matching model? 9 What are the key reservations made by commentators about the early version of 4 What are the goals of HRM? HRM? 5 What is the difference between hard and soft 10 What is the position of HRM today? HRM? 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You should also understand: ● The conceptual basis of strategic HRM ● The fundamental characteristics of strategy ● How strategy is formulated ● The aims of strategic HRM ● The resource-based view and its implications ● The meaning of strategic fit ● The three HRM ‘perspectives’ of Delery and Doty ● The significance of bundling ● The significance of the concepts of ‘best practice’ and ‘best fit’ ● The significant features of strategic HRM ● The content and formulation of HR strategies16 Part 1 The Practice of Human Resource Management Introduction The conceptual basis of strategic HRM Strategic human resource management (strategic HRM or SHRM) is an approach to the develop- Strategic HRM takes the notion of HRM as a stra- ment and implementation of HR strategies that are tegic, integrated and coherent process and associates integrated with business strategies and support their it with an approach to management that involves achievement. SHRM has been described by Boxall adopting a broad and long-term view of where the (1996) as the interface between HRM and strategic business is going and managing it in ways that ensure management. Schuler and Jackson (2007: 5) stated that this strategic thrust is maintained. It is influ- that SHRM is fundamentally about ‘systematically enced by the concepts of strategic management and linking people with the firm’. strategy. Baird and Meshoulam (1988: 116) pointed out that: ‘Business objectives are accomplished when human resource practices, procedures and systems Strategic management are developed and implemented based on organiza- According to Boxall and Purcell (2003: 44): ‘Strategic tional needs, that is, when a strategic perspective to management is best defined as a process. It is a human resource management is adopted.’ Wright process of strategy making, of forming and, if the and McMahan (1992: 295) explained that the field r fi m survives, reforming its strategy over time.’ of HRM has ‘sought to become integrated with the Strategic management was described by Johnson strategic management process through the develop- et al (2005: 6) as ‘understanding the strategic position ment of a new discipline referred to as strategic of an organization, making strategic choices for the human resource management’. future, and turning strategy into action’. The purpose In essence, strategic HRM is conceptual; it is of strategic management has been expressed by a general notion of how integration or ‘fit’ between Kanter (1984: 288) as being to ‘elicit the present HR and business strategies is achieved, the benefits actions for the future’ and become ‘action vehicles of taking a longer-term view of where HR should be – integrating and institutionalizing mechanisms for going and how to get there, and how coherent and change’ (ibid: 301). mutually supporting HR strategies should be devel- The key strategic management activity identified oped and implemented. Importantly, it is also about by Thompson and Strickland (1996: 3) is ‘deciding how members of the HR function should adopt what business the company will be in and forming a strategic approach on a day-to-day basis. This a strategic vision of where the organization needs to means that they operate as part of the management be headed – in effect, infusing the organization with team, ensure that HR activities support the achieve- a sense of purpose, providing long-term direction, ment of business strategies on a continuous basis and establishing a clear mission to be accomplished.’ and add value. The focus is on identifying the organization’s mis- The aim of this chapter is to explore what this sion and strategies, but attention is also given to the involves. It starts with an analysis of the meaning resource base required to make it succeed. Managers of SHRM. It then covers: an examination of its who think strategically will have a broad and long- nature and its aims; an analysis of its underpinning term view of where they are going. But they will also concepts – the resource-based view and strategic be aware that they are responsible, r fi st, for planning fit. This is followed by a description of how strate- how to allocate resources to opportunities that con- gic HRM works, namely the universalistic, con- tribute to the implementation of strategy, and second, tingency and configurational perspectives defined for managing these opportunities in ways that will by Delery and Doty (1996) and the three approaches add value to the results achieved by the r fi m. associated with those perspectives – best practice, best fit and bundling. The chapter continues with a summary of the distinctive features of strategic The concept of strategy HRM and ends with an examination of how HR strategies are developed and implemented when an Strategy is the approach selected to achieve specie fi d SHRM approach is adopted. goals in the future. As defined by Chandler (1962: Chapter 2 Strategic HRM 17 13) it is: ‘The determination of the long-term goals Critical evaluation of the concept and objectives of an enterprise, and the adoption of strategy of courses of action and the allocation of resources necessary for carrying out those goals.’ The for- The development of corporate strategy is often mulation and implementation of corporate strategy assumed to be a logical, step-by-step affair, the out- is a process for developing a sense of direction, come of which is a formal written statement that making the best use of resources and ensuring provides a definitive guide to the organization’s strategic fit. intentions. Many people still believe and act as if Strategy has three fundamental characteristics. this were the case, but it is a misrepresentation of First, it is forward looking. It is about deciding reality. In practice, the formulation of strategy may where you want to go and how you mean to get not be as rational and linear a process as some writers there. It is concerned with both ends and means. describe it or as some managers attempt to make it. In this sense a strategy is a declaration of intent: There are limitations to the totally logical model of ‘This is what we want to do and this is how we management that underpins the concept of strategic intend to do it.’ Strategies define longer-term goals human resource management. In the words of but they also cover how those goals will be attained. Mabey et al (1998: 74): ‘The reality is... that strate- They guide purposeful action to deliver the required gies may not always be easy to discern, that the result. A good strategy is one that works, one that processes of decision-making may be implicit, incre- in Abell’s (1993: 1) phrase enables organizations to mental, negotiated and compromised.’ adapt by ‘mastering the present and pre-empting the Sparrow et al (2010: 4) asserted succinctly that: future’. As Boxall (1996: 70) explained: ‘Strategy ‘Strategy is not rational and never has been.’ should be understood as a framework of critical Strategy formulation can best be described as ‘prob - ends and means.’ lem solving in unstructured situations’ (Digman, The second characteristic of strategy is the recog- 1990: 53) and strategies will always be formed nition that the organizational capability of a firm under conditions of partial ignorance. Quinn (1980: (its capacity to function effectively) depends on its 9) stated that a strategy may simply be ‘a widely resource capability (the quality and quantity of held understanding resulting from a stream of deci- its resources and their potential to deliver results). sions’. He believed that strategy formulation takes This is the resource-based view as described later place by means of ‘logical incrementalism’, ie it in this chapter. evolves in several steps rather than being conceived The third characteristic of strategy is that it aims as a whole. Pettigrew and Whipp (1991: 26) observed to achieve strategic fit – the need when developing that: ‘strategy does not move forward in a direct functional strategies such as HR to achieve congru- linear way, nor through easily discernable sequen- ence between them and the organization’s business tial phases. Quite the reverse; the pattern is much strategies within the context of its external and more appropriately seen as continuous, iterative internal environment. and uncertain.’ Another difficulty is that strategies are often based on the questionable assumption that the future Implementation of strategy will resemble the past. Some years ago, Heller ‘Implementation entails converting the strategic (1972: 150) had a go at the cult of long-range plan- plan into action and then into results’ (Thompson ning: ‘What goes wrong’ he wrote, ‘is that sensible and Strickland, 1996: 20). Dreaming up a strategy anticipation gets converted into foolish numbers: is fairly easy; getting it to work is hard. Kanter and their validity always hinges on large loose (1984: 305) noted that: ‘Many companies, even assumptions.’ Faulkner and Johnson (1992: 17–18) very sophisticated ones, are much better at generating said of long-term planning that it: impressive plans on paper than they are at getting was inclined to take a definitive view of the future, “ownership” of the plans so that they actually guide and to extrapolate trend lines for the key business operational decisions.’ variables in order to arrive at this view. Economic turbulence was insufficiently considered, and the reality that much strategy is formulated and 18 Part 1 The Practice of Human Resource Management implemented in the act of managing the enterprise by means of HR strategies and integrated HR was ignored. Precise forecasts ending with derived policies and practices. It was defined by Mabey et al financials were constructed, the only weakness of (1998: 25) as the process of ‘developing corporate which was that the future almost invariably turned capability to deliver new organizational strategies’. out differently. It is based on two key ideas, namely the resource- based view and the need for strategic t fi , as discussed Strategy formulation is not necessarily a deterministic, later in this chapter. rational and continuous process, as was emphasized SHRM can be regarded as a mindset under - by Mintzberg (1987). He noted that, rather than pinned by certain concepts rather than a set of being consciously and systematically developed, techniques. It provides the foundation for strategic strategy reorientation happens in what he calls brief reviews in which analyses of the organizational ‘quantum loops’. A strategy, according to Mintzberg, context and existing HR practices lead to decisions can be deliberate – it can realize the intentions of on strategic plans for the development of overall or senior management, for example to attack and specific HR strategies. SHRM involves the exercise conquer a new market. But this is not always the of strategic choice (which is always there) and the case. In theory, he says, strategy is a systematic establishment of strategic priorities. It is essentially process: first we think, then we act; we formulate about