Corporate Strategy and Role of HRM

8/7/2019 Corporate Strategy and Role of HRM

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� What is HRM and its Role in Corporate Strategies?

� Research Studies ² 2 cases.

� Discussion

� Conclusion



� HRM is concerned with the "people" & keeping the fact in mindthat HRM helps in acquiring, developing, stimulating & retaining the outstanding employees as it gives both effectiveness &efficiency to the working of the organization.

� HRM is considered as 2nd or 3rd order strategy, though it hasbeen argued consistently that it is a prime issue in any strategyformulation. It has been only considered important for costcutting initiatives at the level of unit level labour costs.



� Strategy has been defined as ´essentially market relatedµ. Thisdemands control on directions, especially costs.

� Most of the literatures links HR policies to strategy as more of

downstream. It has been seen as a tool to downsizing, unbundling,increased sub contracting and vertical de integration rather thanextending the skills and versatility of the work force i.e. reactive andnot proactive.

� Further inconsistencies in literature over what constitute humanresource roles, outcomes and processes. ´Personnel functionsµshould not be confused with ´personnel departmentµ.

� Involvement on a particular issue is related to company structureand strategy. This was called ´Macho Managementµ i.e. labor is

treated as a commodity and a way to tackle unions.



� Study used oil and chemical industry which has welldocumented history of proactive strategic HR interventions.Emphasis is placed on the role of HR issues in manufacturing

plants.

� A new semi structured interview technique was used. Data of two entirely different companies with plants in differentlocations were used for generalization.

� Triangulation of data after corroboration was designed andused. Multiple interviews organized to rectify inconsistencies.



� Warr-Co, a supplier of bulk chemicals, had manufacturing asthe core competence. Due to severe competition wanted toadopt ́ differentiationµ strategy.

� Differentiation meant fast response, smaller batch processes,fast switching, ability to handle more complex tasks.

� Implementation required huge skilled man force, capitalinvestment on massive scale, transfer of unskilled / semi-skilled labor to contractors.

�Core activities were required to be reduced to be able to shiftquickly between products, reduce downtime ² to maintainplant availability for emergencies.

� Changes to contracts to reduce costs, and these becameperformance based, targets on quality. Improve contractors

skill base and reduce number of contractors.



� Capitalize on trade ownership and thus give up trade ownership.Teams will be composed of different trades and increase problemsolving and preventive methodologies within maintenance.

�Initiated a kind of ´placementµ scheme. Improved technical skills,attitudes and concepts of contractors.

� Thus all the major decisions taken gives a strong evidence that astrategy of cutting labor costs was not part of corporate strategyissue. Strategic evaluation depended on achieving more flexibilitybetween employees and thus better productivity.

� Thus HR turns out to be not a second or third factor, but anecessary underlying requirement which then enables evaluationof corporate strategy.



� An oil producing company which also needed change due tocompetition and deteriorating oil prices and the need for costeffectiveness.

� Required to assess evaluate its performance, measure valueaddition for each plant, reinvest or cease production.

� Corporate strategy determined to increase managerial responsibilityfor profit and product ² asset based structure proposed to evaluatemarket potential of each product separately by use of BCG matrix.

� Hutchings had to do implement strategy with existing man powerand not contractors, so required major rationalization of its

maintenance support.� But ´usual pattern of eventsµ continued as maintenance priorities

were changed on daily basis and managers were not responsible todeal with inherent HR problems.

� A broader strategy encompassing HR to involve all employees andflexibility between units, more labor availability on demand.



High Low

High

Low

Product

Sales

Growth

Rate

Relative Market Share



� Moved from bargaining on productivity each year to remove stigmaof being called ´the bearsµ and involve in diagnostic, preventive andproblem solving techniques.

� Later a new agreement was established which allowed

management to chose between in house or contract workers. Use of in house workers saved 66% of the maintenance budget.

� Though it did not impacted much on the overall costs but derecognized the unions as collective workforce.

� Whatever the judgment, it is clear that the new asset based policy

could not have been implemented without flexibility of labor tocounteract scale of economies.

� Later, given the flexibility managers outsourced non-critical works.This gave managers more time to concentrate on critical tasks,streamline work, become more skilled with the help of maintenance

workshops.



� These framework of employee relations changes enabledthe company to enact further new management changes.

� Hutchings extended the maintenance overhauls from 36 to48 months and complete in record time and thus decreasethe downtime by huge margin. Improved cash flows, thusincreasing share price, and this new confidence led to new

investments.



� From the cases we can understand what a huge impact HRcreates with improved plant performance and ass toshareholder value. So it can not be a ´third order affairµ.

� Most of the corporate strategies have been externally focusedtherefore less able to evaluate the importance of internalfactors.

� Only strategic implementation without HR involvement, even if its step wise and with widely accepted models, it fails as same

strategic model may not work everywhere.� This hypothesis is generic and not specific to the oil and

chemical industries. This approach has been adopted by manycompanies. Outsourcing and subcontracting has been part of strategic rather than cost effective methods.



� HR issues of flexibility and competence are critical to theevaluation of first order strategies.

� HR strategies informs and even precedes analysis of

corporate goals.

� Though HR strategies are still emergent and at times heuristictrial and error and that HR factors can be changed wheneverrequired.

�

The literature essential states that HR is at least a necessarypre condition for action, and part of groundwork and this iswhere employee relations remains vitally important, ´ A FirstOrder Objectiveµ.



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Corporate Strategy and Role of HRM