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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)$
B
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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
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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
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%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
&anagement& '(B): /,',$
%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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%udhar& ;$ and Sparro& ;$ (..) 2n @ntegrative 9rameor" for #etermining Aross1
national Human Resource Management ;ractices$"uman #esource &anagement #eview& ':
B//.B$
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self1reneal$ Strategic &anagement 'ournal& 'B: ,'$
Ahandler& 2$ ('6) Strategy and Structure(Aambridge& M2: M@T ;ress$
Ahristensen Hughes& -$M$ (..) HRM and
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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
&anagement$ Fe Ior": ?ile!$
0olden& >$2$ and Ramanujam& K$ ('3,) %eteen a #ream and a Fightmare: Cn the
integration of human resource management and strategic business planning processes$"uman
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0reer& A$R$ (',) Strategy and "uman #esources(Engleood Aliffs& F-: ;rentice1Hall$
0uest& #$E ('3/) Human Resource Management and @ndustrial Relations$ 'ournal of
&anagement Studies& : ,.B,'$
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!ndustrial #elations& (): '/'/,$
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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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B
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9rancisco: -osse!1%ass$
>ochan& R$ and %arocci& T$ ('3,)"uman #esource &anagement and !ndustrial #elations/
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+egge& >$ (',) "uman #esource &anagement/ #hetorics and #ealities( Ahippenham:
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#eview& 'B: ,/.$
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Thompson$
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"uman #esource &anagement 'ournal& '(): BB$
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