the integration of business and HR strategies then we implement. But we also ‘act in order to so that the latter contribute to the achievement of think’. In practice, ‘a realized strategy can emerge in the former. response to an evolving situation’ (ibid: 68) and the Strategic HRM is not just about strategic strategic planner is often ‘a pattern organizer, a planning, nor does it only deal with the formulation learner if you like, who manages a process in which of individual HR strategies. Its main concern is with strategies and visions can emerge as well as be integrating what HR does and plans to do with deliberately conceived’ (ibid: 73). This concept of what the business does and plans to do. As ‘emergent strategy’ conveys the essence of how in modelled in Figure 2.1, SHRM is about both HR practice organizations develop their business and strategies and the strategic management activities of HR strategies. HR professionals. Boxall and Purcell (2003: 34) suggested that ‘it is better if we understand the strategies of firms as sets of strategic choices some of which may stem from planning exercises and set-piece debates in senior Aims of SHRM management, and some of which may emerge in a stream of action’. Research conducted by Tyson The fundamental aim of strategic HRM is to gene- r (1997: 280) confirmed that, realistically, strategy: ate organizational capability by ensuring that the organization has the skilled, engaged, committed ● has always been emergent and flexible – it is and well-motivated employees it needs to achieve always ‘about to be’, it never exists at the sustained competitive advantage. Alvesson (2009: present time; 52) wrote that strategic HRM is about ‘how the ● is not only realized by formal statements but employment relationships for all employees can be also comes about by actions and reactions; managed in such a way as to contribute optimally ● is a description of a future-oriented action to the organization’s goal achievement’. that is always directed towards change; SHRM has three main objectives: first to achieve ● is conditioned by the management process integration – the vertical alignment of HR strategies itself. with business strategies and the horizontal integra- tion of HR strategies. The second objective is to provide a sense of direction in an often turbulent environment so that the business needs of the The nature of strategic HRM organization and the individual and the collective needs of its employees can be met by the develop- Strategic HRM is an approach that defines how the ment and implementation of coherent and practical organization’s goals will be achieved through people HR policies and programmes. The third objective Chapter 2 Strategic HRM 19 FIgure 2.1 Strategic HRM model Strategic HRM HR strategies – Strategic management – overall/specific strategic role of HR Strategic choice Strategic analysis is to contribute to the formulation of business The complexity of the strategy strategy by drawing attention to ways in which the business can capitalize on the advantages provided formulation process by the strengths of its human resources. Business strategy formulation and implementation is a complex, interactive process heavily influenced by a variety of contextual and historical factors. Critical evaluation of the In these circumstances, as Guest (1991) has asked, how can there be a straightforward flow from the concept of SHRM business strategy to the HR strategy? It has been pointed out by Truss (1999: 44) that the assumption The whole concept of SHRM is predicated on the of some matching models of strategic HRM is that belief that HR strategies should be integrated with there is a simple linear relationship between busi- corporate or business strategies. Vertical integration ness strategy and human resource strategy, but this (strategic fit between business and HR strategies) assumption ‘fails to acknowledge the complexities may be desirable but it is not easy to achieve for the both between and within notions of strategy and following reasons. human resource management... It is based on a rational model of organizations and individuals which takes no account of the significance of power, Diversity of strategic processes, politics and culture.’ levels and styles The different levels at which strategy is formulated The evolutionary nature of and the different styles adopted by organizations may make it difficult to develop a coherent view of business strategy what sort of HR strategies will fit the overall strate- gies and what type of HR contributions are required The evolutionary and incremental nature of strategy during the process of formulation. making may make it difficult to pin down the HR 20 Part 1 The Practice of Human Resource Management issues that are likely to be relevant. Hendry and Conclusions Pettigrew (1990) suggest that there are limits to the The difficulties mentioned above are real, but they extent to which rational HR strategies can be drawn are frequently glossed over in rhetorical statements up if the process of business strategic planning is about the need for integration. Too often the out- itself irrational. come is a platitudinous statement such as: ‘Our HR strategy is to develop a performance culture’ or: The absence of articulated business ‘Our HR strategy is to ensure that the organization has the talented people it needs’. These are perfectly strategies laudable broad objectives but they need to be more If, because of its evolutionary nature, the business specific about how the aims will be achieved and strategy has not been clearly articulated, this would how they will support the achievement of business