Tuesday, July 14, 2009

Essay on Strategic Human Resource Management

Schuler and Walker define Human Resource Strategy (HRS) as “a set of processes and activities jointly shared by human resources and line managers to solve business-related problems”. I believe this definition assists on tackling the above question. However, Bamberger and Meshoulam “Conceptualise human resource strategy as an outcome: the pattern of decisions regarding the policies and practices associated with the HR system”. In my view, HRS is a set of ‘processes and activities’ that when implemented, result in an outcome.

In aim to justify this statement by discussing the topic of human resource strategy in relation to the sub-headings listed above. By examining the reasons or ‘rationale’ for the emergence of human resource strategies in the modern business environment, the value, various strategy approaches, types and the concept of fit, I believe I can underline the importance of a well devised HRS to any overall business strategy or plan.

Modern businesses and the economic environments in which they operate are very different from the organizations and economies examined by Chandler in his studies of ‘managerial capitalism’ (late 19th Century through to the 1970s). The development of technology, and the creation of global economies have resulted in a significant increase in efficient and effective competition within all industries operating in market economies. Firms con longer rely on competing aggressively simply on the reliable favorites of achieving economies of scale and creating ‘barriers to entry’ within their markets etc.

Firms have become more market orientated as opposed to production focused (as highlighted by our recent study of Waterford), and this is part of the growth of the tertiary sector in modern business.

The growth of tertiary sector activity in the global dynamic environment has resulted in people (staff) or human resources, as a factor of production, becoming the most important part of this ‘production’ process. However managing people or ‘human resources’ is much more complicated than managing equipment for example, however does allow for much more scope and varying ideologies and techniques.

It is for these reasons that organisations are focusing on human resources as “Companies everywhere are changing the way they manage in order to be competitive”. These firms need to find a new competitive advantage, and the implementation of a HRS that is beneficial and supportive in achieving the overall strategic plan is a means of doing so, or put differently, achieving a desirable outcome through a set of processes and activities.

In this new business culture of ‘strategic management’, fitting every ‘division’s’ strategy in to the overall strategy has become the norm. Human resource management has developed and ‘integrated’ its processes and activities in strategic management, ‘through the new discipline’ of strategic human resource management.

Associated to this point is Barney’s assertion that “Managers must look inside their firms for valuable rare resources and exploit these resources through their organization”.

The emergence of HR strategies can therefore be explained by the development of corporate strategies that firms began to implement as a means of gaining that desired competitive advantage, and creating a clear and effective plan in which to operate the business. In the current environment, good strategic management of human resources by developing a competent set of processes and activities will assist in formulating a desired outcome: a fit between HR strategy and the organisation’s overall strategy.

A significant value of human resource strategies, as opposed to human resource management, is that a HRS ties in with the overall organizational strategy. Employees and all divisions of management must be aware of the firm’s business strategy. Once the human resource departments are directed to devise a strategy to complement and ‘fit’ this overall plan, the lines of communication between staff and the HR department are opened up. The practices and activities implemented by the HR department are recognized by staff as part of a company goal and in effect these practices are given ‘legitimacy’ as the staff realize they part of the long-term goal, and presumably are accepted by top level management.

Miles and Snow refer to the importance of a HRS that fits with the overall organizational plan. They refer to the existence of a ‘corporate human resources group’ who “Should develop its ability to provide assistance to operating divisions to ensure that…these units have human resources programmes that fit their business strategies”.

The lack of a HR strategy, whereby the HR department simply manages according to their specific goals and interpretations of the firms’ needs can conflict with company’s goal and possibly result in the workforce viewing the HR department as peripheral and a nuisance (or certainly as obstructing company objectives). Therefore no careful planning of the activities and processes undertaken by the department can result in an unwanted outcome.

Walker himself intimates this by stating “Only by addressing human resource issues in the context of overall strategic management will managers and human resource staff together achieve the results needed to sustain and develop a business”.

In fact, I believe that the authors I have read on this course so far have all discussed HR strategies not in terms of their value but their necessity. The idea of the HR department conducting itself independent of an overall plan is a non-runner (within efficient and effective organizations of course). Possibly while examining ‘what is HR strategy,’ we should not discuss it in terms of a strategy’s value but the hazard created by not implementing a HR strategy within a firm.

It is generally accepted there are two significant approaches to strategic human resource management. I will attempt to outline these various approaches and how they fit with the view that HRS is a ‘set of processes and activities’ which provide an outcome.

The Universalistic approach, (or sometimes referred to as ‘best practice’ model of HRS) contends that there is a single, ‘universal’ approach and direction that should be adopted by human resources strategy developers. This approach should therefore be introduced regardless of the economic or corporate situation facing an organization or indeed the long term goals of the firm in question. It places an emphasis on communication, teamwork, and the utilization of individual talents (part of ‘soft’ strategic types, to be discussed later in this essay).

This approach, by asserting that one direction should be implemented on organizations regardless of their differing situations, would appear that as part of HRS, it is an ‘outcome’. However, Beardwell and Holden believe it is more flexible than the contingency model, (which I will discuss next). Yet I would question the value of this model or approach in the modern dynamic business world, especially as a global downturn possesses many threats for organizations large and small.

This approach appears to be applicable to successful firms, with a clear long term plan where this approach coincidently fits strategically. Stace and Dunphy declare “Universalist solutions in HR Strategy and practice are probably inappropriate”.

The contingency or ‘situationally-based’ approach is a development of the universalistic approach where one solution or approach be adopted in organizations to deal with different situations. Stace and Dunphy regard this approach as much more useful, “What is needed is a contingency framework of the management process, to help in matching managing processes to the changing business needs of the organization”. In their paper, Stace and Dunphy apply their framework to the changes in Waterford, and stresses from the start the firm must undertake a situationally-based approach opposed to universalistic.

