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Chapter 1

An Introduction to Strategic Human Resource Management

Pawan BudhwarandSamuel Aryee

The objectives of this chapter are to:

Summarise the developments in the field of human resource management (HRM)

Examine hat strateg! is

Highlight the groth and nature of strategic human resource management (SHRM)

Examine the lin"ages beteen organisational strateg! and HRM strateg!

Match HRM to organisational strateg!

#iscuss the main perspectives on SHRM and organisational performance$

What is HRM?

#evelopments in the field of HRM are no ell documented in the management literature

(see e$g$ %oxall& '* +egge& ',* Schuler and -ac"son& ../* Sisson and Store!& ...*

Torrington et al$& ..,)$ The roots of HRM go bac" as far as the ',.s& hen riters li"e

#ruc"er and Mc0regor stressed the need for visionar! goal1directed leadership and

management of business integration (2rmstrong& '3/)$ This as succeeded b! the

4behavioural science movement5 in the '6.s& headed b! Maslo& 2rg!ris and Her7berg$

These scholars emphasised the 4value5 aspect of human resources (HR) in organisations and

argued for a better 8ualit! of or"ing life for or"ers$ This formed the basis of the

4organisational development movement5 initiated b! %ennis in the '/.s$ The 4human

resource accounting5 (HR2) theor! developed b! 9lamholt7 ('/) as an outcome of these

se8uential developments in the field of HRM and is considered to be the origin of HRM as a

defined school of thought$ HR2 emphasised human resources as assets for an! organisation$

This 4asset5 vie began to gain support in the '3.s (Hendr! and ;ettigre& '.)$ The last

tent!1five !ears or so have then itnessed rapid developments in the field of HRM& hich

are an outcome of a number of factors such as groing competition (mainl! to


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M%2 curricula in the earl! '3.s& and a continuous emphasis on the involvement of HRM

strateg! in the business strateg!$

The debate relating to the nature of HRM continues toda! although the focus of the

debate has changed over time$ @t started b! attempting to delineate the differences beteen

4;ersonnel Management5 and 4HRM5 (see e$g$ +egge& '3* 0uest& '')& and moved on to

attempts to incorporate @ndustrial Relations into HRM (Torrington et al$& ..,)& examining

the relationship of HRM strategies& integration of HRM into business strategies and

devolvement of HRM to line managers (+engnic"1Hall and +engnic"1Hall& '3* %rester

and +arson& '* %udhar and Sparro& '/) and then the extent to hich HRM can act as

a "e! means to achieve competitive advantage in organisations (%arne!& '')$ Most of these

developments have ta"en place over the last couple of decades or so& and have precipitated

changes in the nature of the HR function from being reactive& prescriptive and administrative

to being proactive& descriptive and executive (%oxall& '* +egge& ',)$ 2t present then&

the contribution of HRM in improving a firm5s performance and in the overall success of an!

organisation (alongside other factors) is being highlighted in the literature (see e$g$ 0uest&

'/* Schuler and -ac"son& ..,* ../)$ @n relation to the last debate& three perspectives

emerge from the existing literature: universalistic& contingenc!& and configurational (>atou

and %udhar& ..6* ../)$

The 4universalistic5 perspective posits the 4best5 of HR practices& impl!ing that

business strategies and HRM policies are mutuall! independent in determining business

performance$ The 4contingenc!5 perspective emphasises the fit beteen business strateg! and

HRM policies and strategies& impl!ing that business strategies are folloed b! HRM policies

in determining business performance$ The 4configurational5 perspective posits a simultaneous

internal and external fit beteen a firm5s external environment& business strateg! and HR

strateg!& impl!ing that business strategies and HRM policies interact& according to

organisational context in determining business performance$

Activity %riefl! discuss ith !our colleagues: (') the main factors responsible for

developments in the field of HRM=SHRM* and () the main debates in the field of

HRM$


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Emergence of strategic human resource management (SHRM

The above developments in the field of HRM highlight the contribution it can ma"e toards

business success and an emphasis on HRM to become an integral part of business strateg!

(+engnic"1Hall and +engnic"1Hall& '33* %rester and +arsen& '* %amberger andMeshoulam& ...* Schuler and -ac"son& ../)$ The emergence of the term 4strategic human

resource management5 (SHRM) is an outcome of such efforts$ @t is largel! concerned ith

4integration5 of HRM into the business strateg! and 4adaptation5 of HRM at all levels of the

organisation (0uest& '3/* Schuler& ')$

What is strategy?

The origin of this concept can be traced in its militar! orientation& going bac" to the 0ree"

ord 4strategos5& for a general ho organises& leads and directs his forces to the most

advantageous position (%rac"er& '3.* +egge& ',* +und! and Aoling& '6)$ @n the orld

of business it mainl! denotes ho top management is leading the organisation in a particular

direction in order to achieve its specific goals& objectives& vision and overall purpose in the

societ! in a given context = environment$ The main emphasis of strateg! is thus to enable an

organisation to achieve competitive advantage ith its uni8ue capabilities b! focusing on

present and future direction of the organisation (also see Miller& ''* >a! 'B)$Cver the past three decades or so a lot has been ritten under the field of strategic

management about the nature& process& content and formation of organisational strateg! (see

e$g$ Mint7berg& '3/* '* Duinn et al$& '33* 2nsoff& '' ?hittington& 'B* ..')$ 2

4classical5 strategic management process consists of a series of steps& starting from

establishing a mission statement and "e! objectives for the organisation* anal!sing the

external environment (to identif! possible opportunities and threats)* conducting an internal

organisational anal!sis (to examine its strengths and ea"nesses and the nature of current

management s!stems& competencies and capabilities)* setting specific goals* examining

possible strategic choices = alternatives to achieve organisational objectives and goals*

adoption = implementation of chosen choices* and regular evaluation of all the above (see e$g$

Mello& ..6)$ The abovementioned first five steps form part of strategic planning and the last

to steps deal ith the implementation of an ideal strategic management process$ The! also

deal ith both the 4content5 (revealed b! the objectives and goals) and 4process5 (for example&

planning& structure and control) of an organisational strateg! (Aha"ravarth! and #o7& '*