add to the problems of clarifying the business stra- goals. tegic issues that human resource strategies should Matching HR and business strategies is a prob- address. lematic process but this doesn’t mean that the attempt to do so should be abandoned. HR strategists must make every effort to understand the business The qualitative nature of HR model of their organization (ie a picture of an organization that explains how it achieves competitive issues advantage and makes money) and the plans for Business strategies tend, or at least aim, to be business model innovation (the process followed by expressed in the common currency of figures and an organization to develop a new business model or hard data on portfolio management, growth, com- change an existing one). They have to take into petitive position, market share, profitability, etc. account the difficulties mentioned above but they HR strategies may deal with quantia fi ble issues such need to overcome these by persistent efforts designed as resourcing and skill acquisition but are equally to obtain insight into the real issues facing the organ- likely to refer to qualitative factors such as engage- ization, leading to plans for practical interventions ment, commitment, motivation, good employee that address those issues. relations and high employment standards. The rela- tionship between the pursuit of policies in these areas and individual and organizational performance The resource-based view of may be difficult to establish. SHRM Integration with what? To a very large extent, the philosophy of SHRM is The concept of SHRM implies that HR strategies underpinned by the resource-based view. This states must be totally integrated with corporate/business that it is the range of resources in an organization, strategies in the sense that they both flow from and including its human resources, that produces its contribute to such strategies. But as Brewster (2004) unique character and creates competitive advan- argued, HR strategy will be subjected to considerable tage. The resource-based view is founded on the external pressure; for example, in Europe, legislation ideas of Penrose (1959: 24–25), who wrote that the about involvement. These may mean that HR strat- firm is ‘an administrative organization and a collec- egies cannot be entirely governed by the corporate/ tion of productive resources’ and saw resources as business strategy. ‘a bundle of potential services’. It was expanded by The question: ‘To what extent should HR strat- Wernerfelt (1984: 172), who explained that strat- egy take into account the interests of all the stake- egy ‘is a balance between the exploitation of exist- holders in the organization, employees in general as ing resources and the development of new ones’. well as owners and management?’ also needs to be Resources were defined by Hunt (1991: 322) as answered. ‘anything that has an enabling capacity’.Chapter 2 Strategic HRM 21 The concept was developed by Barney (1991: strategic goals of the business to be achieved. In 102), who stated that ‘a firm is said to have a line with human capital theory, the resource-based competitive advantage when it is implementing view emphasizes that investment in people increases a value-creating strategy not simultaneously being their value to the firm. It proposes that sustainable implemented by any current or potential competitors competitive advantage is attained when the firm has and when these other firms are unable to duplicate a human resource pool that cannot be imitated or the benefits of this strategy’. This will happen if substituted by its rivals. their resources are valuable, rare, inimitable and Boxall (1996: 66) suggested that ‘the resource- non-substitutable. He noted later (Barney 1995: 49) based view of the firm provides a conceptual basis, that an environmental analysis of strengths, weak- if we needed one, for asserting that key human nesses, opportunities and threats (SWOT analysis) resources are sources of competitive advantage’. He was only half the story: ‘A complete understanding noted that human resource advantage is achieved of sources of a firm’s competitive advantage by a combination of ‘human capital advantage’, requires the analysis of a firm’s internal strengths which results from employing people with com- and weaknesses as well.’ He emphasized that: petitively valuable knowledge and skills, and ‘human process advantage’, which follows from Creating sustained competitive advantage the establishment of ‘difficult to imitate, highly depends on the unique resources and evolved processes within the r fi m, such as cross- capabilities that a firm brings to competition in departmental cooperation and executive develop- its environment. To discover these resources and ment’. Accordingly, ‘human resource advantage’, capabilities, managers must look inside their firm the superiority of one firm’s labour management for valuable, rare and costly-to-imitate resources, over another’s, can be thought of as the product of and then exploit these resources through their its human capital and human process advantages. organization. (ibid: 60) He also observed (ibid: 66) that the strategic goal The following rationale for resource-based strategy emerging from the resource-based view was to was produced by Grant (1991: 13): ‘create firms which are more intelligent and flexible than their competitors’ by hiring and developing The resources and capabilities of a firm are the more talented staff and by extending their skills central considerations in formulating its strategy: they are the primary constants upon which a firm base. Resource-based strategy is