In our discussion of ‘what is HR strategy’, I believe this approach is much more relevant. The underpinning argument of the approach is that the HRM policies and practices (or processes and activities) adopted by organizations reflect their overall competitive strategies. In this sense, HRS is set of processes and activities, which with implementation will bring about an outcome, exemplified by Waterford’s implementation and return to efficiency and profitability.

Storey has stated that human resource management has ‘hard’ and ‘soft’ dimensions. These dimensions of HRM have been adopted in HR strategy, and are part of the processes and activities introduced as part of a HR strategy. Through development of the practices, the various types introduced as part of a HR strategy can define the company’s goals and means of achieving them.

The soft ‘type’ practices views the employee as a valuable resource with emphasis placed on the individual and their development. The worker is seen as a source of competitive advantage and the HR department must focus on ‘people management’. This type certainly has its merits and is adopted in many firms and can be particularly helpful in highly service based businesses.

The ‘hard’ type differs radically. The organizations performance is most important and the firm’s human resource strategy must fit with the overall strategy. Under this view, the individual’s interests may be in conflict with the organizations interests. Strong and effective managerial control must be asserted over staff if long term strategy is to be achieved. This approach is very much ‘outcome’ focused in relation to the question. The hard approach is concerned with the organizations success in the long run, where and effective HRS plays its role.

This would appear to be in contrast to my explanation of the ‘emergence’ of HR strategies, of how firms look to make their staff the ‘competitive advantage’ (familiar to the soft type) etc. Yet, Stace and Dunphy’s article relating to Waterford exemplified the need for hard approaches to HRS, pending on the situation.

Yet the above authors, as well as Catherine Truss in Gratton’s book, found that most firms rarely adopted a ‘pure’ soft or ‘pure’ hard strategy, more a combination of both which aimed to be beneficial to the organisation’s and the individual’s performance. Yet, as one would expect, the organisation’s performance is obviously more important. “Even if the rhetoric of human resource management is soft the reality is almost always hard, with the interest of the organization prevailing over those of the individual”.

As mentioned above, the soft type is often related to the universalistic approach, while the hard type associated to the contingency approach. This does not mean however that either approach or type is defined by the other.

The adoption of either type in a HRS is an example of the set of processes or activities implemented in a HRS, which aims to achieve a successful outcome.

Strategic HRM focuses on the “The pattern of planned human resource deployments and activities intended to enable the firm to achieve its goals”. The authors then claim that two types of congruence or fit exist.

First is ‘vertical fit’ which involves the “Alignment of HRM practices and the strategic management processes of the firm. “Vertical fit is viewed as directing human resources toward the primary initiatives of the organization”.

The second congruence, ‘horizontal fit’ “Implies congruence among the various HRM practices”. “Horizontal fit is viewed as instrumental for efficiently allocating” the resources.

Vertical fit is the main objective of a HRS, and is linked to a contingency based approach whereby creating an overall fit or congruence of the various management strategies (including HRS) is the long term goal. This, in relation to our question, is again assessing HRS as an ‘outcome’.
The horizontal fit is concerned as to how the processes and activities devised by the HR department, and their management of the resources available to them, are implemented within the organization and complementing the ‘vertical’ fit.

Similar as to decision facing firms whether to concentrate on hard or soft strategy types, organizations will obviously place greater emphasis on achieving a vertical fit.

Wright and Snell’s article deals with ‘exploring fit’ and ‘flexibility’ within strategic human resource management. They maintain that simply achieving the two types of congruence will not necessarily mean that an organization is flexible enough, which it requires to be in the modern ‘complex and dynamic environment’.
While at ‘first glance’ these objectives may appear to conflict they “Propose that fit and flexibility are complementary because they focus on different aspects of the organization”. They argue, quite correctly in my opinion, that fit is temporary and dynamic, as it relates to a ‘focus on an interface of two different variables’, ‘internal (HR aspects) and external (strategy) components’, while flexibility is not temporary but a ‘characteristic of an organisation’.

Again, the flexibility of an organization is an outcome of the organizational structure that is in part (but not solely) achieved by horizontal and vertical fit, and incorporating the correct approach to the HR strategy.

The authors do continue to say however, that despite the importance of HRS in developing a ‘flexible firm’, the “Primary role of strategic HRM should be to promote a fit with the demands of the competitive environment”.

While my discussion of ‘fit’ has relied on this one article by Wright and Snell, I felt they best dealt with the ‘concept’, while in their article critiques many other HR authors’ work on the subject.

My aim as stated in the introduction was to explain my rationale for outlining (and loosely defining) HR strategy as a ‘set of processes and activities that when implemented, result in an outcome.

I asserted that the real value of HR strategies lay in their significant input into the firms overall long term objectives or plan. By reviewing the various aspects of the approaches, the types and the different ‘fits’ and flexibility concerning HR strategies, I attempted stress the importance of achieving alignment between HR strategies and the organizations overall plan.

I believe the contingency approach to HRM strategies, with ‘fundamentally hard’ practices will enable an organization to achieve Wright and Snell’s ‘vertical fit’, which integrates strategic human resource management “toward the primary initiatives of the organization”. I believe this to be basis for HR strategy’s existence, and therefore the answer of ‘what is HR strategy’?

However, the implementation of the above strategy, cannot be successful without reference, understanding and often inclusion of the other HR practices and approaches such as the universalistic approach, soft types of HR strategy, and effective horizontal fit. In fact, these are very much part of the HR processes and activities that help create the outcome HR strategies aim to achieve.

What is Human Resource Strategy? HRS is careful selection and implementing of various human resource processes, sets of activities and practices as part of a long term plan by the HR department, which achieves an effective fit with the organisation’s long-term strategy.