+und! and Aoling& '6)$

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Hoever& in real life& it is important to note that for a variet! of reasons and pressures

(such as scarcit! of time& resources& or too much information)& top decision1ma"ers do not

follo such a 4formal and rational approach5 (also called as 4deliberate approach5) hen

formulating their organisational strateg!$ %ased on their experiences& instincts& intuition and

the limited resources available to them (along ith factors such as need for flexibilit!)&

managers adopt an 4informal and bounded rational approach5 (resulting in 4informal

incremental process5) to strateg! formation (see Duinn& '/3* Mint7berg& '/3)$ Mint7berg

('3/) sa!s that formal approach to strateg! ma"ing results in deliberation on the part of

decision1ma"ers& hich results in thin"ing before action$ Cn the other hand& the incremental

approach allos the strateg! to emerge in response to an evolving situation$ +und! and

Aoling ('6: B)& summarising Mint7berg5s thin"ing& rite that deliberate strateg!

precludes learning hile emergent strateg! fosters it but precludes control$ Effective

strategies combine deliberation and control ith flexibilit! and organisational learning$ 2

number of scholars (such as 2nsoff& '') have criticised Mint7berg5s or" as over1

prescriptive$

Activity @dentif! and anal!se the core issues (such as h!& hen and ho) related to

both 4rational5 and 4bounded rational5 approaches to strateg! formulation

The debate ith regard to the formation of organisational strateg! continues$ 9or

example& ?hittington ('B) presents four generic approaches to strateg! formation along the

to dimensions of 4processes5 and 4outcomes of strateg!5 (see 9igure '$')$ The 4x5 axis deals

!"ig# 1#1$

ith the extent to hich strateg! is formed in a rational& formal& planned and deliberate

manner & is a result of bounded rational approach or is emergent in nature$ The 4!5 axis relates

to continua of outcomes& i$e$ the extent to hich organisational strateg! focuses on profit1maximising outcomes$ The top left1hand 8uadrant represents a mix of maximum profit1

maximisation and a formal planned and deliberate approach to strateg! formation$

?hittington denotes this combination as 4classical5$ The combination in the top right1hand is

that of profit1maximisation and an emergent "ind of strateg! formation called the

4evolutionar!5 approach$ The other to combinations the emergent approach to strateg!

formation and pluralistic t!pes of outcome and deliberate process and pluralistic outcomes

are denoted as 4processual5 and 4s!stemic5 approaches respectivel!$


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"igure% 1#1 Whittington&s (1'' generic perspective on strategy

Crganisations adopting the classical approach (li"e the arm!) follo a clear& rational&

planned and deliberate process of strateg! formation and aim for maximisation of profits$ This

approach is most li"el! to be successful hen the organisation5s objectives and goals are

clear& the external environment is relativel! stable& the information about both the external and

internal environment is reliable and the decision1ma"ers are able to anal!se it thoroughl! and

ma"e highl! calculated decisions in order to adopt the best possible choice$ Strateg!

formulation is left to top managers and the implementation is carried out b! operational

managers of different departments$ This scenario demonstrates the difference beteen 4first1

order5 strateg! or decisions and 4second1order5 strateg! or decisions& here the former

represents the strateg! formation b! top managers and the latter is an implementation of the

same b! loer1level managers (for details see Miller& 'B* ;urcell '3* +egge& ',)$ @t

also represents the classic top1don approach of Ahandler ('6) here organisation

structure follos the strateg!$

The evolutionar! approach represents the other side of the strateg! formation continua

here oing to a number of reasons (such as unpredictabilit! of the d!namic business

environment) it is not possible to adopt a rational& planned and deliberate process& although

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profit1maximisation is still the focus$ @n such competitive and uncertain conditions here

managers do not feel the! are in command& onl! the best can survive (survival of the fittest or

being at the correct place at right time)$ The "e! to success thus largel! lies ith a good fit

beteen organisational strateg! and business environment (also see +und! and Aoling&

'6)$

The processual approach is different on the profit1maximisation perspective here

managers are not clear about hat the 4optimum5 level of output is or should be$ 2 high

degree of confusion and complexit! exists both ithin the organisations and in the mar"ets*

the strateg! emerges in small steps (increments) and often at irregular intervals from a

practical process of learning& negotiating and compromising instead of clear series of steps$

This is related to the inabilit! of senior managers to comprehend huge ban"s of information& a

variet! of simultaneousl! occurring factors and a lac" of desire to optimise and rationalise

decisions$ The outcome is then perhaps a set of 4satisficing5 behaviours& acceptable to the

4dominant coalitions5& hich is the realit! of strateg!1ma"ing (+egge& ',: '..)$

2s the name suggests& the s!stemic approach emphasises the significance of larger

social s!stems& characterised b! factors such as national culture& national business s!stems&

demographic composition of a given societ! and the dominant institutions of the societ!

ithin hich a firm is operating$ The strateg! formation is strongl! influenced b! such

factors& and faced b! these pressures the strategist ma! intentionall! deviate from rational

planning and profit1maximisation$ @t ill not be sensible to suggest that organisations adopt

onl! one of the four particular approaches to strateg! formation& but certainl! it has to be a

mixture of possible combinations along the to dimensions of processes and profit1

maximisation$

Activity Highlight the main context(s) ithin hich each of ?hittington5s four

approaches to strateg! formation could be pursued b! managers$

What is strategic HRM (SHRM?