therefore con- can establish its identity and frame its strategy, cerned with the enhancement of the human or and they are the primary sources of the firm’s intellectual capital of the firm. As Ulrich (1998: profitability. The key to a resource-based approach 126) commented: ‘Knowledge has become a direct to strategy formulation is understanding the competitive advantage for companies selling ideas relationships between resources, capabilities, and relationships. The challenge to organizations competitive advantage and profitability – in is to ensure that they have the capability to find, particular, an understanding of the mechanisms assimilate, compensate and retain the talented indi- through which competitive advantage can be viduals they need.’ sustained over time. This requires the design of The strategic goal emerging from the resource- strategies which exploit to maximum effect each based view is to create firms that are more intelli- firm’s unique characteristics. gent and flexible than their competitors (Boxall, 1996) by hiring and developing more talented staff Resource-based SHRM can produce what Boxall and by extending their skills base. Resource-based and Purcell (2003) referred to as ‘human resource strategy is therefore concerned with the enhance- advantage’. The aim is to develop strategic capabil- ment of the human or intellectual capital of the ity. This means strategic fit between resources and firm. Resource dependence theory (Pfeffer and opportunities, obtaining added value from the Davis-Blake, 1992) suggests that HR strategies such effective deployment of resources, and developing as those concerned with reward are strongly influ- managers who can think and plan strategically in enced by the need to attract, retain and energize the sense that they understand the key strategic high-quality people. issues and ensure that what they do enables the 22 Part 1 The Practice of Human Resource Management Critical evaluation of the resource- Perspectives on SHRM based view Taking into account the concepts of the resource- based view and strategic fit, Delery and Doty (1996: The resource-based view has had considerable 802) contended that ‘organizations adopting a par - influence on thinking about human resource man- ticular strategy require HR practices that are different agement. It provides a justification for attaching from those required by organizations adopting dif- importance to resourcing activities, especially those ferent strategies’ and that organizations with ‘greater concerned with talent management. It can also be congruence between their HR strategies and their used to enhance the value of the HR contribution (business) strategies should enjoy superior per- in achieving competitive advantage. But it has the formance’ (ibid: 803). They identified three HRM following limitations: perspectives: ● it may be difficult to find resources that 1 The universalistic perspective – some HR satisfy all the criteria; practices are better than others and all ● external factors such as product market organizations should adopt these best pressures are ignored; practices. There is a universal relationship ● it provides only generalized guidance on between individual ‘best’ practices and firm what resources are suitable; performance. ● different resource configurations can provide 2 The contingency perspective – to be effective the same value for firms; an organization’s HR policies must be consistent with other aspects of the ● as Priem and Butler (2001) pointed out, the organization. The primary contingency theory is tautological because valuable factor is the organization’s strategy. This resources and competitive advantage are can be described as ‘vertical fit’. defined in the same terms. 3 The configurational perspective – this is a holistic approach that emphasizes the importance of the pattern of HR practices and is concerned with how this pattern of Strategic fit independent variables is related to the dependent variable of organizational The concept of strategic fit stresses that when devel- performance. oping HR strategies it is necessary to achieve congruence between them and the organization’s This typology provided the basis for what has be - business strategies within the context of its external come the most commonly used classification of ap- and internal environment. This notion is funda- proaches, which is to adopt the terms ‘best practice’ mental to SHRM, as was stressed by Wright and and ‘best fit’ for the universalistic and contingency Snell (1998: 758) who wrote: ‘The primary role of perspectives, and ‘bundling’ as the third approach strategic HRM should be to promote a fit with the (Richardson and Thompson, 1999). This followed demands of the competitive environment.’ In more the classification made by Guest (1997) of fit as an detail, Schuler (1992: 18) stated that: ideal set of practices, fit as con tingency and fit as bundles. Strategic human resource management is largely about integration and adaptation. Its concern is to ensure that: (1) human resources (HR) The best practice model management is fully integrated with the strategy This model is based on the assumption that there and strategic needs of the firm (vertical fit); (2) HR is a set of best HRM practices that are universal in policies cohere both across policy areas and across the sense that they are best in any situation, and hierarchies (horizontal fit); and (3) HR practices are adjusted, accepted and used by line managers that adopting them will lead to superior organ- and employees as part of their everyday work. izational performance.

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