The field of strategic HRM is still evolving and there is little agreement among scholars

regarding an acceptable definition$ %roadl! spea"ing& SHRM is about s!stematicall! lin"ing

people ith the organisation* more specificall!& it is about the integration of HRM strategies

into corporate strategies$ HR strategies are essentiall! plans and programmes that address and

solve fundamental strategic issues related to the management of human resources in anorganisation (Schuler& ')$ The! focus is on alignment of the organisation5s HR practices&

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policies and programmes ith corporate and strategic business unit plans (0reer& ',)$

Strategic HRM thus lin"s corporate strateg! and HRM& and emphasises the integration of HR

ith the business and its environment$ @t is believed that integration beteen HRM and

business strateg! contributes to effective management of human resources& improvement in

organisational performance and finall! the success of a particular business (see Holbeche&

'* Schuler and -ac"son& ')$ @t can also help organisations achieve competitive

advantage b! creating uni8ue HRM s!stems that cannot be imitated b! others (%arne!& ''*

Huselid et al$& '/)$ @n order for this to happen& HR departments should be forard1thin"ing

(future1oriented) and the HR strategies should operate consistentl! as an integral part of the

overall business plan (Stroh and Aaligiuri& '3)$ The HR1related future1orientation approach

of organisations forces them to regularl! conduct anal!sis regarding the "ind of HR

competencies needed in the future& and accordingl! core HR functions (of procurement&

development and compensation) are activated to meet such needs (see Holbeche& ')$

+engnic"1Hall and +engnic"1Hall (': B.) summarise the variet! of topics that

have been the focus of strategic HRM riters over the past couple of decades$ These include

HR accounting (hich attempts to assign value to human resources in an effort to 8uantif!

organisational capacit!)* HR planning* responses of HRM to strategic changes in the business

environment* matching human resources to strategic or organisational conditions* and the

broader scope of HR strategies$ 9or these riters& strategic HRM is a multidimensional

process ith multiple effects$ Such riting also highlights the groing proactive nature of the

HR function& its increased potential contribution to the success of organisations and the

mutual relationships (integration) beteen business strateg! and HRM$

To core aspects of SHRM are: the importance given to the integrationof HRM into

the business and corporate strateg!& and the devolvementof HRM to line managers instead of

personnel specialists$ %rester and +arsen (': ''') define integration as 4the degree to

hich the HRM issues are considered as part of the formulation of the business strateg!5 and

devolvement as 4the degree to hich HRM practices involve and give responsibilit! to line

managers rather than personnel specialists5$ Research in the field (see +engnic"1Hall and

+engnic"1Hall& '33* ;urcell& '3* Schuler& '* Store!& '* %udhar and Sparro&

'/* Truss et al$& '/* %udhar& ...a* ...b) highlights a number of benefits of

integration of HRM into the corporate strateg!$ These include: providing a broader range of

solutions for solving complex organisational problems* assuring the successful

implementation of corporate strateg!* contributing a vital ingredient in achieving and

maintaining effective organisational performance* ensuring that all human& technical and

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financial resources are given e8ual and due consideration in setting goals and assessing

implementation capabilities* limiting the subordination and neglect of HR issues to strategic

considerations* providing long1term focus to HRM* and helping a firm to achieve competitive

advantage$

@n similar vein& researchers (%udhar and Sparro '/* ..* Hope1Haile! et al$&

'/* Truss et al$& '/* Sisson and Store!& ...) have highlighted the benefits of

devolvement of HRM to line managers$ These include: highlighting certain issues that are too

complex for top management to comprehend alone* developing more motivated emplo!ees

and more effective control* local managers responding more 8uic"l! to local problems and

conditions* resolving most routine problems at the 4grassroots level5* affording more time for

personnel specialists to perform strategic functions* helping to s!stematicall! prescribe and

monitor the st!les of line managers* improving organisational effectiveness* preparing future

managers b! alloing them to practise decision1ma"ing s"ills* and assisting in reducing costs

b! redirecting traditionall! central bureaucratic personnel functions$

#espite the highlighted benefits of the devolution of HRM to the line management& it

is still not idel! practised in organisations$ Cn the basis of earlier studies in the and

their on in1depth investigations into the topic& Mc0overn et al$ ('/: ') suggest that

devolution of responsibilit! for HRM to line managers is constrained b! short1term pressures

on businesses (such as minimising costs)& the lo educational and technical s"ill base of

supervisors and a lac" of training and competence among line managers and supervisors$

2n important issue for top decision1ma"ers is ho to evaluate the extent to hich both

strategic integration and devolvement are practised in their organisations$ The level of

integration of HRM into the corporate strateg! can be evaluated b! a number of criteria: these

include representation of specialist people managers on the board* the presence of a ritten

people management strateg! (in the form of mission statement& guideline or rolling plans&

emphasising the importance and priorities of human resources in all parts of the business)*

consultation ith people management specialists from the outset in the development of

corporate strateg!* translation of the people management strateg! into a clear set of or"

programmes* the groing proactive nature of people management departments through the

creation of rolling strategic plans (emphasising the importance of human resources in all parts

of the business)* through mission statements* b! aligning HR policies ith business needs

through business planning processes* b! use of participative management processes and

committee meetings* and via HR audits$

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The level of devolvement of HRM to line managers in an organisation can be

evaluated on the basis of measures such as: the extent to hich primar! responsibilit! for

decision1ma"ing regarding HRM (regarding pa! and benefits& recruitment and selection&

training and development& industrial relations& health and safet!& and or"force expansion and

reduction) lies ith line managers* the change in the responsibilit! of line managers for HRM

functions* the percentage of line managers trained in people management in an organisation*

the feedbac" given to managers=line managers regarding HR related strategies* through

consultations and discussions* the extent to hich line managers are involved in decision1

ma"ing* b! giving the line managers onership of HRM* and b! ensuring that the! have

realised = accepted it b! getting their ac"noledgement (for more details see %udhar and

Sparro& '/* ..* %udhar& ...a)$

Activity Recap the meaning& benefits& measures and concerns ith the practice of

both strategic integration of HRM into the business strateg! and

devolvement of HRM to line managers$

Stages of the evo)ution of strategy and HRM integration

0reer (',) tal"s about four possible t!pes of lin"ages beteen business strateg! and the

HRM function = department of an organisation:

4Administrative linkagerepresents the scenario here there is no HR department and

some other figurehead (such as the 9inance or 2ccounts executive) loo"s after the HR

function of the firm$ The HR unit is relegated here to a paper1processing role$ @n such

conditions there is no real lin"age beteen business strateg! and HRM$

Fext is the 4one-way linkage5 here HRM comes into pla! onl! at the implementation

stage of the strateg!$

4Two-way linkage5 is more of a reciprocal situation here HRM is not onl! involved

at the implementation stage but also at the corporate strateg! formation stage$

The last "ind of association is that of 4integrative linkage5& here HRM has e8ual

involvement ith other organisational functional areas for business development$

;urcell ('3) presents a to1level integration of HRM into the business strateg! 4upstream

orfirst-order decisionsand 4downstream orsecond-order decisions:

9irst1order decisions& as the name suggests& mainl! address issues at the

organisational mission level and vision statement* these emphasise here the business


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is going& hat sort of actions are needed to guide a future course& and broad HR1

oriented issues that ill have an impact in the long term$

Second1order decisions deal ith scenario planning at both strategic and divisional

levels for the next B, !ears$ These are also related to hardcore HR policies lin"ed toeach core HR function (such as recruitment& selection& development& communication)$

0uest ('3/) proposes integration at three levels:

9irst he emphasises a 4fit5 beteen HR policies and business strateg!$

Second& he tal"s about the principle of 4complementary5 (mutualit!) of emplo!ment

practices aimed at generating emplo!ee commitment& flexibilit!& improved 8ualit! and

internal coherence beteen HR functions$

Third& he propagates 4internalisation5 of the importance of integration of HRM andbusiness strategies b! the line managers (also see +egge& ',)$

*in+ing organisationa) strategy and HRM strategy% ,heoretica)

deve)opments

The literature contains man! theoretical models that highlight the nature of lin"age beteen

HRM strategies and organisational strategies$

,he strategic fit or the hard variant of HRM

9ombrun et al$5s ('3) 4matching model5 highlights the 4resource5 aspect of HRM and

emphasises the efficient utilisation of human resources to meet organisational objectives$ This

means that& li"e other resources of organisation& human resources have to be obtained

cheapl!& used sparingl! and developed and exploited as full! as possible$ The matching model

is mainl! based on Ahandler5s ('6) argument that an organisation5s structure is an outcome

of its strateg!$ 9ombrun et al$ ('3) expanded this premise in their model of strategic HRM&hich emphasises a 4tight fit5 beteen organisational strateg!& organisational structure and

HRM s!stem$ The organisational strateg! is pre1eminent* both organisation structure and

HRM are dependent on the organisation strateg!$ The main aim of the matching model is

therefore to develop an appropriate 4human resource s!stem5 that ill characterise those

HRM strategies that contribute to the most efficient implementation of business strategies$

The matching model of HRM has been criticised for a number of reasons$ @t is thought

to be too prescriptive b! nature& mainl! because its assumptions are strongl! unitarist

(%udhar and #ebrah& ..')$ 2s the model emphasises a 4tight fit5 beteen organisational

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strateg! and HR strategies& it completel! ignores the interest of emplo!ees& and hence

considers HRM as a passive& reactive and implementationist function$ Hoever& the opposite

trend is also highlighted b! research (Store!& ')$ @t is asserted that this model fails to

perceive the potential for a reciprocal relationship beteen HR strateg! and organisational

strateg! (+engnic"1Hall and +engnic"1Hall& '33)$ @ndeed& for some& the ver! idea of 4tight

fit5 ma"es the organisation inflexible& incapable of adapting to re8uired changes and hence

4misfitted5 to toda!5s d!namic business environment$ The matching model also misses the

4human5 aspect of human resources and has been called a 4hard5 model of HRM (0uest& '3/*

Store!& '* +egge& ',)$ The idea of considering and using human resources li"e an!

other resource of an organisation seems unpragmatic in the present orld$

#espite the man! criticisms& hoever& the matching model deserves credit for

providing an initial frameor" for subse8uent theor! development in the field of strategic

HRM$ Researchers need to adopt a comprehensive methodolog! in order to stud! the d!namic

concept of human resource strateg!$ #o elements of the matching model exist in different

settingsG This can be discovered b! examining the presence of some of the core issues of the

model$ The main propositions emerging from the matching models that can be adopted b!

managers to evaluate scenario of strategic HRM in their organisations are:

#o organisations sho a 4tight fit5 beteen their HRM and organisation strateg!

here the former is dependent on the latterG #o specialist people managers believe

the! should develop HRM s!stems onl! for the effective implementation of their

organisation5s strategiesG

#o organisations consider their human resources as a cost and use them sparingl!G Cr

do the! devote resources to the training of their HRs to ma"e the best use of themG

#o HRM strategies var! across different levels of emplo!eesG

,he soft variant of HRM

The 4Harvard model5 of strategic HRM is another anal!tical frameor"& hich is premised on

the vie that if general managers develop a viepoint of 4how they wish to see employees

involved in and developed by the enterprise5 then some of the criticisms of historical

personnel management can be overcome$ The model as first articulated b! %eer et al$

('3)$ Aompared to the matching model& this model is termed 4soft5 HRM (Store!& '*

+egge& ',* Truss et al$& '/)$ @t stresses the 4human5 aspect of HRM and is more

concerned ith the emplo!eremplo!ee relationship$ The model highlights the interests of

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different sta"eholders in the organisation (such as shareholders& management& emplo!ee

groups& government& communit! and unions) and ho their interests are related to the

objectives of management$ This aspect of the model provides some aareness of the

European context and other business s!stems that emphasise 4co1determination5$ @t also

recognises the influence of situational factors (such as the labour mar"et) on HRM polic!

choices$

The actual content of HRM& according to this model& is described in relation to four

polic! areas& namel!& human resource flos& reard s!stems& emplo!ee influence& and or"s

s!stems$ Each of the four polic! areas is characterised b! a series of tas"s to hich managers

must attend$ The outcomes that these four HR policies need to achieve are commitment&

competence& congruence& and cost effectiveness$ The aim of these outcomes is therefore to

develop and sustain mutual trust and improve individual = group performance at the minimum

cost so as to achieve individual ell1being& organisational effectiveness and societal ell1

being$ The model allos for anal!sis of these outcomes at both the organisational and societal

level$ 2s this model ac"noledges the role of societal outcomes& it can provide a useful basis

for comparative anal!sis of HRM$ Hoever& this model has been criticised for not explaining

the complex relationship beteen strategic management and HRM (0uest& '')$

The matching model and the Harvard anal!tical frameor" represent to ver!

different emphases& the former being closer to the strategic management literature& the latter to

the human relations tradition$ %ased on the above anal!sis& the main propositions emerging

from this model that can be used for examining its applicabilit! and for determining the

nature of SHRM in different contexts are:

?hat is the influence of different sta"eholders and situational and contingent variables on

HRM policiesG

To hat extent is communication ith emplo!ees used to maximise commitmentG

?hat level of emphasis is given to emplo!ee development through involvement&

empoerment and devolutionG

,he conte-tua) emphasis

%ased on the human resource polic! frameor" provided b! the Harvard model& researchers

at the Aentre for Aorporate Strateg! and Ahange at ?aric" %usiness School have developed

an understanding of strateg!1ma"ing in complex organisations and have related this to the

abilit! to transform HRM practices$ The! investigated empiricall! based data (collected

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through in1depth case studies on over tent! leading %ritish organisations) to examine the

lin" beteen strategic change and transformations& and the a! in hich people are managed

(Hendr! et al$& '33* Hendr! and ;ettigre& ')$ Hendr! and associates argue that HRM

should not be labelled as a single form of activit!$ Crganisations ma! follo a number of

different patha!s in order to achieve the same results$ This is mainl! a function of the

existence of lin"ages beteen the outer environmental context (socio1economic&

technological& politico1legal and competitive) and inner organisational context (culture&

structure& leadership& tas"1technolog! and business output)$ These lin"ages directl! contribute

to forming the content of an organisation5s HRM$ To anal!se this& past information related to

the organisation5s development and management of change is essential (%udhar and #ebrah&

..')$ The main propositions emerging from this model are:

?hat is the influence of economic (competitive conditions& onership and control&

organisation si7e and structure& organisational groth path or stage in the life c!cle and

the structure of the industr!)& technological (t!pe of production s!stems) and socio1

political (national education and training set1up) factors on HRM strategiesG

?hat are the lin"ages beteen organisational contingencies (such as si7e& nature&

positioning of HR and HR strategies) and HRM strategiesG

,he issue of strategic integration

#ebates in the earl! '.s suggested the need to explore the relationship beteen strategic

management and HRM more extensivel! (0uest& '') and the emerging trend in hich

HRM is becoming an integral part of business strateg! (+engnic"1Hall and +engnic"1Hall&

'33* %rester and +arsen& '* Schuler& '* Store!& '* %udhar and Sparro& '/*

..)$ The emergence of SHRM is an outcome of such efforts$ 2s mentioned above& it is

largel! concerned ith 4integration5 and 4adaptation5$ @ts purpose is to ensure that HRM is

full! integrated ith the strateg! and strategic needs of the firm* HR policies are coherent

both across polic! areas and across hierarchies* and HR practices are adjusted& accepted and

used b! line managers and emplo!ees as part of their ever!da! or" (Schuler& ': '3)$

SHRM therefore has man! different components& including HR policies& culture&

values and practices$ Schuler (') developed a 4,1; model5 of SHRM that melds five HR

activities (philosophies& policies& programs& practices and processes) ith strategic business

needs& and reflects management5s overall plan for survival& groth& adaptabilit! and

profitabilit!$ The strategic HR activities form the main components of HR strateg!$ This

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model to a great extent explains the significance of these five SHRM activities in achieving

the organisation5s strategic needs& and shos the interrelatedness of activities that are often

treated separatel! in the literature$ This is helpful in understanding the complex interaction

beteen organisational strateg! and SHRM activities$

This model further shos the influence of internal characteristics (hich mainl!

consists of factors such as organisational culture and the nature of the business) and external

characteristics (hich consist of the nature and state of econom! in hich the organisation is

existing and critical success factors& i$e$ the opportunities and threats provided b! the

industr!) on the strategic business needs of an organisation$ This model initiall! attracted

criticism for being over1prescriptive and too h!pothetical in nature$ @t needs a lot of time to

gain an understanding of the a! strategic business needs are actuall! defined$ The melding

of business needs ith HR activities is also ver! challenging& mainl! because lin"ages

beteen human resource activities and business needs tend to be the exception& even during

non1turbulent times (Schuler& ': .)$ @n essence& the model raises to important

propositions that are core to the strategic HRM debate$ These are:

?hat is the level of integration of HRM into the business strateg!G

?hat level of responsibilit! for HRM is devolved to line managersG

Activity 2nal!se the "e! messages for HRM managers emerging from the above

presentation on the main models of SHRM$

@dentif! and develop "e! measures that HR managers can use to evaluate

the nature of their SHRM function based on the above1raised propositions$

Matching .usiness strategy and HRM

The above discussion summarises the theoretical developments in strategic HRM and its

lin"ages ith organisational strategies$ 2 number of clear messages emerge from the

anal!sis$ 9or example& strategic HRM models primaril! emphasise implementation over

strateg! formulation$ The! also tend to focus on matching HR strateg! to organisational

strateg!& not the other a!$ The! also tend to emphasise fit or congruence and do not

ac"noledge the need for lac" of such fit beteen HR strategies and business strategies

during transitional times and hen organisations have multiple or conflicting goals (also see

+engnic"1Hall and +engnic"1Hall& ')$ This section further highlights the matching of

HRM policies and practices to some of the established models of business strategies$

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/orter&s generic .usiness strategies and HRM

Michael ;orter ('3.* '3,) identified three possible generic strategies for competitive

advantage in business: cost leadership(hen the organisation cuts its prices b! producing a

product or service at less expense than its competitors)* innovation(hen the organisation is

able to be a uni8ue producer)* and quality (hen the organisation is delivering high18ualit!

goods and services to customers)$ Aonsidering the emphasis on 4external1fit5 (i$e$

organisational strateg! leading individual HR practices that interact ith organisational

strateg! in order to improve organisational performance)& a number of HRM combinations

can be adopted b! firms to support ;orter5s model of business strategies$ @n this regard&

Schuler ('3) proposes corresponding HRM philosophies of 4accumulation5 (careful

selection of good candidates based on personalit! rather technical fit)& 4utili7ation5 (selection

of individuals on the basis of technical fit)& and 4facilitation5 (the abilit! of emplo!ees to or"

together in collaborative situations)$ Thus& firms folloing a 8ualit! strateg! ill re8uire a

combination of accumulation and facilitation HRM philosophies in order to ac8uire& maintain

and retain core competencies* firms pursuing a cost1reduction strateg! ill re8uire a

utilisation HRM philosoph! and ill emphasise short1run relationships& minimise training and

development and highlight external pa! comparabilit!* and firms folloing an innovation

strateg! ill re8uire a facilitation HRM philosoph! so as to bring out the best out of existing

staff (also see Schuler and -ac"son& '3/)$ @n summar!& according to the 4external1fit5

philosoph!& the effectiveness of individual HR practices is contingent on firm strateg!$ The

performance of an organisation that adopts HR practices appropriate for its strateg! ill then

be higher$

0usiness )ife cyc)es and HRM

There is no an established literature in the field of HRM that highlights ho possible

contingent variables determine the HRM s!stems of an organisation (for a detailed revie see

%udhar and #ebrah& ..'* %udhar and Sparro& ..)$ Cne among the long list of such

variables is the 4life c!cle stage5 of an organisation: introduction (start1up)* groth

(development)* maturit!* decline* and turnaround$ Research findings reveal a clear association

beteen a given life c!cle stage and specific HRM policies and practices$ 9or example& it is

logical for firms in their introductor! and groth life c!cle stages to emphasise a rationalised

approach to recruitment in order to ac8uired best1fit human resources& compensate emplo!ees

at the going mar"et rate& and activel! pursue emplo!ee development strategies$ Similarl!&

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organisations in the maturit! stage are "non to recruit enough people to allo for labour

turnover= la!1offs and to create ne opportunities in order to remain creative to maintain their

mar"et position$ Such organisations emphasise flexibilit! via their training and development

programmes and pa! emplo!ees as per the mar"et leaders in a controlled a!$ 2ccordingl!

firms in the decline stage ill be li"el! to minimise costs b! reducing overheads and aspire to

maintain harmonious emplo!ee relations (for more details see >ochan and %arocci& '3,*

%aird and Meshoulam '33* Hendr! and ;ettigre '* -ac"son and Schuler ',* %oxall

and ;urcell& ..B)$

,ypo)ogy of .usiness strategies and HRM

Miles and Sno ('/3* '3) classif! organisations as 4prospectors5 (ho are doing ell and

are regularl! loo"ing for more products and mar"et opportunities)& 4defenders5 (ho have a

limited and stable product domain)& 4analyzers5 (ho have some degree of stabilit! but are on

the loo"out for possible opportunities) and 4reactors5 (ho mainl! respond to mar"et

conditions)$ These generic strategies dictate organisations5 HRM policies and practices$ 9or

example& defenders are less concerned about recruiting ne emplo!ees externall! and are

more concerned about developing current emplo!ees$ @n contrast& prospectors are groing& so

the! are concerned about recruiting and using performance appraisal results for evaluation

rather than for longer1term development (for details see -ac"son and Schuler ',*

Mac#uffie ',)$

eneric HR strategies

@dentif!ing the need to highlight the prevalence of generic HR strategies pursued b!

organisations in different contexts& %udhar and Sparro (..) propose four HR strategies$

These are:

4talent acquisition HR strateg! (emphasises attracting the best human talent from

external sources)*

effective resource allocationHR strateg! (maximises the use of existing human

resources b! ala!s having the right person in the right place at the right time)*

talent improvement HR strateg! (maximes the talents of existing emplo!ees b!

continuousl! training them and guiding them in their jobs and career)* and

cost reductionHR strateg! (reduces personnel costs to the loest possible level)$

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%udhar and >hatri (..') examined the impact of these HR strategies on

recruitment& compensation& training and development and emplo!ee communication practices

in matched @ndian and %ritish firms$ The impact of these four HR strategies varied

significantl! in the to samples& confirming the context specific nature of HRM$ Cn the same

pattern& there is a need to identif! and examine the impact of other HR strategies such as high

commitment& paternalism& etc$ Such HR issues& hich have a significant impact on a firm5s

performance& are further examined in different chapters in this boo"$

/erspectives on SHRM and organisationa) performance

The concept of 4fit has emerged as central to man! attempts to theorise about strategic HRM

(Richardson and Thomson& ')$ 4!nternal fit5 is the case hen the organisation is

developing a range of interconnected and mutuall! reinforcing HRM policies and practices$

This implies that there exists a set of 4best "# practices5 that fit together sufficientl! so that

one practice reinforces the performance of the other practices$ 4Synergy5 is the "e! idea

behind internal fit$ S!nerg! can be achieved if the combined performance of a set of HRM

policies and practices is greater than the sum of their individual performances$ @n this regard&

the importance of the different HRM policies and practices being mutuall! reinforcing is

emphasised (see >atou and %udhar& ..6* ../)$

4$%ternal fit5 is the case hen the organisation is developing a range of HRM policies

and practices that fit the business5s strategies outside the area of HRM$ This implies that

performance ill be improved hen the right fit& or 4match& beteen business strateg! and

HRM policies and practices is achieved$ 2s discussed above& specific HRM policies and

practices are needed to support generic business strategies& for example ;orter5s cost

leadership& innovation or 8ualit! enhancement (also see 9ombrum et al$& '3* Schuler and

-ac"son& '3/)$ Similarl!& Miles and Sno ('3) relate HRM policies and practices ith

competitive product strategies (defenders& prospectors& anal!sers& reactors)$

Cver the last decade or so the concept of fit has been further investigated b! man!

scholars (see #eler! and #ot!& '6* Ioundt et al$& '6* 0uest& '/* >atou and %udhar&

..6* ../)$ 2n anal!sis of such or" highlights that there are generall! three modes of fit&

or approaches to fit: 4universalistic5& 4contingenc!5& and 4configurational5$ The core features

of these modes constitute the structure of the so1called strategic HRM = business performance

models$

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The 2universalistic perspectiveor HRM as an ideal set of practices suggests that a

specified set of HR practices (the so1called 4best practices5) ill ala!s produce superior

results hatever the accompan!ing circumstances$ ;roponents of the universalistic model

(e$g$& ;feffer '* '3* Huselid ',* #elane! and Huselid& '6* Alaus& ..B) emphasise

that 4internal fit5 or 4hori7ontal fit5 or 4alignment of HR practices5 helps to significantl!

improve an organisation5s performance$ Higgs et al$ (...) explain ho a large number of

HR practices that ere previousl! considered to be distinct activities can all be considered

no to belong in a s!stem (bundle) of aligned HR practices$

Aonsidering that internal fit is central to universalistic models& the main 8uestion =

problem is ho to determine an HR s!stem& that is& as a coherent set of s!nergistic HR

practices that blend better in producing higher business performance$ The methods used in

developing such HR s!stems depend on the 4additive relationship5 (i$e$ the case hen the HR

practices involved have independent and non1overlapping effects on outcome)& and on the

4interactive relationship5 (i$e$ the case hen the effect of one HR practice depends on the level

of the other HR practices involved) (#eler!& '3)$ Hoever& in our opinion universalistic

models do not explicitl! consider the internal integration of HR practices& and consider them

merel! from an additive point of vie (also see ;feffer '* %ec"er and 0erhart& '6)$

Emerging research evidence (see #eler! and #ot! '6) reveals the so1called 4portfolio

effect5& that is& ho HR practices support and improve one another$ Hoever& it is important

to remember that there can be countless combinations of practices that ill result in identical

business outcomes$ This contributes to the concept of 4equifinality5& in hich identical

outcomes can be achieved b! a number of different s!stems of HR practices$

Support for the universalistic approach to strategic HRM is mixed as there are notable

differences across studies as to hat constitutes a 4best HR practice5$ Most studies (e$g$

%amberger and Meshoulam& ...* Ahristensen Hughes ..* %oxall and ;urcell ..B) focus

on three mechanisms b! hich universal HR practices impact on business performance: (')

the 4human capital base5 or collection of human resources (s"ills& "noledge& and potential)&

that the organisation has to or" ith the organisation5s recruitment& selection& training and

development processes directl! affect the 8ualit! of this base* () 4motivation5& hich is

affected b! a variet! of HR processes including recognition& reard& and or" s!stems* and

(B) 4opportunit! to contribute5& hich is affected b! job design& and involvement=

empoerment strategies$ @n addition& the best practices approach generall! refers to the

resource1based theor! of firm and competitive advantage& hich focuses on the role internal

resources such as emplo!ees pla! in developing and maintaining a firm5s competitive

'3


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capabilities (?right et al$& '* Ioundt et al$& '6)$ 9or a resource to be a source of

competitive advantage it must be rare& valuable& inimitable and non1substitutable$ Therefore&

HR practices of the organisation can lead to competitive advantage through developing a

uni8ue and valuable human pool$

The 4contingency5 or 4HRM as strategic integration5 model argues that an

organisation5s set of HRM policies and practices ill be effective if it is consistent ith other

organisational strategies$ 4External fit5 is then hat matters (9ombrum et al$& '3* 0olden

and Ramanujam& '3,* Schuler and -ac"son& '3/* +engnic"1Hall and +engnic"1Hall& '33*

0uest& '/)$ 2s discussed above& in this regard specific HRM policies and practices lin"

ith various t!pes of generic business strategies$ 9or example& the or" of Schuler and

-ac"son ('3/)& mentioned above& suggests that the range of HRM policies and practices an

organisation should adopt depend on the competitive product strategies it is folloing$

Aonsidering that external fit is the "e! concept of contingenc! models& the contingenc!

approach refers firstl! to the theor! of the organisational strateg! and then to the individual

HR practices that interact ith organisational strateg! in order to result in higher

organisational performance$ The adoption of a contingenc! HRM strateg! is then associated

ith optimised organisational performance& here the effectiveness of individual HR

practices is contingent on firm strateg!$ The performance of an organisation that adopts HR

practices appropriate for its strateg! ill be higher (for more details see >atou and %udhar&

../)$

The 4configurational5 or 4HRM as bundles5 model argues that to claim a strateg!5s

success turns on combining internal and external fit$ This approach ma"es use of the so1called

4bundles5 of HR practices& hich implies the existence of specific combinations or

configurations of HR practices depending on corresponding organisational contexts& here

the "e! is to determine hich are the most effective in terms of leading to higher business

performance (see 0uest and Ho8ue& '* Mac#uffie& ',* #eler! and #ot!& '6* Huselid

and %ec"er& '6* >atou and %udhar& ..6)$

Aonsidering that both the internal and external fits are the "e! concepts of

configurational models& the configurational approach refers firstl! to the theor! of the

organisational strateg! and then to the s!stems of HR practices that are consistent ith

organisational strateg! in order to result in higher organisational performance$ 2s indicated

above& there are a number of strategies an organisation ma! choose to follo& such as Miles

and Sno5s ('3) strategic t!polog! that identifies the four ideal strategic t!pes of

prospector& anal!ser& defender and reactor$

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?ith respect to the configurations of HR practices& scholars (such as >err and Slocum&

'3/* Csterman& '3/* Sonnenfeld and ;eiperl& '33* #eler! and #ot!& '6) have

developed theoreticall! driven 4employment systems5$ Specificall!& #eler! and #ot! ('6)

propose the folloing to 4ideal type5 emplo!ment s!stems: the 4market type system5& hich

is characterised b! hiring from outside an organisation& and the 4 internal system5& hich is

characterised b! the existence of an internal mar"et$ %ecause organisations adopting a

defending strateg! concentrate on efficienc! in current products and mar"ets& the internal

s!stem is more appropriate for this t!pe of strateg!$ Cn the other hand& organisations pursuing

a prospector5s strateg! are constantl! changing& and the mar"et s!stem is more appropriate for

this t!pe of strateg!$ 2 possible third t!pe of configurational strateg! can be the anal!ser& at

the midpoint beteen the prospector and the defender$ @n summar!& according to this

approach& if consistenc! ithin the configuration of HR practices and beteen the HR

practices and strateg! is achieved& then the organisation ill achieve better performance$

?ith respect to these three models& there is no clear picture of hich of these three "e!

broad areas is the predominant one$ @t is orth repeating the ords of ?ood (': .):

@f one5s arm ere tisted to ma"e an 4overall5 conclusion on the balance of the

evidence so far& one in favour of contingenc! h!pothesis ould be just as justified as

the universal h!pothesis$ This is because an! such conclusion ould be premature

because of conflicting research results but& more importantl!& because the debate is

still in its infanc! (also see >atou and %udhar& ..6* ../)$

Activity 2nal!se the main aspects and highlight the core issues related to each of the

above discussed perspectives on SHRM$

3ey points for this chapter are:


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'$ #iscuss the main factors that have contributed to the groth of the field of strategic HRM$

$ ?hat do !ou understand b! the concept of 4fit5 in the strategic HRM literatureG 2nal!se

the significance of fit(s) beteen business strateg! and HRM$ ;rovide both research

evidence and examples to support !our discussion$

B$ Ariticall! anal!se the main models of strategic HRM$ 2lso& highlight the main aspects of

SHRM emerging from these models$

$ @n !our opinion& hich of the three perspectives on strategic HRM are more applicable in

different contextsG


22/26

%rac"er& -$ ('3.) The Historical #evelopment of the Strategic Management Aoncept$

Academy of &anagement #eview& ,(): '$

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Management in the %ritish Manufacturing Sector$ British 'ournal of &anagement& '': 3,

B.$

%udhar& ;$ (...b) 2 Reappraisal of HRM Models in %ritain$ 'ournal of *eneral

&anagement& 6(): /'$

%udhar& ;$ and #ebrah& I$ (..') Rethin"ing Aomparative and Aross Fational Human

Resource Management Research$ )he !nternational 'ournal of "uman #esource

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%udhar& ;$ and >hatri& ;$ (..') HRM in Aontext: The applicabilit! of HRM models in

@ndia$!nternational 'ournal of +ross +ultural &anagement& '(B): BBBB,6$

%udhar& ;$ and Sparro& ;$R$ ('/) Evaluating +evels of Strategic @ntegration and

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#esource &anagement& 3(): /6$

%udhar& ;$ and Sparro& ;$ (..) 2n @ntegrative 9rameor" for #etermining Aross1

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B//.B$

Aha"ravarth!& %$S$ and #o7& I$ (') Strateg! ;rocess Research: 9ocusing on corporate

self1reneal$ Strategic &anagement 'ournal& 'B: ,'$

Ahandler& 2$ ('6) Strategy and Structure(Aambridge& M2: M@T ;ress$

Ahristensen Hughes& -$M$ (..) HRM and


23/26

9lamholt7& E$ ('/) Human Resource 2ccounting: 2 revie of theor! and research$ 'ournal

of &anagement Studies& '': 6'$

9ombrun& A$-$& Tich!& F$M$ and #evanna& M$2$ ('3) Strategic "uman #esource

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0olden& >$2$ and Ramanujam& K$ ('3,) %eteen a #ream and a Fightmare: Cn the

integration of human resource management and strategic business planning processes$"uman

#esource &anagement&: ,$

0reer& A$R$ (',) Strategy and "uman #esources(Engleood Aliffs& F-: ;rentice1Hall$

0uest& #$E ('3/) Human Resource Management and @ndustrial Relations$ 'ournal of

&anagement Studies& : ,.B,'$

0uest& #$E$ ('') ;ersonnel Management: The end of orthodox!G British 'ournal of

!ndustrial #elations& (): '/'/,$

0uest& #$E$ ('/) Human Resource Management and ;erformance: 2 revie and research

agenda$!nternational 'ournal of "uman #esource &anagement& 3(B): 6B/6$0uest& #$E$ (..') Human Resource Management: ?hen research confronts theor!$

!nternational 'ournal of "uman #esource &anagement& ': '.''.6$

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rganizations(San 9rancisco: -osse!1%ass$

Holbeche& +$ (')Aligning "uman #esources and Business Strategy(Cxford: %utterorth1

Heinemann$

Hope1Haile!& K$& 0ratton& +$& Mc0overn& ;$& Stiles& ;$ and Truss& ;$ ('/) 2 Ahameleon

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Huselid& M$2$ and %ec"er& %$E$ ('6) Methodological @ssues in Aross1sectional and ;anelEstimates of the Human Resource9irm ;erformance +in"$ !ndustrial #elations& B,: ..$

Huselid& M$2$& -ac"son& S$E$ and Schuler& R$S$ ('/) Technical and Strategic Human

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9rancisco: -osse!1%ass$

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+egge& >$ (',) "uman #esource &anagement/ #hetorics and #ealities( Ahippenham:

MacMillan %usiness$

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+und!& C$ and Aoling& 2$ ('6) Strategic "uman #esource &anagement( +ondon:

Thompson$

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Mc0overn& ;$& 0ratton& +$& Hope Haile!& K$& Stiles& ;$ and Truss& A$ ('/) Human Resource

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Mello& -$2$ (..6) Strategic "uman #esource &anagement(South1?estern& Thompson$


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Miles& R$E$ and Sno& S$S$ ('/3) rganizational Strategy, Structure, and Process( Fe

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rganization 2ynamics& '6: B6,$

Miller& ;$ ('') Strategic Human Resource Management: 2n assessment of progress$

"uman #esource &anagement 'ournal& '(): BB$

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;orter& M$E$ ('3,) +ompetitive Advantage/ +reating and Sustaining Superior Performance(Fe Ior": 9ree ;ress$

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',''$

,


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Schuler& R$S$ and -ac"son& S$E$ (..,) 2 Duarter1centur! Revie of Human ResourceManagement in the

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